U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Twelve Months Ended: March 31, 1996
Commission File No.: 0-18096
MID-COAST BANCORP, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 01-0454232
State of Incorporation IRS Employer No.
1768 Atlantic Highway
P. O. Box 589
Waldoboro, Maine 04572
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (207) 832-7521
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1.00 par value)
(Title of Class)
Indicate by check mark whether the issuer (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
issuer 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 there is no disclosure of delinquent filers
pursuant to Item 405 of Regulation S-B contained herein, and no disclosure
will be contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [X]
The revenues for the issuer's fiscal year ended March 31, 1996 are
$4,572,966.
The number of shares outstanding as of May 23, 1996 is 229,031.
Aggregate market value of common stock held by non-affiliates, based on
the last reported sale price on May 23, 1996: $3,255,601.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement pursuant to Regulation 14A,
which was delivered to the Commission for filing on June 11, 1996, and the
Annual Report for the fiscal year ended March 31, 1996, which has not
previously been mailed to the Commission, are incorporated by reference into
Part II and III of this report.
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 1
Item 2. Description of Property 23
Item 3. Legal Proceedings 24
Item 4. Submission of Matters to a Vote of Security Holders 24
PART II
Item 5. Market for Common Equity and Related Stockholder Matter 25
Item 6. Management's Discussion and Analysis 26
Item 7. Financial Statements 26
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 26
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act 26
Item 10. Executive Compensation 26
Item 11. Security Ownership of Certain Beneficial Owners and
Management 26
Item 12. Certain Relationships and Related Transactions 26
Item 13. Exhibits 27
SIGNATURES 29
PART I
Item 1. Description of Business
Business of Mid-Coast Bancorp, Inc.
Mid-Coast Bancorp, Inc. ("Bancorp" or the "Holding Company") was
organized in 1989 for the purpose of becoming a holding company and owning
all of the outstanding capital stock of The Waldoboro Bank, F.S.B.
("Waldoboro" or the "Bank"). Upon consummation of Waldoboro's conversion
from the mutual to the stock form of ownership, Waldoboro became a wholly
owned subsidiary of Bancorp.
The Holding Company is engaged primarily in the business of directing,
planning and coordinating the business activities of the Bank. In the
future, Bancorp may acquire or organize other operating subsidiaries,
including other financial institutions, although it presently has no
definitive plans for any specific acquisitions or new subsidiaries. Bancorp
does not currently own any real estate. Instead, Bancorp uses the premises,
equipment and furniture of the Bank without the payment of any rental fees.
At the present time, Bancorp does not employ any persons other than its
officers, but utilizes the support staff of the Bank from time to time
without the payment of any fees. Additional employees may be hired as
appropriate to the extent Bancorp expands its business.
Business of The Waldoboro Bank, F.S.B.
General
The Bank was formed as a Maine building and loan association, the
Waldoboro Building and Loan Association, on March 18, 1891 and received a
federal charter on August 9, 1983. The Bank's operations are headquartered
in Waldoboro, Maine. The deposits of the Bank are insured by the Savings
Association Insurance Fund (the "SAIF"), which is administered by the Federal
Deposit Insurance Corporation ("FDIC"). The Bank has a strong community
orientation, with most of its customers located in Waldoboro, Rockland and
surrounding communities in Knox and Lincoln counties, Maine. As of March 31,
1996, the Bank had total assets of $54,362,066, total deposits of
$41,816,902, total borrowings of $7,465,000 and stockholders' equity of
$4,926,077. The Bank has never been involved in any mergers or acquisitions.
Last year the Bank opened a new, full-service branch facility in Rockland,
Maine, and currently has two full-service offices. The Bank believes that
this additional office will enhance its ability to attract deposits and
expand its market position.
The Bank's executive offices are located at 1768 Atlantic Highway,
Waldoboro, Maine and its telephone number is (207) 832-7521.
The principal business of the Bank is to attract deposits from the
general public and to make loans secured by residential and commercial real
estate, enabling borrowers to purchase, refinance, construct or improve
property. In addition, the Bank makes various types of secured and unsecured
consumer and passbook loans, such as home equity, commercial and automobile
loans, and holds investment securities. See "Lending Activities" and
"Investments."
Market Area
The Bank's market area is Knox and Lincoln counties, Maine, and
includes the towns of Waldoboro, Damariscotta, Friendship, Warren, Nobleboro,
Thomaston and Rockland, as well as other communities in Maine's mid-coast
region. The Bank's market area is located on the coast of Maine,
approximately 60 miles northeast of Portland and 78 miles southwest of
Bangor.
The economic base of the Bank's market area is diverse, with
manufacturing, services and commercial fishing as the most significant
categories of business activity. The mid-coast region of Maine has also long
been popular as a summer resort area, thus leading to a substantial amount of
seasonal business activity.
Lending Activities
The Bank's loan portfolio totaled $42,838,169 at March 31, 1996,
representing approximately 78.8% of its total assets. At that date,
approximately 77.3% of the Bank's loan portfolio consisted of permanent
mortgage loans secured by residential properties. In addition, approximately
10.6% of the Bank's loan portfolio consisted of permanent mortgage loans
secured by commercial real estate, while secured and unsecured consumer and
passbook loans represented 6.2% of the Bank's loan portfolio. Finally,
construction loans represented less than 0.05% of the Bank's loan portfolio.
Substantially all of the residential and commercial properties securing the
Bank's loans are located within its market area as discussed above.
The following tables set forth detailed information concerning the
composition of the Bank's loan portfolio by type of loan at the dates
indicated.
<TABLE>
<CAPTION>
At March 31,
----------------------------------------------
1996 1995
--------------------- ---------------------
Amount % Amount %
----------- ------ ----------- ------
<S> <C> <C> <C> <C>
Mortgage loans:
Residential $33,125,498 77.3% $34,934,860 79.9%
Commercial 4,509,243 10.6 3,896,071 9.0
Construction, net of undisbursed funds 12,049 - 9,161 -
---------------------------------------------
Total mortgage loans $37,646,790 87.9% $38,840,092 88.9%
Other loans:
Home equity 1,372,391 3.2 1,531,085 3.5
Other commercial 838,425 2.0 670,784 1.5
Passbook loans 309,842 0.7 402,311 0.9
Installment and other 2,670,721 6.2 2,267,849 5.2
---------------------------------------------
Total other loans 5,191,379 12.1% 4,872,029 11.1%
---------------------------------------------
Total loans $42,838,169 100.0% $43,712,121 100.0%
=============================================
</TABLE>
Residential Mortgage Loans. A substantial portion of the Bank's
lending activity is comprised of residential mortgage loans, which, at
March 31, 1996, represented 77.3% of the Bank's loan portfolio. Residential
mortgage loan originations are derived from a number of sources, including
the existing customers of the Bank, realtors, referrals and "walk-in"
customers. The Bank's active solicitation of residential mortgage loans
through real estate brokers has historically been its primary source of
residential mortgage loan originations.
The main focus of the Bank's residential lending activity is the
origination of conventional mortgage loans on one- to four-family dwellings.
Generally, these loans are conventional first mortgage loans of 80% of value
or less that are neither insured nor partially guaranteed by government
agencies. The Bank also makes residential loans up to 95% of the appraised
value if the top 15% of the loan is covered by private mortgage insurance.
Currently, the Bank offers a variety of adjustable-rate mortgage loans
with terms of up to 30 years. These mortgages have rates which are generally
3.0% above the U. S. Treasury Index and have adjustment periods of up to 3
years based on changes in the interest rate on U.S. Treasury obligations.
Typically, such loans have a 2% maximum rate change in any one adjustment
period and a maximum possible rate change of 6% during the term of the loan.
Most of the adjustable-rate mortgage loans originated by the Bank are held
in the Bank's portfolio. The primary reason for the Bank to retain these
loans is to manage the interest rate sensitivity of the Bank's loan
portfolio. See "Asset/Liability Management" located in the Management's
Discussion and Analysis portion of the Annual Report, commencing on page 3.
In addition to adjustable-rate residential mortgage loans, the Bank
also offers fixed-rate residential mortgage loans with terms typically
ranging from 15 to 30 years. During the fiscal year ended March 31, 1996,
the Bank originated $3,953,000 in fixed-rate loans, representing 49.73% of
the total mortgage loans originated during that period. These loans are
typically sold to the secondary mortgage market.
Borrowers may prepay loans at their option or refinance their loans
with the Bank on terms agreeable to the Bank. The terms of conventional
residential mortgage loans granted by the Bank contain a "due-on-sale" clause
which permits the Bank to accelerate the indebtedness of a loan upon the sale
or other disposition of the mortgaged property. Due-on-sale clauses are an
important means of increasing the turnover of real estate loans in the Bank's
portfolio. Waldoboro's management believes that due to prepayments in
connection with refinancings and sales of property, the average length of the
Bank's long-term residential loans is substantially shorter than the weighted
average contractual maturity.
The Bank also makes construction loans to fund the construction of new
buildings or the renovation of existing buildings and finances the
construction of individual, owner-occupied houses by professional contractors
and by individual owners only on the basis of stringent underwriting and
construction loan management guidelines. Net construction loans, all of
which were for residential properties, comprised $12,049 or less than 0.05%
of the Bank's loan portfolio at March 31, 1996.
Commercial Real Estate Loans. In addition to residential real estate
loans, the Bank also originates loans secured by commercial real estate. At
March 31, 1996, $4,509,243 or 10.6% of the Bank's loan portfolio was secured
by commercial properties. Many of Waldoboro's commercial real estate loans
are secured by improved property such as retail outlets and service
establishments. Substantially all of the Bank's commercial real estate loan
portfolio is secured by properties located in the Bank's primary market area.
For a variety of reasons, loans secured by commercial properties
generally involve greater credit risks than one- to four-family residential
real estate loans. Repayment of such loans generally depends on the cash
flow generated by the security property. Because the payment experience on
loans secured by such property is often dependent on successful operation or
management of the security property, repayment of the loan may be more
subject to adverse conditions in the real estate market or the economy
generally than is the case with one- to four-family residential real estate
loans. The commercial real estate business is cyclical and subject to
downturns, overbuilding and local economic conditions. Although commercial
real estate loans generally involve a higher risk of credit loss than loans
secured by residential real estate, Waldoboro has not experienced any
significant problems with its commercial loans.
Consumer and Other Loans. At March 31, 1996, Waldoboro had secured and
unsecured consumer loans, including loans on deposit accounts, of
approximately $3.0 million or 6.9% of the Banks's loan portfolio.
Waldoboro's consumer loans have interest rates which are generally higher
than residential mortgage rates. The average life of the Bank's consumer
loans is typically less than five years. By maintaining its consumer
lending, Waldoboro enhances its ability to maintain a profitable spread
between its average loan yield and its cost of funds while at the same time
managing its sensitivity to interest rates.
In addition, the Bank has begun to increase its commercial business
loan portfolio. At March 31, 1996, such loans amounted to $838,425 or 2.0%
of the Bank's loan portfolio. Commercial business loans are generally
secured by equipment, machinery or other corporate assets. The Bank requires
principals of corporate borrowers to become co-borrowers or obtains personal
guarantees from the principals of the borrower with respect to all commercial
business loans.
Commercial business lending generally entails significantly greater
credit risk than residential real estate lending. The repayment of
commercial business loans typically is dependent on the successful operation
and income of the borrower. Such risks can be significantly affected by
economic conditions. In addition, commercial business lending generally
requires substantially greater oversight efforts by the Bank than does
residential real estate lending.
Loans to One Borrower. Regulations promulgated by the Office of Thrift
Supervision (the "OTS") generally limit the permissible amount of loans to
one borrower to the greater of 15% of unimpaired capital and surplus or
$500,000. The maximum amount which Waldoboro could have loaned to one
borrower and the borrower's related entities at March 31, 1996, was $738,911.
At March 31, 1996, the three largest outstanding balances of loans by
Waldoboro to any one borrower and related entities approximated $494,007,
$446,474 and $410,322.
Scheduled Loan Repayments
The following table presents information regarding contractual
maturities of Waldoboro's loan portfolio at March 31, 1996. Demand loans are
reported as due in one year or less. No prepayment assumptions are utilized
for purposes of this table.
<TABLE>
<CAPTION>
Payment Due in Year Ended March 31,
Balance at -------------------------------------
March 31, 1998-
1996 1997 2001 2002+
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Mortgages - residential real estate $33,125,498 $1,213,671 $3,742,896 $28,168,931
Mortgages - construction 12,049 12,049 - -
Commercial loans 5,347,668 771,034 1,018,012 3,558,622
Other loans 4,352,954 2,714,656 1,301,972 336,326
---------------------------------------------------
$42,838,169 $4,711,410 $6,062,880 $32,063,879
===================================================
</TABLE>
The following table shows information concerning the type and amount of
fixed-rate and adjustable-rate loans in Waldoboro's portfolio that come due
after one year.
<TABLE>
<CAPTION>
Loans Due After March 31, 1997
--------------------------------------
With With
Fixed Adjustable
Rates Rates Total
---------- ----------- -----------
<S> <C> <C> <C>
Mortgages - residential real estate $3,697,807 $28,214,020 $31,911,827
Commercial loans 522,065 4,054,569 4,576,634
Other loans - 1,638,298 1,638,298
--------------------------------------
$4,219,872 $33,906,887 $38,126,759
======================================
</TABLE>
Origination, Purchase and Sale of Loans
The primary lending activity of Waldoboro is the origination of
conventional loans (i.e., loans that are neither insured nor guaranteed in
whole or in part by governmental agencies) secured by first mortgage liens on
residential properties, principally single family residences, substantially
all of which are located in Lincoln and Knox counties, Maine. During the
year ended March 31, 1996, substantially all of the real estate loans
originated by Waldoboro were secured by properties in Lincoln and Knox
counties.
Waldoboro appraises the security for each new loan. Such appraisals
are performed for the Bank by qualified appraisers in accordance with
standards set by the OTS. The appraisal of the real property upon which
Waldoboro makes a real estate loan is of particular significance to the Bank
in the event that the loan must be foreclosed. An improper appraisal may
contribute to a loss or other financial detriment to the Bank upon the
disposition of foreclosed property.
The Bank's underwriting standards are guided by a formal written loan
policy which is reviewed and approved annually by the board of directors of
the Bank (the "Board"). This policy provides that, following the submission
of a loan application by a borrower, the Loan Committee, which determines
whether a borrower has met the required underwriting conditions, and the
Security Committee, which ensures that the value of the real estate securing
the loan is adequate, must approve the loan. Once approved, the loan must
then be ratified by the Board. In the case of a loan made to an officer of
the Bank or the Holding Company, the loan must be approved by the Board as
well as the Loan Committee and the Security Committee. Waldoboro requires
title certification on all first mortgage liens, and the borrower is required
to maintain hazard insurance on the security property.
Waldoboro has purchased loans and will continue to consider
participations from third parties provided the terms are favorable and the
loans meet Waldoboro's underwriting standards. The Bank routinely sells
fixed-rate real estate loans in the secondary market as a means to better
match its interest-sensitive assets and liabilities. For the year ended
March 31, 1996, the Bank received $2,688,085 in proceeds from the sale of
loans. Waldoboro will continue to consider additional sales of its loans in
the future, depending on its needs, and the terms available in the market for
such transactions.
Fee Income. In addition to interest earned on loans, Waldoboro
realizes fee income from its lending activities, including origination and
collection fees for residential loans. Waldoboro also receives loan fees and
charges related to existing loans, which include late charges and servicing
fees. Net origination fees originally deferred that were recognized as
additional interest on loans during fiscal 1996 totalled $41,771. At March
31, 1996, net origination fees deferred to future periods approximated
$151,254.
Classified Assets and Delinquencies
If a borrower fails to make a required payment on a loan, the loan is
classified as delinquent. In this event, Waldoboro will make contact with
the borrower at prescribed intervals in an effort to bring the loan current.
In most cases, delinquencies are cured promptly, but if a mortgage loan
delinquency is not cured within 60 days, Waldoboro will generally initiate
foreclosure proceedings under applicable state law. If the loan remains
delinquent, the mortgaged property typically will be sold through a
foreclosure sale.
The remedies available to a lender in the event of a default or
delinquency, and the procedures by which such remedies may be exercised, are
generally subject to laws and regulations of the jurisdiction where the
property is located in the case of mortgage loans, or of the jurisdiction
where the lender and/or borrower is situated in the case of unsecured loans.
Federal and Maine law generally require notice of default and right to cure
and notice of the availability of credit counseling and potential state-
provided financial assistance prior to the time a lender commences a legal
action or takes possession of Maine residential real estate securing a loan.
Management attempts to secure payment with regard to consumer and commercial
business loans which become delinquent. Ultimately, if such efforts are
unsuccessful, foreclosure and sale of collateral are considered. In the case
of unsecured installment and commercial business loans, rather than
proceeding to collect by legal action, Waldoboro will often attempt to
negotiate a "workout" payment schedule with the borrower over a period which
may exceed the original term of the loan.
Under the OTS classification system, problem assets of insured
institutions are classified as "special mention," "substandard," "doubtful"
or "loss," depending on the presence of certain characteristics discussed
below.
An asset is considered "special mention" if the asset displays
financial weakness or the value of the underlying collateral declines.
An asset is considered "substandard" if inadequately protected by the
current net worth and paying capacity of the obligor or of the collateral
pledged, if any. "Substandard" assets include those characterized by the
"distinct possibility" that the insured institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified "doubtful" possess
the added characteristic that the weaknesses present make "collection or
liquidation in full," on the basis of currently existing facts, conditions
and values, "highly questionable and improbable." Assets classified "loss"
are those considered "uncollectible" and of such little value that their
continuance as assets without the establishment of a specific loss reserve is
not warranted. When an insured institution classifies problem assets as
"loss", it is required either to establish a specific allowance for losses
equal to 100% of the amount of the asset so classified or to charge off such
amount.
The Bank places loans on non-accrual status at 91 days from due date.
The following table sets forth information regarding nonaccrual loans and
real estate owned by the Bank. The Bank had no loans which are 90 days or
more delinquent but on which Waldoboro is accruing interest at the dates
indicated. Additional interest income that would have been recorded on non-
accrual loans had they been on accrual status at March 31, 1996 and March 31,
1995 was $42,901 and $12,000 respectively. The following table summarizes
the Bank's non-performing assets at the dates indicated.
The Bank adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan,
as amended by SFAS No. 118, Accounting by Creditors for Impairment of a Loan
- - Income Recognition and Disclosure, on April 1, 1995. Adoption of these
statements did not have a significant impact on the financial position or
results of operations, and prior periods have not been restated.
<TABLE>
<CAPTION>
At March 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Nonaccrual loans:
Mortgage loans in process of foreclosure $160,919 $ 93,859 $604,114
Other 214,419 213,633 194,312
--------------------------------
Total nonaccrual loans 375,338 307,492 798,426
Real estate owned, net 224,137 246,079 30,054
Loans to facilitate - 44,246 44,627
--------------------------------
Total nonperforming assets $599,475 $597,817 $873,107
================================
Ratio of nonaccrual loans to total loans 0.88% 0.70% 1.85%
Ratio of nonperforming assets to total assets 1.10% 1.13% 1.76%
</TABLE>
Reserve for Loan Losses. The reserve for loan losses is maintained by
a provision charged against income at a level that management considers
adequate to provide for potential losses. The amount of the provision is
based upon management's evaluation of individual loans, past loss experience,
current economic conditions, the inherent risk in the loan portfolio and
other relevant factors. No portion of the allowance for loan losses balance
at March 31, 1996 related to specific loans for which charge offs are
expected in fiscal 1997.
An analysis of activity in the reserves for loan losses and real estate
owned for the years ended March 31, 1996 and 1995 is provided below.
<TABLE>
<S> <C> <C>
Balance, March 31, 1994 $ 278,998
Charge-offs - Mortgages (175,874)
Charge-offs - Consumer (8,734)
Recoveries - Mortgages 3,755
Recoveries - Consumer 4,538
---------
Net charge offs (176,315)
Provision for loan losses 81,000
---------
Balance, March 31, 1995 $ 183,683
Charge-offs - Mortgages (21,627)
Charge-offs - Consumer (6,538)
Recoveries - Consumer 3,828
---------
Net charge offs (24,337)
Provision for loan losses 62,010
---------
Balance, March 31, 1996 $ 221,356
=========
Net charge offs to average loans outstanding
Year ended March 31, 1996 0.06%
Year ended March 31, 1995 0.40%
</TABLE>
A breakdown of the reserve for loan losses is shown below.
<TABLE>
<CAPTION>
1996 1995
------------------------ -------------------------
Percent of Percent of
Loans to Loans to
Amount Total Loans Amount Total Loans
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Mortgage loans-Residential $ 45,000 77.3% $ 25,000 79.9%
Commercial-Mortgage loans 80,000 10.6 60,000 9.0
Consumer and other loans 38,000 12.1 33,810 11.1
General allocation 58,356 - 64,873 -
--------------------------------------------
$221,356 100.0% $183,683 100.0%
============================================
</TABLE>
Investments
Federally chartered thrift institutions have authority to invest in
various types of liquid assets, including U.S. Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and thrift institutions, certain bankers' acceptances and
federal funds. Subject to various restrictions, federally chartered thrift
institutions may also invest a portion of their assets in commercial paper
and corporate debt securities and in mutual funds whose assets conform to the
investments that a federally chartered thrift institution is otherwise
authorized to make directly. At March 31, 1996, 8.56% of the total assets of
the Holding Company were investment and mortgage-backed securities. See
Notes 3 and 4 to the Holding Company's Consolidated Financial Statements
included herein by reference.
Currently, all of the Bank's debt securities are classified as "held-
to-maturity" in accordance with Financial Accounting Standards No. 115,
"Accounting For Certain Investments in Debt and Equity Securities." These
investment securities are reported in the Bank's financial statements at
amortized cost. Investment in a mutual fund of $528,673 is classified as
available for sale and carried at market value. The following table sets
forth the composition of the Bank's portfolio of investment securities and
mortgage backed securities at the dates indicated.
<TABLE>
<CAPTION>
At March 31,
----------------------------------------------------
1996 1995
------------------------ ------------------------
Book Market Book Market
Value Value Value Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Held to maturity:
Investment securities:
Federal Home Loan Bank Bonds $ 500,000 $ 464,326 $ 699,974 $ 631,312
U.S. Treasury Obligations 2,246,562 2,243,354 1,744,562 1,738,370
Federal National Mortgage Association Bonds 250,000 245,585 250,000 233,480
Student Loan Marketing Association Notes 250,000 249,992 250,000 243,472
Federal Farm Credit Bank Notes 100,000 100,019 99,875 99,019
Federal Home Loan Bank Stock 548,300 548,300 535,800 535,800
Other 10,000 10,000 10,000 10,000
----------------------------------------------------
Total investment securities 3,904,862 3,861,576 3,590,211 3,491,453
Mortgage backed securities 218,323 219,775 266,328 262,223
----------------------------------------------------
$4,123,185 $4,081,351 $3,856,539 $3,753,676
====================================================
Available for sale:
Investment in mutual fund $ 528,673 $ 528,673 $ - $ -
====================================================
</TABLE>
The following table shows the maturities, including scheduled principal
reductions, of the Bank's bonds and mortgage backed securities at March 31,
1996 and the weighted average yield on such securities.
<TABLE>
<CAPTION>
After 1 After 5
Year but Years but
Within Within Within After
1 Year 5 Years 10 Years 10 Years Total
---------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
U.S. Treasury Obligations:
Book Value $1,948,015 $298,547 $2,246,562
Yield 5.46% 4.75% 5.37%
Federal Home Loan Bank Bonds:
Book Value $ 100,000 $200,000 $200,000 $ 500,000
Yield 5.25% 6.00% 8.00% 6.65%
Federal National Mortgage Association Bonds:
Book Value $250,000 $ 250,000
Yield 4.75% 4.75%
Student Loan Marketing Association Notes:
Book Value $250,000 $ 250,000
Yield 5.35% 5.35%
Federal Farm Credit Bank Notes:
Book Value $ 100,000 $ 100,000
Yield 5.64% 5.64%
Mortgage backed Securities:
Book Value $ 218,323 $ 218,323
Yield 6.50% 6.50%
---------------------------------------------------------
Total $2,366,338 $998,547 $200,000 $ 0 $3,564,885
=========================================================
</TABLE>
Sources of Funds
General. The Bank's primary sources of funds are deposits, borrowings
and regular payments of loan principal and interest and prepayments of loan
principal. Deposit inflows and outflows are influenced by general interest
rate conditions. The Bank has been able to respond to market rate changes by
borrowing from the Federal Home Loan Bank (the "FHLB") of Boston in the form
of fixed-rate loans with a variety of maturities.
Deposits. The Bank offers a variety of deposit products ranging in
maturity from deposits withdrawable upon demand to certificates with
maturities of up to 5 years. Deposits are attracted principally from within
the Bank's market area. Waldoboro relies primarily upon customer service,
advertising and competitive pricing policies to attract and retain deposits.
Regular savings deposits increased $296,132 or 6.8% during the year
ended March 31, 1996. Balances in money market deposit accounts increased
$1,158,924 or 32.4% during the year ended March 31, 1996. NOW accounts and
demand deposits increased $1,178,225 or 31.5% and certificates of deposit
increased $2,062,511 or 8.1% during the year ended March 31, 1996.
As a member of the FHLB System, the Bank is required to maintain liquid
assets at minimum levels which vary from time to time. The Bank's investment
portfolio, cash and deposits in other institutions provide not only a source
of income but also a source of liquidity to meet lending demands,
fluctuations in deposit flows and required liquidity levels. The Bank has
periodically used excess liquidity to meet heavy loan demand. The relative
mix of investments and loans in the Bank's portfolio is dependent upon the
Bank's judgment, from time to time, as to the attractiveness of yields
available on loans as compared to available investment yield. The Bank also
considers the relative safety of the investment and loans and the liquidity
needs of Waldoboro. The Bank's investment portfolio is managed in compliance
with the investment policy established by the Board.
The Bank offers short-term certificates of deposit and other deposit
alternatives that are more responsive to market conditions than the Bank's
passbook deposits and the longer maturity fixed-rate certificates that have
traditionally served as the Bank's primary sources of deposits. Waldoboro's
overall variety of deposits has enabled the Bank to be competitive in
obtaining funds when necessary and has enabled it to respond with more
flexibility to the threat of disintermediation.
Historically, the Bank has obtained deposits primarily from the areas
in Maine immediately surrounding its offices. Management expects to continue
obtaining substantially all of its deposits from its Lincoln and Knox County
market areas. It is the Bank's policy not to accept brokered deposits.
The distribution of a financial institution's deposits in terms of
interest rate paid is a major determinant of its average cost of funds, while
the distribution of an institution's deposits in terms of maturity has in the
past been an important indicator of the relative stability of its supply of
lendable funds. Management of the Bank believes that because of improved
pricing flexibility, and the relatively low cost of borrowings from the FHLB,
the distribution of deposit maturity is of less importance as an indicator of
stability of its deposits as a source of lendable funds.
The following table sets forth the average balances of deposits of the
Bank in dollar amounts and as a percent of total deposits, the interest
expense and the weighted average rate for each type of deposit account for
the periods indicated.
<TABLE>
<CAPTION>
Year Ended March 31, 1996
------------------------------------------------
% of
Average Average Interest Average
Balance Deposits Expense Rate
----------- -------- ---------- -------
<S> <C> <C> <C> <C>
Demand deposits $ 1,149,086 2.88% $ - - %
NOW Accounts 3,137,280 7.87 72,855 2.32
Savings 4,649,322 11.67 128,570 2.77
Money Market deposit accounts 4,579,405 11.49 209,556 4.58
Certificates of deposit 26,334,638 66.09 1,561,752 5.93
----------------------------------------------
$39,849,731 100.00% $1,972,733 4.95%
==============================================
<CAPTION>
Year Ended March 31, 1995
------------------------------------------------
% of
Average Average Interest Average
Balance Deposits Expense Rate
----------- -------- ---------- -------
<S> <C> <C> <C> <C>
Demand deposits $ 1,028,233 2.77% $ - - %
NOW Accounts 2,774,337 7.47 66,917 2.41
Savings 5,039,448 13.57 139,157 2.76
Money Market deposit accounts 3,842,136 10.35 123,373 3.21
Certificates of deposit 24,454,114 65.84 1,179,837 4.82
----------------------------------------------
$37,138,268 100.00% $1,509,284 4.06%
==============================================
</TABLE>
The maturities of certificates of deposit in amounts greater than
$100,000 at March 31, 1996 are set forth in the following table.
<TABLE>
<CAPTION>
Maturity Amount
-------- ----------
<C> <C>
0 - 3 months $1,075,945
3 - 6 months 0
6 -12 months 629,078
After 12 months 300,000
----------
$2,005,023
==========
</TABLE>
The Bank offers a number of investment alternatives to depositors.
Interest rates paid and minimum balance requirements for deposits may vary
from time to time as determined by the Bank's management, based on prevailing
market conditions. Waldoboro's deposit accounts are obtained primarily from
the areas immediately surrounding its offices.
The Bank has offered IRA accounts and intends to continue to do so in
the future. At March 31, 1996, $3,214,000 of IRA accounts were on deposit
with the Bank.
Borrowings. Deposits are Waldoboro's primary source of funds for
lending activities and other general business purposes. During periods when
the supply of lendable funds cannot meet the demand for such activities and
purposes, the FHLB system seeks to provide a portion of the funds necessary
through advances to its members. Historically, Waldoboro has relied on
advances from the FHLB of Boston rather than other sources. Waldoboro has
used such advances from the FHLB of Boston as an alternative to deposits when
rates are favorable as a means to enhance the Bank's interest rate spread and
as a source of lendable funds. Such advances have also been primarily used
to fund a portion of the Bank's three-year ARMs which, by shortening the
average maturity of its loan portfolio, makes the Bank less sensitive to
future interest rate fluctuations. At March 31, 1996, Waldoboro had
$7,465,000 in outstanding advances from the FHLB at a weighted average stated
rate of 5.27%.
Waldoboro also has access to a line of credit approximating $1,050,000
at March 31, 1996, with the FHLB of Boston for short-term borrowing purposes.
The Bank did not have any outstanding borrowings under this line of credit
at March 31, 1996.
The Bank intends to continue to fund its mortgage loan commitments with
borrowed funds from the FHLB of Boston when the supply of other lendable
funds is insufficient or more costly and/or when such borrowings would
enhance the Bank's ability to manage its mix of assets and liabilities.
Asset/Liability Management
The following table sets forth the scheduled repricing or maturity of
the Bank's financial assets and liabilities at March 31, 1996.
For purposes of this table no portfolio loans are assumed to prepay
before their scheduled maturity date. Also, all NOW, Savings, and Money
Market deposit accounts are assumed to reprice or mature in one year.
Neither of these assumptions may be indicative of actual future events.
<TABLE>
<CAPTION>
1 Year >1 to 2 >2 to 3 >3 to 5 >5 to 10 Over
or Less Years Years Years Years 10 Years Total
----------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Financial Assets (1):
Mortgage loans & mortgage backed
securities:
Balloon & adjustable-rate
(all property types) $18,670,963 $6,208,555 $7,668,051 $ - $ 730,308 $ - $33,277,877
Fixed-rate 1-4 family 255,006 45,382 105,970 157,432 894,697 2,804,253 4,262,740
Fixed-rate - other - 9,000 - 39,624 86,590 189,282 324,496
Consumer & other loans 2,537,130 274,932 640,489 937,908 779,425 21,495 5,191,379
Investments & other interest-earning
assets 7,447,721 - 998,547 - 200,000 - 8,646,268
------------------------------------------------------------------------------------------
Total financial assets $28,910,820 $6,537,869 $9,413,057 $1,134,964 $2,691,020 $3,015,030 $51,702,760
==========================================================================================
Financial Liabilities (1):
Deposits:
NOW accounts, Savings and Money
Market Accounts 13,143,735 - - - - - 13,143,735
Certificates of deposit 17,488,478 6,164,659 1,284,247 2,579,770 - - 27,517,154
FHLB borrowings 4,525,000 500,000 2,225,000 - - 215,000 7,465,000
------------------------------------------------------------------------------------------
Total financial liabilities $35,157,213 $6,664,659 $3,509,247 $2,579,770 $ - $ 215,000 $48,125,889
==========================================================================================
GAP (6,246,393) (126,790) 5,903,810 (1,444,806) 2,691,020 2,800,030
GAP to total assets (11.49%) (0.23%) 10.86% (2.66%) 4.95% 5.15%
Cumulative GAP (6,246,393) (6,373,183) (469,373) (1,914,179) 776,841 3,576,871
Cumulative GAP to total assets (11.49%) (11.72%) (0.86%) (3.52%) 1.43% 6.58%
<FN>
<F1> For purposes of this table, financial assets are defined as all
interest earning assets other than FHLB and other stock. Financial
liabilities consist of all interest-bearing liabilities.
</FN>
</TABLE>
Employees
At March 31, 1996, the Bank had a total of 22 full-time employees and 4
part-time employees, none of whom were represented by collective bargaining
units. The Bank offers its employees a variety of training programs designed
to enhance their skills. The Bank also provides its full-time employees with
a benefits package which includes life, long-term disability and medical
insurance, a 401(k) plan and a pension plan. Management of Waldoboro
believes that good relations are maintained with its employees.
Service Corporation
The Bank has one service corporation, First Waldoboro Corporation
("First Waldoboro"). First Waldoboro was originally formed for the purpose
of offering certain securities brokerage services. However, management of
the Bank subsequently determined not to use First Waldoboro for that purpose,
and the service corporation is presently inactive.
Federal regulations permit the Bank to invest an amount up to 2% of its
assets in the stock, paid-in surplus and unsecured obligations of a
subsidiary service corporation. This amount is increased to 3% if the
additional 1% is used primarily for community or inner city development or
investment. At March 31, 1996, the Bank's direct investment in the service
corporation was $10,000.
Competition
Waldoboro faces strong price-oriented competition in the attraction of
deposits. Its most direct competition for deposits comes from the other
thrifts and commercial banks located in its primary market area of Lincoln
County. The Bank also faces additional significant competition for
investors' funds from short-term money market funds and other corporate and
government securities. The Bank is the eighth in asset size of the 12 SAIF-
insured institutions in the state.
The Bank competes for deposits principally by offering depositors a
high level of customer service, combined with a wide variety of savings
programs, a market rate of return, tax-deferred retirement program and other
related services. The Bank does not rely upon any individual, group or
entity for a material portion of its deposits.
The Bank's competition for real estate loans comes from mortgage
banking companies, other thrift institutions and commercial banks. The Bank
competes for loan originations primarily through the interest rates and loan
fees it charges and the efficiency and quality of services it provides
borrowers, real estate brokers and builders. The Bank's competition for
loans varies from time to time depending upon the general availability of
lendable funds and credit, general and local economic conditions, current
interest rate levels, volatility in the mortgage markets and other factors
which are not readily predictable.
Regulation
General
As a federal savings bank chartered by the OTS, the Bank is subject to
extensive regulation, examination and supervision by the OTS. The Bank is
also a member of the FHLB System, and its deposit accounts are insured by the
SAIF, which is administered by the FDIC. By virtue of federal insurance of
its deposits, the Bank is also subject to regulation and supervision by the
FDIC, which supervision and regulation is intended primarily to protect
depositors. Certain of these regulatory requirements are described below or
elsewhere herein.
The Home Owners' Loan Act and Related Legislation
In August, 1989 legislation was enacted that revised the Home Owners'
Loan Act ("HOLA") and addressed the financial condition of the deposit
insurance fund. The legislation generally imposed higher deposit insurance
premiums, more stringent capital requirements, new investment limitations and
restrictions and additional holding company regulations. In addition, the
legislation enhanced federal regulatory enforcement power and drew upon the
earnings of the FHLB System in order to partially address the financial
problems of a large number of troubled savings institutions. Moreover, bank
holding companies were permitted to acquire savings institutions.
In December 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted into law. FDICIA provided for, among
other things, the recapitalization of the Bank Insurance Fund; enhanced
federal supervision of depository institutions, including greater authority
for the appointment of a conservator or receiver for undercapitalized
institutions; the adoption of safety and soundness standards by the federal
banking regulators; the establishment of risk-based deposit insurance
premiums, liberalization of the qualified thrift lender test; greater
restrictions on transactions with affiliates; and mandated consumer
protection disclosure with respect to deposit accounts.
Insurance of Deposits. Under the Federal Deposit Insurance Act,
savings institution deposits are insured to a maximum of $100,000 for each
insured depositor, as determined under the regulations of the FDIC, and
backed by the full faith and credit of the United States. Premiums paid by
depository institutions for the insurance of deposits are determined on a
risk-based assessment system pursuant to which each institution is assigned
to one of nine premium categories ranging from, for SAIF-insured
institutions, 0.23% of deposits for the least risky institutions to 0.31% of
deposits for the most risky institutions.
The Federal Deposit Insurance Act requires that the SAIF and the BIF
each be recapitalized until its reserves are at least 1.25% of the deposits
insured by that fund. Upon reaching the 1.25% reserve ratio, the assessment
rates for that fund could be reduced. The FDIC has reported that the BIF
attained the 1.25% reserve ratio in May 1995 but that the SAIF is not likely
to reach, under reasonably optimistic financial projections, the 1.25%
reserve ratio until 2001. Effective on January 1, 1996, "well capitalized"
BIF-insured institutions without any significant supervisory concerns will be
assessed the legal minimum of $2,000 per year, and the other BIF-insured
institutions will pay at new assessment rates ranging from 0.03% of deposits
to 0.27% of deposits. Because the SAIF has not yet achieved its designated
reserve ratio, no reductions in insurance assessments have been adopted for
savings institutions. Several legislative proposals have been made to avoid
a large long-term difference between the insurance assessments paid by BIF-
insured commercial banks and savings banks and those paid by SAIF-insured
savings institutions. Some of these legislative proposals would require,
among other things, all institutions with SAIF-insured deposits to pay a
large one-time assessment to recapitalize SAIF. It cannot presently be
determined whether any of these proposals will be adopted into law, and if
so, what effect they would have upon the Bank; however, the Bank believes
that a large disparity in deposit insurance assessment rates would put it as
well as other SAIF-insured savings institutions at a competitive disadvantage
with respect to BIF-insured commercial banks and savings banks.
An insured institution is subject to periodic examination, and
regulators may revalue the assets of an institution, based upon appraisals,
and require establishment of specific reserves in amounts equal to the
difference between such revaluation and the book value of the assets. SAIF
insurance of deposits may be terminated by the FDIC, after notice and
hearing, upon a finding by the FDIC that a savings institution has engaged in
an unsafe or unsound practice, or is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule,
order or condition imposed by the OTS or the FDIC. Management of the Bank is
not aware of any practice, condition or violation that might lead to
termination of its deposit insurance.
Investment Rules. HOLA also establishes the permissible investments
for savings institutions. The permissible amount of loans to one borrower
follows the national bank standards for all loans made by such institutions,
which generally does not permit loans to one borrower or related parties to
exceed 15% of the institution's unimpaired capital and surplus. Loans in an
amount equal to an additional 10% of unimpaired capital and surplus may be
made to a borrower if the loans are fully secured by, among other things,
readily marketable securities. The Bank believes that these provisions do
not materially adversely affect its lending activities.
Savings institutions and their subsidiaries are not permitted to
acquire or retain investments in corporate debt securities that at the time
of acquisition were not rated in one of the four highest rating categories by
at least one nationally recognized rating organization. In addition, the
permissible amount of commercial real estate loans for a savings institution
is an amount equal to four times its capital. This limitation has not
materially affected the Bank.
The Qualified Thrift Lender Test. A savings institution is required to
maintain at least 65 percent of its portfolio assets in Qualified Thrift
Investments in at least 9 of the most recent 12 months. Upon failing to
maintain compliance with the QTL test, a savings institution is required
either to convert to a commercial bank charter or to operate subject to
certain restrictions imposed on the operations of national banks. Qualified
Thrift Investments include loans to purchase, construct or improve
residential housing; home equity loans; mortgage-backed securities; and
subject to restrictions, consumer loans, loans to finance hospitals, churches
and other public facilities, as well as certain other obligations. As of
March 31, 1996, the Bank had met the Qualified Thrift Lender test in the
requisite months and expects to continue to operate as a Qualified Thrift
Lender in the future.
Enforcement. The OTS, as the primary regulator of savings
institutions, is primarily responsible for the initiation and prosecution of
any enforcement action it may deem to be required, but the FDIC also has
authority to impose enforcement action independently after following certain
procedures. Under FIRREA, civil penalties are classified into three levels,
with amounts increasing with the severity of the violation.
The OTS has the authority to impose enforcement action on a savings
institution that fails to comply with its regulatory requirements,
particularly with respect to its capital requirements. Possible enforcement
actions include the imposition of a capital plan and termination of deposit
insurance. The FDIC also may recommend that the Director of OTS take
enforcement action. If action is not taken by the Director, the FDIC would
have authority to compel such action under certain circumstances.
Capital Requirements. Each of the three capital standards applicable
to savings institutions is discussed separately below.
Tangible Capital Requirement. Each savings institution is required to
maintain tangible capital equal to at least 1.5% of its adjusted total
assets. Tangible capital includes common stockholders' equity (including
retained earnings), certain noncumulative perpetual preferred stock and
related surplus, and minority interests in the equity accounts of fully
consolidated subsidiaries. In addition, all intangible assets, other than a
limited amount of purchased mortgage servicing rights, must be deducted from
capital. In determining compliance with capital requirements, equity and
debt investments in subsidiaries that are not "includable subsidiaries,"
which term is defined to mean subsidiaries engaged solely in activities
permissible for a national bank or engaged in activities not permissible for
a national bank but only as an agent for its customers, or engaged solely in
mortgage-banking activities, are excluded from capital. At March 31, 1996,
the Bank had no investments in or extensions of credit to nonincludable
subsidiaries; and its tangible capital amounted to approximately $4,922,000
or 9.0% of its adjusted total assets.
Core Capital Requirements. Capital requirements also require core
capital equal to at least 3% of an institution's adjusted total assets. Core
capital is defined similarity to tangible capital, but core capital also
incudes (subject to a phase-out) certain qualifying supervisory goodwill and
certain purchased credit card relationships. At March 31, 1996, the Bank had
no supervisory goodwill, and the Bank's core capital amounted to
approximately $4,922,000 or 9.0% of its adjusted total assets.
Risk-Based Capital Requirement. Each savings institution is also
required to maintain total capital equal to at least 8% of its risk-weighted
assets. Total risk based capital consists of the sum of core and
supplementary capital, provided that supplementary capital cannot exceed core
capital, as previously defined.
Supplementary capital includes (i) permanent capital instruments such
as cumulative perpetual preferred stock, perpetual subordinated debt, and
mandatory convertible subordinated debt, (ii) maturing capital instruments
such as subordinated debt, intermediate-term preferred stock and mandatory
redeemable preferred stock, subject to an amortization schedule, and
(iii) general valuation loan and lease loss allowances up to 1.25% of risk-
weighted assets.
In computing both assets and total capital for purposes of the risk-
based capital ratio, the portion of land loans and nonresidential
construction loans in excess of an 80% loan-to-value ratio and non-qualifying
equity investments are each deducted. At March 31, 1996, the Bank had no
non-qualifying equity investments, excess land loans or nonresidential
construction loans.
The risk-based capital regulation assigns each balance sheet asset held
by a savings institution to one of five risk categories based on the amount
of credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and U.S.
Government securities that are backed by the full faith and credit of the
U.S. Government to 100% for repossessed assets or assets more than 90 days
past due (except residential real estate loans more than 90 days past due)
and certain equity investments that have the same risk characteristics as
real estate owned as determined by the OTS. Qualifying residential mortgage
loans and residential construction loans are assigned a 50% risk weight,
while nonqualifying residential mortgage loans and that portion of land loans
and nonresidential construction loans which do not exceed an 80% loan-to-
value ratio are assigned 100% risk weight.
The book value of assets in each category is multiplied by the weighing
factor (from 0% to 100%) assigned to that category. These products are then
totalled to arrive at total risk-weighted assets. Off-balance sheet items
are included in risk-weighted assets by converting them to an approximate
balance sheet "credit equivalent amount" based on a conversion schedule. The
credit equivalent amounts are then assigned to risk categories in the same
manner as balance sheet assets and included in risk-weighted assets.
At March 31, 1996, the Bank's total risk based capital amounted to
approximately $5,151,000 or 16.9% of its total risk-weighted assets.
When determining its compliance with the risk-based capital
requirement, a savings institution with "above normal" interest rate risk is
required to deduct a portion of such capital from its total capital to
account for the "above normal" interest rate risk. The amount to be deducted
is the amount of capital equal to 50% of its "excess" interest-rate risk
exposure multiplied by the market value of its assets. This excess exposure
is a measure of the potential decline in the market value of portfolio equity
of a savings institution, greater than 2%, based upon a hypothetical 200
basis points increase or decrease in interest rates (whichever results in a
greater decline) affecting on- and off-balance sheet assets and liabilities.
The effective date of the new requirement was January 1, 1994. The Bank
remains in compliance with its risk-based capital requirements as adjusted by
the interest-rate risk component.
The following table sets forth the various components of the regulatory
capital for the Bank at March 31, 1996.
<TABLE>
<CAPTION>
Required Actual Excess
---------------- ---------------------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Tangible 1.5% $ 816 9.0% $4,922 $4,106
Core Leverage 3.0% $1,633 9.0% $4,922 $3,289
Risk Based 8.0% $2,445 16.9% $5,151 $2,706
</TABLE>
Dividends. OTS regulations impose limitations on the ability of
savings institutions to engage in various distributions of capital such as
dividends, stock repurchases and cash-out mergers. The regulation utilizes a
three-tiered approach which permits various levels of distributions based
primarily upon a savings institution's capital level.
Since the Bank has capital in excess of legal requirements, it is
considered to be a tier 1 savings institution and may make (without
application) capital distributions during a calendar year up to 100% of its
net income to date during the calendar year plus one-half its surplus capital
ratio at the beginning of the calendar year. Capital distributions in excess
of such amount require advance approval from the OTS.
Impact of New Accounting Standards
In fiscal 1997 the Bank adopted the provisions of Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights (an amendment of FASB Statement No. 65)." The provisions of that
Statement shall be applied prospectively to transactions in which the Bank
sells or securitizes mortgage loans with servicing rights retained and to
impairment evaluations of all amounts capitalized as mortgage servicing
rights. The adoption of this statement is not expected to have a material
negative impact on the Bank's financial position or results of operations.
Taxation
The following discussion is not intended to be a comprehensive
discussion of the taxation of thrift institutions which, for the most part,
are taxed in the same manner as general business corporations, but rather as
a summary of the current federal and state tax attributes that pertain
particularly to thrift institutions. It is common knowledge that Congress
has changed the tax laws materially on a regular basis for at least the last
ten years. In doing so, Congress has adopted a plethora of rules to
mitigate, over a transitional period, the effect of most such new laws on
existing transactions or investments. In the interest of brevity, this
discussion will not examine each transitional rule that pertains to the
matters discussed.
Federal
The Bank has a fiscal year ending March 31. The Bank files a federal
income tax return and reports its income and expenses using the accrual
method of accounting.
Thrift institutions generally are taxed in the same manner as other
corporations. Unlike most other corporations, however, qualifying thrift
institutions that meet certain definitional tests relating to the nature of
their income, assets, business operations, and regulation or supervision (a
"Thrift") are allowed to deduct additions to a reserve for bad debts on
"qualifying real property loans" and on "nonqualifying loans."
"Qualifying real property loans" are, in general, loans secured by
interests in improved real property. "Nonqualifying loans" are all loans
other than qualifying real property loans. For each tax year, a Thrift may
compute the addition to its bad debt reserve for qualifying real property
loans using the most favorable of the following methods: (1) a method based
on the institution's actual loss experience (the "experience method") or (2)
a method based on a specified percentage of an institution's taxable income
(the "percentage of taxable income method"). A Thrift may change the method
by which it computes its deduction for an addition to a reserve for bad debts
without the consent of the Internal Revenue Service.
The Bank generally computes its addition to its reserve for losses on
qualifying real property loans using the percentage of taxable income method.
However, the experience method has been more favorable for the past two
years. Under the percentage of taxable income method, a Thrift can deduct up
to 8% of its taxable income (with certain adjustments). The bad debt
deduction with respect to qualifying real property loans may exceed the
deduction computed under the experience method, subject, however, to overall
limitations on the bad debt deduction, discussed below.
The deduction under the percentage of taxable income method is reduced
(but not below zero) by the amount determined to be a reasonable addition to
the reserve for losses on nonqualifying loans. In addition, the deduction
under this method may not exceed the amount necessary to increase the balance
at the close of the taxable year of the reserve for losses on qualifying real
property loans to 6% of such loans outstanding at such time.
A Thrift that computes its bad debt deduction on the percentage of
taxable income method and files its federal income tax return as part of a
consolidated group is required, in computing its bad debt deduction, to take
into account certain losses attributable to activities of non-thrift members
of the consolidated group that are "functionally related" to its activities.
Also, the bad debt deduction attributable to "qualifying real property
loans" determined under the percentage of taxable income method after
application of the limitation discussed above, cannot exceed the greater of
(1) the amount deductible under the experience method for all loans or (2)
the amount which, when added to the bad debt deduction for nonqualifying
loans, equals the amount by which 12% of the sum of the total deposits or
withdrawable accounts of depositors at the end of the taxable year exceeds
the sum of the surplus, undivided profits and reserves at the beginning of
the taxable year. To date, these limitations have not restricted the amount
of the Bank's otherwise allowable deductions for additions to its bad debt
reserve.
A Thrift's distributions to its shareholders of cash or of property
other than its own stock are broken into four classes for purposes of federal
income tax analysis: (1) to the thrift's post-1951 earnings and profits; (2)
to bad debt reserves on qualifying real property loans to the extent that the
additions to such reserves exceed the additional that would have been allowed
under the experience method; (3) to supplemental loan loss reserves; and (4)
to such other accounts as may be proper. To the extent that a distribution
is charged to class 1, it will be taxable to the thrift only if the
distribution includes appreciated property. In such a case, the thrift will
be required to recognize gain as if it had sold the property at its fair
market value. To the extent that a distribution is charged to class 2 or
class 3, it is included in the gross income of the thrift in an amount which,
when reduced by the federal income tax imposed on the thrift with respect
thereto, equals the amount of the distribution. If any distribution by a
thrift with respect to its stock is either in redemption of a portion of its
stock or in partial or complete liquidation of the thrift, the distribution
is charged first to the second class noted above, then to the third class,
then to the first class, and finally to the fourth class.
A Thrift that holds tax-exempt investments is required to disallow a
certain percentage of its interest expense, determined in proportion to the
value of tax-exempt investments to total assets.
Legislation is currently in Congress which would, if enacted, eliminate
the advantageous tax treatment of Thrifts. At this time, it is impossible to
predict the effect of this and other changes on the Bank. The Bank's federal
tax returns were audited by the IRS for the years ended March 31, 1992 and
1993.
Maine State Taxation
The State of Maine imposes a franchise tax on banks, such as Waldoboro,
doing business in Maine. The tax is comprised of two components. The first
component is a 1% tax on Maine net income as reported on such bank's federal
income tax return. The amount represents net book income after reduction for
federal and state income and franchise taxes. The second component is a tax
of $.08 per $1,000 of assets at the end of the year as reported on Schedule L
of the Bank's federal income tax return.
Item 2. Description of Property
The Holding Company neither owns nor leases any real property. It
presently uses the premises, equipment and furniture of Waldoboro without
direct payment of any rental fees to the Bank. The Bank conducts its
business out of its offices in Waldoboro and Rockland. The office building
in Waldoboro is owned by the Bank and is a modern, full-service facility with
ample parking and a convenient location on U.S. Route 1. The Rockland office
is a newly constructed facility, offering full-service and ample parking.
The facility is located in a high traffic area on U.S. Route 1.
The following table sets forth certain information with respect to the
Bank's principle executive offices in Waldoboro and its new branch in
Rockland as of March 31, 1996:
<TABLE>
<CAPTION>
Year
Location Occupied/Opened Owned(1)
-------- --------------- --------
<S> <C> <C>
Principal Executive Offices 1988 $736,135
1768 Atlantic Highway
P. O. Box 589
Waldoboro, Maine
Rockland Branch Office 1995 $363,312
73 Camden Street
P. O. Box 669
Rockland, Maine
<FN>
<F1> Net of depreciation.
</FN>
</TABLE>
Item 3. Legal Proceedings
From time to time, the Holding Company and the Bank are involved in
routine litigation stemming from the operations of the Bank. During the
fiscal year ended March 31, 1996, however, there was no material litigation
pending to which the Holding Company or the Bank was a party or of which the
property of the Holding Company or the Bank was the subject.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of fiscal year ended March 31, 1996, there
was no matter that was submitted to a vote of the stockholders.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
On March 31, 1996 there were 229,031 shares of the Holding Company's
Common Stock outstanding held by approximately 320 holders of record. Also
at such date, the Holding Company had granted options to purchase 12,371
shares of the Holding Company's Common Stock.
The following table shows market price information for the Holding
Company's Common Stock. The prices set forth below represent the high and
low bid prices of the Holding Company's stock during the periods indicated.
Such over the counter market quotations reflect inter-dealer prices without
retail markups, mark-down or commission and may not necessarily represent
actual transactions. The Holding Company's common stock is traded on the
National Association of Securities Dealers Automated Quotation System
(NASDAQ) under the symbol "MCBN."
<TABLE>
<CAPTION>
Cash
Dividends
Quarter Ended High Low Paid per share
------------- ------ ------ --------------
<C> <C> <C> <S>
March 31, 1994 13 12 3/4 --
June 30, 1994 17 12 3/4 $0.20
September 30, 1994 17 14 --
December 31, 1994 15 14 1/4 $0.20
March 31, 1995 14 3/4 14 1/2 --
June 30, 1995 17 1/4 14 1/2 $0.23
September 30, 1995 18 3/4 15 --
December 31, 1995 20 1/4 15 1/2 $0.25(1)
March 31, 1996 20 1/4 15 1/2 --
On April 15, 1996 the Holding Company declared a dividend of $0.25 per
share to stockholders of record on June 3, 1996 and payable June 30, 1996.
See "Regulation - Dividends" for information about the Holding Company's
ability to pay dividends.
<FN>
<F1> During the quarter ended December 31, 1995 the Holding Company
declared a 5% stock dividend in addition to the $0.25 per share cash
dividend.
</FN>
</TABLE>
Item 6. Management's Discussion and Analysis.
Management's Discussion and Analysis, on Pages 1 through 10 of the
Annual Report for the year ended March 31, 1996, is incorporated herein by
reference.
Item 7. Financial Statements.
See Item 13 for index to Financial Statements which are incorporated by
reference.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Information regarding Directors, Executive Officers and control persons
and compliance with Section 16(a) of the Exchange Act on Page 9 of the Proxy
Statement dated June 7, 1996 is incorporated herein by reference.
Item 10. Executive Compensation.
Information regarding Executive Compensation on Page 8 of the Proxy
Statement dated June 7, 1996 is incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
Information regarding security ownership of certain beneficial owners
and management on Pages 2 through 4 of the Proxy Statement dated June 7, 1996
is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions.
Information regarding certain relationships and related transactions on
Page 10 of the Proxy Statement dated June 7, 1996 is incorporated herein by
reference.
Item 13. Exhibits.
A) 1) The following financial statements, the report thereon and
notes thereto, which follow, are incorporated by reference
in Item 8 and are incorporated by reference herein from the
Holding Company's 1996 Annual Report:
Pages in
Annual Report
-------------
Report of Independent Auditors F-1
Consolidated Balance Sheets,
March 31, 1996 and 1995 F-2 - F-3
Consolidated Statements of Income, Years
Ended March 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Changes in
Stockholders' Equity, Years Ended
March 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows,
Years Ended March 31, 1996, 1995 and 1994 F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-29
2) The Holding Company did not file any reports on Form 8-K
during the last quarter of the period covered by this
report.
Exhibit No.
B) 3(i) Certificate of Incorporation.
3(ii) Bylaws.
10 Employment Agreement dated May 18, 1993 between Wesley E.
Richardson, the Holding Company and the Bank.
13 Annual Report to the Shareholders for the year ended
March 31, 1996.
21 Subsidiaries of Issuer.
23 Consent of Baker Newman & Noyes.
27 Financial Data Schedule.
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, thereto duly authorized.
MID-COAST BANCORP, INC.
June 11, 1996 By: /s/ WESLEY E. RICHARDSON
Wesley E. Richardson, President,
Chief Executive Officer and Treasurer
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.
Signatures Title Date
---------- ----- ----
By: /s/ WESLEY E. RICHARDSON President, Chief June 11, 1996
Wesley E. Richardson Executive Officer, Treasurer
and Director
By: /s/ WAITE W. WESTON Director and Chairman June 11, 1996
Waite W. Weston
By: /s/ ROBERT W. SPEAR Director and Vice Chairman June 11, 1996
Robert W. Spear
By: /s/ MAYNARD A. PROCK Director June 11, 1996
Maynard A. Prock
By: /s/ SHARON CROWE Director June 11, 1996
Sharon Crowe
By: /s/ LINCOLN DAVIS, III Director June 11, 1996
Lincoln Davis, III
By: /s/ RONALD DOLLOFF Director June 11, 1996
Ronald Dolloff
By: /s/ SAMUEL COHEN Director June 11, 1996
Samuel Cohen
By: /s/ LINCOLN ORFF Director June 11, 1996
Lincoln Orff
By: /s/ ROY WINCHENBACH Director June 11, 1996
Roy Winchenbach
STATE OF DELAWARE
CERTIFICATE OF INCORPORATION
OF
MID-COAST BANCORP, INC.
The undersigned acting as incorporators of a corporation under the
Delaware General Corporation Law, adopt the following Certificate of
Incorporation:
ARTICLE 1. Corporate Title. The name of the corporation is Mid-
Coast Bancorp, Inc. (the "Corporation").
ARTICLE 2. Registered Office. The address of the Corporation's
initial registered office in the State of Delaware is Corporation Trust
Center, 1209 Orange Street, Wilmington, Delaware 19801, and the name of the
initial registered agent at such address is The Corporation Trust Company.
ARTICLE 3. Duration. The duration of the Corporation is perpetual.
ARTICLE 4. Purpose and Powers. The purpose for which the
Corporation is organized is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
ARTICLE 5. Capital Stock. The total number of shares of all classes
of the capital stock which the Corporation has the authority to issue is
2,000,000, of which 1,500,000 shall be common stock, par value $1.00 per
share, and of which 500,000 shall be preferred stock, par value $1.00 per
share. The shares may be issued from time to time as authorized by the board
of directors without further approval of shareholders except as otherwise
provided in this Article 5 or to the extent that such approval is required by
governing law, rule, or regulation. The consideration for the issuance of
the shares shall be paid in full before their issuance and shall not be less
than the par value. Neither promissory notes nor future services shall
constitute payment or part payment for the issuance of shares of the
Corporation. The consideration for the shares shall be cash, tangible or
intangible property (to the extent direct investment in such property would
be permitted), labor, or services actually performed for the Corporation or
any combination of the foregoing. In the absence of actual fraud in the
transaction, the value of such property, labor, or services, as determined by
the board of directors of the Corporation, shall be conclusive. Upon payment
of such consideration, such shares shall be deemed to be fully paid and
nonassessable. In the case of a stock dividend, that part of the surplus of
the Corporation which is transferred to stated capital upon the issuance of
shares as a share dividend shall be deemed to be the consideration for their
issuance.
No shares of capital stock (including shares issuable upon conversion,
exchange, or exercise of other securities) shall be issued, directly or
indirectly, to officers, directors, or controlling persons of the Corporation
other than as part of a general public offering or as qualifying shares to a
director, unless their issuance or the plan under which they would be issued
has been approved by a majority of the total votes eligible to be cast at a
legal meeting.
Nothing contained in this Article 5 (or in any supplementary sections
hereto) shall entitle the holders of any class of a series of capital stock
to vote as a separate class or series or to more than one vote per share:
Provided, that this restriction on voting separately by class or series shall
not apply:
(i) To any provision which would authorize the holders of
preferred stock, voting as a class or series, to elect some members of the
board of directors, less than a majority thereof, in the event of default in
the payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of
preferred stock, voting as a class or series, to approve the merger or
consolidation of the Corporation with another corporation or the sale, lease,
or conveyance (other than by mortgage or pledge) of properties or business in
exchange for securities of a corporation other than the Corporation if the
preferred stock is exchanged for securities of such other corporation; and
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in this Article 5
(or in any supplementary sections hereto), including any amendment which
would create or enlarge any class or series ranking prior thereto in rights
and preferences. An amendment which increases the number of authorized
shares of any class or series of capital stock, or substitutes the surviving
corporation in a merger or consolidation for the Corporation, shall not be
considered to be such an adverse change.
A description of the different classes and series (if any) of the
Corporation's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of
and series (if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Article 5 (or in any
supplementary sections hereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common stock
shall be entitled to one vote for each share held by such holder, including
the election of directors. There shall be no cumulative voting rights in the
election of directors. Each share of common stock shall have the same
relative rights as and be identical in all respects with all the other shares
of common stock.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to the payment of dividends, the
full amount of dividends and of sinking fund, or retirement fund, or other
retirement payments, if any, to which such holders are respectively entitled
in preference to the common stock, then dividends may be paid on the common
stock and on any class or series of stock entitled to participate therewith
as to dividends, out of any assets legally available for the payment of
dividends; but only when and as declared by the board of directors.
In the event of any liquidation, dissolution, or winding up of the
Corporation, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Corporation available for distribution remaining after: (1)
payment or provision for payment of the Corporation's debts and liabilities;
and (ii) distributions or provision for distributions to holders of any class
or series of stock having preference over the common stock in the
liquidation, dissolution, or winding up of the Corporation.
B. Preferred Stock. The board of directors of the Corporation is
authorized, by resolution or resolutions from time to time adopted and by
filing a certificate pursuant to the applicable law of the State of Delaware,
to provide for the issuance of one or more classes of preferred stock, which
shall be separately identified. The shares of any class may be divided into
and issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and
classes. All shares of the same class shall be identical except as to the
following relative rights and preferences, as to which there may be
variations between different series:
1. The distinctive serial designation and the number of shares
constituting such series;
2. The dividend rate or the amount of dividends to be paid on
the shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating or other special rights, if any, with respect to dividends;
3. The voting powers, full or limited, if any, of shares of
such series;
4. Whether the shares of such series shall be redeemable and,
if so, the price or prices at which, and the terms and conditions on which,
such shares may be redeemed;
5. The amount or amounts payable upon the shares of such
series in the event of voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation;
6. Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such funds and
the manner of its application, including the price or prices at which such
shares may be redeemed or purchased through the application of such fund;
7. Whether the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes of stock of
the Corporation and, if so, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions of
such conversion or exchange;
8. The price or other consideration for which the shares of
such series shall be issued; and
9. Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares of the same
or any other series of serial preferred stock.
Each share of series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares
of the same series.
ARTICLE 6. Preemptive Rights. Holders of the capital stock of the
Corporation shall not be entitled to preemptive rights with respect to any
shares of the Corporation which may be issued.
ARTICLE 7. Approval for Acquisitions of Control and Offers to
Acquire Control. The provisions of this Article 7 shall become effective
upon the consummation of the conversion of The Waldoboro Bank, F.S.B. (the
"Bank") to a capital stock savings Bank and the Bank concurrently becoming a
wholly-owned subsidiary of the Corporation. In the event that thereafter the
Bank (or any successor institution) ceases to be a majority-owned subsidiary
of the Corporation, this Article 7 shall thereupon ceases to be effective.
A. Five-Year Restrictions on Acquisitions of Control and Offers to
Acquire Control.
For a period of five years after the consummation of the
conversion of the Bank to a capital stock savings bank, no Person shall
acquire Control of the Corporation, or make any Offer to acquire Control of
the Corporation, unless such acquisition or Offer has received the prior
approval of at least two-thirds of the directors then in office at a duly
constituted meeting of the board of directors of the Corporation called for
such purpose. The terms "Person", "Control" and "Offer" as used in this
Article 7 are defined in Section E hereof.
B. Shareholder Vote and Regulatory Approval Required for Acquisition
of Control at any Time.
No Person shall acquire Control of the Corporation at any time,
unless such acquisition has been approved prior to its consummation by the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of Voting Stock (as defined in Section E hereof) at a duly constituted
meeting of shareholders called for such purpose; provided, however, that this
provision shall not apply if such acquisition of Control has been approved by
at least two-thirds of the directors then in office at a duly constituted
meeting of the board of directors called for such purpose. In addition, no
Person shall acquire Control of the Corporation at any time without obtaining
prior thereto all federal regulatory approvals required under the Change in
Savings and Loan Control Act (the "Control Act") and the Savings and Loan
Holding Company Act (the "Holding Company Act"), or any successor provisions
of law, and in the manner provided by all applicable regulations of the
Federal Savings and Loan Insurance Corporation (the ""FSLIC"). In the event
that Control is acquired without obtaining all such regulatory approvals,
such acquisition shall constitute a violation of this Article 7 and the
Corporation shall be entitled to institute a private action to enforce such
statutory and regulatory provisions.
C. Excess Shares.
In the event that Control of the Corporation is acquired in
violation of this Article 7, all shares of Voting Stock owned by the Person
so acquiring Control in excess of the number of shares the beneficial
ownership of which is deemed under Section E hereof to confer Control of the
Corporation shall be considered from and after the date of their acquisition
by such Person to be "excess shares" for purposes of this Article 7. Such
excess shares shall thereafter no longer (i) be entitled to vote on any
matter, (ii) be entitled to take other shareholder action, (iii) be entitled
to be counted in determining the total number of outstanding shares for
purposes of any matter involving shareholder action, or (iv) be transferable,
except with the approval of the board of directors or by an independent
trustee appointed by the board of directors for the purpose of having such
excess shares sold on the open market or otherwise. The proceeds from the
sale by the trustee of such excess shares shall be paid (i) first, to the
trustee in an amount equal to the trustee's reasonable fees and expenses,
(ii) second, to the "Beneficial Owner" (as defined in Article 8, section C,
subsection 3, hereof) of such excess shares in an amount up to such owner's
federal income tax basis in such excess shares, and (iii) third, to the
Corporation as to any remaining balance.
D. Approval Required for Offers to Acquire Control after Five Years.
After five years from the consummation of the conversion of the
Bank to a capital stock savings bank, no Person shall make any Offer to
acquire Control of the Corporation, if the common stock is then traded on a
national securities exchange or quoted on the National Association of
Securities Dealers, Inc. Automated Quotation System, unless such Person has
received prior approval to make such Offer by complying with either of the
following procedures:
1. The Offer shall have been approved by at least two-thirds
of the directors then in office at a duly constituted meeting of the board of
directors of the Corporation called for such purpose, or
2. The Person proposing to make such Offer shall have obtained
approval from the FSLIC, pursuant to the Control Act, the Holding Company
Act, or any successor provisions of law, to acquire control of the
Corporation.
E. Certain Definitions.
For purposes of this Article 7:
1. "Control" means the sole or shared power to vote or to
direct the voting of, or to dispose or to direct the disposition of, 10
percent or more of the Voting Stock; provided, that the solicitation, holding
and voting of proxies obtained by the board of directors of the Corporation
pursuant to a solicitation under Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") shall not constitute "Control."
2. "Group Acting in Concert" includes Persons seeking to
combine or pool their voting or other interests in the Voting Stock for a
common purpose, pursuant to any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise; provided, that
a "Group Acting in Concert" shall not include the board of directors of the
Corporation in its solicitation, holding and voting of proxies obtained by it
pursuant to a solicitation under Regulation 14A of the General Rules and
Regulations under the Exchange Act.
3. "Offer" means every offer to buy or acquire, solicitation
of an offer to sell, tender offer for, or request invitation for tender of,
Voting Stock.
4. "Person" means any individual, firm, corporation or other
entity including a Group Acting in Concert.
5. "Voting Stock" means the then outstanding shares of capital
stock of the Corporation entitled to vote generally in the election of
directors.
F. Inapplicability to Public Offering.
This Article 7 shall not apply to the purchase of securities of
the Corporation by underwriters in connection with a public offering of such
securities.
G. References to FSLIC.
In the event that the accounts of the Bank (or any successor
institution) become insured by the Federal Deposit Insurance Corporation or
some other successor agency (the "Successor Agency") in lieu of the FSLIC,
all references in this Article 7 to the FSLIC shall be deemed to refer to the
Successor Agency, and related references to the Control Act and the Holding
Company Act shall be deemed to be references to applicable statutes relating
to banks the accounts of which are insured by the Successor Agency.
ARTICLE 8. Certain Business Combinations.
A. Vote Required for Certain Business Combinations.
1. Higher Vote for Certain Business Combinations. In addition
to any affirmative vote required by law or this certificate of incorporation,
and except as otherwise expressly provided in Section B of this Article 8:
(a) any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with (i) any Interested Shareholder
(as hereinafter defined) or (ii) any other corporation (whether or not itself
an Interested Shareholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an Interested Shareholder;
or
(b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions) to or with any Interested Shareholder or any Affiliate of any
Interested Shareholder of any assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value (as hereinafter defined) of $500,000 or
more; or
(c) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any securities
of the Corporation or any Subsidiary to any Interested Shareholder or any
Affiliate of any Interested Shareholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market
Value of $500,000 or more; or
(d) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate of any Interested Shareholder; or
(e) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an Interested
Shareholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary which is directly
or indirectly owned by any Interested Shareholder or any Affiliate of any
Interested Shareholder;
shall require the affirmative vote of (A) the holders of at
least 75% of the voting power of the then outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors
(the "Voting Stock"), voting together as a single class and (B) the holders
of at least a majority of the Voting Stock, voting together as a single
class, excluding for purposes of calculating both the affirmative vote and
the number of outstanding shares of Voting Stock all shares of Voting Stock
of which the beneficial owner is an Interested Shareholder or any Affiliate
of an Interested Shareholder referred to in clauses (a) through (e) in this
subsection 1. Such affirmative vote shall be required notwithstanding the
fact that no vote may be required, or that a lesser percentage may be
specified, by law.
2. Definition of "Business Combination." The term "Business
Combination" as used in this Article 8 shall mean any transaction which is
referred to in any one or more of clauses (a) through (e) of subsection 1 of
this Section A.
B. When Higher Vote is Not Required. The provisions of Section A of
this Article 8 shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such
affirmative vote as is required by law and any other provision of this
certificate of incorporation, if all of the conditions specified in either of
the following subsections 1 and 2 are met:
1. Approval by Continuing Directors. The Business Combination
shall have been approved by a majority of the Continuing Directors (as
hereinafter defined).
2. Price and Procedure Requirements. All of the following
conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market
Value (as hereinafter defined), as of the date of the consummation of the
Business Combination, of consideration other than cash to be received per
share by holders of common stock in such Business Combination shall be at
least equal to the highest of the following:
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder for any shares of common stock
acquired by it (a) within the two-year period immediately prior to the first
public announcement of the proposal of the Business Combination (the
"Announcement Date") or (b) the date on which the Interested Shareholders
became an Interested Shareholder (the "Determination Date"), whichever is
higher; or
(ii) the Fair Market Value per share of common
stock on the Announcement Date or on the Determination date, whichever is
higher.
(b) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders of shares
of any other class of outstanding Voting Stock shall be at least equal to the
highest of the following (it being intended that the requirements of this
subsection 2(b) shall be required to be met with respect to every class of
outstanding Voting Stock, whether or not the Interested Shareholder has
previously acquired any shares of a particular class of Voting Stock):
(i) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting dealers'
fees) paid by the Interested Shareholder for any shares of such class of
Voting Stock acquired by it (a) within the two-year period immediately prior
to the Announcement Date or (b) the Determination date, whichever is higher;
(ii) (if applicable) the highest preferential
amount per share to which the holders of shares of such class of Voting Stock
are entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and
(iii) The Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on the Determination Date,
whichever is higher.
(c) The consideration to be received by holders of a
particular class of Voting Stock (including common stock) in the Business
Combination shall be in cash or in the same form as the Interested
Shareholder has previously paid for shares of such Voting Stock. If the
Interested Shareholder has paid for shares of any class of Voting Stock with
varying forms of consideration, the form of consideration for such Voting
Stock shall be either cash or the form used to acquire the largest number of
shares of such Voting Stock previously acquired by it.
(d) After the Determination Date and prior to the
consummation of such Business Combination: (i) there shall have been (A) no
reduction in the annual rate of dividends paid on the capital stock (except
as necessary to reflect any subdivision of the capital stock), except as
approved by a majority of the board of directors, and (B) an increase in such
annual rate of dividends necessary to reflect any reclassification (including
any reverse stock split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of outstanding shares
of common stock, unless the failure so to increase such rate is approved by a
majority of the Continuing Directors; and (ii) such Interested Shareholder
shall have not become the beneficial owner of any additional share of Voting
Stock except as part of the transaction which results in such Interested
Shareholder becoming an Interested Shareholder.
(e) After such Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder shall not have received
the benefit, directly or indirectly (except proportionately as a
shareholder), of any loans, advances, guarantees, pledges or other financial
assistance or any tax credits or tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business Combination or
otherwise.
(f) A proxy or information statement describing the
proposed Business Combination and complying with the requirements of the
Exchange Act and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to
public shareholders of the Corporation at least 20 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
C. Certain Definitions. For the purposes of this Article 8:
1. "Person" shall mean any individual, firm, corporation or
other entity.
2. "Interested Shareholder" shall mean any Person (other than
the corporation or any Subsidiary) who or which:
(a) is the beneficial owner, directly or indirectly, of
more than 10% of the voting power of the outstanding Voting Stock; or
(b) is an Affiliate of the Interested Shareholder and at
any time within the two-year period immediately prior to the date in the
question was the beneficial owner, directly or indirectly, of 10% or more of
the voting power of the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Shareholder, if such assignment or succession shall have occurred
in the course of a transaction or series of transactions not involving a
public offering with the meaning of the Securities Act of 1933.
3. A person shall be a "beneficial Owner" of any Voting Stock:
(a) which such person or any of its Affiliate or
Associates (as hereinafter defined) beneficially owns, directly or
indirectly; or
(b) which such person or any of its Affiliates or
Associates has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (ii) the right to vote
pursuant to any agreement, arrangement or understanding; or
(c) which are beneficially owned, directly or
indirectly, by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
4. For the purposes of determining whether a person is an
Interested Shareholder pursuant to subsection 2 of this Section C, the number
of shares of Voting Stock deemed to be outstanding shall include shares
deemed owned through application of subsection 3 of this Section C but shall
not include any other shares of Voting Stock which may be issuable pursuant
to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
5. "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act.
6. "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the definition of
Interested Shareholder set forth in subsection 2 of this Section C, the term
"Subsidiary" shall mean only a corporation of which a majority of each class
of equity security is owned, directly or indirectly, by the Corporation.
7. "Continuing Director" means any member of the board of
directors of the corporation who is unaffiliated with the Interested
Shareholder and was a member of the board of directors of the Corporation
prior to the time that the Interested Shareholder became an interested
Shareholder, and any successor of a Continuing Director who is unaffiliated
with the Interested Shareholder and is recommended to succeed a Continuing
Director by a majority of Continuing Directors then on the board of directors
of the Corporation.
8. "Fair Market Value" means:
(a) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of a
share of such stock on the principal United States securities exchange
registered under the Exchange Act on which such stock is listed, or, if such
stock is not listed on any such exchange, the highest closing bid quotation
with respect to a share of such stock during the 30-day period preceding the
date in question on the National Association of Securities Dealer, Inc.
Automated Quotations System or any system then in use, or if no such
quotations are available, the fair market value on the date in question of a
share of such stock as determined by the board of directors of the
Corporation in good faith; and
(b) in the case of property other than cash or stock,
the fair market value of such property on the date in question as determined
by the board of directors of the corporation in good faith.
D. Powers of the Board of Directors. A majority of the directors of
the Corporation shall have the power and duty to determine for the purposes
of this Article 8, on the basis of information known to them after reasonable
inquiry, (1) whether a person is an Interested Shareholder, (2) the number of
shares of Voting Stock beneficially owned by any person, (3) whether a person
is an Affiliate or Associate of another, and (4) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market Value of
$500,000 or more.
E. No Effect on Fiduciary Obligations of Interested Shareholders.
Nothing contained in this Article 8 shall be construed to relieve any
Interested Shareholder from any fiduciary obligations imposed by law.
F. Amendment. In addition to any affirmative vote required by law
or this certificate of incorporation, no amendment, addition, alteration,
change or repeal of this Article 8 shall be made unless such is first
proposed by the board of directors and thereafter approved by the
shareholders by no less than 75% of the total votes eligible to be cast at a
legal meeting.
ARTICLE 9. Criteria for Evaluating Certain Offers. The board of
directors of the Corporation, when evaluating any offer to (i) make a tender
or exchange offer for the common stock of the Corporation, (ii) merge or
consolidate the Corporation with another institution, or (iii) purchase or
otherwise acquire all or substantially all of the properties and assets of
the Corporation, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and its
shareholders, give due consideration to all relevant factors, including
without limitation the economic effects of acceptance of such offer on (a)
depositors, borrowers and employees of the insured institution subsidiary or
subsidiaries of the Corporation, and on the communities in which such
subsidiary or subsidiaries operate or are located and (b) the ability of such
subsidiary or subsidiaries to fulfill the objectives of an insured
institution under applicable federal statues and regulations.
ARTICLE 10. Anti-Greenmail. Any direct or indirect purchase or other
acquisition by the Corporation of any Voting Stock (as defined in Article 7
hereof) from any Significant Shareholder (as hereinafter defined) who has
been the Beneficial Owner (as defined in Article 8 hereof) of such Voting
Stock for less than two years prior to the date of such purchase or other
acquisition shall, except as hereinafter expressly provided, require the
affirmative vote of the holders of at least a majority of the total number of
outstanding shares of Voting Stock, excluding in calculating such affirmative
vote and the total number of outstanding shares all Voting Stock beneficially
owned by such Significant Shareholder. Such affirmative vote shall be
required notwithstanding the fact that no vote may be required, or that a
lesser percentage may be specified, by law, but no such affirmative vote
shall be required (i) with respect to any purchase or other acquisition of
Voting Stock made as part of a tender or exchange offer by the Corporation to
purchase Voting Stock on the same terms from all holders of the same class of
Voting Stock and complying with the applicable requirements of the Exchange
Act and the rules and regulations thereunder or (ii) with respect to any
purchase of Voting Stock, where the board of directors has determined that
the purchase price per share of the Voting Stock does not exceed the fair
market value of the Voting Stock. Such fair market value shall be calculated
on the basis of the average closing price or the mean of the bid and ask
prices of a share of voting Stock for the 20 trading days immediately
preceding the execution of a definitive agreement to purchase the Voting
Stock from a Significant Shareholder.
For the purposes of this Article 10, "Significant Shareholder" shall
mean any person (other than the Corporation or any corporation of which a
majority of any class of Voting Stock is owned, directly or indirectly, by
the Corporation) who or which is the Beneficial Owner, directly or
indirectly, of five percent or more of the voting power of the outstanding
Voting Stock.
ARTICLE 11. Directors. The Corporation shall be under the direction
of a board of directors. The board of directors shall consist of not less
than seven directors nor more than 15 directors. The number of directors
within this range shall be as stated in the Corporation's bylaws, as may be
amended from time to time, and shall initially consist of eight directors.
The board of directors shall divide the directors into three classes and,
when the number of directors is changed, shall determine the class or classes
to which the increased or decreased number of directors shall be apportioned;
provided, that the directors in each class shall be as nearly equal in number
as possible; provided, further, that no decrease in the number of directors
shall affect the term of any director then in office.
The classification shall be such that the term of one class shall
expire each succeeding year. The Corporation's board of directors shall
initially be divided into three classes named Class I, Class II and Class
III, with Class I initially consisting of two directors, Class II initially
consisting of three directors and Class III initially consisting of three
directors. The terms, classifications, qualifications and election of the
board of directors and the names and addresses of those persons of each class
to serve on the initial board of directors shall be as follows:
Class I: Terms of Office Expire at 1990 annual meeting of shareholders:
<TABLE>
<CAPTION>
Name Address
------------------------ ---------------------------
<S> <C>
Ronald Dolloff Route 1; Box 589
Waldoboro, Maine 04572
Ray Winchenbach Route 1; Box 589
Waldoboro, Maine 04572
</TABLE>
Class II: Terms of Office Expire at 1991 annual meeting of shareholders:
<TABLE>
<CAPTION>
Name Address
------------------------ ---------------------------
<S> <C>
Robert V. Beattie Route 1; Box 589
Waldoboro, Maine 04572
Robert W. Spear Route 1; Box 589
Waldoboro, Maine 04572
Waite W. Weston Route 1; Box 589
Waldoboro, Maine 04572
</TABLE>
Class III: Terms of Office Expire at 1992 annual meeting of shareholders:
<TABLE>
<CAPTION>
Name Address
------------------------ ---------------------------
<S> <C>
Lincoln Davis, III Route 1; Box 589
Waldoboro, Maine 04572
Wesley E. Richardson Route 1; Box 589
Waldoboro, Maine 04572
E. Ashley Walter, III Route 1; Box 589
Waldoboro, Maine 04572
</TABLE>
Subject to the foregoing, at each annual meeting of shareholders the
successors to the class of directors whose term shall then expire shall be
elected to hold office for a term expiring at the third succeeding annual
meeting and until their successors shall be elected and qualified.
ARTICLE 10. Call of Special Meetings. Special meetings of the
shareholders for any purpose or purposes may be called at any time only by
the chairman of the board or the president of the Corporation, or a majority
of the board of directors of the Corporation.
ARTICLE 11. Bylaws. The board of directors or the shareholders may
from time to time amend the bylaws of the Corporation. Such action by the
board of directors shall require the affirmative vote of at least two-thirds
of the directors then in office at a duly constituted meeting of the board of
directors called for such purpose. such action by the shareholders shall
require the affirmative vote of at least two-thirds of the total votes
eligible to be voted at a duly constituted meeting of shareholders called for
such purpose.
ARTICLE 12. Amendment of Charter. Except as otherwise provided in
this certificate of incorporation or as otherwise required by law, no
amendment, addition, alteration, change or repeal of this certificate of
incorporation shall be made, unless such is first proposed by the board of
directors of the Corporation, and thereafter approved by the shareholders by
a majority of the total votes eligible to be cast at a legal meeting.
ARTICLE 13. Incorporators. The name and address of each incorporator
are as follows:
<TABLE>
<CAPTION>
Name Address
------------------------ ---------------------------
<S> <C>
Wesley E. Richardson Route 1; Box 589
Waldoboro, Maine 04572
Robert E. Carter, Jr. Route 1; Box 589
Waldoboro, Maine 04572
</TABLE>
IN WITNESS WHEREOF, WE THE UNDERSIGNED, being each of the incorporators
herein before named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, do make this certificate,
hereby declaring and certifying that this is our act and deed and the facts
herein stated are true, and accordingly have hereunto set our hands this 6th
day of June, 1989.
/s/ Wesley E. Richardson
----------------------------------
Wesley E. Richardson
/s/ Robert E. Carter, Jr.
-----------------------------------
Robert E. Carter, Jr.
BYLAWS
OF
MID-COAST BANCORP, INC.
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of Mid-Coast
Bancorp, Inc. (the "Corporation") shall be in the City of Wilmington, County
of Newcastle, State of Delaware.
SECTION 2. Other Offices. The Corporation may also have an office
at Route 1, Waldoboro, Maine or at such other places both within and without
the State of Delaware as the board of directors may from time to time
determine.
ARTICLE II
SHAREHOLDERS
SECTION 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at Route 1, Waldoboro, Maine or at such other
place, either within or without the State of Delaware, as the board of
directors may determine.
SECTION 2. Annual Meeting. A meeting of the shareholders of the
corporation of the election of directors and for the transaction of any other
business of the corporation shall be held annually within 150 days after the
end of the Corporation's fiscal year on the date and at the hour determined
by the board of directors.
SECTION 3. Special Meetings. Special meetings of the shareholders
for any purpose or purposes may be called at any time only by the president
of the Corporation, or a majority of the board of directors of the
Corporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall
be conducted in accordance with the rules specified by the officer presiding
at the meeting unless otherwise prescribed by law. The board of directors
shall designate, when present, the president to preside at such meetings.
SECTION 5. Notice of Meeting. Written notice stating the place,
day, and hour of the meeting and the purposes for which the meeting is called
shall be delivered not less than 20 nor more than 50 days before the date of
the meeting, either personally or by mail, by or at the direction of the
president, or the directors calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the mail, addressed to the
shareholder at the address as it appears on the stock transfer books or
records of the Corporation as of the record date prescribed in Section 6 of
this Article II with postage prepaid. When any shareholders' meeting, either
annual or special, is adjourned for 30 days or more, notice of the adjourned
meeting shall be given as in the case of an original meeting. Provided no
new record date for the meeting is set, it shall not be necessary to give any
notice of the time and place of any meeting adjourned for less than 30 days
or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such adjournment is taken.
SECTION 6. Fixing of Record Date. For the purposes of determining
shareholders entitled to notice of or to vote at any meeting of shareholders
or any adjournment, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors shall fix in advance a date as the
record date for any such determination of shareholders. Such date in any
case shall be not more than 60 days nor less than 10 days prior to the date
on which the particular action requiring such determination of shareholders
is to be taken. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment.
SECTION 7. Voting Lists. At least 10 days before each meeting of
the shareholders, the officer or agent having charge of the stock transfer
books for shares of the Corporation shall make a complete list of the
shareholders entitled to vote at such meeting, or any adjournment, arranged
in alphabetical order, with the address and the number of shares held by
each. This list of shareholders shall be kept on file either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or at the place where the meeting is
to be held and shall be subject to inspection by any shareholder at any time
during usual business hours for a period of at least 10 days prior to such
meeting. Such list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any
shareholder during the entire time of the meeting. The original stock
transfer book shall constitute prima facie evidence of the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders.
SECTION 8. Quorum. One third of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of shareholders. If less than one third of
the outstanding shares are represented at a meeting, a majority of the shares
so represented may adjourn the meeting from time to time without further
notice. Subject to Section 5 of this Article II of these bylaws, at such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The shareholders present at a duly organized meeting
may continue to transact business until adjournment notwithstanding the
withdrawal of enough shareholders to constitute less than a quorum.
SECTION 9. Voting. Except as otherwise required by law, the
certificate of incorporation or these bylaws, any matter brought before any
meeting of shareholders shall be decided by the affirmative vote of the
majority of the votes cast on the matter. Each shareholder represented at a
meeting of shareholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such shareholder. The
board of directors, in its discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
SECTION 10. Proxies. At all meetings of shareholders, a shareholder
may vote by proxy executed in writing by the shareholder or his duly
authorized attorney in fact. Proxies solicited on behalf of the board of
directors shall be voted as directed by the shareholder or, in the absence of
such direction, as determined by the majority of the board of directors. No
proxy shall be valid more than three years from its date, unless the proxy
provides for a longer period. A duly executed proxy shall be irrevocable if
it states that it is irrevocable and if and only as long as it is coupled
with an interest sufficient in law to support an irrevocable power.
SECTION 11. Voting of Shares in the Name of Two or More Persons. If
shares or other securities having voting power stand of record in the names
of two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, tenants by the entirety or otherwise, or if two
or more persons have the same fiduciary relationship respecting the same
shares, unless the secretary of the Corporation is given written notice to
the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, their
acts with respect to voting shall have the following effect: (1) if only one
votes, his or her act binds all; (2) if more than one vote, the act of the
majority so voting binds all; (3) if more than one vote, but the vote is
evenly split on any particular matter, each faction may vote the securities
in question proportionally, or any person voting the shares, or a
beneficiary, if any, may apply to the Court of Chancery of the State of
Delaware or such other court as may have jurisdiction to appoint an
additional person to act with the persons so voting the shares, which shall
then be voted as determined by the majority of such persons and the person
appointed by the Court. If the instrument so filed shows that any such
tenancy is held in unequal interests, a majority or even-split for the
purposes of this subsection shall be a majority or even-split in interest.
SECTION 12. Voting of Shares by Certain Holders. Shares standing in
the name of another corporation may be voted by any officer, agent, or proxy
as the bylaws of such corporation may prescribe, or, in the absence of such
provision, as the board of directors of such corporation may determine.
Shares held by an administrator, executor, guardian, or conservator may be
voted by him or her, either in person or by proxy, without a transfer of such
shares into his or her name. Shares standing in the name of a trustee may be
voted by him or her, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him or her without a transfer of such shares
into his or her name. Shares standing in the name of a receiver may be voted
by such receiver, and shares held by or under the control of a receiver may
be voted by such receiver without the transfer into his or her name if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so
transferred.
Neither treasury shares of its own stock held by the Corporation nor
shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
Corporation, shall be voted at any meeting or counted in determining the
total number of outstanding shares at any given time for purposes of any
meeting.
SECTION 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than
nominees for office as inspectors of election to act at such meeting or any
adjournment. The number of inspectors shall be either one or three. Any
such appointment shall not be altered at the meeting. If inspectors of
election are not so appointed, the president may, or on the request of not
fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority
of the votes present shall determine whether one or three inspectors are to
be appointed. In case any person appointed as inspector fails to appear or
fails or refuses to act, the vacancy may be filled by appointment by the
board of directors in advance of the meeting or at the meeting by the
president.
Unless otherwise prescribed by law, the duties of such inspectors shall
include: determining the number of shares and the voting power of each
share, the shares represented at the meeting, the existence of a quorum, and
the authenticity, validity and effect of proxies; receiving votes, ballots,
or consents; hearing and determining all challenges and questions in any way
arising in connection with the rights to vote; counting and tabulating all
votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
SECTION 14. Nominating Committee. Only persons where are nominated
in accordance with the procedures set forth in this Section 14 shall be
eligible for election as directors. Nominations of persons for election to
the board of directors of the Corporation may be made at a meeting of
shareholders by or at the direction of the board of directors or by any
shareholder of the Corporation entitled to vote for the election of directors
at the meeting who complies with the notice procedures set forth in this
Section 14. Such nominations, other than those made by or at the direction
of the board of directors, shall be made pursuant to timely notice in writing
to the secretary of the Corporation. To be timely, a shareholder's notice
shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 30 days nor more than 90 days prior
to the meeting; provided, however, that in the event that less than 40 days'
notice or prior public disclosure of the date of the meeting is given or made
to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the 10th day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth (a) as to
each person whom the shareholder proposes to nominate for election or re-
election as a director, (i) the name, age, business address and residence
address of such person, (ii) the principal occupation or employment of such
person, (iii) the class and number of shares of the Corporation which are
beneficially owned by such person, and (iv) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or as otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended
(including without limitation such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected);
and (b) as to the shareholder giving the notice, (i) the name and address, as
they appear on the Corporation's books, of such shareholder and (ii) the
class and number of shares of the Corporation which are beneficially owned by
such shareholder. At the request of the board of directors, any person
nominated by the board of directors for election as a director shall furnish
to the secretary of the Corporation that information required to be set forth
in a shareholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a director of the Corporation unless
nominated in accordance with the procedures set forth in this Section 14.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the bylaws, and if he should so determine, he shall
declare to the meeting that the defective nomination shall be disregarded.
SECTION 15. Business at Annual Meeting. At an annual meeting of the
shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the board of directors,
(b) otherwise properly brought before the meeting by or at the direction of
the board of directors, or (c) otherwise properly brought before the meeting
by the shareholder.
For business to the properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing
to the secretary of the Corporation. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 30 days nor more than 90 days prior
to the meeting; provided, however, that in the event that less than 40 days'
notice or prior public disclosure of the date of the meeting is given or made
to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the 10th day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the secretary shall set forth
as to each matter the shareholder proposes to bring before the annual meeting
(a) a brief description of the business desired to be brought before the
annual meeting, (b) the name and address, as they appear on the Corporation's
books, of the shareholder proposing such business, (c) the class and number
of shares of the Corporation which are beneficially owned by the shareholder,
and (d) any material interest of the shareholder in such business.
Notwithstanding anything in these bylaws to the contrary, no business shall
be conducted at an annual meeting except in accordance with the procedures
set forth in this Section 15. The chairman of an annual meeting shall, if
the facts warrant, determine and declare to the annual meeting that a matter
of business was not properly brought before the meeting in accordance with
the provisions of this Section 15, and that such business shall not be
transacted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
Corporation shall be under the direction of its board of directors. The
board of directors shall annually elect a president from among its members
and shall designate, when present, the president to preside at its meetings.
SECTION 2. Number and Term. The board of directors shall consist of
eight members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified or until
earlier resignation or removal. One class shall be elected by ballot
annually. The size of the board of directors may be increased or decreased
only by a two-thirds vote of the board of directors or by a vote of two-
thirds of the shares eligible to be voted at a duly constituted meeting of
shareholders called for such purpose.
SECTION 3. Qualifications. After the Corporation becomes publicly-
owned, each director shall at all times be the beneficial owner of not less
than 100 shares of capital stock of the Corporation.
SECTION 4. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately
after, and at the same place as, the annual meeting of the shareholders. The
board of directors may provide, by resolution, the time and place for the
holding of additional regular meetings without other notice than such
resolution.
SECTION 5. Special Meetings. Special meetings of the board of
directors may be called by or at the request of the president, or one-third
of the directors.
SECTION 6. Telephonic Participation. Members of the board of
directors may participate in regular or special meetings by means of
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other. Such participation shall
constitute presence in person and shall constitute attendance for the purpose
of compensation pursuant to Section 13 of this Article III.
SECTION 7. Notice. Written notice of any special meeting shall be
given to each director at least two days prior thereto when delivered
personally or by telegram or at least five days prior thereto when delivered
by mail at the address at which the director is most likely to be reached.
Such notice shall be deemed to be delivered when deposited in the mail so
addressed, with postage prepaid if mailed or when delivered to the telegraph
company if sent by telegram. Any director may waive notice of any meeting by
a writing filed with the secretary. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the board of directors need be specified in the notice or waiver
of notice of such meeting.
SECTION 8. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction
of business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall
be given in the same manner as prescribed by Section 7 of this Article III.
SECTION 9. Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act
of the board of directors, unless a greater number is prescribed by law or by
the certificate of incorporation or these bylaws.
SECTION 10. Action Without a Meeting. Any action required or
permitted to be taken by the board of directors at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors.
SECTION 11. Resignation. Any director may resign at any time by
sending a written notice of such resignation to the Corporation addressed to
the president. Unless otherwise specified, such resignation shall take
effect upon receipt by the president. More than three consecutive absences
from regular meetings of the board of directors, unless excused by resolution
of the board of directors, shall automatically constitute a resignation,
effective when such resignation is accepted by the board of directors.
SECTION 12. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled, for the unexpired term, by the concurring vote of a majority of the
directors then in office, whether or not a quorum, and any director so chosen
shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred
and until such director's successor shall have been elected and qualified.
SECTION 13. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a
reasonable fixed sum, and reasonable expenses of attendance, if any, may be
allowed for actual attendance at each regular or special meeting of the board
of directors. Members of either standing or special committees may be
allowed such compensation for actual attendance at committee meetings as the
board of directors may determine.
SECTION 14. Presumption of Assent. A director of the Corporation
who is present at a meeting of the board of directors at which action on any
matter is taken shall be presumed to have assented to the action taken unless
his dissent or abstention shall be entered into the minutes of the meeting or
unless he shall file his written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the
Corporation within five days after the date a copy of the minutes of the
meeting is received. Such right to dissent shall not apply to a director who
voted in favor of such action.
SECTION 15. Removal of Directors. No director shall be removed
except for cause and then only by the affirmative vote of a majority of the
total votes eligible to be case by shareholders at a duly constituted meeting
of shareholders called expressly for such purpose. At least 30 days prior to
such meeting of shareholders, written notice shall be sent to the director
whose removal will be considered at such meeting.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 1. Appointment. The board of directors, by resolution
adopted by a majority of the full board, may designate certain directors to
constitute an executive committee. The designation of any committee pursuant
to this Article IV and the delegation of authority shall not operate to
relieve the board of directors, or any director, of any responsibility
imposed by law or regulation.
SECTION 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority
of the board of directors except to the extent, if any, that such authority
shall be limited by the resolution appointing the executive committee; and
except also that the executive committee shall not have the authority of the
board of directors with reference to: the declaration of dividends; the
amendment of the certificate of incorporation or bylaws of the Corporation,
or recommending to the shareholders a plan of merger, consolidation, or
conversion; the sale, lease or other disposition of all or substantially all
of the property and assets of the Corporation otherwise than in the usual and
regular course of its business; a voluntary dissolution of the Corporation; a
revocation of any of the foregoing; or the approval of a transaction in which
any member of the executive committee, directly or indirectly, has any
material beneficial interest.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until
the next regular annual meeting of the board of directors following his or
her designation and until a successor is designated as a member of the
executive committee.
SECTION 4. Meetings. Regular meetings of the executive committee
may be held without notice at such times and places as the executive
committee may fix from time to time by resolution. Special meetings of the
executive committee may be called by any member thereof upon not less than
one day's notice stating the place, date, and hour of the meeting, which
notice may be written or oral. Any member of the executive committee may
waive notice of any meeting and no notice of any meeting need be given to any
member thereof who attends in person. The notice of a meeting of the
executive committee need not state the business proposed to be transacted at
the meeting.
SECTION 5. Quorum. A majority of the members of the executive
committee shall constitute a quorum for the transaction of business at any
meeting thereof, and action of the executive committee must be authorized by
the affirmative vote of a majority of the members present at a meeting at
which a quorum is present.
SECTION 6. Action Without a Meeting. Any action required or
permitted to be taken by the executive committee at a meeting may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the members of the executive committee.
SECTION 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by the majority of the full board of
directors.
SECTION 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution
adopted by a majority of the full board of directors. Any member of the
executive committee may resign from the executive committee at any time by
giving written notice to the president or secretary of the Corporation.
Unless otherwise specified, such resignation shall take effect upon its
receipt; the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 9. Procedure. The executive committee shall elect a
presiding officer from its members and may fix its own rules of procedure
which shall not be inconsistent with these bylaws. It shall keep regular
minutes of its proceedings and report the same to the board of directors for
its information at the meeting held next after the proceedings shall have
occurred.
SECTION 10. Other Committees. The board of directors may by
resolution establish an audit committee or other committees composed of
directors that are deemed necessary or appropriate for the conduct of the
business of the Corporation and may prescribe the duties, constitution, and
procedures thereof.
ARTICLE V
OFFICERS
SECTION 1. Positions. The officers of the Corporation shall include
a president, a chief executive officer, one or more vice presidents, a
secretary and a treasurer, each of whom shall be elected by the board of
directors. The president shall be the chief executive officer. The
president shall be a director of the Corporation. The offices of the
secretary and treasurer may be held by the same person and a vice president
may also be either the secretary or the treasurer. The board of directors
may designate one or more vice presidents as executive vice president or
senior vice president. The board of directors may also elect or authorize
the appointment of such other officers as the business of the Corporation may
require. The officers shall have such authority and perform such duties as
the board of directors may from time to time authorize or determine. In the
absence of action by the board of directors, the officers shall have such
powers and duties as generally pertain to their respective offices.
SECTION 2. Election and Term of Office. The officers of the
Corporation shall be elected annually at the first meeting of the board of
directors held after each annual meeting of the shareholders. If the
election of the officers is not held at such meeting, such election shall be
held as soon thereafter as possible. Each officer shall hold office until a
successor has been elected and qualified or until the officer's death,
resignation, or removal in the manner hereinafter provided. Election or
appointment of an officer, employee or agent shall not of itself create
contractual rights. The board of directors may authorize the Corporation to
enter into an employment contract with any officer in accordance with
applicable law; but no such contract shall impair the right of the board of
directors to remove any officer at any time in accordance with Section 3 of
this Article V.
SECTION 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the Corporation will
be served thereby, but such removal, other than for cause, shall be without
prejudice to the contract rights, if any, of the person so removed.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the
board of directors for the unexpired portion of the term.
SECTION 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors.
ARTICLE VI
CERTIFICATION FOR SHARES AND THEIR TRANSFER
SECTION 1. Certificates for Shares. Certificates representing
shares of capital stock of the Corporation shall be in such form as shall be
determined by the board of directors pursuant to applicable law. Such
certificates, which shall represent the number of shares registered in
certificate form, shall be signed by the president of the Corporation,
attested by the secretary or an assistant secretary, and sealed with the
corporate seal or a facsimile thereof. The signatures upon a certificate may
be facsimiles. In case any officer, transfer agent or registrar who had
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer before such certificate is issued, it may be
used by the Corporation with the same effect as if he were such officer at
the date of issue. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Corporation. All
certificates surrendered to the Corporation for transfer shall be cancelled
and no new certificate shall be issued until the former certificate for a
like number of shares has been surrendered and cancelled, except that in case
of a lost or destroyed certificate, a new certificate may be issued upon such
terms and indemnity to the Corporation as the board of directors may
prescribe.
SECTION 2. Transfer of Shares. Transfer of shares of capital stock
of the Corporation shall be made only on its stock transfer books. Authority
for such transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by
his attorney authorized by a duly executed power of attorney and filed with
the Corporation. Such transfer shall be made only on surrender for
cancellation of the certificate for such shares. The person in whose name
shares of capital stock stand on the books of the Corporation shall be deemed
by the Corporation to be the owner for all purposes.
ARTICLE VII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on March 31 of each year.
The Corporation shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the board of directors. The appointment of such accountants shall be subject
to annual ratification by the shareholders.
ARTICLE VIII
DIVIDENDS
Subject to the terms of the Corporation's certificate of incorporation
and the laws of the State of Delaware, the board of directors may, from time
to time, declare, and the Corporation may pay, dividends on its outstanding
shares of capital stock.
ARTICLE IX
INDEMNIFICATION
SECTION 1. Power to Indemnify in Actions, Suits or Proceedings Other
Than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article IX, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, and any appeal therein, whether civil,
criminal, administrative, arbitrative or investigative (other than an action
by or in the right of the Corporation) by reason of the fact that he or she
is or was a director, officer, trustee, employee or agent of the Corporation,
or is or was servicing at the request of the Corporation as a director,
officer, trustee, employee or agent of another corporation, association,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines, penalties and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
such action, suit or proceeding, and any appeal therein, if he or she acted
in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of any action, suit or proceeding, any
appeal therein, by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the person did not act in good faith and in a manner which he reasonable
believed to be in or not opposed to the best interests of the Corporation,
and, with respect to any criminal action or proceeding, had reasonable cause
to believe that his conduct was unlawful.
SECTION 2. Power to Indemnify in Actions, Suits or Proceedings by or
in the Right of the Corporation. Subject to Section 3 of this Article IX,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, and any appeal therein, and against amounts paid in
settlement by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact he or she is or was a director, officer, trustee,
employee or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, trustee, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him
or her in connection with the defense or settlement of such action, suit, or
proceeding, and any appeal therein, and against amounts paid in settlement if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation; provided, however, that no
indemnification shall be made against expenses in respect of any claim, issue
or matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his duty to the Corporation or
against amounts paid in settlement unless and only to the extent that there
is a determination (as set forth in Section 3 of this Article IX) that
despite the adjudication of liability or the settlement, but in view of all
the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses or amounts paid in settlement.
SECTION 3. Authorization of Indemnification. Any indemnification
under this Article IX (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, trustee, employee or agent is
proper in the circumstances because such director, officer, trustee, employee
or agent has met the applicable standard of conduct set forth in Section 1 or
Section 2 of this Article IX and, if applicable, is fairly and reasonably
entitled to indemnity as set forth in the proviso in Section 2 of this
Article IX, as the case may be. Such determination shall be made (i) by the
board of directors by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding, and any appeal therein,
(ii) if such a quorum is not obtainable, or, even if obtainable and a quorum
of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the shareholders. To the extent, however, that
a director, officer, trustee, employee or agent of the Corporation has been
successful on the merits or otherwise in the defense of any action, suit or
proceeding, and any appeal therein, described above, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case. No director, officer, trustee, employee or agent of the Corporation
shall be entitled to indemnification in connection with any action, suit or
proceeding, and any appeal therein, voluntarily initiated by such person
unless the action, suit or proceeding, and any appeal therein, was authorized
by a majority of the entire board of directors.
SECTION 4. Good Faith Defined. For purposes of any determination
under Section 3 of this Article IX, a person shall be deemed to have acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
or her conduct was unlawful, if his or her action is based on (i) the records
or books of account of the Corporation or another enterprise, (ii)
information supplied to him or her by the officers of the Corporation or
another enterprise in the course of their duties, (iii) the advice of legal
counsel for the Corporation or another enterprise, or (iv) information or
records given or reports made to the Corporation or another enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Corporation or another enterprise. The
term "another enterprise" as used in this Section 4 shall mean any other
Corporation or any association, partnership, joint venture, trust or
enterprise of which such person is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit
in any way the circumstances in which a person may be deemed to have met the
applicable standards of conduct set forth in Sections 1 or 2 of this Article
IX, as the case may be.
SECTION 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director,
officer, trustee, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article IX. The basis
of such indemnification by a court shall be a determination by such court
that indemnification of the director, officer, trustee, employee or agent is
proper in the circumstances because he has met the applicable standards of
conduct set forth in Sections 1 and 2 of this Article IX, as the case may be.
Notice of any application for indemnification pursuant to this Section 5
shall be given to the Corporation promptly upon the filing of such
application. Notwithstanding any of the foregoing, unless otherwise required
by law, no director, officer, trustee, employee or agent of the Corporation
shall be entitled to indemnification in connection with any action, suit or
proceeding, and any appeal therein, voluntarily initiated by such person
unless the action, suit or proceeding, and any appeal therein, was authorized
by a majority of the entire board of directors.
SECTION 6. Expenses Payable in Advance. Expenses incurred in
connection with a threatened or pending action, suit or proceeding, and any
appeal therein, may be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding, and any appeal therein, as
authorized by the board of directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, trustee, employee or
agent to repay such amount unless it shall be determined by that he is
entitled to be indemnified by the Corporation as authorized in this Article
IX.
SECTION 7. Contract, Non-exclusivity and Survival of
Indemnification. The indemnification provided by this Article IX shall be
deemed to be a contract between the Corporation and each director, officer,
employee and agent who serves in such capacity at any time while this Article
IX is in effect, and any repeal or modification thereof shall not affect any
rights or obligations then existing with respect to any state of facts then
or theretofore existing or any action, suit or proceeding, and any appeal
therein, theretofore or thereafter brought based in whole or in part upon any
such state of facts. Further, the indemnification provided by this Article
IX shall not be deemed exclusive of any other rights to which those seeking
indemnification and advancement of expenses may be entitled under any
certificate of incorporation, bylaw, agreement, contract, vote of
shareholders or disinterested directors or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding such office, it being the policy of the Corporation
that, subject to the limitation in Section 3 of this Article IX concerning
voluntary initiation of actions, suits or proceedings, indemnification of the
persons specified in Sections 1 and 2 of this Article IX shall be made to the
fullest extent permitted by law. The provisions of this Article IX shall not
be deemed to preclude the indemnification of any person who is not specified
in Sections 1 or 2 of this Article IX but whom the Corporation has the power
or obligation to indemnify under the provisions of the law of the State of
Delaware. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall continue as to a person who has
ceased to be a director, officer, trustee, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such person.
SECTION 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, trustee, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, trustee, employee or agent of another
corporation, association, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify him against
such liability under the provisions of this Article IX.
SECTION 9. Meaning of "Corporation" for Purposes of Article IX. For
purpose of this Article IX, references to the "Corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was servicing at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, association, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Article IX with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence
had continued.
ARTICLE X
CORPORATE SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE XI
AMENDMENTS
The board of directors or the shareholders may from time to time amend
the bylaws of the Corporation. Such action by the board of directors shall
required the affirmative vote of at least two-thirds of the directors then in
office at a duly constituted meeting of the board of directors called for
such purpose. Such action by the shareholders shall require the affirmative
vote of at least two-thirds of the total votes eligible to be voted at a duly
constituted meeting of the shareholders called for such purpose.
* * *
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement") made
the 18th of May, 1993 between Mid-Coast Bancorp, Inc., a Delaware
corporation, hereinafter referred to as the "Holding Company"; The Waldoboro
Bank, F.S.B., a federally chartered savings bank with its main office located
at Route 1, Waldoboro, Maine, hereinafter referred to as the "Savings Bank";
and Wesley E. Richardson, President, Chief Executive Officer and Treasurer of
the Savings Bank, hereinafter referred to as "Executive." For purposes of this
Agreement, all terms and conditions set forth herein as to Executive's
employment with the Savings Bank shall be made applicable to Executive's
employment with the Holding Company. This Agreement amends, restates in its
entirety and supersedes an employment agreement by and among the Holding
Company, the Savings Bank and the Executive dated as of May 15, 1990.
WHEREAS, the Holding Company and the Savings Bank wish to secure the
services of Executive as its President, Chief Executive Officer and Treasurer
for an extended period from April 1, 1993 to and including March 31, 1996; and
WHEREAS, this Agreement is entered into at a time when the parties
hereto are not actively considering any proposals for a "change in ownership
or control" of the Holding Company or the Savings Bank or a substantial
portion of their respective assets, and this Agreement is not entered into in
anticipation of any such change. The primary intent of the parties in entering
into this Agreement is to set forth the terms of a long-term employment
relationship; and
WHEREAS, Executive is willing to enter into this Agreement for such
period upon the terms and conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties agree as follows:
1. Employment.
The Holding Company and the Savings Bank shall employ Executive.
Executive shall serve, as President, Chief Executive Officer and Treasurer of
the Holding Company and as the President, Chief Executive Officer and
Treasurer of the Savings Bank during the term of employment set forth in
Section 2 of this Agreement. Executive shall report only to the board of
directors of the Holding Company and the board of directors of the Savings
Bank, as appropriate, and his powers and authority shall be superior to those
of any other officer or employee of the Holding Company or the Savings Bank or
of any subsidiary thereof. Executive agrees to serve as a member of any
committee of the board of directors during such term of employment.
Except for a termination for just cause as defined in Section 7.1 of
this Agreement, if at any time during the term of employment the board of
directors of the Holding Company or the Savings Bank shall fail to reelect
Executive as President, Chief Executive Officer and Treasurer of the Holding
Company or as President, Chief Executive Officer and Treasurer of the Savings
Bank or shall remove him from such offices, or if at any time during the term
of employment Executive shall fail to be vested by the Holding Company and the
Savings Bank with the powers and authority of the President, Chief Executive
Officer and Treasurer of the Savings Bank as described above, Executive shall
have the right, by written notice to the Holding Company and the Savings Bank
satisfying the requirements of Section 7.9(c), to terminate his services
hereunder, and Executive shall have no further obligation under this
Agreement. Termination of Executive's services under this Section 1 shall be
treated as a termination of employment by the Holding Company and the Savings
Bank other than for just cause and shall be governed by the provisions of
Section 7.9(d) of this Agreement.
2. Term of Employment.
The initial term of employment hereunder shall be for a period of three
years commencing on the date of this Agreement. This Agreement shall be
extended automatically for one additional year on each anniversary date hereof
commencing with the first anniversary date of this Agreement, unless either
the Holding Company, the Savings Bank or Executive gives contrary written
notice to the other not less than 30 days, or more than 90 days, in advance of
each anniversary date hereof on which this Agreement would otherwise be
extended. The board of directors of the Holding Company (acting through its
Compensation Committee) shall review the terms of this Agreement annually.
References herein to the term of this Agreement shall refer both to the
initial term and any successive terms. The term of this Agreement may be
changed by mutual consent of the Holding Company, the Savings Bank and
Executive.
3. Compensation.
The Savings Bank shall pay or cause to be paid to Executive during the
term of employment a base salary of not less than eighty two thousand sixty
seven dollars ($82,067) per annum, payable in weekly installments during each
year of such term. It is understood that the Savings Bank may, in the
discretion of its board of directors, increase such base salary in light of
Executive's job duties and performance and such other factors as increases in
the cost of living.
4. Discretionary Bonuses.
The Executive shall be entitled to participate in an equitable manner
with other executive employees of the Savings Bank in discretionary bonuses as
authorized and declared by the board of directors of the Savings Bank to its
executive employees. No other compensation provided for in this Agreement
shall be deemed a substitute for Executive's right to participate in such
bonuses when and as declared by the board of directors of the Savings Bank.
5. Participation in Retirement and Employee Benefit Plans; Fringe
Benefits.
Executive shall be entitled to participate in any plan of the Holding
Company or the Savings Bank relating to stock options, stock appreciation,
stock grants or purchases, pension, thrift, deferred compensation, profit-
sharing, group life insurance, medical coverage, education or other retirement
or employee benefits that the Holding Company or the Savings Bank may adopt
for the benefit of its executive employees. Executive shall be entitled to
participate in any other fringe benefits which may be or become applicable to
the Holding Company or the Saving Bank's executive employees, including
reimbursement for reasonable expenses incurred in the performance of his
duties, the payment of reasonable expenses for attending annual and periodic
meetings of trade associations, and any other benefits which are commensurate
with the duties and responsibilities to be performed by Executive under this
Agreement.
6. Vacations.
Executive shall be entitled to an annual paid vacation of four weeks per
year or such longer period as the board of directors of Holding Company and
the Savings Bank may approve. The timing of paid vacations shall be scheduled
in a reasonable manner by Executive. Executive shall not be entitled to
receive any additional compensation from the Holding Company or the Savings
Bank on account of his failure to take a paid vacation. Executive shall also
not be entitled to accumulate unused paid vacation time from one calendar year
to the next, except with the approval of the board of directors of the Holding
Company or the Savings Bank.
7. Termination of Employment.
7.1 The Holding Company and the Savings Bank shall have the
right, at any time upon prior written Notice of Termination satisfying the
requirements of Section 7.9.(c) hereunder, to terminate Executive's employment
hereunder, including termination for just cause. For the purpose of this
Agreement, "termination for just cause" shall mean termination for the
following events:
(i) personal dishonesty, incompetence, willful
misconduct;
(ii) breach of fiduciary duty involving personal profit;
(iii) intentional failure to perform stated duties;
(iv) conviction of a felony, willful violation of any
law, rule or regulation (other than traffic
violations or similar offenses) or
(v) material breach of any provision of this Agreement as
determined by a court of competent jurisdiction or a
federal or state regulatory agency having
jurisdiction over the Holding Company or the Savings
Bank or termination pursuant to Sections 7.5, 7.6 or
7.7 hereof.
For purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by him not in good faith and without reasonable belief that his action
or omission was in the best interest of the Holding Company or the Savings
Bank; provided that any act or omission to act on the Executive's behalf in
reliance upon an opinion of counsel to the Holding Company or the Savings Bank
or counsel to the Executive shall not be deemed to be willful.
7.2 In the event employment is terminated for just cause as
defined in Section 7.1 hereof, Executive shall have no right to compensation
or other benefits for any period after such date of termination. If Executive
is terminated by the Holding Company or the Savings Bank other than for just
cause as defined in Section 7.1 hereof, Employee's right to compensation and
other benefits under this Agreement shall be as set forth in Sections 7.9(d)
hereof.
7.3 Executive shall have the right, upon prior written Notice of
Termination of not less than ninety (90) days satisfying the requirements of
Section 7.9(c) hereof, to terminate his employment hereunder, but in such
event, Executive shall have no right after the date of termination to
compensation or other benefits as provided in this Agreement, unless such
termination is for good reason (as defined), pursuant to Section 7.9(a)
hereof. If Executive provides a Notice of Termination for good reason, the
date of termination shall be the date on which a Notice of Termination is
given.
7.4 If Executive is suspended from office and/or temporarily
prohibited from participating in the conduct of the Holding Company or the
Savings Bank's affairs pursuant to notice served under Section 8(e)(3) or
(g)(1) of the Federal Deposit Insurance Act (12 U.S.C. 1818(e)(3) and (g)
(1)), the Holding Company or the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Holding Company and the Savings Bank shall: (i) pay Executive all the
compensation withheld while contract obligations were suspended, and (ii)
reinstate (in whole or in part) any of its obligations which were suspended.
7.5 If Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Holding Company or Savings
Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the
Federal Deposit Insurance Act (12 U.S.C. 1818(e)(4) or (g)(1), all obligations
of the Holding Company or the Savings Bank under this Agreement shall
terminate, as of the effective date of the order, but vested rights of the
Executive as of the date of termination shall not be affected.
7.6 All obligations under this Agreement shall be terminated,
except to the extent determined that continuation of the Agreement is
necessary of the continued operation of the Savings Bank (i) By the Director
of the OTS or his or her designee, at the time the Federal Deposit Insurance
Corporation or Resolution Trust Corporation enters into an agreement to
provide assistance to or on behalf of the Savings Bank under the authority
contained in 13(c) of the Federal Deposit Insurance Act; or (ii) By the
Director or his or her designee, at the time the Director or his or her
designee approves a supervisory merger to resolve problems related to
operation of the Savings Bank or when the Savings Bank is determined by the
Director to be in an unsafe or unsound condition.
Any rights of the parties that have already vested, however, shall not be
affected by such action.
7.7 If the Savings Bank is in default (as defined in Section
3(x)(1) of the Federal Deposit Insurance Act), all obligations under the
Agreement shall terminate as of the date of default, but this paragraph shall
not affect any vested rights of the Executive.
7.8 In the event that Executive institutes any legal action to
enforce his rights under, or to recover damages of breach thereof, this
Agreement, the Executive, if he is the prevailing party, shall be entitled to
recover from the Holding Company or the Savings Bank any actual expenses (up
to a maximum of $______________) for attorneys' fees and disbursements
incurred by him. Such reimbursement shall be in addition to all rights to
which Executive is otherwise entitled under this Agreement.
7.9. (a) Executive may terminate his employment hereunder for
good reason. For purposes of this Agreement, "good reason" shall mean:
(A) a failure by the Holding Company or the Savings Bank to
comply with any material provisions of this Agreement, which failure has not
been cured within thirty (30) days after a notice of such non-compliance has
been given by Executive to the Holding Company or the Savings Bank;
(B) if, subsequent to a change in control of the Holding
Company or the Savings Bank, and without Executive's express written consent,
the Executive should determine in good faith that any of the following have
occurred: (i) the assignment to Executive of any duties inconsistent with
Executive's positions, duties, responsibilities and status with the Holding
Company and the Savings Bank immediately prior to a change in control of the
Holding Company or the Savings Bank; (ii) a change in Executive's reporting
responsibilities, titles or offices as in effect immediately prior to a change
in control of the Savings Bank; any removal of Executive from, or any failure
to re-elect Executive to, any of such positions, except in connection with a
termination of employment for just cause, disability, death, retirement or
pursuant to Sections 7.1 or 7.5 hereof; (iii) a reduction in Executive's
annual salary as in effect immediately prior to a change in control or as the
same may be increased from time to time; or (iv) the failure to continue in
effect any bonus, benefit or compensation plan, life insurance plan, health
and accident plan or disability plan in which Executive is participating at
the time of a change in control of the Holding Company or the Savings Bank, or
the taking of any action which would adversely affect Executive's
participation in or materially reduce Executive's benefits under any of such
plans; or
(C) any purported termination of Executive's employment
which is not effected pursuant to a Notice of Termination satisfying the
requirements of paragraph 7.9.(c) hereof (and for purposes of this Agreement
no such purported termination shall be effective). Executive shall not be
deemed to have voluntarily left the employ of the Holding Company or the
Savings Bank if he terminates his employment for good reason.
7.9. (b) For purposes of this Agreement, a "change in control of
the Holding Company or the Savings Bank" shall be deemed to have occurred if:
(A) any "reporting person" (as such term is used in
Sections 13(D) of the Securities and Exchange Commission ("SEC") and any
successor schedules) or an "affiliate" of such reporting person (as that term
is defined under SEC Rule 13d-3 and any amendments thereto) in effect on the
date of this Agreement, other than the Holding Company or the Savings Bank or
any "person" who on the date hereof is a director or officer of the Holding
Company or the Savings Bank, is or becomes the "beneficial owner" (as defined
in SEC Rule 13d-3), directly or indirectly, of securities of the Holding
Company or the Savings Bank representing 25% or more of the combined voting
power of the Holding Company or the Savings Bank's then outstanding
securities; or
(B) Any person becomes the beneficial owner, directly or
indirectly, of greater than 10% but less than 25%, of the outstanding shares
of any class of voting stock issued by the Holding Company, if the Board of
Directors of the Holding Company, the Office of Thrift Supervision ("OTS"), or
other appropriate regulatory authority, has made a determination that such
beneficial ownership constitutes or will constitute control of the Holding
Company or the Savings Bank; or
(C) Any person (other than the persons named as proxies
solicited on behalf of the Board of Directors of the Holding Company holds
revocable or irrevocable proxies as to the election or removal of two or more
directors of the Holding Company for 25% or more of the total number of voting
shares of the Holding Company; or
(D) The OTS or other appropriate regulatory authority has
given the required approval of non-objection to the acquisition of control of
the Holding Company or the Savings Bank; or
(E) Any person has commenced a tender or exchange offer, or
entered into an agreement or received an option, to acquire beneficial
ownership of 25% or more of the total number of voting shares of the Holding
Company, whether or not the required approval or non-objection for such
acquisition has been received from the OTS or other appropriate regulatory
authority, if the Holding Company's Board of Directors has made a
determination that such action constitutes or will constitute a Change in
Control; or
(F) during any period of two consecutive years during the
term of this Agreement, individuals who at the beginning of such period
constitute the board of directors of the Holding Company or the Savings Bank
cease for any reason to constitute at least a majority thereof, unless the
election of each director who was not a director at the beginning of such
period has been approved in advance by directors representing at least two-
thirds of the directors then in office who were directors at the beginning of
the period.
7.9. (c) Any termination of Executive's employment by the
Holding Company or the Savings Bank or by Executive shall be communicated by
written Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a dated notice which shall (A)
indicate the specific termination provision in this Agreement relied upon; (B)
set forth in reasonable detail the facts and circumstances claimed to provide
a basis for termination of Executive's employment under the provision so
indicated; (C) specify a date of termination, which shall be not less than
thirty (30) nor more than ninety (90) days after such Notice of Termination is
given, except in the case of the Holding Company's or the Savings Bank's
termination of Executive's employment for just cause pursuant to Section 7.1
hereof, in which case the Notice of Termination may specify a date of
termination as of the date such Notice of Termination is given; and (D) be
given in the manner specified in Section 12 hereof.
7.9. (d) If Executive shall terminate his Employment for good
reason pursuant to subpart (B) of Section 7.9.(a) hereof, then in lieu of any
further salary payments to Executive for periods subsequent to the date of
termination, the Holding Company or the Savings Bank shall pay as severance to
Executive an amount equal to (A) the average aggregate annual compensation
paid to the Executive and includable in the Executive's gross income for
federal income tax purposes during the five calendar years preceding the
taxable year in which the date of termination occurs (or such lesser amount of
time if the Executive has not been employed by the Holding Company or the
Savings Bank for five years at the time of termination) by the Holding Company
or the Savings Bank and any of its subsidiaries subject to United States
income tax, multiplied by (B) 2.99, such payment to be made in a lump sum on
or before the fifth day following the date of termination; provided, however,
that if the lump sum severance payment under this Section 7.9.(d), either
alone or together with other payments which the Executive has a right to
receive from the Holding Company or the Savings Bank, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code")), such lump sum severance payment shall be
reduced to the largest amount as will result in no portion of the lump sum
severance payment under this Section 7.9.(d) being subject to the excise tax
imposed by Section 4999 of the Code. The determination of any reduction in the
lump sum severance payment under this Section 7.9.(d) pursuant to the
foregoing provision shall be made by independent counsel to the Holding
Company or the Savings Bank in consultation with the independent certified
public accountants of the Holding Company or the Savings Bank.
7.9. (e) If Executive shall terminate his employment for good
reason as defined in sub-part (A) or (C) of Section 7.9.(a) hereof or if
Executive is terminated by the Holding Company or Savings Bank for other than
just cause as defined in Section 7.1 hereof, then in lieu of any further
salary payments to Executive for periods subsequent to the date of
termination, the Holding Company or Savings Bank shall pay as severance to
Executive an amount equal to the product of (A) Executive's current annual
compensation, including base salary and any bonuses which he would have
received, as of the date of termination multiplied by (B) the lesser of the
number of years (including partial years) remaining in the term of employment
hereunder or the number 2.99, such payment to be made in substantially equal
weekly installments on the Friday of each week, or if these days are non-
business day, commencing with the month in which the date of termination
occurs and continuing for the number of consecutive weekly payment dates
(including the first such date aforesaid) equal to the product obtained by
multiplying the number of years (including partial years) applicable under (B)
above by 24. During the period that the payments provided for in this Section
7.9(e) are being made, the Executive and anyone entitled to claim under or
through the Executive shall be entitled to all benefits under the group
hospitalization plan, health care plan, dental benefit plan, or other present
or future similar group employee benefit plan or program of the Holding
Company or the Savings Bank for which its executive/employees are eligible, to
the same extent as if the Executive had continued to be an employee of the
Holding Company or the Savings Bank during such period and such benefits
shall, to the extent not paid under any such plan or program, be paid by the
Holding Company or the Savings Bank.
7.9. (f) Executive shall not be required to mitigate the amount
of any payment provided for in paragraph (d) or (e) of this Section 7.9 by
seeking other employment or otherwise.
7.9. (g) In the event the Executive's employment with the
Holding Company or the Savings Bank is terminated voluntarily by the
Executive, without good reason as that term is defined herein, Executive
agrees that, for a period of three (3) years from the date of such voluntary
termination, he shall not accept employment with any financial institution
which has an office in Lincoln or Knox County, Maine.
8. Death or Disability.
Anything contained in this Agreement to the contrary notwithstanding, if
during the term of this Agreement, Executive dies or becomes permanently
disabled, the Holding Company or the Savings Bank shall be obligated to pay
(in case of death) to his beneficiary or beneficiaries designated in writing,
or to his estate in the absence or lapse of such designation, or (in the case
of permanent disability) to Executive or his representative, the full base
salary provided in Section 3 above for one year following such death or
disability; provided, however, that in the event of Executive's death, the
Holding Company or the Savings Bank shall be obligated to make such payment in
a lump sum within 120 days of the date of death. In the event of such
disability, Executive shall continue to participate in all plans and programs
of the Holding Company or the Savings Bank referred to in Section 5 hereof to
the extent that such continued participation is possible under the general
terms and provisions of such plans and programs. For purposes hereof,
permanent disability means inability to perform the services required
hereunder due to physical or mental disability which continues for one hundred
eighty (180) consecutive days or more in any twelve (12) month period.
Evidence of such disability shall be certified by a physician acceptable to
both the Holding Company, the Savings Bank and Executive.
9. Payment Obligations Absolute.
The Holding Company and the Savings Bank's obligation to pay Executive
the compensation and other benefits provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including,
without limitation, any set-off, counter claim, recoupment, defense or other
rights which the Holding Company or the Savings Bank may have against
Executive. All amounts payable by the Holding Company or Savings Bank
hereunder shall be paid without notice or demand.
10. Continuing Obligations.
Executive shall retain in confidence any confidential information known
to him concerning the Holding Company or the Savings Bank and their business
so long as such information is not publicly disclosed.
11. Amendments or Additions; Action by the Boards of Directors.
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed
by the parties. No waiver by either party hereto at any time of any breach by
the other party hereto of or in compliance with any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. The prior approval by a two-thirds affirmative vote of the
full boards of directors of the Holding Company or the Savings Bank shall be
required in order for the Holding Company or Savings Bank to authorize any
amendments or additions to this Agreement, to give any consents or waivers of
provisions of this Agreement, or to take any other action under this Agreement
including any termination of the employment of Executive with or without cause
under Section 7 hereof.
12. Notices.
All notices under this Agreement shall be in writing and shall be deemed
effective when delivered in person (in the Holding Company's or the Savings
Bank's case, to their Secretaries) or forty-eight (48) hours after deposit
thereof in the U.S. mails, postage prepaid, addressed, in the case of
Executive, to his last known address as carried on the personnel records of
the Savings Bank and, in the case of the Holding Company or the Savings Bank,
to the corporate headquarters, attention of the Secretary, or to such other
address as the party to be notified may specify by notice to the other party.
13. Prior Agreements.
This Agreement supersedes and replaces all prior Agreements of
Employment between the parties.
14. Assigns and Successors.
The rights and obligations of the Holding Company and the Savings Bank
under this Agreement shall inure to the benefit of and shall be binding upon
the successors and assigns of the Holding Company or the Savings Bank. They
will require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Holding Company or the Savings Bank, by agreement in form and
substance satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Holding Company or the Savings Bank would be required to perform it if no such
succession had taken place.
15. Construction.
This Agreement shall be construed under the laws of the State of Maine.
Paragraph headings are for convenience only and shall not be considered a part
of the terms and provisions of the Agreement.
16. Effective Date.
The Agreement shall become effective as of the date hereof.
17. Indemnification.
The Holding Company and the Savings Bank shall indemnify and hold the
Executive harmless to the maximum extent permitted by law against judgements,
fines, amounts paid in settlement and reasonable expenses, including
attorneys' fees, incurred by the Executive in connection with the defense of,
or as a result of, any action or proceeding (or any appeal from any action or
proceeding) in which the Executive is made, or is threatened to be made, a
party by reason of the fact that he is or was an officer or director of the
Holding Company or the Savings Bank. The undertakings of this Section 17 are
independent of and shall not be limited or prejudiced by any other undertaking
to reimburse Executive of his legal expenses and costs under this Agreement.
The Holding Company and the Savings Bank further represent and warrant that
the Executive is and shall continue to be covered and insured up to the
maximum limits provided by all insurance which the Holding Company or the
Savings Bank maintains to indemnify their directors and officers; and that the
Holding Company and the Savings Bank will exert its best efforts to maintain
such insurance, in not less than its present limits, in effect through the
term of this employment. The Holding Company and the Savings Bank hereby
warrant and represent that the undertakings of payment, indemnification and
maintenance of insurance covering the Executive set forth in this Agreement
are not in conflict with the articles of incorporation or bylaws of the
Holding Company or the Charter and bylaws of the Savings Bank, or with any
validly existing agreement or other proper corporate action of the Holding
Company or the Savings Bank.
18. General Provisions.
The parties hereto acknowledges that this Agreement was drafted by the
law firm of Thompson & Mitchell which at various times has served as special
counsel to the Holding Company and the Savings Bank. Executive acknowledges
that he is sophisticated in business matters (including, but not limited to,
employment agreements) and that he has had the opportunity to seek independent
legal advice. Executive specifically waives any actual or apparent conflict of
interest of Thompson & Mitchell in connection with the preparation and
negotiation of this Agreement.
IN WITNESS WHEREOF, the Holding Company and the Savings Bank have caused
this Agreement to be executed by their duly authorized officers and Executive
has executed this Agreement, all as of the 18th day of May, 1993.
MID-COAST BANCORP, INC.
Attest: /s/ Robert Carter, Jr. By: /s/ Waite W. Weston
-------------------------- ----------------------------
Vice President
THE WALDOBORO BANK, F.S.B.
Attest: /s/ Robert Carter, Jr. By: /s/ Waite W. Weston
-------------------------- ----------------------------
Vice President
/s/ Wesley Richardson
----------------------------
Executive
Mid-Coast Bancorp, Inc.
ANNUAL REPORT
1996
To Our Shareholders:
Fiscal year 1996 was one of success. During the year we opened our
first branch office in Rockland, Maine, increased our annual cash dividend
from $.40 to $.48 per share, paid a 5% stock dividend and saw our fiscal year
end with a stock price of $17.88 per share. We believe enhancement of our
franchise value and future profits ultimately adds value for our shareholders.
These are the successes we will continue to build upon.
Net income was $303,447 at March 31, 1996, compared to $467,375 at year
end, March 31, 1995. This change in earnings is largely due to our new branch
operations and a stagnant net interest income of $1,904,433 at March 31, 1996
compared to $1,932,889 for the previous fiscal year. At March 31, 1996,
assets increased 3.06% to $54,362,066, deposits increased 12.6% to $41,816,902
and shareholders' equity increased to $4,926,077 or 9.06% of assets resulting
in a book value of $21.51 per share.
As we continue our efforts to build upon our strengths, the planning
process becomes an integral part of our future. During the last quarter of
fiscal year 1996, we began a process of planning that not only includes
profits and growth but also incorporates new technology. Toward the end of
fiscal year 1997 we hope to install a client/server-based computing system
facilitating development of a new customer base, while expanding our existing
customer relationships. The new system, along with better trained personnel,
will allow customers to distinguish our products and services from those of
other financial institutions.
A lingering issue yet to be resolved as of this writing is the final
resolution of Federal Deposit Insurance Corporation, Savings Association
Insurance Fund (SAIF) recapitalization plan. Permanent resolution has been
tied up in Congressional negotiations and left on the sidelines most likely
until the next Congress convenes. Upon eventual resolution there could be a
one time assessment charge that will have a negative impact on earnings and
could impact the stock price for SAIF insured banks like ours.
As in previous years, asset quality remains of utmost concern for the
Company. Our present non-earning assets have been clearly defined and most
are now in the final resolution stage through foreclosure and will be marketed
for sale in a timely manner.
On behalf of the Board of Directors, I would like to express my sincere
thanks to all our management and staff. To our shareholders, I appreciate
your commitment and support of Mid-Coast Bancorp, Inc.
Sincerely,
MID-COAST BANCORP, INC.
/s/ Wesley E. Richardson
Wesley E. Richardson
President and Chief Executive Officer
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Management is pleased to present the following discussion and analysis
of the financial condition and results of operations of Mid-Coast Bancorp,
Inc. (the "Holding Company"). This report represents the Holding Company's
seventh annual report as a publicly held company.
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth selected consolidated financial and other
data of the Holding Company at the dates and for the periods indicated and
should be read in conjunction with the Holding Company's Consolidated
Financial Statements and accompanying notes thereto and other financial
information included elsewhere herein.
<TABLE>
<CAPTION>
At March 31,
---------------------------------------------------------------
Financial condition data: 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans, net $42,465,559 $43,358,622 $42,746,098 $39,588,746 $34,345,039
Other interest-earning assets 9,422,891 7,125,838 5,381,549 5,840,037 6,916,496
Total assets 54,362,066 52,749,000 49,685,023 47,013,510 42,906,813
Deposits 41,816,902 37,121,110 35,023,932 36,564,259 38,546,267
Borrowings 7,465,000 10,715,000 10,215,000 6,475,000 700,000
Stockholders' equity $ 4,926,077 $ 4,722,596 $ 4,297,094 $ 3,831,657 $ 3,486,272
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended March 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operating data:
Interest income $4,389,689 $3,939,940 $3,728,547 $3,774,885 $3,991,393
Interest expense 2,485,256 2,007,051 1,904,185 2,083,137 2,672,483
---------- ---------- ---------- ---------- ----------
Net interest income 1,904,433 1,932,889 1,824,362 1,691,748 1,318,955
Provision for loan losses 62,010 81,000 140,000 91,707 72,275
Other income 183,277 157,268 181,717 131,886 141,923
Other expense 1,565,259 1,293,308 1,167,565 1,118,995 989,076
---------- ---------- ---------- ---------- ----------
Income before income taxes 460,441 715,849 698,514 612,932 399,527
Income tax expense 156,994 248,474 232,462 241,781 153,711
---------- ---------- ---------- ---------- ----------
Income before accounting change 303,447 467,375 466,052 371,151 245,816
Change in accounting (1) --- --- 47,000 --- ---
---------- ---------- ---------- ---------- ----------
Net income $ 303,447 $ 467,375 $ 513,052 $ 371,151 $ 245,816
========== ========== ========== ========== ==========
Earnings per share (2)
Income before accounting change $1.33 $2.07 $2.11 $1.69 $1.11
Change in accounting (1) --- --- .21 --- ---
----- ----- ----- ----- -----
Net income per share $1.33 $2.07 $2.32 $1.69 $1.11
===== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
For the Years Ended March 31,
--------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statistical data (3):
Interest rate spread 3.30% 3.56% 3.53% 3.63% 2.85%
Net yield on average earning assets 3.68% 3.88% 3.83% 3.98% 3.30%
Return on average assets 0.56% 0.90% 1.04% 0.84% 0.59%
Return on average stockholders' equity 6.28% 10.38% 12.54% 10.15% 7.21%
Average stockholders' equity to average assets 8.92% 8.67% 8.27% 8.24% 8.19%
Dividend payout ratio 35.30% 18.50% 11.92% 8.24% 28.93%
<F1> Represents cumulative effect of adoption of FASB Statement No. 109-"
Accounting For Income Taxes."
<F2> All years have been restated to reflect 5% stock dividend in 1996 and 3%
stock dividend in 1994.
<F3> Average balances were computed using month end amounts.
</TABLE>
GENERAL
The following discussion should be read in conjunction with the
consolidated financial statements and related notes included in this report.
The financial condition and results of operations of the Holding Company
reflect the operations of its subsidiary, The Waldoboro Bank, F.S.B. (the
"Bank").
The Holding Company's net income depends largely upon net interest
income of the Bank, which is the difference between interest income from loans
and investments (interest-earning assets) and interest expense on deposits and
borrowed funds (interest-bearing liabilities). Net interest income is
significantly affected by general economic conditions, policies established by
regulatory authorities and competition. Other factors having a major impact
on net income include the provision for possible loan losses, gains and losses
on sales of loans, and operating expenses. The Bank seeks to reduce the
vulnerability of its operations to changes in interest rates, its interest
rate exposure, by managing the nature and composition of the Bank's interest-
earning assets and interest-bearing liabilities.
In addition, the United States Congress continues to debate various
methods for the recapitalization of the Savings Association Insurance Fund
("SAIF"), to which the Bank pays deposit insurance assessments. As currently
proposed, this legislation would require the Bank to incur a significant, one-
time expense in order to cover its portion of a one-time contribution to
recapitalize the SAIF. It is not possible at this time to predict the amount
of the Bank's one-time required contribution. Moreover, while most Bank
Insurance Fund ("BIF") insured institutions received a decrease in their
deposit insurance premiums during the past year because the BIF is adequately
capitalized, the Bank, as a member of the SAIF did not have its premiums
reduced, nor is such a reduction anticipated until the SAIF is recapitalized.
Proposed legislation also provides for the merger of the BIF and SAIF,
with such merger conditioned upon the prior elimination of the thrift charter.
If adopted, such legislation would require that the Bank, as a federal savings
bank, convert to a bank charter. Such a conversion could cause the Bank to
lose the favorable tax treatment it currently enjoys under section 593 of the
Internal Revenue Code concerning its bad debt reserve, and could cause a
recapture of the bad debt reserve into income. See Note 11 to the
consolidated financial statements.
FINANCIAL CONDITION
Total assets at March 31, 1996 were $54,362,066, an increase of
$1,613,066 from March 31, 1995. Asset increases include $1,381,694 in time
deposits, $528,673 in investments held for sale, $314,651 in investment
securities and a $491,579 increase in loans held for sale. These increases
were offset by decreases of $287,981 in cash and cash equivalents and $893,063
in net loans.
The Bank had, as of March 31, 1996, a net loan portfolio of $42,465,559,
representing 78.12% of total assets. Stockholders' equity at year end was
$4,926,077, an increase of $203,481 from March 31, 1995, as a result of 1996
net income after dividends. As discussed under "Liquidity and Capital
Resources," the Bank's capital is substantially in excess of all applicable
regulatory requirements.
ASSET/LIABILITY MANAGEMENT
The goal of the Bank's asset/liability policy is to manage its exposure
to interest rate risk. The principal focus of the Bank's strategy has been to
reduce its exposure to interest rate fluctuations by matching more closely the
effective maturities and repricing dates of its assets and liabilities. In
the current interest rate environment the Bank's assets are more rate
sensitive than its liabilities. To that end, the Bank has focused its asset
liability strategy toward maintaining a high percentage of adjustable rate
loans in its residential and commercial mortgage portfolios. At March 31,
1996, the adjustable rate loans in the residential mortgage loan portfolio
amounted to $29.0 million or 87.8% and adjustable rate loans in the commercial
mortgage portfolio amounted to $4.1 million or 91.0%. The Bank's strategy
regarding liabilities is to attempt to restructure its deposits by increasing
NOW and savings accounts and decreasing certificates of deposit. Currently,
certificates of deposit represent $27.5 million or 65.8% of the Bank's
deposits.
In the declining interest rate environment which existed at fiscal year
1996 end, the Bank's interest rate spread would increase because liabilities
would be repricing faster than assets for the same period. However, in a
rising interest rate environment the spread would decrease, resulting in an
adverse affect on the Bank's net interest income.
NONPERFORMING ASSETS
A summary of nonperforming assets for the last three years is shown
below.
<TABLE>
<CAPTION>
At March 31,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Nonaccrual loans:
Mortgage loans in process of foreclosure $160,919 $ 93,859 $604,114
Other 214,419 213,633 194,312
-------- -------- --------
Total nonaccrual loans 375,338 307,492 798,426
Real estate owned, net 224,137 246,079 30,054
Loans to facilitate --- 44,246 44,627
Total nonperforming assets $599,475 $597,817 $873,107
======== ======== ========
Ratio of nonaccrual loans to total loans 0.88% 0.70% 1.85%
Ratio of nonperforming assets to total assets 1.10% 1.13% 1.76%
</TABLE>
The accrual of interest income is discontinued when a loan becomes
delinquent and in management's opinion is deemed uncollectible in whole or in
part as to principal or interest. In these cases, interest on such loans is
recognized only when received. No interest is accrued on loans delinquent by
more than ninety days and all previously accrued but unpaid interest is
reversed for such loans.
There were no loans delinquent more than ninety days but still accruing
interest at March 31, 1996 or 1995. Unrecognized interest income on loans on
non-accrual status at March 31, 1996 totalled $42,901. Had such loans been
accruing throughout the year, interest income of $30,901 would have been
recorded.
Management does not believe that any loans other than those represented
in the table above are potential problem loans at present.
AVERAGE BALANCE, INTEREST AND YIELD/RATES
The following table presents average balances, yields and rates for
major classes of interest-earning assets and interest-bearing liabilities for
the periods indicated. Additionally, the table presents interest rate spreads
and ratios of net interest income to average interest-earning assets. All
average balances have been computed using month-end amounts. Non-performing
loan amounts have been included in average balances. Since the Holding
Company has had no significant investments or loans for which interest was
exempt from income taxes, no tax equivalent adjustments have been reflected.
<TABLE>
<CAPTION>
Year Ended March 31, 1996 Year Ended March 31, 1995
------------------------------ ------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $43,936,151 $3,965,600 9.03% $43,559,883 $3,588,597 8.24%
Interest bearing & time deposits 1,635,091 83,859 5.13% 1,314,432 61,151 4.65%
Federal funds sold 2,151,923 130,152 6.05% 1,557,692 78,921 5.07%
Investments & mortgage-backed securities 4,055,173 210,078 5.18% 3,447,735 211,271 6.13%
----------- ---------- ---- ----------- ---------- ----
Total interest-earning assets 51,778,338 4,389,689 8.48% 49,879,742 3,939,940 7.90%
Other assets:
Cash and due from banks 318,099 226,175
Fixed assets 1,392,605 975,968
Other assets 675,812 806,607
----------- -----------
Total assets $54,164,854 $51,888,492
=========== ===========
Interest-bearing liabilities:
NOW, savings & money market accounts 12,366,007 410,981 3.32% 11,655,921 329,447 2.83%
Certificates of deposit 26,334,638 1,561,752 5.93% 24,454,114 1,179,837 4.82%
Borrowings 9,253,462 512,523 5.54% 10,138,077 497,767 4.91%
----------- ---------- ---- ----------- ---------- ----
Total interest-bearing liabilities 47,954,107 2,485,256 5.18% 46,248,112 2,007,051 4.34%
Other liabilities:
Demand deposits 1,149,086 1,028,233
Other liabilities 231,598 111,220
----------- -----------
Total liabilities 49,334,791 47,387,565
Stockholders' equity 4,830,063 4,500,927
----------- -----------
Total liabilities and stockholders' equity $54,164,854 $51,888,492
=========== ===========
---------- ----------
Net interest income $1,904,433 $1,932,889
========== ==========
Interest rate spread 3.30% 3.56%
Net interest income as a percentage of
average interest-earning assets 3.68% 3.88%
</TABLE>
Rate/Volume Analysis
A significant contributor to the Holding Company's level of
profitability over the long term is its net interest income, which is a
function of both the interest rates it earns or pays and of the amount, or
volume, of its interest-earning assets and interest-bearing liabilities. The
relative significance that rate and volume have had in various periods on the
Holding Company's results of operations can be observed by measuring the
extent to which the change in each has been responsible for increases or
decreases in net interest income.
The table below sets forth certain information regarding the changes in
the components of net interest income for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (1) changes in rate (change
in rate multiplied by old volume) and (2) changes in volume (change in volume
multiplied by old rate). The net change attributable to both volume and rate
has been allocated proportionately.
<TABLE>
<CAPTION>
Year Ended March 31, 1996 Year Ended March 31, 1995
Compared to 1995 Compared to 1994
Increase (Decrease) Increase (Decrease)
------------------------------ ------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C>
Interest on interest-earning assets:
Loans $ 31,244 $345,759 $377,003 $164,758 $(30,866) $133,892
Interest-bearing & time deposits 15,994 6,714 22,708 (5,151) 14,209 9,058
Federal funds sold 33,975 17,256 51,231 (18,638) 33,102 14,464
Investments & mortgage-backed securities 34,158 (35,351) (1,193) 56,637 (2,658) 53,979
-------- -------- -------- -------- -------- --------
Total Interest Income $115,371 $334,378 $449,749 $197,606 $ 13,787 $211,393
-------- -------- -------- -------- -------- --------
Interest on interest-bearing liabilities:
Savings, NOW, & money market
deposit accounts 20,978 60,556 81,534 3,620 (6,429) (2,809)
Certificates of deposit 95,954 285,961 381,915 29,438 (8,929) 20,509
Borrowings (45,688) 60,444 14,756 60,079 25,087 85,166
-------- -------- -------- -------- -------- --------
Total Interest Expense 71,244 406,961 478,205 93,136 9,730 102,866
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME $ 44,127 $(72,583) $(28,456) $104,470 $ 4,057 $108,527
======== ======== ======== ======== ======== ========
</TABLE>
RESULTS OF OPERATIONS
COMPARISON OF YEARS ENDED MARCH 31, 1996 AND 1995
NET INCOME
Net income for the year ended March 31, 1996, amounted to $303,447 a
decrease of $163,928 or 35.07% as compared with $467,375 for the year ended
March 31, 1995, primarily as a result of two factors. The interest rate on
liabilities increased more rapidly than the yield on assets. Additionally,
the Holding Company's operating expenses increased as a result of the opening
of the new Rockland branch.
Details of changes from the year ended March 31, 1996, from March 31,
1995, include an increase in total interest income of $449,749 or 11.42%, an
increase in total interest expense of $478,205 or 23.83%, a decrease in the
provision for loan losses of $18,990 or 23.44%, an increase in other income of
$26,009 or 16.54%, an increase in other expenses of $271,951 or 21.03%, and an
income tax expense decrease of $91,480 or 36.82%
INTEREST INCOME
Total interest income for the year ended March 31, 1996, increased
$449,749 or 11.42% to $4,389,689 from $3,939,940 for the year ended March 31,
1995. This increase is partially the result of increases in the yield on
adjustable rate mortgages due to periodic rate adjustments, increases in the
yield of secured consumer loans and an increased volume of commercial mortgage
loans. Additionally, other interest income, which is comprised of interest on
Federal funds sold and interest-bearing and time deposits, increased due to an
increase in the volume of and yield on those assets.
INTEREST EXPENSE
Total interest expense for the year ended March 31, 1996, increased
$478,205 or 23.83% to $2,485,256 from $2,007,051 for the year ended March 31,
1995. This increase is caused primarily by increased rates paid on both
deposits and borrowings, and an increase of $2,590,610 in the average balance
of total interest-bearing deposits, which is partially offset by a decrease of
$884,615 or 8.73% in the average balance of borrowings.
LOAN LOSS PROVISION
The Bank has decreased its provision for loan losses to $62,010 for the
year ended March 31, 1996, from $81,000 for the year ended March 31, 1995,
resulting in an allowance for loan losses of $221,356 at March 31, 1996, an
increase of $37,673 from the previous year. Management believes that the
Bank's total allowance for losses on loans is adequate and commensurate with
the risks associated with the loan portfolio.
OTHER INCOME
Other income consists primarily of fee income and gains on sales of
loans. Other income increased $26,009 or 16.54% to $183,277 for the year
ended March 31, 1996, from $157,268 for the year ended March 31, 1995. The
increase is attributable to an increase in volume of loans sold on the
secondary market and an increase in the size of the secondary market portfolio
serviced by the Bank.
OTHER EXPENSES
Other expenses consist primarily of the Bank's general and
administrative expenses. Other expenses increased $271,951 or 21.03% for the
year ended March 31, 1996, from $1,293,308 for the year ended March 31, 1995,
due primarily to an increase in compensation of directors, officers, and staff
of $100,951 and increases in other expenses related to the opening of the
branch office. Such other expenses include data processing, advertising and
taxes (other than income taxes). Stockholder expenses, including printing,
legal and transfer agent costs also increased significantly. In addition, the
proposed BIF-SAIF recapitalization discussed on page 2 could result in further
non-interest expense.
INCOME TAX EXPENSE
The provision for income tax for the year ended March 31, 1996, was
$156,994 a decrease of 36.82% from the previous year. See note 11 to the
consolidated financial statements for further information regarding income
taxes.
COMPARISON OF YEARS ENDED MARCH 31, 1995 AND 1994
Net income for the year ended March 31, 1995 amounted to $467,375, a
decrease of $45,677 or 8.90% as compared with $513,052 for the year ended
March 31, 1994, primarily due to a one time change in accounting for income
taxes in 1994. Net income per share was $2.07 as compared to $2.32 for the
previous year. Without the one time change in accounting recorded in fiscal
1994, core earnings for the two periods were relatively stable. Changes from
year end March 31, 1994 to March 31, 1995 include an increase in total
interest income of $211,393 or 5.67%, an increase in total interest expense of
$102,866 or 5.40%, a decrease in provision for loan losses of $59,000 or
42.14%, a decrease in other income of $24,449 or 13.45%, an increase in other
expenses of $125,743 or 10.77% and an income tax increase of $16,012 or 6.89%.
INTEREST INCOME
Total interest income for the year ended March 31, 1995 increased
$211,393 or 5.67% to $3,939,940 from $3,728,547 for the year ended March 31,
1994. This increase is the result of an increase in yield on commercial loans
which are directly affected by increases in the prime rate. The increase is
also the result of increases in yield on adjustable rate mortgages due to
periodic repricing adjustments and a general increase in the yield on the
investment and mortgage-backed securities portfolios. During the latter part
of the fiscal year, the volume of loan originations decreased due to a
softening market for new loans.
INTEREST EXPENSE
Total interest expense for the year ended March 31, 1995 increased
$102,866 or 5.40% to $2,007,051 from $1,904,185 for the year ended March 31,
1994. This increase is caused primarily by an increase of $1,979,395 in the
average balance of total deposits, and an increase in the average rate paid on
borrowings.
LOAN LOSS PROVISION
The Bank has decreased its provision for loan losses to $81,000 at year
ended March 31, 1995 from $140,000 at year ended March 31, 1994, resulting in
an allowance for loan losses of $183,683, a decrease of $95,315 from the
previous year. This decrease is based on a decline in non-performing assets
during the year and management's belief that the Bank's total allowance for
losses on loans represents adequate reserves commensurate with the risks
associated with the loan portfolio.
OTHER INCOME
Other income consisted primarily of fee income and gains on sales of
assets. Other income increased $24,449 or 13.45% to $157,268 for the year
ended March 31, 1995 from $181,717 for the year ended March 31, 1994. This
decrease is primarily attributable to a decrease in the volume of loans sold
in the secondary market due to the lower volume of loan originations during
the period. The decrease was also the result of a loss of $18,656 on loans
held for sale that were transferred to the Bank's in-house portfolio during
the first quarter.
OTHER EXPENSES
Other expenses consisted primarily of the Bank's general and
administrative expenses. Other expenses increased $125,743 or 10.77% for the
year ended March 31, 1995 from $1,167,565 for the year ended March 31, 1994,
due primarily to an increase in compensation of directors, officers and staff
of $75,827, and other general inflationary increases.
INCOME TAX EXPENSE
The provision for income tax expense for the year ended March 31, 1995
was $248,474, an increase of $16,012 or 6.89% from the previous year. See
Note 11 to the consolidated financial statements for further information
regarding the impact in accounting for income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is a measure of the Bank's ability to fund loans, provide a
source for withdrawal of deposits and allow for the payment of normal cash
expenses. The Bank's primary sources of funds are deposits, borrowings,
regular payments of loan principal and interest and prepayments of loan
principal. To a lesser extent, the Bank obtains funds from maturities of
investment securities, and funds provided by operations.
During the past several years, the Bank has used funds primarily to meet
its ongoing commitments to fund maturing time deposits and savings
withdrawals, to fund existing and continuing loan commitments and to maintain
liquidity. The Bank has periodically supplemented its liquidity needs with
advances from the FHLB. The Bank's current borrowing capacity exceeds
$28,000,000. At March 31, 1996 the Bank's borrowings from the FHLB were
$7,465,000.
At year end March 31, 1996, stockholders' equity was $4,926,077 or 9.06%
of assets compared to $4,722,596 or 8.95% at March 31, 1995. The Bank is
required to maintain specified amounts of capital pursuant to federal
regulations. At year end March 31, 1996 the Bank's capital substantially
exceeded core capital, tangible capital and risk based capital regulatory
requirements. See Note 2 of the consolidated financial statements for further
information.
IMPACT OF INFLATION AND CHANGING INTEREST RATES
The Holding Company's consolidated financial statements and related
notes presented elsewhere herein have been prepared in accordance with
generally accepted accounting principles ("GAAP"), which require the
measurement of financial position and operating results in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. Unlike many industrial companies, substantially
all of the assets and virtually all of the liabilities of the Holding Company
are monetary in nature. As a result, interest rates have a more significant
impact on the Holding Company's performance than the general level of
inflation. Over short periods of time, interest rates may not necessarily
move in the same direction or in the same magnitude as the prices of goods and
services. Management believes that, through the implementation of its
strategic plan (see "Financial condition - Asset/Liability Management"), it
has taken important steps to maintain positive interest rate spreads, and to
control the potential effects of interest rate fluctuations on the Holding
Company's earnings.
PART II
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
On March 31, 1996, there were 229,031 shares of the Holding Company's
Common Stock outstanding held by approximately 320 holders of record. Also at
such date, the Holding Company had granted options to purchase 12,371 shares
of the Holding Company's Common Stock.
The following table shows market price information for the Holding
Company's Common Stock. The prices set forth below represent the high and low
bid prices of the Holding Company's stock during the periods indicated. Such
over the counter market quotations reflect inter-dealer prices, without retail
markup, mark-down or commission and may not necessarily represent actual
transactions. The Holding Company's common stock is traded on the National
Association of Securities Dealers Automated Quotation system (NASDAQ) under
the symbol "MCBN."
<TABLE>
<CAPTION>
Cash
Dividends
Paid per
Quarter Ended High Low Share
- -----------------------------------------------------------
<S> <C> <C> <C>
March 31, 1994 13 12 3/4 $ --
June 30, 1994 17 12 3/4 0.20
September 30, 1994 17 14 --
December 31, 1994 15 14 1/4 0.20
March 31, 1995 14 3/4 14 1/4 --
June 30, 1995 17 1/4 14 1/2 0.23
September 30, 1995 18 3/4 15 --
December 31, 1995 20 1/4 15 1/2 0.25(1)
March 31, 1996 20 1/4 15 1/2 --
<F1> During the quarter ended December 31, 1995 the Holding Company also
declared a 5% stock dividend in addition to the $0.25 per share cash
dividend.
</TABLE>
On April 15, 1996 the Holding Company declared a dividend of $0.25 per
share to Stockholders of record on June 3, 1996 and payable June 30, 1996.
MID-COAST BANCORP, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report F-1
Consolidated Balance Sheets as of March 31, 1996 and 1995 F-2
Consolidated Statements of Income for the Three Years Ended
March 31, 1996 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Three Years Ended March 31, 1996 F-5
Consolidated Statements of Cash Flows for the Three Years
Ended March 31, 1996 F-6
Notes to Consolidated Financial Statements F-8
BAKER NEWMAN & NOYES
LIMITED LIABILITY COMPANY
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mid-Coast Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of Mid-Coast
Bancorp, Inc. and subsidiary as of March 31, 1996 and 1995, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the three years ended March 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Mid-Coast
Bancorp, Inc. and subsidiary at March 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years
ended March 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in note 11, the Company changed its method of accounting for
income taxes during the year ended March 31, 1994.
/s/ Baker Newman & Noyes
May 3, 1996 Limited Liability Company
ONE HUNDRED MIDDLE STREET, P.O. BOX 507, PORTLAND MAINE 04112
* TELEPHONE 207-879-2100 * TELEFAX 207-774-1793
MID-COAST BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
------
1996 1995
---- ----
<S> <C> <C>
Cash and due from banks $ 296,198 $ 212,640
Interest bearing deposits 805,853 602,392
Federal funds sold 1,625,000 2,200,000
----------- -----------
Cash and cash equivalents 2,727,051 3,015,032
Time deposits 1,781,101 399,407
Investments available for sale, at market (note 3) 528,673 -
Held to maturity investment securities (market value of
$3,861,576 in 1996 and $3,491,453 in 1995) (note 3) 3,904,862 3,590,211
Held to maturity mortgage-backed securities (market value
of $219,775 in 1996 and $262,223 in 1995) (note 4) 218,323 266,328
Loans held for sale 559,079 67,500
Loans (note 5): 42,838,169 43,712,121
Less: Allowance for loan losses (note 6) 221,356 183,683
Deferred loan fees 151,254 169,816
----------- -----------
42,465,559 43,358,622
Bank premises and equipment, net (note 8) 1,386,589 1,294,640
Other assets:
Income taxes receivable 60,220 11,411
Accrued interest receivable - loans 244,963 227,210
Accrued interest receivable - time deposits 10,400 1,928
Accrued interest receivable - investment securities 58,047 44,679
Accrued interest receivable - mortgage-backed securities 1,181 1,433
Deferred income taxes (note 11) 94,000 96,000
Prepaid expenses and other assets 97,881 84,274
Real estate owned (note 7) 224,137 290,325
----------- -----------
Total other assets 790,829 757,260
----------- -----------
Total assets $54,362,066 $52,749,000
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
1996 1995
---- ----
<S> <C> <C>
Liabilities:
Deposits (note 9):
Demand deposits $ 1,802,239 $ 1,156,013
NOW accounts 3,111,931 2,579,932
Savings 4,645,035 4,348,903
Money market deposit accounts 4,740,543 3,581,619
Certificates of deposit 27,517,154 25,454,643
----------- -----------
Total deposits 41,816,902 37,121,110
Advances from the Federal Home Loan Bank (note 10) 7,465,000 10,715,000
Accrued expenses and other liabilities 154,087 190,294
----------- -----------
Total liabilities 49,435,989 48,026,404
Commitments and contingencies (note 14)
Stockholders' equity (notes 2 and 15):
Common stock, $1 par value, 1,500,000 shares authorized;
229,031 shares issued and outstanding (217,084 shares
in 1995) 229,031 217,084
Paid-in capital 1,448,282 1,258,178
Retained earnings (notes 2 and 11) 3,248,764 3,247,334
----------- -----------
Total stockholders' equity 4,926,077 4,722,596
----------- -----------
Total liabilities and stockholders' equity $54,362,066 $52,749,000
=========== ===========
</TABLE>
See accompanying notes.
MID-COAST BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest on loans $3,965,600 $3,588,597 $3,454,705
Interest on investment securities 194,284 192,489 130,716
Interest on mortgage-backed securities 15,794 18,782 26,576
Other 214,011 140,072 116,550
---------- ---------- ----------
Total interest income 4,389,689 3,939,940 3,728,547
Interest expense:
Interest on deposits (note 9) 1,972,733 1,509,284 1,491,584
Interest on borrowings 512,523 497,767 412,601
---------- ---------- ----------
Total interest expense 2,485,256 2,007,051 1,904,185
---------- ---------- ----------
Net interest income 1,904,433 1,932,889 1,824,362
Provision for loan losses (note 6) 62,010 81,000 140,000
---------- ---------- ----------
1,842,423 1,851,889 1,684,362
Other income:
Loan service and other loan fees 42,273 26,798 23,654
Gain on sales of loans 36,935 15,400 87,198
Other 104,069 115,070 70,865
---------- ---------- ----------
183,277 157,268 181,717
Other expenses:
Compensation of directors, officers, and staff 631,779 530,828 455,001
Employee benefits 67,670 39,440 39,786
Occupancy and equipment expense 133,864 109,724 105,552
Insurance expense 137,163 127,624 122,597
Real estate owned (note 7) 46,831 48,973 23,055
Other (note 12) 547,952 436,719 421,574
---------- ---------- ----------
1,565,259 1,293,308 1,167,565
---------- ---------- ----------
Income before income taxes and accounting change 460,441 715,849 698,514
Income tax expense (note 11) 156,994 248,474 232,462
---------- ---------- ----------
Income before accounting change 303,447 467,375 466,052
Change in accounting for income taxes (note 11) - - 47,000
---------- ---------- ----------
Net income $ 303,447 $ 467,375 $ 513,052
========== ========== ==========
Earnings per share (note 1):
Income before accounting change $ 1.33 $ 2.07 $ 2.11
Change in accounting - - .21
---------- ---------- ----------
Net income $ 1.33 $ 2.07 $ 2.32
========== ========== ==========
</TABLE>
See accompanying notes.
MID-COAST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
-------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Balance at April 1, 1993 $203,774 $1,130,064 $2,497,819 $3,831,657
Issuance of 1,650 shares of common
stock upon exercise of options 1,650 13,550 - 15,200
Issuance of 5,993 shares of common
stock as a 3% stock dividend (note 2) 5,993 75,662 (83,338) (1,683)
Net income - - 513,052 513,052
Dividends declared ($.30 per share) - - (61,132) (61,132)
-------- ---------- ---------- ---------
Balance at March 31, 1994 211,417 1,219,276 2,866,401 4,297,094
Issuance of 6,049 shares of common
stock upon exercise of options 6,049 43,720 - 49,769
Reversal of 382 shares incorrectly
issued in 1994 (382) (4,818) - (5,200)
Net income - - 467,375 467,375
Dividends declared ($.40 per share) - - (86,442) (86,442)
-------- ---------- ---------- ----------
Balance at March 31, 1995 217,084 1,258,178 3,247,334 4,722,596
Issuance of 1,172 shares of common
stock upon exercise of options 1,172 8,223 - 9,395
Issuance of 10,775 shares of common
stock as a 5% stock dividend (note 2) 10,775 181,881 (194,893) (2,237)
Net income - - 303,447 303,447
Dividends declared ($.48 per share) - - (107,124) (107,124)
-------- ---------- ---------- ----------
Balance at March 31, 1996 $229,031 $1,448,282 $3,248,764 $4,926,077
======== ========== ========== ==========
</TABLE>
See accompanying notes.
MID-COAST BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended March 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $ 303,447 $ 467,375 $ 513,052
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 66,906 48,716 49,101
Change in accounting for income taxes - - (47,000)
Net accretion on investment securities (11,416) (14,201) (1,043)
Provision for losses on real estate owned 38,789 20,000 18,664
Provision for loan losses 62,010 81,000 140,000
Net change in deferred loan fees (18,562) 3,889 (7,329)
Proceeds from sales of loans 2,688,085 2,060,555 5,112,023
Loans originated for sale (3,142,729) (1,952,655) (4,962,825)
Gain on sales of loans (36,935) (15,400) (87,198)
Deferred income taxes 2,000 26,000 (38,500)
Accrued interest receivable (39,341) (52,812) (16,013)
Prepaid expenses and other assets (13,607) (32,601) 9,499
Change in income taxes receivable (48,809) (27,480) (60,041)
Accrued expenses and other liabilities (36,207) 57,366 66,444
----------- ----------- -----------
Net cash flows from operating activities (186,369) 669,752 688,834
Investing activities:
Net change in time deposits (1,381,694) 382,691 (24,608)
Purchase of investments available for sale (528,673) - -
Held to maturity investment and mortgage-backed
securities:
Purchases (1,204,212) (1,407,688) (1,381,622)
Proceeds from maturities and principal
paydowns 948,982 567,997 943,698
Net change in loans 877,655 (933,057) (3,096,128)
Additions to real estate owned (641) - -
Purchases of bank premises and equipment (158,855) (457,600) (86,814)
----------- ----------- -----------
Net cash flows from investing activities (1,447,438) (1,847,657) (3,645,474)
Financing activities:
Net change in certificates of deposit $ 2,062,511 $ 2,473,475 $(1,728,087)
Net change in other deposits 2,633,281 (376,297) 187,760
Maturities of advances from Federal Home Loan Bank (6,975,000) (3,500,000) (500,000)
Advances from Federal Home Loan Bank 3,725,000 4,000,000 4,240,000
Issuance of stock 9,395 44,569 15,200
Dividends paid (109,361) (86,442) (62,815)
----------- ----------- -----------
Net cash flows from financing activities 1,345,826 2,555,305 2,152,058
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (287,981) 1,377,400 (804,582)
Cash and cash equivalents at beginning of year 3,015,032 1,637,632 2,442,214
----------- ----------- -----------
Cash and cash equivalents at end of year $ 2,727,051 $ 3,015,032 $ 1,637,632
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (including $1,674,077, $1,272,518,
and $1,227,348 credited to deposit accounts
in 1996, 1995 and 1994, respectively) $ 2,505,789 $ 1,996,927 $ 1,889,471
Income taxes 203,802 249,420 287,526
Net transfer of real estate owned and similar
assets to loans 28,040 196,025 193,895
</TABLE>
See accompanying notes.
MID-COAST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996, 1995 and 1994
1. Accounting Policies
-------------------
Consolidation
-------------
The accompanying consolidated financial statements include the accounts
of Mid-Coast Bancorp, Inc. ("the Company"), its wholly-owned subsidiary,
The Waldoboro Bank, F.S.B. (the "Bank") and the Bank's wholly-owned
subsidiary, First Waldoboro Corporation; this subsidiary has no
significant activity. All significant intercompany balances and
transactions have been eliminated.
Business
--------
The Company, through the Bank, provides a full range of banking services
to individuals and, to a limited extent, corporate customers located in
the mid-coast area of Maine. The Bank is subject to competition from
other financial institutions. The Company and the Bank also are subject
to the regulations of certain regulatory agencies and undergo periodic
examinations by those regulatory authorities.
Financial Statement Presentation
--------------------------------
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing
the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the balance sheet dates and income and expenses for the periods
presented. Actual results could differ significantly from these
estimates. The principal areas requiring use of estimates are
establishment of allowances for losses on loans and real estate owned,
which are further discussed below.
Investments
-----------
The Company's investments in securities are classified in two categories
and accounted for as follows:
Held to Maturity Investment and Mortgage-Backed Securities
----------------------------------------------------------
Debt securities for which management has the positive intent and
ability to hold to maturity are reported at cost, adjusted for
amortization of premiums and accretion of discounts which are
recognized in interest income using the interest method over the
period of maturity.
Investments Available for Sale
------------------------------
Securities available for sale consist of investments in a mutual
fund to be held for indefinite periods of time.
It is not management's policy to acquire securities for purposes of
trading. For this reason, the Company has not classified any of its
securities as trading.
If significant, unrealized gains and losses, net of tax, on securities
available for sale are reported as a net amount in a separate component
of stockholders' equity until realized. Realized gains and losses on
the sale of securities are determined using the specific-identification
method and are shown separately in the consolidated statement of income.
If a decline in market value is considered other than temporary, the
loss is charged to net securities gains (losses).
Allowance for Loan Losses
-------------------------
The allowance for loan losses is established by management to absorb
future charge-offs of loans deemed uncollectible. This allowance is
increased by provisions charged to operating expense and by recoveries
on loans previously charged off. The Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 114, Accounting
by Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosure, on April 1, 1995. Adoption of these statements did not
have a significant impact on the financial position or results of
operations, and prior periods have not been restated. Management,
considering current information and events regarding the borrowers'
ability to repay their obligations, considers residential mortgage and
commercial loans to be impaired when it is probable that the Company
will be unable to collect all amounts due according to the contractual
terms of the note agreement; other loans (primarily installment loans)
are evaluated collectively for valuation. When a loan is considered to
be impaired, the amount of the impairment is measured based on the fair
value of the underlying collateral, where applicable, or on the present
value of expected future cash flows discounted at the note's effective
interest rate. Impairment losses are included in the allowance for
credit losses through a charge to provision for loan losses. Loans are
charged off when a loss is determined.
Management believes that the allowance for loan losses is adequate.
Arriving at an appropriate level of allowance for loan loss involves
judgment; the primary considerations are the level of delinquencies, the
nature of the loan portfolio, prior loan loss experience, the local
economic conditions, and current real estate market trends. While
management uses available information to recognize losses on loans,
future additions to the allowance may be necessary. In addition,
various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses.
Such agencies may require the Company to recognize additions to the
allowance based on judgments different from those of management.
A substantial portion (91% and 89% at March 31, 1996 and 1995,
respectively) of the Company's loans are collateralized by real estate
(primarily residential) in Maine. Accordingly, the ultimate
collectibility of a substantial portion of the Company's loan portfolio
is particularly susceptible to changes in market conditions for
residential real estate in the Company's market area.
Loans Held for Sale
-------------------
Loans held for sale are carried at the lower of aggregate cost or fair
value.
Interest Income on Loans
------------------------
Interest on loans is accrued and credited to income based on the
principal amount outstanding. The accrual of interest income is
discontinued when a loan becomes impaired and in management's opinion is
deemed uncollectible in whole or in part as to principal or interest.
In these cases, interest is recognized only when received. No interest
is accrued on loans delinquent by more than ninety days and all
previously accrued interest is reversed for such loans. Loan
origination fees and certain direct loan origination costs are deferred
and the net amount amortized as an adjustment to the related loan yield,
generally over the contractual life of the loan, or until the loan is
sold or repaid.
Bank Premises and Equipment
---------------------------
Bank premises and equipment are stated at cost, less accumulated
provisions for depreciation computed on the straight-line method over
the estimated lives of the related assets.
Income Taxes
------------
Deferred income taxes are provided for the effect of items recognized in
different periods for financial statement and income tax reporting
purposes using the asset and liability method.
Real Estate Owned and Similar Assets
------------------------------------
Real estate owned (REO), other than bank premises, consists of
properties acquired through mortgage loan foreclosure proceedings.
Similar assets include personal property repossessed and loans to
facilitate (loans made upon sale of real estate owned which do not meet
certain criteria prescribed by generally accepted accounting principles
for classification as a loan). REO is initially recorded at the lower
of cost or fair value, less estimated selling costs, at the date of
foreclosure and any losses recognized at that time are charged to the
allowance for loan losses. Subsequent to this date, additional losses
incurred resulting from further decreases in the fair value (net of
estimated selling costs) of the property are recognized by a charge to
operations and establishment of a valuation allowance. Costs relating
to the development and improvement of property are capitalized; holding
costs are charged to expense.
Statement of Cash Flows
-----------------------
The Company considers cash and due from banks, interest-bearing deposits
and federal funds sold as cash and cash equivalents on the consolidated
statements of cash flows.
Earnings Per Share
------------------
Earnings per share are computed by dividing net income by the weighted
average number of shares outstanding. The following table shows the
weighted average number of shares outstanding for each of the last three
years. Amounts for 1995 and 1994 have been restated to reflect the 5%
stock dividend declared in 1996.
1996 227,662
1995 225,463
1994 220,614
Shares issuable relative to stock options granted have not been
reflected since their impact would not be significantly dilutive.
2. Capital and Other Regulatory Limitations
----------------------------------------
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. The Bank's 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 Company's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments by
the regulators about components, risk weightings, and other factors.
As of March 31, 1996, the most recent notification from the Office of
Thrift Supervision (OTS) categorized the Bank as "well capitalized"
under the regulatory framework for prompt corrective action. To be
categorized as "well capitalized" the Bank must maintain minimum total
risk-based, Tier 1 risk-based, Tier 1 leverage tangible capital and core
capital ratios as set forth in the table below. There are no conditions
or events since that notification that management believes have changed
the institution's category.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios as set
forth in the table below. Management believes that the Bank meets all
capital adequacy requirements to which it is subject as of March 31,
1996.
The Bank's actual capital amounts and ratios are also presented in the
table.
<TABLE>
<CAPTION>
To Be "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------- ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1996:
Total capital (to risk
weighted assets) $5,151 16.9% >=$2,445 >=8.0% >=$3,057 >=10.0%
Tier 1 Capital (to risk
weighted assets) 4,922 16.1% >= 1,223 >=4.0% >= 1,834 >= 6.0%
Tier 1 Capital (to
average assets) 4,922 9.1% >= 2,167 >=4.0% >= 2,708 >= 5.0%
Tangible Capital (to
tangible assets) 4,922 9.0% >= 816 >=1.5% N/A
Core Capital (to adjusted
tangible assets) 4,922 9.0% >= 1,633 >=3.0% >= 2,177 >= 4.0%
</TABLE>
In connection with the conversion of the Bank from a mutual to a stock
institution in 1989, the Company was required by OTS regulations to
establish a liquidation account in the amount of the Bank's retained
earnings at the date of conversion, which totalled approximately
$1,918,000. In the event of liquidation of the Company (and only in
such event), an eligible account holder, as defined, would be entitled
to receive a proportionate share of this account. The total amount of
this liquidation account will be decreased as the balances of eligible
account holders are reduced. Such account will never be increased
despite any increase in balances of eligible account holders. The
Company has not computed the amount of decrease in the liquidation
account since the conversion date.
In addition to the dividend restriction caused by the liquidation
account discussed above, the Bank may not, without prior approval of
OTS, declare or pay a dividend on or repurchase any of its common stock
in excess of OTS-stipulated amounts (generally current year net income
plus 50% of the Bank's excess of capital over required amounts as of the
beginning of the year). At March 31, 1996, unrestricted retained
earnings of the Bank under such OTS limitations approximated $1,543,000.
The following table reconciles core capital per the Waldoboro Bank's
reports to OTS at March 31, 1996 to the total of stockholders' equity
shown on the accompanying consolidated financial statements.
<TABLE>
<CAPTION>
In Thousands
------------
<S> <C>
Capital per the OTS Report $4,922
Impact of Mid-Coast Bancorp 3
Rounding 1
------
Stockholders' equity per consolidated
financial statements $4,926
======
</TABLE>
The Bank is also required to maintain liquid assets in amounts in excess
of an OTS-stipulated percentage of certain deposits and borrowings, and
cash (as defined) in excess of amounts stipulated by the Federal Reserve
Board. The Bank was in compliance with these requirements at March 31,
1996.
The Company's Board of Directors declared a 3% stock dividend payable on
December 31, 1993 to stockholders of record on December 2, 1993. Cash
totalling $1,683 was paid in lieu of fractional shares on the basis of a
per share value of $14.00 (the average of the bid and asked price on
December 2, 1993, the record date for such dividend).
The Company's Board of Directors declared a 5% stock dividend payable on
December 31, 1995 to stockholders of record on December 1, 1995. Cash
totalling $2,237 was paid in lieu of fractional shares on the basis of a
per share value of $17.88 (the average of the bid and asked price on
December 1, 1995). Earnings per share data for all prior periods have
been restated to reflect this stock dividend.
3. Investment Securities
---------------------
The amortized cost and market values of held to maturity investment
securities at March 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
March 3l, 1996
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt Securities:
U.S. Treasury Obligations $2,246,562 $5,701 $ (8,909) $2,243,354
Student Loan Marketing
Association Notes 250,000 - (8) 249,992
Federal Home Loan Bank Bonds 500,000 - (35,674) 464,326
Federal National Mortgage
Association Bonds 250,000 - (4,415) 245,585
Federal Farm Credit Bank Notes 100,000 19 - 100,019
---------- ------ --------- ----------
3,346,562 5,720 (49,006) 3,303,276
Other Securities:
Federal Home Loan Bank Stock 548,300 - - 548,300
Other 10,000 - - 10,000
---------- ------ --------- ----------
558,300 - - 558,300
---------- ------ --------- ----------
$3,904,862 $5,720 $ (49,006) $3,861,576
========== ====== ========= ==========
</TABLE>
At March 31, 1996, the Company also had investments available for sale
of $528,673 consisting of investments in a mutual fund for which cost
approximates market value.
<TABLE>
<CAPTION>
March 3l, 1995
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Debt Securities:
U.S. Treasury Obligations $1,744,562 $2,824 $ (9,016) $1,738,370
Student Loan Marketing Association
Notes 250,000 - (6,528) 243,472
Federal Home Loan Bank Bonds 699,974 - (68,662) 631,312
Federal National Mortgage
Association Bonds 250,000 - (16,520) 233,480
Federal Farm Credit Bank Notes 99,875 - (856) 99,019
---------- ------ ---------- ----------
3,044,411 2,824 (101,582) 2,945,653
Other Securities:
Federal Home Loan Bank Stock 535,800 - - 535,800
Other 10,000 - - 10,000
---------- ------ ---------- ----------
545,800 - - 545,800
---------- ------ ---------- ----------
$3,590,211 $2,824 $ (101,582) $3,491,453
========== ====== ========== ==========
</TABLE>
The March 31, 1996 amortized cost and estimated market value of debt
securities by contractual maturity (without giving effect to earlier
"call" dates in certain instances) are as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Market
Cost Value
---------- ----------
<S> <C> <C>
Due in one year or less $2,148,015 $2,149,261
Due after one year through
five years 998,547 976,212
Due after five years through
ten years 200,000 177,803
---------- ----------
$3,346,562 $3,303,276
========== ==========
</TABLE>
Included in Federal Home Loan Bank Bonds at March 31, 1996 and 1995 are
three inverse floater structured notes maturing in 1997, 1998 and 2003,
with amortized costs totalling $500,000 and market values totalling
$464,326.
Federal Home Loan Bank stock is pledged as described in note 10. At
March 31, 1995, other investment securities with carrying values of
$100,000 were pledged to secure deposits. There were no other pledged
investments at March 31, 1996.
4. Mortgage-Backed Securities
--------------------------
Mortgage-backed securities classified as held to maturity, at March 31,
1996 and 1995, consisted of the following:
<TABLE>
<CAPTION>
March 31,
--------------------------------------------
1996 1995
-------------------- --------------------
Book Market Book Market
Value Value Value Value
----- ------ ----- ------
<S> <C> <C> <C> <C>
Federal Home Loan
Mortgage Corporation $218,323 $219,775 $266,328 $262,223
======== ======== ======== ========
</TABLE>
Estimated market values for such securities consisted of gross
unrealized gains (losses) of $1,452 and ($4,105) at March 31, 1996 and
1995, respectively.
5. Loans
-----
Loans at March 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Real estate mortgage - residential $33,125,498 $34,934,860
Real estate mortgage - commercial 4,509,243 3,896,071
Construction 226,048 329,600
Other commercial 838,425 670,784
Home equity 1,372,391 1,531,085
Passbook loans 309,842 402,311
Installment and other 2,670,721 2,267,849
----------- -----------
43,052,168 44,032,560
Less undisbursed amounts on construction loans (213,999) (320,439)
----------- -----------
$42,838,169 $43,712,121
=========== ===========
</TABLE>
Loans serviced for others at March 31, 1996, 1995 and 1994 totalled
$7,030,478, $5,242,665, and $4,259,972, respectively.
Nonperforming loans (contractually past due and nonaccruing as to
interest income) totalled $375,338 and $307,492 (including $160,919 and
$93,859 in process of foreclosure) at March 31, 1996 and 1995,
respectively. Unrecognized accrued interest on such loans totalled
$42,901 and $12,000 at March 31, 1996 and 1995, respectively.
The Company adopted the provisions of Statement of Financial Accounting
Standard No. 114, Accounting by Creditors for Impairment of Loan, as
amended by SFAS No. 118, Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures, effective January 1, 1995.
Prior periods have not been restated. All loans have been evaluated for
collectibility under the provisions of these statements.
The recorded investment in impaired loans, all of which were
nonaccruing, was approximately $360,000 at March 31, 1996; impaired
loans consisted of $161,000 of residential mortgages and $199,000 of
commercial mortgages. No specific allowance for losses was recorded
with respect to such loans. The average recorded investment in impaired
loans during 1996 was approximately $317,000. No interest income was
recognized on impaired loans during 1996. Interest is generally
recognized on impaired loans using the cash basis.
Activity in loans to directors and officers who had outstanding balances
greater than $60,000 during the year ended March 31, 1996 is shown
below.
<TABLE>
<CAPTION>
Balance Balance
April 1, 1995 New Loans Payments March 31, 1996
------------- --------- -------- --------------
<C> <C> <C> <C>
$391,579 $191,703 $24,684 $558,598
======== ======== ======= ========
</TABLE>
6. Allowance for Loan Losses
-------------------------
Changes in the allowance for loan losses are provided below.
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $183,683 $ 278,998 $150,629
Charge-offs (28,165) (184,608) (16,044)
Recoveries 3,828 8,293 4,413
Provisions for losses 62,010 81,000 140,000
-------- --------- --------
Balance, end of year $221,356 $ 183,683 $278,998
======== ========= ========
</TABLE>
7. Real Estate Owned
-----------------
Real estate owned and similar assets consisted of the following at March
31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Real estate acquired by foreclosure, net $224,137 $246,079
Loans to facilitate sale of real estate owned - 44,246
-------- --------
$224,137 $290,325
======== ========
</TABLE>
Activity in the allowance for losses on real estate owned and similar
assets for the years ended March 31, 1996, 1995 and 1994 is shown below.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 20,000 $ 18,664 $ -
Provision for losses, included in
real estate owned expense 38,789 20,000 18,664
Charge-downs (35,789) (18,664) -
-------- -------- -------
Balance, end of year $ 23,000 $ 20,000 $18,664
======== ======== =======
</TABLE>
In addition to the provision for losses reflected above, amounts shown
as "real estate owned" expense on the consolidated statements of income
include taxes, insurance and other holding costs incurred by the Bank.
8. Bank Premises and Equipment
---------------------------
Bank premises and equipment at March 31, 1996 and 1995 consists of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Building and improvements $1,284,371 $1,186,213
Land and land improvements 189,612 187,612
Furniture, fixtures and equipment 389,303 330,626
Leasehold improvements - 12,075
---------- ----------
1,863,286 1,716,526
Less accumulated depreciation 476,697 421,886
---------- ----------
Net bank premises and equipment $1,386,589 $1,294,640
========== ==========
</TABLE>
9. Deposits
--------
Demand deposits include $578,289 and $219,256 of official and other
outstanding checks drawn on the Bank at March 31, 1996 and 1995,
respectively.
Certificates of deposit consisted of the following at March 3l, 1996 and
1995.
<TABLE>
<CAPTION>
Original Terms 1996 1995
-------------- ---- ----
<S> <C> <C>
0 - 3 months - various rates $ 541,816 $ 689,104
4 - 6 months - various rates 2,403,829 1,496,692
Greater than 6 months to 2 years 14,042,282 14,107,982
Greater than 2 years 10,529,227 9,160,865
----------- -----------
$27,517,154 $25,454,643
=========== ===========
</TABLE>
Certificates of deposit in excess of $100,000 totalled approximately
$2,005,023 at March 31, 1996 and $3,000,957 at March 31, 1995.
Scheduled maturities for certificates of deposit at March 31, 1996 are
as follows:
<TABLE>
<CAPTION>
Year Ended
----------
<S> <C>
March 31, 1997 $17,488,478
March 31, 1998 6,164,659
March 31, 1999 1,284,247
March 31, 2000 2,002,984
Thereafter 576,786
</TABLE>
Interest expense by type of deposit is shown below.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
NOW accounts $ 72,855 $ 66,917 $ 64,934
Savings 128,570 139,157 145,944
Money market deposit accounts 209,556 123,373 121,378
Certificates of deposit 1,561,752 1,179,837 1,159,328
---------- ---------- ----------
$1,972,733 $1,509,284 $1,491,584
========== ========== ==========
</TABLE>
The weighted average interest rates at March 31, 1996 are as follows:
NOW accounts - 2.22%; savings - 2.79%; money market deposit accounts -
4.12% and certificates of deposit - 5.95%.
10. Advances From Federal Home Loan Bank
------------------------------------
Advances from the Federal Home Loan Bank (FHLB) at March 31, 1996 and
1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------------------------- --------------------------
Interest Interest
Rates Balance Rates Balance
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Advances maturing within:
One year 4.5% - 6.0% $4,525,000 3.6% - 6.6% $ 6,975,000
Two years 7.1% 500,000 4.5% - 4.8% 3,525,000
Three years 5.6% - 6.0% 2,225,000 - -
After three years 2.0% 215,000 2.0% 215,000
---------- -----------
$7,465,000 $10,715,000
========== ===========
</TABLE>
The FHLB advances are generally secured by a blanket lien and not by any
specific collateral. However, the Company is required to maintain an
amount of qualified collateral at least sufficient to satisfy the
regulatory collateral maintenance level. At March 31, 1996, the Bank's
limitation on advances from the FHLB exceeded $28,000,000.
Additionally, the Bank has available a line of credit for short-term
borrowings under the FHLB "Ideal Way" program totalling approximately
$1,050,000. Federal Home Loan Bank stock is pledged to secure
borrowings under this line. There were no borrowings under this line at
March 31, 1996 or 1995.
11. Income Taxes
------------
Income tax expense for the years ended March 31, 1996, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Currently payable:
Federal $146,300 $211,668 $261,889
State 8,694 10,806 9,073
-------- -------- --------
154,994 222,474 270,962
Deferred 2,000 26,000 (38,500)
-------- -------- --------
$156,994 $248,474 $232,462
======== ======== ========
</TABLE>
Income taxes were computed as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
At federal statutory rates $156,550 $243,389 $237,495
State taxes, net of federal tax effect 5,738 7,132 5,988
Other, net (5,294) (2,047) (11,021)
-------- -------- --------
$156,994 $248,474 $232,462
======== ======== ========
</TABLE>
Deferred income tax expense (benefit) resulted from:
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Provision for loan losses $(13,829) $ 6,331 $(29,906)
Deferred loan fees, net 18,189 6,667 2,492
Depreciation (1,831) 3,546 464
Prepaid and delinquent accrued interest on loans (839) 9,714 (10,031)
Other, net 310 (258) (1,519)
-------- -------- --------
$ 2,000 $ 26,000 $(38,500)
======== ======== ========
</TABLE>
At March 31, 1996 and 1995, the net deferred tax asset consisted of:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets, related to loan loss
reserves and deferred loan fees $121,300 $125,100
Deferred tax liabilities, related primarily
to depreciation (27,300) (29,100)
-------- --------
$ 94,000 $ 96,000
======== ========
</TABLE>
Retained earnings at March 31, 1996 included approximately $592,000
representing bad debt deductions allowed for tax purposes, for which no
provision for income taxes has been made. If this portion of retained
earnings is reduced for any purpose other than to absorb losses, or if
the Bank fails to meet certain criteria enabling it to be taxed as a
thrift institution, income taxes would be imposed at the then applicable
rates.
In the first quarter of fiscal 1994, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 109, which was issued
in final form in February 1992. As permitted by this Statement, the
Company elected not to restate consolidated financial statements for
years prior to 1994. The cumulative effect of applying Statement 109
totalled $47,000 and has been reflected as a cumulative effect of change
in accounting on the 1994 consolidated statement of income. The change
also decreased fiscal 1994 income tax expense by approximately $30,000
due to the treatment of loan loss reserves prescribed by Statement 109.
12. Other Expenses
--------------
Included in other expenses for the years ended March 31, 1996, 1995 and
1994 are:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Advertising $ 30,524 $ 24,217 $ 28,402
Taxes (other than income taxes) 50,553 39,393 32,934
Data processing 111,404 87,319 75,803
Stockholder expenses 53,017 33,163 35,008
Audit and examination 43,250 35,355 38,805
Legal expense 14,528 17,947 18,545
Other 244,676 199,325 192,077
-------- -------- --------
$547,952 $436,719 $421,574
======== ======== ========
</TABLE>
13. Retirement Plans
----------------
Pension Plan
------------
The Company participates in an industry-sponsored defined benefit
pension plan. This noncontributory plan includes all employees who meet
age and years of service requirements. Pension expense totalled
$27,631, $19,140 and $11,200 for the years ended March 31, 1996, 1995
and 1994, respectively.
The plan's assets are invested in fixed income securities and common
stocks. Information relative to the Company's portion of accumulated
plan benefits and assets available for benefits is not available.
However, the latest annual report for the entire plan indicates that, as
of June 30, 1995, net assets available for benefits (approximately
$1,451,093,000) exceeded the actuarial present value of accumulated plan
benefits by approximately $398,987,000. The actuarial present value of
accumulated plan benefits is based upon a discount rate of 7.5%.
401(k) Plan
-----------
The Company offers a 401(k) plan to its employees and contributes a
matching amount to participants; this matching amount is a portion of
the employees' contribution. The Company's contributions in 1996 and
1995 were $1,502 and $1,727, respectively.
14. Commitments and Contingencies
-----------------------------
Unfunded loan commitments expose the Company to credit risk in excess of
amounts recognized in the accompanying consolidated balance sheets.
Total credit exposure related to these items is summarized below.
<TABLE>
<CAPTION>
March 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Commitments for new loans $ 462,000 $ 680,977
Unused home equity and other lines of credit 1,419,329 1,186,604
Unfunded construction loans 213,999 320,439
---------- ----------
$2,095,328 $2,188,020
========== ==========
</TABLE>
Loan commitments include unfunded portions of real estate construction
and other loans, and unused lines of credit. Loan commitments are
subject to the same credit policies as loans and generally have
expiration dates and termination clauses. The Company obtains
collateral to secure loans based upon management's credit assessment of
the counterparty. Collateral is usually in the form of real estate.
The Bank is contingently liable for reimbursement of a governmental
grant to a not-for-profit agency should that agency fail to comply with
the provisions of that grant. The amount of the grant is $118,000 and
the Bank has obtained a mortgage on the property owned by the agency to
secure its contingent liability.
15. Stock Option Plan
-----------------
The Company has a stock option plan under which an amount equal to 10%
of the common stock of the Company is reserved for future issuance upon
exercise of stock options granted to certain members of the Board of
Directors, senior management and employees. The plan was initiated in
November 1989 and became effective in July 1990 upon ratification by a
vote of the stockholders. A summary of options granted (all of which
were granted at market price on the date of grant), exercised and
expired during 1996 and 1995 appears below.
<TABLE>
<CAPTION>
Per Share Option Price
(Adjusted for 1994 and 1996 Stock Dividends)
-----------------------------------------------------------
Total
Exercise Price: $ 7.40 $ 9.48 $9.94 $11.21 $12.21 $14.05 Options
------- ------ ----- ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding option
shares, April 1, 1994 9,587 2,135 618 5,272 836 - 18,448
Issued - 1995 - - - - - 1,852 1,852
Exercised - 1995 (5,140) (515) - (412) - - (6,067)
Cancelled - 1995 (18) - - (416) (836) - (1,270)
------- ------ ----- ------ ------ ------ ------
Outstanding option
shares March 31, 1995 4,429 1,620 618 4,444 - 1,852 12,963
Exercised - 1996 (1,072) - - (100) - - (1,172)
Adjustment for
stock dividend 169 78 30 212 - 91 580
------- ------ ----- ------ ------ ------ ------
Outstanding option
shares, March 31, 1996 3,526 1,698 648 4,556 - 1,943 12,371
======= ====== ===== ====== ====== ====== ======
Options expire in 1999 2002 2002 2003 2005
</TABLE>
16. Fair Value of Financial Instruments
-----------------------------------
As required by Statement of Financial Accounting Standards No. 107, fair
value estimates, methods, and assumptions are set forth below for the
Company's estimated fair values of its financial instruments. Fair
values have been calculated based on the value of one unit without
regard to any premium or discount that may result from concentrations of
ownership of a financial instrument, possible tax ramifications, or
estimated transaction costs. If these considerations had been
incorporated into the fair value estimates, the aggregate fair value
amount could have changed.
Management has made estimates of fair value discount rates that it
believes to be reasonable. However, because there is no market for many
of these financial instruments, management has no basis to determine
whether the fair value presented above would be indicative of the value
negotiated in the actual sale.
Cash, Due from Banks and Federal Funds Sold
-------------------------------------------
The fair value of cash, due from banks and federal funds sold
approximates their relative book values at March 31, 1996, as these
financial instruments have short maturities.
Time Deposits
-------------
The fair value of time deposits is based on the discounted cash flows of
the deposits using estimated market discount rates that reflect the
interest rate risk inherent in the time deposit.
Investment Securities and Mortgage-Backed Securities
----------------------------------------------------
The fair value of investment securities and mortgage-backed securities
is estimated based on bid prices published in financial newspapers or
bid quotations received from securities dealers at or near March 31,
1996, except for FHLB stock which is valued at its cost since there is
no market.
Loans
-----
Fair values are estimated for portfolios of loans with similar financial
characteristics. The fair values of performing loans are calculated by
discounting scheduled cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest
rate risk inherent in the loan. The estimates of maturity are based on
the Company's historical experience with repayments for each loan
classification, modified, as required, by an estimate of the effect of
current economic, lending conditions and the effects of estimated
prepayments.
Fair values of any significant nonperforming loans are based on
estimated cash flows discounted using a rate commensurate with the risk
associated with the estimated cash flows. Assumptions regarding credit
risk, cash flows, and discount rates are judgmentally determined using
available market information and historical information.
Accrued Interest Receivable
---------------------------
The fair market value of this financial instrument approximates the book
value as this financial instrument has a short maturity.
Deposit Liabilities
-------------------
The fair value of deposits with no stated maturity, such as non-
interest-bearing demand deposits, savings, and NOW accounts, and money
market and checking accounts, is equal to the amount payable on demand
as of March 31, 1996. The fair values of certificates of deposit are
based on the discounted value of contractual cash flows. The discount
rate is estimated using the rates currently offered for deposits of
similar remaining maturities.
The fair value estimates do not include the benefit that results from
the low-cost funding provided by the deposit liabilities compared to the
cost of borrowing funds in the market. If that value was considered at
March 31, 1996, the fair value of the Bank's net assets would increase.
Advances from the Federal Home Loan Bank
----------------------------------------
The fair value of advances from the Federal Home Loan Bank is based upon
the discounted value of contractual cash flows, with a discount rate
based upon rates currently offered for similar remaining maturities.
Commitments to Extend Credit
----------------------------
The fair value of commitments to extend credit cannot be reasonably
estimated without incurring excessive costs as the Company does not
charge fees for such commitments and there is no ready market for this
financial instrument.
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These values do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on judgments regarding future expected loss
experience, current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that
are not considered financial instruments. Other significant assets and
liabilities that are not considered financial instruments include the
deferred tax assets, Company premises and equipment, and other real
estate owned. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in any of
the estimates.
The carrying and estimated fair values of financial instruments at March
31, 1996 are summarized below, in thousands:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-------- -----
<S> <C> <C>
Assets:
Cash, due from banks, and federal funds sold $ 2,727 $ 2,727
Time deposits 1,781 1,787
Investments and mortgage-backed securities 4,652 4,610
Loans 43,025 43,034
Accrued interest receivable 315 315
Liabilities:
Deposit liabilities 41,817 41,865
Borrowed funds 7,465 7,354
</TABLE>
17. Mid-Coast Bancorp, Inc.
-----------------------
Condensed financial statements for Mid-Coast Bancorp, Inc. at March 31,
1996 and 1995 and for the years ended March 31, 1996, 1995 and 1994 are
presented below.
<TABLE>
<CAPTION>
Balance Sheets
--------------
1996 1995
---- ----
<S> <C> <C>
Assets:
Due from the Bank $ 3,124 $ 118,216
Investment in the Bank 4,922,953 4,604,380
---------- ----------
Total assets $4,926,077 $4,722,596
========== ==========
Liabilities and stockholders' equity:
Stockholders' equity $4,926,077 $4,722,596
---------- ----------
Total liabilities and stockholders' equity $4,926,077 $4,722,596
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Statements of Operations
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating expenses $ 15,125 $ 8,510 $ 6,795
-------- -------- --------
Loss before equity in earnings of subsidiary (15,125) (8,510) (6,795)
Equity in earnings of subsidiary:
Remitted - 100,000 130,566
Unremitted 318,572 375,885 389,281
-------- -------- --------
318,572 475,885 519,847
-------- -------- --------
Net income $303,447 $467,375 $513,052
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 303,447 $ 467,375 $ 513,052
Adjustments to reconcile net income to net cash used
by operating activities:
Equity in unremitted earnings of subsidiary (318,572) (375,885) (389,281)
--------- --------- ---------
Net cash provided (used) by operating activities (15,125) 91,490 123,771
Cash flows from financing activities:
Issuance of common stock 9,395 44,569 15,200
Decrease in due to the Bank - - (23,909)
Dividends paid (109,362) (86,442) (62,815)
--------- --------- ---------
Net cash used by financing activities (99,967) (41,873) (71,524)
--------- --------- ---------
Net increase in cash and due from banks (115,092) 49,617 52,247
Cash and due from banks at beginning of period 118,216 68,599 16,352
--------- --------- ---------
Cash and due from banks at end of period $ 3,124 $ 118,216 $ 68,599
========= ========= =========
</TABLE>
Subsidiaries of the Holding Company
-----------------------------------
The Waldoboro Bank, F.S.B.
1768 Atlantic Highway
P.O. Box 589
Waldoboro, ME 04572
First Waldoboro Corporation
1768 Atlantic Highway
P.O. Box 589
Waldoboro, ME 04572
The Board of Directors
Mid-Coast Bancorp, Inc.
We consent to the incorporation by reference in this Annual Report (Form 10-
KSB) of Mid-Coast Bancorp, Inc. of our report dated May 3, 1996, included in
the 1996 Annual Report to Shareholders of Mid-Coast Bancorp, Inc. We also
consent to the incorporation by reference in the Registration Statement Form
S-8 (No. 33-69194) pertaining to the 1989 Stock Option Plan of Mid-Coast
Bancorp, Inc. of our report dated May 3, 1996, with respect to the consolidated
financial statements of Mid-Coast Bancorp, Inc. incorporated by reference in
this Annual Report (Form 10-KSB) for the year ended March 31, 1996.
Portland, Maine /s/ Baker Newman & Noyes
June 24, 1996 Limited Liability Company
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated Balance Sheet as of March 31, 1996 and the consolidated statement
of income for the year ended March 31, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 296,198
<INT-BEARING-DEPOSITS> 805,853
<FED-FUNDS-SOLD> 1,625,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 528,673
<INVESTMENTS-CARRYING> 4,123,185
<INVESTMENTS-MARKET> 4,081,351
<LOANS> 42,838,169
<ALLOWANCE> 221,356
<TOTAL-ASSETS> 54,362,066
<DEPOSITS> 41,816,902
<SHORT-TERM> 0
<LIABILITIES-OTHER> 154,087
<LONG-TERM> 7,465,000
0
0
<COMMON> 229,031
<OTHER-SE> 4,697,046
<TOTAL-LIABILITIES-AND-EQUITY> 54,362,066
<INTEREST-LOAN> 3,965,600
<INTEREST-INVEST> 210,078
<INTEREST-OTHER> 214,011
<INTEREST-TOTAL> 4,389,689
<INTEREST-DEPOSIT> 1,972,733
<INTEREST-EXPENSE> 2,485,256
<INTEREST-INCOME-NET> 1,904,433
<LOAN-LOSSES> 62,010
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,565,259
<INCOME-PRETAX> 460,441
<INCOME-PRE-EXTRAORDINARY> 460,441
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 303,447
<EPS-PRIMARY> 1.33
<EPS-DILUTED> 1.33
<YIELD-ACTUAL> 3.68
<LOANS-NON> 375,338
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 183,683
<CHARGE-OFFS> 28,165
<RECOVERIES> 3,828
<ALLOWANCE-CLOSE> 221,356
<ALLOWANCE-DOMESTIC> 221,356
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
