<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to __________
Commission file number 0-14087
FIRST COASTAL CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 06-1177661
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
36 Thomas Drive, Westbrook, Maine 04092
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 774-5000
Securities registered pursuant to Section 12(b) of the Act: Not Applicable
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00
par value per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based upon the closing price of the registrant's Common Stock as of March
19, 1999, the aggregate market value of the Common Stock held by nonaffiliates
was $13,010,039.
As of the close of business on March 19, 1999, there were 1,360,527, shares
of the registrant's Common Stock, par value $1.00 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1998, are incorporated by reference in Part II.
Portions of the definitive proxy statement for the annual meeting of
stockholders to be held May 18, 1999, which the registrant intends to file no
later than 120 days after December 31, 1998 are incorporated by reference in
Part III.
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PART I
ITEM 1. BUSINESS.
GENERAL
First Coastal Corporation
First Coastal Corporation, a Delaware corporation (the "Company"), is a bank
holding company whose sole operating subsidiary is Coastal Bank, a Maine-
chartered stock savings bank ("Coastal" or the "Bank"). The Company was
organized in January 1987 for the purpose of becoming the parent holding company
of Suffield Bank following Suffield Bank's conversion from mutual to stock form.
The Company acquired Coastal Bancorp, a Maine corporation ("Bancorp"), which was
the bank holding company of Coastal, on April 1, 1987. On September 6, 1991,
Suffield Bank was placed in receivership by the Connecticut Department of
Banking, leaving the Bank as the Company's sole operating subsidiary. On July
26, 1994, Bancorp was dissolved, and the Bank became a direct wholly-owned
subsidiary of the Company.
Coastal Bank
The Bank was formed in 1981 as a Maine-chartered savings bank through the
consolidation of Brunswick Savings Institution and York County Savings Bank,
which were organized in 1858 and 1860, respectively. On July 11, 1984, the Bank
completed its conversion from mutual form to a Maine stock savings bank.
The Bank had total assets of approximately $191 million at December 31, 1998.
The region served by the Bank includes the communities of Portland, Westbrook,
Topsham, Brunswick, Freeport, Kennebunk and Saco, Maine.
The principal business of the Bank consists of retail and commercial community
banking, including attracting deposits from the general public and originating
residential mortgage, consumer, commercial and industrial loans, and commercial
real estate mortgage loans. Deposits at the Bank are federally insured up to
the limits provided by law by the Bank Insurance Fund ("BIF"), which is
administered by the Federal Deposit Insurance Corporation ("FDIC").
The principal executive offices of the Company and the Bank are located at 36
Thomas Drive, Westbrook, Maine 04092; telephone (207) 774-5000.
This Annual Report on Form 10-K contains certain "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Any
statements with regard to the Company's expectations as to its financial results
and other aspects of its business, including the Company's strategic business
initiatives, net interest margin, deposit growth, interest rates, additional
branches, market and growth opportunities and loan volume, constitute forward-
looking statements. 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
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statements, such as (i) the impact of changes in market rates of interest on the
Company's deposit products and loan demand; (ii) the possibility that certain
transactions, such as the Kennebunk branch sale, the identification, development
and successful transition to a suitable new headquarters branch /operations
center, the opening of new branches, the introduction of new banking products or
other events, may not occur; (iii) the possibility that operating expenses may
be higher than anticipated; (iv) the effect of 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 and noninterest expense,
interest earning assets and noninterest income, as well as 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.
CERTAIN REGULATORY MATTERS
Satisfaction of the Cross Guaranty Settlement Obligation to FDIC
On July 24, 1996, the Company completed its recapitalization plan whereby the
Company repaid in full its promissory note obligation (the "FDIC Note") to the
FDIC in the amount of $9.7 million ($9.0 million loan principal amount plus
accrued interest) incurred as a result of the January 1995 settlement of the
FDIC cross guaranty claim against the Bank. The cross guaranty claim was the
result of the September 1991 failure of Suffield Bank. In 1994, the Company
incurred a $9.0 million extraordinary charge to earnings resulting from the
issuance of the FDIC Note. Principal and interest under the FDIC Note were
deferred until its maturity date, January 31, 1997. The funds utilized to repay
the FDIC Note came from (i) the sale of 750,000 shares of the Company's common
stock at $5.00 per share by means of a registered public offering; (ii) a
dividend of $3.2 million from the Bank to the Company; and (iii) the borrowing
of $4.0 million from a group of four Maine savings banks (the "Savings Banks"),
pursuant to which the Company issued promissory notes in the aggregate principal
amount of $4.0 million (the "Savings Bank Notes"), collateralized by the pledge
by the Company of 100% of the outstanding common stock of the Bank. For further
information see "Note I --Borrowings" in the Company's 1998 Annual Report to
Stockholders.
Regulatory Capital Requirements
Under applicable federal regulations, the Company and Coastal are each required
to maintain minimum levels of regulatory capital. The Board of Governors of the
Federal Reserve System (the "Federal Reserve") has adopted a leverage-based
capital requirement of a minimum level of tier 1 capital to total assets of 3.0%
for bank holding companies with a composite rating of 1 under the bank holding
company rating system. All other bank holding companies are required to
maintain a minimum ratio of tier 1 capital to total assets of 4.0% to 5.0%.
Under the Federal Reserve's risk-based capital guidelines, bank holding
companies also are required to maintain a minimum ratio of tier 1 capital to
risk-weighted assets of 4.0% and a minimum ratio of qualifying total capital to
risk-weighted assets of 8.0%. The Company's ratios of tier 1 capital to total
assets, tier 1 capital to risk-weighted assets, and qualifying total capital to
risk-weighted assets of 7.20%, 13.05%, and 14.32%, respectively, at December 31,
1998 were in compliance with such guidelines.
The FDIC has also adopted minimum capital requirements for state non-member
banks such as the Bank. Under the minimum leverage capital requirement, insured
state non-member banks must maintain a Tier 1 capital to total assets ratio of
at least 3% to 5% depending on the CAMELS rating of the bank. At December 31,
1998, the Bank had a Tier 1 capital to total assets ratio of 7.90%. In
addition, under such requirements insured non-member banks must maintain a
minimum ratio of qualifying total capital to risk-weighted assets of 8.0%, and a
minimum ratio of Tier 1 capital to risk-weighted assets of 4.0%. At December
31, 1998, the
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Bank had a ratio of qualifying total capital to risk-weighted assets of 15.60%
and a ratio of Tier 1 capital to risk-weighted assets of 14.33%.
LENDING ACTIVITIES
Loan Portfolio Composition
The following table sets forth the composition of the Company's loan portfolio
at the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
(in thousands) 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans:
Residential $ 32,555 $ 33,251 $30,981 $ 30,966 $ 33,158
Commercial 52,747 48,705 48,456 50,797 57,997
Real estate construction loans 1,384 1,955 769 - -
Commercial and industrial loans 5,872 5,166 3,059 2,524 2,510
Consumer and other loans 13,315 15,227 15,281 16,263 15,991
-------- -------- ------- -------- --------
Total loans $105,873 $104,304 $98,546 $100,550 $109,656
======== ======== ======= ======== ========
Ratios of loans to:
Deposits 71% 91% 86% 80% 84%
Assets 55% 71% 67% 69% 71%
</TABLE>
The Bank's loan growth during the period from the late 1980's until the
completion of the 1996 recapitalization was inhibited as a result of the
problems the Bank and the Company experienced during this period. The Bank's
ability to originate commercial and industrial and commercial real estate loans
was particularly impacted by borrower uncertainties with regard to the Bank's
future. The completion of the 1996 recapitalization removed the negative stigma
associated with the Company and allowed the Bank to compete more effectively for
new loans. Since that time, and in conjunction with the Company's strategic
plan developed during the first half of 1997, significant effort and resources
have been focused on developing higher levels of loan volume. Particular focus
has been given to developing a strong commercial banking team as management
believes this is an area in which the Bank can develop a competitive edge,
particularly with regard to responsive customer service.
During the past two years the attrition previously reflected in the Company's
loan balances has ceased, with modest growth achieved in 1997 and 1998.
Commercial real estate loans showed the largest increase for the year ended
December 31, 1998, $4.0 million (8.3%) as compared to December 31, 1997. Loan
growth in this category would have been higher had the Bank not experienced
higher than expected loan prepayments as a result of generally lower interest
rates in 1998 and the continued emergence of the commercial real estate conduit
market, both of which contributed to an increase in loan payoffs due to borrower
refinances. In addition, a relatively low percentage of existing commercial
loans were protected with prepayment penalties in prior years. As a result of
the Bank's 1998 lending activities, this has been largely reduced as the
majority of the Bank's fixed rate commercial loans at December 31, 1998 are now
protected by various types of prepayment penalties. The opening of the new
downtown Portland branch, the introduction of commercial cash management
products and introduction of Internet banking for businesses, all during the
first half of 1998, have been and will continue to be important to the Bank's
ability to generate profitable growth in commercial loans.
Though commercial real estate loans are considered riskier than some other loan
types and continue to make up a large percentage of the Company's loan portfolio
(49.8% at December 31, 1998), management believes
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that the combination of its expertise in this area and its lending practices
reduces somewhat the risk normally inherent in this type of lending.
Though residential mortgage loan originations increased 33.6% for the year ended
December 31, 1998, as compared to December 31, 1997, the combination of the
generally lower interest rate environment and competitive pressures resulted in
a higher percentage of the Bank's 1998 originations being secondary market
saleable, as opposed to residential mortgage portfolio loans, resulting in total
residential loans remaining essentially unchanged.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Historical Background" - and -- "Loans" in the Company's 1998
Annual Report to Stockholders.
The following table sets forth the maturities of the loan portfolio by loan type
as of December 31, 1998:
<TABLE>
<CAPTION>
After One
Within But Within After
(in thousands) One Year Five Years Five Years Total
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Residential loans $ 44 $ 1,199 $ 31,312 $ 32,555
Commercial loans 3,495 26,564 22,688 52,747
Real estate construction loans 1,384 - - 1,384
Commercial and industrial loans 2,538 2,361 973 5,872
Consumer and other loans 310 1,127 11,878 13,315
------- ------- -------- --------
Total loans $ 7,771 $31,251 $ 66,851 $105,873
======= ======= ======== ========
Fixed interest rate $ 2,848 $17,531 $ 33,475 $ 53,854
Variable/adjustable interest rate 4,923 13,720 33,376 52,019
------- ------- -------- --------
$ 7,771 $31,251 $66,851 $105,873
======= ======= ======== ========
</TABLE>
Loan Originations
Residential mortgage loans originated by the Bank are primarily secured by
property located within its existing market area in Maine. The Bank is an
active residential mortgage lender. A significant percentage of loans
originated are 1-4 family residential real estate loans, the majority of which
are sold in the secondary market. In 1998 and years prior, the Bank continued to
service most of the loans it sold in the secondary market. Beginning in 1999 the
Bank intends to sell these loans on a servicing released basis. Most of the
Bank's residential loans are originated using the Federal National Mortgage
Association ("FNMA") underwriting guidelines.
The Bank's residential loan originations have increased, as set forth below, and
most of these loans were originated through the branch system as opposed to the
Bank's prior origination strategy which relied heavily upon commission based
mortgage originations. The Bank intends to continue its focus on growth in
residential lending, utilizing a combination of branch originations, which are
less commission oriented, and other loan originators, which are more commission
based.
Commercial loan originations increased in 1998, as is reflected in the increase
in total commercial loan outstandings of $4.7 million at December 31, 1998 as
compared to December 31, 1997. The Bank currently plans to further increase its
commercial loan originations in 1999.
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The level of residential, consumer and commercial loan originations going
forward will depend upon a number of factors, including the level of interest
rates, general economic conditions, the competitive environment and overall
profitability of these loans. The following table represents residential real
estate and consumer loan originations for the years ended December 31, 1998,
1997 and 1996.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
(in thousands) 1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Originations/ (1)/ :
Residential real estate $24,343 $18,216 $15,581
Consumer 4,322 3,001 4,249
------- ------- -------
Total $28,665 $21,217 $19,830
======= ======= =======
</TABLE>
/(1)/ Includes refinancing of existing portfolio and off balance sheet serviced
loans.
The commercial real estate mortgage portfolio of approximately $52.7 million at
December 31, 1998, as compared to $48.7 million at December 31, 1997, includes
loans collateralized by apartment buildings, mixed use commercial buildings,
retail buildings, office buildings and other income-producing properties.
Substantially all of these loans are collateralized by mortgages on properties
located in Maine. The maturities are set forth in the above table.
At December 31, 1998 and 1997, commercial and industrial loans totaled $5.9
million and $5.2 million, respectively. The Bank makes commercial and
industrial loans collateralized by equipment and other corporate or personal
assets, including accounts receivable, inventory, marketable securities and real
estate. The terms and maturities of commercial loans are negotiated with the
borrower, but generally the loans mature in seven years or less and bear
interest at a fixed or adjustable rate.
Consumer loans originated by the Bank primarily include automobile, mobile home
and boat loans, home improvement loans, loans collateralized by deposits, lines
of credit collateralized by residential real estate and student loans under the
Maine Guaranteed Student Loan Program. The interest on student loans is
partially subsidized, and a minimum of 98% of each loan is guaranteed by the
federal government. As of December 31, 1998, the Bank had approximately $13.3
million in consumer loans, compared to $15.2 million as of December 31, 1997.
All consumer loans originated are reviewed for creditworthiness, adequacy of
collateral and the borrowers' ability to repay.
For information on Allowance for Loan Losses and Nonperforming Assets, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1998 Annual Report to Stockholders.
Secondary Market Activity
The Bank is active in secondary market transactions primarily through the sale
of long-term, fixed-rate residential mortgage loans that it originates. The
sale of these loans is intended to improve the interest rate sensitivity of the
Bank's assets (consistent with the Bank's asset liability management policy),
generate fee income and provide additional funds for lending and liquidity. In
most instances, the Bank seeks to originate longer term fixed-rate mortgages
only when commitments to sell these mortgages can readily be obtained. Due to
interest rate fluctuations and the timing between the commitment to the borrower
and the closing and subsequent sale of the loan in the secondary market, such
sales will be made at a premium or discount (depending on the current interest
rate environment) and will result in realized gains or losses to the Bank on the
transaction.
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The Bank is an approved seller and servicer by and for the FNMA. However, on
November 30, 1998, the Bank sold all of its FNMA residential mortgage servicing
portfolio. For an interim period until the January 31, 1999 transfer date the
Bank served as a sub-servicer of these loans. It is the Bank's intent to sell
saleable loans on a servicing released basis in the future. At December 31,
1998, the Bank was servicing $44.9 million of loans in its capacity as a
subservicer, as compared to its serviced loan portfolio of $42.9 million at
December 31, 1997.
INVESTMENT ACTIVITIES
The Company's investment portfolio is managed in accordance with a written
investment policy adopted by the Board of Directors and reviewed on an annual
basis. Under this policy, and in accordance with applicable provisions of the
Bank Holding Company Act of 1956, as amended (the "BHCA"), without the prior
approval of the Federal Reserve and the Board of Directors, the Company is
prohibited from directly or indirectly purchasing shares of any company if such
purchase would cause the Company's direct or indirect ownership to equal or
exceed 5% of such company's outstanding shares. The Company's investment policy
provides that all investment purchases of equity securities initiated by the
Bank must receive the advance approval of the Board of Directors of the Bank.
The Bank generally is prohibited by the Federal Deposit Insurance Act from
acquiring or retaining, directly or indirectly, any equity investment of a type
or in an amount that is not permissible for a national bank. The Company's
investment portfolio is comprised primarily of U.S. government and agency
obligations and equity securities. For a summary of investments, see Item 8,
"Financial Statements and Supplementary Data -- Notes A and D."
SOURCES OF FUNDS
General
Deposits from customers and advances from the Federal Home Loan Bank ("FHLB") of
Boston are the principal sources of Coastal's funds for use in lending and for
other general business purposes. Coastal's deposits are primarily derived from
the areas where its banking offices are located. Coastal does not actively
solicit deposits outside the State of Maine or use brokers to obtain deposits.
In addition to deposit accounts and advances, Coastal derives funds from loan
repayments, sales of loans and returns on investments. Unscheduled loan
repayments and scheduled amortization have been a substantial source of funds,
while deposit inflows and outflows are significantly influenced by general
interest rates, money market and general economic conditions. FHLB advances may
also be used to compensate for reductions in normal sources of funds such as
deposit inflows at less than projected levels. The Bank has also been
authorized for access to the discount window of the Federal Reserve Bank in its
District; however, to date this borrowing source has not been utilized.
Deposits
The Bank has a wide variety of deposit programs designed to attract both short-
term and long-term deposits from the general public, primarily from consumers
and businesses. These programs include interest bearing and non-interest
bearing checking accounts, savings accounts, certificates of deposit, jumbo
certificates of deposit and individual retirement accounts. Deposits at the
Bank are federally insured up to the limits provided by law by the BIF, which is
administered by the FDIC.
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The following table sets forth the Company's deposit balances at the dates
indicated:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
(in thousands) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 10,447 $ 7,599 $ 5,790 $ 5,128 $ 5,425
Interest bearing demand deposits 21,680 17,117 15,090 15,741 17,300
Savings and escrow deposits 63,393 34,465 36,445 42,020 48,205
Time deposits 53,025 55,810 57,760 62,776 59,107
-------- -------- -------- -------- --------
Total $148,545 $114,991 $115,085 $125,665 $130,037
======== ======== ======== ======== ========
</TABLE>
Deposits totaled $148.5 million at December 31, 1998, a $33.6 million increase
(or 29.2%) from the level of $115.0 million at December 31, 1997. This increase
is primarily attributable to the new High Rise Savings program introduced in
March 1998, which generated $28.9 million in new deposits and commercial deposit
growth totaling $2.9 million resulting from the Company's new cash management
products introduced in May of 1998. The introductory interest rate paid on High
Rise Savings accounts opened during the initial introductory period (through
July 3, 1998) was guaranteed through December 31, 1998 and was tiered from 4.64%
to 5.59% (depending upon balance levels). As a result of the discontinuation of
the marketing campaign, and a reduction in the interest rate available to new
High Rise Savings customers following the close of the introductory period,
increases in deposit balances attributable to High Rise Savings are not expected
to continue at the same level.
In April 1996, the Bank sold its branch in Kezar Falls, Maine to Maine Bank &
Trust Company. Included in the sale were all of the branch deposits totaling
$9.9 million.
At December 31, 1998, 1997 and 1996, Coastal's average deposits and average
rates consisted of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1998 1997 1996
---------------------------------------------------------
Average Average Average Average Average Average
(dollars in thousands) Amount Rate Amount Rate Amount Rate
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 7,987 - $ 6,483 - $ 5,323 -
Interest bearing demand deposits 18,564 2.30% 18,197 2.45% 14,302 2.22%
Savings deposits 52,750 3.78 34,831 2.71 39,128 2.76
Time deposits 54,004 5.36 56,801 5.40 60,428 5.51
-------- -------- --------
Total $133,305 $116,312 $119,181
======== ======== ========
</TABLE>
At December 31, 1998, the maturities and weighted average interest rates of
certificates of deposits over $100,000 were as follows:
<TABLE>
<CAPTION>
Balance Weighted Average
Maturities (in months) (in thousands) Interest Rate
- -----------------------------------------------------------
<S> <C> <C>
3 months or less $1,579 5.45%
over 3 - 6 201 4.71
over 6 - 12 1,103 5.03
over 12 101 5.59
------
Total $2,984 5.25%
======
</TABLE>
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As of December 31, 1998, Coastal had no brokered deposits.
Borrowings
The following table sets forth the amount of the Company's borrowed funds for
the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
December 31,
-------------------------
(in thousands) 1998 1997 1996
- -----------------------------------------------
<S> <C> <C> <C>
FHLB advances $22,545 $13,294 $15,000
Savings Bank Notes 2,600 3,000 4,000
Secured borrowings 967 - -
------- ------- -------
$26,112 $16,294 $19,000
======= ======= =======
</TABLE>
The following table sets forth information regarding the weighted average
interest expense at December 31 and the highest month end balances of the
Company's total borrowings:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted average interest rate of total borrowings 5.95% 5.99% 6.64%
Highest month end balance of total borrowings $27,266 $20,887 $19,000
Average month end balance of total borrowings $27,150 $16,778 $18,613
</TABLE>
The Bank also has been approved by the Federal Reserve Bank of Boston to obtain
liquidity from its discount window. No funds have been obtained from this
source.
The Bank estimates that it has approximately $57.1 million in additional short-
term borrowing capacity with the FHLB as of December 31, 1998. This amount
fluctuates based on qualified collateral.
Federal Home Loan Bank
The Bank uses FHLB advances to expand its lending and investment activities and
to enhance the Bank's mix of rate-sensitive assets and liabilities, e.g., to
extend maturities or to improve liquidity.
At December 31, 1998, the Bank had outstanding $22.5 million in borrowings with
a weighted average interest rate of 5.47% from the FHLB of Boston, maturing as
follows:
<TABLE>
<CAPTION>
Amount Maturing
Due Date (in thousands) Interest Rate
-------- ---------------- --------------
<S> <C> <C> <C>
February 1999 $1,000 6.03%
November 2001 7,545 6.18
October 2003 3,000 4.99
0ctober 2005 4,000 5.06
January 2008 7,000 5.06
-------
$22,545
=======
</TABLE>
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Savings Bank Notes
The Savings Bank Notes bear interest at 10.85% annually, payable quarterly, with
semi-annual principal payments of $200,000 which commenced in June 1998. On
September 30, 1997, the Company made an unscheduled principal payment to the
Savings Banks of $1.0 million, reducing the unpaid principal balance to $3.0
million. At the time the Savings Bank Notes mature on December 31, 2001, the
unpaid balance of the Savings Bank Notes, based on the scheduled amortization of
$200,000 semi-annually (June and December) and the $1.0 million principal
prepayment, will be $1.4 million. The Savings Bank Notes are collateralized by
a pledge by the Company of all the shares of common stock of the Bank pursuant
to a stock pledge agreement between the Company and the Savings Banks.
Secured Borrowings
In May 1998, the Bank introduced a new cash management program for businesses.
The program represents secured borrowings, which include repurchase-like
agreements that are not FDIC insured. At December 31, 1998 these secured
borrowings equaled $967,000 and were collateralized by $967,000 in Bank owned
investment securities.
For additional information on Borrowings, see "Note I -- Borrowings" in the
Company's 1998 Annual Report to Stockholders.
EMPLOYEES
As of December 31, 1998, the Company and its subsidiary had 73 full-time
equivalent employees.
COMPETITION
The Bank is a full service savings bank with eight banking offices in the
southern Maine communities of Portland, Westbrook, Brunswick, Topsham, Freeport,
Kennebunk and Saco. Competition among financial institutions in the Bank's
market area is intense and the Bank competes in obtaining funds and in making
loans with other state and national banks, savings and loan associations,
consumer financial companies, credit unions and other financial institutions
which have far greater financial resources than those available to the Bank.
The Bank also faces competition for deposits from money market funds and other
securities funds offered by brokerage firms and other similar financial
institutions. Competition among financial institutions is based upon interest
rates and other credit and service charges, the quality of services rendered,
the convenience of banking facilities and in the case of loans to larger
commercial borrowers, relative lending limits.
REGULATION
Federal Bank Holding Company Regulation
The Company is a bank holding company within the meaning of the BHCA. The
Company is required to file periodic reports and other information with the
Federal Reserve. The Federal Reserve may also conduct examinations of the
Company and the Bank.
Federal Reserve approval is required for any action that causes a bank or other
company to become a bank holding company and for any action that causes a bank
to become a subsidiary of a bank holding company. Federal Reserve approval must
be obtained prior to a bank holding company acquiring direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will own or control directly or indirectly
more than 5% of the voting stock of such bank unless it already owns a
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majority of the voting stock of such bank. Federal Reserve approval also must be
obtained before a bank holding company acquires all or substantially all of the
assets of a bank or merges or consolidates with another bank holding company.
A bank holding company generally is prohibited from acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any company that is
not a bank or bank holding company, and from engaging directly or indirectly in
activities other than those of banking, managing or controlling banks, or
furnishing services to its subsidiaries. A bank holding company may, however,
subject to the approval of the Federal Reserve, engage in, or acquire shares of
companies engaged in, activities that are deemed by the Federal Reserve to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto.
Legislation enacted in 1996 and the Federal Reserve's 1997 comprehensive
revisions to its bank holding company regulations streamlined certain
applications to the Federal Reserve for approval to acquire a bank or nonbanking
company or to engage in nonbanking activities that are set forth in the rules
and regulations of the Federal Reserve, provided that the holding company is
well-capitalized, well-managed, and meets certain other criteria specified in
the legislation. In order to qualify as a well-capitalized bank holding
company, its lead depository institution must be well-capitalized under the
standards set forth under the prompt corrective action regulations of the
appropriate federal banking agency and well-capitalized institutions also must
control at least 80% of the total risk-weighted assets held by the bank holding
company. In order to qualify as well-managed, no institution controlled by the
bank holding company can receive the two lowest composite examination ratings as
of their most recent examination. Currently, the Company qualifies as well-
capitalized and well-managed. At this time, however, the Company has no plans
to acquire any bank or nonbanking company or to engage in any new nonbanking
activities.
Under the Change in Bank Control Act, persons who intend to acquire control of a
bank holding company, acting directly or indirectly, or through or in concert
with one or more persons, generally must give 60 days prior written notice to
the Federal Reserve. "Control" exists when an acquiring party directly or
indirectly has voting control of at least 25% of the bank holding company's
voting securities or the power to direct the management or policies of the
company. Under Federal Reserve regulations, a rebuttable presumption of control
arises with respect to an acquisition where, after the transaction, the
acquiring party has ownership, control or the power to vote at least 10% (but
less than 25%) of any class of a company's voting securities if (i) the company
has securities registered under Section 12 of the Securities Exchange Act of
1934 or (ii) immediately after the transaction no other person will own a
greater proportion of that class of voting securities. The Federal Reserve may
disapprove a proposed acquisition of control by a person on certain specified
grounds.
As a bank holding company, the Company is subject to capital adequacy guidelines
of the Federal Reserve. The guidelines apply on a consolidated basis to bank
holding companies with consolidated assets of $150 million or more. Under
current Federal Reserve capital adequacy guidelines, bank holding companies
generally must maintain a ratio of tier 1 capital to total assets of 4.0% to
5.0%. The minimum ratio is 3.0% for the most highly rated bank holding
companies. The Federal Reserve's capital adequacy guidelines also require bank
holding companies to maintain a minimum ratio of qualifying total capital to
risk-weighted assets of 8.0%, including a minimum ratio of tier 1 capital to
risk-weighted assets of 4.0%. The Company's ratios of tier 1 capital to total
assets, tier 1 capital to risk-weighted assets, and qualifying total capital to
risk-weighted assets of 7.20%, 13.05%, and 14.32%, respectively, at December 31,
1998 were in compliance with such guidelines.
A bank holding company's ability to pay dividends to its stockholders and expand
its line of business through the acquisition of new banking subsidiaries can be
restricted if its capital falls below levels established by the Federal
Reserve's guidelines. In addition, any bank holding company whose capital falls
below levels specified in the guidelines can be required to implement a plan to
increase capital.
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The Federal Reserve is empowered to initiate cease and desist proceedings and
other supervisory actions for violations of the BHCA, or its regulations, orders
or notices issued thereunder. Under Federal Reserve regulations, banks and bank
holding companies which do not meet minimum capital adequacy guidelines are
considered to be undercapitalized and are required to submit an acceptable plan
for achieving capital adequacy.
Maine Bank Holding Company Regulation
Maine state law also regulates bank holding companies. The state law is
designed to conform with the registration, application and reporting
requirements of the Federal Reserve to the maximum extent feasible. As a holding
company, the Company must register with the Maine Superintendent of Banking (the
"Superintendent"), and must notify the Superintendent whenever any person or
company directly or indirectly acquires control of 5% or more of the Company's
stock or whenever there is a "material" change in the ownership of the Company.
If 5% or more of the stock in the Company or the Bank is to be acquired by a
financial institution or by a financial institution holding company, the
transaction would be subject to the prior approval of the Superintendent.
Similarly, other transactions require advance approval by the Superintendent
including, among other things, the acquisition of control of the Company or the
Bank, the acquisition by the Company or the Bank of 5% or more of the stock of
another financial institution and the engagement of the Company, Bank or a
subsidiary thereof in an activity closely related to banking.
Maine law permits interstate branching in accordance with the provisions of
federal law. Maine law also permits the establishment of de novo branches in
Maine by out-of-state financial institutions on a reciprocal basis. Such
provisions create enhanced competition for the Bank.
Bank Regulation
As a BIF-insured savings bank, the Bank is subject to regulation, supervision
and examination by the FDIC. The Bank also is subject to regulation, supervision
and examination by the Maine Bureau of Banking.
The Maine Bureau of Banking, under the Superintendent, administers the Maine
statutes which regulate the Bank's internal organization as well as its deposit,
lending and investment activities. The Maine Bureau of Banking must approve any
changes in the Bank's articles of incorporation, branch offices and major
transactions, and must receive prior notice of any changes to the Bank's bylaws.
Maine law also governs the Bank's ability to engage in real estate investments
and investments in securities, subject to compliance with applicable provisions
of federal law. The Maine Bureau of Banking conducts periodic examinations of
the Bank as part of its supervision. Maine law requires the Bank to maintain
capital levels in accordance with rules adopted by the Superintendent. Such
capital requirements can be no less stringent than the capital requirements
imposed by federal banking regulators on federally chartered institutions. If
the Bank's capital becomes impaired, the Superintendent may order the Bank's
Board of Directors to take the necessary steps to restore the deficiency.
As a BIF-insured savings bank, the Bank is subject to certain FDIC requirements
designed to maintain the safety and soundness of individual banks and the
banking system. The FDIC has prescribed safety and soundness guidelines
relating to (i) internal controls, information systems and internal audit
systems; (ii) loan documentation; (iii) credit underwriting; (iv) interest rate
exposure; (v) asset growth; and (vi) compensation and benefit standards for
officers, directors, employees and principal stockholders. Such guidelines
impose standards based upon an institution's asset quality and earnings. The
guidelines are intended to set out standards that the agencies will use to
identify and address problems at institutions before capital becomes impaired.
Institutions are required to establish and maintain a system to identify problem
assets and prevent deterioration of those assets in a manner commensurate with
its size and the nature and scope of its operations. Furthermore, institutions
must establish and maintain a system to evaluate and monitor earnings and ensure
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<PAGE>
that earnings are sufficient to maintain adequate capital and reserves in a
manner commensurate with their size and the nature and scope of their operation.
Under the guidelines, an institution not meeting one or more of the safety and
soundness guidelines is required to file a compliance plan with the FDIC. In
the event that an institution, such as the Bank, were to fail to submit an
acceptable compliance plan or fail in any material respect to implement an
accepted compliance plan within the time allowed by the FDIC, the institution
would be required to correct the deficiency and the appropriate federal agency
would also be authorized to: (i) restrict asset growth; (ii) require the
institution to increase its ratio of tangible equity to assets; (iii) restrict
the rates of interest that the institution may pay; or (iv) take any other
action that would better carry out the purpose of the corrective action. The
Bank believes it was in compliance with all such safety and soundness guidelines
as of December 31, 1998.
The FDIC, in conjunction with the Superintendent, periodically conducts
examinations of insured institutions and, based upon evaluations, may require a
revaluation of assets of an insured institution and may require the
establishment of specific reserves in amounts equal to the difference between
such revaluation and the book value of the assets.
The FDIC also has adopted minimum capital regulations for insured state
nonmember banks. Although there are some differences between the capital
adequacy guidelines adopted by the Federal Reserve with respect to the Company
and the FDIC with respect to the Bank, the primary elements of each are
generally identical. Under the minimum leverage-based capital requirement
adopted by the FDIC, insured state nonmember banks must maintain a ratio of Tier
1 capital to total assets of at least 3% to 5% depending on the Bank's CAMELS
rating. Under such regulations, state nonmember banks must maintain a minimum
ratio of qualifying total capital to risk-weighted assets of 8.0%, including a
minimum ratio of Tier 1 capital to risk-weighted assets of 4.0%. At December
31, 1998, the Bank had a ratio of qualifying total capital to risk-weighted
assets of 15.60% and a ratio of Tier 1 capital to risk-weighted assets of
14.33%.
Capital requirements higher than the generally applicable minimum requirements
may be established for a particular bank if the FDIC determines that the bank's
capital is, or may become, inadequate in view of its particular circumstances.
Individual minimum capital requirements may be appropriate if a bank is
receiving special supervisory attention, has a high degree of exposure to
interest rate risk or poses other safety and soundness concerns. The Bank
currently is not subject to any imposed minimum capital requirements.
Under FDIC prompt corrective action regulations, insured institutions will be
considered (i) "well capitalized" if the institution has a total risk-based
capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or
greater, and a leverage ratio of 5% or greater (provided that the institution is
not subject to an order, written agreement, capital directive or prompt
corrective action directive to meet and maintain a specified capital level for
any capital measure), (ii) "adequately capitalized" if the institution has a
total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital
ratio of 4% or greater and a leverage ratio of 4% or greater (3% or greater if
the institution is rated composite CAMELS 1 in its most recent report of
examination and is not experiencing or anticipating significant growth), (iii)
"undercapitalized" if the institution has a total risk-based capital ratio that
is less than 8%, or a Tier 1 risk-based ratio of less than 4% and has a leverage
ratio that is less than 4% (3% if the institution is rated composite CAMELS 1 in
its most recent report of examination and is not experiencing or anticipating
significant growth), (iv) "significantly undercapitalized" if the institution
has a total risk-based capital ratio that is less than 6%, a Tier 1 capital
risk-based capital to total adjusted assets that is less than 3% or a leverage
ratio to adjusted total assets that is less than 3% and (v) "critically
undercapitalized" if the institution has a ratio of tangible equity to total
assets that is less than or equal to 2%. At December 31, 1998, the Bank was
classified as a "well capitalized" institution. The FDIC and the Federal
Reserve can impose severe restrictions upon undercapitalized institutions and
their holding companies.
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An insured state bank, such as the Bank, may not engage as principal in any
activity that is not permissible for a national bank, unless the FDIC determines
that the activity would pose no significant risk to the BIF and the state bank
is in compliance with applicable capital standards. Activities of subsidiaries
of insured state banks are similarly restricted to those activities permissible
for subsidiaries of national banks, unless the FDIC determines that the activity
would pose no significant risk to the BIF and the state bank is in compliance
with applicable capital standards. An insured state bank may not, directly or
indirectly, acquire or retain any equity investment of a type that is not
permissible for a national bank except for a majority-owned subsidiary and
certain investments in qualified housing projects.
Transactions between the Bank and its affiliates are subject to certain
quantitative and qualitative limitations as set forth in Sections 23A and 23B of
the Federal Reserve Act, which is administered by the FDIC. For purposes of
these sections, the term "affiliate" with respect to the Bank refers to the
Company. A transaction is deemed to be one with an affiliate if the proceeds of
the transaction are transferred to, or used for the benefit of, an affiliate.
Under sections 23A and 23B, transactions between banks and their affiliates are
generally limited in the following ways: First, the aggregate amount of all
"covered transactions" (which include, among other things, loans or other
extensions of credit to or on behalf of an affiliate, purchases of assets from
an affiliate or investments in the securities of an affiliate) between a bank
(and its subsidiaries) and any one affiliate may not exceed 10% of the capital
stock and surplus of the bank, and the aggregate amount of covered transactions
between a bank (and its subsidiaries) and all affiliates may not exceed 20% of
the capital stock and surplus of the bank. Second, any loan or extension of
credit to, or guarantee, acceptance or letter of credit issued on behalf of an
affiliate by a bank or any of its subsidiaries must at all times be secured by
collateral having a market value equal to from 100% to 130% of the outstanding
balance of the extension of credit, depending upon the nature of the collateral.
Third, neither low quality assets or securities issued by an affiliate may be
accepted by a bank as collateral for an extension of credit issued to or on
behalf of any affiliate. Fourth, a bank and its subsidiaries are prohibited from
purchasing a low-quality asset from an affiliate unless the bank or any such
subsidiary, pursuant to an independent credit evaluation, committed itself to
purchase the asset prior to the time the asset was acquired by the affiliate.
Transactions between the Bank and its subsidiaries or affiliates, including the
Company, generally must be on terms and conditions, including credit standards,
that are substantially the same or at least as favorable to the Bank as those
prevailing at the time for comparable transactions with or involving
unaffiliated parties or, in the absence of comparable transactions, on terms or
under circumstances, including credit standards, that in good faith would be
offered or would apply to unaffiliated parties. Section 23B imposes additional
restrictions on the ability of a bank and its subsidiaries (i) when acting in a
fiduciary capacity, to purchase securities or assets from an affiliate, and (ii)
whether acting as principal or fiduciary, to purchase or acquire, during the
existence of any underwriting or selling syndicate, any security if a principal
underwriter of the security is an affiliate of the bank.
Insurance of Deposits
The Bank's deposit accounts are insured up to the limits provided by law by the
BIF. The Bank is required to make quarterly payments on semiannual insurance
premium assessments for its FDIC deposit insurance.
The FDIC implements a risk-based deposit insurance assessment system. Deposit
insurance assessment rates currently are within a range of $0.00 to $0.27 per
$100 of insured deposits, depending on the assessment risk classification
assigned to each institution. The FDIC places each institution into one of nine
assessment risk classifications based on an institution's capital and
supervisory classification. Assessment rates are periodically reviewed by the
FDIC and set at a level sufficient to maintain the BIF's reserve ratio of 1.25%
of insured deposits. The FDIC considers BIF revenue and expense levels, the BIF
reserve ratio and BIF borrowings in
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<PAGE>
establishing assessment rate ranges. Accordingly, the deposit insurance premiums
imposed by the FDIC are subject to change.
FDIC insurance of deposits may be terminated by the FDIC, after notice and
hearing, upon a finding by the FDIC that the insured bank has engaged or is
engaging in unsafe or unsound practices, or is in an unsafe or unsound condition
to continue operations as an insured bank, or has violated any applicable law,
regulation, rule or order of, or condition imposed by the FDIC. Additionally,
if insurance termination proceedings are initiated against a bank, the FDIC may
temporarily suspend insurance on new deposits received by the institution under
certain circumstances.
Legislation enacted in 1996 contemplates the merger of the BIF, which generally
insures deposits in national and state-chartered banks, such as the Bank, with
the Savings Association Insurance Fund (the "SAIF"), which insures deposits at
savings associations. The combined deposit insurance fund would insure deposits
at all FDIC insured depository institutions. As a condition to the combined
insurance fund, however, no insured depository institution can be chartered as a
savings association. Several proposals for combining the BIF and the SAIF were
introduced in Congress during 1997 in bills addressing financial services
modernization, including a proposal from the Treasury Department developed
pursuant to requirements of the 1996 legislation. While no legislation was
passed in 1997, a financial services modernization bill was passed by the House
of Representatives in May 1998. The bill passed by the House preserved the
savings association charter, but required the FDIC to review and study issues
relating to the planned merger of the BIF and the SAIF. The bill was not passed
by the Senate before Congress adjourned in 1998, but financial services
modernization bills were introduced again in Congress in 1999 and are currently
moving through the legislative process. The Company and the Bank can give no
assurances as to whether legislation to merge the insurance funds will be
enacted or when the insurance funds will be merged.
Federal Home Loan Bank System
The Bank is a member of the FHLB of Boston, one of the 12 regional banks of the
FHLB System. The FHLB System provides a central credit facility for member
institutions. The Bank has the ability to borrow funds from the FHLB of Boston
in order to maintain its liquidity. As a member of the FHLB of Boston, the Bank
is required to own shares of capital stock in the FHLB of Boston in an amount at
least equal to the greater of 1% of the aggregate principal amount of unpaid
residential mortgage loans, home purchase contracts and similar obligations at
the beginning of each year, or 5% of its advances (borrowings) from the FHLB of
Boston, whichever is greater. The Bank was in compliance with this requirement
with an investment at December 31, 1998 of $1.3 million.
Under applicable regulations, member banks are required to maintain at all times
an amount of qualified collateral that is at least sufficient to satisfy the
collateral maintenance level established by the FHLB. See "Business -- Sources
of Funds -- Borrowings."
Federal Reserve System
The Federal Reserve has adopted regulations that require, among other things,
that insured depository institutions maintain nonearning reserves against their
transaction accounts (primarily NOW and regular checking accounts) and
nonpersonal time deposits (those which are transferable or held by a person
other than a natural person) with an original maturity of less than 18 months.
At December 31, 1998, the Bank was in compliance with these requirements.
Various proposals have been introduced in Congress to permit the payment of
interest on required reserve balances, and to permit regulated financial
institutions to pay interest on business demand accounts. While this
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<PAGE>
legislation appears to have strong support from many constituencies, the Company
and the Bank are unable to predict whether such legislation will be enacted.
The Bank has the ability to borrow funds from the "discount window" of the
Federal Reserve Bank of Boston in order to maintain liquidity. However, the
Federal Reserve Bank of Boston is prohibited from extending advances to
undercapitalized or critically undercapitalized depository institutions, and
generally cannot have advances outstanding to an undercapitalized institution
for more than 60 days in any 120-day period.
TAXATION
Federal
The Company files a consolidated federal income tax return with the Bank using
the accrual method of accounting.
Internal Revenue Service ("IRS") guidance dealing with the tax consequences of
federal financial assistance (e.g., cash) provided by the FDIC requires all
federal financial assistance provided to an acquiring bank to be taxable to the
bank that has been seized. Accordingly, all federal financial assistance
provided to the acquiror of Suffield Bank's assets and liabilities may be
taxable income included in the consolidated federal income tax return of the
Company. This income may generally be offset by tax losses resulting from the
sale of assets sold by the FDIC. Although management has been informed by the
FDIC that there will be no net taxable income resulting from the seizure of
Suffield Bank, management has not been able to obtain written confirmation from
the FDIC at this time. Accordingly, income taxes disclosed in the Consolidated
Financial Statements do not take into account adjustments, if any, which may
result from the seizure of Suffield Bank.
The Company recognized an income tax benefit in 1996 of $4,859,000. Of this
amount, $4,811,000 was attributable to a reduction in the amount of the
valuation allowance previously established against the Company's deferred tax
asset (having an effective tax rate of 34%). In addition, the Company received
$48,000 in interest applicable to a 1992 carryback refund.
The deferred tax asset and offsetting valuation allowance as of September 30,
1996 and prior periods were principally the result of the Company's accumulation
of net operating loss carryforwards. The deferred tax asset represents the
estimated amount of future deductions for tax reporting purposes previously
expensed for financial reporting purposes, and the estimated benefit from future
income taxes the Company will not have to pay as a result of the net operating
loss carryforwards. Prior to the fourth quarter of 1996, a 100% valuation
allowance was maintained against the deferred tax asset as there were
significant uncertainties regarding the Company's future and its ability to
utilize its net operating loss carryforwards through sustained, profitable
operations. Management believes that the completion of the July 1996
recapitalization, the payoff of the FDIC Note and the improved financial
condition of the Company have reduced the uncertainties relating to the
Company's ability to realize the benefits of the deferred tax asset. As a
result, in accordance with Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standard ("SFAS") No. 109, the valuation
allowance against the deferred tax asset was reduced by $4,811,000 in the fourth
quarter of 1996.
In order to assist the Company in maintaining the benefit of the deferred tax
asset, the Company amended its Restated Certificate of Incorporation in June
1996 to provide that absent approval by the Company's Board of Directors no
person shall become or make an offer to become a beneficial owner of five
percent or more of the Company's voting stock for a three year period, which
provision expires June 11, 1999. For additional information relating to income
taxes, refer to Note L to the Company's Consolidated Financial Statements.
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The federal income tax returns of the Company have been examined and audited or
closed without audit by the IRS for tax years through 1991 and such years are
not subject to further IRS audit except with respect to carrybacks to those
years.
State
The State of Maine imposes a franchise tax on financial institutions such as the
Bank equal to 1% of Maine net income and $0.08 per $1,000 of the Bank's year-end
assets. Maine net income equals the Bank's net income or loss as reported on
its federal income tax return and apportioned to Maine. The Maine franchise tax
may be reduced by a credit in the event of a book net operating loss for a
particular taxable year. The credit equals the book net operating loss
multiplied by the 1% franchise tax rate. Any unused credit may be carried
forward for up to five years. The Maine franchise tax is deductible in
determining federal taxable income.
ITEM 2. PROPERTIES.
The Company primarily utilizes the premises, equipment and furniture of the Bank
without direct payment of any rental or other fees to the Bank. The Bank's
executive offices and operations center are located at 36 Thomas Drive,
Westbrook, Maine. The Bank currently maintains eight branches as listed below.
<TABLE>
<CAPTION>
Location Address Leased/Owned Lease Expiration
- -------- ------- ------------ ----------------
<S> <C> <C> <C>
Brunswick 83 Maine Street Owned n/a
Brunswick, ME
Brunswick 14 Gurnet Road Owned n/a
Brunswick, ME
Freeport 165 Main Street Owned n/a
Freeport, ME
Kennebunk 45 Portland Road Leased December 2000
Kennebunk, ME
Portland 120 Exchange Street Leased December 2002
Portland, ME
Saco Suite 32, 4 Scammon Drive Leased January 2001
Saco, ME
Topsham 47 Topsham Fair Mall Road Building Owned n/a
Topsham, ME Land Leased June 2000
Westbrook 36 Thomas Drive Leased March 2000
Westbrook, ME
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
As of December 31, 1998, there were various claims and lawsuits pending against
the Company incidental to the ordinary course of business. In the opinion of
management, after consultation with legal counsel, resolution of these matters
is not expected to have a material effect on the consolidated financial position
or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's stockholders during the
fourth quarter of the fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Information required by this Item is set forth under the caption "Market for
Registrant's Common Equity and Related Stockholder Matters" on page 26 of the
Annual Report to Stockholders for the year ended December 31, 1998, which
information is hereby incorporated herein by reference and specifically made a
part hereof.
ITEM 6. SELECTED FINANCIAL DATA.
Information required by this Item is set forth under the caption "Selected
Financial Data" on pages 4 to 5 of the Annual Report to Stockholders for the
year ended December 31, 1998, which information is hereby incorporated herein by
reference and specifically made a part hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Information required by this Item, other than new accounting standards and
accounting standards adopted, is set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 6 to 26 of the Annual Report to Stockholders for the year ended December
31, 1998, which information is hereby incorporated herein by reference and
specifically made a part hereof. Information with regard to new accounting
standards and accounting standards adopted, is set forth under Note A to the
Company's Consolidated Financial Statements of the Annual Report to Stockholders
for the year ended December 31, 1998, which information is hereby incorporated
herein by reference and specifically made a part hereof.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Information required by this Item is set forth under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Asset Liability Management and Market Risk" on pages 22 to 24 of the Annual
Report to Stockholders for the year ended December 31, 1998, which information
is hereby incorporated herein by reference and specifically made a part hereof.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Information required by this Item and the auditor's report thereon are set forth
on pages 27 to 52 of the Annual Report to Stockholders for the year ended
December 31, 1998, which information is hereby incorporated herein by reference
and specifically made a part hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this Item will be set forth under the captions "Election
of Directors," "Executive Officers" and "Executive Compensation -- Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's definitive proxy
statement for the Company's 1999 annual meeting of stockholders. Such
information is hereby incorporated herein by reference and specifically made a
part hereof.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this Item will be set forth under the caption "Executive
Compensation" in the Company's definitive proxy statement for the Company's 1999
annual meeting of stockholders. Such information is hereby incorporated herein
by reference and specifically made a part hereof.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this Item will be set forth under the caption "Stock
Owned by Management" in the Company's definitive proxy statement for the
Company's 1999 annual meeting of stockholders. Such information is hereby
incorporated herein by reference and specifically made a part hereof.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this Item will be set forth under the caption "Executive
Compensation -- Certain Transactions" in the Company's definitive proxy
statement for the Company's 1999 annual meeting of stockholders. Such
information is hereby incorporated herein by reference and specifically made a
part hereof.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) The following consolidated financial statements of First Coastal
Corporation and Subsidiary, included in the Annual Report of the Registrant for
the year ended December 31, 1998, are incorporated herein by reference in Item
8. The remaining information appearing in the Annual Report to Stockholders is
not deemed to be filed as part of this Report, except as expressly provided
herein.
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for each of the three years in the period
ended December 31, 1998
Consolidated Statements of Stockholders' Equity for each of the three years in
the period ended December 31, 1998
Consolidated Statements of Cash Flows for each of the three years in the period
ended December 31, 1998
Consolidated Statements of Comprehensive Income for each of the three years in
the period ended December 31, 1998
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Notes to Consolidated Financial Statements--December 31, 1998
Report of Independent Accountants
(a)(2) All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions
(a)(3) Exhibits. The following exhibits are either filed herewith or are
incorporated herein by reference:
Exhibit No. 3 Articles of Incorporation and Bylaws
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).
Exhibit No. 10 Material Contracts
10.1 First Coastal Corporation Director's Deferred Compensation Plan (filed
as Exhibit 10.13 to Annual Report on Form 10-K for the year ended December 31,
1993, File No. 0-14087, and incorporated herein by reference).
10.2 Agreement for Data Processing Services, dated February 28, 1996,
between Coastal Savings Bank and Data Dimensions Inc. (filed as Exhibit 10.12
to Annual Report on Form 10-K for the year ended December 31, 1995, File
No. 0-14087, and incorporated herein by reference).
10.3 First Coastal Corporation 1996 Stock Option and Equity Incentive Plan
(filed as Exhibit 10.13 to Amendment No. 3 to Annual Report on Form 10-K on Form
10-K/A for the year ended December 31, 1995, File No. 0-14087, and incorporated
herein by reference).
10.4 Loan Agreement, dated as of July 24, 1996, among First Coastal
Corporation and Androscoggin Savings Bank, Bangor Savings Bank, Machias Savings
Bank and Norway Savings Bank (collectively, the "Lenders") and Machias Savings
Bank, as agent (filed as Exhibit 10.9 to Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996, File No. 0-14087 ("June 1996 Form 10-Q"), and
incorporated herein by reference).
10.5 Stock Pledge Agreement, dated as of July 24, 1996, between First
Coastal Corporation and Machias Savings Bank, for itself and as agent for the
Lenders (filed as Exhibit 10.10 to June 1996 Form 10-Q, and incorporated herein
by reference).
10.6 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Androscoggin Savings Bank (filed as Exhibit 10.11 to June 1996
Form 10-Q, and incorporated herein by reference).
10.7 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Bangor Savings Bank (filed as Exhibit 10.12 to June 1996 Form 10-
Q, and incorporated herein by reference).
20
<PAGE>
10.8 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Machias Savings Bank (filed as Exhibit 10.13 to June 1996 Form
10-Q, and incorporated herein by reference).
10.9 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Norway Savings Bank (filed as Exhibit 10.14 to June 1996 Form 10-
Q, and incorporated herein by reference).
10.10 Rights Agreement, dated as of February 25, 1998, between First Coastal
Corporation and ChaseMellon Shareholder Services, L.L.C. (filed as Exhibit No. 1
to Current Report on Form 8-K, filed March 3, 1998, and incorporated herein by
reference).
10.11 Agreement of Purchase and Sale, dated August 18, 1998, between Coastal
Bank and SYSCO Food Services of Northern New England, Inc. (filed as Exhibit No.
99(a) to Current Report on Form 8-K, filed August 31, 1998, and incorporated
herein by reference).
10.12 Employment Agreement, dated as of September 4, 1998, among Coastal
Bank, First Coastal Corporation and Dennis D. Byrd (filed as Exhibit No. 10.12
to Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File
No. 0-14087 ("September 1998 Form 10-Q"), and incorporated herein by reference).
10.13 Employment Agreement, dated as of September 4, 1998, among Coastal
Bank, First Coastal Corporation and Gregory T. Caswell (filed as Exhibit No.
10.13 to September 1998 Form 10-Q, and incorporated herein by reference).
10.14 Amendment No. 1 to Rights Agreement, dated as of October 15, 1998,
between First Coastal Corporation and ChaseMellon Shareholder Services, L.L.C.
(filed as Exhibit No. 99(a) to Current Report on Form 8-K, filed October 22,
1998, and incorporated herein by reference).
10.15 Purchase and Assumption Agreement, dated February 22, 1999, between
Coastal Bank and Kennebunk Savings Bank (filed herewith).
Exhibit No. 13 Annual Report to Security Holders
First Coastal Corporation 1998 Annual Report (filed herewith). Portions of the
First Coastal Corporation 1998 Annual Report have been incorporated by reference
into this Annual Report on Form 10-K.
Exhibit No. 21 Subsidiary of the Registrant
Subsidiary of the Company (filed herewith).
Exhibit No. 23 Consents of Experts and Counsel
Consent of PricewaterhouseCoopers LLP to incorporation by reference of its
report dated February 17, 1999 into the Company's Registration Statement on Form
S-8 (No. 333-08631) filed with the Securities and Exchange Commission on July
23, 1996.
Exhibit No. 27 Financial Data Schedule
27.1 Financial Data Schedule for the year ended December 31, 1998 (filed
herewith).
21
<PAGE>
14(b) The Company filed a Current Report on Form 8-K on October 22, 1998
with respect to the Company's adoption of amendments to its Stockholder Rights
Plan.
14(c) Exhibits to this Annual Report on Form 10-K are attached or
incorporated herein by reference as stated above.
14(d) Not applicable.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST COASTAL CORPORATION
March 30, 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.
March 30, 1999 By: /s/ Gregory T. Caswell
--------------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
(Principal Executive Officer)
March 30, 1999 By: /s/ Dennis D. Byrd
--------------------------------------------
Dennis D. Byrd
Vice President and Treasurer
(Principal Financial and Accounting Officer)
And by a majority of the Board of Directors of the Registrant.
March 30, 1999 By: /s/ David B. Hawkes, Sr.
--------------------------------------------
David B. Hawkes, Sr.
Chairman of the Board and Director
March 30, 1999 By: /s/ Gregory T. Caswell
--------------------------------------------
Gregory T. Caswell, Director
March 30, 1999 By: /s/ Dennis D. Byrd
--------------------------------------------
Dennis D. Byrd, Director
March 30, 1999 By: /s/ MaryEllen FitzGerald
--------------------------------------------
MaryEllen FitzGerald, Director
March 30, 1999 By: /s/ Roger E. Klein
--------------------------------------------
Roger E. Klein, Director
March 30, 1999 By: /s/ Normand E. Simard
--------------------------------------------
Normand E. Simard
March 30, 1999 By: /s/ Edward K. Simensky
--------------------------------------------
Edward K. Simensky, Director
March 30, 1999 By: /s/ Charles A. Stewart III
--------------------------------------------
Charles A. Stewart III, Director
23
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1(i) Restated Certificate of Incorporation (filed as Exhibit 3.1(i) to
Annual Report on Form 10-K for the year ended December 31, 1997, File
No. 0-14087 ("1997 Form 10-K"), and incorporated herein by reference).
3.1(ii) Amended and Restated Bylaws (filed as Exhibit 3.1(ii) to 1997 Form 10-
K, and incorporated herein by reference).
10.1 First Coastal Corporation Director's Deferred Compensation Plan (filed
as Exhibit 10.13 to Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 0-14087, and incorporated herein by
reference).
10.2 Agreement for Data Processing Services, dated February 28, 1996,
between Coastal Savings Bank and Data Dimensions Inc. (filed as
Exhibit 10.12 to Annual Report on Form 10-K for the year ended
December 31, 1995, File No. 0-14087, and incorporated herein by
reference).
10.3 First Coastal Corporation 1996 Stock Option and Equity Incentive Plan
(filed as Exhibit 10.13 to Amendment No. 3 to Annual Report on Form
10-K on Form 10-K/A for the year ended December 31, 1995, File No. 0-
14087, and incorporated herein by reference).
10.4 Loan Agreement, dated as of July 24, 1996, among First Coastal
Corporation and Androscoggin Savings Bank, Bangor Savings Bank,
Machias Savings Bank and Norway Savings Bank (collectively, the
"Lenders") and Machias Savings Bank, as agent (filed as Exhibit 10.9
to Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
File No. 0-14087 ("June 1996 Form 10-Q"), and incorporated herein by
reference).
10.5 Stock Pledge Agreement, dated as of July 24, 1996, between First
Coastal Corporation and Machias Savings Bank, for itself and as agent
for the Lenders (filed as Exhibit 10.10 to June 1996 Form 10-Q, and
incorporated herein by reference).
10.6 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Androscoggin Savings Bank (filed as Exhibit 10.11 to
June 1996 Form 10-Q, and incorporated herein by reference).
10.7 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Bangor Savings Bank (filed as Exhibit 10.12 to June
1996 Form 10-Q, and incorporated herein by reference).
10.8 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Machias Savings Bank (filed as Exhibit 10.13 to June
1996 Form 10-Q, and incorporated herein by reference).
10.9 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Norway Savings Bank (filed as Exhibit 10.14 to June
1996 Form 10-Q, and incorporated herein by reference).
10.10 Rights Agreement, dated as of February 25, 1998, between First Coastal
Corporation and ChaseMellon Shareholder Services, L.L.C. (filed as
Exhibit No. 1 to Current Report on Form 8-K, filed March 3, 1998, and
incorporated herein by reference).
<PAGE>
10.11 Agreement of Purchase and Sale, dated August 18, 1998, between Coastal
Bank and SYSCO Food Services of Northern New England, Inc. (filed as
Exhibit No. 99(a) to Current Report on Form 8-K, filed August 31,
1998, and incorporated herein by reference).
10.12 Employment Agreement, dated as of September 4, 1998, among Coastal
Bank, First Coastal Corporation and Dennis D. Byrd (filed as Exhibit
No. 10.12 to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 0-14087 ("September 1998 Form 10-Q"), and
incorporated herein by reference).
10.13 Employment Agreement, dated as of September 4, 1998, among Coastal
Bank, First Coastal Corporation and Gregory T. Caswell (filed as
Exhibit No. 10.13 to September 1998 Form 10-Q, and incorporated herein
by reference).
10.14 Amendment No. 1 to Rights Agreement, dated as of October 15, 1998,
between First Coastal Corporation and ChaseMellon Shareholder
Services, L.L.C. (filed as Exhibit No. 99(a) to Current Report on Form
8-K, filed October 22, 1998, and incorporated herein by reference).
10.15 Purchase and Assumption Agreement, dated February 22, 1999, between
Coastal Bank and Kennebunk Savings Bank (filed herewith).
13 First Coastal Corporation 1998 Annual Report (filed herewith).
21 Subsidiary of the Company (filed herewith).
23 Consent of PricewaterhouseCoopers L.L.P. to incorporation by reference
of its report dated February 17, 1999 into the Company's Registration
Statement on Form S-8 (No. 333-08631) filed with the Securities and
Exchange Commission on July 23, 1996.
<PAGE>
EXECUTION DRAFT Exhibit 10.15
BRANCH PURCHASE AND ASSUMPTION AGREEMENT
----------------------------------------
<PAGE>
TABLE OF CONTENTS
BRANCH PURCHASE AND ASSUMPTION AGREEMENT
----------------------------------------
1. PURCHASE AND ASSUMPTION OF ASSETS AND ASSUMPTION OF
----------------------------------------------------
LIABILITIES;PAYMENT..................................................3
-------------------
1.01 Purchase of Assets and Assumption of Liabilities, Payment............3
---------------------------------------------------------
1.02 Transfer of Assets...................................................3
------------------
1.03 Acceptance and Assumption............................................4
-------------------------
1.04 Payment of Funds.....................................................6
----------------
1.05 Acquisition..........................................................8
-----------
1.06 Title to Real Estate.................................................8
--------------------
1.07 Transfer of Loans Without Recourse...................................8
----------------------------------
1.08 Document Quality Review and Limited Indemnity........................8
---------------------------------------------
1.09 Transfer of Personal Property.......................................10
-----------------------------
2. OBLIGATIONS OF THE PARTIES PRIOR TO EFFECTIVE TIME..................10
--------------------------------------------------
2.01 Covenants of Seller.................................................10
-------------------
2.02 Covenants of Purchaser..............................................11
----------------------
2.03 Covenants of All Parties............................................11
------------------------
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND PURCHASER..............11
------------------------------------------------------
3.01 Representations and Warranties of Seller............................11
----------------------------------------
2
<PAGE>
3.02 Representations and Warranties of Purchaser.........................13
-------------------------------------------
3.03 Survival of Covenants, Representations and Warranties...............14
-----------------------------------------------------
4. WARRANTIES, REPRESENTATIONS AND ACTIONS RESPECTING EMPLOYEES
------------------------------------------------------------
AND PENSION AND EMPLOYEE BENEFIT PLANS..............................14
--------------------------------------
4.01 List of Branch Employees............................................14
------------------------
4.02 Actions to be Taken by Purchaser....................................14
--------------------------------
4.03 Actions to be Taken by Seller.......................................15
-----------------------------
4.04 Cooperation by Seller and Purchaser.................................15
-----------------------------------
5. CONDITIONS PRECEDENT TO CLOSING.....................................16
-------------------------------
5.01 Conditions to Seller's Obligations..................................16
----------------------------------
5.02 Conditions to Purchaser's Obligations...............................16
-------------------------------------
5.03 Non-Satisfaction of Conditions Precedent............................18
----------------------------------------
6. CLOSING.............................................................18
-------
6.01 Closing and Closing Date............................................18
------------------------
6.02 Seller's Actions at Closing.........................................18
---------------------------
6.03 Purchaser's Actions at Closing......................................20
------------------------------
6.04 Methods of Payment..................................................20
------------------
6.05 Availability of Closing Documents...................................21
---------------------------------
6.06 Effectiveness of Closing............................................21
------------------------
7. CERTAIN TRANSITIONAL MATTERS........................................21
----------------------------
3
<PAGE>
7.01 Transitional Action by Purchaser....................................21
--------------------------------
7.02 Transitional Action by Seller.......................................24
-----------------------------
7.03 Transitional Action by All Parties..................................26
----------------------------------
7.04 Effect of Transitional Action.......................................27
-----------------------------
8. GENERAL COVENANTS AND INDEMNIFICATION...............................27
-------------------------------------
8.01 Information.........................................................28
-----------
8.02 Confidentiality Obligations of Purchaser............................28
----------------------------------------
8.03 Confidentiality Obligations of Seller...............................28
-------------------------------------
8.04 Indemnification by Seller...........................................28
-------------------------
8.05 Indemnification by Purchaser........................................29
----------------------------
8.06 Solicitation of Customers...........................................29
-------------------------
8.07 Further Assurances..................................................30
------------------
8.08 Purchaser's Operation of Branch.....................................30
-------------------------------
9. [RESERVED]..........................................................30
10. TERMINATION.........................................................30
-----------
10.01 Methods of Termination..............................................30
----------------------
10.02 Procedure Upon Termination..........................................31
--------------------------
10.03 Effect of Termination...............................................31
---------------------
11. MISCELLANEOUS PROVISIONS............................................32
------------------------
11.01 Expenses............................................................32
--------
4
<PAGE>
11.02 Certificates......................................................32
------------
11.03 Amendment and Modifications.......................................32
---------------------------
11.04 Waivers...........................................................32
-------
11.05 Notices...........................................................33
-------
11.06 Parties in Interest: Assignment; Amendment........................33
------------------------------------------
11.07 Headings..........................................................34
--------
11.08 Terminology.......................................................34
-----------
11.09 Flexible Structure................................................34
------------------
11.10 Press Releases....................................................34
--------------
11.11 Personal Liability................................................34
------------------
11.12 Entire Agreement..................................................34
----------------
11.13 Governing Law.....................................................35
-------------
11.14 Counterparts......................................................35
------------
11.15 Severability......................................................35
------------
5
<PAGE>
BRANCH PURCHASE AND ASSUMPTION AGREEMENT
----------------------------------------
This Agreement ("Agreement"), dated as of February 2, 1999, is made by
---------
and between COASTAL BANK, a Maine banking corporation ("Seller"), and KENNEBUNK
------
SAVINGS BANK, a Maine mutual savings bank ("Purchaser").
---------
W I T N E S S E T H:
WHEREAS, Purchaser wishes to acquire and Seller to sell certain assets
and deposit liabilities associated with Seller's Shoppers Village Branch located
on Route 1 in Kennebunk, Maine, upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained and other good and valuable consideration, Seller and Purchaser hereby
agree as follows:
A. DEFINITIONS.
-----------
ACH shall mean Automated Clearing House.
ALTA shall mean American Land Title Association.
Acquisition shall have the meaning specified in Section 1.05.
Acquisition Consideration shall have the meaning set forth in Section
1.04(a).
Assets shall mean the Owned Personal Property, the Safety Deposit
Business, the Loans, Cash on Hand, Prepaid Expenses and Leased Real
Estate.
Branch shall mean the Branch of Seller located at Shopper's Village,
Kennebunk, Maine.
Branch Employees shall have the meaning specified in Section 4.01.
Business Day shall mean any day other than a Saturday, Sunday or a day
in which Seller is closed for business in compliance with the laws of
the State of Maine or the United States of America. Any action, notice,
or right which is to be taken or given or which is to be exercised or
lapse on or by a given date which is not a business day may be taken,
given, or exercised, and shall not lapse, until the next business day
following.
Cash on Hand shall have the meaning specified in Section 1.02(d).
Closing shall have the meaning specified in Section 6.01.
Closing Date shall have the meaning specified in Section 6.01.
Code shall mean the Internal Revenue Code of 1986, as amended, and the
Regulations
1
<PAGE>
promulgated thereunder.
Defect shall have the meaning specified in Section 1.08(a).
Deferred Expenses shall have the meaning specified in Section 1.03(d).
Deposit Accounts shall have the meaning specified in Section 1.03(b).
Deposit Liabilities shall have the meaning specified in Section
1.03(b).
Deposit Premium shall have the meaning specified in Section
1.04(a)(ii)(A).
Effective Time shall have the meaning specified in Section 6.01.
ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended.
Excluded Assets shall have the meaning specified in Section 7.01(l).
Excluded Bundled Products shall have the meaning specified in Section
7.02(j).
Excluded Deposit Accounts shall have the meaning specified in Section
1.03(b).
FDIA shall mean the Federal Deposit Insurance Act.
FDIC shall mean the Federal Deposit Insurance Corporation.
Indemnified Account shall have the meaning specified in Section
1.08(b).
Leased Real Estate shall have the meaning specified in Section 1.02(f).
Leasehold Improvements shall mean personal property affixed to the
Leased Real Estate by Seller.
Loan Files shall have the meaning specified in Section 1.08(a).
Loans shall mean overdraft protection lines of credit associated with
Deposit Accounts (i.e., lines of credit on which advances are made to
fund overdrafts in Deposit Accounts). "Loans" shall not include any
other type of loan.
Loss shall have the meaning specified in Section 1.08(c).
Permitted Exceptions shall mean, with respect to the Leased Real
Estate, (i) those standard printed exceptions appearing as Schedule B
items in a Standard ALTA leasehold owner's title insurance policy, (ii)
those exceptions, restrictions, easements, rights of way, and
encumbrances referenced in Exhibit A to this Agreement; (iii) statutory
liens for current real estate taxes or assessments, both general and
special, not yet due, or if due
2
<PAGE>
not yet delinquent, or the validity of which is being contested in good
faith by appropriate proceedings; (iv) all zoning laws and rulings; (v)
such other liens, imperfections in title, charges, easements,
restrictions, and encumbrances which, individually and in the aggregate
are not material in character, amount, or extent, or do not materially
detract from the value of, or materially interfere with, the present
use of, any property subject thereto or affected thereby; and (vi) any
Additional Exceptions approved by Purchaser in writing; (vii) any
exceptions to title arising from the action, inaction or status of
Purchaser.
Person shall mean any individual, corporation, partnership,
association, trust or other entity, whether business, personal or
otherwise.
Premium Rate High Rise Savings Accounts shall mean the accounts of the
type described in Schedule B attached hereto and listed in detail in
the List of Premium Rate High Rise Savings Accounts provided separately
as part of Seller's Disclosure Materials.
Prepaid Expenses shall have the meaning specified in Section 1.02(e).
Referred New Accounts shall have the meaning specified in Section
7.01(m).
Safety Deposit Business shall have the meaning specified in Section
1.02(b).
Seller's Disclosure Materials shall mean the identical copies, one
delivered by Seller to Purchaser as a document separate from this
Agreement, and one retained by Seller, containing confidential
information disclosed in negotiation of this Agreement, including,
without limitation, List of Premium Rate High Rise Savings Accounts,
the ODL List and the Preliminary List of Accounts To Be Transferred.
1. PURCHASE AND ASSUMPTION OF ASSETS AND ASSUMPTION OF LIABILITIES;
---------------------------------------------------------------
PAYMENT.
-------
1.01 Purchase of Assets and Assumption of Liabilities, Payment. As of
---------------------------------------------------------
the Effective Time (as defined in Section 6.01 hereof), Purchaser shall purchase
and Seller shall sell, assign, transfer, convey and deliver certain of the
assets and Purchaser shall purchase and assume from Seller certain of the
liabilities used in or relating to the banking business conducted by the Seller
at the Branch pursuant to the terms and conditions set forth herein.
1.02 Transfer of Assets. Subject to the terms and conditions of this
------------------
Agreement, Seller shall assign, transfer, convey, and deliver to Purchaser, as
of the Effective Time (as defined in Section 6.01 hereof), the following assets
(the "Assets"):
------
(a) Owned Personal Property. All right, title, and interest in and
-----------------------
to the furniture, fixtures, and equipment, including Leasehold
Improvements, that are located and used at the Branch and are
owned by Seller, other than the excluded personal property
listed in attached Schedule C (the "Owned Personal Property");
-----------------------
3
<PAGE>
(b) Safety Deposit Business. All right, title, and interest of
-----------------------
Seller in and to the safety deposit business (subject to the
allocation of safety deposit rental payments as provided in
Section 1.03(c)(i) hereof), if any, located at the Branch as
of the Effective Time (the "Safety Deposit Business");
-----------------------
(c) Loans. All Loans (exclusive of any reserve for possible loan
-----
losses), including, without limitation, Loans that are
summarized in attached Schedule D as more specifically set
forth in the ODL List provided separately in Seller's
Disclosure Materials. The parties agree that, in the operation
of the Branch in the ordinary course of business between the
date of this Agreement and the Effective Time as contemplated
in Section 2.01(a), (A) there will be changes in the amount
and type of the Loans, and (B) there may be additional Loans
associated with the Branch, which will become part of the
Loans and some Loans may be paid off and closed;
(d) Cash on Hand. All cash on hand (i.e., U.S. currency and coin)
------------
at the Branch as of the Effective Time (the "Cash on Hand");
------------
(e) Prepaid Expenses. All prepaid expenses of Seller relating
----------------
specifically to the Branch as of the Effective Time described
in attached Schedule E (the "Prepaid Expenses"); and
----------------
(f) Leased Real Estate. All right, title and interest in and to
------------------
the real property leased by Seller from lessors in which any
of the Branch is situated (the "Leased Real Estate"), which
------------------
leasehold is evidenced by a lease agreement a copy of which is
attached hereto as Schedule F (the "Real Estate Lease").
-----------------
No rights in the names "Coastal", "Coastal Bank", "Coastal Savings
Bank", or derivatives thereof or modifications thereto are being transferred to
Purchaser hereunder.
1.03 Acceptance and Assumption. Subject to the terms and conditions
-------------------------
of this Agreement, as of the Effective Time Purchaser shall:
(a) Assets. Receive and accept all of the Assets assigned,
------
transferred, conveyed, and delivered to Purchaser by Seller
pursuant to this Agreement;
(b) Deposit Liabilities. Assume and thereafter faithfully honor
-------------------
and fully and timely pay, perform, and discharge all of the
"Deposit Liabilities" (as hereinafter defined). The term
"Deposit Liabilities" means all of Seller's indebtedness,
-------------------
obligations, duties, and liabilities of every type and
character relating to all deposit accounts (including, without
limitation, all passbook accounts, all checking, Money Market
and NOW accounts, individual retirement accounts ("IRAs") ,
---
and certificates of deposit) (collectively "Deposit Accounts")
----------------
which are reflected on the books of Seller as of the Effective
Time as being assigned to or attributable to the Branch
consistent with the methodology employed in preparing the
Preliminary List of Accounts summarized in Schedule G attached
hereto and more specifically set forth in Seller's Disclosure
Materials ("Preliminary List") and generally described
----------------
4
<PAGE>
in Schedule G attached hereto, other than (1) commercial deposit
accounts that are subject to a sweeps agreement pursuant to which
balances in such deposit accounts are invested in repurchase
agreements on an overnight basis, (2) any account pledged to
collateralize loans the Purchaser is not purchasing under this
Agreement and (3) the excluded deposit accounts described in
Schedule G-1 ("Excluded Deposit Accounts"). The parties
-------------------------
understand and agree that, in the operation of the Branch in the
ordinary course of business between the date of this Agreement
and the Effective Time as contemplated in Section 2.01(a), there
will be changes in the amount and type of the Deposit Liabilities
to be assumed by the Purchaser pursuant to this Agreement.
Deposit Liabilities include, without limitation, the obligation
to pay and otherwise process all such Deposit Accounts in
accordance with applicable law and customary banking practices,
and applicable Deposit Account contractual terms and the duty to
supply all applicable reporting forms required to be filed after
the Effective Time, providing however, that Seller shall send and
file Forms 1099 relating to all Deposit Accounts for all periods
preceding the Closing Date and Purchaser shall send and file
Forms 1099 relating to all Deposit Accounts for all periods on
and after the Closing Date. In connection with Deposit Accounts
consisting of IRAs, Purchaser shall assume, in addition to the
deposit liability, the plans pertaining thereto and the custodial
arrangements in connection therewith;
(c) Safety Deposit Business. Assume and thereafter faithfully honor
-----------------------
and fully and timely perform and discharge all of the
obligations, duties, and liabilities of Seller arising from and
after the Effective Time with respect to:
(i) The Safety Deposit Business, if any, including
delinquent boxes, and including, but not limited to,
the maintenance of all necessary facilities for the
use of safety deposit boxes by the renters thereof
during the periods for which such persons have paid
rent therefor in advance to Seller (subject to
Seller's retention of all safety deposit box rental
payments made before the Effective Time and
Purchaser's right to retain all such payments made
thereafter), subject to the provisions of the
applicable leases or other agreements relating to
such boxes; and
(ii) All safety deposit box lease agreements and documents
pertaining to the safety deposit business of the
Branch as of the Effective Time; and
(iii) All safekeeping agreements, receipts, and other
documents pertaining to all safekeeping items held by
the Branch for its customers as of the Effective Time
(not including any liabilities with respect to trust
department services or obligations or services not
typically included in a bank safety deposit
business);
(d) Deferred Expenses. Assume and thereafter faithfully honor and
-----------------
fully and timely pay, perform and discharge all deferred
expenses described in attached Schedule H (the "Deferred
--------
Expenses");
--------
5
<PAGE>
(e) Liabilities under Leases. Assume and thereafter faithfully
------------------------
honor and fully and timely pay, perform and discharge, all of
the obligations, duties and liabilities of Seller arising from
and after the Effective Time under all of the Leases sold,
assigned, or transferred to Purchaser by Seller pursuant to
this Agreement; provided, however, that Purchaser shall not be
required to assume liability under the Real Property Lease if
the lessor shall fail and refuse to consent to the assignment
of such lease to Purchaser;
(f) Liabilities under Loan Commitments, etc. Assume and thereafter
---------------------------------------
faithfully honor and fully and timely perform and discharge
all of the obligations, duties and liabilities of Seller
arising from and after the Effective Time under all Loans
sold, assigned, or transferred to Purchaser by Seller pursuant
to this Agreement, including additional extensions of credit
to customers in connection with said Loans;
(g) Employee Benefits Liabilities. Assume all liabilities
-----------------------------
specifically allocated to Purchaser pursuant to Section 4; and
(h) No Other Liabilities. Except to the extent expressly set forth
--------------------
above, Purchaser shall not assume any other liabilities with
respect to the Branch or the operation of Seller's business at
the Branch, whether arising prior to the date hereof or
between the date hereof and the Effective Time. Liabilities
not assumed hereunder, include, without limitation, all
claims, debts or liabilities arising out of alleged wrongful,
negligent or unlawful acts or out of breach of any contract or
duty that occurs prior to the Effective Time, whether such
liabilities are to customers, vendors, employees or any other
person.
1.04 Payment of Funds. Subject to the terms and conditions hereof,
----------------
at the Closing:
(a) Acquisition Consideration. Seller shall make available and
-------------------------
transfer to Purchaser, in the manner specified in Section 6.04
hereof, the "Acquisition Consideration" consisting of funds in
an amount equal to
(i) the sum of the following:
(A) the amount of the aggregate balance of all
Deposit Liabilities (including interest
posted or accrued to such accounts as of
midnight on the day preceding the Closing
Date) plus
----
(B) the amount of the Deferred Expenses prorated
as of the Effective Time;
(ii) less an amount equal to the sum of the following:
----
6
<PAGE>
(A) Nine percent (9%) of the "Average Branch Deposits" (as
hereinafter defined) for the thirty (30) calendar day period
immediately preceding the Closing Date. The term "Average Branch
--------------
Deposits" shall mean the average of the daily aggregate balance
--------
of all Deposit Liabilities (which aggregate balances shall
include (i) the balances of Referred New Accounts, as that term
is defined in Section 7.01(m), and (ii) interest posted to such
accounts as of midnight of each of such thirty (30) days
preceding the Closing Date but shall exclude interest accrued but
not posted to such accounts as of midnight of each of such 30
days) other than (a) those balances represented by certificates
of deposit or statement savings accounts of $100,000 or more that
(x) are established after the date hereof, and (y) earn interest
at a rate otherwise not generally offered or available for
comparable deposits through Seller's branch system, and (b) the
average balance of Premium Rate High Rise Savings Accounts to the
extent such average exceeds Four Million One Hundred Eighty
Thousand Dollars ($4,180,000). The dollar figure which is the
product of nine percent (9%) multiplied by the Average Branch
Deposits in effect for the thirty (30) day period immediately
preceding the Closing Date is hereinafter called the "Deposit
-------
Premium";
-------
(B) the amount of Cash on Hand transferred to Purchaser as of the
Effective Time;
(C) the sum of $1.00, representing the aggregate amount of the agreed
values of the Leased Real Estate as set forth on attached
Schedule F;
(D) the aggregate amount of the depreciated book values as of the
Effective Time of the Owned Personal Property transferred to
Purchaser;
(E) the depreciated book value of all Leasehold Improvements not
already included in Owned Personal Property;
(F) the amount of all Prepaid Expenses, prorated as of the Effective
Time; and
(G) the book value of all Loans, plus accrued and unpaid interest
thereon computed as of the Effective Time.
In the event that the amount equal to subclause (ii) above exceeds the amount
equal to subclause (i), the full amount of such excess shall constitute an
amount due from Purchaser to Seller and shall be paid to Seller at the Closing
in the manner specified in Section 6.04 hereof.
7
<PAGE>
(b) Proration of Certain Expenses. All rent and other charges under
-----------------------------
the Leases, all Prepaid Expenses (including, without limitation,
any prepaid FDIC premium with respect to Deposit Accounts), and
all Deferred Expenses shall be prorated between Purchaser and
Seller as of the Effective Time; provided, however, that all
utility payments shall be prorated on the basis of the best
information available at Closing. All security deposits under the
Leases shall be credited to Seller. All prorations shall be paid
on the Closing Date to the party entitled to the benefit of the
proration; provided, however, that in the event that any
prorations cannot be reasonably calculated as of the Closing, a
post-closing adjustment shall be made in the manner specified in
Section 6.04 hereof.
1.05 Acquisition. The purchase and acceptance by Purchaser from Seller
-----------
of such assets and the assumption by Purchaser of such liabilities of Seller
pursuant to the terms and conditions set forth herein is sometimes referred to
herein as the "Acquisition".
-----------
1.06 Title to Real Estate.
--------------------
(a) Seller will execute, acknowledge and deliver to Purchaser at the
Closing an Assignment of its leasehold interests in the Leased
Real Estate, conveying to Purchaser all of Seller's leasehold
estate in the Leased Real Estate, free and clear of all liens and
encumbrances except Permitted Exceptions and except as otherwise
provided in subsection (b), insurable for the benefit of
Purchaser at customary rates and on the standard ALTA leasehold
owner's title insurance policy, in amounts reasonably
satisfactory to Purchaser. The cost of obtaining any title
insurance shall be Purchaser's sole responsibility. Seller shall
also deliver to Purchaser a landlord's consent to the assignment
of the Real Estate Lease, in form and substance reasonably
satisfactory to Purchaser and its counsel. Any expense charged by
landlord for such consent shall be paid by Seller.
(b) Seller will deliver to Purchaser copies of any existing title
commitments or specimen title policies for the leasehold estate
in the Leased Real Estate.
1.07 Transfer of Loans Without Recourse. Except as expressly provided
----------------------------------
in Section 1.08, all Loans transferred to Purchaser pursuant to this Agreement
shall be transferred without recourse.
1.08 Document Quality Review and Limited Indemnity.
---------------------------------------------
Purchaser has conducted due diligence prior to executing this
Agreement. That due diligence was sufficient to satisfy Purchaser that any
Defects described below are not so pervasive as to justify or require
termination of this Agreement. The purpose of this Section 1.08 is to permit
subsequent additional diligence and to provide a procedure to protect the
Purchaser from actual loss arising out of Defects after consummation of the
Acquisition.
(a) Quality Review. Within 60 days from the date of this Agreement,
--------------
Purchaser shall
8
<PAGE>
have the right, at reasonable times and upon reasonable notice,
to review any and all Loan Files and Deposit Account Files, to
the extent allowed by applicable law, with respect to Defects. If
applicable law would prohibit the surrender of any document (or a
portion thereof) that Purchaser might reasonably request for
purposes of the review described in this section, Seller will
make the most minimal redactions, copying, or other minimal
modifications to permit disclosure to Purchaser to the fullest
extent allowed by applicable law. Seller expressly reserves the
right to participate with Purchaser in any such review. As used
herein:
"Loan Files" means any file or files containing the Note, Loan
Agreement, disclosures, and any other documents evidencing a Loan
sold under this Agreement.
"Deposit Account Files" means all files and records relating to
Deposit Accounts, including, without limitation, signature cards,
deposit agreements, IRS custodial or trust agreements, safe
deposit agreements and other records.
"Defect" shall mean and refer to one or more of the following
conditions:
(i) Missing Documents. The Loan File or Deposit Account File
-----------------
contains no original Note, signature card or other
document evidencing the debt or account or contains no
copy of a loan agreement required by the debt instrument
or commitment letter.
(ii) Material Documentation Error. The documents contained in
----------------------------
the Loan File or Deposit Account File demonstrate an
error in content that would have a material adverse
effect upon the enforceability of debt instruments,
guarantees or security instruments or the ability of the
Purchaser to determine or enforce its rights and
obligations with respect to a Deposit Account (a
"material documentation error"). For example, an
unsigned note or loan agreement is a material
documentation error.
(b) Procedure for Cure. Upon discovery of any Defect pursuant to a
------------------
review of one or more Loan Files or Deposit Account Files,
Purchaser shall give written Notice of Defect to Seller,
specifying the nature of the Defect and the requested cure. Any
such Notice of Defect must be delivered within the 60-day period
specified in the preceding subsection 1.08(a). Seller shall then
have a period of 60 days after receipt of the Notice of Defect in
which to cure any such Defect. If Seller fails so to cure, then
the Loan or Deposit Account in question shall be identified as an
Indemnified Account ("Indemnified Account") until such time as
-------------------
the Defect is cured and all Losses (as defined below) have been
paid.
(c) Limited Indemnity. Seller shall indemnify Purchaser and shall
-----------------
hold Purchaser harmless from and against any loss including,
without limitation, loss of loan principal and interest and
reasonable external collection expense, including
9
<PAGE>
reasonable fees and costs of outside counsel (collectively, a
"Loss"), to the extent the same is attributable to a Defect in an
----
Indemnified Account.
1.09 Transfer of Personal Property. Seller shall convey Owned Personal
-----------------------------
Property to Purchaser by executing and delivering the Bill of Sale and Receipt
set forth in Schedule O attached hereto. Seller shall also use commercially
reasonable efforts to deliver a consent to assignment by any lessor of personal
property deemed material by Purchaser.
2. OBLIGATIONS OF THE PARTIES PRIOR TO EFFECTIVE TIME
--------------------------------------------------
2.01 Covenants of Seller. Seller hereby covenants to Purchaser that,
-------------------
from the date hereof until the Effective Time, it will do or cause the following
to occur:
(a) Operation of Branch. (i) Continue to operate the Branch in a
-------------------
manner equivalent to that manner and system of operation,
consistent with its customary practices, (ii) not knowingly
permit any act or conduct by any of its employees that would
cause material harm or damage to the reputation of the Branch or
a material reduction in the existing deposit liabilities of the
Branch, (iii) not transfer any Branch Employees without the prior
written consent of Purchaser, and (iv) maintain the Owned
Personal Property in a condition substantially the same as that
as of the date of this Agreement, ordinary wear and tear and
casualty excepted.
(b) Information Concerning Branch. Furnish or otherwise provide
-----------------------------
Purchaser, its agents or representatives reasonable access to,
and permit Purchaser to make or cause to be made such reasonable
investigation of, information and materials relating to the
financial and physical condition of, and legal questions
concerning, the Branch as Purchaser reasonably deems necessary or
advisable; provided, however, that such access and investigation
shall not interfere unnecessarily with the normal operations of
the Branch or Seller; provided, further, that nothing in this
Section 2.01(b) shall be deemed to require Seller to breach any
statutory obligation of confidentiality.
(c) Required Authorizations. Obtain and procure all necessary
-----------------------
corporate approvals and authorizations required on its part to
enable it to fully perform all obligations imposed on it
hereunder which must be performed by it at or prior to the
Closing.
(d) Creation of Liens and Encumbrances. Not voluntarily create any
----------------------------------
liens, imperfections in title, charges, easements, restrictions,
or encumbrances affecting the Leased Real Estate.
(e) Damage, Destruction, or Condemnation of Real Property. In the
-----------------------------------------------------
event Seller is notified of any pending or threatened
condemnation proceeding relating to the Leased Real Estate,
notify Purchaser thereof and Seller and Purchaser shall cooperate
in responding to any such proceeding so as not to prejudice the
rights of Purchaser and Seller to recover in such proceedings.
10
<PAGE>
(f) Preservation of Lease. Preserve in good standing and in full
---------------------
force and effect the Real Property Lease.
2.02 Covenants of Purchaser. Purchaser hereby covenants to Seller
----------------------
that, from the date hereof until the Effective Time, it will do or cause the
following to occur:
(a) Certain Applications. As soon as reasonably possible, but not
--------------------
later than thirty (30) business days after the date of this
Agreement, Purchaser shall prepare and submit for filing the
appropriate applications (including draft applications) to all
appropriate regulatory agencies required on the part of Purchaser
for the Acquisition to be consummated at the Closing as
contemplated in Section 6.01 herein. Thereafter, Purchaser shall
use its best efforts to pursue such applications diligently and
on a priority basis, and shall promptly file such supplements,
amendments, and additional information in connection therewith as
may be necessary for the Acquisition to be consummated at such
Closing. Purchaser shall deliver to Seller a copy of such
applications, and any supplement, amendment, or item of
additional information in connection therewith, not later than
three (3) days after the date it is filed with the appropriate
regulatory agencies. Seller shall execute and join in any
application which requires Seller's participation unless Seller
believes that the information provided therein is false or
misleading.
(b) Required Authorizations. Purchaser shall obtain and procure all
-----------------------
necessary corporate approvals and authorizations required on its
part to enable it to fully perform all obligations imposed on it
hereunder which must be performed by it at or prior to the
Closing.
2.03 Covenants of All Parties. Seller hereby covenants to Purchaser,
------------------------
and Purchaser hereby covenants to Seller, that, from the date hereof until the
Closing, such party shall cooperate fully with the other party in obtaining any
consents, approvals, permits, or authorizations which are required to be
obtained pursuant to any federal or state law, or any federal or state
regulation thereunder, for or in connection with the transactions described in
and contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF SELLER AND PURCHASER.
------------------------------------------------------
3.01 Representations and Warranties of Seller. Seller represents and
----------------------------------------
warrants to Purchaser as follows:
(a) Good Standing and Power of Seller. Seller is, and shall remain
---------------------------------
through the Effective Time, a bank duly organized, and validly
existing under the laws of the State of Maine with corporate
power to own its properties and assets and to carry on its
business as presently conducted. Seller is, and shall remain
through the Effective Time, an insured bank, as defined in the
FDIA and applicable regulations thereunder.
11
<PAGE>
(b) Authorization of Agreement. The execution and delivery of this
--------------------------
Agreement, and the transactions contemplated hereby, have been
duly authorized by all necessary corporate action on the part of
Seller, and this Agreement is the valid and binding obligation of
Seller.
(c) Effective Agreement. Subject to the receipt of any and all
-------------------
necessary regulatory approvals and required consents, neither the
execution, delivery, and performance of this Agreement by Seller
nor the consummation of the transactions contemplated hereby,
shall (i) conflict with, result in the breach of, constitute a
violation or default, result in the acceleration of payment or
other obligations of Seller, or (ii) create a lien, charge, or
encumbrance, under any of the provisions of the Articles of
Incorporation or By-Laws of Seller, under any judgment, decree,
or order, under any law, rule, or regulation of any government or
agency thereof, or under any material contract, material
agreement, or material instrument to which Seller is subject,
where such conflict, breach, violation, default, acceleration, or
lien would have a material adverse effect on the Assets or
Seller's ability to perform its obligations hereunder.
(d) Title to Assets. Except for Leased Real Estate, Seller is the
---------------
sole owner of each of the Assets free and clear of any mortgage,
lien, encumbrance, or restriction of any kind or nature.
(e) Zoning Violations. As of the date of this Agreement, Seller has
-----------------
not received any notice of violation of any applicable zoning or
environmental regulation, ordinance, or other law, order,
regulation or requirement relating to the Leased Real Estate.
(f) Condemnation Proceedings. Seller has received no written notice
------------------------
of any pending or threatened condemnation proceedings affecting
or relating to the Branch.
(g) No Broker. No broker or finder, or other party or agent
---------
performing similar functions, has been retained by Seller or is
entitled to be paid based upon any agreements, arrangements, or
understandings made by Seller in connection with the transactions
contemplated hereby, and no brokerage fee or other commission has
been agreed to be paid by Seller on account of the transactions
contemplated hereby.
(h) Loans. To Seller's knowledge: (i) the Loans are evidenced by a
-----
note or loan agreement that is the valid and binding obligation
of all borrowers named therein; (ii) all loans were made in
compliance with, and have been serviced in compliance with, all
applicable laws; and (iii) there are no acts, omissions or
conditions that would give rise to any claim or right to
rescission, set-off, counterclaim or defense with respect to any
Loan. There are no oral modifications or amendments or additional
agreements related to the Loans that are not reflected in the
records of the Branch.
12
<PAGE>
(i) Deposit Accounts. The Deposit Accounts are each evidenced by a
----------------
deposit account agreement or IRA agreement that to Seller's
knowledge is valid, binding and enforceable in accordance with
its terms. Each Deposit Account was established, maintained and
serviced in conformity with all applicable laws and regulations.
(j) Real Estate Lease. The Real Estate Lease is in full force and
-----------------
effect; Seller is not in default thereunder, nor does any
condition exist which, with the passage of time or the giving of
notice (or both) would constitute a default by Seller thereunder.
Schedule F contains a true and correct copy of the Real Estate
Lease and all amendments and waivers thereto.
(k) Claims. There are no claims, suits, proceedings or other
------
litigation ("Claims") pending or, to Seller's knowledge,
threatened against Seller or any of the Assets, except those
Claims which, if adversely determined, would not have a material
adverse effect upon the ability of Seller or Purchaser to conduct
banking business at the Branch.
(l) Labor Matters. Except as set forth on Schedule Q, there are no
-------------
pending or threatened claims or complaints by any Branch
Employees relating to labor, employment or discrimination matters
(including, without limitation, wage/hour complaints, complaints
to the Maine Human Rights Commission, and complaints to the
National Labor Relations Board).
3.02 Representations and Warranties of Purchaser. Purchaser represents
-------------------------------------------
and warrants to Seller as follows:
(a) Good Standing and Power of Purchaser. Purchaser is, and shall
------------------------------------
remain through the Effective Time, a mutual savings bank duly
organized, validly existing, and in good standing under the laws
of the State of Maine with corporate power to own its properties
and to carry on its business as presently conducted. Purchaser
is, and shall remain through the Effective Time, an insured bank,
as defined in the FDIA and applicable regulations thereunder.
(b) Authorization of Agreement. The execution and delivery of this
--------------------------
Agreement, and the transactions contemplated hereby, have been
duly authorized by all necessary corporate action on the part of
Purchaser, and this Agreement is a valid and binding obligation
of Purchaser.
(c) Effective Agreement. Subject to the receipt of any and all
-------------------
necessary regulatory approvals and required consents, from all
appropriate regulatory agencies, and such approvals becoming
final and effective, the execution, delivery, and performance of
this Agreement by Purchaser, and the consummation of the
transactions contemplated hereby, will not conflict with, result
in the breach of, constitute a violation or default, result in
the acceleration of payment or other obligations, or create a
lien, charge, or encumbrance, under any of the provisions of the
Articles of Incorporation and Bylaws of Purchaser.
13
<PAGE>
(d) Capital. Purchaser will have on the Closing Date capital and cash
-------
sufficient to fulfill its obligations hereunder.
(e) No Broker. No broker or finder, or other party or agent
---------
performing similar functions, has been retained by Purchaser or
is entitled to be paid based upon any agreements, arrangements,
or understandings made by Purchaser in connection with the
transactions contemplated hereby, and no brokerage fee or other
commission has been agreed to be paid by Purchaser on account of
the transactions contemplated hereby.
3.03 Survival of Covenants, Representations and Warranties. The
-----------------------------------------------------
respective covenants, representations, and warranties of Seller and Purchaser
contained or referred to in this Agreement or in any certificate, schedule, or
other instrument delivered or to be delivered pursuant to this Agreement shall
survive the Closing. Except as otherwise specifically provided in this
Agreement, any claim for breach of these covenants, representations and
warranties must be brought within 18 months after the Closing Date.
4. WARRANTIES, REPRESENTATIONS AND ACTIONS RESPECTING EMPLOYEES AND PENSION
------------------------------------------------------------------------
AND EMPLOYEE BENEFIT PLANS.
--------------------------
4.01 List of Branch Employees. Seller has provided Purchaser with a
------------------------
list of the names of certain officers and employees (including full and
part-time employees) assigned to, and actively employed at, the Branch as of the
date hereof ("Branch Employees"). The description of the positions held by
----------------
Branch Employees is attached as Schedule A. An updated list of Branch Employees
as of the Effective Time will be provided to Purchaser not later than the
Closing Date.
4.02 Actions to be Taken by Purchaser. Purchaser covenants to Seller
--------------------------------
that it will do or cause the following to occur:
(a) Branch Employees. Purchaser shall offer to hire, as of the
----------------
Effective Time, all Branch Employees. Purchaser shall offer to
hire such Branch Employees in positions and responsibilities, and
at salaries and with benefits, comparable to those held by such
Employees as of the Effective Time. Purchaser shall cause all
Branch Employees who accept employment with Purchaser as of the
Effective Time to be eligible to participate in the "employee
welfare benefit plans" and "employee pension plans" (within the
meaning of Section 3(1) and Section 3(2) of ERISA, respectively)
of Purchaser in which similarly situated employees of Purchaser
are generally eligible to participate, provided that (1) nothing
herein shall prevent Purchaser from modifying or terminating such
plans from time to time, and (2) all Branch Employees who accept
employment with Purchaser and their dependents shall be covered
as of the Effective Time (and shall not be excluded from coverage
on account of any pre-existing condition) under any such plan
that is a group health plan of Purchaser subject to Part 6 of
Title I of ERISA. For purposes of any length of service
requirements, waiting periods, vesting periods or differential
benefits based on length of service in any such plan for which a
Branch Employee
14
<PAGE>
may be eligible after the Effective Time, Purchaser shall ensure
that service by such Branch Employee with Seller shall be deemed
to have been service with Purchaser; provided however, that any
----------------
Branch Employee hired by Purchaser shall not receive credit for
such employee's years of service with Seller for purposes of
determining the employee's accrued benefit under Purchaser's
defined benefit pension plan.
4.03 Actions to be Taken by Seller. Seller shall do or cause the
-----------------------------
following to occur:
(a) Branch Employees. Without Purchaser's prior written consent
----------------
(which consent shall not unreasonably be withheld) Seller shall
not (i) terminate any Branch Employee as of the date hereof,
unless such person is dismissed "for cause" and written notice of
such dismissal is provided to Purchaser, (ii) transfer or assign
Branch Employees as of the date hereof to another branch of the
Seller or assign a part-time Branch Employee to a position of
permanent employment, or (iii) increase the compensation of
Branch Employees as of the date hereof, other than to reflect
normal compensation increases in amount and frequency consistent
with the past practice of the Seller. From the date of this
Agreement until twelve (12) months following the Effective Time,
Seller will not solicit for hire any Branch Employees, provided,
however, that this provision shall not preclude Seller from
hiring any Branch Employees who, without direct inducement from
Seller, elect not to become or remain employed by Purchaser.
(b) Coverage Under Seller's Benefit Plans Before and After the
----------------------------------------------------------
Effective Time. While employed by Seller prior to the Effective
--------------
Time, Seller shall continue to provide the Branch Employees with
those employee benefits that Seller generally makes available to
its employees. Each Branch Employee who becomes employed by
Purchaser as of the Effective Time shall cease to be employed by
Seller at that time and shall be entitled to receive only those
post-employment benefits, if any, which Seller's benefit plans
generally make available to terminated employees.
(c) Seller's Pension Plan. Seller states that it formerly sponsored a
---------------------
defined benefit pension plan which has been terminated and that
all accrued benefits have been distributed to participants of the
pension plan. Seller warrants that Purchaser shall have no
funding or successor liability with respect to the terminated
pension plan.
4.04 Cooperation by Seller and Purchaser. After the Closing, Seller
-----------------------------------
and Purchaser each will cooperate with the other in providing reasonable access
to all information required for the operation of, or the preparation and
submission of reports or notices required in connection with the operation of
the retirement plans and any other employee benefit programs maintained by
Seller or Purchaser which cover any of the Branch Employees, including without
limitation the preparation and submission of reports or notices to the Pension
Benefit Guaranty Corporation, the Department of Labor, the Internal Revenue
Service, or any other governmental entity.
15
<PAGE>
5. CONDITIONS PRECEDENT TO CLOSING.
-------------------------------
5.01 Conditions to Seller's Obligations. The obligations of Seller to
----------------------------------
consummate the Acquisition are subject to the satisfaction, or the waiver by
Seller to the extent permitted by applicable law, of each of the following
conditions at or prior to the Closing:
(a) Prior Regulatory Approval of the Acquisition. All filings and
--------------------------------------------
registrations with, and notifications to, all federal and state
authorities required for consummation of the Acquisition and
Purchaser's operation of the Branch shall have been made, all
approvals and authorizations of all federal and state authorities
required for consummation of the Acquisition and Purchaser's
operation of the Branch shall have been received and shall be in
full force and effect, and all applicable waiting periods shall
have passed. The United States Department of Justice shall not
have objected to the consummation of the Acquisition, unless such
objection shall have been withdrawn or a United States District
Court shall have approved consummation of the Acquisition
notwithstanding the objection of the Department of Justice.
(b) Corporate Action. The Board of Directors of Purchaser shall have
----------------
taken all corporate action necessary by it to effectuate this
Agreement and the Acquisition, and Purchaser shall have furnished
Seller with a certified copy of each such resolution adopted by
the Board of Directors of Purchaser evidencing the same.
(c) Representations and Warranties. The representations and
------------------------------
warranties of Purchaser set forth in this Agreement shall be true
and correct in all material respects at and as of the Effective
Time with the same effect as though all such representations and
warranties had been made on and as of such time (unless a
different date is specifically indicated in such representations
and warranties), and Purchaser shall have delivered to Seller a
certificate in the form of attached Schedule I to that effect,
dated as of the Closing Date.
(d) Covenants. Each and all of the covenants and agreements of
---------
Purchaser to be performed or complied with at or prior to Closing
pursuant to this Agreement shall have been duly performed or
complied with in all material respects by Purchaser, or waived by
Seller, and Purchaser shall have delivered to Seller a
certificate in the form of attached Schedule I to that effect,
dated as of the Closing Date.
(e) Opinion of Counsel. Purchaser shall have delivered to Seller an
------------------
opinion of counsel substantially in the form of attached Schedule
J, dated as of the Closing Date.
5.02 Conditions to Purchaser's Obligations. The obligation of
-------------------------------------
Purchaser to consummate the Acquisition are subject to the satisfaction, or the
waiver by Purchaser to the extent permitted by applicable law, of each of the
following conditions at or prior to the Closing:
16
<PAGE>
(a) Prior Regulatory Approval. All filings and registrations with,
-------------------------
and notifications to, all federal and state authorities required
for consummation of the Acquisition and Purchaser's operation of
the Branch shall have been made, all approvals and authorizations
of all federal and state authorities required for consummation of
the Acquisition and Purchaser's operation of the Branch shall
have been received and shall be in full force and effect, and all
applicable waiting periods shall have passed. The United States
Department of Justice shall not have objected to the consummation
of the Acquisition, unless such objection shall have been
withdrawn or a United States District Court shall have approved
consummation of the Acquisition notwithstanding the objection of
the Department of Justice.
(b) Corporate Action. The Board of Directors of Seller shall have
----------------
taken all corporate action necessary by it to approve and
effectuate this Agreement and the Acquisition and Seller shall
have delivered to Purchaser a certificate in the form of attached
Schedule K to that effect, dated as of the Closing Date. Upon
approval by Seller's board of directors, this Agreement shall
constitute an official record of the Seller and shall be
maintained as such as a permanent record of the Seller.
(c) Representations and Warranties. The representations and
------------------------------
warranties of Seller set forth in this Agreement shall be true
and correct in all material respects as of the Effective Time
with the same effect as though all such representations and
warranties had been made on and as of such date (unless a
different date is specifically indicated in such representations
and warranties), and Seller shall have delivered to Purchaser a
certificate in the form of attached Schedule K to that effect,
dated as of the Closing Date.
(d) Covenants. Each and all of the covenants and agreements of Seller
---------
to be performed or complied with pursuant to this Agreement shall
have been duly performed or complied with in all material
respects by Seller, or waived by Purchaser, and Seller shall have
delivered to Purchaser a certificate in the form of attached
Schedule K to that effect, dated as of the Closing Date.
(e) Opinion of Counsel. Seller shall have delivered to Purchaser an
------------------
opinion of Bernstein, Shur, Sawyer & Nelson, P.A., substantially
in the form of attached Schedule L, dated as of the Closing Date.
(f) Lessor Consent. The lessor of the Leased Real Estate shall have
--------------
given such lessor's written consent to the assignment to and
assumption by Purchaser of the Real Estate Lease, without charge
or cost to Purchaser, and, if such is not already of record as of
the date hereof, shall have executed a recordable memorandum of
the Real Estate Lease.
(g) Mortgage Arrangements. Any mortgagee of the Leased Real Estate
---------------------
shall have entered an agreement with Purchaser of the type
described in Section 21 of the Real Estate Lease.
17
<PAGE>
(h) The Lessor of the Leased Real Estate shall have amended the Real
Estate Lease to add a description of the Leased Real Estate that
is reasonably acceptable to Purchaser and substantially in the
form of Schedule R, Description of Leased Property, as Exhibit A
to the Real Estate Lease.
5.03 Non-Satisfaction of Conditions Precedent. The non-occurrence or
----------------------------------------
delay of the Closing of the Acquisition by reason of the failure of timely
satisfaction of all conditions precedent to the obligations of any party hereto
to consummate the Acquisition shall in no way relieve such party of any
liability to the other party hereto, nor be deemed a release or waiver of any
claims the other party hereto may have against such party, if and to the extent
the failure of timely satisfaction of such conditions precedent is attributable
to the actions or inaction of such party. In the event all conditions precedent
to Closing have not been either satisfied or waived by July 1, 1999, either
party may terminate this Agreement by written notice to the other, as more fully
set forth in Section 10.
6. CLOSING.
-------
6.01 Closing and Closing Date. Subject to receipt of regulatory
------------------------
approvals and satisfaction of closing conditions, the Acquisition contemplated
by this Agreement shall occur at a Closing to be held at 9:00 A.M. on May 14,
1999 in the offices of counsel to Purchaser, located at One Monument Square,
Portland, Maine. If either a necessary regulatory approval has not been obtained
or there is a failure of any condition precedent to this Agreement, Closing
shall occur at such other location at 9:00 A.M. on such Friday subsequent to May
14, 1999 as Purchaser may select (as soon as possible after said date), and to
which Seller shall agree (unless it is not reasonably possible for Seller to
close at such time or place). If the Closing occurs other than on May 14, 1999,
because of a failure to obtain necessary regulatory approval or failure of a
condition precedent, Purchaser shall give Seller reasonable prior written notice
of the date it proposes for the Closing to occur. Notwithstanding any provision
to the contrary in this Agreement, in the event that the Closing does not occur
on May 14, 1999 because of the fault of Purchaser, the Purchase Price shall be
equal to the greater of (i) the Purchase Price calculated as of May 14, 1999,
and (ii) the Purchase Price calculated as of the actual Closing Date. The date
on which the Closing occurs is referred to in this Agreement as the "Closing
-------
Date". The "Effective Time" of this Agreement for purposes of making
- ---- --------------
calculations and other purposes specifically referred to in this Agreement shall
be as of the close of business at the Branch on the Closing Date, provided that
if the actions referred to in Sections 6.02 and 6.03 have not been completed by
12:00 midnight on the Closing Date, the Effective Time shall be deemed not to
have occurred and the parties will establish a Closing Date for a Friday that
Purchaser shall select and to which Seller shall agree (unless it is not
reasonably possible for Seller to close at such time). The Closing shall be
deemed to have been consummated and final as of the Effective Time. Except as
otherwise provided in this Agreement, all risks of loss shall pass from Seller
to Purchaser as of the Effective Time. All actions taken and documents delivered
at the Closing will be deemed to have been taken and executed simultaneously,
and no action will be deemed taken nor any document deemed delivered until all
have been taken and delivered.
6.02 Seller's Actions at Closing. At the Closing (unless another time
---------------------------
is specifically stated), Seller shall:
18
<PAGE>
(a) execute, acknowledge (if required pursuant to applicable
law), and deliver to Purchaser, dated the Closing Date:
(i) The Certificate of Seller in the form of attached
Schedule K;
(ii) The Opinion of Counsel for Seller in the form of
attached Schedule L;
(iii) An Instrument of Assumption of IRA's in the form of
attached Schedule N;
(iv) The Bill of Sale and Receipt in the form of attached
Schedule O;
(v) A Lease Assignment and Assumption Agreement in the
form of attached Schedule P with respect to the Real
Property Lease;
(vi) All other documents required to be delivered to
Purchaser by Seller at the Closing pursuant to the
terms of this Agreement, and any other documents which
Purchaser has furnished to Seller not later than ten
(10) business days prior to the Closing that are
necessary or reasonably advisable to consummate the
transactions contemplated by this Agreement.
(b) make available to Purchaser at the Branch the following:
(i) Such of the Assets as shall be capable of physical
delivery;
(ii) The originals or best available copies of files,
records, and documents (in whatever form or medium
then maintained by Seller) pertaining to the Assets
and the Deposit Liabilities, Loans and Safety Deposit
Business;
(iii) The contents of all safety deposit boxes maintained at
the Branch as of the Effective Time;
(iv) All safety deposit box lease agreements and other
documents pertaining to the safety deposit business of
the Branch as of the Effective Time;
(v) All safekeeping agreements, receipts, and other
documents pertaining to all safekeeping items held by
the Branch for its customers as of the Effective Time;
and
(vi) All safekeeping items held by the Branch for its
customers as of the Effective Time, subject to the
provisions of the applicable agreements, receipts, and
other documents pertaining thereto;
(c) deliver to Purchaser any funds required to be paid by Seller
to Purchaser at the Closing pursuant to the terms of this
Agreement.
19
<PAGE>
6.03 Purchaser's Actions at Closing.
------------------------------
(a) At the Closing (unless another time is specifically stated),
Purchaser shall execute, acknowledge (if required pursuant to
applicable law) and deliver to Seller:
(i) Certificate of Purchaser in the form of attached
Schedule I;
(ii) The Opinion of Counsel for Purchaser in the form of
attached Schedule J;
(iii) The Instrument of Assumption in the form of attached
Schedule M;
(iv) The Instrument of Assumption of IRAs in the form of
attached Schedule N;
(v) The Bill of Sale and Receipt in the form of attached
Schedule O;
(vi) Lease Assignment and Assumption Agreement in the form of
attached Schedule P with respect to the Real Property
Lease; and
(vii) All other documents required to be delivered to Seller by
Purchaser at the Closing pursuant to the terms of this
Agreement and any other documents which Seller has
furnished to Purchaser not later than ten (10) business
days prior to the Closing that are necessary or reasonably
advisable to consummate the transactions contemplated by
this Agreement.
(b) deliver to Seller any funds required to be paid by Purchaser to
Seller at the Closing pursuant to the terms of this Agreement.
6.04 Methods of Payment. Subject to the adjustment procedures set
------------------
forth in this Section 6.04, the transfer of the funds, if any, due to Purchaser
or to Seller, as the case may be, as set forth pursuant to the terms of Section
1.04 hereof, shall be made on the Closing Date in immediately available United
States Federal Funds. At least two (2) business days prior to the Closing,
Seller and Purchaser shall provide written notice to one another indicating the
account and bank to which such funds shall be wire transferred. In order to
facilitate the Closing, the parties agree: (i) that the amount of funds
transferred on the Closing Date pursuant to Section 1.04 hereof shall be
computed based upon (a) the Acquisition Consideration amount calculated as
specified in Section 1.04(a), (b) the book value plus accrued interest of the
Loans as of midnight on the day immediately preceding the Closing Date, (c) Cash
on Hand at the Branch as of midnight on the day immediately preceding the
Closing Date, and (d) the aggregate balance of all Deposit Liabilities
(including interest posted or accrued to such accounts) as of midnight on the
day immediately preceding the Closing Date; and (ii) that within ten (10)
business days after the Closing Date the parties shall make appropriate post-
closing adjustments, consistent with the provisions of Section 1.04 hereof,
based upon the actual Deposit Premium and the actual Deposit Liabilities, Loans
and Cash on Hand based on all transactions which took place up to the Effective
Time but which were not reflected as of midnight on the day immediately
preceding the Closing Date. In addition, prorations of Prepaid Expenses and
Deferred Expenses that cannot be
20
<PAGE>
reasonably calculated at the Closing shall be settled and paid based on actual
figures as soon as possible after the Closing.
6.05 Availability of Closing Documents. The documents proposed to be used
---------------------------------
and delivered at the Closing shall be made available for examination by the
respective parties not later than 12:00 noon, Portland, Maine time, on the third
business day prior to the Closing Date.
6.06 Effectiveness of Closing. Upon the satisfactory completion of such
------------------------
Closing, the Acquisition shall be deemed to be effective, and the Closing shall
be deemed to have occurred as of the Effective Time.
7. CERTAIN TRANSITIONAL MATTERS.
----------------------------
7.01 Transitional Action by Purchaser. Prior to and after the Effective Time
--------------------------------
unless otherwise indicated:
(a) Payment of Deposit Liabilities. After the Effective Time, Purchaser
------------------------------
will: (1) pay in accordance with the law and customary banking
practices and contractual terms all properly drawn and presented
checks, negotiable orders of withdrawal, drafts, debits, and other
withdrawal orders presented to Purchaser by mail, over the counter,
through electronic media, or through the check clearing system of the
banking industry, by Deposit Accounts customers, whether drawn on
checks, negotiable orders of withdrawal, drafts, or other withdrawal
order forms provided by Seller or by Purchaser; (ii) in all other
respects discharge, in the usual course of the banking business, the
duties and obligations of Seller with respect to the balances due and
owing to the Deposit Accounts customers; provided, however, that
Purchaser's obligations pursuant to this Section 7.01 to honor checks,
negotiable orders of withdrawal drafts, and other withdrawal orders on
forms provided by Seller and carrying its imprint (including its name
and transit routing number) shall not apply to any such check,
negotiable order of withdrawal, draft, or other withdrawal order
presented to Purchaser more than ninety (90) days following the
Closing Date.
(b) Demand for Termination of Deposit Liabilities. Purchaser hereby
----------------------------------------------
acknowledges that if, after the Effective Time, any Deposit Accounts
customers, instead of accepting the obligation of Purchaser to pay the
Deposit Liabilities (including accrued interest thereon) assumed
hereunder, shall demand payment from Seller for all or any part of any
such Deposit Liabilities (including accrued interest thereon), Seller
shall not be liable or responsible for making such payment.
(c) Checks, etc. Presented to Purchaser. If any Deposit Accounts
-----------------------------------
customer draws a check, draft, or withdrawal order against the Deposit
Liabilities which is presented or delivered to Seller not later than
ninety (90) days after the Closing, Seller shall promptly batch all
such checks, drafts or withdrawal orders and to deliver the same to
Purchaser daily. In the event Seller should pay any properly payable
check, draft, or withdrawal order, Purchaser shall immediately, upon
demand by Seller,
21
<PAGE>
reimburse Seller for such payment or charge. Seller shall be chargeable
with the warranties and representations implied by law with respect to
any such check, draft, or withdrawal order which may be paid by Seller
over the counter.
During the first sixty (60) days after the Effective Time, there shall
be a daily settlement by wire transfer of amounts of checks, drafts,
withdrawal orders or return items that Seller has paid on that day in
accordance with Schedule S. Seller shall send to Purchaser an
electronic summary of all such items it has paid and shall deliver such
checks, drafts, or withdrawal orders as soon as possible on the day
received by Seller, as more fully set forth in Schedule S.
(d) Delivery of Purchaser's Check Forms. In order to reduce the
------------------------------------
continuing charges to Seller through the check clearing system of the
banking industry which would result from check forms of Seller being
used after the Effective Time by the Deposit Accounts customers,
Purchaser shall, on or before the Effective Time, at its cost and
expense, and without charge to Seller or such customers, notify all
such customers by letter, in a form reasonably acceptable to Seller,
of Purchaser's assumption of Deposit Liabilities (which shall include
a notification to those Deposit Accounts customers whose accounts are
then covered by any type of overdraft protection offered by Seller)
that from and after the Effective Time all such overdraft protection
from Seller shall terminate and shall be assumed by Purchaser and
furnish each Deposit Accounts customer with checks using the forms of
Purchaser and with instructions to the customer to utilize such checks
on Purchaser's forms on and after the Effective Time and thereafter to
destroy any unused checks on Seller's forms; such notice and such
delivery of checks by Purchaser shall be by first class U.S. mail.
(e) Uncollected Checks Returned to Seller. Adjustment of Acquisition
----------------------------------------------------------------
Payments
--------
Purchaser shall promptly pay to Seller an amount equivalent to
the amount of any checks, negotiable orders of withdrawal, drafts, or
any other withdrawal orders (net of the applicable Deposit Premium paid
by Purchaser with respect to the Deposit Liabilities represented by any
such instrument) credited as of the Effective Time to any Deposit
Accounts which are returned uncollected to Seller after the Effective
Time and which shall include an amount equivalent to holds placed upon
such Deposit Accounts for items cashed by Seller (net of the applicable
Deposit Premium paid by Purchaser with respect to the Deposit
Liabilities represented by any such instrument) as of the Effective
Time which items are subsequently dishonored; provided, however, that
if Seller shall have failed to make or properly reflect in the
information provided to Purchaser any provisional credit or hold on any
such Deposit Accounts in respect of uncollected funds represented by
any such item, Purchaser's obligations under this subsection (d) in
respect of such item shall be limited to the amount of collected funds
in such Deposit Accounts.
22
<PAGE>
(f) Default in Loan Payments to Seller. If the balance due on any Loan
-----------------------------------
has been reduced by Seller as a result of a payment by check or draft
received prior to the Effective Time, which item is returned to Seller
after the Effective Time, the asset value represented by the Loan
shall be correspondingly increased and an amount in cash equal to such
increase shall be promptly paid by Purchaser to Seller.
(g) Notices to Obligors on Loans. Purchaser shall, as soon as practicable
----------------------------
after the Effective Time, prepare and transmit at Purchaser's expense
to each obligor on each Loan a notice to the effect that the Loan has
been transferred and directing that payments be made to Purchaser at
any address of Purchaser specified by Purchaser, with Purchaser's name
as payee on any checks or other instruments used to make such
payments.
(h) Data Processing. All tasks and obligations concerning the provision
----------------
of data processing services to or for the Branch after the Effective
Time, are the sole and exclusive responsibility of, and shall be
performed solely and exclusively by, the Purchaser. Seller agrees to
provide reasonable access to its data processing system and its
information systems personnel to permit Purchaser and its data
processing contractor to plan for conversion of all Deposit Accounts
to Purchaser's data processing system by the opening of business on
the business day following the Effective Time. Seller shall deliver
electronic records of all Deposit Accounts and Loans in a medium
specified by Purchaser on the Closing Date.
(i) New ATM Cards. Purchaser shall, prior to the Thursday before the
--------------
Closing, furnish ATM cards to Deposit Accounts customers to replace
Seller's ATM cards. Purchaser shall notify affected customers to
destroy the old ATM cards and shall notify customers of standard
withdrawal limits for the weekend that immediately follows the Closing
Date.
(j) Security for Public Deposits. Purchaser shall, not later than the
-----------------------------
Effective Time, supply suitable government-backed securities as
security for any deposits of governmental units included among the
Deposit Liabilities for which Seller had provided similar security.
(k) Insurance. Purchaser shall be responsible for all insurance
---------
protection for the Branch, including but not limited to premises and
activities conducted thereon from and after the Effective Time.
(l) Removal of Excluded Assets. From and after the Effective Time,
--------------------------
Purchaser will cooperate with and permit Seller, at Seller's option
and expense and at no expense to Purchaser, to remove any assets from
the Branch not included in the Acquisition ("Excluded Assets");
---------------
provided, however, that Seller shall arrange for the removal of such
Excluded Assets as soon as possible at such times and in a manner that
does not significantly interfere with the normal business activities
and operations of Purchaser at the Branch. Purchaser shall not be
liable for any loss or damage to
23
<PAGE>
any such Excluded Assets prior to their removal from the Branch unless
such loss or damage results from Purchaser's negligence.
(m) Referred New Accounts. Beginning on the Monday prior to the Closing
---------------------
Date, and ending at the Effective Time, Seller shall allow, and
Purchaser shall place, a Customer Service Representative at the Branch
to open all new deposit accounts as accounts of Purchaser ("Referred
--------
New Accounts"). Purchaser shall keep records of Referred New Accounts
------------
and shall provide a summary of such records to Seller at Closing, and
the balances of Referred New Accounts will be included in the
computation of Average Branch Deposits and the Deposit Premium as
provided in Section 1.04(a).
7.02 Transitional Action by Seller. Prior to and after the Closing, unless
-----------------------------
otherwise indicated:
(a) Training of Branch Employees by Purchaser. Prior to the Effective
------------------------------------------
Time, Seller shall cooperate with Purchaser, at Purchaser's expense
and at no expense to Seller, in making Branch Employees available at
reasonable times for whatever program of training Purchaser deems
advisable; provided, however, that Purchaser shall conduct such
training program in a manner that does not materially interfere with
or prevent the performance of the normal duties and activities of such
Branch Employees.
(b) Installation of Equipment by Purchaser. During the period following
---------------------------------------
receipt of all necessary regulatory approvals for the Acquisition
until the Closing Date, but at least twenty-five (25) days prior to
the Closing Date, Seller shall cooperate with and permit Purchaser, at
Purchaser's option and expense and at no expense to Seller, to make
provision for the installation of teller equipment in the Branch;
provided, however, that Purchaser shall arrange for the installation
of such equipment at such times and in a manner that does not
materially interfere with the normal business activities and operation
of Seller or the Branch.
(c) IRA Documentation. Seller shall cooperate with Purchaser in securing
------------------
proper documentation of change in custodian and/or trustee for any IRA
account which is included in the Deposit Liabilities of the Branch. In
addition, the parties shall cooperate in sending appropriate and
timely notification of such change to affected customers.
(d) Statements to Deposit Account Customers. At Seller's cost, Seller
----------------------------------------
shall issue, as of the Effective Time, standard account statements for
each statement savings, NOW, and checking account included in the
Deposit Liabilities and a short-cycle statement for each Loan account.
Passbook transaction information that has not been posted to a
passbook as of the Effective Time will be passed by Seller to
Purchaser via paper report listings or magnetic tape. Purchaser shall
be responsible for posting on passbooks the transactions reflected on
such paper report listings or magnetic tape for passbook accounts.
24
<PAGE>
(e) Notices to Deposit Account and Loan Customers. Subsequent to the
----------------------------------------------
procurement of all appropriate regulatory approvals for the
Acquisition, and at its sole cost and expense, Seller shall notify its
Deposit Account customers by letter in a form reasonably acceptable to
Purchaser of the pending Acquisition. Seller shall provide Purchaser
with names, addresses, account data and any other information
necessary for Purchaser to give advance notice of revised terms
applicable to Deposit Accounts and Loans after the acquisition.
Seller shall join in any notice of change of terms reasonably
requested by Purchaser, to the extent notice from Seller is required
by applicable law in order to make any account changes effective as of
the Effective Time. In addition, Purchaser and Seller shall cooperate
in making reasonable communication with Branch customers designed to
maximize customer retention.
(f) Deactivation of ATMs and ATM Cards. Seller will deactivate all ATM
-----------------------------------
cards issued with respect to all Deposit Accounts and will
electronically block access of those cards to the Deposit Accounts,
and will deactivate the ATM at the Branch. The parties will determine
the time for deactivation of Seller's ATM cards and activation of
cards issued by Purchaser in accordance with the goal of minimizing
the time between deactivation and activation. To this end, the parties
will make all reasonable efforts and arrangements with their
respective third-party processors to provide uninterrupted service,
such efforts to be described in Schedule T, provided that in no event
shall the time between deactivation and activation exceed the period
between the Effective Time and 9:00 A.M. on the day following the
Closing Date.
(g) Seller's Responsibilities After Effective Time. As early as
-----------------------------------------------
practicable on the day following the Closing Date, Seller will deliver
to Purchaser the production/divestiture file tapes and a trial balance
of records of account containing the pertinent data and descriptive
information relating to the Deposit Accounts and Loans and containing
the ATM customer file via electronic media; provided, further, that
such data and information shall include detailed transaction history
for the most recent statement cycle ending on the Closing Date, and
microfiche for the regular statement cycle immediately preceding
thereto. If after the Effective Time Seller receives any payment with
respect to a Loan, Seller shall forward it to Purchaser as promptly as
practicable, using reasonable efforts to do so by the next business
day.
(h) Disclosure of Certain Accounts. At the Closing, Seller shall
------------------------------
disclose a list of, and provide any and all accompanying documentation
for, those Deposit Accounts that have any lien, IRS levy, trustee
process, or other attachment, as well as all dormant accounts and
accounts of customers who are involved in any pending or threatened
litigation with Seller, as of midnight on the day before the Closing
Date.
(i) Deposit Accounts That May Exceed FDIC Limits After Closing. Seller
-----------------------------------------------------------
shall reasonably cooperate with and provide information to Purchaser,
including but not
25
<PAGE>
necessarily limited to the customers' account balances, names and
addresses, to assist Purchaser in identifying those Branch customers
whose balances may exceed FDIC limits after Closing because such
customers are already customers of Purchaser.
(j) Excluded Bundled Products.
--------------------------
(1) Between the time of execution of this Agreement and the Effective
Time, Seller agrees not to solicit Branch customers for, or establish
at the Branch, any deposit account that is bundled with another
banking product or other financial service of a type that Purchaser is
not purchasing under this Agreement if such product "bundle" is first
offered by Seller after the date hereof ("Excluded Bundled PRODUCTS").
-------------------------
(2) As used in this Section (j), the term "bundled" refers to a
combination of products or services through advantageous pricing,
combined marketing, or explicit tying.
(3) (a) Excluded Bundled Products include, without limitation, a
Deposit Account bundled with one or more loan products not covered by
this Agreement.
(b) Excluded Bundled Products do not include (i) combinations of
------
Deposit Accounts and overdraft protection accounts, or (ii) any other
manner or method of bundling products currently being offered to the
public by Seller on the date hereof.
(4) Notwithstanding the foregoing and without limiting Seller's
obligations under Section 2.01(a), Seller may solicit any customer for
such bundled products if the deposit account involved is to be
established at Seller's branches other than the Branch.
7.03 Transitional Action by All Parties. Prior to and after the Closing,
----------------------------------
unless otherwise indicated:
(a) Cooperation in Transition. Purchaser and Seller shall use their best
-------------------------
efforts to cooperate with each other in assuring an orderly transition
of ownership of the Assets and responsibility for the Deposit
Liabilities for a period of sixty (60) days following the Effective
Time, or such longer period as may be specified in this Agreement with
respect to specific actions.
(b) Automated Clearing House System. Prior to the Effective Time,
-------------------------------
Purchaser will make reasonable efforts to notify all originators of
ACH entries affecting Deposit Accounts or Loans of the terms and
effect of the Acquisition. For a period of ninety (90) days after the
Effective Time, Seller will deliver to Purchaser each business day an
ACH NACHA format tape or paper listing of all ACH entries received by
Seller for debit or credit to a Loan Account or Deposit Account,
26
<PAGE>
accompanied by either a check, or deposit advice to a settlement
account with the Seller, for the amount by which such credits exceed
debits or an invoice, or charge advice to a settlement account with
the Seller, for the amount by which such debits exceed credits, which
invoice shall be paid by Purchaser on the same business day if
received before 12:00 noon local time or on the next business day if
received after 12:00 noon local time.
(c) Checks, etc. Presented after Effective Time. Purchaser and Seller
-------------------------------------------
shall cooperate with each other at or prior to the Closing to provide
for settlement by Purchaser or Seller, as the case may be, of checks,
returns, and other items which are presented to Purchaser or Seller
after the Effective Time and which are drawn on or chargeable to any
of the Deposit Accounts.
(d) Loss due to Late Posting, etc. on Closed Deposit Accounts. If,
---------------------------------------------------------
notwithstanding both parties' compliance with Schedule S, during the
thirty (30) days after the Closing Date there is a loss due to the
late posting and late return to the bank of first deposit (as defined
in Regulation CC) on closed Deposit Accounts, Purchaser and Seller
agree to share any such loss equally between them. If a late return
loss occurs due to a party's failure to comply with Schedule S, such
party shall bear that loss.
(e) Deposit Account Overdrafts. Deposit Account overdrafts approved with
--------------------------
respect to ledger dates on or after the Effective Time will be the
responsibility and risk of Purchaser. Deposit Account overdrafts
approved with respect to ledger dates more than five (5) days prior to
the Effective Time will be the responsibility and risk of the Seller.
Deposit Accounts overdrafts approved with respect to ledger dates
during the period from five (5) days prior to the Effective Time to
the day prior to the Closing Date, inclusive, will initially be the
responsibility and risk of Purchaser; provided, however, that
Purchaser shall have the right to retransfer any such overdrafts
(other than overdrafts of customers who are specifically identified in
writing by Purchaser to Seller not less than five (5) days prior to
the Effective Time) back to Seller for its responsibility and risk
within five (5) days following the Effective Time, and Seller will
repurchase all rights in respect of such overdrafts from Purchaser for
the amount of the overdrafts outstanding at the time they
retransferred back to Seller (net of any Deposit Premium paid by
Purchaser to Seller attributable to such overdrafts), and provided
further, that Purchaser has closed all Deposit Accounts on which such
overdrafts exist not later than the date of their retransfer.
7.04 Effect of Transitional Action. Except as and to the extent expressly
-----------------------------
set forth in this Section 7, nothing contained in this Section 7 shall be
construed to be an abridgment or nullification of the rights, customs, and
established practices under applicable banking laws and regulations as they
affect any of the matters addressed in this Section 7.
8. GENERAL COVENANTS AND INDEMNIFICATION.
-------------------------------------
27
<PAGE>
8.01 Information. Except as otherwise set forth in the Agreement, for a
-----------
period of six (6) years following the Closing, Seller and Purchaser mutually
agree to provide each other, upon written request and to the extent allowed by
applicable law, with reasonable access to, or copies of, information and records
relating to the Branch, including, without limitation, Branch Employee and
customer files which are in the possession or control of Purchaser or Seller
reasonably necessary to permit Seller or Purchaser or any of their affiliates to
comply with or contest any applicable legal, tax, banking, accounting, or
regulatory policies or requirements, any legal or regulatory proceedings, or
inquiries by customers or Branch Employees. The provisions of this Section 8.01
shall survive the Closing for a period of six (6) years and any claim for the
breach of this Section 8.01 must be brought within such six-year period.
8.02 Confidentiality Obligations of Purchaser. From and after the date
----------------------------------------
hereof, Purchaser shall treat all information received from Seller concerning
the business, assets, operations, and financial condition of Seller (including
without limitation the Branch), as confidential, unless and to the extent that
Purchaser can demonstrate that such information was already known to Purchaser
or in the public domain, and Purchaser shall not use any such information (so
required to be treated as confidential) for any purpose except in furtherance of
the transactions contemplated hereby, provided that after the Effective Time
Purchaser can use for any legal purpose any and all information about Deposit
Accounts and Assets acquired in the Acquisition. Upon the termination of this
Agreement, Purchaser shall promptly return all documents and work papers
containing, and all copies of, any such information (so required to be treated
as confidential) received from or on behalf of Seller in connection with the
transactions contemplated hereby. The covenants of Purchaser contained in this
Section 8.02 are of the essence and shall survive any termination of this
Agreement; provided, however, that Purchaser shall not be deemed to have
violated the covenants set forth in this Section 8.02 if Purchaser shall in good
faith disclose any of such confidential information in compliance with any legal
process, order, or decree issued by any court or agency of government of
competent jurisdiction.
8.03 Confidentiality Obligations of Seller. From and after the date
-------------------------------------
hereof, Seller shall treat all information received from Purchaser concerning
Purchaser's business, assets, operations, and financial condition as
confidential, unless and to the extent Seller can demonstrate that such
information was already known to Seller or in the public domain, and Seller
shall not use any such information (so required to be treated as confidential)
for any purpose except in furtherance of the transactions contemplated hereby.
Upon the termination of this Agreement, Seller shall promptly return all
documents and work papers containing, and all copies of, any such information
(so required to be treated as confidential) received from or on behalf of
Purchaser in connection with the transactions contemplated hereby. The
covenants of Seller contained in this Section 8.03 are of the essence and shall
survive any termination of this Agreement; provided, however, that Seller shall
not be deemed to have violated the covenants set forth in this Section 8.03 if
Seller or any of such affiliates shall in good faith disclose any of such
confidential information in compliance with any legal process, order, or decree
issued by any court or agency of government of competent jurisdiction.
8.04 Indemnification by Seller. Except as specifically disclaimed in
-------------------------
this Agreement, from and after the Effective Time, Seller shall indemnify, hold
harmless, and defend Purchaser and its affiliates and agents from and against
all claims, losses, liabilities, demands and obligations,
28
<PAGE>
including without limitation, reasonable attorneys' fees and expenses, arising
out of any actions, suits, or proceedings (other than proceedings to prevent or
limit the consummation of the Acquisition) relating to the Assets, the Deposit
Liabilities (including checks negotiated prior to the Effective Time), the other
liabilities assumed by Purchaser hereunder, or the operations at the Branch,
prior to the Effective Time. Seller's indemnity obligation hereunder shall
include, without limitation, claims relating to wrongful or negligent acts of
Seller that occurred prior to the Effective Time, even if the claim is not
asserted until after the Effective Time. The provisions of this Section 8.04
shall apply to actions, suits, or proceedings resulting from breach by Seller of
any of the representations, warranties, or covenants of Seller contained in this
Agreement. Purchaser shall give Seller written notice of any written claim,
demand, process and/or pleading received by Purchaser in connection with any
such actions, suits or proceedings; provided, however, that failure to give such
notice shall not affect Seller's indemnification obligations under this Section
8.04 unless and to the extent that such failure is prejudicial to Seller. Seller
will, upon written request of Purchaser, take over the defense in any such
actions, suits or proceedings through counsel selected by Seller, compromise
and/or settle the same and prosecute any available appeals or reviews of any
adverse judgment or ruling that may be entered therein. The obligations of
Seller pursuant to this Section 8.04 shall survive the Closing. Except as
otherwise specifically provided in this Agreement, any claim for indemnification
under this Section must be brought within 18 months after the Closing Date.
8.05 Indemnification by Purchaser. From and after the Effective Time,
----------------------------
Purchaser shall indemnify, hold harmless and defend Seller and its affiliates
and agents from and against all claims, losses, liabilities, demands and
obligations, including, without limitation, reasonable attorneys' fees and
expenses, arising out of any actions, suits or proceedings relating to the
Assets, the Deposit Liabilities (including checks negotiated on and after the
Effective Time), the other liabilities assumed by Purchaser hereunder, or the
operations at the Branch, including, without limitation, wrongful or negligent
acts of Purchaser, to the extent such claims, losses or liabilities arise on and
after the Effective Time or relate to the Deposit Liabilities expressly assumed
herein. The provisions of this Section 8.05 shall apply to any actions, suits
or proceedings resulting from breach by Purchaser of any of the representations,
warranties or covenants of Purchaser contained in this Agreement. Seller shall
give Purchaser written notice of any written claim, demand, process and/or
pleading received by Seller or it affiliates in connection with any such
actions, suits or proceedings; provided, however, that failure to give such
notice shall not affect Purchaser's indemnification obligations under this
Section 8.05 unless and to the extent that such failure is prejudicial to
Purchaser. Purchaser will, upon written request of Seller, take over the
defense in any such actions, suits or proceedings through counsel selected by
Purchaser, compromise and/or settle the same and prosecute any available appeals
or review of any adverse judgment or ruling that may be entered therein. The
obligations of Purchaser pursuant to this Section 8.05 shall survive the
Closing. Except as otherwise specifically provided in this Agreement, any claim
for indemnification under this Section resulting from breach by Purchaser of the
representations, warranties, and covenants of Purchaser contained in this
Agreement must be brought within 18 months after the Closing Date.
8.06 Solicitation of Customers.
-------------------------
(a) For two (2) years following the Effective Time, Seller will not, and
will not permit
29
<PAGE>
any of its affiliates to, knowingly solicit customers whose Deposit
Accounts liabilities are assumed or whose Loans are purchased by
Purchaser pursuant to this Agreement, except as may occur in
connection with advertising or solicitations directed to the public in
York County, Maine, generally. Notwithstanding the foregoing, the
provisions of this Section 8.06(a) shall not restrict Seller from
soliciting business entities for its non-deposit products.
(b) Seller shall not establish a branch or ATM in Kennebunk or
Kennebunkport, Maine, for a period of two (2) years after the Closing
Date.
8.07 Further Assurances. From and after the date hereof, each party hereto
------------------
agrees to execute and deliver such instruments and to take such other
actions as the other party hereto may reasonably request in order to carry out
and implement this Agreement.
8.08 Purchaser's Operation of Branch.
-------------------------------
(a) Logos and Sign Faces. Not later than the Effective Time, Purchaser:
---------------------
(i) shall change the legal name of the Branch to a name that does not
include the word "Coastal", and (ii) except for any documents or
materials in possession of the customers of the Branch (including but
not limited to deposit tickets and checks), shall not use and shall
cause the Branch to cease using (A) any signage, stationery,
advertising, documents, or printed or written materials that refer to
such Branch by any name that includes the word "Coastal@ and (B) any
logo, trademark or service mark or trade name registered in the name
of, or otherwise owned by Seller or any of its affiliates, except as
otherwise provided in this Agreement or permitted pursuant to any
written agreement(s) between Purchaser and Seller or its affiliates.
During the seven (7) day period immediately preceding the Effective
Time, Seller shall cooperate with any reasonable request of Purchaser
directed to accomplishing the installation of signage of Purchaser's
choosing at the Branch prior to the Effective Time; provided, however,
that all such installations shall be at the sole and exclusive expense
of Purchaser, that such installations shall be performed in such a
manner that does not materially interfere with the normal business
activities and operations of the Branch and that all such installed
signage shall be covered in such a way as to be unreadable at all
times prior to the Effective Time. Immediately following the
Effective Time, Seller shall, at its sole and exclusive expense,
commence activities directed to accomplishing the removal of all of
Seller's existing signage at the Branch and will diligently pursue
such activities in good faith so that such removal may be effected as
promptly as practicable following the Closing.
9. [RESERVED]
10. TERMINATION.
-----------
10.01 Methods of Termination. This Agreement may be terminated in any of
----------------------
the following ways:
30
<PAGE>
(a) By either Purchaser or Seller, in writing, delivered to the other
party at least five days in advance of such termination, if the
Closing has not occurred by July 1, 1999.
(b) At any time prior to the Effective Time by the mutual consent in
writing of Purchaser and Seller;
(c) By Purchaser in writing if and when, at any time prior to the
Closing, any condition set forth in Section 5.02 of this Agreement
becomes incapable of being in all material respects fulfilled and
such condition has not been waived by Purchaser;
(d) By Seller in writing if and when, at any time prior to the Closing,
any condition set forth in Section 5.01 of this Agreement becomes
incapable of being fulfilled in all material respects and such
condition has not been waived by Seller;
(e) At any time prior to the Effective Time by Purchaser or Seller in
writing if the other shall have been in breach of any representation
and warranty, covenant, or agreement, and such breach shall not have
been cured within 15 days after the giving of notice to the breaching
party of such breach;
(f) By Seller or Purchaser in writing at any time after any applicable
regulatory authority has denied approval of any application of
Purchaser for approval of the transactions contemplated hereby and
such denial has become final and nonappealable.
10.02 Procedure Upon Termination. In the event of termination pursuant to
--------------------------
Section 10.01, and except as otherwise stated therein, written notice shall be
given to the other party, and this Agreement shall terminate immediately upon
receipt of such notice unless an extension is consented to by the party having
the right to terminate. If this Agreement is terminated as provided in this
Section 10:
(a) each party will return all documents, work papers, and other
materials of the other party, including photocopies or other
duplications thereof, relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof, to the
party furnishing the same; and
(b) all information received by either party hereto with respect to the
business of the other party (other than information which is a matter
of public knowledge or which has heretofore been published in any
publication for public distribution or filed as public information
with any governmental authority) shall be held confidential by such
party and not disclosed by such party to third persons and shall not
be used for any purpose whatsoever.
10.03 Effect of Termination.
---------------------
31
<PAGE>
(a) Each party's right of termination under Section 10.01 is in addition
to any other rights it may have under this Agreement or otherwise,
and the exercise of a right of termination will not be an election of
remedies. If this Agreement is terminated pursuant to Section 10.01,
all further obligations of the parties under this Agreement will
terminate, except that the obligations in Sections 8.02, 8.03, 10.02,
and 11.01 will survive; provided, however, that if this Agreement is
terminated by a party because of a breach of the Agreement by the
other party or because one or more of the conditions to the
terminating party's obligations under this Agreement is not satisfied
as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to
pursue all legal remedies will survive such termination unimpaired.
(b) Except as otherwise specifically provided in this Agreement, in the
event of termination of this Agreement pursuant to this Section 10,
neither Purchaser nor Seller nor their respective affiliates,
officers, directors or agents shall have any liability or obligation
to the other of any nature whatsoever except liabilities and
obligations arising from any material breach of any provision of this
Agreement occurring prior to the termination hereof.
11. MISCELLANEOUS PROVISIONS.
------------------------
11.01 Expenses. Except as and to the extent otherwise specifically
--------
allocated herein, each of the parties hereto shall bear its own expenses,
whether or not the transactions contemplated hereby are consummated. All sales
taxes, if any, shall be paid by Purchaser. The provisions of this Section 11.01
relating to the payment of such expenses and taxes are of the essence and shall
survive the termination of this Agreement.
11.02 Certificates. All statements contained in any certificate delivered
------------
by or on behalf of Seller or Purchaser pursuant to this Agreement or in
connection with the transactions contemplated hereby shall be deemed to be
representations and warranties of the party delivering the certificate
hereunder.
11.03 Amendment and Modifications. The parties hereto, by mutual consent of
---------------------------
their duly authorized officers may amend, modify, and supplement this Agreement
in such manner as may be agreed upon by them in writing.
11.04 Waivers. Each party hereto, by written instrument signed by an
-------
officer of such party, may extend the time for the performance of any of the
obligations or other acts of the other party hereto and may waive, but only as
affects the party signing such instrument: (a) any inaccuracies in the
representations or warranties of the other party contained or referred to in
this Agreement or in any document delivered pursuant hereto; (b) compliance with
any of the covenants or agreements of the other party contained in this
Agreement; (c) the performance (including performance to the satisfaction of a
party or its counsel) by the other party of such of its obligations set out
herein; (d) satisfaction of any condition to the obligations of the waiving
party pursuant to this Agreement. The execution, acknowledgment, and delivery
of any
32
<PAGE>
instrument or document required pursuant to the provisions of this Agreement
shall not be deemed to be a waiver of any rights or obligations of any party to
this Agreement.
11.05 Notices. Any notice or other communication required or permitted
-------
pursuant to this Agreement shall be effective only if it is in writing and
delivered personally, by facsimile transmission, or by registered or certified
return receipt mail, postage prepaid or by overnight courier, addressed as
follows:
If to Purchaser:
Kendall E. Reed
Executive Vice President
Kennebunk Savings Bank
104 Main Street, P.O. Box 28
Kennebunk, ME 04043-0028
with a copy to:
Richard P. Hackett
Pierce Atwood
One Monument Square
Portland, ME 04101
If to Seller:
Edward M. Williams
Senior Vice President
Coastal Bank
36 Thomas Drive
Westbrook, ME 04092
With a copy to:
Wayne E. Tumlin, Esq.
Bernstein, Shur, Sawyer & Nelson
One Hundred Middle Street
P.O. Box 9729
Portland, ME 04104
or such other person or address as any such party may designate by notice to the
other parties, and shall be deemed to have been given as of the date received.
11.06 Parties in Interest: Assignment; Amendment. (a) This Agreement
------------------------------------------
is binding upon and is for the benefit of the parties hereto and their
respective successors, legal representatives, and assigns. No person who is not
a party hereto (or a successor or assignee of such party) shall have any rights
or benefits under this Agreement, either as a third party beneficiary or
otherwise.
33
<PAGE>
This Agreement cannot be assigned, and this Agreement cannot be amended or
modified, except by a written agreement executed by the parties hereto or their
respective successors and assigns. Without limiting the foregoing, the
provisions of section 8.06 shall apply to any successor and any affiliate of
Seller existing now or in the future.
11.07 Headings. The headings and table of contents used in this Agreement
--------
are inserted for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
11.08 Terminology. The specific terms of art that are defined Section A of
-----------
this Agreement shall apply throughout this Agreement (including without
limitation each Schedule hereto), unless expressly indicated otherwise. Unless
expressly indicated otherwise in a particular context, the terms "herein,"
"hereunder," "hereto," "hereof," and similar references refer to this Agreement
in its entirety and not to specific articles, sections, schedules, or
subsections of this Agreement. Unless expressly indicated otherwise in a
particular context, references in this Agreement to enumerated articles,
sections, and subsections refer to designated portions of this Agreement (but do
not refer to portions of any Schedule unless such Schedule is specifically
referenced) and do not refer to any other document.
11.09 Flexible Structure. References in this Agreement to federal or
------------------
state laws or regulations, jurisdictions, or chartering or regulatory
authorities shall be interpreted broadly to allow maximum flexibility in
consummating the transactions contemplated hereby in light of changing business,
economic, and regulatory conditions. Without limiting the foregoing, in the
event Seller and Purchaser agree in writing to alter the legal structure of the
Acquisition contemplated by this Agreement, references in this Agreement to such
laws, regulations, jurisdictions, and authorities shall be deemed to be altered
to reflect the laws, regulations, jurisdictions, and authorities that are
applicable in light of such change.
11.10 Press Releases. Except to the extent required by law (in
--------------
conjunction with regulatory approvals or otherwise), without the prior written
consent of the other party, neither Purchaser nor Seller will, and each will
direct its representatives not to make any communication to Branch Employees or
customers or to the general public with respect to the transaction between the
parties or any of the terms, conditions, or other aspects of the transactions
contemplated in this Agreement. The parties shall collaborate in joint
communications, and review and reasonably grant consent to the other party's
communications, to Branch Employees, the public, and customers.
11.11 Personal Liability. Notwithstanding anything to the contrary in this
------------------
Agreement, no director, officer, or employee of either Seller or Purchaser shall
have any personal liability arising out of or in connection with this Agreement,
including without limitation, any liability as a result of the untruthfulness or
breach of any representations or warranties made or in connection with this
Agreement.
11.12 Entire Agreement. This Agreement supersedes any and all oral or
----------------
written agreements and understandings heretofore made relating to the subject
matter hereof, including, without limitation, the Letter of Intent the parties
executed on November 5, 1998, and contains
34
<PAGE>
the entire agreement of the parties relating to the subject matter hereof. All
schedules, exhibits, and appendices to this Agreement are incorporated into this
Agreement by reference and made a part hereof.
11.13 Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the laws of the State of Maine. The Law of conflicts of law
rules of the State of Maine shall not apply. If any part of this Agreement is
declared illegal by a court of competent jurisdiction, the remaining parts shall
remain in full force and effect.
11.14 Counterparts. This Agreement and any Schedule thereto may be
------------
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
11.15 Severability. If any provision of this Agreement is invalid or
------------
unenforceable, the balance of this Agreement shall remain in effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as an instrument under seal, by their respective officers whose
signatures appear below as of the date first above written.
PURCHASER: SELLER:
KENNEBUNK SAVINGS BANK COASTAL BANK
By: /s/Kendell E. Reed By: /s/Edward M. Williams
------------------ ---------------------
Print Name: Kendell E. Reed Print Name: Edward M. Williams
Its:Executive Vice President Its: Senior Vice President
35
<PAGE>
SCHEDULES
TO
BRANCH PURCHASE AND ASSUMPTION AGREEMENT
----------------------------------------
Schedule A Description of Positions Held by Branch Employees
Schedule B Description of Premium Rate High Rise Savings Accounts
Schedule C List of EXCLUDED Owned Personal Property
Schedule D Preliminary ODL Summary
Schedule E Types of Prepaid Expenses
Schedule F Lease Agreement for Leased Real Estate
Schedule G Preliminary Summary of Accounts to be Transferred
Schedule G-1 Excluded Deposit Accounts
Schedule H Deferred Expenses
Schedule I Form of Certificate of Purchaser
Schedule J Form of Opinion of Counsel for Purchaser
Schedule K Form of Certificate of Seller
Schedule L Form of Opinion of Counsel for Seller
Schedule M Form of Instrument of Assumption
Schedule N Form of Instrument of Assumption of Individual Retirement Accounts
Schedule O Form of Bill of Sale and Receipt
Schedule P Form of Lease Assignment and Assumption Agreement
Schedule Q Pending Labor Matters
Schedule R Description of Leased Property
Schedule S Procedure for Inclearing Items
Schedule T Plan for ATM Card Deactivation and Activation
Exhibit A Real Estate Lease Information
36
<PAGE>
Schedule A
----------
Description of Branch Employees
-------------------------------
Position or Job Title Number of Employees Status
AVP Branch Manager 1 Full Time
Teller I 1 Part Time
Teller II 3 Full Time
Banking Office Assistant 1 Full Time
TOTAL EMPLOYEES 6
37
<PAGE>
Schedule B
----------
Description of Premium Rate High Rise Savings Accounts
------------------------------------------------------
As of 11/05/1998
- ----------------
Total Number of Accounts 79
Total Dollar Amount $3,744,456.01
38
<PAGE>
Schedule C
----------
List of Excluded Owned Personal Property
----------------------------------------
Description
- -----------
. Endorser (microfilmer)
. Baily sign
. SDI teller software (All)
. Unisys computer hardware (All)
. UPS 1200va/1000w 60 Hz
. Regulatory signs, CRA, Reg CC, . . . (All)
. Vinyl lettering
. Sign panels & letters
. Adtran-dsu, pcsi-cs8000
. Novous (Discover Card) and MasterCard/Visa cash advance terminal and
printer
. Lexmark laser printer
. Synopites hub
. Hayes 28.8 modem
. A/B switch
39
<PAGE>
Schedule D
----------
Preliminary ODL Summary
-----------------------
As of 11/05/1998
Interest Rate Number Line Limit Unpaid Balance
16.00% 6 $12,300.00 $1,004.50
17.50% 27 $40,100.00 $6,667.95
Total 33 $52,400.00 $7,672.45
40
<PAGE>
Schedule E
----------
Types of Prepaid Expenses
-------------------------
(a) Federal Deposit Insurance Corporation premium with respect to the
Deposit Accounts; and
(b) Prepaid expenses reflected on the books of Seller as being
attributable to the Branch as of the Effective Time and disclosed to
Purchaser in writing at or prior to the Closing:
NONE
41
<PAGE>
Schedule F
----------
Lease Agreement For Leased Real Estate
--------------------------------------
See attached copy of Real Estate Lease.
42
<PAGE>
LEASE
This is an INDENTURE OF LEASE, made this 1st day of January nineteen
hundred ninety-six, by and between ROLAND P. GOSSELIN and CECILE G. GOSSELIN,
copartners doing business as BATES REALTY, having a usual place of business in
Manchester, Hillsborough County, New Hampshire (LESSOR), and Coastal Savings
Bank, with a principal place of business at Colonel Westbrook Executive Park, 36
Thomas Drive, Westbrook, Maine (LESSEE).
1. Demised Premises. LESSOR hereby demises and lets to LESSEE, and
----------------
LESSEE hereby leases and takes from LESSOR, for the term and upon the terms and
conditions hereinafter set forth, certain premises consisting of 2100 square
feet of space, located in the Shopping Center known as "Shoppers Village",
situated on Route One in Kennebunk, Maine, said premises being shown on Exhibit
"A" attached hereto, reference to which is hereby made for a more particular
description of the demised premises. The area of the demised premises is agreed
by the parties to be 2100 square feet, and for all purposes under this LEASE the
area of the demised premises shall be considered to be 2100 square feet.
1
<PAGE>
Together with an easement for the exclusive use of LESSEE to be used
for the purposes of ingress and egress to and from the drive-in window portion
of the demised premises. Said easement is more fully delineated on a plan marked
Exhibit "A" attached hereto and made a part hereof.
2. "Shopping Center" Defined. The term "Shopping Center" shall mean the
------------------------
entire land area owned by or leased to LESSOR, as shown on said Exhibit "A", as
the same may be reduced or enlarged by LESSOR from time to time.
3. Term. The term of this LEASE shall be five (5) years, commencing
----
January 1, 1996, and ending December 31, 2000.
4. Option To Renew. So long as the LESSEE shall not be in default
---------------
beyond the expiration of any applicable grace period in the performance,
fulfillment or observance of the terms or provisions of this LEASE, both at the
date of exercise of any such option and at the commencement of any such extended
term, the LESSEE shall have the privilege of extending or renewing this LEASE
for two (2) additional five (5) year terms, by giving notice to the LESSOR, in
writing, six (6) months prior to the expiration of the original term or of the
option term. The extended term of this LEASE shall be subject to the covenants,
provisions and agreements of this LEASE.
5. Rent - Original Term. The LESSEE covenants to pay fixed rent during
--------------------
the original term hereof in lawful currency of the United States Government at
the following rate, payable in equal monthly installments in advance of the
first day of each and every
2
<PAGE>
month of the term hereof without notice thereon and without deduction, set-off
or other charge therefrom or against the same:
Year One (1) = $11.00 per sq. foot
Year Two (2) = $11.00 per sq. foot
Year Three (3) = $10.00 per sq. foot
Year Four (4) = $10.00 per sq. foot
Year Five (5) = $11.00 per sq. foot
6. Rent - Option Term First and Second five (5) year options:
------------------
Annual increases at the lesser of CPI or four (4) percent over the
previous year. For purposes of this LEASE, the term CPI shall refer to the
consumer Price Index/Boston Index.
7. Real Estate Taxes
-----------------
(a) LESSEE shall pay to LESSOR, as an additional charge, all real
estate taxes imposed on or levied against the demised premises for each lease
year during the term of this LEASE. For the purposes hereof, the real estate
taxes imposed on or levied against the demised premises in a year shall be the
real estate taxes imposed on the Shopping Center for such year multiplied by a
fraction having as its numerator, the rentable floor area included within the
demised premises and as its denominator, the total rentable floor area included
within all of the buildings within the Shopping Center. The payment shall be
made to the LESSOR each year within ten (10) days after LESSEE shall have
received from LESSOR a copy of LESSOR'S tax bill together with a statement
showing the amount due for LESSEE.
3
<PAGE>
(b) The expression "real estate taxes" used herein shall mean all
ad valorem taxes and betterment assessments (special or general, ordinary or
extraordinary) imposed or assessed by any public authority having jurisdiction,
which upon assessment or upon failure of payment become a lien upon the demised
premises or the Shopping Center, except only that if any betterment assessment
is payable in installments, the real estate taxes for any year shall include
only such installments of such betterment assessment as are allocable to said
tax year. If LESSOR shall have the right to elect the period over which any
betterment assessment is payable, LESSOR agrees to elect the longest period of
time available. The term "real estate taxes" as used in this lease shall include
all income taxes, excise profits taxes, excise taxes, franchise taxes, and
estate, succession, inheritance and transfer taxes. LESSEE shall pay all taxes
upon its signs, equipment and other personal property in or upon the demised
premises. For the purpose of this Article, such taxes shall not be included
within the real estate taxes upon the land and buildings of the Shopping Center.
(c) Real Estate taxes imposed or levied against the demised
premises for the tax year which include the commencement date or termination
date of the term of this lease or any extension of original term shall be
apportioned pro-rata between LESSOR and LESSEE on the basis of the portions of
such tax years that are included within the term of this LEASE, or any extension
thereof.
8. Tax Increase Clause (Caused by LESSEE'S Improvements) LESSEE agrees
----------------------------------------------------
to pay any increase in the real estate taxes caused
4
<PAGE>
by leasehold improvements installed by LESSEE. Said taxes, however, shall not be
based on a valuation greater than the cost of said improvements to LESSEE.
9. Additional Rent
---------------
(a) UTILITIES: LESSEE shall pay to the LESSOR as an additional
---------
charge, all cost of utilities used by the common area, which additional charges
shall be those costs multiplied by a fraction having as its numerator, the
rentable floor area included within the demised premises and as its denominator,
the total rentable floor area included within all the buildings within the
Shopping Center. The payment shall be made to LESSOR within ten (10) days after
LESSEE shall have received from LESSOR a copy of LESSOR'S utility bill together
with a statement showing the amount due from LESSEE.
(b) FIRE, HAZARD AND LIABILITY INSURANCE: LESSEE shall pay to
------------------------------------
LESSOR, an additional charge, the cost of fire, hazard and liability insurance
imposed on the demised premises for each lease year, which additional charges
shall be those costs multiplied by a fraction having as its numerator, the
rentable floor area included within the demised premises and as its denominator,
the total rentable floor area included within all of the buildings within the
Shopping Center. The payment shall be made to LESSOR within ten (10) days after
LESSEE shall have received from LESSOR a copy of LESSOR'S fire and hazard
insurance bill together with a statement showing the amount due from LESSEE.
(c) OTHER: LESSEE shall pay to LESSOR, or its designee, as an
-----
additional charge, the cost of maintaining the parking areas and
5
<PAGE>
common facilities, which cost may include, without limitation, LESSOR'S costs
for lighting, hydrant fee, sprinkler fee, traffic control, snow and ice removal,
refuse removal, landscaping, restriping and repairs of said common areas. These
additional charges shall be those costs multiplied by a fraction having as its
numerator the rentable floor area included within the demised premises, and as
its denominator the total rentable floor area included within all of the
buildings within the Shopping Center, which additional charges shall be paid to
LESSOR within ten (10) days after LESSEE shall have received from LESSOR a copy
of LESSOR'S statement showing the amount due from LESSEE.
(d) The term "common facilities", as used herein, shall be
construed to include those facilities within the commercial center for the
nonexclusive use of the LESSEE in common with other authorized users, and shall
include, but not be limited to the parking area, sidewalks, planted areas, open
means of ingress and egress, and the structure advertising the common name given
to the commercial center.
10. Utilities. LESSEE agrees to pay all charges for heat, air
---------
conditioning, water, gas, electricity, sewer assessments, and other utilities
used by the demised premises. LESSOR may, at its election, furnish water, gas
and electricity or any other utilities to the demised premises; in such event
LESSEE agrees to purchase from the LESSOR its requirements of such of said
utilities as LESSOR shall elect to furnish, but the charges made by the LESSOR
for any utility so furnished by it shall not exceed the
6
<PAGE>
charges the LESSEE would be required to pay if LESSEE purchased the same utility
directly from the utility company or agency furnishing the same to the SHOPPING
CENTER. LESSEE agrees it will, at all times, keep sufficient heat in the demised
premises to prevent the pipes from freezing.
11. Common Facilities. LESSEE shall have the right, as appurtenant to
-----------------
the demised premises, to use all common facilities within the Shopping Center in
common with LESSOR and all others to whom LESSOR has or may hereafter grant
similar rights, subject to the provisions of this LEASE and such reasonable
regulations as LESSOR shall from time to time establish. LESSOR may from time to
time make reasonable changes in the location and nature of any of the common
facilities in the Shopping Center, and may temporarily close any common facility
to make repairs or changes, or to prevent the acquisition of easements or a
dedication to public use, or to discourage use of the common facilities by
anyone not entitled thereto, provided, however, that no changes or temporary
closures shall have an adverse impact on the aesthetics of, access to and from,
and the regular operation of LESSEE'S business in and upon the Demised Premises.
LESSOR shall designate a portion of the parking area in which LESSEE'S officers,
agents or employees of its sublessees, concessionaires or other occupants of the
demised premises may park their automobiles, and parking for such persons shall
be permitted only in such designated portion. For the purpose of assisting in
the enforcement of the provisions of this Article 11, LESSEE shall, upon
request, furnish to LESSOR the registration
7
<PAGE>
plate numbers of the automobiles operated by the above described persons.
LESSOR shall manage all common facilities within the Shopping Center, and
shall maintain the landscaping, drainage and lighting facilities provided by
LESSOR, and shall provide for the removal of snow and ice from the parking areas
and roadways. In the event LESSOR conducts any repairs, replacements,
improvements, alterations, additions or other work to or upon any of the common
facilities, LESSOR shall exercise utmost prudence and shall do all that is
reasonable and necessary to ensure that (i) LESSEE'S business in and upon the
Demised Premises is not interrupted and (ii) all such construction is completed
with proper diligence and in a timely manner. So long as LESSOR shall act in the
manner provided in the previous sentence, LESSOR shall not be liable for any
inconvenience or interruption of business or other consequences resulting from
the making of repairs, replacements, improvements, alterations or additions, or
the doing of any other work, by or at the direction of LESSOR, to or upon any of
such common facilities.
12. Expansion of Shopping Center. LESSOR has informed LESSEE, and LESSEE
----------------------------
understands, that the Shopping Center as it now exists, as shown on Exhibit "A",
may be expanded, and that, as part of the expansion project, the existing
driveways and parking areas comprising the common area of the Shopping Center
may be altered, relocated or rearranged. LESSEE hereby consents to and approves
said expansion project, subject, however, to the covenants and restrictions of
LESSOR set forth in Article 11 hereof and the
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<PAGE>
obligation of LESSOR to designate a portion of the parking area for parking by
the persons referred to in Article 11 above. LESSEE shall, if requested, execute
such instrument as may be appropriate to the limitation above set forth.
Notwithstanding anything to the contrary contained herein, LESSOR agrees that
LESSEE shall not be responsible for the costs of any utilities of the common
area incurred as a result of the completion of the expansion project and that
all utilities during the construction phase of such project will be separately
metered.
13. Covenants, Obligations and Conduct of Lessee. LESSEE shall:
--------------------------------------------
(a) keep the demised premises and the show window and signs thereof
lighted during such times as LESSOR shall prescribe for such lighting by
reasonable rules and regulations;
(b) procure all licenses and permits which may be required for any
use made of the demised premises;
(c) remove all snow and ice from the sidewalks bounding the demised
premises and keep the same clean and free of dirt and debris;
(d) abide by all other reasonable rules and regulations made by
LESSOR for furthering the success of the Shopping Center of which the demised
premises are a part;
(e) not carry on any manufacturing or assembly work on the demised
premises;
(f) not use sidewalks adjacent to the demised premises to display or
sell merchandise, or otherwise obstruct the same,
9
<PAGE>
without the prior written consent of LESSOR, which consent shall not be
unreasonably withheld;
(g) not conduct any auction, fire, bankruptcy, going out of business,
or similar sale, or conduct a factory outlet, discount, bargain, cut price, or
similar type of operation, without the prior consent of LESSOR, which consent
shall not be unreasonably withheld, except that if any other Tenants in the
Shopping Center are conducting such business, other than auction, fire sale,
bankruptcy or going out of business or similar sale, the Tenant shall have the
right to conduct such business in a similar manner;
(h) not permit anything to be done about the demised premises which
shall be unlawful, improper or contrary to any law, ordinance, regulation or
requirement of any public authority or insurance inspection rating bureau or
similar organization, or which may be injurious to or adversely affect the
general character of the demised premises of the Shopping Center;
(i) not use in or about the demised premises any advertising media
that may be objectionable to LESSOR or other tenants in the Shopping Center,
such as loud speakers, phonographs or radio broadcasts that may be heard outside
of the demised premises;
(j) not deliver or remove any freight except over service roadways
and in accordance with such reasonable rules and regulations as may be made by
LESSOR;
(k) not burn any trash on or near the demised premises, or permit any
offensive odors to be emitted from the demised premises;
(l) not overload, damage or deface the demised premises;
10
<PAGE>
(m) not place or permit the placing of any signs (except paper
window signs advertising goods or services being sold by LESSEE, awnings,
aerials, flagpoles or the like on the demised premises without on each occasion
obtaining the prior written consent of LESSOR, which consent shall not be
unreasonably withheld so long as such sign bears a reasonable relationship to
the size of the store premises occupied by LESSEE and to the size of other signs
of other tenants, and provided such sign shall be comparable in design and color
with other signs in the Shopping Center. LESSOR covenants and agrees that LESSOR
will require any tenant of premises adjacent to or abutting the demised premises
to install its business sign to the Shopping Center building in such a manner so
as (i) to be clearly separate and distinct from LESSEE'S sign and (ii) to
differentiate LESSEE'S business from the business of the tenant.
(n) keep the demised premises in a neat, clean and sanitary
manner, and at its own cost and expense, keep the same in good repair, excepting
only damage caused by fire or other casualty not the result of the negligence of
LESSEE, or by any taking by eminent domain; and, without limiting the generality
of the foregoing, do the following: repair and maintain the entire interior,
including walls and ceilings, and repair and maintain the store front; do
repairs and maintenance required for plumbing, electrical, sewerage, air
conditioning, ventilating and heating facilities, and all fixtures used in
connection therewith, all doors and windows, floor covering, signs, fixtures and
equipment appurtenant to the
11
<PAGE>
demised premises; replace all glass and restore and replace all floor covering
at reasonable intervals and make all alterations and repairs of whatever nature
required by applicable laws, ordinances, orders or regulations of any public
authority or by any insurer or Board of Fire Underwriters; promptly pay, when
due, all charges for labor or materials in connection with any work done by
LESSEE or anyone claiming under LESSEE, on the demised premises; and save
harmless and indemnify LESSOR against any and all claims for injury, loss or
damage caused by or resulting from the doing of any such work on the demised
premises.
(o) all signs, counters, shelving, equipment and all other trade
fixtures installed by or at the expense of LESSEE shall remain the property of
LESSEE, and LESSEE may remove the same at any time or times during the term of
this LEASE, unless excused in writing by LESSOR. LESSEE shall, at its own cost
and expense, make any and all repairs to the demised premises and the floors and
walls thereof as may become necessary by reason of such removal, Painting and
patching where necessary. LESSEE shall cap or otherwise suitably secure all
utility lines left exposed or unconnected after such removal. In the event that
LESSEE shall fail to remove its aforesaid property, or to make such repairs, on
or prior to the last day of the term thereof or any extension of the term,
LESSOR shall have the right to effect such removal and make such repairs, and
LESSEE shall forthwith reimburse LESSOR for its cost therefor.
(p) all goods, wares, merchandise and property of any kind
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<PAGE>
whatsoever placed or stored on the demised premises shall be at the sole risk
and hazard of LESSEE.
(q) LESSEE shall save LESSOR harmless and indemnified to the
extent permitted by law from and against any and all claims, actions, loss,
damage, liability and expenses in connection with the loss of life, personal
injury and/or damage to property, arising out of or resulting from any
occurrence in, upon, or at the demised premises, or arising out of or resulting
from the occupancy or use of the demised premises or any part thereof, if
occasioned wholly or in part by any act, neglect, or failure on the part of the
LESSEE to perform the obligations imposed by this lease, or by any negligence or
omission of LESSEE, its officers, agents, employees, and those of its
sublessees, licensees, concessionaires, or others occupying space in the demised
premises. LESSEE agrees that LESSOR shall not be liable to LESSEE or anyone
claiming under LESSEE, for any injury, loss or damage resulting from the act or
negligence of any occupant of adjoining premises, upper stories, or any other
part of the Shopping Center of which the demised premises are a part, provided,
however, that LESSEE shall have, and this Article 13(q) shall not be deemed to
be a waiver of, all of LESSEE'S right and remedies provided by law or in equity.
LESSEE shall maintain with respect to the demised premises and the Shopping
Center of which the demised premises are a part comprehensive public liability
insurance covering all of LESSEE'S obligations under this subsection (q) in an
amount not less than Five Hundred Thousand ($500,000.00) Dollars with respect to
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<PAGE>
injuries to any persons, and not less than One Hundred Thousand ($100,000.00)
Dollars with respect to damage to property, insuring LESSOR as well as LESSEE
against injury to persons or damage to property as herein provided.
Each policy of insurance which LESSEE is required to maintain under the
provisions of this subsection (q) shall be with companies qualified to do
business in the state where the Shopping Center is located and reasonably
acceptable to LESSOR. LESSEE shall deposit with LESSOR certificates of such
insurance at or prior to the commencement of the term, and thereafter new
certificates not later than ten (10) days prior to the expiration of expiring
policies. To the extent obtainable, policies shall provide that they may not be
cancelled without at least ten (10) days' prior written notice to LESSOR.
14. Fire and Other Casualty Damage or Destruction-Insured Loss. If the
----------------------------------------------------------
demised premises become untenantable in whole or in part by reason of damage or
destruction by fire or other casualty covered by fire insurance policies carried
by LESSOR, LESSEE shall immediately give written notice thereof to LESSOR, and
unless this Lease be terminated as hereinafter provided, LESSOR, at its own
expense, shall repair or rebuild the same with reasonable dispatch so as to
restore the demised premises to substantially the same condition they were in
immediately prior to such damage or destruction, provided, however, that LESSOR
is not required to expend for such repairs or rebuilding any amount in excess of
the insurance proceeds received with respect to such damage of
14
<PAGE>
destruction.
If the demised premises or the buildings comprising the Shopping Center
of which the demised premises are a part shall be damaged or destroyed to the
extent of fifty percent (50%) or more or their insurable value by any cause,
either party may elect by written notice to the other delivered within thirty
(30) days after the damage or destruction has occurred to terminate this lease
immediately. In the absence of such notice or election, LESSOR shall forthwith
proceed to repair and rebuild the demised premises.
If this lease is not terminated as above provided, and if the fault or
neglect of LESSEE or any person claiming under LESSEE did not contribute to such
damage or destruction, then from and after such damage and until the demised
premises are restored to substantially the same condition they were in prior to
such damage or destruction, the fixed rent and all other charges shall abate in
proportion to the extent that the demised premises have been rendered
untenantable by such damage or destruction.
LESSOR shall keep the building of which the demised premises are a part
insured against loss or damage by fire to the extent of the full insurance value
thereof, including all improvements, alterations, additions and changes made by
either party hereto. LESSOR shall provide LESSEE with a certificate evidencing
such insurance within thirty (30) days of the date hereof and at the same time
during each year hereafter.
15. Eminent Domain - 100% Taking. If after the execution hereof
-----------------------------
15
<PAGE>
and prior to the expiration of the term of this lease or any extension thereof,
the whole of the demised premises shall be taken by eminent domain, then the
term of this lease shall cease as of the time when LESSOR shall be divested of
its title to the demised premises, and the rent shall be pro-rated and adjusted
as of the time of termination.
If a part of the demised premises or a part of the Shopping Center of
which the premises are a part, or a part of the common areas shall be taken by
eminent domain and as a result thereof either the ground floor area of the
demised premises or the total area of the Shopping Center (including for this
purpose parking space, other common areas and access from the highway to the
Shopping Center and ground floor area of the buildings in the Shopping Center)
shall be reduced by more than fifteen percent (15%), LESSOR or LESSEE, may at
its election, terminate this lease by giving the other written notice of the
exercise of its election to terminate within sixty (60) days after the date of
the filing of the notice of such taking. The termination shall be effective as
of the date that the premises so taken are required to vacated. If this lease is
not terminated as aforesaid, then the term of this lease shall continue in full
force and effect and LESSOR shall, with reasonable dispatch, after LESSEE is
required to vacate any part of the demised premises (if any part shall have been
taken), repair and rebuild what may remain of the demised premises, so as to put
the same into condition for use and occupancy by LESSEE. From and after the date
that the LESSEE is required to vacate any
16
<PAGE>
part of the demised premises taken, the fixed rent and all other charges shall
abate in proportion to the extent of the taking of the demised premises.
LESSOR reserves to itself, and LESSEE assigns to LESSOR, all rights to
damages accruing on account of any taking by eminent domain or by reason of any
act of any public or quasipublic authority for which damages are payable, except
such damage or award as may be provided for by law, and may be recoverable by
LESSEE, for its loss of business and loss of fixtures and improvements, and
moving expenses. LESSEE agrees to execute such instruments to perfect such
assignment as may be requested by LESSOR and to turn over to LESSOR any damages
assigned as aforesaid.
16. Lessor's Covenants. LESSOR shall keep in reasonably good order and
------------------
repair the following portions of the demised premises; foundations, roof,
structural columns and beams, the exterior walls, and only such plumbing,
electrical, sewerage, air-conditioning, ventilating and heating facilities as
are contained in the demised premises or pass through the demised premises to
serve other premises in the complex. LESSOR shall not be required to make such
repairs to any of the above-described portions of the demised premises
necessitated by any act, default or negligence of the LESSEE'S officers, agents
and employees, or those of its sublessees, licensees, concessionaires or other
occupants of the demised premises. LESSOR shall not be deemed to have committed
a breach of any obligation to make repairs unless it shall have made
17
<PAGE>
such repairs negligently, or it shall have received notice from LESSEE in
writing designating the particular repairs needed and shall have failed to make
such repairs within a reasonable time after receipt of such notice.
Notwithstanding anything to the contrary contained herein, LESSOR shall be
required to make repairs in a timely and diligent manner.
LESSEE covenants that it will permit LESSOR and its agents to examine
the demised premises at reasonable times and to show them to prospective
purchasers, lenders and tenants; that it will permit LESSOR to enter the demised
premises without charge or reduction of rent, to make such repairs,
improvements, alterations or additions as may be required in order to comply
with the requirements of this lease, or of any public authority having
jurisdiction, or to facilitate making repairs or improvements to any other part
of the Shopping Center or to make repairs which LESSEE may have failed promptly
to make pursuant to LESSEE'S covenants hereunder, or to construct, install, or
repair in the demised premises or the approaches thereto, any utility or waste
line or pipe or any agency for transmission through the demised premises of
electricity, heat, gas or power of any kind, and for any such purposes to use or
occupy such portion of the demised premises as may be necessary therefor. Unless
there exists an emergency which places the demised premises in jeopardy, LESSOR
shall have access to the demised premises for the purposes set forth in this
Article 16 only upon reasonable notice to LESSEE, which for purposes of this
Lease shall be twenty-four (24) hours,
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<PAGE>
and provided that there shall be no interference with LESSEE'S business.
17. Use and Competition. So long as this LEASE is in effect, LESSOR
-------------------
shall have no more than one (1) additional financial, banking or credit union
type-institution as a tenant in the Shoppers Village Shopping Center.
18. Assignment and Subletting. LESSEE shall not assign or encumber this
-------------------------
lease in whole or in part, nor sublet all or any part of the demised premises,
nor grant any license, concession or lease to operate any business or department
in the demised premises, without the prior written consent of LESSOR in each
instance, which consent shall not be unreasonably withheld or delayed. If this
lease shall be assigned or if the demised premises or any part thereof shall be
underlet or occupied by anybody other than LESSEE, LESSOR may collect rent from
the assignee, under-tenant or occupant, and apply the net amount collected to
the rent herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or an acceptance of the
assignee, under-tenant or occupant, as tenant, or a release of LESSEE from
further performance hereunder. Notwithstanding any assignment or sublease,
LESSEE shall remain fully liable on this lease, and shall not be released from
performing any of its terms, covenants and conditions.
19. Defaults and Remedies. This LEASE is made on condition that (i) if
---------------------
LESSEE shall neglect or fail to perform or observe any of
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<PAGE>
the terms, provisions, conditions and covenants herein contained on LESSEE'S
part to be performed or observed for a period of thirty (30) days after receipt
by LESSEE of notice of such neglect or failure (except for the payment of rent
and other charges in which case the period of notice shall be ten (10) days, or
if more than thirty (30) days shall reasonably be required because of the nature
of the default to cure the default and LESSEE shall fail within said thirty (30)
day period to commence and thereafter diligently to proceed to cure such
default; or (ii) if the estate hereby created shall be taken on execution or by
other process of law; or (iii) if LESSEE shall commit an act of bankruptcy or be
declared bankrupt or insolvent according to law, or if any assignment shall be
made of its property for the benefit of creditors; or if any proceedings,
including, without limitation, proceedings for reorganization or for an
"arrangement" shall be commenced by or against LESSEE under any bankruptcy or
insolvency law now or hereafter enacted and the same shall not be dismissed
within ninety (90) days from the time of their commencement; or (iv) if a
receiver, guardian, conservator, trustee or assignee or any other or similar
officer or person shall be appointed to take charge of all or any part of
LESSEE'S property, or (v) if any court shall enter an alteration of the rights
of creditors; or (vi) if LESSEE shall fail to take possession of the demised
premises and open for the conduct of business within thirty (30) days following
the commencement date hereunder, then, and in any of said cases (notwithstanding
any license or any former breach of covenant or
20
<PAGE>
waiver of benefit thereof, or consent in a former instance), LESSOR shall have
the right, at its election, then or at any time thereafter, either
(a) to give LESSEE written notice of LESSOR'S intention to
terminate this lease on the date of such notice, or on any later date specified
therein, and on the date specified in such notice LESSEE'S right to possession
of the demised premises shall cease and this lease shall thereupon be
terminated; or
(b) without terminating this lease to re-let the premises or any
part thereof for such term or terms, which may be for a period extending beyond
the term of this lease, and at such rental or rentals, or upon such other terms
or conditions, as LESSOR may deem advisable, with the right to make alterations
and repairs to the premises. No such re-letting by LESSOR shall be construed as
an election on LESSOR'S part to terminate this lease, unless a written notice of
such intention be given to LESSEE, or unless the termination thereof be decreed
by a court of competent jurisdiction.
LESSEE agrees to indemnify and save harmless LESSOR from any loss,
damage or injury whatsoever, including reasonable attorney's fees, in the event
of a breach by LESSEE of covenants or of any obligations under this lease, and
against any loss or rental for the balance of the term of this lease after
breach, and notwithstanding LESSOR'S rights to terminate the same for breach by
the LESSEE.
LESSOR shall not be deemed to be in default hereunder unless its
default shall continue for thirty (30) days, or for such
21
<PAGE>
additional time as is reasonably required to correct its default after written
notice thereof has been given by LESSEE to LESSOR specifying the nature of the
alleged default.
In the event of a happening that requires repairs or maintenance of an
emergency nature by LESSOR, including removal of snow and ice, LESSEE shall have
the right, but not the obligation, to proceed at once to make such repairs or
carry out such maintenance, and LESSEE shall promptly notify LESSOR of the
condition requiring such repairs or maintenance and shall afford LESSOR the
opportunity to take over and complete the same if LESSOR so elects after receipt
of such notice. LESSOR shall reimburse LESSEE for the reasonable cost or expense
to LESSEE for the making of such repairs or the carrying out of such
maintenance.
20. Covenant of Quiet Enjoyment. LESSOR agrees that upon the LESSEE'S
---------------------------
paying the rent and performing and observing the terms, provisions, conditions
and covenants on its part to be performed and observed, LESSEE shall and may
peaceably and quietly have, hold and enjoy the demised premises and the LESSEE'S
right to use the common facilities of the Shopping Center, as herein provided,
without any manner of hindrance or molestation from LESSOR or anyone claiming
under LESSOR, subject, however, to the terms of this lease.
21. Arrangements with Mortgagees. LESSEE agrees that upon the request
----------------------------
of LESSOR it will subordinate this lease and the lien hereof to the lien of any
present or future mortgage or mortgages upon the demised premises or upon any
property of which the demised
22
<PAGE>
premises are a part, irrespective of the time of execution or time of recording
of any such mortgage or mortgages. LESSEE agrees that it will, upon request of
LESSOR, execute, acknowledge and deliver any and all instruments deemed by
LESSOR necessary or desirable to give effect to or notice of such subordination.
LESSEE or LESSOR agree to execute and deliver any appropriate instruments
necessary to carry out the agreements in this section contained. Any such
mortgage to which this lease shall be subordinated may contain such other terms,
provisions and conditions as the mortgagee deems usual or customary.
LESSEE'S obligations under the foregoing paragraph shall be conditioned
upon said mortgagee's entering into an agreement with LESSEE by the terms of
which the mortgagee under said mortgage will agree not to disturb the possession
and other rights of LESSEE under this lease so long as LESSEE performs its
obligations hereunder, and to accept LESSEE as LESSEE of the leased premises
under the terms and conditions of this lease in the event of acquisition of
title by such mortgagee through foreclosure proceedings or otherwise, and LESSEE
covenants and agrees to recognize the holder of such mortgage as LESSOR in such
event, which agreement is made expressly binding upon the successors and assigns
of LESSEE and of the mortgagee and upon anyone purchasing said leased premises
at any foreclosure sale. LESSEE and LESSOR agree to execute and deliver any
appropriate instruments necessary to carry out the agreement in this paragraph
contained. LESSOR covenants that it will obtain and deliver to LESSEE an
appropriate
23
<PAGE>
"non-disturbance" agreement, as aforesaid, from any existing mortgages.
22. Off-set Statements. Within thirty (30) days after request therefor
------------------
by LESSOR, LESSEE shall deliver to LESSOR, or to any prospective mortgagee or
purchaser, a certificate, in recordable form, stating (if such be the case) that
this lease is in full force and effect and that there are no defenses or
off-sets thereto, or stating such defenses or off-sets as may be claimed by
LESSEE. The delivery of such statement shall constitute an irrevocable waiver of
all claims of whatever nature by LESSEE against LESSOR arising out of or in any
way connected with this lease, other than claims specified by LESSEE in said
statement and other than claims not then accrued.
23. Rules and Regulations. LESSEE will observe and comply with, and
---------------------
will cause its sublessees, concessionaires, or others occupying space in the
demised premises, and its and their employees and agents, to observe and comply
with reasonable Shopping Center rules and regulations from time to time
promulgated by LESSOR for the benefit and prosperity of the Shopping Center.
However, neither LESSEE nor anyone claiming under LESSEE shall be bound by any
such rules and regulations until such time as LESSEE receives a copy thereof.
24. Acceptance of Demised Premises. The opening of the demised premises
------------------------------
by LESSEE for its business shall constitute an acknowledgment by LESSEE that the
demised premises are in the condition required to be in by this lease, and that
LESSOR has
24
<PAGE>
performed all LESSOR'S work with respect thereto, unless LESSEE has otherwise
notified LESSOR in writing.
Any other provisions in this lease to the contrary notwithstanding, no
indemnifications, release or limitation of liability of the LESSOR, with respect
to any personal injury or property damage, shall be applicable to any personal
injury or property damage, or claims arising therefrom, when occasioned by the
negligence or willful misconduct of the LESSOR or its agents, employees and
contractors.
25. Force Majeure. In the event that either party hereto shall be
-------------
delayed or hindered in or prevented from the performance of any act required
hereunder by reason of strikes, lockouts, labor troubles, inability to produce
materials, failure of power, restrictive governmental laws or regulations,
riots, insurrections, war or other reason of a like nature, not the fault of any
party delayed in performing work or doing acts required under the terms of this
lease, then performance of such act shall be excused for the period of the delay
and the period for the performance of any such act shall be extended for a
period equivalent to the period of such delay. The provisions of this article
shall not operate to excuse the LESSEE from the prompt payment of fixed rent,
additional rent or any other payments required by the terms of this lease.
26. Waivers. Failure of LESSOR to complain of any act or omission on
-------
the part of LESSEE, no matter how long the same may continue, shall not be
deemed to be a waiver by LESSOR of any of its rights hereunder. No waiver by
LESSOR or any time, express or
25
<PAGE>
implied, of any breach of any provision of this lease shall be deemed a waiver
of a breach of any other provision of this lease, or a consent to any subsequent
breach of the same or any other provision. If any action by LESSEE shall require
LESSOR'S consent or approval, LESSOR'S consent to or approval of such action on
any one occasion shall not be deemed a consent to or approval of said action on
any subsequent occasion, or a consent to or approval of any other action or on
any subsequent occasion. Payment by LESSEE or acceptance by LESSOR of a lesser
amount than shall be due from LESSEE to LESSOR shall not be deemed to be
anything but payment on account, and the acceptance by LESSOR of a check for a
lesser amount with an endorsement or statement thereon or upon a letter
accompanying said check that said lesser amount is payment in full, shall not be
deemed an accord and satisfaction, and LESSOR may accept said check without
prejudice to recover the balance due or pursue any other remedy. Any and all
rights and remedies which LESSOR may have under this lease, or by operation of
law, either at law or in equity, upon any breach, shall be distinct, separate
and cumulative and shall not be deemed inconsistent with each other; and no one
of them, whether exercised by LESSOR or not, shall be deemed to be in exclusion
of any other; and any two (2) or more of all of such rights and remedies may be
exercised at the same time.
27. Costs and Expenses. Wherever in this lease provision is made for
------------------
the doing of any act by LESSOR or LESSEE, it is understood and agreed that said
act shall be done by the party designated at
26
<PAGE>
its own cost and expense, unless a contrary intent is expressed.
28. Holding Over. If the LESSEE or anyone claiming under the LESSEE
------------
shall remain in possession of the demised premises or any part thereof after the
expiration of the term of this lease without any agreement in writing between
LESSOR and LESSEE with respect thereto prior to acceptance of rent by LESSOR,
the party remaining in possession shall be deemed a tenant-at-sufferance, and
after acceptance of rent by LESSOR the party remaining in possession shall be
deemed a tenant-at-will; provided, however, that the rent during the period such
party shall continue to hold the demised premises or any part thereof shall be
payable at the highest rate payable during the term hereof.
29. Showing the Demised Premises. LESSOR shall have reasonable access
----------------------------
to the demised premises during the last six (6) months of the term of this lease
or any extension thereof for the purpose of exhibiting said premises to
prospective tenants and purchasers and the putting up of "for sale" or "for
rent" signs.
30. Broker's Commission. LESSOR and LESSEE warrant and represent that
-------------------
they have had no dealings or negotiations with any broker or agent, except as
listed below, in connection with this lease, and each shall pay and hold the
other harmless and indemnified from and against any and all costs, expenses
(including counsel fees) or liability for any compensation, commissions, and
charges claimed by any broker or agent with respect to this lease or the
negotiation thereof.
31. Notices. Any notice or other communication relating to
-------
27
<PAGE>
this lease shall be deemed to be duly given if in writing and sent by registered
or certified mail, postage prepaid, addressed to the party for whom it is
intended, at such place as shall have been last designated by such party, either
in this paragraph or in a notice given as herein provided, as its address for
receiving notices hereunder. Until further notice, LESSOR designates BATES
REALTY, 270 Amory Street, Manchester, New Hampshire, 03102, as its address for
such purpose; and LESSEE designates Coastal Savings Bank, 36 Thomas Drive,
Westbrook, Maine 04092, as its address for such purpose. Any notice given under
this Article 31 shall be deemed to have been given when actually received by the
party to which it is addressed.
Miscellaneous. The word "LESSOR" and "LESSEE" and the pronouns
-------------
referring thereto, as used in this lease, shall mean, where the context requires
or admits, the persons or entities named herein as LESSOR and LESSEE
respectively, and their respective heirs, legal representatives, successors and
assigns, irrespective of whether singular or plural, masculine, feminine or
neuter. Except as otherwise provided herein, the agreements and conditions in
this lease contained on the part of LESSOR to be performed and observed shall be
binding upon LESSOR and its successors and assigns and shall inure to the
benefit of LESSEE and its successors and assigns; and the agreements and
conditions on the part of LESSEE to be performed and observed shall be binding
upon LESSEE and its successors and assigns, and shall inure to the benefit of
LESSOR and its successors and assigns.
28
<PAGE>
If LESSEE shall consist of more than one person or entity, or if there
shall be a guarantee of LESSEE'S obligations, the liability of all such persons
or entities, including the guarantor, if any, shall be joint and several.
It is agreed that if any provisions of this lease shall be determined
to be void by any court of competent jurisdiction, than such determination shall
not affect any other provisions of this lease, all of which other provisions
shall remain in full force and effect; and it is the intention of the parties
hereto that if any provision of this lease is capable of two (2) constructions,
one of which would render the provisions void and the other which would render
the provision valid, then such provision shall have the meaning which renders it
valid.
LESSEE shall not record this lease, and LESSOR shall execute a notice
thereof to be recorded in the York County Registry of Deeds in Maine.
Any rider attached hereto duly executed by LESSOR and LESSEE shall be
deemed incorporated herein and made a part hereof. In the event that any
provision in such rider is inconsistent with any printed provision of this
lease, the provision in said rider shall supersede said printed provision.
This lease shall constitute the only agreement between the parties
relative to the demised premises, and no oral statements and no prior written
matter not specifically incorporated herein shall be of any force or effect. In
entering into this lease, the parties rely solely upon the representations and
agreements
29
<PAGE>
contained herein. This agreement shall not be modified except by writing
executed by both parties.
This lease may be executed in any number of counterparts and each fully
executed counterpart shall be deemed an original.
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and seals the day and year first above written.
WITNESSES: BATES REALTY (LESSOR)
/s/ Ronald E. Girard By: /s/ Roland P. Gosselin
- ----------------------------- ------------------------------------
ROLAND P. GOSSELIN, PARTNER
/s/ Ronald E. Girard By: /s/ Cecile G. Gosselin
- ----------------------------- ------------------------------------
CECILE G. GOSSELIN, PARTNER
Coastal Savings Bank (LESSEE)
/s/ Daina J. Nathanson By: Roger H. Hunter, SVP
- ----------------------------- ------------------------------------
30
<PAGE>
BATES REALTY - COASTAL SAVINGS BANK LEASE
SHOPPER'S VILLAGE, KENNEBUNK, MAINE
RIDER
1. LESSOR shall contribute $1.50/s.f. ($3,150) to LESSEE to be used for
improvements to the LESSEE'S branch. LESSEE agrees to match the amount paid by
the LESSOR and will therefore complete at least $6,300.00 in improvements.
Payment by LESSOR will be made to the LESSEE after verification of improvements
and invoices totalling $6,300.00 or more.
2. The lease shall allow LESSEE to cancel its lease obligation at any time
during the first two (2) years of the lease so long as LESSEE provides the
LESSOR with at least nine (9) months notice of its intent. Should LESSEE have to
exercise this option clause, the LESSEE will reimburse the LESSOR its
contribution of $3,150.00 it made towards improvements.
3. If Shopper's Village becomes 50% (or more) vacant at any time during
LESSEE'S tenancy and remains so for more than six months, LESSEE shall have the
right to terminate the remaining balance of the lease with no penalty, and
neither party shall have any further rights or liabilities herein.
31
<PAGE>
Schedule G
----------
Preliminary Summary of Accounts to be Transferred
-------------------------------------------------
Dated as of November 5, 1998
----------------------
Type of Account Number of Accounts Aggregate Balance
- --------------- ------------------ -----------------
Savings 591 $ 6,712,033.12
DDA and MMDA 787 2,177,582.72
CDs/IRAs 362 4,952,757.00
X-Mass 56 1,770.00
IOLTAs 3 60,939.00
Savings Sweeps 1 50,421.00
Total 1,800 $13,955,502.84
43
<PAGE>
Schedule G-1
------------
Excluded Deposit Accounts
-------------------------
As of November 5, 1998 or as otherwise specified
- ------------------------------------------------
Type Number of Accounts Aggregate Balance
---- ------------------ -----------------
Savings 1 $50,421.44 (Loan Collateral)
DDA and MMDA 0
CDs** 8 $ 88,890.68
IRAs 0
IOLTAs 0
Savings Sweeps 0
Total 9 $139,312.12
** One CD for $1,100.00 as of 12/7/1998
44
<PAGE>
Schedule H
----------
Deferred Expenses
-----------------
(a) Utility payments;
(b) Taxes and assessments upon the Owned Real Estate;
(c) Deferred expenses reflected on the books of Seller as being
attributable to the Branch as of the Effective Time and disclosed to
Purchaser in writing at or prior to the Closing:
NONE
45
<PAGE>
Schedule I
----------
Form of Certificate of Purchaser
--------------------------------
We hereby certify that:
(1) The undersigned, ___________________ is the of Purchaser as defined below.
(2) All representations and warranties of Purchaser as set forth in the Branch
Purchase and Assumption Agreement (the "Purchase and Assumption Agreement"),
---------------------------------
dated as of January__, 1999, by and between Purchaser and Coastal Bank
("Seller") are true and correct in all material respects as of this date and
with the same effect as though all such representations and warranties had been
made on and as of this date (unless a different date is specifically indicated
in such representations and warranties);
(3) Each and all of the covenants and agreements of Purchaser to be performed
or complied with at or prior to Closing pursuant to the Purchase and Assumption
Agreement have been either duly performed and complied with in all material
respects by Purchaser, or waived in writing by Seller;
(4) The Board of Directors of Purchaser has taken all corporate action
necessary by it to effectuate the Purchase and Assumption Agreement and the
Acquisition (as defined in the Purchase and Assumption Agreement) contemplated
thereby, and attached hereto is a correct and complete copy of a Clerk's
Certificate certifying the adoption of resolutions of the Board of Directors of
Purchaser authorizing the Purchase and Assumption Agreement and the Acquisition
contemplated thereby; and
(5) To the best of the undersigned's knowledge, as of the date hereof, there
is no litigation or proceeding pending in or by any court or agency of any
government or by any third party which in the judgment of the executive officers
of Purchaser, with the advice of counsel, restrains, enjoins or prohibits
consummation of the transactions contemplated by the Purchase and Assumption
Agreement or which is likely to result in rescission in connection with such
transactions.
Dated: May 14, 1999
PURCHASER: KENNEBUNK SAVINGS BANK
By:
-------------------------------
Name:
Title:
46
<PAGE>
Schedule J
----------
Form of Opinion of Counsel for Purchaser
----------------------------------------
Coastal Bank
36 Thomas Drive
Westbrook, ME 04092
Gentlemen:
We have acted as counsel for Kennebunk Savings Bank, a financial institution
organized under the laws of Maine ("Purchaser"), in connection with Purchaser's
purchase of certain assets and assumption of certain liabilities from Coastal
Bank ("Seller"). Such purchase and assumption is to be consummated pursuant to
the terms of a Branch Purchase and Assumption Agreement, dated as of January __,
1999 (the "Agreement"), by and between Purchaser and Seller. This opinion is
furnished to you pursuant to Section 5.01(e) of the Agreement.
We have examined such documents, records and matters of law as we have deemed
necessary for purposes of this opinion. In making such examination for the
purpose of this opinion, we have assumed the authenticity of all original
documents and records, the conformity of all documents and records submitted to
us as conformed copies or photocopies of original documents, the genuineness of
all signatures and, except insofar as Purchaser is concerned, the due
authorization, execution, and delivery of such documents and the due authority
of all persons executing each such document. [We have also examined and relied
upon: [list any specific reliance documents].] Based thereupon, and subject to
the qualifications herein, are of the opinion that:
1. Purchaser is a validly existing financial institution in good
standing under the laws of Maine.
2. Purchaser has all requisite corporate power and authority to enter
into the Agreement and the Agreement has been duly approved by all requisite
corporate action of Purchaser, has been duly executed and delivered by
Purchaser, and is valid and binding upon Purchaser.
3. Purchaser has obtained all necessary licenses, approvals, consents
and other governmental actions required under any state or federal law or
regulation in connection with the execution and performance of the Agreement and
the consummation of the transactions contemplated thereby. Neither the execution
and delivery of the Agreement nor the consummation by Purchaser of the
transactions contemplated thereby will result in the violation of any statute or
regulation or any order or decree of any court or governmental authority of
which we have knowledge binding upon Purchaser, or its properties.
47
<PAGE>
4. We are not aware of any litigation or proceeding pending in or by
any court or agency of any government or by any third party which, in our
judgment, enjoins or prohibits consummation of the transactions contemplated by
the Agreement or which is likely to result in rescission thereof.
Our opinions herein contained are subject to the following
qualifications:
(i) The enforceability of obligations under any agreement or document
is subject to insolvency, reorganization, moratorium, and other laws affecting
the rights and remedies of creditors generally or the application of principles
of equity, whether in an action at law or a proceeding in equity. In addition,
we express no opinion regarding the availability of the remedy of specific
performance, or of any other equitable remedy or relief, to enforce any right
under any agreement or document.
(ii) Our opinions are limited to the laws of the United States and the
State of Maine, and we express no opinions as to the laws of any other states or
jurisdictions.
The information set forth herein is as of the date hereof. We assume no
obligation to advise you of changes which may thereafter be brought to our
attention. Our opinions are based on statutory laws and judicial decisions that
are in effect on the date hereof, and we do not opine with respect to any law,
regulation, rule, or governmental policy which may be enacted or adopted after
the date hereof, nor do we assume any responsibility to advise you of future
changes in our opinions.
This opinion is solely for your information in connection with the
transactions contemplated by the Agreement. This letter may not be relied upon
by any other person or for any other purposes whatsoever.
Very truly yours,
48
<PAGE>
Schedule K
----------
Form of Certificate of Seller
-----------------------------
We hereby certify that:
(1) The undersigned, _______________________, is the _______________ of
Seller, as defined below.
(2) All representations and warranties of Seller as set forth in the
Branch Purchase and Assumption Agreement (the "Purchase and Assumption
Agreement"), dated as of January __, 1999, by and between Seller and Kennebunk
Savings Bank ("Purchaser"), are true and correct in all material respects as of
this date and with the same effect as though all such representations and
warranties had been made on and as of this date (unless a different date is
specifically indicated in such representations and warranties);
(3) Each and all of the covenants and agreements of Seller to be
performed or complied with at or prior to Closing pursuant to the Purchase and
Assumption Agreement have been either duly performed and complied with in all
material respects by Seller, or waived in writing by Purchaser;
(4) The Board of Directors of Seller has taken all corporate action
necessary by it to effectuate the Purchase and Assumption Agreement and the
Acquisition (as defined in the Purchase and Assumption Agreement) contemplated
thereby, and attached hereto is a correct and complete copy of the resolutions
of the Board of Directors of Seller authorizing the Purchase and Assumption
Agreement and the Acquisition contemplated thereby; and
(5) To the best of the undersigned's knowledge, as of the date hereof,
there is no litigation or proceeding pending in or by any court or agency of any
government or by any third party which in the judgment of the executive officers
of Seller, with the advice of counsel, restrains, enjoins or prohibits
consummation of the transactions contemplated by the Purchase and Assumption
Agreement or which is likely to result in rescission in connection with such
transactions.
Dated: May 14, 1999
SELLER: COASTAL BANK
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
49
<PAGE>
Schedule L
----------
Form of Opinion of Counsel for Seller
-------------------------------------
Kennebunk Savings Bank
104 Main St., P.O. Box 28
Kennebunk, ME 04043-0028
Gentlemen:
We have acted as counsel for Coastal Bank, a financial institution organized
under the laws of Maine ("Seller"), in connection with Seller's sale of certain
assets and transfer of certain liabilities to Kennebunk Savings Bank
("Purchaser"). Such purchase and assumption is to be consummated pursuant to
the terms of a Branch Purchase and Assumption Agreement, dated as of January __,
1999 (the "Agreement"), by and between Purchaser and Seller. This opinion is
furnished to you pursuant to Section 5.02(e) of the Agreement.
We have examined such documents, records and matters of law as we have deemed
necessary for purposes of this opinion, and have examined the Agreement,
Seller's Articles of Association and By-Laws and relevant corporation records.
In making such examination for the purpose of this opinion, we have assumed the
authenticity of all original documents and records, the conformity of all
documents and records submitted to us as conformed copies or photocopies of
original documents, the genuineness of all signatures and, except insofar as
Seller is concerned, the due authorization, execution, and delivery of such
documents and the due authority of all persons executing each such document. We
have also examined and relied upon: [list any specific reliance documents].
Based thereupon, and subject to the qualifications herein, we are of the opinion
that:
1. Seller is a validly existing financial institution in good standing under
the laws of Maine.
2. Seller has all requisite corporate power and authority to enter into the
Agreement, and the Agreement has been duly approved by all requisite corporate
action of Seller, has been duly executed and delivered by Seller, and is valid
and binding upon Seller.
3. Seller has obtained all necessary licenses, approvals, consents and other
governmental actions required under any state or federal law or regulation in
connection with the execution and performance of the Agreement and the
consummation of the transactions contemplated thereby. Neither the execution and
delivery of the Agreement nor the consummation by Seller of the transactions
contemplated thereby will result in the violation of any statute or regulation
or any order or decree of any court or governmental authority of which we have
knowledge binding upon Seller, or its properties.
4. We are not aware of any litigation or proceeding pending in or by any
court or agency
50
<PAGE>
of any government or by any third party which, in our judgment, enjoins or
prohibits consummation of the transactions contemplated by the Agreement or
which is likely to result in rescission thereof.
The opinions herein contained are subject to the following qualifications:
(i) The enforceability of obligations under any agreement or document is
subject to insolvency, reorganization, moratorium, and other laws affecting the
rights and remedies of creditors generally or the application of principles of
equity, whether in an action at law or a proceeding in equity. In addition, we
express no opinion regarding the availability of the remedy of specific
performance, or of any other equitable remedy or relief, to enforce any right
under any agreement or document.
(ii) Our opinions are limited to the laws of the United States and the State
of Maine, and we express no opinions as to the laws of any other states or
jurisdictions.
The information set forth herein is as of the date hereof. We assume no
obligation to advise you of changes which may thereafter be brought to our
attention. This opinion is based on statutory laws and judicial decisions that
are in effect on the date hereof, and we do not opine with respect to any law,
regulation, rule, or governmental policy which may be enacted or adopted after
the date hereof, nor do we assume any responsibility to advise you of future
changes in law.
This opinion is solely for your information in connection with the
transactions contemplated by the Agreement. This letter may not be relied upon
by any other person or for any other purposes whatsoever.
Very truly yours,
51
<PAGE>
Schedule M
----------
Form of Instrument of Assumption
--------------------------------
Pursuant to the provisions of Section 1.03 of the Branch Purchase and
Assumption Agreement dated as of January __, 1999 (the "Agreement"), by and
between Coastal Bank ("Seller") and Kennebunk Savings Bank ("Purchaser"),
Purchaser:
(a) hereby assumes and hereby agrees to hereafter faithfully honor and
fully and timely pay, perform, and discharge all of the Deposit
Liabilities associated with the Branch on the books of Seller as of
the Effective Time, together with all accrued interest attributed
thereto; and
(b) hereby assumes and hereby agrees to hereafter faithfully honor and
fully and timely perform, and discharge all of the obligations,
duties, and liabilities of Seller with respect to (1) the safety
deposit box business of the Branch including, but not limited to, the
maintenance of all necessary facilities for the use of safety deposit
boxes by the renters thereof during the periods for which such persons
have paid rent therefor in advance to Seller (subject to allocations
of rents between Seller and Purchaser as provided in Section
1.03(c)(i) of the Agreement), subject to the provisions of the
applicable leases or other agreements relating to such boxes and the
performance of all other necessary activities relating to such boxes,
and (2) all safety deposit box lease agreements and documents
pertaining to the safety deposit business of the Branch as of the
Effective Time; and
(c) hereby assumes and hereby agrees to hereafter faithfully honor and
fully and timely pay, perform and discharge all Deferred Expenses;
(d) hereby assumes and hereby agrees to hereafter faithfully honor and
fully and timely pay, perform and discharge all of the obligations,
duties, and liabilities of Seller arising from and after the Closing
Date under the Real Estate Lease assigned to Purchaser by Seller.
All capitalized terms that are defined in the Agreement and are not
otherwise defined herein shall have the meaning given to them in the Agreement.
IN WITNESS WHEREOF, Purchaser has caused this instrument to be duly
executed and delivered as of May 14, 1999.
PURCHASER: KENNEBUNK SAVINGS BANK
By:
----------------------------------
52
<PAGE>
Name:
--------------------------------
Title:
-------------------------------
53
<PAGE>
Schedule N
----------
Form of Instrument of Assumption of Individual Retirement Accounts
------------------------------------------------------------------
Pursuant to the provisions of Section 1.03 of the Branch Purchase and
Assumption Agreement dated as of January __, 1999 ("Agreement"), by and between
Seller and Purchaser, as defined below, Purchaser hereby assumes and agrees to
hereafter faithfully, fully, and timely honor, pay, perform, and discharge all
Deposit Liabilities consisting of individual retirement accounts ("IRAs"),
together with all accrued interest attributable thereto and the custodial
arrangement in connection therewith.
Purchaser further hereby assumes and agrees to hereafter faithfully honor and
fully and timely pay, perform, and discharge all of Seller's obligations,
duties, and liabilities evidenced by or related to each Individual Retirement
Custodial Account Agreement (i.e., Internal Revenue Service Model Form 5305-A
with certain supplementary provisions and related IRA Disclosure Statement)
pertaining to the Deposit Liabilities consisting of IRAs, including, without
limitation, the obligation to file reports with the Internal Revenue Service
with respect to such Deposit Liabilities, to the extent such reports are
required and become due after the Effective Time, except that Seller shall send
and file Forms 5498 for all periods ending prior to the date hereof.
Seller hereby appoints Purchaser as the successor trustee to Seller under the
Deposit Liabilities consisting of IRAs. Purchaser hereby accepts from Seller
such appointment to serve in such capacity.
Purchaser and Seller further hereby agree that Purchaser shall distribute, on
or before the date such distribution is required to be made to avoid the
imposition upon the IRA depositor of any excise or other penalty tax, and in
accordance with Section 4974 and other applicable provisions of the Internal
Revenue Code and proposed, temporary, and final regulations of the Internal
Revenue Service, the minimum distribution amount ("MDA") required to be made for
calendar year 1999 by any IRA depositor who has reached age 70-1/2 during or
prior to calendar year 1999, and Purchaser shall be deemed to hold such MDA as
the escrow agent of Seller under instructions to so distribute such MDA.
Notwithstanding the foregoing, to the extent any MDA is required to be
distributed on or before the first day of the first calendar month after the
Closing Date. Purchaser is not responsible for making such MDA.
All capitalized terms that are defined in the Agreement and are not otherwise
defined herein have the meaning given to them in the Agreement.
IN WITNESS WHEREOF, the Purchaser and Seller have caused this instrument to be
duly executed and delivered as of May 14, 1999.
PURCHASER: KENNEBUNK SAVINGS BANK
By:
---------------------------------
54
<PAGE>
Name:
-------------------------------
Title:
------------------------------
SELLER: COASTAL BANK
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
55
<PAGE>
Schedule O
----------
Form of Bill of Sale and Receipt
--------------------------------
FOR VALUE RECEIVED, Seller, as defined below, hereby absolutely and
unconditionally transfers, conveys, sells, sets over, assigns, endorses, and
negotiates to Purchaser, as defined below, all of Seller's right, title, and
interest in, to, and under all Assets, but without recourse and without
representation or warranty of any kind, whether express or implied, except as
otherwise specifically set forth in the Branch Purchase and Assumption Agreement
dated January __, 1999, between Purchaser and Seller ("Agreement").
Seller hereby delivers and/or promises to deliver at the times and in the
manner set forth in the Agreement (a) all of the Assets as are capable of
physical delivery, (b) all files, records, and documents (in the form or medium
presently maintained by Seller) pertaining to the Assets and the Deposit
Liabilities, (c) the contents of all safety deposit boxes maintained at the
Branch as of the Effective Time, and (d) all safety deposit box lease agreements
and other documents pertaining to the safety deposit business of the Branch as
of the Effective Time, subject to the provisions of the applicable agreements,
receipts, and other documents pertaining thereto.
All capitalized terms that are defined in the Agreement and are not otherwise
defined herein shall have the meaning given to them in the Agreement.
IN WITNESS WHEREOF, Seller and Purchaser have caused this instrument to be
duly executed and delivered as of May ____, 1999.
SELLER: COASTAL BANK
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
PURCHASER KENNEBUNK SAVINGS BANK
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
56
<PAGE>
Schedule P
----------
Form of Lease Assignment
------------------------
THIS LEASE ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement"), made this
14th day of May, 1999, by and between Coastal Bank, having an address at 36
Thomas Drive, Westbrook, Maine ("Assignor"), and Kennebunk Savings Bank, having
an address at 104 Main St., P.O. Box 28, Kennebunk, Maine ("Assignee");
W I T N E S S E T H:
--------------------
WHEREAS, Assignor is the owner of the leasehold estates created by the lease
attached hereto as Exhibit A and made a part hereof (the "Lease"), with respect
to the premises described in the attached Exhibit A (the "Leased Premises");
WHEREAS, Assignor desires to assign all of its right, title and interest in
and to the Lease and the Leased Premises to Assignee, and Assignee desires to
assume Assignor's right, title and interest in and to the Lease and the Leased
Premises in accordance with the terms hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set
forth, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by each of the parties hereto, Assignor
and Assignee do hereby agree as follows:
1. Assignment and Covenants.
------------------------
a. Assignor hereby gives, grants, bargains, sells, conveys,
transfers and set over unto Assignee, its successors and assigns,
all of Assignor's right, title and interest in and to the Lease
and the Leased Premises.
b. Assignor, for itself, its successors and assigns, covenants with
Assignee, its successors and assigns, as follows: that Assignor
is the true and lawful owner of the leasehold estate created by
the Lease; that the Lease is now in full force and effect; that
no default exists under the Lease, nor any condition that, with
the passage of time or the giving of notice, or both, would
constitute a default; that Assignor has good right to sell and
convey the leasehold estate created by the Lease; that all rent
now due under the Lease has been paid in full; that no claims
exist against the leasehold estate arising by, through or under
Assignor; and that Assignor will defend the rights of Assignee in
the leasehold estate against all claims of title arising by,
through or under Assignor.
c. Assignor warrants that Exhibit A attached hereto correctly sets
forth: (i) Landlord's calculation of Seller's percentage of
common expenses (additional rent), (ii) a description of the
Leased Real Estate, and (iii) the
57
<PAGE>
last date through which additional rent (as defined in Section 9
of the Real Estate Lease) has been paid.
d. Except as otherwise set forth above and in the Agreement, the
foregoing assignment and transfer is made without representation
or warranty, express or implied, of any nature whatsoever.
2. Assumption. Assignee hereby accepts the foregoing assignment and, in
----------
consideration thereof, Assignee hereby covenants and agrees that, on
and after the Effective Date, Assignee will assume, observe, perform,
fulfill and be bound by all terms, covenants, conditions and
obligations of the Lease that arise on and after the Effective Date
and are to be observed, performed and fulfilled by the tenant named
therein on and after the Effective Date in the same manner and to the
same extent as if Assignee were the tenant named therein.
3. Indemnification.
---------------
a. Assignor hereby indemnifies and agrees to defend and hold
harmless Assignee from and against any and all liability, loss,
damage and expense, including, without limitation, reasonable
attorneys' fees, that Assignee may or shall incur under the Lease
by reason of any failure or alleged failure of Assignor to have
complied with or to have performed, before the Effective Date,
all of the obligations of the tenant under the Lease that were to
be performed before the Effective Date.
b. Assignee hereby indemnifies and agrees to defend and hold
harmless Assignor from and against any and all liability, loss,
damage and expense, including, without limitation, reasonable
attorneys' fees, that Assignor may or shall incur under the Lease
by reason of any failure or alleged failure of Assignee to comply
with or to perform, on or after the Effective Date, all of the
obligations of the tenant under the Lease that arise on and after
the Effective Date and are to be performed on or after the
Effective Date.
4. Effective Date. The "Effective Date" as used herein, shall mean the
--------------
earlier of the following: (i) the Closing Date, as that term is
defined in that certain Purchase and Assumption Agreement, dated
January __, 1999, by and between Assignor and Assignee; or (ii) the
date upon which this Agreement is filed for record with the Recorder
of York County, Maine.
5. Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
6. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall constitute one and the same instrument.
58
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed on the day and year first set forth above.
Signed in the presence of: COASTAL BANK ("Assignor")
By:
- ----------------------------- -----------------------------
Name: Name:
------------------------ ---------------------------
Title:
--------------------------
And:
- ----------------------------- ----------------------------
Name: Name:
------------------------ ---------------------------
Title:
--------------------------
KENNEBUNK SAVINGS BANK ("Assignee")
By:
- ----------------------------- -----------------------------
Name: Name:
---------------------------
Title:
--------------------------
And:
- ----------------------------- ----------------------------
Name: Name:
------------------------ ---------------------------
59
<PAGE>
CONSENT
-------
The undersigned, being the landlord under that certain lease dated
_____________, in Exhibit A, by _________________________ to, hereby confirms
its consent to the assignment of such lease to Kennebunk Savings Bank and
releases Coastal Bank from any further obligation thereunder.
Signed in the presence of: LANDLORD:
----------------------
By:
- ----------------------------- -----------------------------
Name:
---------------------------
Title:
--------------------------
- -----------------------------
--------------------------
(Individual)
60
<PAGE>
(INSERT APPROPRIATE ACKNOWLEDGMENT FOR CORPORATE,
PARTNERSHIP OR INDIVIDUAL LANDLORD)
61
<PAGE>
STATE OF )
------ ) SS:
COUNTY OF )
----------
Before me, a Notary Public in and for said County and State, personally
appeared_____________________, and __________________, the _____________________
and ____________________, respectively, of Coastal Bank, who acknowledged that
they executed the foregoing instrument on behalf of said bank and that the same
was the free act and deed of said bank and their free act and deed individually
and as such officers.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal, at
________, ______ this ____ day of _________, 19__.
-----------------------------
Notary Public
STATE OF )
------- ) SS:
COUNTY OF )
------------
BEFORE ME, a Notary Public in and for said County and State, personally
appeared ____________________and ____________________, the ________________ and
_____________________, respectively, of Kennebunk Savings Bank who acknowledged
that they did sign the foregoing instrument on behalf of said bank and that the
same was the free act and deed of said bank, and their free act and deed
individually and as such officers.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal, at
____________, ______, this _____ day of ___________, 19__.
-----------------------------
Notary Public
This instrument prepared by:
----------------------------
----------------------------
----------------------------
----------------------------
62
<PAGE>
Exhibit A
---------
Description of Lease
--------------------
The leasehold estate created by that certain lease dated _____________, by and
between _______________________, as landlord, and Coastal Bank of 36 Thomas
Drive, Westbrook, Maine ("Seller"), as tenant, a memorandum of which was
recorded in Volume ______, at Page _____ of the ____________ County, _____
Records, and together with all right, title and interest of Seller in and to the
following described premises:
(Insert description of Leased Premises)
63
<PAGE>
Schedule Q
Pending Labor Matters
---------------------
NONE
64
<PAGE>
Schedule R
----------
Description of Leased Property
------------------------------
65
<PAGE>
Schedule S
----------
Procedure for Inclearing Items
------------------------------
Following the consummation of the Acquisition, Seller will notify
Purchaser no later than 1:00 P.M. each business day of the monies due Seller for
inclearing items received for payment on purchased deposits. Purchaser will be
responsible for reimbursing Seller for monies due via wire transfer no later
than 5:00 P.M of the same business day. Seller will cause its inclearing
servicer (Financial Institution Service Corporation a/k/a FISC) to deliver by
courier the physical items to Purchaser located at 5 Fletcher Street (Libby
House), Kennebunk, Maine no later than 5:00 P.M. of the same business day.
66
<PAGE>
Schedule T
----------
Plan for ATM Card Deactivation and Activation
---------------------------------------------
Coastal Bank and Kennebunk Savings Bank will develop, within any technical
limitations imposed by internal processing systems or their respective ATM and
Debit Card processors, EDS and Mellon Network Services, an ATM and Debit Card
deactivation and activation plan designed to minimize customer loss of ATM and
Debit Card functionality.
Coastal Bank will close the ATM located at 45 Portland Road, Kennebunk at the
close of business on the closing date. The ATM will be reactivated by Kennebunk
Savings Bank subsequent to the opening of the branch as a Kennebunk Savings Bank
location.
67
<PAGE>
Exhibit 13
First Coastal Corporation
1998
ANNUAL
REPORT
including its subsidiary
Coastal Bank
<PAGE>
Letter to Stockholders 1
Selected Consolidated Financial Data 4
Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Market for Registrant's Common Equity and Related
Stockholder Matters 26
Report of Independent Accountants 27
Consolidated Financial Statements 28
Notes to Consolidated Financial Statements 33
Corporate and Stockholder Information 51
<PAGE>
PRESIDENT'S LETTER
[Photo]
TO OUR STOCKHOLDERS:
Significant progress was made on a number of fronts at First Coastal
Corporation ("First Coastal" or the "Company") in 1998. The most noteworthy
achievements were continued stable earnings, strong asset quality, significant
deposit and balance sheet growth and, most importantly, the continued
implementation and refinement of our strategic plan which management and the
Board of Directors believes will have a favorable long term impact on the
Company. We are pleased to have the opportunity to bring our stockholders up to
date on the transformation that is currently underway at First Coastal
Corporation.
The Challenge, circa early 1997...
While the 1996 recapitalization brought to an end a period of financial
risk that for years had threatened the Company's solvency, entering 1997 First
Coastal was still a company with significant issues. Even while the Company's
financial health was improving during the period leading up to the
recapitalization, the market presence of Coastal Bank (the "Bank"), the
Company's operating subsidiary, had declined considerably because of the
extended period of financial distress it had endured, as well as management's
long running need to focus on the major crises of this period: the Bank's
financial condition, the Federal Deposit Insurance Corporation's cross guaranty
claim against the Bank (which resulted from the Suffield Bank failure), and the
1996 recapitalization related to the settlement of the cross guaranty claim.
Although the Company's fiscal soundness had been largely restored, the years
of severe difficulties, controlled downsizing, limited ability to develop and
promote new or existing products, and the negative publicity attendant to the
Company's problems (until the recapitalization was completed), all contributed
significantly to the Bank's smaller size and reduced market presence.
An additional key issue facing the Company was the lack of a synergistic
branching network. The Company's seven branch network was spread along the
Southern coast of Maine over a distance of approximately fifty miles. While
Brunswick, Topsham and Freeport were well supported by four branches, the area
between Freeport and Kennebunk, representing the State's most heavily populated
and strongest economic area, was serviced by only three branches. These were the
Saco and Kennebunk branches, and our Westbrook operations center and branch.
During the first half of 1997 management conducted an extensive strategic
planning process with the goal of identifying a long term plan that would
enhance First Coastal's prospects for future growth and profitability. We
believe that we have been successful in developing such a plan.
Interim Plan Progress, 1998...
The Bank's new downtown Portland branch, with a primary focus on providing
commercial banking services to the Portland market, opened in March 1998, under
the name Coastal Business Bank. Although small in size, the facility is well
located near the center of the city's financial and legal services district, and
offers a drive through and pedestrian walk-up service. Staffed with two
experienced commercial lenders, we have been pleased with the commercial loan
volume and deposit growth achieved from this location. The opening of the
Portland office also marked the introduction of Coastal Business Bank, a
division of Coastal Bank. The signage on the Portland location, and all
business cards and letterhead utilized by all of the Bank's commercial lenders,
commercial loan staff, commercial deposit professionals and myself, as well as
all commercial product offering and promotional materials, carry the name
Coastal Business Bank. It has proven to be an effective means for us to
differentiate Coastal (Business) Bank from other financial institutions.
In May 1998 the Bank launched its new Internet banking product for
businesses, Coastal Business PC, along with our newly developed business cash
management program. Utilizing state-of-the-art web browser technology, this on-
line, real-time system offers businesses more convenience and the ability to
more effectively utilize their cash by allowing them to instantly transfer funds
among their Coastal Bank accounts, and between Coastal and other banks; have
instant access to key information; and retrieve images of cleared checks prior
to receiving their statement. The same system is well-suited for a retail
Internet product, which the Bank expects to implement sometime in 2000. Also
during 1998 the web sites for both First Coastal (www.firstcoastal.com) and
Coastal Bank (www.coastalbankme.com) were improved and now contain current and
useful information on a continuous basis.
During the course of 1998 three other events either took place, or were set
in motion, that are expected to have a substantial impact on the future and
strategic direction of the Company. The first was the September sale of the
Bank's combination main office, branch and operations center, located at 36
1
<PAGE>
Thomas Drive, Westbrook. Although the price received was favorable, and the
Company recorded a pre-tax gain of $539,000 in the third quarter related to this
sale, the significance of this transaction lies much more in the opportunity it
provides for the Company to accelerate improvements to its branching network and
overall market presence. We are presently searching for a new combination main
office, branch and operations center. Our goal is for this facility to be
located in a much more visible and accessible Portland location than our
Westbrook facility was. Though the operating expenses associated with the new
facility will be higher, we anticipate that the improved visibility gained from
being better located should result in enhanced customer awareness of Coastal
Bank in the Greater Portland market.
The prospect of selling the Westbrook facility on favorable terms caused
management to consider a more pro-active, accelerated approach to the branching
issue. This evaluation led to the second event, the pending sale of our
Kennebunk branch. Though the branch has served the Bank well for a number of
years, its location is not synergistic to the rest of our branch network and
does not offer the long term growth opportunities we believe are available
elsewhere. The plan to sell the branch was announced in December 1998 and a
definitive purchase and assumption agreement was executed in February 1999. The
sale, which remains subject to regulatory approvals, is expected to close in May
1999, at which time an estimated pre-tax gain of $1.1 million to $1.2 million is
anticipated to be recorded.
The third event was the Company's sale of its residential mortgage
servicing portfolio. The decision to sell the approximately $44 million
portfolio was based upon management's evaluation of the profitability associated
with the origination, sale and servicing of secondary market residential
mortgage loans. The evaluation led to the conclusion that the Bank did not have
the economies of scale necessary to compete effectively on the servicing side of
the business. As a result, the portfolio was sold effective November 30, 1998,
with a pre-tax gain in the amount of $460,000 recorded in the first quarter of
1999 following the final settlement on January 31, 1999. The Company intends to
continue to be an active residential lender (including secondary market loans),
with saleable residential loans going forward expected to be sold on a servicing
released basis.
Financial Results, 1998...
The Company's 1998 net income, which included the pre-tax gain of $539,000
associated with the sale of the Westbrook facility, equaled $1.6 million, or
$1.13 per share fully diluted. This reflected a modest $97,000 increase in pre-
tax income (excluding the gain on the Westbrook facility and loan and securities
sales gains), as compared to 1997. Asset quality reflected further improvement,
with the level of nonperforming assets declining 30.8% to $566,000, a level
considered so low as to be non-sustainable.
Total assets increased $45.0 million (30.7%), to $191.4 million in 1998.
The asset growth was largely fueled by a $33.6 million increase in total deposit
balances, as well as a $9.3 million increase in borrowings from the Federal Home
Loan Bank. The 29.2% increase in total deposits was largely due to the success
of the Bank's new High Rise Savings product, which generated $28.9 million (86%
of total deposit growth) in net new deposits.
The Bank's asset growth was almost totally represented by increases in cash
and cash equivalents, equaling $25.0 million, and investment securities,
equaling $24.2 million. The large increase in the level of these lower yielding
assets (as a percentage of total assets) contributed significantly to declines
in the yield on average earning assets, net interest rate spread and net
interest margin. However, the Company's net interest income increased $474,000
(7.9%) in 1998 as compared to 1997, and it is anticipated that the
aforementioned ratios relating to the return on earning assets will improve to
the extent that the Company reduces the percentage of assets allocated to these
lower yielding categories and increases loan balances as a percentage of total
assets.
While total loans increased only $1.6 million in 1998, the level of
originations was encouraging. Although residential mortgage loan balances
remained essentially unchanged, residential originations increased $6.1 million,
to $24.3 million (33.6%) as compared to 1997. It should be noted, however, that
a reduction in the level of refinances going forward could have an adverse
impact on the level of residential mortgage loans generated, even though it is
the Bank's intention to become less reliant on refinances as a source of
residential mortgage loan business. The progress made in 1998 in the commercial
lending area was particularly encouraging. While balances increased a modest
$4.0 million, this was largely due to higher-than-typical loan prepayments
resulting from a combination of the generally lower 1998 interest rate
environment (which resulted in many borrowers seeking refinances at lower
rates), increased competition from the commercial real estate conduit market and
a low percentage of the Bank's commercial real estate
2
<PAGE>
loans protected by prepayment penalties at that time. Commercial loan volume
(new loans and lines of credit closed) actually increased approximately 50% in
1998, as compared to 1997, and the Bank was successful in significantly
increasing the percentage of commercial loans protected by prepayment penalties.
The Opportunity, circa early 1999...
In light of the progress made developing and implementing the Company's
long term strategic plan over the past two years, it is becoming easier to
envision what the future may hold for First Coastal. From a branching
standpoint, our current objective is to move by the end of 2000, and hopefully
no later than the end of 2001, from a total of seven branches (as was the case
in early 1998), with a large gap in our "network," to ten branches, five of
which would be located in the Greater Portland market. One of the five branches
was put in place in March 1998, downtown Portland. Another will represent a
replacement for our current Westbrook facility and will, ideally, provide the
Bank with a visible, well located combination main office, branch and operations
center, most likely located in Portland. Of the other three remaining branches
contemplated one, in essence, offsets the sale of our Kennebunk branch, while
the other two will be net new additions to our branching system. While this
expansion and restructuring of our branching network would represent significant
growth and change within a relatively short period of time for a banking company
the size of First Coastal, we believe this initiative makes a lot of sense.
Three large, multi-state holding companies, against whom we believe we compete
very effectively, have a substantial presence in the Greater Portland market,
holding in excess of 80% of area deposits. This substantial presence is largely
the result of past bank consolidations and the extensive branching networks
these banks enjoy. By way of example, each of these banks has a minimum of six
branches in Portland and two in South Portland, as well as branches in smaller,
outlying communities. By contrast, no other bank has more than one branch in
Portland. In our view, this situation presents an excellent opportunity for a
community bank to increase its presence in the valuable Greater Portland market
by doing the things that we do well, providing excellent, responsive customer
service and providing the banking products people need. Of course, while we
believe that our branching strategy can be realized, there is no assurance that
we will be successful in accomplishing all of our objectives.
We continue to believe that commercial lending represents an area in which
we can excel and develop a sustainable strategic advantage over much of our
competition. We believe that our combination of expertise, size and other
factors provides us with the ability to consistently deliver better and more
reliable service to a customer base that routinely demands this as a critical
business need. Over the past two years we have made significant strides in
developing an exceptionally capable commercial lending and deposit team, along
with the products businesses require. We expect the continued growth of this
area to be a critical component of First Coastal's future.
The combination of the branching initiative currently underway, the
expansion of the Bank's retail banking programs, increased residential lending
activity and the implementation of the Bank's commercial banking business plan,
are anticipated to lead to enhanced growth opportunities for First Coastal over
the next five years. Most of this growth is expected to occur in years
subsequent to 1999, as the Kennebunk sale is expected to occur in 1999 and the
initial new branches planned are not anticipated to come into operation until
late 1999 or early 2000, and the later branches contemplated would not be
complete until the end of 2000 or 2001. During the period the branches are
becoming operational, and until they meet and exceed their breakeven points,
this initiative is expected to have a dampening effect on earnings. However, to
the extent critical mass is achieved within the branches, particularly in the
areas of deposit balances and retail loan volume, and the Bank's overall loan
and deposit balances grow, we expect that the Company's operating results should
begin to improve over the last-half of this five year period. We are confident
the steps we are taking will ultimately enhance shareholder value.
While any number of factors could have an adverse effect on the success of
our plan, including a downturn in the economy, changes in consumer or business
banking trends, or various competitive factors, and there is risk in a more
aggressive plan such as the one outlined here as opposed to a more conservative
alternative, we firmly believe this is the correct course of action for the
Company. It will take a tremendous amount of work on the part of management,
staff and the Board of Directors to successfully implement the plan. However,
this is a commitment we are willing to make, and our history over the past
several years reflects an ability on our part to successfully meet significant
challenges. We look forward to your continued support.
Gregory T. Caswell
President and Chief Executive Officer
3
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Selected Consolidated Financial Data of First Coastal Corporation
The following table sets forth, in summary form, certain selected financial data
of First Coastal Corporation (the "Company") as of and for each of the five
years in the period ended December 31, 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
(dollars in thousands, except share and per share data) 1998 1997 1996 1995 1994
- --------------------------------------------------------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Interest income $ 13,059 $ 11,894 $ 11,331 $ 11,707 $ 11,780
Interest expense /(1)/ 6,567 5,876 5,653 5,850 5,726
---------- ---------- -------- -------- --------
Net interest income before provision for loan losses 6,492 6,018 5,678 5,857 6,054
Provision for loan losses - - - (425) 107
---------- ---------- -------- -------- --------
Net interest income after provision for loan losses 6,492 6,018 5,678 6,282 5,947
Investment securities/loan gains 215 370 45 13 30
Noninterest income /(2)(3)/ 1,166 620 945 559 399
Operating expenses /(4)/ 5,450 5,067 5,142 5,194 6,278
Income tax expense (benefit) /(5)/ 859 679 (4,859) - -
---------- ---------- -------- -------- --------
Income before Extraordinary Item 1,564 1,262 6,385 1,660 98
Extraordinary Item -
Charge to earnings as a result of the
settlement of the cross guaranty claim /(6)/ - - - - 9,000
---------- ---------- -------- -------- --------
Net income (loss) $ 1,564 $ 1,262 $ 6,385 $ 1,660 $ (8,902)
========== ========== ======== ======== ========
Earnings Per Share Before Extraordinary Item:
Basic earnings per share data:
Weighted average shares outstanding 1,359,976 1,358,730 933,578 600,361 600,361
Net income $ 1.15 $ .93 $ 6.84 $ 2.77 $ .16
Diluted earnings per share data:
Weighted average shares outstanding 1,379,124 1,391,272 940,480 600,361 600,361
Net income $ 1.13 $ .91 $ 6.79 $ 2.77 $ .16
Earnings Per Share After Extraordinary Item:
Basic earnings per share data:
Weighted average shares outstanding 1,359,976 1,358,730 933,578 600,361 600,361
Net income (loss) $ 1.15 $ .93 $ 6.84 $ 2.77 $ (14.83)
Diluted earnings per share data:
Weighted average shares outstanding 1,379,124 1,391,272 940,480 600,361 600,361
Net income (loss) $ 1.13 $ .91 $ 6.79 $ 2.77 $ (14.83)
</TABLE>
There were no cash dividends declared during the years ended December 31, 1994
through 1998.
/(1)/ The 1998, 1997, 1996 and 1995 interest expense includes $332,000,
$477,000, $525,000 and $419,000, respectively, in interest expense
associated with (i) the promissory note in the principal amount of $9.0
million issued to the FDIC in connection with the 1995 settlement of the
FDIC's cross guaranty claim against its subsidiary Coastal Bank, which
note was paid in full on July 24, 1996, and (ii) the promissory notes in
the aggregate principal amount of $4.0 million issued to a group of four
Maine savings banks in connection with the recapitalization of the Company
in July 1996.
/(2)/ In 1996, Coastal Bank sold its branch in Kezar Falls, Maine and recognized
a pre-tax gain of $366,000.
/(3)/ In 1998, Coastal Bank sold its combination headquarters branch/operations
center located in Westbrook, Maine, resulting in a pre-tax gain of
$539,000.
/(4)/ In 1995 and 1994, the Company incurred approximately $0.3 million and $0.8
million, respectively, of legal and other professional fees associated
with the settlement of the FDIC's cross guaranty claim against Coastal
Bank.
/(5)/ The 1996 results include a $4.8 million tax benefit resulting from a
reduction in the Company's valuation allowance against its deferred tax
asset. See Note L to the Company's Consolidated Financial Statements.
/(6)/ The 1994 results reflect a $9.0 million extraordinary charge to earnings
as a result of the settlement of the FDIC's cross guaranty claim against
Coastal Bank.
4
<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
(dollars in thousands) 1998 1997 1996 1995 1994
- --------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets $191,413 $146,400 $147,734 $145,453 $154,212
Investment securities 47,048 22,887 26,692 19,712 16,746
Assets held for sale 83 3,565 1,490 281 185
Loans, net of fees 105,776 104,165 98,515 100,528 109,625
Allowance for loan losses 2,735 2,665 2,666 2,659 4,042
Nonperforming assets 566 818 2,623 7,517 9,006
Deposits /(1)/ 148,545 114,991 115,085 125,665 130,037
Borrowings 22,545 13,294 15,000 6,000 12,612
Notes payable /(2)/ 2,600 3,000 4,000 9,000 9,000
Secured borrowings 967 - - - -
Stockholders' equity 16,314 14,808 13,388 3,997 2,014
Financial Ratios:
Net interest rate spread 3.68% 3.98% 4.12% 4.13% 3.79%
Net interest rate margin 4.09 4.32 4.28 4.19 3.97
Return on average assets before
extraordinary item .93 .84 4.57 1.14 .06
Return on average assets .93 .84 4.57 1.14 (5.48)
Return on average equity before
extraordinary item 9.81 8.72 102.60 58.20 .92
Return on average equity 9.81 8.72 102.60 58.20 (83.78)
Equity to assets 8.52 10.11 9.06 2.75 1.31
Tier 1 leverage capital 7.20 7.71 6.62 2.74 1.41
Total risk-based capital 14.32 13.29 11.54 5.54 3.46
</TABLE>
/(1)/ The sale of the Bank's Kezar Falls, Maine branch in April 1996 included
deposits totaling $9.9 million.
/(2)/ Notes payable consists of the FDIC Note in 1994 and 1995 and the Savings
Bank Notes in 1996, 1997 and 1998.
The 1996 financial results reflect the completion of the Company's
recapitalization plan, as a result of which the Company repaid in full its
obligation to the FDIC in the amount of $9.7 million ($9.0 million principal
amount plus accrued interest) (the "FDIC Note"), arising from the 1995
settlement of the FDIC's cross guaranty claim against its subsidiary, Coastal
Bank (the "Bank"). The recapitalization plan included (i) the sale of 750,000
shares of the Company's common stock at $5.00 per share, (ii) a dividend in the
amount of $3.2 million from the Bank to the Company; and (iii) the borrowing of
$4.0 million from a group of four Maine savings banks (the "Savings Banks")
pursuant to which the Company issued promissory notes in the aggregate principal
amount of $4.0 million (the "Savings Bank Notes") which mature on December
31,2001.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BUSINESS
First Coastal Corporation (the "Company"), a Delaware corporation, is a bank
holding company whose sole operating subsidiary is Coastal Bank (the "Bank"), a
Maine chartered savings bank headquartered in Westbrook, Maine. The Company has
no separate operations and its business consists of the business of the Bank.
The principal business of the Bank consists of retail and commercial banking,
including attracting deposits from the general public and originating
residential mortgage, consumer, commercial real estate and small business loans.
The Bank conducts its business from eight offices in the counties of Cumberland,
Sagadahoc and York. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to the limits provided by law.
This Annual Report, 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. Any statements with regard to the Company's
expectations as to its financial results and other aspects of its business,
including the Company's strategic business initiatives, net interest margin,
deposit growth, interest rates, additional branches, market and growth
opportunities and loan volume, constitute forward-looking statements. 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 on the Company's deposit products and loan
demand; (ii) the possibility that certain transactions, such as the Kennebunk
branch sale, the identification, development and successful transition to a
suitable new headquarters branch /operations center, the opening of new
branches, the introduction of new banking products or other events, may not
occur; (iii) the possibility that operating expenses may be higher than
anticipated; (iv) the effect of 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 and noninterest expense, interest earning
assets and noninterest income, as well as 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.
HISTORICAL BACKGROUND
Coastal Bank was formed in 1981 through the consolidation of Brunswick Savings
Institution and York County Savings Bank, which were organized in 1858 and 1862,
respectively. The Bank converted from mutual to stock form in 1984. In 1987
the Bank was acquired by Suffield Financial Corporation of Suffield,
Connecticut, the bank holding company for Suffield Bank ("Suffield"). Following
the transaction the two banks experienced significant financial difficulties as
a result of the late 1980's, early 1990's real estate downturn. In September
1991 Suffield was placed in receivership by the Connecticut Department of
Banking, leaving Coastal Bank as the Company's sole operating subsidiary.
Subsequent to Suffield's failure, the Company's headquarters was moved to
Portland, Maine and the name of the Company was changed to First Coastal
Corporation.
As a result of its financial difficulties, Coastal Bank was placed under an
Order to Cease and Desist ("C&D") by the FDIC and the Maine Bureau of Banking.
The Bank's financial condition improved, as evidenced by the 1994 termination of
the C&D and the 1996 termination of the memorandum of understanding (which had
replaced the C&D). However, as a result of the failure of Suffield, the Company
faced another serious threat to its financial future. In 1991 the FDIC assessed
a cross guaranty claim against the Bank for the losses sustained by the Bank
Insurance Fund as a result of Suffield's failure. This claim was settled in
1994 for $9.0 million, with a note executed in January 1995 calling for payment,
with interest, within two years. In July 1996 the Company completed a
recapitalization whereby the $9.7 million obligation (with interest) was repaid
in full. This was accomplished through a $3.1 million registered public
offering, $4.0 million in bank financing and a $3.2 million dividend from the
Bank. As a result of the recapitalization, the Company's common stock was
listed on the Nasdaq SmallCap Market tier of the Nasdaq Stock Market under the
symbol "FCME".
6
<PAGE>
Throughout the 1990's until the completion of the recapitalization in 1996, the
Company's attention and resources were largely focused on crisis management,
dealing with the Bank's financial difficulties and the cross guaranty claim that
represented significant threats to the Company's financial future. Following
the recapitalization the Company was able, for the first time in years, to focus
fully on its long term strategic direction and rebuilding the competitive
viability of the Bank. During the first half of 1997 the Company completed a
five year strategic plan, the implementation of which began during the second
half of 1997 and continued throughout 1998. Significant aspects to the plan
include the March 1998 opening of the Bank's new Downtown Portland office, which
is primarily focused on commercial lending and deposit services; the May 1998
introduction of Internet banking for businesses (Coastal Business PC) and new
cash management products for business; the continued development of a strong
commercial lending team and increased commercial loan volume; and the
introduction of High Rise Savings, the new tiered savings product which was
largely responsible for the Bank's 29.2% increase in total deposits in 1998.
The strategic plan was subsequently amended during the last half of 1998 as
additional opportunities were identified. The most significant new initiative
involves the reorganization of the Bank's branching network, evidenced by the
1998 sale of the Bank's combination headquarters branch/operations center in
Westbrook; the pending sale of the Kennebunk branch (planned for May 1999); and
the contemplated opening of a new headquarters branch/operations center and
additional branches in the Greater Portland market.
SIGNIFICANT EVENTS
Sale of Headquarters Branch/Operations Center
On September 15, 1998, the Bank sold its combination headquarters
branch/operations center located in Westbrook, Maine and recorded a pretax gain
of $539,000 on the sale. In connection with the sale, the Bank entered into a
short term lease which expires in March 2000. The Bank intends to move to a new
headquarters branch/operations center facility in the Greater Portland area, a
search for which is currently underway.
Sale of $44 Million Residential Mortgage Servicing Portfolio
On January 31, 1999 the Bank completed the settlement of the sale of its
residential mortgage servicing portfolio, resulting in a pre-tax gain in the
amount of $460,000 recorded in the first quarter of 1999. The Bank acted as a
subservicer of this approximately $44 million loan portfolio during the period
from the date of the sale, November 30, 1998, through January 31, 1999. On a
going forward basis, it is the Bank's intent to sell saleable residential loans
on a servicing released basis, subject to market conditions.
Sale of the Bank's Kennebunk Branch
On February 22, 1999, the Bank entered into a definitive purchase and assumption
agreement to sell its branch located in Kennebunk, Maine. Under the terms of
the purchase and assumption agreement (subject to receipt of regulatory
approvals), the purchaser will acquire all of the branch's deposits and certain
branch assets, as well as assume responsibility for the Bank's lease
obligations. Should the sale of the branch take place in the second quarter of
1999 as anticipated, a pretax gain in the amount of approximately $1.1 million
to $1.2 million is anticipated to be recorded at that time. The actual amount
of the gain to be recorded at closing will be subject to actual deposit levels,
the mix of deposits and other factors, and could be higher or lower than the
amount currently anticipated.
RESULTS OF OPERATIONS
Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997
Overview
The Company reported net income of $1.6 million (basic earnings per share of
$1.15) for the year ended December 31, 1998, compared to net income of $1.3
million (basic earnings per share of $.93) for the year ended December 31, 1997.
The results for 1998 include a pre-tax gain of $539,000 resulting from the sale
of the Bank's headquarters branch/operations center. Securities and loan sales
gains totaled $215,000 for the year ended December 31, 1998 as compared to
$370,000 for the year ended December 31, 1997. The Company incurred no
provision for loan losses expense for the years ended December 31, 1998
and 1997.
Net Interest Income
Net interest income equaled $6.5 million and $6.0 million for the years ended
December 31, 1998 and 1997, respectively. Changes in net interest income are
caused by interest rate movements, changes in the amount and the mix of
interest-earning assets and interest-bearing liabilities, and changes in the
level of noninterest-earning assets and noninterest-bearing liabilities.
7
<PAGE>
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income of the Company 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>
Year Ended December 31,
-----------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
Average Yield/ Average Yield/ Average Yield/
(in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------- -------- -------- ------- --------- --------- ------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans /(1)(2)/ $106,115 $ 9,919 9.35% $103,678 $ 9,651 9.31% $ 98,223 $ 9,226 9.39%
Investments
Available for sale /(3)/ 30,548 1,942 6.36 19,305 1,256 6.51 13,350 834 6.25
Held to maturity 2,860 184 6.44 7,774 512 6.58 11,470 759 6.62
Interest earning deposits 19,097 1,014 5.24 8,550 475 5.56 9,559 512 5.36
-------- -------- -------- ------- -------- -------
Total interest earning assets 158,620 13,059 8.23 139,307 11,894 8.54 132,602 11,331 8.55
-------- ------- -------
Noninterest earning assets 9,906 10,799 7,077
-------- -------- --------
Total assets $168,526 $150,106 $139,679
======== ======== ========
Liabilities:
Savings and checking $ 71,314 2,415 3.39% $ 53,028 1,391 2.62% $ 53,430 1,396 2.61%
Other time deposits 54,004 2,893 5.36 56,801 3,068 5.40 60,428 3,328 5.51
Secured borrowings 646 27 4.21 - - - - - -
FHLB advances 15,593 900 5.77 15,497 940 6.07 7,226 404 5.59
Notes payable /(4)/ 2,898 332 11.46 3,641 477 13.09 6,757 525 7.77
-------- -------- -------- ------- -------- -------
Total interest bearing
liabilities 144,455 6,567 4.55 128,967 5,876 4.56 127,841 5,653 4.42
-------- ------- -------
Noninterest bearing deposits 7,987 6,483 5,323
Noninterest bearing liabilities 149 189 292
Stockholders' equity 15,935 14,467 6,223
-------- -------- --------
Total liabilities and
stockholders' equity $168,526 $150,106 $139,679
======== ======== ========
Net interest income $ 6,492 $ 6,018 $ 5,678
======== ======= =======
Net interest rate spread /(5)/ 3.68% 3.98% 4.12%
Net interest margin /(6)/ 4.09% 4.32% 4.28%
</TABLE>
______________________________
/(1)/ For purposes of these computations, loans held for sale and nonaccrual
loans are included in the average loan amounts outstanding.
/(2)/ Included in interest income on loans are loan fees of $262,000, $195,000
and $152,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
/(3)/ Yields on available for sale securities are calculated based on historical
cost.
/(4)/ Notes payable consists of the FDIC Note and the Savings Bank Notes.
/(5)/ Return on interest earning assets less cost of interest bearing
liabilities.
/(6)/ Net interest income divided by average earning assets.
8
<PAGE>
The table below sets forth certain information regarding changes in interest
income and expense of the Company for the periods indicated. For each category
of interest earning assets and interest bearing liabilities, information is
provided on changes attributable to (i) changes in rates (change in rate
multiplied by old volume), (ii) changes in volume (change in volume multiplied
by old rate), and (iii) changes in rate/volume (the change in interest due to
both rate and volume has been allocated to rate and volume changes in proportion
to the relationship of the absolute dollar amounts of the change in each
category).
<TABLE>
<CAPTION>
Year Ended December 31, 1998 Year Ended December 31, 1997
Compared to Compared to
Year Ended December 31, 1997 Year Ended December 31, 1996
------------------------------- -------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------- -------------------------
(in thousands) Rate Volume Total Rate Volume Total
- ----------------------------------- ------------ -------- ------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Loans/(1)/ $ 41 $ 227 $ 268 $ (87) $ 512 $ 425
Investments available for sale (46) 732 686 50 372 422
Investments held to maturity (5) (323) (328) (2) (245) (247)
Interest earning deposits (47) 586 539 17 (54) (37)
----- ------ ------ ----- ----- -----
Total interest income (57) 1,222 1,165 (22) 585 563
----- ------ ------ ----- ----- -----
Interest expense:
Savings and checking 551 473 1,024 7 (11) (4)
Other time deposits (24) (151) (175) (61) (200) (261)
Secured borrowings - 27 27 - - -
FHLB advances (46) 6 (40) 74 462 536
Notes payable (48) (97) (145) 194 (242) (48)
----- ------ ------ ----- ----- -----
Total interest expense 433 258 691 214 9 223
----- ------ ------ ----- ----- -----
Net change in net interest income
before provision for loan losses $(490) $ 964 $ 474 $(236) $ 576 $ 340
===== ====== ====== ===== ===== =====
</TABLE>
/(1)/ For purposes of these computations, loans held for sale and nonaccrual
loans are included in loans.
Net interest income increased by $474,000 for the year ended December 31, 1998
as compared to the year ended December 31, 1997. This increase is primarily
attributable to an increase in the level of earning assets in 1998 as compared
to 1997, primarily in the categories of investments and interest earning
deposits. The Company's net interest rate spread for the year ended December
31, 1998 decreased to 3.68% as compared to 3.98% for the year ended December 31,
1997 and the net interest margin decreased to 4.09% for the year ended December
31, 1998 as compared to 4.32% for the year ended December 31, 1997. The
decrease in the net interest rate spread and net interest margin is primarily
the result of a 0.31% decline in the Company's yield on earning assets. The
decline in the yield on earning assets is primarily attributable to lower
yielding investments and interest earning deposits representing a larger
percentage of the Bank's total average assets, 33.1% for 1998 as compared to
25.6% for 1997. This shift in the percentage of the Bank's assets allocated to
these lower yielding assets is largely the result of the growth in total
deposits, with the primary factor behind the growth the new High Rise Savings
deposit program.
Interest income for the year ended December 31, 1998 increased $1,165,000 as
compared to the year ended December 31, 1997. The increase is primarily
attributable to an increase in average earning assets of $19.3 million,
including increases in investments available for sale ($11.2 million), interest
earning deposits ($10.5 million) and average loan balances ($2.4 million),
partially offset by a decline in investments held to maturity ($4.9 million).
The increase in interest earning assets was primarily the result of the increase
in total deposit balances, largely attributable to the introduction of a the
Bank's new High Rise Savings product and also increased commercial deposit
balances. Savings deposits increased $28.9 million and commercial deposits
increased $2.9 million during the year ended December 31, 1998. This deposit
growth was primarily invested in cash and cash equivalents 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. It
is management's intent to reduce the percentage of earning assets comprising
these two asset categories in 1999, and to increase loans as a percentage of
earning assets, thereby improving the Company's net interest rate spread and net
interest rate margin.
9
<PAGE>
Competition with regard to loan originations has continued to be intense. As a
result, the yields on new loan originations, and in particular commercial real
estate and commercial and industrial loans, may decline relative to interest
rates in general. Competitive factors resulted in increased loan prepayments in
1998 as compared to that which might ordinarily have been expected, as well as
some reductions in contract interest rates for existing customers. It is
unknown how the competitive and interest rate environment may impact loan
prepayments in 1999.
Interest expense increased $691,000 for the year ended December 31, 1998 as
compared to the year ended December 31, 1997. The increase is primarily the
result of a $1.0 million increase in interest expense paid on savings deposits
(attributable to a $17.9 million increase in average deposit balances and a
1.07% increase in rate). This increase was partially offset by (i) a $201,000
decline in interest expense paid on certificates of deposits and interest
bearing checking deposits (attributable to a $2.4 million decline in average
deposit balances and a .12% decline in rates), (ii) a $40,000 reduction in
interest expense on advances from the Federal Home Loan Bank ("FHLB") of Boston,
primarily the result of more favorable rates on borrowings, and (iii) a $145,000
reduction in interest expense on the Savings Bank Notes. The decline in
interest expense on the Savings Bank Notes resulted from a $1.0 million
unscheduled principal payment made in September 1997 and $200,000 scheduled
principal payments made in June and December of 1998.
On March 23, 1998, the Company introduced a new savings deposit product called
High Rise Savings. The introductory interest rate paid on this product was
tiered (initially ranging from 4.64% to 5.59%) and was 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). This account generated net new deposits
of $28.9 million for the year ended December 31, 1998 (the bulk of which were at
the introductory rate). In addition, a portion of the Bank's deposit customers
converted their pre-existing accounts to High Rise Savings accounts (generally
at higher rates) with High Rise balances at December 31, 1998 equal to $36.4
million. As a result of this program, average savings deposit balances
increased significantly, from $34.5 million to $63.4 million, and the average
rate on savings deposits increased from 2.71% to 3.78%, thereby increasing the
overall cost of deposits to the Bank. The interest rate paid on the introductory
High Rise Savings accounts was reduced in January and March of 1999, by 0.50%
and 0.25%, respectively.
Additionally, the Bank introduced its new cash management program for businesses
in May 1998. The program represents secured borrowings, which include
repurchase-like agreements that are not FDIC insured. At December 31, 1998
these secured borrowings totaled $967,000 and were collateralized by $967,000 in
Bank owned investment securities.
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 for the years ended December 31, 1998 and
1997. The absence of provision for loan losses in 1998 and 1997 is primarily
attributable to the continued decline in nonperforming loans and potential
problem loans and management's review of the portfolio and its determination of
the adequacy of the allowance for loan losses (the "Allowance") at December 31,
1998. Despite the absence of provision expense, the level of the Allowance
remained essentially unchanged as charged-off loans of $77,000 and $339,000 for
the years ended December 31, 1998 and 1997, respectively, were offset by
recoveries totaling $147,000 and $338,000, for the same respective periods.
Noninterest Income
Noninterest income for the year ended December 31, 1998 increased $391,000
compared to the year ended December 31, 1997. The increase is primarily
attributable to the $539,000 gain received on the sale of the Bank's office
building located in Westbrook, Maine, which currently serves as the Bank's
combination headquarters branch/operations center. The increase in noninterest
income was offset by a $155,000 decline in loan and security gains for the year
ended December 31, 1998 as compared to the year ended December 31, 1997. In
conjunction with the sale of the Bank's off balance sheet mortgage servicing
portfolio on January 31, 1999 and the Bank's new residential mortgage lending
program, the Bank intends to sell saleable loans on a servicing released basis
and recognize the servicing fee income at the time of sale rather than recording
the income on servicing fees over the life of the loan.
10
<PAGE>
Operating Expenses
Operating expenses increased $383,000, or 7.6%, for the year ended December 31,
1998 as compared to the year ended December 31, 1997, as described in more
detail below:
Year Ended December 31,
-----------------------
(in thousands) 1998 1997
- -------------------------------------------------------------------
Salaries and benefits $2,632 $2,367
Occupancy 536 446
Net cost of operations of real estate owned 7 67
Data processing 280 239
Equipment 424 374
FDIC insurance 15 15
Insurance - general 137 141
Office/postage 246 296
Legal 31 65
Marketing 177 255
Other expenses 965 802
------ ------
Total Operating Expenses $5,450 $5,067
====== ======
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, Internet banking for businesses, the development and
introduction of a new line of cash management services for businesses, and
additional staffing resulting from increased commercial lending activity. The
increase in salaries and benefits represented $265,000 of the total increase and
was primarily attributable to changes in staffing levels, annual salary
increases and 401(k) matching contributions under the Bank's 401(k) defined
contribution plan. 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 two to three years in the Greater Portland market, (iii)
the introduction of a number of new retail banking products which will expand
the Bank's retail product array, and (iv) the Bank's continued expansion of its
commercial lending activities.
Income Tax Expense
The Company incurred income tax expense of $859,000 for the year ended December
31, 1998 as compared to $679,000 for the year ended December 31, 1997.
The deferred tax asset and offsetting valuation allowance as of September 30,
1996 and prior periods were principally the result of the Company's accumulation
of net operating loss carryforwards. The deferred tax asset represents the
estimated amount of future deductions for tax reporting purposes previously
expensed for financial reporting purposes, and the estimated benefit from future
income taxes the Company will not have to pay as a result of the net operating
loss carryforwards. Prior to the fourth quarter of 1996, a 100% valuation
allowance was maintained against the deferred tax asset as there were
significant uncertainties regarding the Company's future and its ability to
utilize its net operating loss carryforwards through sustained, profitable
operations. Management believes that the completion of the July 1996
recapitalization, the payoff of the FDIC Note and the improved financial
condition of the Company have reduced the uncertainties relating to the
Company's ability to realize the benefits of the deferred tax asset. As a
result, in accordance with Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standard ("SFAS") No. 109, the valuation
allowance against the deferred tax asset was reduced by $4,811,000 in the fourth
quarter of 1996.
In order to assist the Company in maintaining the benefit of the deferred tax
asset, the Company amended its Restated Certificate of Incorporation in June
1996 to provide that absent approval by the Company's Board of Directors no
person shall become or make an offer to become a beneficial owner of five
percent or more of the Company's voting stock for a three year period, which
provision expires June 11, 1999. For additional information relating to income
taxes, refer to Note L to the Company's Consolidated Financial Statements.
11
<PAGE>
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
Overview
The Company reported net income of $1.3 million (basic earnings per share of
$.93) for the year ended December 31, 1997, compared to net income of $6.4
million (basic earnings per share of $6.84) for the year ended December 31,
1996. The results for 1997 include securities and loan sales gains of $370,000
as compared to $45,000 for 1996. Income tax expense for the year ended December
31, 1997 equaled $679,000 versus an income tax benefit of $4,859,000 for the
year ended December 31, 1996. Additionally, the earnings for 1996 included a
$366,000 gain in the second quarter as a result of the sale of the Bank's branch
in Kezar Falls, Maine and $170,000 in expenses related to the Company's July
1996 recapitalization. The Company incurred no provision for loan losses
expense for the years ended December 31, 1997 and 1996.
Net Interest Income
Net interest income equaled $6.0 million and $5.7 million for the years ended
December 31, 1997 and 1996, respectively. Changes in net interest income are
caused by interest rate movements, changes in the amount and the mix of
interest-earning assets and interest-bearing liabilities, and changes in the
level of noninterest-earning assets and noninterest-bearing liabilities.
Overall, net interest income increased by $340,000 for the year ended December
31, 1997 compared to the year ended December 31, 1996. This increase is
primarily attributable to an increase in the level of loan outstandings in 1997
as compared to 1996. The Company's net interest rate spread for December 31,
1997 decreased to 3.98% as compared to 4.12% for the year ended December 31,
1996. The net interest margin increased from 4.28% at December 31, 1996 to
4.32% at December 31, 1997. The decrease in the net interest rate spread is
primarily the result of an increase in the Company's cost of funds, from 4.42%
in 1996 to 4.56% in 1997, with this increase primarily attributable to increased
borrowing from the FHLB of Boston and the higher rate of interest associated
with the Savings Bank Notes.
Interest and dividend income for the year ended December 31, 1997 increased
$563,000 as compared to the year ended December 31, 1996. The increase is
primarily attributable to an increase in the level of average loan outstandings
in 1997 compared to 1996, partially offset by a decrease in the yield on loans
from 9.39% at December 31, 1996 to 9.31% at December 31, 1997.
Interest expense for the year ended December 31, 1997 increased $223,000 as
compared to the year ended December 31, 1996. The increase is primarily
attributable to an increase of $536,000 in FHLB borrowing expense as a result of
$9.0 million in advances taken in November of 1996. This increase was offset in
part by a decline in deposit expense of $265,000, primarily the result of a
decrease in both the balances outstanding and rates paid for certificates of
deposits.
Provision for Loan Losses
There was no provision for loan losses for the years ended December 31, 1997 and
1996. The absence of a provision for loan losses in 1997 and 1996 is primarily
attributable to the decline in nonperforming loans and potential problem loans
and management's review of the portfolio and its determination of the adequacy
of the Allowance at December 31, 1997. Despite the absence of provision
expense, the level of the Allowance remained essentially unchanged as charged-
off loans of $339,000 and $289,000 for the years ended December 31, 1997 and
1996, respectively, were offset by recoveries totaling $338,000 and $296,000,
for the same respective periods.
Noninterest Income
Noninterest income remained relatively unchanged, at $990,000 for the years
ended December 31, 1997 and 1996. Noninterest income for 1996 includes a
$366,000 gain on the sale of the Bank's branch in Kezar Falls, Maine, while 1997
noninterest income reflects a $325,000 increase in gains on securities and loan
sales, as compared to 1996. In addition, deposit fee income increased $104,000
from 1996 to 1997, primarily attributable to a new deposit program which was
implemented in April 1996 (and has since been discontinued). The increase in
deposit fee income was partially offset by reduced fee income on loans serviced
for others totaling $51,000 resulting from a reduction in the amount of off
balance sheet loans serviced for others. This reduction in loans serviced for
others is primarily attributable to the sale of $7.9 million of Maine State
Housing Authority loans in the second quarter of 1997.
12
<PAGE>
Operating Expenses
Operating expenses decreased $75,000, or 1.5%, for the year ended December 31,
1997 as compared to the year ended December 31, 1996, as described in more
detail below:
Year Ended December 31,
-----------------------
(in thousands) 1997 1996
- ------------------------------------------------------------------
Salaries and benefits $2,367 $2,142
Occupancy 446 428
Net cost of operations of real estate owned 67 81
Data processing 239 421
Equipment 374 295
FDIC insurance 15 37
Insurance - general 141 180
Office/postage 296 315
Legal 65 182
Marketing 255 291
Other expenses 802 770
------ ------
Total Operating Expenses $5,067 $5,142
====== ======
The variances in operating expenses for the year ended December 31, 1997 as
compared to the year ended December 31, 1996 are attributable to several
factors. The increase in salaries and benefits expense during 1997 was
primarily due to changes in staffing levels, annual salary increases and an
increase in pension expense of $75,000 resulting from the implementation of the
Bank's 401(k) plan in August 1997 and costs incurred in connection with the
termination of the Bank's defined benefit plan. Data processing expense
decreased as a result of the conversion of the Bank's computer system from an
out-sourced service bureau relationship to an in-house system. However,
equipment expense increased in 1997 as a result of additional depreciation
expense incurred as a result of the purchase of approximately $500,000 of
hardware and software for the new in-house system in June 1996. Legal costs
were lower in 1997 as compared to 1996, with 1996 legal expense higher primarily
as a result of the 1996 recapitalization.
Income Tax Expense (Benefit)
The Company recognized an income tax benefit in 1996 of $4,859,000. Of this
amount, $4,811,000 was attributable to a fourth quarter reduction in the amount
of the valuation allowance previously established against the Company's deferred
tax asset (established utilizing an effective tax rate of 34%). In addition,
the Company received $48,000 in interest applicable to a 1992 carryback tax
refund. The Company incurred income tax expense of $679,000 for the year ended
December 31, 1997.
FINANCIAL CONDITION
Set forth below is a discussion of the material changes in the financial
condition of the Company.
General
At December 31, 1998, the Company's total assets equaled $191.4 million,
representing an increase of $45.0 million (30.7%) as compared to total assets of
$146.4 million at December 31, 1997. The increase in total assets was largely
reflected in increases in cash and cash equivalents ($25.0 million) and
investment securities ($24.2 million), modestly offset by a reduction in loans
held for sale ($3.5 million). The Bank's asset growth was primarily the result
of a $33.6 million increase in deposit balances, largely attributable to the
introduction of the High Rise Savings program on March 23, 1998, and a $9.3
million increase in borrowings from the FHLB. The introductory interest rate
paid on High Rise Savings accounts opened during the initial introductory period
(through July 3, 1998) was guaranteed through December 31, 1998 and was tiered
from 4.64% to 5.59% (depending upon balance levels). The program generated net
new deposits of $28.9 million as of December 31, 1998. As a result of the
discontinuation of the marketing campaign, and a reduction in the interest rate
available to new High Rise Savings customers following the close of the
introductory period, increases in deposit balances attributable to High Rise
Savings are not expected to continue at the same level. In addition, total
commercial deposits increased $2.9 million at December 31, 1998 as compared to
December 31, 1997. The $9.3 million increase in FHLB borrowings was largely the
result of $10.0 million in advances obtained in October 1998, with maturities of
5, 7 and 10 years and a weighted average interest rate of 5.07%.
13
<PAGE>
Investment Securities
The Company's investment portfolio is comprised primarily of U.S. government and
agency obligations and also contains miscellaneous equity securities. Total
investment securities at December 31, 1998 were $47.0 million compared to $22.9
million at December 31, 1997. This increase is attributable to the purchase of
$23.8 million in mortgage backed securities, $3.0 million in U.S. government
agency callable notes, $14.4 million in U.S. government obligations (all of
which are Treasury Inflation Indexed Securities) and $0.4 million in equity
securities, partially offset by $10.0 million in U.S. government agency callable
notes which were called during 1998 and $7.3 million in prepayments and
amortization on mortgage backed securities. Investment securities classified as
available for sale are reported at fair value, with unrealized gains and losses
excluded from earnings and reported in a separate component of stockholders'
equity. Investment securities held to maturity are stated at cost, adjusted for
amortization of bond premiums and accretion of bond discounts.
The following table sets forth the carrying amounts and maturities of investment
securities and weighted average rates at December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
------------------ ------------------- --------------------
Carrying Carrying Carrying
(dollars in thousands) Amount Yield Amount Yield Amount Yield
- --------------------------- -------- --------- -------- ---------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Available for sale (at
market value)/ (1)/:
U.S. government
obligations
maturing in 1-5 years $ 2,227 5.6% - $ 4,948 5.9%
maturing in 5-10 years 9,972 5.9 - - - -
maturing in over 10 years 1,967 5.6 - - - -
Mortgage backed securities
maturing in 5-10 years 904 6.8 - - - -
maturing in over 10 years 31,493 7.2 $15,798 6.9% 10,848 7.1
Equity (mutual fund) - - - - 995 6.0
Other equity 485 n/a 89 n/a 99 n/a
------- ------- -------
$47,048 6.7% $15,887 6.9% $16,890 6.6%
======= ======= =======
Held to maturity (at
amortized cost):
U.S. government
obligations
maturing in one year or
less - - $ 200 4.9% - -
U.S. government agency
callable notes maturing
after
1-5 years (final
maturity) - - 4,000 6.4 $ 7,000 6.4%
5-10 years (final
maturity) - - 2,800 6.9 2,802 6.9
------- ------- -------
- - 6,800 6.6 9,802 6.6
------- ------- -------
- - $ 7,000 6.5% $ 9,802 6.6%
======= ======= =======
</TABLE>
/(1)/ Yields on available for sale securities are calculated based on
historical cost.
14
<PAGE>
Loans Held for Sale
Loans held for sale at December 31, 1998 equaled $83,000 as compared to
$3,565,000 at December 31, 1997, a decrease of $3,482,000. 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 increased $1.6 million (or 1.5%), from $104.3 million at December 31, 1997
to $105.9 million at December 31, 1998. The increase was attributable to an
increase of $4.0 million in commercial real estate loans and a $0.7 million
increase in commercial and industrial loans, partially offset by decreases in
residential, real estate construction and consumer and other loans of $0.7
million, $0.6 million and $1.9 million, respectively.
The following table sets forth the composition of the Company's loan portfolio
at the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
(in thousands) 1998 1997 1996 1995 1994
- --------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans:
Residential $ 32,555 $ 33,251 $30,981 $ 30,966 $ 33,158
Commercial 52,747 48,705 48,456 50,797 57,997
Real estate construction loans 1,384 1,955 769 - -
Commercial and industrial loans 5,872 5,166 3,059 2,524 2,510
Consumer and other loans 13,315 15,227 15,281 16,263 15,991
-------- -------- ------- -------- --------
Total loans $105,873 $104,304 $98,546 $100,550 $109,656
======== ======== ======= ======== ========
Ratios of loans to:
Deposits 71% 91% 86% 80% 84%
Assets 55% 71% 67% 69% 71%
</TABLE>
The Bank's loan growth during the period from the late 1980's until the
completion of the 1996 recapitalization was inhibited as a result of the
problems the Bank and the Company experienced during this period (see Historical
Background). The Bank's ability to originate commercial and industrial and
commercial real estate loans was particularly impacted by borrower uncertainties
with regard to the Bank's future. The completion of the 1996 recapitalization
removed the negative stigma associated with the Company and allowed the Bank to
compete more effectively for new loans. Since that time, and in conjunction
with the Company's strategic plan developed during the first half of 1997,
significant effort and resources have been focused on developing higher levels
of loan volume. Particular focus has been given to developing a strong
commercial banking team as management believes this is an area in which the Bank
can develop a competitive edge, particularly with regard to responsive customer
service.
During the past two years the attrition previously reflected in the Company's
loan balances has ceased, with modest growth achieved in 1997 and 1998.
Commercial real estate loans showed the largest increase for the year ended
December 31, 1998, $4.0 million (8.3%) as compared to December 31, 1997. Loan
growth in this category would have been higher had the Bank not experienced
higher than expected loan prepayments as a result of generally lower interest
rates in 1998 and the continued emergence of the commercial real estate conduit
market, both of which contributed to an increase in loan payoffs due to borrower
refinances. In addition, a relatively low percentage of existing commercial
loans were protected with prepayment penalties. As a result of the Bank's 1998
lending activities, this problem has been largely reduced as the majority of the
Bank's fixed rate commercial loans at December 31, 1998 are now protected by
various types of prepayment penalties. The opening of the new downtown
Portland branch, the introduction of commercial cash management products and
introduction of Internet banking for businesses, all during the first half of
1998, have been and will continue to be important to the Bank's ability to
generate profitable growth in commercial loans.
Though commercial real estate loans are considered riskier than some other loan
types, and continue to make up a large percentage of the Company's loan
portfolio (49.8% at December 31, 1998), management believes that the combination
of its expertise in this area and its lending practices reduces somewhat the
risk normally inherent in this type of lending.
15
<PAGE>
Though residential mortgage loan originations increased 33.6% for the year ended
December 31, 1998, as compared to December 31, 1997, the combination of the
generally lower interest rate environment and competitive pressures resulted in
a higher percentage of the Bank's 1998 originations being secondary market
saleable, as opposed to residential mortgage portfolio loans, resulting in total
residential loans remaining essentially unchanged.
Loan Originations
Residential mortgage loans originated by the Bank are primarily secured by
property located within its existing market area in Maine. The Bank is an
active residential mortgage lender. A significant percentage of loans
originated are 1-4 family residential real estate loans, the majority of which
are sold in the secondary market. In 1998 and years prior, the Bank continued
to service most of the loans it sold in the secondary market. Beginning in 1999
the Bank intends to sell these loans on a servicing released basis. Most of the
Bank's residential loans are originated using the Federal National Mortgage
Association ("FNMA") underwriting guidelines.
The Bank's residential loan originations have increased, as set forth below, and
most of these loans were originated through the branch system as opposed to the
Bank's prior origination strategy which relied heavily upon commission based
mortgage originations. The Bank intends to continue its focus on growth in
residential lending, utilizing a combination of branch originations, which are
less commission oriented, and other loan originators, who are more commission
based.
Commercial loan originations increased in 1998, as is reflected in the increase
in total commercial loan outstandings of $4.7 million at December 31, 1998 as
compared to December 31, 1997. The Bank currently plans to further increase its
commercial loan originations in 1999.
The level of residential, consumer and commercial loan originations going
forward will depend upon a number of factors, including the level of interest
rates, general economic conditions, the competitive environment and overall
profitability of these loans. The following table represents residential real
estate and consumer loan originations for the years ended December 31, 1998,
1997 and 1996.
For the Year Ended December 31,
--------------------------------
(in thousands) 1998 1997 1996
- -------------------------- ------- ------- -------
Originations/(1)/ :
Residential real estate $24,343 $18,216 $15,581
Consumer 4,322 3,001 4,249
------- ------- -------
Total $28,665 $21,217 $19,830
======= ======= =======
/(1)/ Includes refinancing of existing portfolio and off balance sheet serviced
loans.
Secondary Market Activity
The Bank is active in secondary market transactions primarily through the sale
of long-term, fixed-rate residential mortgage loans that it originates. The
sale of these loans serves as a means for the Bank to manage its overall
interest rate sensitivity risk (consistent with the Bank's asset liability
management policy), generates fee income and provides additional funds for
lending and liquidity. The Bank generally seeks to originate longer term fixed-
rate mortgages only when commitments to sell these mortgages can readily be
obtained. Due to interest rate fluctuations and the timing between the
commitment to the borrower and the closing and subsequent sale of the loan in
the secondary market, such sales will be made at a premium or discount
(depending on the current interest rate environment) and will result in realized
gains or losses to the Bank on the transaction.
16
<PAGE>
The Bank is an approved seller and servicer by and for the FNMA. However, on
November 30, 1998, the Bank sold all of its FNMA residential mortgage servicing
portfolio. For an interim period until the January 31, 1999 transfer date the
Bank served as a sub-servicer of these loans. It is the Bank's intent to sell
saleable loans on a servicing released basis in the future. At December 31,
1998, the Bank was servicing $44.9 million of loans in its capacity as a
subservicer, as compared to its serviced loan portfolio of $42.9 million at
December 31, 1997. Servicing fee income related to these loans is reported as
other income in the consolidated statements of operations, and for the three
years ended December 31, 1998, 1997 and 1996, equaled $34,000, $75,000 and
$126,000, respectively.
Allowance For Loan Losses
The Bank's policy is to fund the Allowance by charging operations in the form of
provision for loan losses based on periodic evaluations of the loan portfolio
and current economic trends. Deterioration in the local economy or real estate
market, or upward movement in interest rates, could have an adverse impact on
the loan portfolio that could result in the need for increased provision for
loan losses. The Bank continues to hold a large concentration of commercial
real estate loans and the ultimate collectibility of this loan portfolio is
particularly susceptible to changes in local real estate market conditions.
The following table represents the manner in which the Allowance is allocated
among the various loan categories at December 31, 1998, 1997, 1996, 1995 and
1994. The percentages represent the percent of loans in each category to total
loans.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- ----------------- --------------- ------------- ---------------
Percent Percent Percent Percent Percent
of Loans of Loans of Loans of Loans of Loans
to Total to Total to Total to Total to Total
(dollars in thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
- ------------------------------------ -------- ------- -------- ------- ------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
Residential $ 165 30.8% $ 157 31.9% $ 61 31.4% $ 82 30.8% $ 66 30.2%
Commercial 1,453 49.8 1,303 46.7 1,811 49.2 2,216 50.5 3,322 54.6
Real estate construction loans 14 1.3 12 1.9 7 .8 - - - -
Commercial and industrial loans 133 5.5 67 4.9 40 3.1 13 2.5 46 .6
Consumer and other loans 124 12.6 174 14.6 151 15.5 120 16.2 141 14.6
Unallocated 846 - 952 - 596 - 228 - 467 -
------- ------ ------- ------ ------ ----- ------ ----- ------ -----
Total $ 2,735 100.0% $ 2,665 100.0% $2,666 100.0% $2,659 100.0% $4,042 100.0%
======= ====== ======= ====== ====== ===== ====== ===== ====== =====
Allowance as a percentage of loans 2.58% 2.56% 2.71% 2.65% 3.67%
Allowance as a percentage of
nonperforming loans 496.37% 353.92% 124.29% 47.96% 66.47%
Allowance as a percentage of
nonperforming loans
(excluding restructured loans) 496.37% 546.11% 124.29% 125.60% 87.90%
</TABLE>
17
<PAGE>
The balance of the Allowance increased by $70,000 at December 31, 1998 as
compared to December 31, 1997 as a result of recoveries exceeding charge offs
for the year ended 1998. The Allowance as a percentage of total loans remained
essentially unchanged at December 31, 1998 (2.58%) as compared to December 31,
1997 (2.56%).
The following table sets forth the changes in the Allowance, including charge-
offs and recoveries, by loan category, for the past six years:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
(dollars in thousands) 1998 1997 1996 1995 1994 1993
- ---------------------------------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period $2,665 $2,666 $2,659 $ 4,042 $3,642 $ 4,280
Charge-offs:
Real estate mortgage loans (35) (298) (93) (1,113) (178) (1,197)
Real estate construction loans - - - - - (28)
Commercial and industrial loans - - - (142) - (55)
Consumer and other loans (42) (41) (196) (78) (112) (89)
------ ------ ------ ------- ------ -------
Total charge-offs (77) (339) (289) (1,333) (290) (1,369)
Recoveries:
Real estate mortgage loans 114 304 163 172 127 179
Commercial and industrial loans - 3 55 170 410 543
Consumer and other loans 33 31 78 33 46 39
------ ------ ------ ------- ------ -------
Total recoveries 147 338 296 375 583 761
------ ------ ------ ------- ------ -------
Net (charge-offs) recoveries 70 (1) 7 (958) 293 (608)
Provision for loan losses - - - (425) 107 (30)
------ ------ ------ ------- ------ -------
Balance at end of period $2,735 $2,665 $2,666 $ 2,659 $4,042 $ 3,642
====== ====== ====== ======= ====== =======
Net charge-offs as a percentage
of average loans (.07)% .00% (.01)% .91% (.25)% .46%
</TABLE>
There has been no provision for loan losses in the last three years, with the
Allowance remaining relatively unchanged during this period. In addition, the
years ended December 31, 1995, 1994 and 1993 reflected cumulative provision
expense of a negative $348,000 as a result of provision for loan losses
reversals in 1995 and 1993. This is in contrast to years preceding 1993 when
provision for loan losses was high as a result of the Bank's asset quality
problems. The improvement in the amount of provision for loan losses is the
result of a combination of factors, including: (i) a reduction in the amount of
new, emerging loss exposure being identified during this period as compared to
prior years when provision for loan losses was higher, (ii) a reduction or
elimination of loss exposure previously allocated against certain loans
generally resulting from improvement in the overall credit quality of these
loans or loan payoffs, and (iii) significant loan loss recoveries.
Management believes that in accordance with the Bank's Allowance for Loan Loss
Policy, the Allowance is adequate at December 31, 1998. However, future
additions to the Allowance may be necessary based on changes in the financial
condition of various borrowers, new information that becomes available relative
to various borrowers and loan collateral, growth in the size or changes in the
mix or concentration risk of the loan portfolio, problems 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.
18
<PAGE>
Impaired Loans
Information with respect to the carrying amount of impaired loans is set forth
below:
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1998 1997
------------------ -----------------
Allowance Allowance
for Loan for Loan
(in thousands) Amount Loss Amount Loss
- ---------------------------------------------------------------------- ------ --------- ------ ---------
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Residential - - $ 114 -
Commercial $ 430 $ 53 566 $ 72
Real estate construction loans - - - -
Commercial and industrial loans 9 2 - -
Consumer and other loans - - 37 19
----- ----- ------ ------
Total $ 439 $ 55 $ 717 $ 91
===== ===== ====== ======
</TABLE>
Nonperforming Assets
Information with respect to nonperforming assets is set forth below:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
(in thousands) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------- ----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 430 $ 387 $1,944 $1,948 $4,340
Accruing loans past due
90 days or more 121 101 201 169 258
Restructured loans - 265 - 3,427 1,483
Real estate owned and repossessions 15 65 478 1,973 2,222
In-substance repossessions n/a n/a n/a n/a 703
----- ----- ------ ------ ------
$ 566 $ 818 $2,623 $7,517 $9,006
===== ===== ====== ====== ======
</TABLE>
Nonperforming loans (consisting of nonaccrual loans, accruing loans past due 90
days or more and restructured loans) are comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
(in thousands) 1998 1997 1996 1995 1994
- --------------------------------- ----- ----- ------ ------ -------
<S> <C> <C> <C> <C> <C>
Real estate mortgage loans:
Residential $ 86 $ 114 - $ 386 $ 115
Commercial 430 501 $1,944 5,007 5,667
Commercial and industrial loans - - - - 156
Consumer and other loans 35 138 201 151 143
----- ----- ------ ------ ------
Total loans $ 551 $ 753 $2,145 $5,544 $6,081
===== ===== ====== ====== ======
</TABLE>
The following table sets forth certain information regarding nonperforming
commercial loans (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- --------------- ------------- ------------- ------------
Number of Outstanding Number of Outstanding Number of Outstanding
Type of Property Security Loans Balance Loans Balance Loans Balance
- ------------------------------ ----------------- ----------------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1-4 family residential 1 $ 58 3 $107 4 $ 211
5 or more family residential 1 69 1 129 4 869
Non-residential real estate 1 303 1 265 3 864
- ---- - ---- -- ------
3 $430 5 $501 11 $1,944
== ==== == ==== == ======
</TABLE>
19
<PAGE>
The level of nonperforming assets declined 30.8%, from $818,000 at December 31,
1997 to $566,000 at December 31, 1998. This was primarily attributable to a
$265,000 decline in restructured loans during 1998.
While the downward trend in nonperforming assets that has developed since 1994
is significant, 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. For further information, see Note
E to the Company's Consolidated Financial Statements.
Potential Problem Loans
Potential problem loans are loans not otherwise identified as nonperforming
(nonaccrual loans, accruing loans past due 90 days or more and troubled debt
restructurings), which have some identified inherent risk of loss, yet are still
performing. In many cases borrowers have historically experienced, or are
currently experiencing, such problems as inadequate rental revenues, high
vacancy levels and cash flow problems, excessive debt loads, personal problems,
competitive pressures, or other difficulties.
At December 31, 1998, the Bank had identified approximately $173,000 of
currently performing but potential problem loans, representing just 0.1% of
total assets, ranging in size from $9,000 to $60,000. This compares to $3.7
million of potential problem loans at December 31, 1997, a 95.3% decrease.
While encouraging, the current level of potential problem loans is considered by
management to be so low as to represent an anomaly, and not reasonably
sustainable.
The following table sets forth certain information regarding potential problem
loans at December 31, 1998:
Number of Balance
Type of Security Property Outstanding Loans (in thousands)
- --------------------------- ----------------- --------------
Single family 1 $ 53
Other 5 120
-- ----
6 $173
== ====
Management is unable to predict the extent, if any, to which these loans may
become nonperforming in the future. An increase in the level of nonperforming or
potential problem loans could result in the need for increased provision for
loan losses. As of December 31, 1998, the Company believes the Bank's aggregate
allocated loan loss reserves against these potential problem loans, in
combination with the Bank's overall Allowance adequacy (including the
unallocated portion of the Allowance), is adequate to cover the loss exposure
estimated to be contained within these potential problem loans.
Real Estate Owned and Repossessions
Real estate owned ("REO") consists of properties acquired through mortgage loan
foreclosure proceedings, repossessions or in full or partial satisfaction of
outstanding loan obligations. At December 31, 1998, REO totaled $15,000,
consisting of a single mobile home. This represents a $50,000 decline as
compared to the December 31, 1997 level of $65,000.
Liquidity
Bank
Deposits totaled $148.5 million at December 31, 1998, a $33.6 million increase
(or 29.2%) from the level of $115.0 million at December 31, 1997. This increase
is primarily attributable to the new High Rise Savings program introduced in
March 1998, which generated $28.9 million in new deposits and commercial deposit
growth totaling $2.9 million resulting from the Company's new cash management
products introduced in May of 1998.
20
<PAGE>
At December 31, 1998 and 1997, unfunded loan commitments equaled $17.5 million
and $14.2 million, respectively. Loan commitments include unfunded portions of
real estate, construction and other loans and unused lines of credit, including
commercial loans and home equity loans. Loan commitments are subject to the
same credit policies as loans and generally have expiration dates and
termination clauses. Unused home equity line of credit commitments totaled $7.4
million at December 31, 1998 (as compared to home equity outstanding balances of
$5.8 million), representing 55.9% of total home equity loan commitments.
The Bank has the capability of borrowing additional funds from the FHLB of
Boston. The Bank is also approved by the Federal Reserve Bank of Boston to
obtain liquidity from its "Discount Window"; however, no funds have been
obtained from this source. The Company believes that its liquidity sources will
continue to provide funding sufficient to support operating activities, loan
originations and commitments, and deposit withdrawals.
There is an increasingly widely publicized risk that the public's concerns with
regard to the Year 2000 issue may result in large amounts of cash being
withdrawn from the banking system prior to December 31, 1999. Though management
intends to take reasonable and prudent steps to ensure the Bank is prepared for
this potentially extraordinary demand for cash, in particular because of its
one-of-a-kind nature, there can be no assurances that this issue will not create
material problems for the Bank.
Parent
On a parent company only basis, the Company conducts no separate operations.
The Company's business consists primarily of the operations of its bank
subsidiary. In addition to debt service relating to the Savings Bank Notes in
the principal amount of $2.6 million, the Company's expenses consist primarily
of Delaware franchise taxes associated with the Company's authorized capital
stock, certain legal and various other expenses. Expenses, including certain
audit and professional fees, insurance and other expenses, are allocated between
the Bank and the Company based upon the relative benefits derived. For further
information, see Notes J and Q to the Company's Consolidated Financial
Statements.
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
December 31, 1998, the Company had $831,000 in cash and cash equivalents.
Capital
Bank
The table below sets forth the regulatory capital requirements and capital
ratios for the Bank at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(dollars in thousands) 1998 1997
- ------------------------------------------------------ --------- ---------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ratio
- ------------------------------------------------------
Qualifying capital $ 14,709 $ 13,877
Actual % 7.90% 9.63%
Minimum requirement for capital adequacy % 4.00% 4.00%
Average assets for fourth quarter $186,077 $144,138
Tier 1 capital to risk-weighted assets
- ------------------------------------------------------
Qualifying capital $ 14,709 $ 13,877
Actual % 14.33% 15.03%
Minimum requirement for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets
(Tier 1 and Tier 2)
- ------------------------------------------------------
Qualifying capital $ 16,010 $ 15,050
Actual % 15.60% 16.30%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $102,612 $ 92,335
</TABLE>
/(1)/ Calculated on an average quarterly basis.
See Note B to the Company's Consolidated Financial Statements for certain
capital restrictions.
21
<PAGE>
Company
The table below sets forth the regulatory capital requirements and capital
ratios for the Company at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
(dollars in thousands) 1998 1997
- ------------------------------------------------------ ----------- -----------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ratio
- ------------------------------------------------------
Qualifying capital $ 13,453 $ 11,106
Actual % 7.20% 7.71%
Minimum requirement for capital adequacy % 4.00-5.00% 4.00-5.00%
Average assets for fourth quarter $ 186,757 $ 144,004
Tier 1 capital to risk-weighted assets
- ------------------------------------------------------
Qualifying capital $ 13,453 $ 11,106
Actual % 13.05% 12.02%
Minimum requirement for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets
(Tier 1 and Tier 2)
- ------------------------------------------------------
Qualifying capital $ 14,759 $ 12,279
Actual % 14.32% 13.29%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $ 103,071 $ 92,378
</TABLE>
/(1)/ Calculated on an average quarterly basis.
The Company suspended the payment of cash dividends to its stockholders in the
fourth quarter of 1989 and has not paid any cash dividends to its stockholders
since that time. See Note J to the Company's Consolidated Financial Statements
for dividend restrictions.
Asset Liability Management and Market Risk
The Company's actions with regard to interest rate risk, market risk and
asset and liability management are the responsibility of the Asset and Liability
Committee ("ALCO") which is, in part, comprised of members of the Bank's senior
management. ALCO is responsible for directing asset liability management
("ALM") activities, including the development of specific ALM strategies to
achieve the Bank's objectives, and the management of interest rate risk.
Interest rate risk can be defined as the exposure of the Company's net income or
financial position to adverse movements in interest rates. In addition to
impacting net interest income, changes in the level of interest rates also
affect (i) the amount of loans originated, (ii) the ability of borrowers to
repay loans, (iii) the average maturity of loans, which tends to increase when
current market loan rates are substantially higher than rates on existing loans
and, conversely, decrease when rates on existing loans are substantially higher
than current market loan rates (due to refinancings of loans at lower rates),
and (iv) the carrying value of investment securities classified as available for
sale and resultant adjustments to stockholders' equity.
The principal objective of the Company is to maintain an appropriate
balance between income enhancement and the risks associated with maximizing
income through the mismatch of the timing of interest rate changes between
assets and liabilities. Matching asset and liability maturities and interest
rate changes can reduce interest rate risk; however, net interest income may not
necessarily be enhanced as a result of such a strategy. The Company seeks to
reduce the volatility of its net interest income by managing the relationship of
interest-rate sensitive assets to interest-rate sensitive liabilities.
Management's efforts to control exposure to interest rate risk is
complicated by the uncertainty of the maturity, repricing and/or run off
characteristics of a portion of the Company's assets and liabilities, such as
the Company's interest bearing checking and savings products that have no
contractual maturity, and the unexpected changes in the balance of these
products as a result of changes in competitive or market conditions. Similarly,
customers have the right to prepay certain loans, for example residential
mortgage loans, without prepayment penalties. As a result, a significant
portion of the Company's assets, including mortgage based assets, such as
mortgage loans and securities, are subject to prepayment risks. To measure the
sensitivity of its income to changes in interest rates, the Company utilizes a
variety of methods, including simulation models and gap analysis. The gap
analysis measures the difference between rate sensitive assets and rate
sensitive liabilities repricing or maturing within specific time periods. A gap
is considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities, and is considered negative
when the amount of interest rate sensitive liabilities exceeds the amount of
interest rate sensitive assets. However, this method does not take into
consideration management's ability to exert some control over the timing of
interest rate changes on certain deposits and the ability to change the
estimated maturity/repricing of those deposits with no contractual maturity.
Additionally, the gap analysis does not take into account the prepayment
characteristics of loans in a changing interest rate environment. Therefore,
the gap analysis is viewed as a complement to the simulation model.
22
<PAGE>
The following table shows the estimated maturity/repricing structure of the
interest sensitive assets and interest sensitive liabilities of the Company at
December 31, 1998.
<TABLE>
<CAPTION>
Maturing/Repricing
------------------------------------------------------------------------------------
After Three After One After Three
Months Year but Years but After
Within but within within within Five Non-Rate
(dollars in thousands) Three Months One Year Three Years Five Years Years Sensitive Total
- ---------------------------------------- ------------ ----------- ----------- ----------- ----- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-Sensitive Assets
Interest earning deposits $ 28,118 - - - - - $ 28,118
Securities:
Available for sale/ (1)/ 194 - - $ 2,033 $44,336 $ 1,800 48,363
Held to maturity - - - - - - -
Mortgage loans held for sale 83 - - - - - 83
Loans/ (2)/ 7,562 $ 43,258 $ 5,529 15,833 33,551 (2,692) 103,041
Other assets - - - - - 11,808 11,808
-------- -------- -------- -------- ------- -------- --------
Total Interest-Sensitive Assets $ 35,957 $ 43,258 $ 5,529 $ 17,866 $77,887 $ 10,916 $191,413
======== ======== ======== ======== ======= ======== ========
Interest-Sensitive Liabilities
Savings and money market accounts $ 45,252 $ 3,480 - - - $ 36,341 $ 85,073
Certificate of deposit accounts 16,202 22,219 $ 10,557 $ 4,047 - - 53,025
Other deposits - - - - - 10,447 10,447
FHLB advances 5,000 - 7,545 3,000 $ 7,000 - 22,545
Secured borrowings 967 - - - - - 967
Savings Bank Notes - - 2,600 - - - 2,600
Other liabilities - - - - - 442 442
Equity - - - - - 16,314 16,314
-------- -------- -------- -------- ------- -------- --------
Total Interest-Sensitive Liabilities $ 67,421 $ 25,699 $ 20,702 $ 7,047 $ 7,000 $ 63,544 $191,413
======== ======== ======== ======== ======= ======== ========
Periodic repricing difference
(Periodic gap) $(31,464) $ 17,559 $(15,173) $ 10,819 $70,887 $(52,628)
Cumulative repricing difference
(Cumulative gap) $(31,464) $(13,905) $(29,078) $(18,259) $52,628
Cumulative gap to total assets (16.44)% (7.26)% (15.19)% (9.54)% 27.49%
</TABLE>
/(1)/ FHLB stock is classified as available for sale and included in the non-
rate sensitive column. Additionally, included in available for sale
securities are mortgage backed securities based on contractual maturities.
/(2)/ The allowance for loan losses, deferred origination fees and nonaccrual
loans are included in the non-rate sensitive column.
At December 31, 1998, the Company's one-year cumulative gap was a negative 7.26%
and within the limits set forth under the Company's ALM Policy.
A more meaningful approach to measuring interest rate sensitivity is the
simulation model, which analyzes resulting net income under various interest
rate scenarios. Projected net interest income is modeled based on immediate
movements or shifts in interest rates of 200 basis points, up or down, analyzed
over a twelve month period. The model is based on the actual maturity and
repricing characteristics of interest rate sensitive assets and liabilities and
factors in budget projections for anticipated activity levels in the various
asset and liability categories. Assumptions are also made with regard to
principal prepayment speeds on loans and mortgage backed securities. The model
also takes into account the Company's ability to exert greater control over the
setting of interest rates on certain deposit products than it has over variable
and adjustable rate loans, which are tied to published indices such as
designated prime lending rates and the rate on U.S. Treasury securities.
23
<PAGE>
The following table reflects the estimated percentage change in net interest
income for the next 12 months resulting from a change in interest rates of 200
basis points.
<TABLE>
<CAPTION>
Change in Rates(a) % Change in net Interest Income
- --------------------------------------------------------------------------------
<S> <C>
+200 basis points -7.3%
-200 basis points -1.5%
</TABLE>
(a) Includes various interest rate floors and ceilings established for certain
deposit accounts: NOWs--floor 1%, ceiling 3%; Savings (other than High Rise
Savings)--floor 1.50%, ceiling 3.75%; Money Market accounts--floor 1.5%,
ceiling 3.75%. At December 31, 1998 the average interest rates paid on NOWs,
Savings and Money Market accounts were 1.85%, 2.58% and 2.63%, respectively.
Based on the information and assumptions in effect at December 31, 1998,
management of the Company believes that a 200 basis point change in interest
rates up or down, and the resulting impact over a twelve month period, would not
adversely impact the Company's annualized net interest income by more than 8%
(and is within the limits of the Company's policy parameters).
Regardless of the methodologies utilized to attempt to predict the impact that
changes in interest rates could have on the behavior of the Bank's assets and
liabilities, and ultimately earnings, there is no way of estimating this with
any degree of certainty. As discussed above the assumptions utilized are very
subjective and economic conditions and market forces, such as competition and
market product offerings are in constant state of change.
Impact of Inflation and Changing Prices
The Company's financial statements have been prepared in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature.
As a result, interest rates have a more significant impact on a financial
institution's performance than the effect of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services.
Inflation can directly affect the value of loan collateral, in particular real
estate. Sharp decreases in real estate prices, as discussed previously, have in
the past resulted in significant loan losses and losses on real estate acquired.
Inflation, or deflation, could significantly affect the Company's earnings in
future periods.
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 has formed a Year 2000 Action
Committee which is comprised of various members of the Bank's senior and middle
management. The Committee has developed a detailed plan for mitigating Year
2000 risk as it relates to the Bank's Information Technology systems and Non-
Information Technology systems. In accordance with FFIEC guidelines, the Year
2000 project management process has five phases, which include Awareness,
Assessment, Renovation, Validation and Implementation of all systems.
Awareness Phase. During the Awareness phase, the Company is required to (i)
define the Year 2000 problem as it relates to specific circumstances and gain
executive support for the resources necessary to perform compliance work, (ii)
establish a Year 2000 Committee, and (iii) develop an overall strategy that
encompasses in-house systems, service bureaus for systems that are outsourced,
vendors, auditors, customers and suppliers (including correspondents).
24
<PAGE>
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 already completed a significant portion of activities related to
the renovation phase of mission critical applications (approximately 97%), with
the remainder targeted for completion by June of 1999. 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 approximately 95% of
mission critical applications and anticipates that all non-mission critical
applications will be completed by September 1999.
Implementation Phase. During the Implementation Phase, systems should be
certified as Year 2000 compliant and be accepted by the business users. For any
system failing certification, the business effect must be assessed clearly and
the Company's contingency plans should be implemented. In addition, this phase
must ensure that any new systems or subsequent changes to verified systems are
compliant with Year 2000 requirements.
A significant number of the Company's mission critical applications are supplied
by third party vendors. The vendor is responsible for making revisions to its
software, performing testing and providing the updates to the Company. Software
updates have been provided and installed by a majority of the Company's third-
party vendors and the Company is currently in the process of validating the
software for Year 2000 readiness on its systems. At this time, the
implementation phase has not yet been completed, however the Company expects to
have completed the implementation phase for all mission critical applications by
June of 1999 and all non-mission critical applications by September of 1999.
25
<PAGE>
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 $50,000 for both mission
critical and non-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 is being drafted and incorporated into the
Company's overall contingency plan to address potential worst case scenarios
relating to the Year 2000 issue. The Company is developing alternative
solutions for business resumption and approaches to minimize the impact of
different scenarios. Possible alternatives to address these scenarios include
increasing cash reserves, designating existing branch locations as emergency
regional offices, (with alternative power sources and alternative communication
methods), increasing customer and community awareness, and having staff
available on site during the turn of the millennium.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of December 31, 1998, the Company had approximately 1,444 holders of record
and 1,360,527 outstanding shares of common stock. The common stock is traded on
The Nasdaq SmallCap Market tier of The Nasdaq Stock Market under the symbol
"FCME".
The following table sets forth the high and low sales prices for the Company's
common stock traded on The Nasdaq SmallCap Market.
High Low
------- -------
1997
First Quarter $10.125 $ 7.25
Second Quarter 10.00 8.875
Third Quarter 13.188 9.25
Fourth Quarter 15.75 12.50
1998
First Quarter $ 15.50 $13.625
Second Quarter 14.625 12.75
Third Quarter 13.00 10.00
Fourth Quarter 10.625 8.375
No dividends were declared by the Company during the years 1993 through 1998.
There are certain restrictions on the ability of the Company to pay dividends
and on the ability of the Bank to transfer funds to the Company in the form of
cash dividends. See Note J to the Company's Consolidated Financial Statements.
26
<PAGE>
FINANCIAL STATEMENTS.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
First Coastal Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, stockholders' equity
and cash flows present fairly, in all material respects, the financial position
of First Coastal Corporation and its subsidiary (the "Company") at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Portland, Maine
February 17, 1999
27
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
First Coastal Corporation and Subsidiary
December 31,
--------------------
(in thousands, except share and per share amounts) 1998 1997
- ----------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
ASSETS
Noninterest earning deposits and cash - Note C $ 4,509 $ 3,615
Interest earning deposits 28,118 3,939
-------- --------
Cash and Cash Equivalents 32,627 7,554
Investment securities - Note D:
Available for sale (at market value)(amortized cost: 1998 $47,037; 1997 $15,778) 47,048 15,887
Held to maturity (at amortized cost) (fair value: 1997 $6,973) - 7,000
-------- --------
47,048 22,887
Federal Home Loan Bank stock-at cost 1,315 1,315
Loans held for sale - Note A 83 3,565
Loans - Note E 105,873 104,304
Deferred loan fees, net (97) (139)
Allowance for loan losses - Note F (2,735) (2,665)
-------- --------
103,041 101,500
Premises and equipment - Note G 2,554 3,554
Accrued income receivable 1,132 970
Real estate owned and repossessions 15 65
Deferred tax asset - Note L 3,354 4,095
Other assets 244 895
-------- --------
TOTAL ASSETS $191,413 $146,400
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits - Note H $148,545 $114,991
Advances from Federal Home Loan Bank - Note I 22,545 13,294
Savings Bank Notes - Note I 2,600 3,000
Secured borrowings 967 -
Accrued expenses and other liabilities 442 307
-------- --------
TOTAL LIABILITIES 175,099 131,592
Commitment and Contigencies - Note M
STOCKHOLDERS' EQUITY - Note J
Preferred stock, $1 par value; Authorized 1,000,000 shares; none outstanding
Common Stock, $1 par value: Authorized 6,700,000 shares;
issued and outstanding as of 1998 and 1997 -
1,360,527 and 1,359,194 shares, respectively 1,361 1,359
Paid-in capital 31,751 31,746
Retained earnings (deficit) (16,805) (18,369)
Accumulated other comprehensive income 7 72
-------- --------
TOTAL STOCKHOLDERS' EQUITY 16,314 14,808
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $191,413 $146,400
======== ========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
First Coastal Corporation and Subsidiary
Year Ended December 31,
---------------------------------
(in thousands, except share and per share amounts) 1998 1997 1996
- -------------------------------------------------------------- ---------- ---------- ---------
<S> <C> <C> <C>
Interest and Dividend Income
Interest and fees on loans $ 9,919 $ 9,651 $ 9,226
Interest and dividends on investment securities:
Investment interest income 2,042 1,674 1,414
Dividends 84 94 179
Interest earning deposits 1,014 475 512
---------- ---------- --------
Total Interest and Dividend Income 13,059 11,894 11,331
Interest Expense
Deposits - Note H 5,308 4,459 4,724
Borrowings:
Advances from Federal Home Loan Bank 900 940 404
Savings Bank Notes 332 477 190
FDIC Note - - 335
Secured borrowings 27 - -
---------- ---------- --------
Total Interest Expense 6,567 5,876 5,653
---------- ---------- --------
Net Interest Income Before Provision for Loan Losses 6,492 6,018 5,678
Provision for loan losses - Note F - - -
---------- ---------- --------
Net Interest Income After Provision for Loan Losses 6,492 6,018 5,678
Noninterest Income
Service charges on deposit accounts 508 466 362
Other service charges and fees 34 76 84
Gain on investment securities transactions 104 271 38
Gain on sales of mortgage loans 111 99 7
Gain on sale of branch - - 366
Gain on sale of real estate 539 - -
Other 85 78 133
---------- ---------- --------
1,381 990 990
---------- ---------- --------
Operating Expenses
Salaries and employee benefits - Note K 2,632 2,367 2,142
Occupancy 536 446 428
Net cost of operation of real estate owned and repossessions 7 67 81
Other 2,275 2,187 2,491
---------- ---------- --------
5,450 5,067 5,142
---------- ---------- --------
Income Before Income Taxes 2,423 1,941 1,526
Income tax expense (benefit) - Note L 859 679 (4,859)
---------- ---------- --------
NET INCOME $ 1,564 $ 1,262 $ 6,385
========== ========== ========
PER SHARE AMOUNTS - Note P
Basic earnings per share:
Weighted average shares outstanding 1,359,976 1,358,730 933,578
Net Income per share $ 1.15 $ .93 $ 6.84
========== ========== ========
Diluted earnings per share:
Weighted average shares outstanding 1,379,124 1,391,272 940,480
Net Income per share $ 1.13 $ .91 $ 6.79
========== ========== ========
</TABLE>
See notes to consolidated financial statements
29
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
Accumulated
Retained Other
Common Paid-In Earnings Comprehensive
(in thousands, except share amounts) Stock Capital (Deficit) Income Total
- ------------------------------------------ ------- -------- -------------- ------------- -------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 600 $29,375 $(26,016) $ 38 $ 3,997
Shares outstanding for 1996: 1,357,861
1996 net income 6,385 6,385
Increase in net unrealized loss on
available for sale securities (117) (117)
Isssuance of restricted stock 8 30 38
Issuance of common stock 750 2,335 - - 3,085
------- -------- -------------- ------------- -------
Balances at December 31, 1996 1,358 31,740 (19,631) (79) 13,388
Shares outstanding for 1997: 1,359,194
1997 net income 1,262 1,262
Increase in net unrealized gain on
available for sale securities 151 151
Exercise of common stock options 1 6 - - 7
------- -------- -------------- ------------- -------
Balances at December 31, 1997 1,359 31,746 (18,369) 72 14,808
Shares outstanding for 1998: 1,360,527
1998 net income 1,564 1,564
Decrease in net unrealized gain on
available for sale securities (65) (65)
Exercise of common stock options 2 5 - - 7
------- -------- -------------- ------------- -------
Balances at December 31, 1998 $1,361 $31,751 $(16,805) $ 7 $16,314
======= ======== ============= ============= =======
</TABLE>
See notes to consolidated financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
First Coastal Corporation and Subsidiary
Year Ended December 31,
-------------------------------
(in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income $ 1,564 $ 1,262 $ 6,385
Adjustments to reconcile net income to net cash provided by operating activities:
(Gains) and losses on REO (7) 2 11
Gain on sale of premises and equipment (539) - -
Depreciation and amortization 400 319 270
Amortization of investment security premium (discounts) 117 63 (27)
Realized investment securities gains (104) (271) (38)
Realized gains on assets held for sale (111) (99) (7)
Loans originated and acquired for resale (10,726) (7,366) (6,147)
Sales of loans originated and acquired for resale 14,319 5,390 4,945
Decrease (increase) in interest receivable (162) 109 (75)
Increase (decrease) in interest payable 31 2 (466)
Net change in other assets 1,449 1,371 (3,499)
Net change in other liabilities 104 44 (64)
-------- -------- --------
Net cash provided by operating activities 6,335 826 1,288
Investing Activities
Decrease in federal funds sold - - 10,000
Maturities of securities held to maturity 10,000 3,000 7,000
Maturities of securities available for sale - 1,000 4,000
Sales of securities available for sale 6,927 15,831 3,506
Purchases of investment securities available for sale (37,973) (15,469) (16,535)
Purchases of investment securities held to maturity (3,193) (198) (5,003)
Net change in loans (1,541) (5,651) 2,592
Net sales (purchases) of premises and equipment 1,139 (445) (625)
-------- -------- --------
Net cash provided (used) by investing activities (24,641) (1,932) 4,935
Financing Activities
Net change in deposits 33,554 (94) (10,580)
Net change in secured borrowings 967 - -
Proceeds from borrowings 14,000 2,000 13,000
Payments on borrowings (5,149) (4,706) (9,000)
Proceeds from sale of common stock - - 3,085
Proceeds from exercise of common stock options 7 7 -
Finance cost associated with Savings Bank Notes - - (116)
-------- -------- --------
Net cash provided (used) by financing activities 43,379 (2,793) (3,611)
-------- -------- --------
Increase (decrease) in cash and cash equivalents 25,073 (3,899) 2,612
Cash and cash equivalents at beginning of period 7,554 11,453 8,841
-------- -------- --------
Cash and cash equivalents (interest and noninterest bearing) at end of period $ 32,627 $ 7,554 $ 11,453
======== ======== ========
Supplemental Disclosures of Information
Interest paid on deposits and borrowings $ 6,535 $ 5,874 $ 6,107
Income tax paid (refund) 85 - (48)
Noncash Investing and Financing Activities
Change in unrealized holding gains (losses) on investment securities available for sale $ (65) $ 151 $ (117)
Transfer of loans to real estate owned and repossessions 153 21 572
Issuance of restricted stock - - 38
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
(dollars in thousands) 1998 1997 1996
- -------------------------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net income $1,564 $1,262 $6,385
Other comprehensive income:
Unrealized holding gains arising during the period (net of
income taxes: 1998 - $1; 1997 - $37; 1996 - $0) 4 330 (92)
Reclassification adjustment for realized gains included in net
income (net of income taxes: 1998 - $(35); 1997 - $(92);
$1996 - $(13)) (69) (179) (25)
------ ------ ------
(65) 151 (117)
------ ------ ------
Comprehensive income $1,499 $1,413 $6,268
====== ====== ======
</TABLE>
See notes to consolidated financial statements.
32
<PAGE>
Notes to Consolidated Financial Statements
First Coastal Corporation and Subsidiary
December 31, 1998
Note A. ACCOUNTING POLICIES
Business
First Coastal Corporation (the "Company") is a bank holding company whose sole
subsidiary is Coastal Bank, a Maine chartered, stock savings bank (the "Bank").
The principal business of the Bank consists of retail and commercial banking,
including attracting deposits from the general public and originating
residential mortgage, consumer, commercial real estate and small business loans.
Deposits are federally insured by the Bank Insurance Fund, which is administered
by the Federal Deposit Insurance Corporation ("FDIC").
Basis of Presentation
The consolidated financial statements of the Company and subsidiary have been
prepared in conformity with generally accepted accounting principles and
reporting practices applied in the banking industry. All significant
intercompany transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
While management uses available information to recognize losses on loans and
real estate owned ("REO"), future additions to the Allowance for Loan Losses
(the "Allowance") or REO writedowns may be necessary based on changes in
economic conditions. In addition, various regulatory authorities, as an
integral part of their examination process, periodically review the Company's
Allowance and the carrying value of REO. Such authorities may require the
Company to recognize additions to the Allowance and/or write down the carrying
value of REO based on their judgments of information available to them at the
time of their examination.
New Accounting Standards
Effective January 1, 1998, the Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 130,
Reporting Comprehensive Income. SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The requirements of the
pronouncement do not have a material effect on the Company's financial condition
and results of operations.
Effective January 1, 1998, the Company adopted FASB SFAS No. 131, Financial
Reporting for Segments of a Business Enterprise. SFAS No. 131 requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. The Company has determined that it does not
currently have separately reportable operating segments under this
pronouncement.
In February 1998, FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. SFAS No. 132 will revise employers'
disclosures about pension and other postretirement benefit plans. The
requirements of this pronouncement were adopted for the Company's financial
statements for the year ending December 31, 1998. The requirements of this
pronouncement do not have a material effect on the Company's financial condition
and results of operations.
In June 1998, FASB issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, which establishes accounting and reporting standards for
derivative instruments, including certain derivatives embedded in other
contracts, and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The
requirements of this pronouncement will be adopted effective January 1, 2000 and
are not expected to have a material effect on the Company's financial conditions
and results of operations.
33
<PAGE>
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of
three months or less (from the date of purchase) to be cash equivalents.
Investment Securities
Securities that may be sold as part of the Company's asset/liability or
liquidity management or in response to or in anticipation of changes in interest
rates and resulting prepayment risk, or for other similar factors, are
classified as available-for-sale and carried at their fair market value, with
unrealized holding gains and losses (net of related taxes) excluded from
earnings and reported as a separate component of stockholders' equity.
Securities that the Company has the ability and positive intent to hold to
maturity are classified as held-to-maturity and carried at cost adjusted for
amortization of bond premiums and accretion of bond discounts. Realized gains
and losses on the sales of all securities are reported in earnings and computed
using the specific identification cost basis.
Loans Held for Sale
Loans held for sale are valued at the lower of cost or market as determined by
outstanding commitments from investors or current investor yield requirements
calculated on an aggregate loan basis. Changes in the carrying value are
reported in earnings as gains and losses on mortgage loans. Realized gains and
losses on sales of mortgage loans are reported in earnings when the proceeds are
received from investors.
Loans
Loans are reported at their principal outstanding balance net of charge-offs,
unearned income and deferred loan origination fees and costs. Interest is
generally recognized when income is earned using the accrual method. Loan
origination and commitment fees and certain direct origination costs are
deferred and recognized over the life of the related loan as an adjustment of
yield, or taken into income when the related loan is sold.
The accrual of interest on loans is generally discontinued when principal or
interest is past due by ninety days or more, or earlier when, in the opinion of
management, full collection of principal or interest is unlikely, unless such
loans are well collateralized and in the process of collection. When a loan is
placed on nonaccrual status, unpaid interest credited to income in the current
year is reversed and interest accrued in prior years is charged to the
Allowance. Income on such loans is then recognized only to the extent that cash
is received and future collection of principal is probable.
Loans are restored to accrual status when principal and interest payments are
brought current and future payments are reasonably assured, following a
sustained period of repayment performance by the borrower in accordance with the
loan's contractual terms.
The Company follows SFAS No. 114, Accounting by Creditors for Impairment of a
Loan. Under this standard, a loan is considered impaired, based on current
information and events, if it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Management identifies impaired
loans on a loan-by-loan basis. 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 were
collateral-dependent, which are measured for impairment based on the fair value
of the collateral.
Troubled debt restructurings are renegotiated loans for which concessions, such
as the reduction of interest rates, deferral of interest or principal payments,
or partial forgiveness of principal and interest, have been granted, generally
due to a deterioration in a borrower's financial condition. Interest to be paid
on a deferred or contingent basis is reported in earnings only as collected.
Effective January 1, 1997, the Company adopted SFAS 125, Accounting for
Transfers of Financial Assets and Liabilities. Under the financial-components
approach of SFAS 125, after a transfer of financial assets, an entity recognizes
all financial and servicing assets it controls and liabilities it has incurred
and derecognizes all financial and servicing assets it no longer controls and
liabilities that have been extinguished. If a transfer does not meet the
criteria for a sale, the transfer is accounted for as a secured borrowing with a
pledge of collateral. The adoption of SFAS 125 did not have a material impact
on the Company's financial statements.
34
<PAGE>
Allowance for Loan Losses
The Allowance is maintained at a level believed adequate by management to absorb
potential losses inherent in the current loan portfolio in accordance with the
Bank's Allowance for Loan Loss Policy. Management's determination of the
adequacy of the Allowance is based on an evaluation of the portfolio, past and
expected loan loss experience, current economic conditions, trends in loan
outstandings and diversification of the loan portfolio, the results of the most
recent regulatory examinations, the results of loan portfolio reviews completed
by outside consultants, the nature and level of nonperforming assets, impaired
loans and loans that have been identified as potential problems, financial
condition of its borrowers, the adequacy of loan collateral and other relevant
factors. The Allowance is increased by provisions for loan losses charged
against income and recoveries on loans previously charged off.
Real Estate Owned and Repossessions
REO consists of properties acquired through mortgage loan foreclosure
proceedings or in full or partial satisfaction of loans. REO is initially
recorded at the lower of cost or fair value (minus estimated costs to sell) at
the date the property is acquired and any difference is charged to the Allowance
at the time of reclassification. Subsequently, the values of such properties
are reviewed by management and writedowns, if any, are charged to expense. All
expenses and income related to REO properties are included in the net cost of
operations and real estate owned in the Company's Consolidated Financial
Statements of Operations.
Premises and Equipment
Bank premises, furniture and equipment are carried at cost, less accumulated
depreciation and amortization computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line basis over the shorter of the estimated useful lives of the
improvements or the term of the related leases.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
Risks and Uncertainties
In the normal course of its business, the Company encounters two significant
types of risk: economic and regulatory. There are four main components of
economic risk: interest rate risk, credit risk, market risk and competitive
risk. The Company is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different speeds, or on a
different basis, than its interest-earning assets. Credit risk is the risk of
default on the Company's loan portfolio that results from borrowers inability or
unwillingness to make contractually required payments. Market risk results from
changes in the value of assets and liabilities which may impact, favorably or
unfavorably, the realizability of those assets and liabilities held by the
Company. Competitive risk is the impact on the Company's operations resulting
from competitor's actions with regard to areas such as products offered, loan
and deposit pricing, branch facilities, strategic alliances and promotional
efforts.
The Company is subject to the regulations of various government agencies. These
regulations can and do change significantly from period to period. The Company
also undergoes periodic examinations by the regulatory agencies, which may
subject it to further changes with respect to asset valuations, amounts of
required loss allowances and operating restrictions resulting from the
regulators' judgments based on information available to them at the time of
their examination. For further information, see Note B.
Computation of Earnings per Share
In February 1997, FASB issued SFAS No. 128, Earnings Per Share. SFAS No. 128
provides reporting standards for basic and diluted earnings per share and is
effective for financial statement periods ending after December 15, 1997. Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. All prior period earnings per share
data has been restated to conform to the provisions of this statement.
35
<PAGE>
Note B. REGULATORY MATTERS
Satisfaction of Cross Guaranty Settlement Obligation to FDIC; Recapitalization
and Issuance of Common Stock
On July 24, 1996, the Company completed its recapitalization plan, whereby the
Company repaid in full its promissory note obligation (the "FDIC Note") to the
FDIC incurred as a result of the settlement of the cross guaranty claim against
the Bank. The cross guaranty claim was the result of the September 1991 failure
of Suffield Bank.
Bank Regulatory Requirements
The Bank is subject to various regulatory capital requirements administered by
federal and state banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's consolidated financial statements. Under capital adequacy guidelines
issued by the Federal Reserve Board and the regulatory framework for prompt
corrective action administered by the FDIC, the Bank must meet specific capital
requirements that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items. The Bank's capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital compliance
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Tier 1 capital (leverage) to total assets, Tier 1 capital to risk-
weighted assets, and Total capital to risk-weighted assets. Management believes
that, as of December 31, 1998, the Bank meets all capital adequacy requirements
to which it is subject.
As of December, 1998, the most recent notification from the FDIC categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. There are no conditions or events since that notification that
management believes has changed the Bank's category.
The tables below set forth the actual capital ratios and minimum regulatory
requirements for capital adequacy and under prompt corrective action for the
Bank at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
Minimum
Requirement to be
Minimum well capitalized
Requirement for under Prompt
1998 Actual Capital Adequacy Corrective Action
- ------------------------------------------------------- ------- ----------------- ------------------
<S> <C> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ ratio 7.90% 4.00% 5.00%
Tier 1 capital to risk-weighted assets 14.33 4.00 6.00
Total capital to risk-weighted assets
(Tier 1 and Tier 2) 15.60 8.00 10.00
</TABLE>
/(1)/ Calculated on an average quarterly basis
<TABLE>
<CAPTION>
Minimum
Requirement to be
Minimum well capitalized
Requirement for under Prompt
1998 Actual Capital Adequacy Corrective Action
- ------------------------------------------------------- ------- ----------------- ------------------
<S> <C> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ ratio 9.63% 4.00% 5.00%
Tier 1 capital to risk-weighted assets 15.03 4.00 6.00
Total capital to risk-weighted assets
(Tier 1 and Tier 2) 16.30 8.00 10.00
</TABLE>
/(1)/ Calculated on an average quarterly basis
36
<PAGE>
Note C. NONINTEREST EARNING DEPOSITS AND CASH
Noninterest bearing deposits and cash balances at December 31, 1998 are subject
to withdrawal and usage restrictions of $100,000 to be maintained at the Federal
Reserve Bank of Boston to meet the Bank's reserve requirements.
Note D. INVESTMENT SECURITIES
The following table sets forth the amortized cost, fair market value and gross
unrealized gains and losses of investment securities for each major security
type at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------
Gross Gross Fair
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- ------------------------------------- --------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Available for Sale:
U.S. government obligations $14,269 $ 3 $(107) $14,165
Mortgage backed securities 32,283 137 (22) 32,398
Other 485 - - 485
------- ---- ----- -------
$47,037 $140 $(129) $47,048
======= ==== ===== =======
<CAPTION>
December 31, 1997
--------------------------------------------
Gross Gross Fair
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains Losses Value
- ------------------------------------- --------- ---------- ----------- -------
Available for Sale:
Mortgage backed securities $15,689 $112 $ (3) $15,798
Other 89 - - 89
------- ---- ----- -------
$15,778 $112 $ (3) $15,887
======= ==== ===== =======
Held to Maturity:
U.S. government obligations $ 200 - - $ 200
U.S. government agency callable notes 6,800 $ 1 $ (28) 6,773
------- ---- ----- -------
$ 7,000 $ 1 $ (28) $ 6,973
======= ==== ===== =======
</TABLE>
The following is a summary of gross realized gains and losses on investment
securities sold for 1998, 1997 and 1996. All security gains and losses were
related to securities classified as available for sale. For computation of
gross realized gains and losses, cost was determined by the specific
identification method.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1998 1997 1996
Gross Realized Gross Realized Gross Realized
-------------- -------------- ---------------
(in thousands) Gains Losses Gains Losses Gains Losses
- ------------------------------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Sales of:
U.S. government obligations - - $ 62 - $17 -
Mortgage-backed securities - - 39 - - -
Equity securities $104 - 170 - 24 $(3)
------ ------ ----- ------ --- ------
$104 - $ 271 - $41 $(3)
====== ====== ===== ====== === ======
</TABLE>
37
<PAGE>
The following table represents the contractual maturities, amortized cost and
fair value for investments in debt securities for each major security type at
December 31, 1998:
Available for Sale Securities
-----------------------------
Amortized
(in thousands) Cost Fair Value
- ------------------------- --------- ----------
Due in one year or less $ 194 $ 194
Due from 1 - 5 years 2,030 2,033
Due from 5 - 10 years 10,931 10,876
Due after ten years 33,397 33,460
------- -------
$46,552 $46,563
======= =======
At December 31, 1998, the Company's securities pledged as collateral for public
and private deposits totaled $6.3 million.
Note E. LOANS
The composition of the loan portfolio was as follows:
December 31,
------------------
(in thousands) 1998 1997
- --------------------------------- -------- --------
Real estate mortgage loans:
Residential $ 32,555 $ 33,251
Commercial 52,747 48,705
Real estate construction loans 1,384 1,955
Commercial and industrial loans 5,872 5,166
Consumer and other loans 13,315 15,227
-------- --------
$105,873 $104,304
======== ========
Included in interest and fees on loans as reported in the consolidated
statements of operations are origination fees, commitment fees, late charges and
application fees for the years ended December 31, 1998, 1997 and 1996 of
$262,000, $195,000 and $152,000, respectively.
At December 31, 1998, the Bank was servicing $44.9 million of loans in its
capacity as a subservicer, as compared to its serviced loan portfolio of $42.9
million at December 31, 1997.
At December 31, 1998 and 1997, the Bank had binding commitments for the sale of
mortgage loans held for sale totaling $83,000 and $2.0 million, respectively.
Included in loans are $404,000 in related party loans to directors which were
made in the ordinary course of business on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons. The loans are current and being
paid in accordance with the terms of the loan agreement.
Impaired Loans
At December 31, 1998, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $439,000, as compared to
$717,000 at December 31, 1997. The corresponding portion of the Allowance
allocated against the total recorded investment in loans ("Allocated Reserves")
was $55,000 as of December 31, 1998 and $91,000 as of December 31, 1997. An
amount equal to $430,000 of the $439,000 total impaired loans was classified as
nonaccrual and the remaining $9,000 was classified as potential problem loans at
December 31, 1998. At December 31, 1997, an amount equal to $652,000 of the
$717,000 total impaired loans was classified as nonaccrual or troubled debt
restructures and the remaining $65,000 was classified as potential problem
loans. The income recorded on a cash basis relating to impaired loans equaled
$22,000 and $21,000 at December 31, 1998 and 1997, respectively. The average
balance of outstanding impaired loans was $414,000 and $2.3 million for 1998 and
1997, respectively, and an effective yield of 7.07% and 3.92%, respectively.
All of the impaired loans were collateralized by real estate at December 31,
1998 and accounted for by the lower of the fair value of the collateral (net of
the $55,000 Allocated Reserves) or amortized loan value.
38
<PAGE>
Non-Performing Assets
The table below sets forth information with respect to nonperforming assets:
December 31,
--------------------
(in thousands) 1998 1997 1996
- ----------------------------------------- ----- ----- ------
Nonaccrual loans $ 430 $ 387 $1,944
Accruing loans past due 90 days or more 121 101 201
Restructured loans - 265 -
Real estate owned and repossessions 15 65 478
----- ----- ------
$ 566 $ 818 $2,623
===== ===== ======
Interest income recognized on nonaccrual and restructured loans totaled $16,000,
$122,000 and $41,000 in 1998, 1997 and 1996, respectively. Had interest income
on these year-end loans been paid at the contracted rates and due dates, the
Company would have recorded additional interest income in 1998, 1997 and 1996 of
$8,000, $26,000 and $148,000, respectively.
Note F. ALLOWANCE FOR LOAN LOSSES
Changes in the Allowance were as follows:
Year Ended December 31,
------------------------
(in thousands) 1998 1997 1996
- --------------------------------- ------ ------ ------
Balance at beginning of year $2,665 $2,666 $2,659
Charge-offs (77) (339) (289)
Recoveries 147 338 296
------ ------ ------
Net charge-offs 70 (1) 7
Provision for loan losses - - -
------ ------ ------
Balance at end of year $2,735 $2,665 $2,666
====== ====== ======
The Allowance represented 2.58% and 2.56% of total loans, and 496.4% and 353.9%
of nonperforming loans at December 31, 1998 and December 31, 1997, respectively.
Note G. PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
December 31,
--------------
(in thousands) 1998 1997
- ------------------------------------- ------ ------
Land $ 408 $ 408
Buildings and building improvements 1,579 2,708
Leasehold improvements 282 443
Equipment 4,061 3,630
------ ------
6,330 7,189
Less: Accumulated depreciation
and amortization 3,776 3,635
------ ------
$2,554 $3,554
====== ======
On September 15, 1998, the Bank sold its headquarters branch/operations center
and recognized a gain of $539,000. As a result of the sale, the Bank entered
into an eighteen month lease arrangement with the buyer until such time as the
Bank can secure a new facility.
39
<PAGE>
Note H. DEPOSITS
Deposit balances at year end consisted of the following:
December 31,
---------------------------------
(in thousands) 1998 1997
- --------------------------------------- ------------- ----------
Noninterest bearing demand deposits $ 10,447 $ 7,599
Interest bearing demand deposits 21,680 17,117
Savings and escrow deposits 63,393 34,465
Time deposits 53,025 55,810
----------- --------
$ 148,545 $114,991
=========== ========
Included in 1998 and 1997 time deposits are $2,984,000 and $2,328,000,
respectively, of deposits of $100,000 or more.
At December 31, 1998, the maturities and weighted average interest rates of time
deposits were as follows:
Balance Weighted Average
Maturities (in thousands) Interest Rate
- ------------------------ ----------- ----------------
12 months or less $ 38,421 5.16%
1 - 2 years 7,627 5.53
2 - 3 years 2,930 5.51
3 - 4 years 1,814 5.73
4 -5 years 2,227 5.55
5 years or more 6 5.48
-----------
Total $ 53,025 5.27%
===========
The following is a detail of interest expense on deposits for the three years
ending December 31, 1998, 1997 and 1996:
December 31,
-------------------------------
(in thousands) 1998 1997 1996
- ---------------------------------------- ------- -------- --------
Interest bearing demand deposits $ 422 $ 446 $ 318
Savings deposits 1,993 945 1,079
Other time deposits 2,743 2,915 3,196
Time deposits of $100,000 or more 150 153 131
------- -------- --------
$ 5,308 $ 4,459 $ 4,724
======= ======== ========
Note I. BORROWINGS
Advances From Federal Home Loan Bank ("FHLB") of Boston
Maturities of advances from the FHLB of Boston outstanding at December 31, 1998
are as follows:
Weighted Average
(in thousands) Rates Interest Rate
- -------------------------------------------- ----------- ----------------
1999 $ 1,000 6.03% 6.03%
2001 7,545 6.05%-6.25% 6.18%
2003 3,000 4.99% 4.99%
2005 4,000 5.06% 5.06%
2008 7,000 4.99%-5.16% 5.06%
-------
$22,545 5.47%
=======
Under applicable FHLB regulations, member banks are required to maintain at all
times an amount of qualified collateral that is at least sufficient to satisfy
the established collateral maintenance level. The Bank maintains qualified
collateral well in excess of its current borrowings (and sufficient to support
the FHLB advances).
40
<PAGE>
Savings Bank Notes
The Savings Bank Notes bear interest at 10.85% annually, payable quarterly, with
semi-annual principal payments of $200,000 which commenced in June 1998. On
September 30, 1997, the Company made an unscheduled principal payment to the
Savings Banks of $1.0 million, reducing the unpaid principal balance to $3.0
million. At the time the Savings Bank Notes mature on December 31, 2001, the
unpaid balance of the Savings Bank Notes, based on the scheduled amortization of
$200,000 semi-annually (June and December) and the $1.0 million principal
prepayment, will be $1.4 million. The Savings Bank Notes are collateralized by
a pledge by the Company of all the shares of common stock of the Bank pursuant
to a stock pledge agreement between the Company and the Savings Banks.
The loan agreement between the Company and the Savings Banks with respect to the
$4.0 million loan (the "Savings Bank Loan Agreement") contains certain terms,
restrictions and covenants related to, among other things, dividends, certain
borrowings, minimum capital ratios, capital expenditures and minimum net worth
requirements.
Secured Borrowings
In May 1998, the Bank introduced a new cash management program for businesses.
The program represents secured borrowings, which include repurchase like
agreements that are not FDIC insured. At December 31, 1998 these secured
borrowings equaled $967,000 and were collateralized by $967,000 in Bank owned
investment securities.
Federal Reserve Bank of Boston
The Bank also has been approved by the Federal Reserve Bank of Boston to obtain
funds from its discount window for the purpose of maintaining the Bank's
liquidity. No funds have been obtained from this source.
Note J. RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES
Payment of dividends by the Company on its stock is subject to various
restrictions. Among these restrictions is a requirement under Delaware
corporate law that dividends may be paid by the Company out of its surplus or,
in the event there is no surplus, out of its net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year.
The principal source of cash for the Company would normally be a dividend from
the Bank; however, certain restrictions also exist regarding the ability of the
Bank to transfer funds to the Company in the form of cash dividends, loans or
advances. Maine corporate law generally provides that dividends may only be
paid out of unreserved and unrestricted earned surplus or unreserved and
unrestricted net earnings of the current fiscal year and the next preceding
fiscal year taken as a single period. Maine banking law also imposes certain
restrictions, including the requirement that the Bank establish and maintain
adequate levels of capital as set forth in rules adopted by the Maine Bureau of
Banking.
The Savings Bank Loan Agreement contains certain terms, restrictions and
covenants, including covenants restricting the amount of borrowings that may be
incurred by the Company and the Bank, and restrictions regarding the conditions
under which cash dividends may be paid by the Company. For further information
see "Note I -- Borrowings --Savings Bank Notes."
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.
Note K. BENEFIT PLANS
Pension Plan
The Board of Directors of the Bank terminated the Bank's defined benefit plan
and implemented a defined contribution plan ("401(k) Plan") for all eligible
employees effective August 1, 1997. All employees of the Bank are eligible to
participate in the 401(k) Plan upon completion of 1,000 hours of service
subsequent to their date of hire. Plan participants may elect to contribute up
to 15% of their salary on a pre-tax basis. The Bank provides matching
contributions up to 6% of compensation. The Bank incurred expenses relating to
the 401(k) Plan totaling $98,000 for the year ended December 31, 1998.
Future benefit accruals under the defined benefit plan were eliminated as of
July 31, 1997 and the plan was terminated as of September 30, 1997. During 1998
the Bank received a determination ruling from the Internal Revenue Service
("IRS") with respect to the termination of the defined benefit plan. The
settlement and distribution of the defined benefit plan assets occurred in
December 1998 and did not have a material effect on the Company's financial
statements. In connection with the defined benefit plan termination the Company
elected to contribute $125,000 of the excess plan assets to the 401(k) Plan to
be utilized as future matching employer contributions.
41
<PAGE>
At December 31, 1997 plan assets in excess of projected benefit obligations and
prepaid pension expense were $491,000 and $463,000, respectively. Pension
expense for the defined benefit plan was $1,000 and $3,000 for the years ended
December 31, 1997 and 1996, respectively.
Stock Option and Equity Incentive Plan
The Company adopted the First Coastal Corporation 1996 Stock Option and Equity
Incentive Plan (the "Plan") to provide for the grant of options to purchase
shares of common stock of the Company to directors and employees of the Company
and to employees of any subsidiary of the Company and to permit the award to
employees of the Company and of any subsidiary of the Company of shares of
common stock as a bonus, which shares may be subject to restrictions based on
continued service or performance. The Plan was adopted by the Company's
stockholders at its June 1996 annual meeting. During 1997, 2,500 options were
granted to directors which vested immediately and 15,000 options were granted to
executive officers which vest over a three year period. In 1998, 3,000 options
were granted to directors which vested immediately and 19,000 options were
granted to executive officers and other key employees which vest over a three
year period. Options granted under the Plan must have an exercise price not
less than the fair market value of a share of common stock on the date of grant
of the option (or 110% in the case of an incentive stock option granted to an
optionee beneficially owning more than 10% of the outstanding common stock).
The option's maximum term is 10 years (or five years in the case of an incentive
stock option granted to an optionee beneficially owning more than 10% of the
outstanding common stock). Upon adoption of the Plan, there were 130,000 shares
of common stock of the Company reserved for issuance in connection with option
grants and restricted stock awards. At December 31, 1998, there were 31,333
shares of common stock of the Company reserved for issuance in connection with
options available for grant and restricted stock awards.
On January 1, 1996 the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, to be effective May 2, 1996, the date on which the Company's Board
of Directors adopted the Plan. As permitted by SFAS No. 123, the Company has
chosen to apply APB Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25) and related interpretations in accounting for its Plan. Accordingly,
no compensation cost has been recognized for options granted under the Plan.
Had compensation cost for the Company's Plan been determined based upon the fair
value at the grant dates for awards under the Plan consistent with the method of
SFAS No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below.
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ---------------------- ----------------------
As reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income (in thousands) $1,564 $1,553 $1,262 $1,243 $6,385 $6,337
Basic earnings per share $ 1.15 $ 1.14 $ .93 $ .91 $ 6.84 $ 6.80
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants during 1998 and 1997, respectively: dividend yield
of 0.0%, expected volatility of 35%, risk free interest rate of 4.98% and 5.96%,
respectively, and expected term of options equal to 7 years. The weighted
average fair value of options granted for the years ended December 31, 1998,
1997 and 1996 were $5.18, $7.06 and $3.78, respectively.
A summary of the status of the Plan as of December 31, 1998, 1997 and 1996, and
changes during the year then ended is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- -------------------------- -------------------------
Weighted Weighted Weighted
Average Exercise Average Exercise Average Exercise
Shares Price Per Share Shares Price Per Share Shares Price Per Share
---------- --------------- -------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 70,500 $ 7.82 57,000 $ 5.59 - -
Granted 22,000 $11.04 17,500 $14.45 57,000 $5.59
Exercised (1,333) $ 5.00 (1,333) $ 5.00 - -
Forfeited - - (2,667) $ 5.00 - -
------ ------ ------
Outstanding at end of year 91,167 $ 8.64 70,500 $ 7.82 57,000 $5.59
====== ====== ======
</TABLE>
42
<PAGE>
The following table summarizes information about the Plan's stock options at
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ -----------------------------------
Range of Number Weighed-average Weighted Number Weighted
Exercise Outstanding Remaining Average Exercisable Average
Prices at December 31 Contractual life Exercise Price at December 31 Exercise Price
------------ -------------- ---------------- -------------- ------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1998 $ 5.00-$7.25 51,667 7.5 years $ 5.65 34,442 $ 5.65
$9.63-$15.25 39,500 9.4 years $12.55 5,829 $14.45
1997 $ 5.00-$7.25 53,000 8.6 years $ 5.64 21,667 $ 5.52
$9.63-$15.25 17,500 9.9 years $14.45 2,500 $ 9.63
1996 $ 5.00-$7.25 57,000 9.5 years $ 5.59 6,000 $ 5.00
</TABLE>
In addition, during 1996 the Company made restricted stock awards in the
aggregate amount of 7,500 shares of stock to certain executive officers. The
stock vests ratably over a three year period beginning May 2, 1996, subject to
acceleration upon the occurrence of certain events described within the
individual restricted stock agreements. At December 31, 1998, 835 shares of
stock have not yet vested and the related compensation expense of approximately
$4,500 has not been recognized.
Note L. INCOME TAXES
A summary of income tax expense (benefit) is as follows:
December 31,
-----------------------
(in thousands) 1998 1997 1996
- ---------------- ------ ------ -------
Current $ 64 - $ (48)
Deferred 795 $ 679 (4,811)
------ ------ -------
$ 859 $ 679 $(4,859)
====== ====== =======
A reconciliation of the difference between income tax expense (benefit) and the
amount computed by applying the statutory federal income tax rate to income
before income taxes is as follows:
December 31,
-----------------------
(in thousands) 1998 1997 1996
- ---------------- ------ ------ -------
Federal income tax at statutory rate $ 824 $ 660 $ 519
Increase (decrease) resulting from:
Expiration of net operating loss carryforwards - - 1,180
Change in valuation allowance - - (6,773)
Other items, net 35 19 215
----- ----- -------
Income tax expense (benefit) $ 859 $ 679 $(4,859)
===== ===== =======
43
<PAGE>
Significant components of deferred income tax assets and liabilities at December
31, 1998 and 1997 are presented below:
December 31,
-----------------
(in thousands) 1998 1997
- ------------------------------------------------- ------- --------
Deferred tax assets:
Loans, principally due to allowance for losses $ 930 $ 906
REO, principally due to writedowns 7 7
Deferred loan fees 33 47
Reserve for mortgage servicing rights 45 45
Federal net operating loss credit and tax credit
carryforward 2,728 3,604
Investment tax credit carryforward 77 77
Other 22 (6)
------ ------
Total gross deferred tax assets before valuation
reserve 3,842 4,680
Valuation reserve (77) (77)
------ ------
Total gross deferred tax asset 3,765 4,603
------ ------
Deferred tax liabilities:
Unrealized gain on investments 4 24
Difference between tax and book basis of fixed
assets 184 210
Capital loss on stock transaction 23 74
Other 200 200
------ ------
Total gross deferred tax liabilities 411 508
------ ------
Net deferred taxes $3,354 $4,095
====== ======
The deferred tax asset represents the estimated amount of future deductions for
tax reporting purposes previously expensed for financial reporting purposes, and
the benefit from future income taxes the Company will not have to pay as a
result of the net operating loss ("NOL") carryforwards. Prior to 1996, a 100%
valuation allowance was maintained against the deferred tax asset as there were
significant uncertainties regarding the Company's future and its ability to
utilize its NOL carryforwards through sustained, profitable operations.
Management believes that the completion of the July 1996 recapitalization, the
payoff of the $9.0 million FDIC Note and the improved financial condition of the
Company have reduced the uncertainties relating to the Company's ability to
realize the benefits of the deferred tax asset. During 1996 the valuation
allowance against the deferred tax asset (in accordance with SFAS No. 109) was
reduced by $4,811,000. The remaining valuation reserve of $77,000 represents
the belief of the Company that the current investment tax credit carryforwards
of $77,000 will expire unutilized.
At December 31, 1998, the Company had a NOL carryforward for federal income tax
return purposes of approximately $7.6 million available to offset future taxable
income. The NOL carryforward for federal income tax return purposes will expire
in the years 2007 to 2011. If there is a subsequent "change of ownership" of
the Company as defined by Section 382 of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company's NOL carryforwards are subject to limitation
as provided by the Code.
Note M. COMMITMENTS AND CONTINGENCIES
Unfunded Loan Commitments
Unfunded loan commitments for December 31, 1998 and 1997 were approximately
$17.5 million and $14.2 million, respectively. There were no standby letters of
credit for the years ended December 31, 1998 and 1997.
The breakdown of such loan commitments is as follows:
(in thousands) 1998 1997
- ------------------------------------------------------------ ------- -------
Real estate:
Commitments to originate residential mortgages $ 502 $ 1,903
Commitments to originate commercial mortgages 4,748 1,700
Unadvanced portions of construction loans 427 620
Commercial lines of credit (unused) 4,154 2,651
Consumer lines of credit (e.g. home equity lines) (unused) 7,630 7,288
------- -------
Total $17,461 $14,162
======= =======
44
<PAGE>
Included in unfunded loan commitments at December 31, 1998 and 1997 are fixed
rate loan commitments totaling $5.5 million and $3.9 million, respectively.
Loan commitments include unfunded portions of real estate, construction and
other loans and unused lines of credit. Loan commitments are subject to the same
credit policies as loans and have expiration dates and termination clauses.
Lease Obligations
The Company currently leases its headquarters branch/operations center and three
of its eight branches, and has a ground lease relating to a fourth branch
(rental expense for this ground lease is zero until June 17, 2000), under terms
of operations leases which include renewal options ranging from one to five
years. On September 15, 1998 the Bank sold its headquarters branch/operations
center and entered into an eighteen month lease arrangement with the buyer until
such time as the Bank can secure a new headquarters branch/operations center
facility (the lease payments for this short term lease are reflected in the
table below). Rental expense totaled approximately $151,000, $91,000 and
$77,000 for the three years ended December 31, 1998, 1997 and 1996,
respectively.
Approximate minimum lease payments over the remaining term of the leases at
December 31, 1998 are as follows:
(in thousands) December 31,
- -----------------------------------------------------------------------
1999 $248
2000 171
2001 64
2002 59
2003 62
----
$604
====
Litigation
As of December 31, 1998, there were various claims and lawsuits pending against
the Company incidental to the ordinary course of business. In the opinion of
management, after consultation with legal counsel, resolution of these matters
is not expected to have a material effect on the consolidated financial position
or results of operations.
Note N. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Concentration of Commercial Real Estate Assets
At December 31, 1998, the Bank had approximately $52.7 million of commercial
real estate mortgage loans, representing 49.8% of total loans at such date,
comprised primarily of loans collateralized by apartment buildings, mixed use
commercial buildings, retail buildings, office buildings and other income
producing properties. The Bank's concentration of commercial real estate assets
(representing commercial real estate loans and real estate owned) was 27.6% and
33.5% of total assets at December 31, 1998 and 1997, respectively. At December
31, 1998, the Bank also had approximately $5.9 million of commercial business
loans.
Banks with loans concentrated in commercial real estate are likely to be
adversely affected by problems in the real estate market or the economy in
general. Commercial real estate lending involves significant additional risks
as compared to one-to-four family residential mortgage lending, and typically
accounts for a disproportionate share of charge-offs, delinquent loans and real
estate owned through foreclosure or by deed in lieu of foreclosure. Such
lending generally involves larger loan balances (to a single borrower or groups
of related borrowers) than is involved with residential and other types of
consumer lending, and is more susceptible to adverse future developments. If
the cash flow from income producing property collateralizing real estate loans
is reduced (for example, because leases are not obtained or renewed, or lease
rates decline), the borrower's ability to repay these loans may be materially
impaired. These risks can be significantly affected by considerations of supply
and demand in the market and by general economic conditions. Management does
not expect either a significant increase or decrease in the foreseeable future
in the level of commercial real estate assets as a percentage of total assets.
45
<PAGE>
Note O. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments as determined
under SFAS No. 107 are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------ ------------------
Book Fair Book Fair
(in thousands) Value Value Value Value
- ------------------------------------------ -------- -------- -------- --------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents /(1)/ $ 32,627 $ 32,627 $ 7,554 $ 7,554
Investment securities /(2)/
Available for sale (at market value) 47,048 47,048 15,887 15,887
Held-to-maturity (at amortized cost) - - 7,000 6,973
Federal Home Loan Bank stock 1,315 1,315 1,315 1,315
Loans held for sale 83 83 3,565 3,565
Loans, net of allowance /(3)/ 103,041 106,437 101,500 104,951
Financial Liabilities:
Deposits /(4)/ $148,545 $149,413 $114,991 $115,330
Borrowings /(5)/ 25,145 25,270 16,294 18,039
Secured borrowings /(6)/ 967 967 - -
- --------------------
</TABLE>
/(1)/ The carrying amount of cash and cash equivalents approximates fair value
due to their short maturity.
/(2)/ The fair value of investment securities is based on quoted market prices,
if available. If prices are not available, quotes for similar instruments
and/or information supplied to management is used.
/(3)/ The fair market value for fixed and adjustable rate loans was estimated
using the discounted cash flow analysis using current interest rates for
similar loans. Variable rate loans are considered to be at fair value,
since such loans change directly with the market rates. The estimated
fair values of nonperforming loans are calculated by using book value
less the specific amount of allocated reserve from the allowance for
loan losses.
/(4)/ For deposit liabilities with no defined maturities, the fair value is the
amount payable on demand. Term deposits were estimated using the
discounted cash flow analysis using current interest rates for similar
deposits.
/(5)/ The fair value for FHLB borrowings and the Savings Bank Notes was
estimated using the discounted cash flow analysis using current interest
rates for similar borrowings.
/(6)/ Secured borrowings are variable rate and considered to be at fair value,
since such rates change directly with market rates.
46
<PAGE>
Note P. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share ("EPS") calculations:
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------- ------------------------------- -------------------------------
Number Per Number Per Number Per
Income of Shares Share Income of Shares Share Income of Shares Share
Numerator Denominator Amount Numerator Denominator Amount Numerator Denominator Amount
---------- ----------- ------ ---------- ----------- ------ ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $1,564,000 $ 1,262,000 $6,385,000
Basic EPS
Income available to
common stockholders 1,564,000 1,359,976 $1.15 1,262,000 1,358,730 $0.93 6,385,000 933,578 $ 6.84
Effect of dilutive
securities options - 19,148 - 32,542 - 6,902
--------- --------- --------- --------- --------- -------
Diluted EPS
Income available to
common stockholders
and assumed
conversions $1,564,000 1,379,124 $1.13 $1,262,000 1,391,272 $0.91 $6,385,000 940,480 $ 6.79
========== ========= ========== ========== ========== ==========
</TABLE>
At December 31, 1998, outstanding options to purchase 15,000 and 3,000 shares
of common stock at a price per share of $15.25 and $13.56, respectively, were
not included in the computation of diluted earnings per share because the
exercise price of the options was greater than the average market price of
common shares. At December 31, 1997, outstanding options to purchase 15,000
shares of common stock at $15.25 per share were not included in the computation
of diluted earnings per share because the exercise price of the options was
greater than the average market price of common shares.
Note Q. FIRST COASTAL CORPORATION
CONDENSED FINANCIAL INFORMATION
BALANCE SHEETS
December 31,
----------------
(in thousands) 1998 1997
- --------------------------------------------- ------- -------
Assets
Cash $ 831 $ 142
Investment in subsidiaries 14,716 14,504
Deferred tax asset 3,310 3,076
Other assets 57 106
------- -------
Total assets $18,914 $17,828
======= =======
Liabilities
Savings Bank Notes $ 2,600 $ 3,000
Other liabilities - 20
Stockholders' equity 16,314 14,808
------- -------
Total liabilities and stockholders' equity $18,914 $17,828
======= =======
47
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
(in thousands) 1998 1997 1996
- ----------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Dividends $1,680 $ 1,500 $ 3,400
Interest Income 5 12 7
------ ------- -------
1,685 1,512 3,407
Interest Expense:
FDIC Note - - 335
Savings Bank Notes 332 477 190
------ ------- -------
332 477 525
------ ------- -------
Net Interest Income 1,353 1,035 2,882
Operating Expenses:
Salary and benefits 13 12 5
Stockholder relations 54 48 117
Professional fees 102 58 177
Other 46 61 3
------ ------- -------
215 179 302
Income before income tax and equity in
undistributed net income of subsidiaries 1,138 856 2,580
Income tax benefit (149) (226) (2,850)
Equity in undistributed net income of subsidiaries 277 180 955
------ ------- -------
Net Income $1,564 $ 1,262 $ 6,385
====== ======= =======
STATEMENT OF CASH FLOWS
<CAPTION>
Year Ended December 31,
----------------------------
(in thousands) 1998 1997 1996
- ----------------------------------------------------- -------- -------- --------
Operating Activities:
Net income $1,564 $ 1,262 $ 6,385
Decrease in interest payable - - (419)
Net change in other assets (185) (168) (2,853)
Net change in other liabilities (20) (40) 35
Equity in undistributed earnings of subsidiaries (277) (180) (955)
------ ------- -------
Net cash provided by operating activities 1,082 874 2,193
Financing Activities:
Proceeds from issuance of Savings Bank Note - - 4,000
Payment on borrowings (400) (1,000) (9,000)
Finance cost associated with Savings Bank Note - - (116)
Net proceeds from sale of common stock 7 7 3,085
------ ------- -------
Net cash used by financing activities (393) (993) (2,031)
------ ------- -------
Increase (decrease) in cash and cash equivalents 689 (119) 162
Cash and cash equivalents at beginning of year 142 261 99
------ ------- -------
Cash and cash equivalents at end of year $ 831 $ 142 $ 261
====== ======= =======
Supplemental Disclosures of Information
Interest paid on borrowings $ 315 $ 477 $ 944
Non-Cash Investing and Financing Activities
Change in unrealized holding gains (losses) on
investment securities available for sale $ (65) $ 151 $ (117)
Issuance of restricted stock - - 38
</TABLE>
See Note J for restrictions on the payment of dividends by Subsidiary to the
Company.
48
<PAGE>
Note R. STOCKHOLDER RIGHTS PLAN
On February 25, 1998 the Board of Directors of the Company adopted a
Stockholders Rights Plan in which preferred stock purchase rights have been
granted as a dividend at the rate of one Right for each share of Common Stock
held of record as of the close of business on March 10, 1998. The Rights will
be exercisable only if a person or group in the future becomes the beneficial
owner of 10% or more of the Common Stock or announces a tender or exchange offer
which would result in its ownership of 10% or more of the Common Stock.
Each Right, when exercisable at $50.00 per Right, would entitle the holder
thereof to purchase 1/10th of a share of a newly created series of preferred
stock of the Company designated as "Series A Junior Participating Preferred
Stock." Each holder of a Right, other than the acquiring person, would be
entitled to purchase a certain number of shares of Common Stock of the Company
for each right at one-half of the then-current market price. If the Company is
acquired in a merger, or 50% or more of the Company's assets are sold in one or
more related transactions, each Right would entitle the holder thereof to
purchase common stock of the acquiring company at half of the then-current
market price of such common stock.
When exercisable, the Board of Directors may exchange one share of Common Stock
for each Right, other than Rights held by the acquiring person. The Rights are
redeemable for $.001 per Right until becoming exercisable and will expire on
February 24, 2008.
Note S. SUBSEQUENT EVENTS (UNAUDITED)
On January 31, 1999, the Bank completed the settlement of the sale of its
residential mortgage servicing portfolio and as a result a pretax gain in the
amount of $460,000 will be recorded in the first quarter of 1999.
On February 22, 1999, the Bank entered into a definitive purchase and assumption
agreement with regard to its previously announced intention to sell its branch
located in Kennebunk, Maine. Under the terms of the purchase and assumption
agreement (subject to receipt of regulatory approvals), the purchaser will
acquire all of the branch's deposits and certain branch assets, as well as
assume responsibility for the Bank's lease obligation. Should the sale of the
branch take place in the second quarter of 1999 as anticipated, a pretax gain in
the amount of $1.1 to $1.2 million is anticipated to be recorded at that time.
The actual amount of the gain to be recorded at closing will be subject to
actual deposit levels, the mix of deposits and other factors, and could be
higher or lower than the amount currently anticipated.
49
<PAGE>
Note T. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended,
----------------------------------------------
(in thousands, except share and per share information) 3/31 6/30 9/30 12/31
- -------------------------------------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1998
- ----
Interest income $ 2,978 $ 3,149 $ 3,373 $ 3,559
Interest expense 1,375 1,547 1,751 1,894
---------- ---------- ---------- ----------
Net interest income 1,603 1,602 1,622 1,665
Provision for loan losses - - - -
Noninterest income 138 162 711 155
Securities and loan sales gains 6 46 119 44
Operating expense 1,302 1,359 1,493 1,296
---------- ---------- ---------- ----------
Income before income taxes 445 451 959 568
Income tax expense 160 159 338 202
---------- ---------- ---------- ----------
Net income $ 285 $ 292 $ 621 $ 366
========== ========== ========== ==========
Basic earnings per share:
Weighted average shares outstanding 1,359,194 1,359,633 1,360,527 1,360,527
Earnings per share $ .21 $ .21 $ .46 $ .27
========== ========== ========== ==========
Diluted earnings per share:
Weighted average shares outstanding 1,381,130 1,380,177 1,378,264 1,375,324
Earnings per share $ .21 $ .21 $ .45 $ .27
========== ========== ========== ==========
1997
- ----
Interest income $ 2,844 $ 3,011 $ 3,002 $ 3,037
Interest expense 1,455 1,491 1,521 1,409
---------- ---------- ---------- ----------
Net interest income 1,389 1,520 1,481 1,628
Provision for loan losses - - - -
Noninterest income 135 143 174 168
Securities and loan sales gains 126 114 109 21
Operating expense 1,244 1,231 1,252 1,340
---------- ---------- ---------- ----------
Income before income taxes 406 546 512 477
Income tax expense 139 195 178 167
---------- ---------- ---------- ----------
Net income $ 267 $ 351 $ 334 $ 310
========== ========== ========== ==========
Basic earnings per share:
Weighted average shares outstanding 1,357,861 1,358,652 1,359,194 1,359,194
Earnings per share $ .20 $ .26 $ .25 $ .23
========== ========== ========== ==========
Diluted earnings per share:
Weighted average shares outstanding 1,370,414 1,373,571 1,377,562 1,391,736
Earnings per share $ .19 $ .26 $ .24 $ .22
========== ========== ========== ==========
</TABLE>
50
<PAGE>
- -------------------------------------------------------------------------------
CORPORATE AND STOCKHOLDER INFORMATION
- -------------------------------------------------------------------------------
FIRST COASTAL CORPORATION
DIRECTORS
David B. Hawkes, Sr.
Chairman of the Board
First Coastal Corporation and
Coastal Bank
Business Consultant/Owner
Cloudhawk, Inc.
Gregory T. Caswell
President and Chief Executive Officer
First Coastal Corporation and
Coastal Bank
Dennis D. Byrd
Vice President and Treasurer
First Coastal Corporation
Executive Vice President, Chief Financial Officer and Treasurer
Coastal Bank
MaryEllen FitzGerald
President/Owner
Critical Insights
Marketing Research
Roger E. Klein
President
Interest Rate Futures Research Corporation
Investment Advisor
Normand E. Simard
President
York County Biscuit Company
Edward K. Simensky
President
Simensky & Thomson
Accountants
Charles A. Stewart III
Treasurer
M.C.S. Enterprises
Real Estate Investment
OFFICERS
Gregory T. Caswell
President and Chief Executive Officer
Dennis D. Byrd
Vice President and Treasurer
Patricia J. Briand
Secretary
- -------------------------------------------------------------------------------
COASTAL BANK
CORPORATE OFFICE
Colonel Westbrook Executive Park
36 Thomas Drive
Westbrook, ME 04092
(207) 774-5000
DIRECTORS
David B. Hawkes, Sr., Chairman of the Board
Dennis D. Byrd
Gregory T. Caswell
MaryEllen FitzGerald
Roger E. Klein
Normand E. Simard
Edward K. Simensky
Charles A. Stewart III
OFFICERS
Gregory T. Caswell
President and Chief Executive Officer
Dennis D. Byrd
Executive Vice President, Chief Financial Officer and Treasurer
Robert S. Blackwood, Jr.
Senior Vice President, Commercial Lending
William E. Saufley
Senior Vice President Human Resources
and Legal Affairs
Edward M. Williams
Senior Vice President Retail Banking
David C. Cyr
Vice President Credit Administration
Cynthia M. McDougall
Vice President Residential Lending
John T. McDonald
Vice President Commercial Lending
Debra J. McPhail
Vice President Deposit Operations and Security
Janet S. Ross
Vice President Commercial Lending
Timothy J. Tower
Vice President Commercial Lending
Daniel P. Walsh
Vice President Commercial Lending
Patricia J. Briand
AVP Corporate Secretary
Stephen D. Lovejoy
AVP Branch Manager
Thomas V. Manderson
AVP Controller
Laurie L. Mooney
AVP Branch Manager
Maureen E. Pride
AVP Business Banking Marketing Mgr.
Lisa A. St. Lawrence
AVP Branch Manager
BRANCH OFFICES
120 Exchange Street
Portland, ME 04101
Robert S. Blackwood, Jr. SVP
Commercial Lending
83 Maine Street
Brunswick, ME 04011
Stephen D. Lovejoy, AVP/Manager
14 Gurnett Road
Brunswick, ME 04011
Teri L. Dutton, Manager
47 Topsham Fair Mall Road
Topsham, ME 04086
Kevin Concaugh, Manager
8 Mallet Drive
Freeport, ME 04032
Lisa M. Esposito, Manager
36 Thomas Drive
Westbrook, ME 04092
Laurie L. Mooney, AVP/Manager
Suite 32, 4 Scammon Drive
Saco Valley Shopping Center
Saco, ME 04072
Laurie L. Mooney, AVP/Manager
45 Portland Road
Kennebunk, ME 04043
Lisa A. St. Lawrence, AVP/Manager
51
<PAGE>
- -------------------------------------------------------------------------------
CORPORATE AND STOCKHOLDER INFORMATION
- -------------------------------------------------------------------------------
Corporate Headquarters
First Coastal Corporation
Colonel Westbrook Executive Park
36 Thomas Drive
Westbrook, ME 04092
(207) 774-5000
Annual Meeting
The 1999 Annual Meeting of the Stockholders of First Coastal Corporation will be
held at 10:00 a.m. on Tuesday, May 18, 1999 at the Portland Marriott, South
Portland, Maine.
Stock Listing
First Coastal Corporation stock is listed on The Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol "FCME".
Transfer Agent/Registrar
ChaseMellon Financial Services
111 Founders Plaza, Suite 1100r
East Hartford, CT 06108
Independent Accountants
PricewaterhouseCoopers LLP
130 Middle Street
Portland, ME 04104
Legal Counsel
Bernstein Shur Sawyer & Nelson
100 Middle Street
P.O. Box 9729
Portland, ME 04104-5029
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Form 10-K
The Corporation's Annual Report on Form 10-K filed with the Securities and
Exchange Commission will be provided to stockholders upon written request.
Requests should be addressed to: Investor Relations, First Coastal Corporation,
36 Thomas Drive, Westbrook, ME 04092
Internet Address
First Coastal Corporation
www.firstcoastal.com
Coastal Bank
www.coastalbankme.com
52
<PAGE>
Exhibit 21
Subsidiary of the Registrant
Subsidiary State of Incorporation
- ---------- ----------------------
Coastal Bank Maine
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into the Company's Registration
Statement on Form S-8 (File No. 333-08631) filed with the Securities and
Exchange Commission on July 23, 1996, of our report dated February 17, 1999 on
our audits of the consolidated financial statements of First Coastal Corporation
and subsidiary as of December 31, 1998 and 1997 and for each of the three years
in the period ended December 31, 1998, which report is incorporated by reference
in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Portland, Maine
March 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<INT-BEARING-DEPOSITS> 28,118
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 48,363
<LOANS> 105,776
<ALLOWANCE> 2,735
<TOTAL-ASSETS> 191,413
<DEPOSITS> 148,545
<SHORT-TERM> 967
<LIABILITIES-OTHER> 442
<LONG-TERM> 25,145
0
0
<COMMON> 1,361
<OTHER-SE> 14,953
<TOTAL-LIABILITIES-AND-EQUITY> 191,413
<INTEREST-LOAN> 9,919
<INTEREST-INVEST> 2,126
<INTEREST-OTHER> 1,014
<INTEREST-TOTAL> 13,059
<INTEREST-DEPOSIT> 5,308
<INTEREST-EXPENSE> 1,259
<INTEREST-INCOME-NET> 6,492
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 104
<EXPENSE-OTHER> 2,275
<INCOME-PRETAX> 2,423
<INCOME-PRE-EXTRAORDINARY> 2,423
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,564
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 8.23
<LOANS-NON> 430
<LOANS-PAST> 121
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 173
<ALLOWANCE-OPEN> 2,665
<CHARGE-OFFS> 77
<RECOVERIES> 147
<ALLOWANCE-CLOSE> 2,735
<ALLOWANCE-DOMESTIC> 2,735
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
