-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J5we1wZYR3/1OptgmNHAukgAf/yIfiE9zxssQ5wLdHOQ7DfWKVNL593jZt9HhiBd YJD4KsnFpfCBVgQZFVSVhQ== 0001029869-98-000983.txt : 19980803 0001029869-98-000983.hdr.sgml : 19980803 ACCESSION NUMBER: 0001029869-98-000983 CONFORMED SUBMISSION TYPE: SB-2/A PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19980731 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERRILL MERCHANTS BANCSHARES INC CENTRAL INDEX KEY: 0000913072 STANDARD INDUSTRIAL CLASSIFICATION: FUNCTIONS RELATED TO DEPOSITORY BANKING, NEC [6099] IRS NUMBER: 010471507 STATE OF INCORPORATION: ME FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2/A SEC ACT: SEC FILE NUMBER: 333-56197 FILM NUMBER: 98675618 BUSINESS ADDRESS: STREET 1: 201 MAIN ST CITY: BANGOR STATE: ME ZIP: 04401 BUSINESS PHONE: 2079424800 MAIL ADDRESS: STREET 1: 201 MAIN STREET CITY: BANGOR STATE: ME ZIP: 04401 SB-2/A 1 MERRILL MERCHANTS FORM SB-2/A As filed with the Securities and Exchange Commission on July 31, 1998 Registration No. 333-56197 ================================================================================ U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------------- Pre-Effective Amendment No. 2 to Form SB-2 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 --------------- Merrill Merchants Bancshares, Inc. (Name of Small Business Issuer in its Charter) Maine 6712 01-0471507 (State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
Edwin N. Clift Merrill Merchants Bancshares, Inc. 201 Main Street Bangor, ME 04401 207-942-4800 (Address and Telephone Number of Principal Place of Business and Executive Offices and Name, Address and Telephone Number for Agent for Service) COPIES TO: Harry A. Hanson, III, Esq. William W. Bouton, III, Esq. Hutchins, Wheeler & Dittmar Tyler Cooper & Alcorn, LLP A Professional Corporation City Place, 35th Floor 101 Federal Street Hartford, CT 06103 Boston, MA 02110 860-725-6210 617-951-6600
Approximate date of proposed sale to the public: As soon as practicable after the effective date of Registration. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------
Title of Each Dollar Proposed Proposed Class of Amount Maximum Maximum Amount of Securities to Be To Be Offering Price Aggregate Registration Registered Registered Per Share(1) Offering Price Fee - ------------------ ------------------- ---------------- ------------------- ------------- Common Stock $9,660,000(2) $14 $ 9,660,000(2) $ 2,849.70
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(a). (2) Includes an aggregate of $1,260,000 to cover overallotments, if any, pursuant to the overallotment option granted to the Underwriters. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. AS SHOWN, SUBJECT TO COMPLETION, DATED JULY 31, 1998 [RED_HERRING] Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitations of an offer to buy nor shall there by any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such State. [/RED_HERRING] 600,000 Shares --------------- [Logo] Merrill Merchants Bancshares, Inc. --------------- Common Stock --------------- Merrill Merchants Bancshares, Inc. (the "Company"), a Maine corporation and a one-bank holding company for Merrill Merchants Bank, a Maine chartered bank, hereby offers (the "Offering") for sale 600,000 shares of its Common Stock, par value $1.00 per share (the "Common Stock"). Prior to this Offering, there has been no public market for the Common Stock of the Company. It is currently anticipated that the initial public offering price will be between $12.00 and $14.00 per share of Common Stock. See "Underwriting" for a discussion of the factors considered in determining the Offering price. Shares of Common Stock may be reserved for sale at the initial public offering price to the Company's employees, directors and other persons with direct business relationships with the Company. Such employees, directors and other persons may purchase, in the aggregate, not more than 10% of the Common Stock offered hereby. See "Underwriting". Prior to this Offering, there has been no public market for the Common Stock and no assurance can be given that any such market will develop or, if developed, that it will be sustained. The Company has applied for listing of the Common Stock offered hereby on the National Association of Securities Dealers Automated Quotation System National Market System ("NASDAQ-NMS"), under the symbol "MERB." See "Risk Factors" beginning on page 8 for certain considerations relevant to an investment in the Common Stock. --------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------------------------
Underwriting Discounts and Proceeds to Price to Public Commissions (1) Company (2) Per Share ......... $ $ $ Total (3) ......... $ $ $
- -------------------------------------------------------------------------------- (1) The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting offering expenses payable by the Company estimated at $475,000. (3) The Company has granted the Underwriter a 30-day option to purchase up to 90,000 additional shares of Common Stock, on the same terms and conditions set forth above, solely to cover overallotments, if any. If such option is exercised in full, the total Price to the Public, Underwriting Discounts and Commissions, and Proceeds to the Company will be $ , $ , and $ , respectively. The managing underwriter will receive a supplemental financial advisory fee of $25,000, payable upon consummation of the Offering. See "Underwriting." --------------- The shares of Common Stock are being offered by the Underwriter subject to prior sale, when, as and if delivered to and accepted by the Underwriter. The Underwriter reserves the right to withdraw, cancel, or modify this Offering without notice and to reject any order in whole or in part. It is expected that delivery of certificates representing the shares of Common Stock will be made against payment therefore on or about , 1998 at the offices of Advest, Inc., New York, New York. --------------- Advest, Inc. The Date of this Prospectus is _________, 1998. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. ---------------- AVAILABLE INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission" or the "SEC"), Washington, D.C., a Registration Statement on Form SB-2 ("Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Common Stock offered hereby. This prospectus (the "Prospectus") does not contain all the information set forth in the Registration Statement and the schedules and exhibits thereto, certain parts of which have been omitted pursuant to the rules of the Commission. Statements herein concerning the contents of any contract or other document are summaries thereof, and each statement is qualified in its entirety by reference to the copy of such contract or other document filed with the Commission as an exhibit to the Registration Statement or otherwise. For further information about the Company and such securities, reference is made to the Registration Statement and the schedules and exhibits filed as part thereof. Upon the completion of the Offering, the Company will become subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder, and in accordance therewith, intends to file reports and other information with the Commission. The Registration Statement, together with schedules and exhibits, and such reports and other information filed by the Company with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 and its regional offices may be inspected without charge, and copied at the principal or regional offices of the Commission at the addresses indicated above. Copies also may be obtained at prescribed rates from the public reference facilities maintained by the Commission at its Washington, D.C. address. The Commission also maintains an Internet web site that contains information, including registration statements, of issuers who file electronically with the Commission. The address of the web site is http:// www.sec.gov. The Company will furnish annual reports to its shareholders which will contain audited financial statements certified by its independent public accountants. The Company may distribute unaudited quarterly reports and other interim reports to its shareholders as it deems appropriate. ii [Logo] Merrill Merchants Bancshares, Inc. Service Area Map - -------------------------------------------------------------------------------- [Logo] Merrill Merchants Bancshares, Inc. MAIN OFFICE Bangor [bullet] 201 Main Street (04401) BRANCH OFFICES Bangor [bullet] 920 Stillwater Avenue (04401) [bullet] 992 Union Street Brewer [bullet] 366 Wilson Street (04412) Orono [bullet] 69 Main Street (04473) Pittsfield [bullet] 27 Main Street (04967) Newport [bullet] Newport Plaza (04953) [Map of the state of Maine depicting certain geographical areas highlighting the following:] PISCATAQUIS COUNTY KENNEBEC COUNTY WALDO COUNTY HANCOCK COUNTY SOMERSET COUNTY Pittsfield PENOBSCOT COUNTY Newport Orono Bangor Brewer iii This Page Is Intentionally Left Blank iv PROSPECTUS SUMMARY This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in Risk Factors and elsewhere in this Prospectus. The following summary is qualified in its entirety by the more detailed information and Consolidated Financial Statements and the notes thereto appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus (i) reflects, following receipt of the requisite shareholder approvals and upon the closing of the Offering, the filing of the Restated Articles of Incorporation of the Company which, among other things, will authorize 4,000,000 shares of Common Stock, 50,000 shares of Series A Preferred Stock, $1.00 par value per share ("Series A Preferred Stock"), and 950,000 shares of Serial Preferred Stock, $.01 par value per share ("Serial Preferred Stock"), and a 9:1 stock split, effected as a stock dividend, to be completed prior to the closing of the Offering (the "9:1 Stock Split") and (ii) assumes no exercise of the Underwriter's overallotment option to purchase 90,000 shares of Common Stock. The Company Merrill Merchants Bancshares, Inc. (the "Company"), a Maine corporation organized in March 1992, is a registered bank holding company under the Bank Holding Company Act of 1956, as amended ("BHCA"). In October 1992, the Company became the bank holding company for Merrill Merchants Bank (the "Bank") and holds 100% of the Bank's outstanding common stock (the "Bank Stock"). The Company, through its ownership of the Bank, is engaged in a general commercial and retail banking business, along with trust and investment services. The Company is an entity legally separate and distinct from the Bank. The only sources of the Company's income and cash flow are any dividends paid on the Bank Stock, tax benefits received by the Company and earnings from amounts deposited by the Company in interest bearing accounts or investments. The payment of dividends by the Bank, the payment of dividends by the Company and many other aspects of the operations of the Company and the Bank are subject to regulation and control by various regulatory agencies. The Company has its principal executive offices at 201 Main Street, Bangor, Maine 04401, telephone (207) 942-4800. Merrill Merchants Bank The Bank was established in 1992 to purchase certain assets and assume certain liabilities of certain branch banking offices formerly held by a large out of state bank. Merrill Merchants Bank is headquartered in Bangor, Maine, which is located 76 miles north of Augusta, Maine, the State Capital. Presently, the Bank maintains seven branch banking offices (collectively, the "Branch Banks") in five area communities. The three Bangor offices provide city-wide convenience and are complemented by: (i) an office in Brewer, Bangor's sister city located on the eastern shore of the Penobscot River; (ii) a branch in Orono, home of the University of Maine, the State's flagship campus; (iii) a branch in Pittsfield, a small rural town of 4,000 people located about 30 miles southwest of Bangor; and (iv) a new supermarket branch in Newport, a small town neighboring Pittsfield, approximately 25 miles southwest of Bangor. The Newport Branch is located at the juncture of Interstate 95 and Route 2, which is the main travel route to the winter and summer tourist area of the Moosehead Lake Region. In addition to the Branch Banks, the Bank has seven ATM locations in its primary market area. The Bank conducts a general commercial and retail banking business that includes the acceptance of deposits from the general public and the application of those funds to the origination of a variety of commercial loans, commercial and residential real estate loans and consumer loans. The Bank also provides trust and investment services. As of March 31, 1998, the Company had total assets of $175.8 million, loans net of allowances of $118 million, total deposits of $140.4 million and shareholders' equity of $11.5 million. Unless the context otherwise requires, references herein to the Company shall include the Company and the Bank, on a consolidated basis after October, 1992. The Bank's loan portfolio has grown over the last two years, while nonperforming loans as a percentage of total loans were at .20% and .15% at March 31, 1998 and December 31, 1997, respectively, both percentages being 1 below the Bank's national peer group average of .68%. The Bank has also established a Trust and Investment Services Department, which has grown since inception in April 1994 to $98.5 million in assets under management as of March 31, 1998. The Bank offers its customers the option of conducting many of their transactions via an automated telephone banking system and through the use of the customer's personal computer. The Bank's income is derived principally from interest and fees earned in connection with its lending and trust department activities, interest and dividends on investment securities, short-term investments and other services. Its main expenses are the interest paid on deposits and operating expenses. The Bank's deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). Market Area The Bank's primary market area, Greater Bangor, is at the center of commercial activity for the northeastern and central region of the State of Maine. Nearly 100,000 people live in the Bank's primary market area. The Bank is part of a strategic link to Canada as Bangor is the closest U.S. metropolitan area to Eastern Quebec and the Canadian Maritime Provinces. Many regional and national companies site their operations in the Bangor area. Services, trades, manufacturing and government are the four largest categories of employment in the metropolitan Bangor region. Bangor is also a health care center for central, eastern and northern Maine. The City is a regional financial center and is also serviced by several statewide and regional accounting firms, law firms, insurance companies and security and investment firms. Bangor is also a hub for government services, with many local, State and Federal offices located within the City. Bangor is accessible by multiple exits from Interstate 95, a major interstate highway which transits the Eastern Seaboard of the United States. Major routes to all regions of the State bisect Bangor from various directions. Bangor International Airport provides domestic and international passenger and cargo service for a significant portion of the State. Strategy The Bank was formed by a group of local business people who, after observing a series of large bank acquisitions in the region, believed that the remaining banks were no longer effectively servicing the needs of the community. The Bank founders identified the need for a customer-service oriented, independent community bank serving Bangor and central Maine. To serve this need, the Bank has worked to position itself as a service-oriented, community bank. The Bank is staffed by experienced management personnel, most of whom reside in the area, know the Bank's customers and are able to provide personalized service for these customers. The Bank's strategy has been deliberately developed and implemented at a time when consolidation within the industry and in the region has resulted in an increasing depersonalization among the larger institutions. The Bank has focused on fostering banking relationships with customers which include providing multiple financial services that range from basic checking to investment management accounts. The Bank has also attracted local business people to serve on its Board of Directors, each of whom promote the Bank in the community. In addition, the Bank has obtained additional investments in and support for the Bank from local investors in an effort to broaden the community's awareness of the Bank and attract new business. By continuing to follow the original goal to have a customer-service oriented, independent community bank, the Bank has experienced growth since inception. Management intends to continue the Bank's community banking strategy while at the same time attempting to increase its market share. 2 The Offering Common Stock Offered ................................ 600,000 shares (l) Common Stock Outstanding after the Offering ......... 2,255,640 shares (1)(2)(3) Estimated Net Proceeds .............................. $6,740,000(1)(4)(5) Use of Proceeds ..................................... Working capital and general corporate purposes, including investments in the Bank, possible market expansion in banking and businesses closely related to banking and possible repayment of borrowings. See "Use of Proceeds." Risk Factors ........................................ Prospective investors in the Common Stock should consider the information discussed under the heading "Risk Factors." Proposed NASDAQ-NMS Symbol .......................... "MERB"
- ---------- (1) Assumes no exercise of the Underwriter's overallotment option to purchase 90,000 shares of Common Stock. See "Underwriting." (2) Based on the number of shares of Common Stock outstanding on March 31, 1998. Excludes 540,027 shares of Common Stock issuable upon exercise of stock options outstanding at March 31, 1998 with a weighted average exercise price of $5.15 per share. See "Capitalization", "Management -- Stock Option Plan", "Description of Securities" and Note 19 of Notes to Consolidated Financial Statements. (3) Does not include 66,654 shares of Common Stock issuable upon conversion of the Company's outstanding Mandatory Convertible Debentures ("Debentures") and 199,935 shares of Common Stock issuable upon conversion of the outstanding Series A Preferred Stock. See "Capitalization", "Description of Securities," and Notes 11 and 15 of Notes to Consolidated Financial Statements. (4) After deducting the underwriting commission and expenses of this Offering payable by the Company, which expenses are estimated at $475,000. (5) Assumes an offering price of $13 per share (the midpoint of the price range set forth on the cover page of this Prospectus). 3 SUMMARY CONSOLIDATED FINANCIAL INFORMATION MERRILL MERCHANTS BANCSHARES, INC. (Dollars in thousands, except share data)
At or for the Three Months Ended At or for the March 31, Year Ended December 31, --------------------------- --------------------------- 1998 1997 1997 1996 ------------- ------------- ------------- ------------- (Unaudited) Selected Financial Condition Data: Total assets .............................................. $ 175,753 $ 160,034 $ 178,619 $ 158,425 Cash and cash equivalents ................................. 6,775 11,427 10,659 8,591 Investment securities ..................................... 45,579 37,411 44,826 41,014 Loans receivable, net (1) ................................. 118,036 106,416 117,679 104,320 Deposits .................................................. 140,398 126,856 146,312 126,704 Repurchase agreements ..................................... 13,554 12,268 11,897 12,164 Other borrowed funds ...................................... 5,856 6,000 5,144 2,832 Long-term debt ............................................ 2,745 3,695 2,895 3,695 Mandatory convertible debentures .......................... 300 300 300 300 Shareholders' equity ...................................... 11,506 9,809 10,967 9,671 Income Statement Data: Interest and dividend income .............................. $ 3,510 $ 3,074 $ 13,215 $ 11,826 Interest expense .......................................... 1,613 1,409 6,060 5,383 Net interest income ....................................... 1,897 1,665 7,155 6,443 Provision for loan losses ................................. 90 75 355 360 Net interest income after provision for loan losses ....... 1,807 1,590 6,800 6,083 Non-interest income ....................................... 481 404 1,724 1,489 Non-interest expense ...................................... 1,695 1,553 6,357 5,813 Income before income taxes ................................ 593 441 2,167 1,759 Income tax expense ........................................ 213 161 765 639 Net income ................................................ 380 280 1,402 1,120 Per Share Data: Earnings per share-basic (2) .............................. .22 .16 .82 .65 Earnings per share-diluted (2) ............................ .19 .14 .71 .58 Cash dividends on Common Stock (2) ........................ .03 -- .03 -- Book value (2)(3) ......................................... 6.92 6.14 6.77 5.98 Weighted average shares outstanding (2) ................... 1,641,969 1,619,226 1,619,226 1,619,226 Selected Financial Ratios and Other Data: Return on average assets (4) .............................. 0.89% 0.74% 0.86% 0.78% Return on average equity (3)(4) ........................... 13.69% 11.57% 13.63% 12.28% Net interest margin (4)(5) ................................ 4.59% 4.59% 4.67% 4.72% Net interest spread (4) ................................... 3.87% 3.90% 3.97% 3.97% Non-performing assets to total assets (6) ................. 0.13% 0.37% 0.13% 0.45% Non-performing loans to total loans (6) ................... 0.20% 0.21% 0.15% 0.36% Allowance for loan losses to total loans .................. 1.50% 1.41% 1.44% 1.37% Allowance for loan losses to non-performing loans (6) ..... 768.80% 674.67% 933.15% 384.62% Net loan charge-offs to average loans (4) ................. .03% .03% 0.08% 0.04% Efficiency ratio (7) ...................................... 71.28% 75.06% 71.60% 73.29% Capital Ratios: Tier 1 risk-based capital (8) ............................. 10.25% 9.66% 9.77% 9.53% Total risk-based capital (8) .............................. 11.78% 11.22% 11.30% 11.10% Leverage ratio (8)(9) ..................................... 6.38% 6.19% 6.06% 5.98%
4 - ---------- (1) Includes loans held for sale. (2) Adjusted to reflect the 9:1 Stock Split, 5% stock dividends in each of 1998 and 1997 and a 3% stock dividend in 1996. (3) Excludes unrealized gain or loss on securities available for sale net of taxes. (4) Information is annualized for the periods ended March 31, 1998 and 1997. (5) Represents net interest income as a percentage of average interest earning assets. Calculation is shown tax-effected for tax exempt interest income assuming a Federal tax rate of 34%. (6) Non-performing assets consist of non-performing loans and other real estate owned. Non-performing loans consist of non-accrual loans and accruing loans 90 days or more past due while other real estate owned consists of real estate acquired through foreclosure and real estate acquired by acceptance of a deed-in-lieu of foreclosure. (7) Non-interest expense divided by the sum of net interest income plus non-interest income. (8) The minimum regulatory capital ratios in order for the Company to be adequately capitalized are: Tier 1 capital -- 4.00%; total risk-based capital -- 8.00%; and leverage ratio -- 4.00%. (9) The leverage ratio is defined as the ratio of Tier 1 capital to average total assets. 5 Recent Developments The following is a summary of the Company's results of operations for the three and six month periods ended June 30, 1998 and 1997, and its financial condition as of June 30, 1998 and December 31, 1997.
At or for the Three Months At or for the Six Months Ended June 30, Ended June 30, ------------------------- ------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- (Unaudited) (Dollars in thousands, except per share data) Interest and dividend income ...................... $ 3,581 $ 3,199 $ 7,091 $ 6,273 Interest expense .................................. 1,645 1,458 3,258 2,867 -------- -------- -------- -------- Net interest and dividend income .................. 1,936 1,741 3,833 3,406 Provision for loan losses ......................... 90 75 180 150 -------- -------- -------- -------- Net interest income after provision for loan losses 1,846 1,666 3,653 3,256 Non-interest income ............................... 510 397 991 801 Non-interest expense .............................. 1,665 1,543 3,360 3,096 -------- -------- -------- -------- Income before income taxes ........................ 691 520 1,284 961 Income tax expense ................................ 240 191 453 352 -------- -------- -------- -------- Net income ........................................ $ 451 $ 329 $ 831 $ 609 ======== ======== ======== ======== Earnings per share-basic (1) ...................... $ .26 $ .19 $ .48 $ .35 ======== ======== ======== ======== Earnings per share-diluted (1) .................... .22 $ .17 .41 $ .31 ======== ======== ======== ======== Selected Ratios: Return on average assets (2) ...................... 1.02% 0.85% 0.95% 0.80% Return on average equity (2) (3) .................. 15.47% 13.07% 14.60% 12.33% Net interest margin (2) ........................... 4.59% 4.66% 4.59% 4.63% Non-performing assets to total assets ............. 0.14% 0.35% 0.14% 0.35% Allowance for loan losses to total loans .......... 1.53% 1.42% 1.53% 1.42% Leverage ratio .................................... 6.50% 6.26% 6.50% 6.26%
June 30, December 31, 1998 1997 ------------ ------------- (Unaudited) (Dollars in thousands) Cash and cash equivalents .............................. $ 13,325 $ 10,659 Investment securities .................................. 41,654 44,826 Loans receivable, net (4) .............................. 121,292 117,679 Properties and equipment, net .......................... 2,877 2,806 Other assets ........................................... 4,585 2,649 -------- -------- Total assets ........................................... $183,733 $178,619 ======== ======== Deposits ............................................... $148,815 $146,312 Securities sold under agreements to repurchase ......... 11,730 11,897 Other borrowed funds ................................... 7,126 5,144 Other liabilities ...................................... 1,065 1,104 Long-term debt ......................................... 2,745 2,895 Mandatory convertible debentures ....................... 300 300 Shareholders' equity ................................... 11,952 10,967 -------- -------- Total liabilities and shareholders' equity ............. $183,733 $178,619 ======== ========
- ------------ (1) Adjusted to reflect the 9:1 Stock Split, and a 5% stock dividend in 1998. (2) Information is annualized. (3) Excludes unrealized gain or loss on securities available for sale net of taxes. (4) Includes loans held for sale. 6 Results of Operations Comparison of Three Months Ended June 30, 1998 and 1997 The Company's net income was $451,000 for the three months ended June 30, 1998 as compared to $329,000 for the comparable prior year period. Net interest income increased by $195,000 or 11.2% due to a growth in average earnings assets of $19.6 million. Non-interest income increased by $113,000 or 28.5% due to an increase of gain on sale of mortgage loans of $55,000 and increases in trust fees of $37,000. Non-interest expense increased by $122,000 or 7.9% primarily due to an increase in salary and employee benefits associated with the addition of employees at the Newport Branch established in April 1997. Comparison of Six Months Ended June 30, 1998 and 1997 The Company's net income increased to $831,000 for the six months ended June 30, 1998 as compared to $609,000 for the comparable prior year period. Net interest income increased by $427,000 due primarily to a growth in average earning assets of $20.1 million. Non-interest income increased by $190,000 due to increases in gain on mortgage loan sales of $84,000 and trust fees of $69,000. Non-interest expense increased $264,000 due to increases of salary and employee benefits of $209,000 and data processing fees of $33,000. Financial Condition The Company's total assets were $183.7 million at June 30, 1998, an increase of $5.1 million from $178.6 million at December 31, 1997. At June 30, 1998, the loan portfolio net of allowance was $121.3 million as compared to $117.7 million at December 31, 1997 with the growth concentrated in commercial loans. Non-performing assets at June 30, 1998 amounted to $250,000 or .14% of total assets. Cash and cash equivalents increased $2.7 million from December 31, 1997 as a result of increases in Federal Funds sold and interest-bearing deposits with banks. Total deposits increased to $148.8 million at June 30, 1998 compared with $146.3 million at December 31, 1997. The net deposit growth is attributable to increases in the savings and NOW account balances of $5.1 million and decreases in both demand deposit balances of $1.5 million and certificates of deposit of $1.1 million. Shareholders' equity increased by $985,000 primarily due to net income generated during the period, and as a result of the issuance of additional Common Stock in connection with the exercise of stock options. 7 RISK FACTORS A prospective investor should review and consider carefully the following factors, together with the other information contained in this Prospectus, in evaluating an investment in the Common Stock. This discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those Risk Factors set forth below. Risks Related to Competition The banking business is highly competitive. The Bank, including its branches, competes with other banks, savings banks, credit unions, and other financial institutions in their local communities for loans and deposits. The Bank also competes directly with regional and national financial institutions. While the Company cannot predict the impact of interstate banking, it anticipates that competition could intensify as local institutions increasingly merge and become part of larger national organizations. In addition, the Bank presently competes with non-bank institutions such as mortgage companies, securities brokerage companies and insurance companies. Legislation pending in the United States Congress would allow more competition from such sources. As these changes occur, the banking environment will become more competitive with the largest market shares going to the lowest cost provider that has an efficient product delivery system. The Bank hopes to take advantage of the opportunity currently being created by the large commercial banks as they de-emphasize personalized service, move loan and credit decisions from the local areas, and move to consolidate trust services out of state, resulting in less personalized service. If the Company and the Bank are unable to successfully compete, however, the business and operations of the Company and the Bank could be adversely affected. See "Business -- Competition." Dependence on Economic Conditions Every bank is affected by the economic conditions beyond its control in the area in which it operates. The main facility of the Bank and two of its branches are located in Bangor, Maine, and the remaining four branches are located in Newport, Orono, Pittsfield and Brewer, Maine. A depressed economy in the early 1990's in the United States, and in particular, in New England, caused financial hardship in the Bank's primary market area. However, the central region of Maine has achieved modest growth over the past several years as part of a general recovery of the whole Northeast region after such recession. In addition, the Company believes that property values in the Bank's market area have generally been more stable than in southern Maine and the New England states as a whole. While management believes that the composition of business in these communities is sufficiently diversified and not unduly concentrated in any particular industry, there can be no assurance that future adverse economic conditions will not have a negative impact upon the quality of the Bank's loan portfolio and the Company's earnings. Therefore, the Bank and the Company remain vulnerable to downturns in the economy of the areas in which the Bank operates and particularly to downturns in the forestry, pulp, paper and healthcare industries. See "Business -- Economic Environment." Impact on Bank's Loan Portfolio Due to Changes in Real Estate Values A significant portion of the Bank's loan portfolio consists of residential mortgage loans and commercial real estate loans. At December 31, 1997, 39.5% of the Bank's loans were secured by one-to-four family residential real estate, 34.3% were secured by commercial real estate and multifamily residential and 2.5% were real estate-secured construction loans. Further, a substantial portion of the properties securing the Bank's loans are located in Maine, primarily in Greater Bangor. Real estate values and real estate markets generally are affected by, among other things, changes in national, regional or local economic conditions, fluctuations in interest rates and the availability of loans to potential purchasers, changes in the tax laws and other governmental statutes, regulations and policies, demographic trends and acts of nature. Any decline in real estate prices, particularly in Maine, could significantly reduce the value of the real estate collateral securing the Bank's loans, increase the level of the Bank's non-performing loans and have a material adverse effect on the Bank's regulatory capital, business, financial condition and results of operations. See "Management Discussion and Analysis of Financial Condition and Results of Operations -- Lending Activities" and "Business -- Lending Activities." Risk of Foreclosure on Bank Stock by Marshall & Ilsley Bank The Company pledged all of the Bank Stock as security for a $4 million loan from Marshall & Ilsley Bank, ("M&I Bank"), pursuant to a loan agreement dated October 16, 1992, as amended, ("M&I Loan"). As of March 31, 8 1998, the principal amount outstanding thereunder was approximately $2.7 million. If the Company were to default under the M&I Loan and such default were not cured, M&I Bank would have the right to foreclose on and obtain ownership of the Bank Stock. The Bank Stock is the Company's principal asset and thus if the M&I Bank were to foreclose on the Bank Stock, investors could lose their entire investment in the Company. In addition, there are certain operating restrictions imposed by M&I Bank concerning the operations of the Company. See "Business --Loan from Marshall & Ilsley Bank." Sensitivity to Changes in Interest Rates The operations and profitability of the Company and the Bank are largely impacted by changes in interest rates and management's ability to control interest rate sensitivity of the Bank's assets and liabilities. Since its inception, the Bank has experienced a positive gap position which suggests that the Bank's net yield on interest earning assets may decrease during periods of declining interest rates. Management believes that its asset/liability strategy reduces the Bank's risk exposure due to fluctuations in interest rates. However, there can be no assurance that the Bank's asset/liability strategy will be successful. Despite the implementation of strategies to achieve such matching objectives and to reduce the Bank's exposure to fluctuating interest rates during this period, the Bank's results of operations will remain subject to the level and movement of interest rates. Decreases in interest rates may continue to be reflected more quickly in decreases in the Bank's interest income than in its cost of funds. In periods of declining interest rates, the Bank may experience significant prepayment or refinancing of the mortgage loan portfolio which would result in the investment of these funds at lower yields. In addition, it is possible that net interest income could have been higher had the Bank originated and retained fixed-rate mortgages preceding any decline in market interest rates. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Interest Rate Risk." Adequacy of Allowance for Loan Losses The success of a bank depends to a significant extent upon the quality of its assets, particularly loans. In the case of the Company, this is highlighted by the fact that, as of March 31, 1998, net loans represented approximately 67% of the Company's total assets. In originating loans, there is a substantial likelihood that loan losses will be experienced. The risk of loss will vary with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the quality of the collateral for the loan. Management maintains an allowance for loan losses based on, among other things, industry standards, management's experience, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. Based upon such factors, management makes various assumptions and judgments about the ultimate collectability of the loan portfolio and provides an allowance for loan losses based upon a percentage of the outstanding balances and for specific loans when their ultimate collectability is considered questionable. Since certain lending activities involve greater risks, the percentage applied to specific loan types may vary. As of December 31, 1997, the allowance for loan losses was $1.7 million, which represented 1.44% of total loans and non-performing loans as a percentage of total loans were at .15%. As of March 31, 1998, the allowance for loan losses was $1.8 million, which represented 1.50% of total loans, and nonperforming loans as a percentage of total loans were at .20%. The Bank reviews its allowance for loan losses on a quarterly basis and provides increases in the allowance, if necessary, based on the results of this review. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Allowance for Loan Losses." The Bank actively manages its past due and non-performing loans in an effort to minimize loan losses and monitors its asset quality to maintain an adequate loan loss allowance. Although management believes that its allowance for loan losses should be adequate, there can be no assurance that the allowance will prove sufficient to cover future loan losses. Further, although management believes that it uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the assumptions used or adverse developments arise with respect to the Bank's non-performing or performing loans. Accordingly, there can be no assurance that the allowance for loan losses will be adequate to cover loan losses or that significant increases to the allowance will not be required in the future if economic conditions should worsen. Material additions to the Bank's allowance for loan losses would result in a decrease of the Bank's net income and capital of the Company and the Bank and could result in the inability to pay dividends, among other adverse consequences. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Allowance for Loan Losses." 9 Dependence on Key Personnel The success of the business of the Company and the Bank is substantially dependent upon the continuing services of William C. Bullock, Jr., Edwin N. Clift, Deborah A. Jordan, William P. Lucy and George H. Moore, all of whom are executive officers and/or directors of the Company and the Bank. The loss of the services of any of these individuals could be detrimental to the business and financial results of the Company and the Bank. See "Management." Risks Related to Use of Name; Trademarks On January 5, 1993, the Bank filed a trademark application with the United States Patent and Trademark Office (the "Trademark Office") for the use of the Merrill "Pine Tree" symbol, both used alone and in combination with the name "Merrill Merchants Bank." On April 29, 1993, the Trademark Office preliminarily refused registration of the application because, in the opinion of the Trademark Office, the Bank's application for federal trademark protection of the name "Merrill Merchants Bank" was confusingly similar to certain other previously filed registrations. The Bank chose not to appeal this decision. The Bank did, however, previously register the logo and the name "Merrill Merchants Bank" with the State of Maine, which registration was filed October 15, 1992. The Bank has established goodwill in its name and its logo. In the event that the Bank's use of the Merrill Merchants name and logo in the State of Maine is successfully challenged, the Bank would be forced to explore other alternatives, such as using a similar name or changing the name, each of which could have a material adverse impact on the Company and the Bank. See "Business -- Service Marks and Trade Names." Absence of Trading Market Prior to this Offering, there has been no public market for the Company's Common Stock. The Offering price of the Common Stock has been determined by negotiations between the Company and the Underwriters based upon several factors and does not necessarily bear any relationship to the Company's assets, book value, results of operations, net worth, or any other generally accepted criteria of value and should not be considered as indicative of the actual value of the Company. See "Underwriting." Although the Company has applied for quotation of the Common Stock on the NASDAQ-NMS, there can be no assurance that it will be approved, and if approved, that any market will develop. Further, if a market does develop, it may be limited and there can be no assurance that it will be sustained. To the extent that a public market does develop, factors such as quarterly variations in the Company's financial results, announcements by the Company or others or certain regulatory pronouncements may cause the market price of the Common Stock to fluctuate substantially. See "Market for Common Stock." Supervision and Regulation Bank holding companies and banks operate in a highly regulated environment and are subject to the supervision and examination by several federal and state regulatory agencies. The Company is subject to the BHCA and to regulation and supervision by the Federal Reserve Board (the "Federal Reserve") and the Maine Bureau of Banking (the "Bureau"). The Bank, as a state chartered member bank of the Federal Reserve System, is subject to the regulation and supervision of the Federal Reserve, the Bureau, and the FDIC. These laws and regulations govern matters ranging from the regulation of certain debt obligations, changes in the control of bank holding companies and the maintenance of adequate capital to the general business operations and financial condition of the Bank, including permissible types, amounts and terms of loans and investments, the amount of reserves against deposits, restrictions on dividends, establishment of branch offices and the maximum rate of interest that may be charged by law. The Federal Reserve, the Bureau and the FDIC also possess cease and desist powers over bank holding companies and banks to prevent or remedy unsafe or unsound practices or violations of law. These and other restrictions limit the manner in which the Company and the Bank may conduct their business and obtain financing. Furthermore, the commercial banking business is affected not only by general economic conditions, but also by the monetary policies of the Federal Reserve. These monetary policies have had and are expected to continue to have significant effects on the operating results of commercial banks. Changes in monetary or legislative policies may affect the ability of the Bank to attract deposits and make loans. See "Supervision and Regulation." 10 Restrictions on Payment of Dividends by the Bank to the Company The only sources of income and cash flow to the Company are any dividends paid on the Bank Stock, the tax benefits received by the Company resulting from the Company filing consolidated federal income and state franchise tax returns with the Bank and the interest received from any amounts deposited by the Company in interest bearing accounts or investments. Therefore, the ability of the Company to pay cash dividends on the Common Stock depends to a large degree upon the amount of cash dividends paid by the Bank to the Company. The payment of dividends by the Bank is subject to certain financial and regulatory requirements. In some cases, the appropriate federal or state banking agency could take the position that it has the power to prohibit the Bank from paying dividends if, in its view, such payments will constitute unsafe or unsound banking practices. In addition, whether dividends are paid and their frequency and amount will depend on the financial condition and performance, and the discretion of management, of the Bank. These restrictions on dividends paid by the Bank may limit the Company's ability to obtain funds from such dividends for its cash needs, including funds for payment of operating expenses, cash dividends on shares of Common Stock and Series A Preferred Stock, M&I Loan repayment and interest on the Debentures. Even if the Bank is successful, if it is unable to pay dividends for any reason, the success of the Company and any returns received from an investment in the Company could be adversely affected. See "Dividends" and "Supervision and Regulation." Restrictions on Payment of Dividends by the Company The only sources of income and cash flow to the Company are any dividends paid on the Bank Stock, the tax benefits received by the Company resulting from the Company filing consolidated federal income and state franchise tax returns with the Bank, and the interest received from any amounts deposited by the Company in interest bearing accounts or investments. Even if funds become available to the Company, the Company must first satisfy the obligations under the M&I Loan, the Debentures and the accumulated dividends due to holders of the Series A Preferred Stock. See "Certain Transactions" and "Descriptions of Securities." Moreover, the payment of dividends by the Company to the holders of the Common Stock is restricted by the requirement imposed on the Company to maintain adequate capital pursuant to the capital adequacy guidelines issued by the Federal Reserve Board and also will be subject to the discretion of the Company's Board of Directors. These limitations could adversely affect the ability of the Company to pay dividends to holders of Common Stock. See "Dividends," "Business -- Loan from Marshall & Ilsley Bank" and "Supervision and Regulation." No Assurance of Acquisitions The net proceeds from this Offering will be used for general corporate purposes, which may include the possible funding of future acquisitions. Acquisitions of financial institutions such as bank holding companies, banks, thrifts or companies conducting businesses deemed closely related to banking or managing or controlling banks or thrifts are subject to a number of conditions including availability, price and regulatory approvals. There can be no assurance that potential acquisitions that meet the Company's investment criteria will be available or that the required regulatory approvals of any such acquisitions will be obtained. The Company currently has no plans, understandings, arrangements or agreements, written or oral, with respect to any specific acquisition prospect, and is not presently negotiating with any party with respect thereto. See "Supervision and Regulation." Risks Related to Anti-Takeover Effects of Certain Provisions of Maine Law The Company is subject to several provisions under Maine law which may deter or frustrate unsolicited attempts to acquire certain Maine corporations. These provisions, commonly referred to as the "Fair Price Provisions," apply to all public corporations organized in Maine. The Fair Price Provisions generally require that certain change of control transactions between a public corporation and an affiliate must be approved by at least a majority of the disinterested directors or shareholders (not including those shares beneficially owned by an "interested shareholder"). The Fair Price Provisions are also included in the Articles of Incorporation but approval of 80%, rather than a majority, of the disinterested directors and shareholders, is required in connection with a change of control transaction. These anti-takeover provisions of Maine law and the Articles of Incorporation could result in the Company being less attractive to a potential acquiror and/or result in shareholders receiving less for their shares than otherwise might be available in the event of an unsolicited takeover attempt. 11 Deregulation of the Banking Industry There have been significant changes in the banking industry in recent years. Many of the changes have resulted from federal legislation intended to deregulate the banking industry. This legislation has, among other things, eliminated interest rate restrictions on deposits and increased the power of non-banks to expand into traditional banking services. Future changes in the banking industry may include some modification of prohibitions on the type of businesses in which bank holding companies may engage. In addition, other types of financial institutions, including securities brokerage companies, insurance companies, and investment banking firms, have been given and may continue to be given powers to engage in activities which traditionally have been engaged in only by commercial banks. Such changes would tend to place the Company and the Bank in more direct competition with other non-bank financial institutions. See "Supervision and Regulation." Interest Rates and Usury Laws Except to the extent that interest rates may be limited by common law principles, Maine has no usury laws which would limit the rate of interest that may be charged by the Bank, except for limitations imposed by the Maine Uniform Consumer Credit Code with respect to certain consumer loans. It is not anticipated that these limitations will have a material effect on the Bank's operations. However, such limitations could affect its operations in the future if market interest rates exceed those permissible under Maine law or if new interest rate limitations are enacted. Lack of Diversification The sole business activity of the Company consists of its ownership of the capital stock of the Bank Stock. As a result, the Company lacks diversification as to business activities and market area, and any event affecting the Bank will have a direct impact on the Company. See "Business." Shares Eligible for Future Sale As of March 31, 1998, the executive officers, directors, shareholders of the Company and the Bank owning 5% or more of the Common Stock and their affiliates collectively hold 802,593 shares of Common Stock, plus 266,589 shares of Common Stock issuable upon the conversion of Series A Preferred Stock and Debentures, for an aggregate total of 1,069,182 shares of Common Stock on a fully converted basis. The directors and executive officers are expected to agree not to sell, contract to sell or otherwise dispose of any Common Stock for a period of 180 days after the consummation of this Offering without the prior consent of the Underwriter. In addition, approximately 853,047 shares of Common Stock held by existing shareholders of the Company as of March 31, 1998, who are not executive officers or directors of the Company or the Bank, will be immediately eligible for sale in the public market, without restriction, provided such persons are not otherwise affiliates of the Company at such time. The sale of a substantial number of shares could adversely affect the market price of the Common Stock. See "Description of Securities", "Market for Common Stock" and "Shares Eligible for Future Sale." Common Stock of the Company held by shareholders who may be deemed to control, to be controlled by or to be under common control with the Company, including the Company's executive officers and directors, cannot be resold by such persons unless such shares are registered for resale under the Securities Act or an exemption from the registration requirements of that Act is available. Dilution Purchasers of Common Stock pursuant to this Offering will incur immediate and substantial dilution in the net tangible book value of the Common Stock of $5.85 per share ($5.69 per share if the Underwriter's overallotment option is exercised in full), in each case, including Common Stock equivalents, based on an estimated offering price of $13 per share, which is the midpoint of the price range set forth on the cover page of this Prospectus. Dilution represents the difference between the public offering price and the net tangible book value per share after the Offering. See "Dilution." Control by Principal Shareholders, Officers and Directors Upon the closing of the Offering, the executive officers, directors, shareholders of the Company owning 5% or more of the Common Stock and their affiliates will beneficially own approximately 50.1% of the outstanding Common Stock (48.6% if the Underwriter's overallotment option is exercised in full), assuming the conversion of all the Series A Preferred Stock and Debentures and the exercise of all options to purchase Common Stock held 12 by such officers, directors and shareholders. As a result, these shareholders will be able to exercise control over most matters requiring shareholder approval, including the election of directors. This concentration of ownership may have the effect of delaying or preventing a change in control of the Company. See "Securities Ownership of Certain Beneficial Owners and Management." Risks Related to Year 2000 Compliance The Company and the Bank use a significant number of computer software programs to conduct their businesses. Most all of such programs and systems were purchased and are maintained by outside vendors. It is anticipated that some level of modification or replacement will be necessary to ensure that the systems of the Company and the Bank are "Year 2000 Compliant." The Company does not believe that the costs associated with Year 2000 compliance efforts will have a significant impact on ongoing results of operations, although there can be no assurance in this regard. To the extent the Company and the Bank rely on software vendors, Year 2000 compliance matters will not be under its direct control. Moreover, the Company and the Bank have relationships with vendors, customers and third parties that rely on computer software that may not be Year 2000 Compliant. There can be no assurance that Year 2000 compliance failures by such third parties will not have a material adverse effect on the Company's consolidated results of operations. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations -- Year 2000 Risk Assessment and Action Plan." 13 USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of the Common Stock offered hereby are estimated to be approximately $6,740,000 ($7,822,250 if the Underwriter's overallotment option is exercised in full), after deducting the underwriting commission and estimated offering expenses to be paid by the Company, assuming an estimated offering price of $13 per share, which is the midpoint of the price range set forth on the cover page of this Prospectus. The net proceeds of the Offering will be used for working capital and general corporate purposes, including capital contributions to the Bank, the financing of acquisitions of banks and businesses closely related to banking and possible repayment of borrowings. The Company currently has no plans, understandings, arrangements or agreements, written or oral, with respect to any specific acquisition prospect, and is not presently negotiating with any party with respect thereto. See "Risk Factors -- No Assurance of Acquisitions." The Company may determine to repay the M&I Loan in whole or in part with the Proceeds of this Offering. As of March 31, 1998, the principal amount thereunder was approximately $2.7 million. The Company has the option of selecting one of the following annual interest rates: (i) Prime Rate; (ii) the six-month Treasury Rate plus 1.75% and (iii) LIBOR plus 1.5%. Presently, interest payments on the unpaid principal are due quarterly at the six-month Treasury Rate plus 1.75%. The remaining unpaid loan balance is due on October 16, 2000. See "Business -- Loan from Marshall & Ilsley Bank." After the consummation of this Offering and pending the application of proceeds in the manner set forth above, the net proceeds may be invested by the Company in short-term interest-bearing securities or certificates of deposits. Although the Company does not currently anticipate significant changes in the allocation of net proceeds described above, the allocation may vary as necessary to respond to changing circumstances. Accordingly, the Company's management will have broad discretion in the application of the net proceeds. MARKET FOR COMMON STOCK Prior to this Offering, there has been no public market for the Common Stock. The Company has, however, applied to have its Common Stock listed for quotation on the NASDAQ-NMS under the proposed symbol "MERB." See "Risk Factors - -- Absence of Trading Market." As of March 31, 1998, there were outstanding 1,655,640 shares of Common Stock which were held by approximately 55 shareholders of record. 14 DIVIDENDS Holders of the shares of the Company's Common Stock are entitled to receive cash dividends when and if declared by the Company's Board of Directors out of funds legally available therefor. The Company paid cash dividends on its Common Stock in March 1998 of $.02778 per share and in December 1997 of $.02778 per share (each adjusted to reflect the 9:1 Stock Split). The Company also issued stock dividends as follows: a 3% stock dividend, a 5% stock dividend and a 5% stock dividend on its Common Stock during 1996, 1997 and 1998, respectively. The source of dividends to the Company's shareholders in the future, if any, will depend primarily upon the earnings of the Bank and its ability to pay dividends to the Company, as to which there can be no assurance. The payment of dividends by the Bank is subject to a determination by the Bank's Board of Directors and will depend upon a number of factors, including capital requirements, regulatory limitations, the Bank's results of operations and financial condition, tax considerations and general economic conditions. Maine state laws and Bureau regulations regulate and restrict the ability of the Bank to pay dividends to the Company. The Federal Reserve and the Bureau, which regulate the Bank, not only have established certain financial and capital requirements that affect the ability of the Bank to pay dividends, but they also have the general authority to prohibit the Bank from engaging in an unsafe or unsound practice in conducting its business. Depending upon the financial condition of the Bank, the payment of cash dividends could be deemed to constitute such an unsafe or unsound practice. See "Supervision and Regulation -- Payment of Dividends." Before any dividends may be paid to the holders of the shares of the Common Stock, the Company must first satisfy its interest and principal payment obligations under the Debentures and the accumulated dividends due to holders of the Series A Preferred Stock. See "Certain Transactions" and "Description of Securities." As such, even if the Company is profitable, there can be no assurance that the Company will be able to declare or pay dividends to holders of Common Stock. Under Federal law and Federal Reserve policy, a bank holding company such as the Company is required to serve as a source of financial strength to each of its subsidiary banks and to commit resources to support each such bank. Consistent with this requirement, the Federal Reserve has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless the available net income of the bank holding company is sufficient to fully fund the dividends, and the prospective rate of earnings retention appears to be consistent with the company's capital needs, asset quality, and overall financial condition. See "Risk Factors -- Restrictions on Payment of Dividends by the Company" and "Supervision and Regulation -- Payment of Dividends." The ability of the Bank and the Company to pay cash dividends in the future could be further influenced by bank regulatory policies or agreements and capital guidelines. See "Risk Factors -- Restrictions on Payment of Dividends by the Bank to the Company." 15 CAPITALIZATION The following table sets forth, as of March 31, 1998, after giving effect to the 9:1 Stock Split, the actual capitalization of the Company as adjusted to reflect receipt of the estimated net proceeds from the sale by the Company of 600,000 shares of Common Stock at an assumed initial public offering price of $13 per share (the midpoint of the price range set forth on the cover page of this Prospectus), net of estimated expenses of this Offering. This information should be read in conjunction with the Company's Consolidated Financial Statements and the related notes thereto appearing elsewhere in this Prospectus.
March 31, 1998 ------------------------------ Actual(1) As Adjusted(1)(2) ----------- ------------------ (Dollars in thousands except per share data) Capitalization and Shareholders' Equity: Debentures, includes 66,654 shares of Common Stock issuable upon the conversion of such Debentures; no shares issued and outstanding on an actual or adjusted basis .......................................... $ 300 $ 300 Shareholders' Equity: Series A Preferred Stock, $1.00 par value, 50,000 authorized shares; issued and outstanding 19,566 shares, on an actual and adjusted basis ................................................................... 20 20 Serial Preferred Stock, $0.01 par value, 950,000 shares authorized; no shares issued and outstanding on an actual or adjusted basis ......... -- -- Common Stock, $1.00 par value, 4,000,000 shares authorized; 1,655,640 shares issued and outstanding on an actual basis; 2,255,640 shares issued and outstanding on an adjusted basis (3) ........ 1,656 2,256 Additional paid-in capital ............................................... 8,387 14,527 Retained earnings ........................................................ 1,394 1,394 Net unrealized gain on securities designated as available for sale ....... 49 49 ------- ------- Total shareholders' equity ............................................. $11,506 $18,246 ======= ======= Total capitalization ................................................... $11,806 $18,546 ======= =======
- ---------- (1) Adjusted for 9:1 Stock Split. (2) Assumes no exercise of the Underwriter's overallotment option to purchase 90,000 shares. See "Underwriting." (3) Does not include (a) 540,027 shares of Common Stock issuable upon exercise of stock options outstanding at March 31, 1998 with a weighted average exercise price of $5.15 per share, of which options to purchase 540,027 shares were then exercisable and (b) 9,288 shares (69,288 shares upon completion of the Offering) that are reserved and available for issuance under the Company's Stock Option Plan. See "Management -- Stock Option Plan", "Description of Securities" and Note 19 to Consolidated Financial Statements. The following table sets forth capital ratios required by the Federal Reserve to be maintained by the Company in order for the Company to be adequately capitalized, and the Company's actual and pro forma ratios of capital to total regulatory or risk-weighted assets, as applicable, at March 31, 1998.
Company Company Company Regulatory Actual at Adjusted at Minimum March 31, 1998 March 31, 1998(1)(2)(3) ------------ ---------------- ------------------------ Tier 1 capital ................... 4.00% 10.25% 16.32% Total risk-based capital ......... 8.00% 11.78% 17.85%
- ---------- (1) Assumes that the net proceeds of this Offering were invested in assets that have a risk-weight equivalent to investment securities, assigned to the 20% category at March 31, 1998. (2) Assumes that the net proceeds of this Offering were received on March 31, 1998. (3) Assumes no exercise of the Underwriter's overallotment option to purchase 90,000 shares. 16 DILUTION The pro forma net tangible book value of the Company as of March 31, 1998, after giving effect to the 9:1 Stock Split and the conversion of the Company's Series A Preferred Stock and the Debentures into 266,589 shares of Common Stock, was $11.8 million or $5.87 per share of Common Stock. Giving effect to the sale by the Company of 600,000 shares of Common Stock, and assuming that the underwriting commission and expenses of the Offering to be paid by the Company aggregate approximately 13.6% of gross proceeds, the pro forma net tangible book value of the Company at March 31, 1998 would have been $18.5 million or $7.15 per share of Common Stock, representing an immediate increase in net tangible book value of $1.28 per share to present shareholders and an immediate dilution of $5.85 per share to new investors purchasing shares at the public offering price of $13 per share (the midpoint of the price range set forth on the cover page of this Prospectus). The following table illustrates this per share dilution: Assumed initial public offering price per share(l) ......................... $ 13.00 Net tangible book value before the Offering(2) (3) ......................... 5.87 Increase attributable to payment for shares purchased by new investors ..... 1.28 Pro forma net tangible book value after the Offering(2) (3) (4) ............ 7.15 Dilution to new investors(4) ............................................... 5.85
- ---------- (1) Does not take into account the underwriting commission and offering expenses to be paid by the Company. (2) Pro forma net tangible book value per share is determined by dividing the number of outstanding shares of Common Stock, including shares of Common Stock issuable upon conversion of the Series A Preferred Stock and the Debentures, into the net tangible book value of the Company. (3) Excludes (a) 540,027 shares of Common Stock issuable upon the exercise of stock options outstanding at March 31, 1998, with a weighted average exercise price of $5.15 per share, of which options to purchase 540,027 shares were then exercisable, and (b) 9,288 shares (69,288 shares upon completion of the Offering) that are reserved and available for issuance under the Company's Stock Option Plan. Assuming the exercise of the options to purchase 540,027 shares then exercisable, the diluted price per share would be $6.79 per share rather than $7.15 per share. See "Management -- Stock Option Plan", "Description of Securities" and Note 19 of Notes to Consolidated Financial Statements. (4) Assumes no exercise of the Underwriter's overallotment option to purchase 90,000 shares. The following table summarizes, on a pro forma basis as of March 31, 1998 after giving effect to the 9:1 Stock Split and the conversion of the Series A Preferred Stock and Debentures, the difference between the number of shares purchased from the Company, the total consideration paid, and the average price per share paid by existing shareholders since October 1992 and by the new investors purchasing Common Stock from the Company pursuant to this Offering:
Average Shares Percent of Total Percent Price Purchased Total Shares Consideration of Total Consideration Per Share ----------- -------------- --------------- ------------------------ ---------- Existing Shareholders (1) ......... 1,922,229 76.2% $ 9,204,879 54.1% $ 4.79 New Investors (2) ................. 600,000 23.8% $ 7,800,000 45.9% $ 13.00 --------- ----- ------------ ----- Total ........................... 2,522,229 100.0% $ 17,004,879 100.0% ========= ===== ============ =====
- ---------- (1) Excludes (a) 540,027 shares of Common Stock issuable upon the exercise of stock options outstanding at March 31, 1998, with a weighted average exercise price of $5.15 per share, of which options to purchase 540,027 shares were then exercisable, and (b) 9,288 shares (69,288 shares upon completion of the Offering) that are reserved and available for issuance under the Company's Stock Option Plan. See "Management -- Stock Option Plan", "Description of Securities" and Note 19 of Notes to Consolidated Financial Statements. (2) Assumes no exercise of the Underwriter's overallotment option to purchase 90,000 shares and assumes the Offering price of $13 per share (the midpoint of the price range set forth on the cover page of this Prospectus). 17 SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands, except per share data) The following table presents selected consolidated financial data for the Company. The data for the fiscal years ended December 31, 1997, 1996, 1995, 1994 and 1993 are derived from audited consolidated financial statements of the Company. The data for the three month periods ended March 31, 1998 and 1997 are derived from unaudited financial statements of the Company which, in the opinion of management, contain normal, recurring adjustments necessary for the fair presentation of the results of such periods. Operating results for the three months ended March 31, 1998 are not necessarily indicative of results that may be expected for the full fiscal year ending December 31, 1998. The selected financial data should be read in conjunction with, and is qualified in its entirety by, the Consolidated Financial Statements and Notes thereto, and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.
At or for the Three Months Ended March 31, --------------------------- 1998 1997 ------------- ------------- (Unaudited) Financial Condition Data: Total assets ...................................... $ 175,753 $ 160,034 Cash and cash equivalents ......................... 6,775 11,427 Investment securities ............................. 45,579 37,411 Loans receivable, net (1) ......................... 118,036 106,416 Deposits .......................................... 140,398 126,856 Repurchase agreements ............................. 13,554 12,268 Other borrowed funds .............................. 5,856 6,000 Long-term debt .................................... 2,745 3,695 Mandatory convertible debentures .................. 300 300 Shareholders' equity .............................. 11,506 9,809 Income Statement Data: Interest and dividend income ...................... $ 3,510 $ 3,074 Interest expense .................................. 1,613 1,409 Net interest income ............................... 1,897 1,665 Provision for loan losses ......................... 90 75 Net interest income after provision for loan losses ...................................... 1,807 1,590 Non-interest income ............................... 481 404 Non-interest expense .............................. 1,695 1,553 Income (loss) before income taxes ................. 593 441 Income tax expense (benefit) ...................... 213 161 Net income (loss) ................................. 380 280 Per Share Data: Earnings per share-basic (2) ...................... .22 .16 Earnings per share-diluted (2) .................... .19 .14 Cash dividends on Common Stock (2) ................ .03 -- Book value (2)(3) ................................. 6.92 6.14 Weighted average shares outstanding (2) ........... 1,641,969 1,619,226 Selected Financial Ratios and Other Data: Return on average assets (4) ...................... 0.89% 0.74% Return on average equity (3)(4) ................... 13.69% 11.57% Net interest margin (4)(5) ........................ 4.59% 4.59% Net interest spread (4) ........................... 3.87% 3.90% Non-performing assets to total assets (6) ......... 0.13% 0.37% Non-performing loans to total loans (6) ........... 0.20% 0.21% Allowance for loan losses to total loans .......... 1.50% 1.41% Allowance for loan losses to non-performing loans (6) ........................................ 768.80% 674.67% Net loan charge-offs to average loans (4) ......... .03% .03% Efficiency ratio (7) .............................. 71.28% 75.06% Capital Ratios: Tier 1 risk-based capital (8) ..................... 10.25% 9.66% Total risk-based capital (8) ...................... 11.78% 11.22% Leverage ratio (8)(9) ............................. 6.38% 6.19% At or for the Year Ended December 31, --------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------- ------------- ------------- ------------- ------------- Financial Condition Data: Total assets ...................................... $ 178,619 $ 158,425 $ 135,744 $ 113,231 $ 91,090 Cash and cash equivalents ......................... 10,659 8,591 6,723 6,683 6,104 Investment securities ............................. 44,826 41,014 30,257 21,692 25,876 Loans receivable, net (1) ......................... 117,679 104,320 95,256 81,137 55,805 Deposits .......................................... 146,312 126,704 111,340 91,812 72,108 Repurchase agreements ............................. 11,897 12,164 10,173 7,827 4,703 Other borrowed funds .............................. 5,144 2,832 192 1,000 1,990 Long-term debt .................................... 2,895 3,695 4,000 4,000 4,000 Mandatory convertible debentures .................. 300 300 300 300 300 Shareholders' equity .............................. 10,967 9,671 8,761 7,675 7,439 Income Statement Data: Interest and dividend income ...................... $ 13,215 $ 11,826 $ 10,349 $ 7,445 $ 5,164 Interest expense .................................. 6,060 5,383 4,371 2,774 2,124 Net interest income ............................... 7,155 6,443 5,978 4,671 3,040 Provision for loan losses ......................... 355 360 355 150 385 Net interest income after provision for loan losses ...................................... 6,800 6,083 5,623 4,521 2,655 Non-interest income ............................... 1,724 1,489 1,302 911 1,015 Non-interest expense .............................. 6,357 5,813 5,407 4,840 4,667 Income (loss) before income taxes ................. 2,167 1,759 1,518 592 (997) Income tax expense (benefit) ...................... 765 639 551 219 (332) Net income (loss) ................................. 1,402 1,120 967 373 (665) Per Share Data: Earnings per share-basic (2) ...................... .82 .65 .55 .19 (.57) Earnings per share-diluted (2) .................... .71 .58 .52 .19 (.57) Cash dividends on Common Stock (2) ................ .03 -- -- -- -- Book value (2)(3) ................................. 6.77 5.98 5.33 4.79 4.59 Weighted average shares outstanding (2) ........... 1,619,226 1,619,226 1,619,226 1,619,226 1,261,620 Selected Financial Ratios and Other Data: Return on average assets (4) ...................... 0.86% 0.78% 0.80% 0.37% -0.80% Return on average equity (3)(4) ................... 13.63% 12.28% 11.83% 4.95% -11.67% Net interest margin (4)(5) ........................ 4.67% 4.72% 5.25% 4.99% 3.94% Net interest spread (4) ........................... 3.97% 3.97% 4.48% 4.34% 3.32% Non-performing assets to total assets (6) ......... 0.13% 0.45% 0.33% 0.63% 0.07% Non-performing loans to total loans (6) ........... 0.15% 0.36% 0.15% 0.87% 0.07% Allowance for loan losses to total loans .......... 1.44% 1.37% 1.18% 1.17% 1.45% Allowance for loan losses to non-performing loans (6) ........................................ 933.15% 384.62% 760.40% 133.80% 2002.44% Net loan charge-offs to average loans (4) ......... 0.08% 0.04% 0.21% 0.02% 0.05% Efficiency ratio (7) .............................. 71.60% 73.29% 74.27% 86.71% 115.09% Capital Ratios: Tier 1 risk-based capital (8) ..................... 9.77% 9.53% 9.03% 8.83% 10.79% Total risk-based capital (8) ...................... 11.30% 11.10% 10.63% 10.46% 12.57% Leverage ratio (8)(9) ............................. 6.06% 5.98% 5.84% 6.31% 7.07%
18 - ---------- (1) Includes loans held for sale. (2) Adjusted to reflect the 9:1 Stock Split, 5% stock dividends in 1998 and 1997 and a 3% stock dividend in 1996. (3) Excludes unrealized gain or loss on securities available for sale net of taxes. (4) Information is annualized for the periods ended March 31, 1998 and 1997. (5) Represents net interest income as a percentage of average interest earning assets. Calculation is shown tax-effected for tax exempt interest income assuming a federal tax rate of 34%. (6) Non-performing assets consist of non-performing loans and other real estate owned. Non-performing loans consist of non-accrual loans and accruing loans 90 days or more past due while other real estate owned consists of real estate acquired through foreclosure and real estate acquired by acceptance of a deed-in-lieu of foreclosure. (7) Non-interest expense divided by the sum of net interest income plus non-interest income. (8) The minimum regulatory capital ratios in order for the Company to be adequately capitalized are: Tier 1 capital -- 4.00%; total risk-based capital -- 8.00%; and leverage ratio -- 4.00% (9) The leverage ratio is defined as the ratio of Tier 1 capital to average total assets. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements and the related Notes thereto included elsewhere in this Prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this Prospectus. General Per share information has been adjusted to reflect the 9:1 Stock Split and assumes the conversion of the Series A Preferred Stock and Debentures into 266,589 shares of Common Stock. The Company's principal asset is its ownership of the Bank. Accordingly, the Company's results of operations are primarily dependent upon the results of operations of the Bank. The Bank conducts a general commercial and retail banking business which consists of attracting deposits from the general public and applying those funds to the origination of commercial loans, commercial and residential real estate loans and consumer loans. The Bank also provides trust and investment services. The Bank's profitability depends primarily on net interest income, which is the difference between interest income generated from interest-earning assets (i.e., loans and investments) less the interest expense incurred on interest-bearing liabilities (i.e., customer deposits and borrowed funds). Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities, and the interest rates earned and paid on these balances. Net interest income is dependent upon the Bank's interest rate spread, which is the difference between the average yield earned on its interest-bearing assets and the average rate paid on its interest-bearing liabilities. When interest-earning assets approximate or exceed interest-bearing liabilities, any positive interest rate spread will generate net interest income. The interest rate spread is impacted by interest rates, deposit flows, and loan demand. See "Risk Factors -- Sensitivity to Changes in Interest Rates" and "Management's Discussion and Analysis -- Interest Rate Risk." The Bank enjoys a positive reputation in its market and strives for quality customer service. The Bank operates seven banking locations, including the headquarters office at 201 Main Street in Bangor. The remaining offices include two other full service branches in Bangor plus full service offices in Brewer, Orono and Pittsfield, and a full service supermarket office in Newport. The Bank began offering trust and investment services in 1994 and, as of March 31, 1998, had $98.5 million in assets under management. The Trust and Investment Services Department provides a variety of services to assist individuals, businesses, municipalities and non-profit organizations in achieving their investment goals. Among the services offered are: investment management accounts; custody of assets; personal trusts; retirement plans; individual retirement accounts; estate and tax planning assistance; estate settlement services and financial planning. In addition to the Trust and Investment Services Department, the Bank pursues commercial, commercial and residential real estate, and consumer lending within its local market. See "Business -- Lending Activities" and "Management's Discussion and Analysis -- Loan Portfolio Composition." This Management's Discussion and Analysis of Financial Condition and Results of Operations discusses material changes in the financial condition of the Company from January 1, 1996 to December 31, 1997, and material changes in the results of operations with respect to the three month period ending March 31, 1997 compared to the three month period ending March 31, 1998, and the year ending December 31, 1997 compared to the year ending December 31, 1996. Results of operations for the three month period ending March 31, 1998 may not be indicative of the results for the entire year ending December 31, 1998. This discussion and analysis is intended to assist the reader in understanding the financial condition and results of operations of the Company. This commentary should be read in conjunction with the financial statements and the related notes and the other statistical information contained herein. 20 Results of Operations Comparison of Three Months Ended March 31, 1998 and 1997 The Company's net income was $380,000 for the three months ended March 31, 1998, compared to net income of $280,000 for the three months ended March 31, 1997, yielding an annualized return on average assets ("ROA") of .89% compared to .74% for those same periods. Return on average shareholders' equity ("ROE") on an annualized basis for the same 1998 and 1997 three month periods were 13.69% and 11.57%, respectively. The increase in earnings between the periods is due to an increase in net interest income resulting from growth in loans and securities and a 19% increase in non-interest income. Total assets were $175.8 million at March 31, 1998, an increase of $15.8 million or 9.9% from $160 million at March 31, 1997. Total average earning assets were $164.9 million for the three months ended March 31, 1998, compared to $144.3 million for the three months ended March 31, 1997. The increase in average loans of $12.2 million and the increase in average investment securities of $8.2 million during the three month period in 1998 compared to the same period in 1997 were funded through an increase in average interest-bearing liabilities of $16.6 million and an increase in average non-interest bearing liabilities of $3.2 million. Comparison of Years Ended December 31, 1997 and 1996 For the year ended December 31, 1997, the Company reported net income of $1.4 million or $.82 per share, as compared to net income of $1.1 million or $.65 per share for 1996. From 1996 to 1997, net interest income before provision for loan losses increased by $712,000, an 11% increase, and non-interest income increased by $235,000 or 15.8% . Other expenses increased $544,000 or 9.4% from 1996 to 1997 which includes the impact of the start-up costs associated with the new branch office established in Newport during 1997. The Company's total assets at December 31, 1997 were $178.6 million, an increase of $20.2 million from December 31, 1996. The Bank's loans net of allowances at December 31, 1997 totaled $117.7 million, up from $104 million or 13.2% at December 31, 1996. Deposits increased 15.5% from $126.7 million to $146.3 million for the years ended December 31, 1996 and 1997, respectively. Net Interest Income Net interest income is interest earned on interest-earning assets less interest accrued on interest-bearing liabilities. Interest-earning assets are categorized as loans, investment securities and other earning assets, which include Federal Funds sold and certificates of deposit issued from other financial institutions. Interest-bearing liabilities are categorized as customer deposits, time and savings deposits and borrowings including repurchase agreements, short-term borrowings and long-term debt. Net interest income depends on the volume of average interest-earning assets and average interest-bearing liabilities and the interest rates earned or paid on them. The growth in the loan and investment portfolios resulted in an increase in net interest income during the first three months of 1998 compared with the same period in 1997. Interest income for the three month periods ended March 31, 1998 and 1997 was $3.5 million and $3.1 million, respectively, on a $164.9 million and $144.3 million average balance of interest-earning assets. The average yield on interest-earning assets, on an annualized basis, remained stable at 8.56% and 8.55% for the periods ended March 31, 1998 and 1997, respectively. Total interest expense for the three month period in 1998 was $1.6 million on average outstanding balances of interest-bearing liabilities of $139.4 million, compared to an expense of $1.4 million on average outstanding balances of interest-bearing liabilities of $122.9 million for the same period in 1997. The average cost of interest-bearing liabilities for the three months of 1998 and 1997 was 4.69% and 4.65%, respectively, on an annualized basis. The increase in average cost of interest-bearing liabilities is primarily due to a savings deposit campaign launched in 1997. See "-- Deposit Activities." The Company maintained a constant net interest margin of 4.59% for the three months ended March 31, 1998 and 1997. Net interest income before provision for loans losses for the period December 31, 1997 amounted to $7.2 million on a $153.2 million average outstanding balance of interest-earning assets, an increase of $712,000 over the $6.4 million recorded in 1996 on an average outstanding balance of interest-earning assets of $136.4 million. The average yield on interest earning assets decreased from 8.67% in 1996 to 8.63% in 1997 resulting in a decrease in the net interest margin from 4.72% to 4.67% for 1996 and 1997, respectively. 21 Comparative Average Balances, Yields and Rates The following table presents the Company's average balances, interest earned or accrued, and the related yields and rates on major categories of the Company's interest-earning assets and interest-bearing liabilities for the periods indicated:
March 31, ------------------------------------------------------------------- 1998 1997 --------------------------------- --------------------------------- Average Average Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid (1) Balance Expense Paid (1) ----------- ---------- ---------- ----------- ---------- ---------- (Dollars in thousands) Assets: Interest-earning assets: Loans (2) .................... $118,562 $ 2,827 9.57% $106,355 $ 2,497 9.42% Investment securities (3)..... 44,858 666 5.98% 36,661 560 6.16% Other earning assets ......... 1,492 21 5.63% 1,290 17 5.27% -------- ------- ------ -------- ------- ------ Total interest-earning assets ...................... 164,912 3,514 8.56% 144,306 3,074 8.55% Non-interest-earning assets ...................... 9,081 8,410 -------- -------- Total assets ................. $173,993 $152,716 ======== ======== Liabilities and Shareholders' Equity: Interest-bearing liabilities: Savings deposits and interest-bearing checking .................... 63,749 580 3.69% 51,681 440 3.45% Certificates of deposit ...... 55,997 784 5.68% 53,647 750 5.67% Securities sold under agreement to repurchase .................. 13,033 141 4.39% 11,013 116 4.27% Short-term borrowings ........ 2,291 31 5.49% 2,525 30 4.82% Long-term borrowings (4) .............. 4,368 77 7.15% 4,012 73 7.38% -------- ------- ------ -------- ------- ------ Total interest-bearing liabilities ................. 139,438 1,613 4.69% 122,878 1,409 4.65% Non-interest-bearing liabilities ................. 23,243 20,071 Shareholders' equity ......... 11,312 9,767 -------- -------- Total liabilities and shareholders' equity ........ $173,993 $152,716 ======== ======== Net interest income (3) ...... $ 1,901 $ 1,665 ======= ======= Net interest spread (5) ...... 3.87% 3.90% ====== ====== Net interest margin (6) ...... 4.59% 4.59% ====== ====== Ratio of interest-earning assets to interest- bearing liabilities ......... 118.27% 117.44% ====== ====== December 31, -------------------------------------------------------------------- 1997 1996 ---------------------------------- --------------------------------- Average Average Interest Rate Interest Rate Average Income/ Earned/ Average Income/ Earned/ Balance Expense Paid Balance Expense Paid ----------- ---------- ----------- ----------- ---------- ---------- (Dollars in thousands) Assets: Interest-earning assets: Loans (2) .................... $111,006 $ 10,669 9.61% $100,677 $ 9,683 9.62% Investment securities (3)..... 39,050 2,378 6.09% 32,663 1,983 6.07% Other earning assets ......... 3,187 171 5.37% 3,093 160 5.17% -------- -------- ------ -------- ------- ------ Total interest-earning assets ...................... 153,243 13,218 8.63% 136,433 11,826 8.67% Non-interest-earning assets ...................... 9,062 7,595 -------- -------- Total assets ................. $162,305 $144,028 ======== ======== Liabilities and Shareholders' Equity: Interest-bearing liabilities: Savings deposits and interest-bearing checking .................... 56,511 1,983 3.51% 43,886 1,358 3.09% Certificates of deposit ...... 55,306 3,143 5.68% 53,094 3,070 5.78% Securities sold under agreement to repurchase .................. 11,931 511 4.28% 11,770 520 4.42% Short-term borrowings ........ 2,364 124 5.25% 1,773 89 5.02% Long-term borrowings (4) .............. 4,109 299 7.28% 4,083 346 8.47% -------- -------- ------ -------- ------- ------ Total interest-bearing liabilities ................. 130,221 6,060 4.65% 114,606 5,383 4.70% Non-interest-bearing liabilities ................. 21,836 20,285 Shareholders' equity ......... 10,248 9,137 -------- -------- Total liabilities and shareholders' equity ........ $162,305 $144,028 ======== ======== Net interest income (3) ...... $ 7,158 $ 6,443 ======== ======= Net interest spread (5) ...... 3.97% 3.97% ====== ====== Net interest margin (6) ...... 4.67% 4.72% ====== ====== Ratio of interest-earning assets to interest- bearing liabilities ......... 117.68% 119.05% ====== ======
- ---------- (1) Annualized for comparability with full year data. (2) Non-accruing loans included in computation of average balance. (3) Income from investment securities and net interest income is presented on a fully taxable equivalent basis by adjusting income and yields earned on tax-exempt securities assuming a federal tax of 34%. (4) Includes M&I Loan, FHLB borrowings and Debentures. (5) Net interest spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities. (6) Net interest margin is the net interest income divided by average interest-earning assets. 22 Rate/Volume Interest Analysis The following table presents the components of the Company's net interest income as attributed to volume and rate on a tax-equivalent basis assuming a Federal tax rate of 34%. The net change attributable to the combined impact of volume and rate has been solely allocated to the change in volume:
Three Months Ended Year Ended March 31, 1998 December 31, 1997 Compared to 1997 Compared to 1996 increase (decrease) increase (decrease) due to change in: due to change in: ------------------------------- ------------------------------- Average Average Total Average Average Total Volume Rate Change Volume Rate Change --------- ------------ -------- --------- --------- ----------- (Dollars in thousands) Interest income: Loans (1) ............................... $ 290 $ 40 $ 330 $ 993 $ (7) $ 986 Investment securities ................... 122 (16) 106 389 6 395 Other earning assets .................... 3 1 4 5 6 11 ----- ----- ----- ------ ------ ----- Total interest income .................. 415 25 440 1,387 5 1,392 ----- ----- ----- ------ ------ ----- Interest expense: Savings deposits and interest-bearing liabilities ............................ 109 31 140 443 182 625 Certificates of deposit ................. 33 1 34 126 (53) 73 Securities sold under agreement to repurchase ............................. 22 3 25 7 (16) (9) Short-term borrowings ................... (3) 4 1 31 4 35 Long-term borrowings .................... 6 (2) 4 2 (49) (47) ----- -------- ----- ------ ------ ------- Total interest expense ................. 167 37 204 609 68 677 ----- ------- ----- ------ ------ ------- Change in net interest income ............ $ 248 $ (12) $ 236 $ 778 $ (63) $ 715 ===== ======= ===== ====== ====== ======= Year Ended December 31, 1996 Compared to 1995 increase (decrease) due to change in: ------------------------------- Average Average Total Volume Rate Change --------- ----------- --------- (Dollars in thousands) Interest income: Loans (1) ............................... $1,249 $ (319) $ 930 Investment securities ................... 556 (16) 540 Other earning assets .................... 21 (14) 7 ------ ------- ------ Total interest income .................. 1,826 (349) 1,477 ------ ------- ------ Interest expense: Savings deposits and interest-bearing liabilities ............................ 272 182 454 Certificates of deposit ................. 495 48 543 Securities sold under agreement to repurchase ............................. 139 (29) 110 Short-term borrowings ................... (26) (19) (45) Long-term borrowings .................... (18) (32) (50) ------ ------- ------ Total interest expense ................. 862 150 1,012 ------ ------- ------ Change in net interest income ............ $ 964 $ (499) $ 465 ====== ======= ======
- ---------- (1) Non-accruing loans included in the computation of average balance. Provision for Loan Losses The targeted level of loan loss allowance is based on management's review of the loan portfolio. Management reviews the loans by type and nature of collateral and establishes an appropriate provision for loan losses based upon industry standards, management's experience, historical charge-off experience, the present and prospective financial condition of specific borrowers, industry concentrations within the loan portfolio, size of credit, existence and quality of any collateral, profitability and general economic conditions. The Bank has experienced relatively low delinquency and default rates in its portfolio, due in part to adherence to established underwriting guidelines. Management reviews the allowance for loan losses on a quarterly basis and increases the allowance, if necessary, based on the results of this review. Management believes the allowance for loan losses should be adequate based on management's assessment of the risks of loan defaults. The ratio of non-performing loans to total assets was .20%, .15% and .36% as of March 31, 1998 and December 31, 1997 and 1996, respectively. For the three months ended March 31, 1998, the Bank had net charge-offs of $9,000 or .03% (annualized) of total average loans outstanding. For the years ended December 31, 1997 and 1996, net charge-offs were $88,000 and $43,000, respectively, representing .08% and .04% of average loans outstanding, respectively. Although management believes that it uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the assumptions used or adverse developments arise with respect to the Bank's loan portfolio. See "Management's Discussion and Analysis -- Allowance for Loan Losses." Non-Interest Income Non-interest income for the three months ended March 31, 1998 and 1997 totaled $481,000 and $404,000, respectively, an increase of approximately 19%. The increase is primarily due to an increase in trust fees of $32,000 and an increase in gain on sale of mortgage loans of $29,000. 23 Non-interest income was $1.7 million and $1.5 million in 1997 and 1996, respectively, an increase of approximately 16%. The growth of non-interest income is primarily due to an increase in (i) other service charges and fees, (ii) trust fees and (iii) increases in net gain on sale of mortgage loans. The increase in other service charges and fees is attributable to (i) instituting an ATM fee to non-customers of the Bank and (ii) increases in merchant credit card processing fees, which are due to an increase in volume. The increase in trust fees is attributable to the growth in trust assets under management from $66 million in 1996 to $90 million at the end of 1997, a 36% increase. The following table presents the components of the Company's non-interest income for the periods indicated:
Three Months Ended Year Ended March 31, December 31, ----------------------- ------------------------- 1998 1997 1997 1996 ---------- ---------- ----------- ----------- (Dollars in thousands) Service charges on deposit accounts ......... $ 120 $ 118 $ 476 $ 486 Other service charges and fees .............. 115 111 485 381 Trust fees .................................. 151 119 534 439 Net gain on sale of mortgage loans .......... 50 21 91 69 Other non-interest income ................... 45 35 138 114 ------- ------- ------- ------- Total non-interest income .................. $ 481 $ 404 $ 1,724 $ 1,489 ======= ======= ======= ======= Non-interest income as a percentage of average total assets (interim periods annualized) ................................ 1.12% 1.07% 1.06% 1.03% ======= ======= ======= =======
Non-Interest Expense Non-interest expense increased by $142,000, an increase of 9.1%, for the three months ended March 31, 1998, as compared to the same period in 1997. This increase is primarily due to the addition of employees at the Newport Branch established in April 1997. In addition, data processing fees increased as a result of increases in both loan and deposit volume. Non-interest expense for 1997 increased $544,000 or 9.4% over the year ended December 31, 1996. The increase is a result of several factors. Salaries and employee benefits expenses increased $216,000 primarily due to the addition of employees at the Newport Branch. Occupancy and equipment expenses increased from a total of $988,000 in 1996 to $1.2 million due to the Newport Branch and the renovation and relocation of the Bank's headquarters. See "Business -- Bank Premises." The following table presents the components of the Company's non-interest expense for the periods indicated:
Three Months Ended Year Ended March 31, December 31, ------------------------- ------------------------- 1998 1997 1997 1996 ----------- ----------- ----------- ----------- (Dollars in thousands) Salary and employee benefits ......................... $ 852 $ 760 $ 3,121 $ 2,905 Occupancy expense .................................... 166 163 626 526 Equipment expense .................................... 123 118 524 462 Data processing expense .............................. 160 149 605 577 Professional fees .................................... 50 51 215 217 Printing, postage, stationery and supplies ........... 58 54 189 180 Advertising and promotion ............................ 50 39 191 155 Merchants and credit card processing expense ......... 55 39 191 145 Other ................................................ 181 180 695 646 -------- -------- -------- -------- Total non-interest expense .......................... $ 1,695 $ 1,553 $ 6,357 $ 5,813 ======== ======== ======== ======== Efficiency Ratio(1) .................................. 71.28% 75.06% 71.60% 73.29% ======== ======== ======== ========
- ---------- (1) Non-interest expense divided by the sum of net interest income plus non-interest income. 24 Income Tax Expense For the three month period ended March 31, 1998, an income tax provision totaling $213,000 was recorded, compared to $161,000 for the same three months of 1997 as a result of increased earnings during the 1998 period. For the year ended December 31, 1997, the Company recorded an income tax provision totaling $765,000, compared to $639,000 for the year ended 1996. Market Risk Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates/prices such as interest rates, foreign currency exchange rates, commodity prices and equity prices. The Company's primary market risk exposure is interest rate risk. The ongoing monitoring and management of this risk is an important component of the Company's asset/liability management process which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out the asset/liability management policies to its Asset/Liability Committee ("ALCO"). In this capacity, ALCO develops guidelines and strategies impacting the Company's asset/liability management process based upon estimated market risk sensitivity, policy limits and overall market interest rate levels/trends. Interest Rate Risk Interest rate risk represents the sensitivity of earnings to changes in market interest rates. As interest rates change, the interest income and expense streams associated with the Company's financial instruments also change thereby impacting net interest income ("NII"), the primary component of the Company's earnings. ALCO utilizes the results of a detailed and dynamic simulation model to quantify the estimated exposure of NII to sustained interest rate changes. While ALCO routinely monitors simulated NII sensitivity over a rolling two-year horizon, it also utilizes additional tools to monitor potential longer-term interest rate risk. The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company's balance sheet. This sensitivity analysis is compared to ALCO policy limits which specify a maximum tolerance level for NII exposure over a one year horizon, assuming no balance sheet growth, given both a 200 basis point (bp) upward and downward shift in interest rates. A parallel and pro rata shift in rates over a 12 month period is assumed. The following reflects the Company's NII sensitivity analysis as of December 31, 1997.
Rate Change Estimated NII Sensitivity - ------------- -------------------------- + 200 bp 2.17% - 200 bp (1.03%)
The preceding sensitivity analysis does not represent a Company forecast and should not be relied upon as being indicative of expected operating results. These hypothetical estimates are based upon numerous assumptions including: the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment/replacement of asset and liability cashflows and others. While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances as to the predictive nature of these assumptions including how customer preferences or competitor influences might change. Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to prepayment/refinancing levels likely deviating from those assumed the varying impact of interest rate change caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositor early withdrawals and product preference changes and other internal/external variables. Furthermore, the sensitivity analysis does not reflect actions that ALCO might make in responding to or anticipating changes in interest rates. Financial Condition Cash and Cash Equivalents Total cash and cash equivalents were $6.8 million at March 31, 1998 compared to $10.7 million at December 31, 1997. Cash and cash equivalent balances were higher at December 31, 1997 due to a temporary seasonal high in deposit balances. Demand deposit balances have decreased approximately $5 million from December 31, 1997 25 to March 31, 1998 thus resulting in decreases in Federal Funds Sold and cash items in process of collection. In the past, deposit balances typically reach their lowest levels during the first quarter of each year and continually trend upward to their highest level during the fourth quarter. The Bank anticipates these deposit trends and has instituted appropriate liquidity contingency plans. Lending Activities The Bank offers a broad range of personal and business loans and products. Total loans, including loans held for sale, were at $119.8 million at March 31, 1998 compared to $119.4 million, at December 31, 1997. With interest rates at attractive levels nationally, secondary market mortgage lending for refinancing and purchase money transactions has been exceptionally strong during the first quarter of 1998. This has resulted in an increase in non-interest income and a growing mortgage servicing portfolio. It has also resulted in a decline in portfolio residential and home equity loan balances of $2.2 million since December 31, 1997, as seasoned loans are refinanced and being sold on the secondary market. Loans held for sale have increased to $2.1 million at March 31, 1998 compared to $508,000 at December 31, 1997. Commercial real estate loan balances increased to $42.7 or 4.3% at March 31, 1998 compared to a December 31, 1997 balance of $41 million. Total loans, including loans held for sale, increased to $119.4 million at December 31, 1997, compared to $105.8 million at December 31, 1996, representing a growth rate of 12.9%. The loan portfolio composition experienced a slight shift into the real estate portfolio with real estate loans representing 76% of the total loan portfolio at December 31, 1997 compared to 72% at December 31, 1996. See "Risk Factors -- Impact on Bank's Loan Portfolio Due to Changes in Real Estate Values." The loan mix change is the result of net loan growth of $14.4 million in the real estate portfolio for 1997 compared with a decline in commercial loan balances of $1.3 million in 1997. As of March 31, 1998 and December 31, 1997, the Bank did not have any concentration of loans in one particular industry that exceeded 10% of the total loan portfolio. The following table summarizes the composition of the Bank's loan portfolio by type of loan at the dates indicated: Loan Portfolio Composition
At December 31, ------------------------------------------------- At March 31, 1998 1997 1996 ------------------------ ------------------------ ---------------------- Amount % Amount % Amount % ------------- -------- ------------- -------- ----------- -------- (Dollars in thousands) Real Estate: Commercial ............................ $ 42,746 36% $ 40,984 34% $ 34,908 33% Construction .......................... 2,735 2% 3,012 3% 1,941 2% Residential ........................... 24,827 21% 26,638 22% 23,827 22% Home equity ........................... 19,685 16% 20,036 17% 15,726 15% Loans held for sale ................... 2,127 2% 508 0% 341 0% --------- -- --------- -- -------- -- Total real estate .................... 92,120 77% 91,178 76% 76,743 72% Commercial ............................. 20,505 17% 20,757 18% 22,049 21% Consumer ............................... 7,210 6% 7,461 6% 6,978 7% --------- -- --------- -- -------- -- Total loans .......................... 119,835 100% 119,396 100% 105,770 100% === === === Less allowance for loan losses ......... (1,799) (1,717) (1,450) --------- --------- -------- Total .................................. $ 118,036 $ 117,679 $104,320 ========= ========= ========
The following table sets forth as of December 31, 1997, loans by scheduled due date for the periods indicated. Loans maturing after one year are further distinguished between those with predetermined interest rates and loans which have floating or adjustable interest rates. 26 Loan Maturity Schedule
At December 31, 1997 ----------------------------------------------------------------------- Due in Due after 1 year Due 1 year or less but before 5 years after 5 years Total ---------------- -------------------- --------------- ----------- (Dollars in thousands) Real estate .................................... $ 24,288 $ 28,391 $ 37,991 $ 90,670 Loans held for sale ............................ 508 -- -- 508 Commercial ..................................... 10,459 8,320 1,977 20,756 Consumer ....................................... 2,712 3,116 1,634 7,462 -------- -------- -------- -------- Total loans .................................... $ 37,967 $ 39,827 $ 41,602 $119,396 ======== ======== ======== ======== Loans maturing after one year: Predetermined interest rates .................. $ 42,953 Floating or adjustable interest rates ......... 38,476 -------- Total ......................................... $ 81,429 ========
Asset Quality Management seeks to maintain a high quality of assets through conservative underwriting and sound lending practices. Approximately 30% of the Bank's loan portfolio is collateralized by first liens on primarily owner-occupied residential homes which have historically carried a relatively low credit risk. The Bank also maintains a commercial real estate portfolio comprised primarily of owner-occupied commercial businesses. The Bank has experienced low delinquency and default rates since opening in 1992. As of March 31, 1998, non-accrual loans amounted to $234,000 or .20% of total loans. In addition, the Bank has no real estate owned by means of foreclosure. The Bank participates in government guaranteed loan programs including the Small Business Administration ("SBA"), Rural Development ("RD") and the Finance Authority of Maine ("FAME"). At March 31, 1998, total loans under these programs totaled $10.7 million of which $8.3 million, or 7% of the total loan portfolio outstanding, is guaranteed by the various federal and state government entities. While there is no assurance that the Bank will not suffer losses on its construction loans or its commercial real estate loans, management believes that it has reduced the risks associated therewith because, among other things, primarily all such loans relate to owner-occupied projects where the borrower has demonstrated to the Bank's management that its business will generate sufficient income to repay the loan. The Bank primarily enters into agreements with individuals who are familiar to Bank personnel, are residents of the Bank's primary market area and are believed by management to be good credit risks. In an effort to maintain the quality of the loan portfolio, management seeks to minimize higher risk types of lending. To the extent risks are identified, additional precautions are taken in order to reduce the Bank's risk of loss. Commercial loans entail certain additional risks because repayment of such loans is usually dependent upon the successful operation of the commercial enterprise, which in turn is subject to adverse conditions in the economy. Commercial loans are generally riskier than residential loans because they are typically underwritten on the basis of the ability to repay from the cash flow of a business rather than on the ability of the borrower or guarantor to repay. Further, the collateral underlying commercial loans may be subject to greater fluctuations in market value over time than residential real estate, and may fluctuate in value based on the success of the business. The Board of Directors of the Bank and senior management have placed emphasis on loan review and underwriting procedures. The Bank utilizes the services of a consultant, M&M Consulting, LLC, to perform periodic loan review and documentation review. See "Business -- M&M Joint Venture." Management has established a risk rating and review process with the objective of quickly identifying, evaluating and initiating necessary corrective action for all commercial and commercial real estate loans. The goal of the risk rating process is to address the watch list, substandard and non-performing loans as early as possible. These components of risk management are integral elements of the Bank's loan program which have contributed to the loan portfolio performance to date. Nonetheless, management maintains a cautious outlook in attempting to anticipate the potential effects of uncertain economic conditions (both locally and nationally). Loans are placed on non-accrual status when, in the judgment of management, principal repayment is doubtful, whether current or past due. When a loan is placed on non-accrual status, previously accrued but unpaid interest 27 is deducted from interest income. As a matter of policy, interest is generally not accrued on loans past due 90 days or more. The Bank considers non-performing assets to include all non-accrual loans, other loans past due 90 days or more as to principal and interest, restructured loans and other real estate owned ("OREO"). The Bank does not return a loan to accrual status until it is brought current with respect to both principal and interest, future payments are no longer in doubt and the loan has been performing for at least six months. The following is a summary of non-performing assets at March 31, 1998 and December 31, 1997 and 1996: Non-Performing Assets
At At December 31, March 31, -------------------------- 1998 1997 1996 ---------- ---------- ---------- (Dollars in thousands) Loans: Non-accrual loans ............................................ $ 234 $ 181 $ 250 Loans 90 days or more past due but still accruing ............ -- 3 127 Restructured loans ........................................... -- -- -- ------- ------- ------- Non-performing loans ......................................... 234 184 377 OREO .......................................................... -- 43 340 ------- ------- ------- Non-performing assets ........................................ $ 234 $ 227 $ 717 ======= ======= ======= Non-performing loans as a percentage of total loans ........... 0.20% 0.15% 0.36% Non-performing assets as a percentage of total assets ......... 0.13% 0.13% 0.45% Non-performing assets as a percentage of total loans and OREO ......................................................... 0.20% 0.19% 0.68%
At December 31, 1997, loans on non-accrual status totaled $181,000. Interest income not recognized on non-accrual loans was $18,000 in 1997. Adversely Classified Assets The Bank's management adversely classifies certain assets as "substandard," "doubtful" or "loss" based on criteria established under banking regulations. 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 existing deficiencies are not corrected. Assets classified as doubtful have all the weaknesses inherent in those classified substandard with 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 as 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. At March 31, 1998, the Bank had $2.6 million of loans that were classified as substandard and $438,000 classified as doubtful. This compares to $2.2 million and $307,000 of loans that were classified as substandard and doubtful at December 31, 1997. The Bank had no loans which were classified as loss at either date. Delinquent loans may or may not be adversely classified depending upon management's judgment with respect to each individual loan. As of March 31, 1998 and December 31, 1997, the portion of loans guaranteed by either the SBA, RD or FAME amounted to approximately 48% and 44% of the total loan balances adversely classified, respectively. At March 31, 1998, included in the $3 million of loans that were classified as substandard and doubtful were $2.8 million of performing loans. This compares to $2.3 million of adversely classified performing loans as of December 31, 1997. These amounts constitute loans that, in the opinion of management, could potentially migrate to non-performing or loss status. Allowance for Loan Losses In originating loans, the Bank recognizes that loan losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of collateralized loans, the quality of the collateral for the loan as well as general economic conditions. It is management's policy to attempt to maintain an adequate allowance for loan losses based on, among other things, industry standards, management's experience, the Bank's historical loan loss experience, evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality. 28 Management continues to actively monitor the Bank's asset quality and to charge off loans against the allowance for loan losses when appropriate or to provide specific loan allowances when necessary. Although management believes it uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ from the economic conditions in the assumptions used in making the final determinations. See "Risk Factors -- Adequacy of Allowance for Loan Losses." The Bank's allowance for loan losses amounted to $1.8 million at March 31, 1998 (1.50% of total loans), an increase of $82,000 over the Bank's $1.7 million allowance for loan losses at December 31, 1997. The following table sets forth activity in the Bank's allowance for loan losses during the periods indicated: Summary of Loan Loss Experience
Three Months Ended Year Ended December 31, March 31, ------------------------------- 1998 1997 1996 ------------- -------------- ----------- (Dollars in thousands) Total net loans outstanding at the end of period (1) ........... $118,036 $117,679 $104,320 Average net loans outstanding during the period (1) ............ $116,806 $109,427 $ 99,381 Allowance for loan losses, beginning of period ................. $ 1,717 $ 1,450 $ 1,133 Loans charged off during the period: Real estate: Commercial ................................................... 0 (6) 0 Residential .................................................. 0 (16) 0 Home equity .................................................. 0 0 0 Loans held for sale .......................................... 0 0 0 Commercial .................................................... (7) (23) (16) Consumer ...................................................... (7) (55) (32) -------- -------- -------- Total ...................................................... (14) (100) (48) ======== ======== ======== Recoveries of loans previously charged off: Real estate: Commercial ................................................... 0 0 0 Residential .................................................. 6 12 0 Home equity .................................................. 0 0 0 Loans held for sale .......................................... 0 0 0 Commercial .................................................... 0 0 2 Consumer ...................................................... 0 0 3 -------- -------- -------- Total ...................................................... 6 12 5 -------- -------- -------- Net loans charged off during the period ........................ (9) (88) (43) -------- -------- -------- Provision charged to operations ................................ 90 355 360 -------- -------- -------- Allowance for loan losses, end of period ....................... $ 1,799 $ 1,717 $ 1,450 ======== ======== ======== Ratios: Net charge-offs to average loans outstanding (2) ............... .03% 0.08% 0.04% Net charge-offs to loans, end of period (2) .................... .03% 0.07% 0.04% Allowance for loan losses to average loans outstanding ......... 1.54% 1.57% 1.46% Allowance for loan losses to loans, end of period .............. 1.50% 1.44% 1.37% Allowance for loan losses to non-performing loans .............. 768.80% 933.15% 384.62%
- ---------- (1) Includes loans held for sale. (2) Information is annualized for the period ended March 31, 1998. The following table sets forth the breakdown of the allowance for loan losses by loan category for the periods indicated. Management believes that the allowance can be allocated by category only on an approximate basis. The allocation of an allowance to each category is not necessarily indicative of future losses and does not restrict the use of the allowance to absorb losses in any other category. 29 Allocation of the Allowance for Loan Losses
At December 31, ------------------------------------------------ At March 31, 1998 1997 1996 ------------------------ ------------------------ ----------------------- % of Loans to % of Loans to % of Loans to Amount Total Loans Amount Total Loans Amount Total Loans -------- --------------- -------- --------------- -------- -------------- (Dollars in thousands) Commercial and Commercial Real Estate (1) ...................... $1,111 53% $ 989 52% $ 696 54% Construction .......................... 14 2% 15 3% 10 1% Residential ........................... 132 21% 134 22% 123 23% Home equity ........................... 200 16% 199 17% 157 15% Loans held for sale (2) ............... -- 2% -- 0% -- 0% Consumer .............................. 162 6% 200 6% 161 7% Unallocated ........................... 180 -- 180 -- 303 -- ------ --- ------ --- ------ -- Total allowance for loan losses..... $1,799 100% $1,717 100% $1,450 100% ====== === ====== === ====== ===
- ---------- (1) Commercial and commercial real estate loans have been combined in allocating the allowance for loan losses as the Bank utilizes an internal risk rating system for these loans on a consolidated basis. (2) No allowance has been allocated to loans held for sale as these loans are sold without recourse within approximately ten days after the loan closing resulting in minimal loan loss risk to the Bank. Investment Activities The Company's investment portfolio serves three important functions: first, it enables the adjustment of the balance sheet's sensitivity to changes in interest rate movements; second, it provides an outlet for investing excess funds; and third, it provides liquidity. The investment portfolio is structured to maximize the return on invested funds within conservative risk guidelines. The composition of the investment portfolio as of March 31, 1998 was 54.3% U.S. Treasury notes and U.S. Government agencies and corporations, 40.1% mortgage-backed securities and collateralized mortgage obligations and 5.6% other securities. The comparable distributions for December 31, 1997 and 1996 were 54.9% and 47.5% U.S. Treasury notes and U.S. Government agencies and corporations, 39.7% and 34.6% mortgage-backed securities and collateralized mortgage obligations and 5.4% and 17.9% other securities, for the respective periods. The following table sets forth the composition of the Company's investment portfolio at the dates indicated: Investment Securities Portfolio Composition
At December 31, ------------------------- At March 31, 1998 1997 1996 ------------- ----------- ----------- (Dollars in thousands) Securities held to maturity (1): Mortgage-backed securities and collateralized mortgage obligations ...... $ 1,740 $ 1,962 $ 3,123 ======== ======== ======== Securities available for sale (2): U.S. Treasury securities ................................................ $ 22,134 $ 21,043 $ 18,991 U.S. Government agencies and corporations ............................... 2,606 3,579 497 Mortgage-backed securities and collateralized mortgage obligations ...... 16,522 15,851 11,088 State and local government debt securities .............................. 1,402 1,402 -- U.S. Government and agency money market funds ........................... 285 166 6,548 Other securities (3) .................................................... 890 823 767 -------- -------- -------- Total ................................................................. $ 43,839 $ 42,864 $ 37,891 ======== ======== ========
- ---------- (1) Carried at amortized cost. (2) Carried at estimated market value. (3) Includes FHLB stock, Federal Reserve stock and FNMA stock. 30 Maturity Schedule of Securities Available for Sale At December 31, 1997 (At Market Value)
One year Over one year or less through 5 years ---------------------- ---------------------- Weighted Weighted Amount Yield (1) Amount Yield (1) ---------- ----------- ---------- ----------- (Dollars in thousands) U.S. Treasury securities ....... $ 9,985 5.93% $11,058 6.04% U.S. Government agencies and corporations .............. 2,573 5.75% 1,006 5.89% Mortgage-backed securities and collateralized mortgage obligations .......... -- -- 1,213 6.01% States and local government debt securities .................... 1,300 5.50% -- -- U.S. Government and agency money market funds ......................... 166 5.47% -- -- Other securities ............... 823 6.29% -- -- ------- ---- ------- ---- Total ........................ $14,847 5.87% $13,277 6.03% ======= ==== ======= ==== Over 5 years through 10 years Over 10 years Total -------------------- -------------------- --------------------- Weighted Weighted Weighted Amount Yield (1) Amount Yield (1) Amount Yield (1) -------- ----------- -------- ----------- ---------- ---------- (Dollars in thousands) U.S. Treasury securities ....... -- -- -- -- $21,043 5.99% U.S. Government agencies and corporations .............. -- -- -- -- 3,579 5.79% Mortgage-backed securities and collateralized mortgage obligations .......... 5,670 6.30% 8,968 6.32% 15,851 6.29% States and local government debt securities .................... 102 5.50% -- -- 1,402 5.50% U.S. Government and agency money market funds ......................... -- -- -- -- 166 5.47% Other securities ............... -- -- -- -- 823 6.29% ----- ---- ----- ---- ------- ---- Total ........................ $5,772 6.28% $8,968 6.32% $42,864 6.07% ====== ==== ====== ==== ======= ====
- ---------- (1) Yield is adjusted for the effect of tax-exempt securities assuming a Federal tax rate of 34%. Maturity Schedule of Securities Held to Maturity At December 31, 1997 (At Amortized Cost)
One year Over one year Over 5 years or less through 5 years through 10 years Over 10 years Total ------------------- ------------------- ------------------- ------------------- ------------------ Weighted Weighted Weighted Weighted Weighted Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield -------- ---------- -------- ---------- -------- ---------- -------- ---------- -------- --------- (Dollars in thousands) Mortgage-backed securities and collateralized mortgage obligations ......... $866 6.00% -- -- $1,000 5.91% $96 6.00% $1,962 5.94%
Deposit Activities Deposits are the major source of the Bank's funds for lending, investing and for other general business purposes. In addition to deposits, the Bank derives funds from interest payments, loan principal payments, loan sales and funds from operations. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general market interest rates and economic conditions. Borrowings are also used on a short-term basis to compensate for reductions in the availability of other sources of funds, or borrowings may be used on a longer term basis to support expanded lending or investment activities. Deposits are attracted principally from within the Bank's primary market area through the offering of a broad variety of deposit products, including checking accounts, money market accounts, savings accounts, certificates of deposit (including jumbo certificates in denominations of $100,000 or more) and retirement savings plans. The Company has not sought brokered deposits and does not intend to do so in the future. Maturity terms, service fees and withdrawal penalties are established by the Bank and reviewed on a periodic basis. The determination of rates and terms is predicated on funds acquisition and liquidity requirements, rates paid by competitors, growth goals and federal regulations. Total average deposits were $141.7 million for the three months ended March 31, 1998, compared to $132.4 million for December 31, 1997 and $116.3 million in December 31, 1996, representing increases of $9.3 million or 7% in 1998 31 and $16.1 million or 13.8% in 1997. The increase in deposits is primarily due to the growth in savings accounts. Savings accounts represent 28%, 25% and 18% of the total deposits for the periods ended March 31, 1998, December 31, 1997 and 1996, respectively. The Bank introduced a passbook savings product at a premium interest rate in 1997. The Bank continues to market this product aggressively. The introduction of new products and the continued focus on quality customer service contributed to strong deposit growth. The Bank continues to develop consumer and commercial deposit relationships through referrals and additional contacts within its market area. The following table sets forth the average balances and weighted average rates for the Bank's categories of deposits for the periods indicated: Average Deposit Balances and Rates
Year Ended December 31, -------------------------------- Three Months Ended March 31, 1998 1997 -------------------------------- -------------------------------- % of % of Average Average Total Average Average Total Balance Rate Deposits Balance Rate Deposits ----------- --------- ---------- ----------- --------- ---------- (Dollars in thousands) Non-interest checking ...................... $ 21,974 -- 16% $ 20,631 -- 15% Interest checking and money market ......... 23,346 2.29% 16% 23,794 2.29% 18% Savings .................................... 40,403 4.51% 28% 32,717 4.40% 25% Certificates of deposit .................... 55,997 5.68% 40% 55,306 5.68% 42% -------- -- -------- -- Total .................................... $141,720 100% $132,448 100% ======== === ======== === Year Ended December 31, ------------------------------- 1996 ------------------------------- % of Average Average Total Balance Rate Deposits ----------- --------- --------- (Dollars in thousands) Non-interest checking ...................... $ 19,274 -- 16% Interest checking and money market ......... 22,796 2.18% 20% Savings .................................... 21,090 4.08% 18% Certificates of deposit .................... 53,094 5.78% 46% -------- -- Total .................................... $116,254 100% ======== ===
The Bank does not have a concentration of deposits from any one source, the loss of which would have a material adverse effect on the business of the Bank. Management believes that substantially all the Bank's depositors are residents in its primary market area. The following table summarizes at March 31, 1998 and December 31, 1997 the Bank's certificates of deposit of $100,000 or more by time remaining until maturity:
March 31, 1998 December 31, 1997 ---------------- ------------------ (Dollars in thousands) Maturity Period: Less than three months ........................ $2,796 $ 3,447 Over three months through six months .......... 1,665 2,454 Over six months through twelve months ......... 2,844 1,738 Over twelve months ............................ 2,427 2,883 ------ ------- Total ....................................... $9,732 $10,522 ====== =======
Return on Equity and Assets The following table sets forth the Company's performance ratios for the periods indicated:
At December 31, ----------------------- At March 31, 1998 (1) 1997 1996 ------------- ---------- ---------- Return on average assets ..................... 0.89% 0.86% 0.78% Return on average equity (2) ................. 13.69% 13.63% 12.28% Dividend payout ratio (Common Stock) ......... 12.73% 3.23% -- Average equity to average assets (2) ......... 6.47% 6.34% 6.33%
- ---------- (1) Annualized. (2) Excludes unrealized gain or loss on securities available for sale net of taxes. Short-Term Borrowings The borrowings utilized by the Bank primarily have been securities sold under agreements to repurchase. Other short-term borrowings generally include federal funds purchased, FHLB advances, treasury, tax and loan deposits and interest-bearing demand notes due to the U.S. Treasury, which are repaid upon notification by the U.S. Treasury. 32 The following table sets forth certain information regarding securities sold under agreement to repurchase for the dates indicated:
At or for the At or for the Year Ended December 31, Three Months Ended ------------------------------- March 31, 1998 1997 1996 ------------------- ------------ ------------- Average balances outstanding .................... $ 13,033 $ 11,931 $ 11,770 Maximum amount outstanding at any month-end during the period .............................. $ 13,554 $ 12,991 $ 14,070 Balance outstanding at end of period ............ $ 13,554 $ 11,897 $ 12,164 Weighted average rate during the period ......... 4.39% 4.28% 4.42% Weighted average rate at end of period .......... 4.46% 4.30% 4.29%
Capital and Liquidity The Company and the Bank actively monitor their compliance with regulatory capital requirements. The elements of capital adequacy standards include strict definitions of core capital and total assets, which include off-balance sheet items such as commitments to extend credit. Under the risk-based capital method of capital measurement, the ratio computed is dependent on the amount and composition of assets recorded on the balance sheet and the amount and composition of off-balance sheet items, in addition to the level of capital. Shareholders' equity was $11.5 million at March 31, 1998 or 6.55% of total assets compared to $11 million or 6.14% of total assets at December 31, 1997. At March 31, 1998, the Tier 1 leverage ratio was 6.38%, the Tier 1 risk-based capital ratio was 10.25% and the total risk-based capital ratio was 11.78%, all in excess of regulatory guidelines for a "well capitalized" financial institution. Liquidity defines the ability of the Company and the Bank to generate funds to support asset growth, meet deposit withdrawals and other funds reductions. The Bank's liquidity needs are met primarily by Federal Funds sold, short-term investments, deposits and the generally predictable cash (primarily loan amortization and prepayments) from the Bank's assets. The Bank also has the ability to borrow from the FHLB and correspondent banks to supplement its liquidity needs. The Company's liquidity needs and funding are provided through cash dividends and tax payments from the Bank. The Company has agreed not to increase its borrowings without approval from the Federal Reserve. Accounting and Financial Reporting Issues In 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities." The SOP requires costs of start-up activities to be expensed as incurred. The SOP is effective for years beginning after December 15, 1998. Adoption of the SOP is expected to have no effect on net income for 1999. SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," is effective for years beginning after December 31, 1997. This statement requires a company to disclose certain income statement and balance sheet information by operating segment. Since the Company's operations include only its banking activities, no additional disclosure standards will be imposed on the Company. Year 2000 Risk Assessment and Action Plan It is anticipated that many computer applications will not operate as intended beyond the year 1999 without modifications. This is due to the practice of using only two digits instead of four digits to identify a year in the date field, for example: "97" instead of "1997." On January 1, 2000, it is possible that some systems with time sensitive software programs will recognize the year as "00" and incorrectly interpret it as "1900." The Federal Reserve Board has identified six risk categories of particular concern to financial institutions. Of these six, emphasis is given to the areas of operational risk, legal risk, and reputation risk. The Company has adopted a plan to minimize the Year 2000 risk. The plan includes the formation of a Year 2000 Committee, which has been formed and charged with implementing a five phase plan of awareness, assessment, renovation, validation and implementation for all systems and equipment used in the day to day operations of the Company and the Bank. The timeline for the Committee calls for completion of the awareness, assessment and renovation phases by December 31, 1998; testing and validation should be in process by that time as well. 33 Most of the data processing for the Company and the Bank is outsourced pursuant to an agreement with M&I Data Services, a Division of Marshall & Ilsley Corporation ("M&I Data"), a provider of data processing services to the banking industry. In addition, item processing by the Company and the Bank is performed by Financial Institution Services Corporation ("FISC"), a provider of item processing to numerous Maine financial institutions. The Northern Trust Company also processes data for the Bank's Trust and Investment Services Department. M&I Data, FISC and the Northern Trust Company have each informed the Company that each is implementing changes to accommodate systems for the Year 2000. Although the Company will continue to monitor the progress of M&I Data, the Northern Trust Company and FISC in addressing Year 2000 compliance issues, there can be no assurance that these companies will be successful in addressing such issues. Therefore, the potential liabilities and costs associated with Year 2000 compliance cannot be estimated with certainty at this time. Regardless of the Company's systems, there can be no assurance that the Company will not be adversely affected by the failure of others to become Year 2000 compliant. Such risks may include potential losses related to loans made to third parties whose businesses are adversely affected by the Year 2000 issue, the contamination or inaccuracy of data provided by non-Year 2000 compliant third parties and business disruption caused by the failure of service providers, such as security and data processing companies, to become Year 2000 compliant. Because of these uncertainties, there can be no assurance that the Year 2000 issue will not have a material financial impact in any future period. See "Risk Factors -- Year 2000 Compliance" Impact of Inflation and Changing Prices The financial statements and related financial data concerning the Company presented in this Prospectus have been prepared in accordance with generally accepted accounting principles, with 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. The primary impact of inflation on the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, changes in interest rates have a more significant impact on the performance of a financial institution than do the effects of changes in the general rate of inflation and changes in prices. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. 34 BUSINESS Organization and Operations The Company The Company, a Maine corporation organized in 1992, is a registered bank holding company under the BHCA and is headquartered in Bangor, Maine. In October 1992, the Company became the bank holding company for the Bank and holds 100% of the outstanding Bank stock. The Company, through its ownership of the Bank, is engaged in a general commercial and retail banking business, along with trust and investment services. The Company is an entity legally separate and distinct from the Bank. The only sources of the Company's income and cash flow are any dividends paid on the Bank Stock, tax benefits received by the Company and earnings from amounts deposited by the Company in interest bearing accounts or investments. The payment of dividends by the Bank, the payment of dividends by the Company and many other aspects of the operations of the Company and the Bank are subject to regulation and control by various regulatory agencies. Merrill Merchants Bank The Bank was established in 1992 to purchase certain assets and assume certain liabilities of certain branch banking offices formerly held by a large out-of-state bank. The Bank is headquartered in Bangor, Maine, which is located 76 miles north of Augusta, Maine, the State Capital. Presently, the Bank maintains seven Branch Banks in five area communities. The three Bangor offices provide citywide convenience and are complemented by: (i) an office in Brewer, Bangor's sister city located on the eastern shore of the Penobscot River; (ii) a branch in Orono, home of the University of Maine, the State's flagship campus; (iii) a branch in Pittsfield, a small rural town of 4,000 people located about 30 miles southwest of Bangor; and (iv) a new supermarket branch in Newport, a small town neighboring Pittsfield, located at the juncture of Interstate 95 and Route 2 approximately 25 miles southwest of Bangor. In addition to the Branch Banks, the Bank has seven ATM locations in its primary market area. From its seven banking office locations, the Bank conducts a general commercial and retail banking business which includes the acceptance of deposits from the general public and the application of those funds to the origination of a variety of commercial loans, commercial and residential real estate loans, and consumer loans. The Bank also provides trust and investment services. As of March 31, 1998, the Company had total assets of $175.8 million, loans net of allowances of $118 million, total deposits of $140.4 million and shareholders' equity of $11.5 million. Unless the context otherwise requires, references herein to the Company shall include the Company and the Bank, on a consolidated basis after October, 1992. The Bank's loan portfolio has grown over the last two years, while non performing loans as a percentage of total loans were at .20% and .15% at March 31, 1998 and December 31, 1997, respectively, both percentages being below the Bank's national peer group average of .68%. The Bank has also established a Trust and Investment Services Department, which has grown since inception in April 1994 to $98.5 million in assets as of March 31, 1998. The Bank offers its customers the option of conducting many of their banking transactions via an automated telephone banking system and through the use of the customer's personal computer. The Bank's income is derived principally from interest and fees earned in connection with its lending activities, interest and dividends on investment securities, short-term investments, and other services. Its main expenses are the interest paid on deposits and operating expenses. The Bank's deposits are insured up to the applicable limits by the FDIC. History Merrill Merchants Bank was established in 1992 by a group of area business people who recognized the need for a community bank in the Greater Bangor area. Acquisitions and consolidations within the banking industry over the preceding 15 years had resulted in two very large out of state banks, a large Maine-based stock savings bank, and a local, well established mutual savings bank, all competing for market share in the Greater Bangor area. Management believed that changes in management, the loss of local boards of directors, and the loss of local decision-making had resulted in increased customer dissatisfaction and limited local banking options. When one of the large out of state banks was forced by banking regulators to divest certain assets and liabilities in the Bangor market, the organizers of Merrill Merchants Bank set a plan in motion to form a community bank. The Bank drew its management team from among the ranks of local bankers formerly associated with The Merrill 35 Trust Company and Merchants National Bank. These individuals had significant banking experience, and shared a common vision with investors who wanted to offer local decision-making and personal banking services. After acquiring the divested assets and related liabilities, the Bank opened for business offering consumer and commercial banking services on October 19, 1992. Community Banking Strategy The Bank was formed by a group of local business people who after observing a series of large bank acquisitions in the region, believed that the remaining banks were no longer servicing the needs of the Bangor and central Maine area. To fill this need, the Bank has worked to position itself as a service-oriented community bank. The Bank is staffed by experienced management personnel, most of whom reside in the area and who know the Bank's customers and are able to provide personalized service for these customers. This strategy has been deliberately developed and implemented at a time when consolidation within the industry has resulted in an increasing depersonalization among the larger institutions. The Bank has focused on fostering banking relationships with customers which include multiple financial services that range from basic checking to investment management accounts. As part of this strategy, each of the Company and the Bank has attracted local business people to serve on its Board of Directors, each of whom actively promote the Bank in the community. In addition, the Company has obtained additional investments in and support for the Bank from local investors, in an effort to broaden the community's awareness of the Bank and attract new business. By continuing to follow the original goal to have a consumer service oriented, locally based bank, the Bank has experienced growth since its inception. Management intends to continue the Bank's community banking strategy while at the same time attempting to increase its market share. The Bank is active in small business lending and has earned the designation "Preferred Lender" by the Small Business Administration. The Bank is the only community bank in the State to have been awarded this distinction. The Bank is also active in residential mortgage lending, and a number of products, including government insured loan programs, are available to meet the demands of both the consumer and the commercial market. The Company's affiliations with M&I Data and FISC have enabled the Bank to deliver high technology products such as banking by personal computer and check imaging while maintaining a local, friendly flavor in its Branch Banks. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Year 2000 Risk Assessment and Action Plan." This same strategy has been implemented by the Trust and Investment Services Department which is also serving many clients who appreciate the personal attention and custom service provided locally and the depository custody services and investment advisory services provided by the Bank through its affiliation with The Northern Trust Company, which supports those activities. Market Area The Bank's primary market area, Greater Bangor, is at the center of commercial activity for the northeastern and central region of the State of Maine. Nearly 100,000 people live in the Bank's primary market area. The Bank is part of a strategic link to Canada as Bangor is the closest U.S. metropolitan area to Eastern Quebec and the Canadian Maritime Provinces. Many regional and national companies site their operations in the Bangor area. Services, trades, manufacturing, and government are the four largest categories of employment in the metropolitan Bangor region. Bangor is also a healthcare center for central, eastern and northern Maine. The City is a regional financial center and is also serviced by several statewide and regional accounting firms, law firms, insurance companies and security and investment firms. Bangor is also a hub for government services, with many local, State and Federal offices located within the City. Bangor is accessible by multiple exits from Interstate 95, a major interstate highway which transits the Eastern Seaboard of the United States. Major routes to all regions of the State bisect Bangor from various directions. Bangor International Airport provides domestic and international passenger and cargo service for a significant portion of the State. The Bank has targeted this same area as its focus for possible expansion of the franchise. Any such expansion would occur with carefully selected de novo branching or taking advantage of opportunities created as the large regional banks consolidate and sell or close branches. 36 Lending Activities The Bank has experienced loan growth since it was established in October 1992. One of the primary factors has been an experienced local lending group. Many commercial lending relationships have been developed by the Bank as a result of long standing business associations over many years. Many of the Bank's officers have held lending positions with Bangor area banks for in excess of fifteen years. Management believes that these relationships have been not only instrumental in loan growth but in developing quality customers. The Company strives to provide a full range of financial products and services to small and medium-sized businesses and consumers. The Bank has an established Officer Loan Committee which meets weekly to review and approve credits and a Director Loan Committee which meets monthly, or as necessary, to approve credits in excess of $250,000. The Bank's loan mix is subject to the discretion of its Board of Directors and the demands of the local marketplace. Management has established relationships with local area legal and accounting professionals to cultivate referrals by hosting informational meetings at the Bank. Asset quality is a top priority for the Bank and a significant consideration in business development efforts. Commercial and Commercial Real Estate Lending Loans in this category principally include loans to service, retail, medical, wholesale and light manufacturing businesses. Commercial loans are made based on the management, financial strength and repayment ability of the borrower. As of March 31, 1998, commercial and commercial real estate loans represented the largest class of loans at $63.3 million or 53% of total loans. See "Risk Factors -- Impact on Bank's Loan Portfolio Due to Changes in Real Estate Values." The Bank participates in government guaranteed lending including programs with FAME and RD, and as of March 31, 1998, had originated the second highest number of SBA loans in the State of Maine for their current fiscal year. The Bank was recognized by the Coleman Report as being one of the top 500 SBA 7(a) lenders in the country for 1997. The Bank is the only community bank in the state to have been awarded designation as a Preferred Lender by the SBA. The Bank's commercial real estate loans are ordinarily made at variable rates of interest, and amortized up to fifteen years, although some loans are originated for terms of five years or less at fixed rates of interest. A broad range of short-to-medium term commercial loans, both collateralized and uncollateralized are made available to businesses for working capital (including inventory and receivables), business expansion (including acquisition and development of real estate and improvements) and the purchase of equipment and machinery. The purpose of a particular loan generally determines its structure. The commercial real estate loans are secured by a variety of properties, including buildings occupied by small-to-medium sized businesses, apartment complexes and non-owner/user office and retail business. The Bank's commercial loans primarily are underwritten in the Bank's primary market area on the basis of the borrowers' ability to service such debt from income. Many of these loans involve lines of credit written at variable rates of interest on a demand basis or for terms not exceeding one year, while others are written on a term basis typically for up to five years, generally at variable rates of interest. As a general practice, the Bank takes as collateral a security interest in any available real estate, equipment or other chattel although such loans may also be made on an uncollateralized basis. Collateralized working capital loans are primarily collateralized by short term assets whereas term loans are primarily collateralized by long term assets. As additional security for commercial loans, the Bank normally requires the personal guarantee of the principals and may require financial performance covenants. Commercial loans generally present a higher level of risk than one to four family residences due to the concentration of principal in a limited number of loans and borrowers, the effect of general economic considerations in commercial properties and the increased difficulty of evaluating and monitoring these types of loans. In addition, the repayment of loans secured by commercial real estate is typically dependent on the successful operation of the related business activities. Residential Mortgage Lending The Bank endeavors to meet the needs of its individual customers by making residential mortgage loans. Residential loans include the origination of conventional mortgages, residential lot loans and residential acquisition, development and construction loans for the purchase of construction of single-family housing or lots. The Bank offers fixed and adjustable rate mortgages ("ARMs"). With these loans, the real estate normally constitutes the primary collateral. 37 Loans in this category include both portfolio loans which are held by the Bank until maturity and loans which are sold on the secondary market. In the case of secondary market loans, all servicing rights are retained by the Bank which maintains the service connection to the customer. The Bank participates in government guaranteed programs and has also helped coordinate several innovative programs including a partnership with Penquis Community Action Program in their "Own Me" program which assists low income women in the purchase of a home, and housing workshops for the hearing impaired. As of March 31, 1998, residential loans accounted for a total of $27 million representing 22% of total loans. See "Risk Factors -- Impact on Bank's Loan Portfolio Due to Changes in Real Estate Values." The Bank's secondary market servicing portfolio stands at $40 million. The Bank offers one-year ARMs with rate adjustments tied to the weekly average rate of U.S. Treasury securities adjusted to a constant one-year maturity with specified minimum and maximum interest rate adjustments. The interest rates on a majority of these mortgages are adjusted yearly with limitations on upward adjustments of 2% per adjustment period and 6% over the life of the loan. The Bank generally charges a higher interest rate if the property is not owner-occupied. It has been the Bank's experience that the proportion of fixed-rate and adjustable-rate loan originations depends in large part on the level of interest rates. As interest rates fall, there is generally a reduced demand for ARMs and, as interest rates rise, there is generally an increased demand for ARMs. Fixed and adjustable rate mortgage loans collateralized by single family residential real estate generally have been originated in amounts of no more than 80% of appraised value. The Bank may, however, lend up to 95% of the value of the property collateralizing the loan. In the case of certain mortgage loans, the Bank will procure private mortgage insurance to reduce credit risk. The Bank in most cases requires title, fire and extended casualty insurance to be obtained by the borrower, and, where required by applicable regulations, flood insurance. The Bank maintains its own errors and omissions insurance policy to protect against loss in the event of failure of a mortgagor to pay premiums on fire and other hazard insurance policies. Although the contractual loan payment period for single family residential real estate loans is generally for a 15 to 30 year period, such loans often remain outstanding for significantly shorter periods than their contractual terms. The Bank charges no penalty for prepayment of mortgage loans. Mortgage loans originated by the Bank customarily include a "due on sale" clause giving the Bank the right to declare a loan immediately due and payable in the event, among other matters, that the borrower sells or otherwise disposes of the real property subject to a mortgage. In general, the Bank enforces due on sale clauses. Home Equity Lending The Bank originates home equity loans on a fixed and variable interest rate basis. At March 31, 1998, fixed rate loans totaled $10 million and variable rate loans amounted to $9.7 million. Fixed rate loans are for terms of 5 to 10 years with monthly amortization required and interest rates ranging from 8.5% to 12.5%. Interest rates on variable rate loans are 1.50% to 2.00% over the prime interest rate. These home equity loans are generally secured by a second mortgage on the principal residential property. Consumer and Other Lending Activities Consumer loans made by the Bank have included home improvement, automobile, boat and recreation vehicle loans, credit cards and overdraft protection accounts. The Bank's consumer loan portfolio consists primarily of loans to individuals for various consumer purposes. A majority of these loans are for terms of less than 60 months and although generally collateralized by liens on various personal assets of the borrower may be made uncollateralized. Consumer loans are made at fixed and variable interest rates. Consumer loans are attractive to the Bank because they typically have a shorter term and carry higher interest rates than that charged on other types of loans. Consumer loans, however, do pose additional risks of collectability when compared to traditional types of loans granted by commercial banks such as residential mortgage loans. In many instances, the Bank is required to rely on the borrower's ability to repay since the collateral may be of reduced value at the time of collection. Accordingly, the initial determination of the borrower's ability to repay is of primary importance in the underwriting of consumer loans. Consumer loans totaled approximately $7.2 million and represented 6% of the Bank's loan portfolio at March 31, 1998. Such loans bear interest at fixed rates ranging from 5.5% to 18%. M&M Joint Venture In 1996, the Bank and MSB Leasing, Inc. (a subsidiary of Machias Savings Bank, a state chartered mutual savings bank) formed M&M Consulting Limited Liability Company ("M&M"), a jointly owned subsidiary. M&M 38 was established to provide a review of various internal bank risk control functions. M&M, which has a former FDIC examiner as one of its principals, provides the Bank, Machias Savings Bank and approximately 17 other financial institutions in Maine access to experienced individuals who are highly trained in loan review, regulatory compliance, training and internal auditing in a cost-efficient and timely manner. Loan From Marshall & Ilsley Bank In October 1992, the Company obtained the M&I Loan from M&I Bank. As of March 31, 1998, the principal amount outstanding thereunder was approximately $2.7 million. The Company has the option of selecting one of the following annual interest rates every six months: (i) Prime Rate, (ii) the six-month Treasury Rate plus 1.75% or (iii) LIBOR plus 1.5%. Interest payments on the unpaid principal are due quarterly. The Company pledged all of the Bank Stock as collateral for the M&I Loan. See "Risk Factors -- Risk of Foreclosure on Bank Stock by Marshall and Ilsley Bank." The M&I Loan documentation imposes significant restrictions on the operations of the Company and the Bank. The Company may not engage in the following actions without the written approval of M&I Bank: [bullet] pay the principal of its Debentures (M&I Bank has also reserved the right to prohibit interest payments on the Debentures); [bullet] repurchase or redeem any of its Common Stock from its directors, executives or other control group members; [bullet] incur additional debt; [bullet] make a guarantee or incur contingent liabilities; [bullet] execute a merger or acquisition or a transfer of substantially all of the assets of the Company or the Bank; or [bullet] sell the Bank (or any interest therein) or acquire any banks or other subsidiaries. Economic Environment General The monetary policies of regulatory authorities, including the Federal Reserve Board, have a significant effect on the operating results of bank holding companies and their subsidiary banks, including the Company and the Bank. The Federal Reserve Board regulates the national supply of bank credit. Among the means available to the Federal Reserve Board to regulate such supply are open market operations in U.S. government securities, changes in the discount rate on depository institution borrowings and changes in reserve requirements against depository institution deposits. These means are used in varying combinations to influence growth and the distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid for deposits. Effect of Regional Economies Every bank is affected by general economic conditions beyond its control, such as inflation, recession, unemployment and other factors. A depressed economy in the early 1990's in the United States, and in the northeastern United States in particular, caused financial hardship in the region in which the Bank's branches operate. However, this same region has achieved modest growth over the past four years as part of the general recovery of the whole Northeast region from its recession. In addition, the Company believes that property values in the Bank's market area have generally been more stable than in southern Maine and the New England states as a whole. Should an unfavorable trend in real estate values reappear, the Company believes that the Bank's loan portfolio should be sufficiently mature to provide adequate loan to value margins and cash flow coverage. The Company and the Bank endeavor to service the Bank's customers in a prudent and sound manner in light of regional and national economic conditions. See "Risk Factors -- Dependence on Economic Conditions." Competition The financial services landscape has changed considerably over the past five years in the Bank's primary market area, Greater Bangor. Two large out of state banks have continued to experience local change as a result of mergers and acquisitions at the regional and national level. The State's largest Maine-based bank, with a strong presence in the local market, has also experienced considerable change as it has acquired greater market share through acquisitions in-state and out-of-state. A large locally-based bank has recently announced plans to expand its line 39 of financial services and to acquire an extensive branch network beyond the local market. Credit unions have continued to expand their membership and the scope of banking services offered. Non-banking entities such as brokerage houses, mortgage companies and insurance companies are offering very competitive products. Many of these entities and institutions have resources substantially greater than those available to the Bank and are not subject to the same regulatory restrictions as the Company and the Bank. Interstate banking also could intensify competition if out of state institutions increasingly take advantage of recent legislation liberalizing interstate banking and branching opportunities in Maine. See "Risk Factors -- Risks Related to Competition." Competitive Strategy The Bank's primary geographic market area is Northeastern and Central Maine. In recent years, due to more liberal interstate banking laws, this area has seen an increase in acquisitions of locally-owned Maine-based banks, including Maine-based banks in the Bank's primary market area, by non-local entities. It has been the observation of the Company's management that these acquisitions often result in customer dissatisfaction as the decision-making on loans, marketing, and other aspects of the acquired banks' businesses are shifted from local bank management possessing independent decision-making power to management operating under policies and guidelines from corporate headquarters in other states. The Company believes that this shift often results in delayed decision-making by management which is not familiar with the needs of the acquired bank's customers or the communities they serve. Individuals and small businesses are particularly sensitive to these changes since they may not fit the product parameters established by the larger banks. Thus, the Company believes that there will continue to be a need for a bank in the Bank's primary market area with local management having decision-making power and emphasizing loans to small and medium-sized businesses and to individuals. The Bank has concentrated on extending business loans to such customers in the Bank's primary market area and to extending trust services to clients with accounts of all sizes. The Bank's management also makes decisions based upon, among other things, the knowledge of the Bank's employees regarding the communities and customers in the Bank's primary market area. The individuals employed by the Bank, to a large extent, reside near the Branch Banks and thus are generally familiar with the Branch Banks' communities and customers, which is important in local decision-making and allows the Bank to respond to customer questions and concerns on a timely basis and fosters quality customer service. The Trust and Investment Services Department of the Bank has taken advantage of opportunities created as the larger banks have altered their personal service commitment to clients not meeting established account criteria. The Bank is able to offer a comprehensive array of trust and investments services to individuals, businesses, non-profit and municipalities of varying assets size and to provide the highest level of personal service. The staff includes attorneys as well as investment and employee benefits professionals with trust and banking experience. The Bank has worked and will continue to work to position itself to be competitive in its market area. The Bank's ability to make decisions close to the marketplace, management's commitment to providing quality banking products, the caliber of the professional staff, and the community involvement of the Bank's employees are all factors affecting the Bank's ability to be competitive. If the Company and the Bank are unable to compete successfully, however, the business and operations could be adversely affected. See "Risk Factors -- Risks Related to Competition." Employees As of March 31, 1998, the Bank had a total of 86 full-time equivalent employees. None of the employees of the Bank are covered by a collective bargaining agreement. The Bank believes that its employee relations are good and has undertaken several programs to ensure staff development, including education programs at various schools of banking. Other options available to employees include tuition reimbursement for college and graduate school programs, a college scholarship program for the children of employees and a variety of programs designed to promote good health and overall well being. The Bank believes that stock ownership by employees is important in focusing the attention of employees on the enhancement of shareholder value. In the past, the Company granted options under the Company's stock option plan to purchase a total of 451,350 shares of Common Stock (adjusted to reflect the 9:1 Stock Split, the 3% stock dividend, the 5% stock dividend and the 5% stock dividend in 1996, 1997 and 1998, respectively) to its officers and branch managers. In January of 1998, the Company granted options to purchase an aggregate of 27,405 shares of Common Stock under the Company's stock option plan, of which options to purchase 13,230 shares were granted to the Company's executive officers and options to purchase 14,175 shares were granted to non-executive employees of the Company, all at an exercise price of $6.77 per share (adjusted to reflect the 9:1 40 Stock Split and the 5% stock dividend in 1998). On March 31, 1998, the Company granted options under the Company's stock option plan to all Bank employees (excluding officers and branch managers) at an exercise price of $6.87 per share (adjusted to reflect the 9:1 Stock Split). For employees who had achieved two (2) years of employment with the Bank by March 1, 1998, these options vest on March 2, 1999 and may not be exercised after May 26, 2003. For the remaining employees, the options vest on March 2, 2000 and may not be exercised after May 26, 2003. Each employee received an option to purchase 900 shares, for a total of 55,800 shares, each adjusted to reflect the 9:1 Stock Split. All of these grants complement the 401(k) Plan which was instituted in 1994. See "Management -- Stock Option Plan." Bank Premises Over the past five and a half years, the Company has made improvements to or relocated from nearly all of the properties it acquired in connection with the Bank's formation. The most significant project being the 1997 two-story expansion and renovation of its headquarters building at 201 Main Street. This increased the size of the structure from 8,000 to a total of 17,000 square feet, and includes a large branch, commercial, trust and administrative offices as well as a board room and two conference rooms. The property is located at the gateway to downtown Bangor and the enhancements to the site have significantly improved the area. The site suits the Company's present needs and further expansion is available on the premises if the needs of the Company change in the future. 992 Union Street Branch, Bangor The Bank's most recent project, completed in late 1997, was the relocation of this office from a small, outdated facility at 559 Union Street to a new branch at the Airport Plaza Mall located at 992 Union Street. This branch includes a spacious lobby, three comfortable offices, a conference room and kitchen. Adequate parking and convenient access to the multi-lane drive up and ATM are added benefits. 920 Stillwater Avenue, Bangor In 1994, the Bank relocated from an office within the Bangor Mall to a spacious facility located in the CrossRoads Plaza. This office includes the branch and the Residential Mortgage Department and its operational staff. This location features a multi-lane drive up and ATM and provides service to another ATM located inside the Bangor Mall. 366 Wilson Street, Brewer In 1995, the Company sold the original Brewer branch building on North Main Street and relocated to the present location. This is a leased facility which had been recently renovated by another bank. It features a multi-lane drive-up and ATM and is conveniently located at the center of the Brewer business district. 69 Main Street, Orono The Orono branch is also located near the center of town on the first floor of a former bank building. The Company assumed this lease in 1992 and has made some cosmetic improvements to the facility since that time. In 1998 an ATM was installed at the site to complement the existing drive-up services. 27 Main Street, Pittsfield The Pittsfield branch, which was acquired by the Bank as part of the start-up, is a historic two story Main Street building with approximately 12,600 square feet of space. Newport Plaza, Newport In 1997, the Company opened its first branch in a locally owned supermarket in Newport. This facility is unlike most supermarket banks in that it includes a drive-up as well as in-store tellers and loan and customer service personnel. Legal Proceedings The Company and the Bank are periodically parties to or otherwise involved in legal proceedings arising in the normal course of business, such as claims to enforce liens, claims involving the making and servicing of real property loans and other issues incident to their business. Management does not believe that there is any proceeding threatened or pending against the Company or the Bank which, if determined adversely, would have a material effect on the business or financial position of the Company or the Bank. 41 Service Marks & Trade Names The Company and the Bank submitted an application to register with the Trademark Office, the Merrill "Pine Tree" symbol, both used alone and in combination with the name "Merrill Merchants Bank" on January 5, 1993. On April 29, 1993, the Trademark Office preliminarily refused registration of the application because, in the opinion of the Trademark Office, the Bank's application for federal trademark protection of the name "Merrill Merchants Bank" was confusingly similar to certain registrations. The Company chose not to appeal this decision. The Bank did, however, previously register the logo and the name "Merrill Merchants Bank" with the State of Maine, which registration was filed October 15, 1992. The Bank has established goodwill in its name and logo. In the event that the Bank's use of its name and logo in the State of Maine were successfully challenged, the Bank would be forced to pursue other alternatives, such as using a similar name or changing the name altogether, each of which could have a material adverse impact on the Company and the Bank. See "Risk Factors -- Risks Related to Use of Name; Trademark." Federal and State Taxation General The Company and the Bank file a consolidated federal income tax return on a fiscal year basis. Consolidated returns have the effect of eliminating intercompany distributions, including dividends, from the computation of consolidated taxable income for the taxable year in which the distributions occur. Banks and bank holding companies are subject to federal income taxes in the same manner as other corporations. In accordance with an income tax sharing agreement, income tax charges or credits will be allocated to the Company and the Bank on the basis of their respective taxable income or loss included in the consolidated income tax return. Federal Income Taxation Although the Bank's income tax liability is determined under provisions of the Internal Revenue Code of 1986, as amended (the "Code"), which is applicable to all taxpayers or corporations, Sections 581 through 597 of the Code apply specifically to financial institutions. The two primary areas in which the treatment of financial institutions differ from the treatment of other corporations under the Code are in the areas of bond gains and losses and bad debt deductions. Bond gains and losses generated from the sale or exchange of portfolio instruments are generally treated for financial institutions as ordinary gains and losses as opposed to capital gains and losses for other corporations, as the Code considers bond portfolios held by banks to be inventory in a trade or business rather than capital assets. Banks are allowed a statutory method for calculating a reserve for bad debt deductions. Based on the asset size of the Bank, it is permitted to maintain a bad debt reserve calculated on an experience method, based on charge-offs for the current and preceding five years or a "grandfathered" base year reserve, if larger. State and Local Taxation The Company on a consolidated basis is subject to a separate state franchise tax in lieu of state corporate income tax. The amount of the tax is the sum of 1% of Maine net income and $.08 per $1,000 of Maine assets as defined in Maine law. Maine assets are the corporation's total end of the year assets as reported on the federal income tax return. Maine net income is the corporation's net income or loss as reported on the federal income tax return which is apportioned to Maine under Maine law. 42 MANAGEMENT Directors and Executive Officers The directors and executive officers of the Company and Bank, their ages, and positions with the Company and Bank are set forth below.
Name Age Position with Company Position with Bank - --------------------------------------- ----- ------------------------- ----------------------------------- William C. Bullock, Jr. ............... 61 Chairman Chairman Edwin N. Clift ........................ 58 Director, President, Director, President, Chief Executive Officer Chief Executive Officer John S. Bacon ......................... 67 None Director Sara E. Carr .......................... 56 None Vice President, Compliance Officer Joseph H. Cyr ......................... 57 Director Director John R. Graham III .................... 60 None Director Perry B. Hansen ....................... 50 Director, Secretary Director Charles W. Hart ....................... 57 None Secretary, Senior Vice President Joseph P. Irish ....................... 38 None Director Deborah A. Jordan ..................... 32 Treasurer Senior Vice President, Chief Financial Officer, Treasurer Robert E. Knowles ..................... 64 None Director William P. Lucy ....................... 39 None Senior Vice President J. Donald Mackintosh .................. 67 None Director Jane H. Madigan ....................... 51 None Senior Vice President Leonard E. Minsky ..................... 70 Director Director Norman Minsky ......................... 67 Clerk Director, Clerk George H. Moore, Jr. .................. 52 None Senior Vice President Frederick A. Oldenburg, Jr., M.D....... 50 None Director Lloyd D. Robinson ..................... 62 None Director Susan L. Rush ......................... 41 None Vice President Joseph Sewall ......................... 76 Director None Dennis L. Shubert, M.D. ............... 50 Director Director Susan B. Singer ....................... 48 Director Director Lynne A. Spooner ...................... 41 None Senior Vice President Reginald C. Williams, Jr. ............. 53 None Senior Vice President Harold S. Wright ...................... 74 Director Vice Chairman and Director
William C. Bullock, Jr. has served as Chairman of the Company and the Bank since its inception. From 1988 to 1989, he was formerly chairman of Merrill/Norstar Bank, which was a predecessor to Fleet Bank. Prior to the merger of The Merrill Trust Company ("Merrill Bank") and Norstar Bank of Maine in 1988, he served as chairman of the board and president of Merrill Bank, Bangor, and was associated with that company in various capacities from 1969. Mr. Bullock was also an executive vice president and director of Fleet/Norstar Financial Group of Providence, Rhode Island, the holding company for Merrill/Norstar Bank, from 1986 until 1988. Before joining Merrill Bank, Mr. Bullock served in a number of officer positions for Morgan Guaranty Trust Company of New York. He is a graduate of Yale University and attended the graduate school of business at New York University. From 1987 to 1989, Mr. Bullock was a Class A director of the Federal Reserve Bank of Boston. He currently serves as a director of a number of Maine businesses including Bangor Hydro-Electric Company, Bangor, Maine and Eastern Maine Healthcare, Bangor, Maine. 43 Edwin N. Clift has served as President and Chief Executive Officer of the Company and the Bank since its inception and he has been involved in organizational activities for the Company and the Bank on a full-time basis since April 1992. From 1991 to 1992, he was executive vice president of Machias Savings Bank, a mutual savings bank in Machias, Maine, where he was responsible for all functions within the bank as directed by the president and the board of directors. He has also served as senior vice president and senior divisional commercial officer at Key Bank, a publicly traded company, where he was responsible for commercial lending and business development activities. Mr. Clift began his banking career at The Merrill Trust Company where he was employed for 24 years with various titles and responsibilities including, senior vice president and senior administrative officer, responsible for the overall administration of the bank's branch system. Mr. Clift is a graduate of Strayer College in Washington, D.C. and the Williams College School of Banking, and attended the University of Maine. He was recently elected to a three year term as a Class A director of the Federal Reserve Bank of Boston. He serves as president of the Independent Community Bankers Association of Maine and is a director and second vice president of the Maine Bankers Association. Mr. Clift is chairman of the St. Joseph Healthcare Foundation board of trustees and public affairs officer for the Maine Committee for Employer Support for the Guard and Reserve. He is a past president of the Bangor Area Breakfast Rotary and has served many other economic, civic, and charitable organizations. He is also a director of Seven Islands Land Company, a privately held company that manages one million acres of certified forest in Maine. John S. Bacon has served as a Director of the Bank since 1996. He is President of Bacon Printing Company, a Bangor-based, family-owned printing business with which he has been associated since 1948. Mr. Bacon was previously a director of The Merrill Trust Company. He is a member of Bangor Rotary. Sara E. Carr has served as Vice President and Compliance Officer of the Bank since 1992. She was previously employed as the main office manager of Maine National Bank and its predecessor Merchants National Bank, where she worked for 26 years. She is a graduate of Williams College School of Banking. Ms. Carr serves on the Family Self-Sufficiency Committee of the Bangor Housing Authority. Joseph H. Cyr has served as a Director of the Company and the Bank since 1992. He has been the owner of John T. Cyr & Sons, Inc., Old Town, Maine, a privately held charter bus service, since 1967. Mr Cyr has been involved in that business since 1962 and became the owner in 1967. He was formerly a director of Norstar Bank in Bangor. He has been active in a number of civic and charitable organizations including: trustee of Husson College; president of the Bangor Area Chamber of Commerce; director of St. Joseph Hospital; and director of the Maine Community Foundation. John R. Graham III has served as a Director of the Bank since 1992. He has been the owner and operator of Automatic Distributors, a privately held wholesale distributor of recreation vehicle parts and accessories and JRG Properties, which consists of various commercial and residential rental projects, since 1967. Perry B. Hansen has been a Director of the Company and the Bank since 1992. He is Chairman and Chief Executive Officer of The Rock Island Bank, Rock Island, Illinois, and has held those positions since 1985. Prior to that time, he was the Chief Operating Officer and a director of Brenton First National Bank, Davenport, Iowa, which was a member of the sixteen bank Brenton Bank Holding Company. Charles W. Hart has served as a Senior Vice President and Head of Branch Administration of the Bank since its inception. He has been involved with the Company and the Bank since February 1992. From 1989 to 1991, he was vice president and chief financial officer of Bean & Conquest, Motor Truck & Trailer and Automotive Realty in Hermon, Maine, privately held related companies engaged in the sales and service of heavy duty trucks and accessories. From May 1984 through June 1989, he was vice president of Merrill Bank, where he was in charge of consumer loans at the Merrill Center branch. Mr Hart began his 30 year banking career with Merchants National Bank, which was a predecessor to Maine National Bank. Mr. Hart is a graduate of St. Anselm College. He is a former member of the Dedham School Board. Joseph P. Irish has served as a Director of the Bank since 1992. He is the owner and operator of the Troy General Store and Waldo County Oil, privately held companies located in Troy, Maine. He has been associated with those companies since 1987. Mr. Irish is a past president of Unity Rotary and a Boy Scouts of America volunteer. He formerly served as a director of Border Trust Company located in Jackman, Maine. 44 Deborah A. Jordan has served as Senior Vice President and Chief Financial Officer of the Bank and Treasurer of the Company since 1993. From 1987 to 1992, she was employed as an audit manager at Arthur Andersen LLP in Boston. She is a graduate of Husson College and is a Certified Public Accountant. Ms. Jordan serves as a director of Eastern Maine Technical College Foundation and OHI (Opportunity Housing, Inc.). Robert E. Knowles has served as a Director of the Bank since 1992. He has been retired since 1984. From 1971 to 1984, he was the owner and president of Maine X-Ray Equipment, Pittsfield, Maine, one of the largest distributors of X-ray film and chemicals in New England. Mr. Knowles is a member of the Unity Rotary. William P. Lucy has served as Senior Vice President and Senior Loan Officer of the Bank since 1992. Mr. Lucy began his banking career at Merrill Trust Company in 1981, and he has both commercial lending and branch administration experience. He is a graduate of the University of Maine and Williams College School of Banking. Mr. Lucy is incoming president of the board of the Y.M.C.A., a member of the pension committee of St. Joseph Healthcare Foundation, on the board of New Hope Hospice, and the Action Committee of 50, as well as an advisory board member for Beal College. J. Donald Mackintosh has served as a Director of the Bank since 1992. He is retired from the automobile industry where he worked for over 40 years, most recently as the owner, president and general manager of Dow Motors, Inc., a privately held automobile dealership in Ellsworth, Maine. Mr. Macintosh is a graduate of General Motors Institute where he received a B.A. degree. He is currently a member of the Aircraft Owners and Pilots Association. Jane H. Madigan has served as Senior Vice President and Director of Marketing and Human Resources for the Bank since 1992. She is a former educator who began her banking career at Merrill Bank in 1986. She is a graduate of Manhattanville College, has a master's degree from the University of Maine, and is a graduate of the ABA School of Bank Marketing. She is a director of the New England School of Banking, the Maine Human Resource Management Association, a member of Bangor Rotary, a member of the steering committee of Bangor Region Leadership, a former board member of the United Way of Eastern Maine, and former president of the Abnaki Girl Scout Council. Leonard E. Minsky has served as a Director of the Company and the Bank since 1992. He is the retired president of Superior Paper Products, Inc., a wholesale distributor of institutional and commercial paper and maintenance products, with which he was associated for 42 years. Mr. Minsky is a graduate of the University of Maine and is a former director of Northeast Bank of Bangor. He is active in a number of community organizations including: member of the Board of Visitors for the University of Maine; chairman of the President's Council for University Development; chairman of the University of Maine Patrons of the Arts, a director of Acadia Hospital, and a director of the Maine Community Foundation. He and Norman Minsky are brothers. Norman Minsky has been a Clerk of the Company and Director and Clerk of the Bank since 1992. He was admitted to the Maine Bar in 1953 and is now of counsel to the law firm of Gross, Minsky, Mogul & Singal, Bangor, Maine, with which he was previously senior partner. Gross, Minsky, Mogul & Singal, P.A. serves as general counsel to the Company and the Bank. Mr. Minsky received his undergraduate and law degrees from Boston University. He has been active in a number of charitable and professional organizations including: president of the board of trustees of the Bangor Public Library; and president of the board of the Bangor Symphony Orchestra. He and Leonard Minsky are brothers. George H. Moore, Jr. serves as Senior Vice President and Senior Trust and Investment Officer for the Bank. Mr. Moore, who has sixteen years of financial planning, investment management and administrative experience, joined the Bank in 1993 to organize the department. From 1992 to 1993, Mr. Moore served as Trust and Investment Services Officer for Union Trust Company of Ellsworth, Maine. Mr. Moore's other trust and investment banking experience includes several years with The Merrill Trust Company. Mr. Moore is a graduate of the University of Maine and the ABA's National Trust School. He serves on the Planned Giving Committee of St. Joseph Healthcare; was a steering committee member for the Heroes Breakfast, Pine Tree Chapter/American Red Cross; and is a past board member of the Good Samaritan Agency. Frederick A. Oldenburg, Jr., M.D. has served as a Director of the Bank since 1996. Since 1973, he has been a practicing physician, and since 1993, President and part owner of Penobscot Respiratory and also Director of Respiratory Care at St. Joseph Hospital in Bangor. He is a graduate of Dartmouth College and Case Western Reserve 45 University Medical School. Dr. Oldenburg is president of the National Association for the Medical Direction of Respiratory Care. Lloyd D. Robinson has served as a Director of the Bank since 1992. He has been retired since 1985. From 1977 to 1985, he was the owner/operator of McKay's R.V. Center, a privately held recreational equipment business. He also has investments in real estate in the Bangor area. Mr. Robinson is a U.S. Air Force veteran. Susan L. Rush has served as Vice President of the Bank since 1992. Formerly the internal auditor of the Bank, she has served as Systems Administrator for the Bank since 1997. She has 18 years of banking experience beginning at The Merrill Trust Company and including various responsibilities in the areas of commercial loan, branch management and internal audit. Ms. Rush is a graduate of the University of Maine and the Cannon Bank Audit School. Joseph Sewall has served as a Director of the Company since 1992 and also served as a Director of the Bank from 1992 to 1996. He is Chairman of James W. Sewall Company, a forest management, surveying and aerial mapping company with which he has been associated since 1945. He is a graduate of Bowdoin College. Mr. Sewall served five terms as president of the Maine Senate. He is a former director of Merchants National Bank and Merrill Bancshares, Inc. Mr. Sewall serves as a trustee of the Maine Maritime Academy. Dennis L. Shubert, M.D. has served as a Director of the Company since May 1998 and a Director of the Bank since 1992. He is a neurosurgeon and President of Maine Neurosurgery of Bangor and Portland Maine. Dr. Shubert is a Bangor native who graduated from Tufts University, received an M.D. from George Washington University and a Ph.D. from the University of Minnesota. Dr. Shubert has been active in a number of professional organizations including: president of the Penobscot County Medical Association and president of the Maine Neurosurgical Society. Susan B. Singer has served as a Director of the Company since May 1998 and as a Director of the Bank since 1992. She presently serves as Comptroller and Vice President of Maine Trailer, a family-owned sales, rental and leasing company located in Bangor, with which she has been associated for 18 years. Ms. Singer is a current member of Congregational Beth Israel and a past board member and treasurer. She serves on the board of directors of Eastern Maine Medical Center Auxiliary. She was recently elected to the Y.W.C.A. board of directors. Lynne A. Spooner has served as Senior Vice President and Head of the Residential Mortgage Department of the Bank since 1992. Ms. Spooner began her banking career at Savings and Loan Association of Bangor in 1977 and brings nearly 21 years of banking experience to her position. She is a graduate of Eastern Maine Technical College. Ms. Spooner serves as first vice president of St. Joseph Hospital Auxiliary, vice president of the board of the Warren Center for Communication & Learning, on the loan review board of Penquis Community Action Program, and is a member of the Zonta Club in Bangor. Reginald C. Williams, Jr. has served as a Senior Vice President and Head of Operations for the Bank since 1992. Mr. Williams began his banking career at The Merrill Trust Company in 1968 and has experience in bank operations and branch management. He is a graduate of the University of Maine, where he also earned an M.B.A., and he is a graduate of the New England School of Banking. He is actively involved with his church and the Penobscot/Piscataquis Jail Ministry. Harold S. Wright has served as a Director of the Company and Director and Vice Chairman of the Bank since 1992. He retired as executive vice president of The Merrill Trust Company in 1987 after a 35 year banking career. He is a former Potentate of Anah Temple Shrine, and has served as a director of a number of privately held Maine companies, including Sawyer Management Co., Sherman Lumber Company and Ward Log Homes. Classes of Directors As of May 7, 1998, the Board of Directors of the Company is divided into three classes, each of whose members serves for a staggered three-year term. Upon the expiration of the term of a class of directors, directors in such class will be elected for three-year terms at the annual meeting of shareholders in the year in which such term expires. 46 Executive Officers Each of the executive officers of the Company is elected by the Board of Directors on an annual basis and serves until the next annual meeting of the Board of Directors or until his or her successor has been duly elected and qualified. Board Committees The Bank has maintained an audit committee since October 1992. The functions of the Bank's audit committee were shifted to the Company's audit committee of its Board of Directors (the "Audit Committee") upon the formation of the Audit Committee in June 1998. The Audit Committee reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the selection of the Company's auditors, the scope of the annual audits, fees to be paid to the auditors, the performance of the Company's independent auditors and the accounting practices of the Company. The Compensation Committee of the Company's Board of Directors (the "Compensation Committee") was established in October 1992 and determines the salaries and incentive compensation of the officers of the Bank and provides recommendations for the salaries and incentive compensation of the other employees and the consultants of the Bank. The Compensation Committee also administers the Company's various incentive compensation, stock and benefit plans. Compensation Committee Interlocks and Insider Participation The Company's Compensation Committee consists of Messrs. L. Minsky, Cyr and Hansen, Dr. Shubert and Ms. Singer, none of whom has been an officer or employee of the Company or the Bank at any time since the Company's inception. No executive officer of the Company serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee. Mr. Clift, the Company's Chief Executive Officer, participated in all such discussions and decisions concerning the compensation of executive officers of the Company, except that Mr. Clift was excluded from discussions regarding his own compensation. Director Compensation Non-employee directors of the Company and the Bank receive $100 per month for their attendance at monthly and any special meetings of the Board of Directors. Non-employee committee members also receive $50 for each committee meeting that is not held on the same day as the Board of Directors meetings. In lieu of increasing director fees payable to non-employee directors, the Company has granted stock options under the Company's Stock Option Plan to such non-employee directors as follows (in each case after giving effect to the 9:1 Stock Split but without giving effect to the issuance of stock dividends): In 1993, the Company granted each non-employee director an option to purchase 1,800 shares of Common Stock (except that Perry Hansen received an option for the purchase of 9,000 shares of Common Stock in recognition of additional services) at an exercise price of $5.22 per share; in 1995, the Company granted each non-employee director an option to purchase 900 shares of Common Stock at an exercise price of $6.05 per share; and in 1997, the Company granted each non-employee director an option to purchase 1,800 shares of Common Stock, at an exercise price of $6.59 per share. The Company may grant additional stock options in the future in lieu of an increase in the payment of director fees. Director Deferred Compensation Plan The Company has established a deferred compensation plan ("Director Plan") for non-employee directors of the Company and Bank. A participating director may defer up to 100% of his or her monthly board and committee fees. Amounts deferred earn interest at the one year treasury rate. At retirement, termination or death, the benefit under the Director Plan is payable in a lump sum distribution. 47 Executive Compensation The following table sets forth as of December 31, 1997, all cash compensation paid during the Bank's last three fiscal years to the chief executive officer who was the only executive officer whose aggregate cash compensation exceeded $100,000 per year.
Long Term All Other Compensation Compensation Awards ($) -------------- ----------------- Securities Name and Underlying All Other Principal Position Year Salary Bonus Options (2) Compensation (3) - ------------------------------ ------ ----------- ---------- -------------- ----------------- Edwin N. Clift (1) ........... 1997 $110,000 $20,000 -- $1,279 President and Chief Executive 1996 105,000 15,000 -- -- Officer 1995 95,000 10,000 10,755 --
- ---------- (1) No other officer of the Company or the Bank received aggregate cash compensation that exceeded $100,000 per year for the last three fiscal years. (2) Options are vested and exercisable at $5.33 per share adjusted to reflect the 9:1 Stock Split and the 3% stock dividend, the 5% stock dividend and the 5% stock dividend declared in 1996, 1997 and 1998, respectively. (3) Includes benefits received as part of the Supplemental Executive Retirement Plan. Supplemental Executive Retirement Plan The Bank has adopted a non-tax qualified retirement plan for certain of its executives ("SERP") to supplement the benefit such executives can receive under the Bank's 401(k) Plan. This plan was designed to provide the following executives with annual retirement benefits initially equal to a minimum percent of each executive's respective salary the year prior to retirement, payable for life. The amount of each annual benefit is indexed to the financial performance of an insurance policy owned by the Bank over the Bank's cost of funds expense.
Name of Executive Position with Bank - ------------------------------------------------ ----------------------------------- Edwin N. Clift ............................... President, Chief Executive Officer Sara E. Carr ................................. Vice President Charles W. Hart .............................. Senior Vice President Deborah A. Jordan ............................ Senior Vice President William P. Lucy .............................. Senior Vice President Jane H. Madigan .............................. Senior Vice President George H. Moore, Jr. ......................... Senior Vice President Susan L. Rush ................................ Vice President Lynne A. Spooner ............................. Senior Vice President Reginald C. Williams, Jr. .................... Senior Vice President
The plan is vested at the rate of 20% for each year of employment. The Bank's obligations under this plan are unfunded; however the Bank has purchased split-dollar life insurance policies on each insurable individual that are actuarially designed to offset the annual expenses associated with the plan and will, given reasonable actuarial assumptions, provide a complete recovery of all plan cost. The death benefit for each executive is an endorsement of 80% of the net-at-risk life insurance portion of each of the life insurance policies purchased to recover the retirement plan's costs. The SERP had one participant at December 31, 1997, Edwin N. Clift. Under this plan, the Bank paid $604,000 in premiums in 1997. The entire premium is reflected in the consolidated statement of condition at December 31, 1997 as cash surrender value of life insurance and is included with other assets. Additional participants were added to the SERP in May 1998 requiring a premium payment by the Bank totaling $1.8 million, which also is treated as cash surrender value of life insurance and included with other assets. Deferred Compensation Plan The Bank has established a deferred compensation plan ("DC Plan") for certain officers who are selected to participate in the DC Plan. The Bank determines the amount deferred on an annual basis. Amounts deferred earn interest at the rate equal to the one-year treasury rate plus one percent per annum. At retirement, the benefit under 48 the DC Plan is payable in a lump sum distribution. The Bank's obligations under this plan are unfunded. Presently, Mr. Charles Hart, Mr. Thomas Tilley and Ms. Jane Madigan are participants in the DC Plan. At December 31, 1997, the deferred compensation totaled $56,000 into the DC Plan. Option Grants in Last Year The Company did not grant any options to Mr. Clift during the year ended December 31, 1997. The Company did grant Mr. Clift options to purchase 6,615 shares of Common Stock in January 1998 adjusted to reflect a 9:1 stock split and a 5% stock dividend in 1998, at an exercise price of $6.77. The Company has not granted any stock appreciation rights. Aggregated Option Exercises and Year-End Values The following table sets forth certain information concerning options to purchase Common Stock exercised by Mr. Clift during 1997 and the number and value of unexercised options held by him at December 31, 1997. Aggregated Option Exercises in the Year Ended December 31, 1997 and Year-End Option Values
Number of Securities Underlying Value of Unexercised Unexercised Options at In-the-Money Options Shares December 31, 1997 (1) at December 31,1997 (2) Acquired Value ----------------------------- ----------------------------- Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ------------------------ ------------- ---------- ------------- --------------- ------------- -------------- Edwin N. Clift ......... 0 0 68,859 0 $569,622 0
- ---------- (1) The figures above reflect the 9:1 Stock Split, a 3% stock dividend in 1996 and a 5% stock dividend in each of 1997 and 1998 which apply to options granted before the dividend is declared. The numbers in this table include such increase in the underlying shares on account of these dividends. (2) There was no public trading market for the Common Stock as of December 31, 1997. Accordingly, these values have been calculated on the basis of the assumed public offering price of $13 per share (the midpoint of the price range set forth on the cover page of this Prospectus), less the applicable exercise price per share, multiplied by the number of shares underlying such options (subject to the proportionate adjustments in the exercise price and the number of shares underlying the options on account of the 9:1 Stock Split). Stock Option Plan The Company created a stock option plan in 1993 (the "Plan") and subsequently amended the Plan on April 25, 1995 and April 24, 1997. The Plan permits the granting of options to the Company's directors and employees. The Plan's purpose is (i) to further the Company's interests by increasing the personal involvement of the directors and employees; (ii) to enable the Company to obtain and retain the services of employees; and (iii) to enable the Company to attract and retain the services of qualified individuals to serve on the Board of Directors. A total of 585,900 shares of Common Stock has been authorized for issuance under the Plan. This figure reflects the 9:1 Stock Split, and a 3% stock dividend, a 5% stock dividend and a 5% stock dividend declared and issued by the Company during 1996, 1997 and 1998, respectively. Upon completion of the Offering, this figure will increase to 645,900 shares of Common Stock authorized for issuance under the Plan pursuant to an amendment and restatement of the Plan adopted by the Company and its shareholders in June 1998. The Compensation Committee administers the Plan. Subject to the Plan's express terms and conditions, the Compensation Committee has full power (i) to construe the Plan; (ii) to prescribe, amend and rescind rules and regulations relating to the Plan; and (iii) to make all other determinations necessary or advisable for the Plan's administration. As part of these powers, the Compensation Committee determines which individuals are eligible to participate under the Plan and how many shares of Common Stock a particular option covers. The Compensation Committee also determines whether a particular grant of options to an employee satisfies all of the qualifications of Section 422 of the Internal Revenue Code of 1986 with respect to incentive stock options ("Qualified Stock Options"). The Plan prohibits non-employee directors from receiving Qualified Stock Options. In addition, the Compensation Committee determines the exercise price for the shares of Common Stock underlying a particular option grant, provided that (i) the exercise price of a Qualified Stock Option is the fair market value of the underlying Common Stock which must be at least 100% of the book value of the Company's Common Stock on the date the Qualified 49 Stock Option is granted; and (ii) the exercise price of any option granted to an employee or director who owns at least 10% of the Company's stock must be equal to 110% of the fair market value of the underlying Common Stock. The terms and conditions of each option granted is evidenced by a Stock Option Agreement executed by the Company. Upon vesting, the options granted under the Plan become exercisable in such amounts prior to the expiration date as determined by the Compensation Committee and as set forth in each stock option agreement. If an option holder's employment with the Company or its subsidiary terminates for any reason other than permanent and total disability or death, the employee may exercise any vested options within the three (3) months after termination. If termination is the result of permanent and total disability, the holder has one (1) year to exercise any vested options. If the holder dies while employed or serving on the Company's board or within three (3) months after employment or board service, the successor in interest has one (1) year after the date of death to exercise any vested options. Subject to any provisions in the Company's Articles of Incorporation, proportionate adjustments are made to the number of authorized shares which may be granted under the Plan as a result of increases or decreases in the Company's outstanding shares of Common Stock due to stock dividends, stock splits, reverse stock splits, reclassifications or other types of recapitalization. The Plan also adjusts the number of shares underlying any unexercised option provided that a corresponding adjustment in the exercise price also occurs so that the aggregate purchase price of the option remains unchanged. The Plan and options granted under the Plan will automatically terminate upon (i) the dissolution or liquidation of the Company, (ii) a reorganization, merger or consolidation of the Company with another corporation whereby the Company does not survive or (iii) a sale of substantially all of the Company's property or eighty percent (80%) of the Company's outstanding stock to another corporation; unless such a transaction includes a written provision providing for the continuation of the Plan or the options granted. If options are terminated because of an event described in item (ii) or (iii), the Company will pay the option holders an amount equal to the number of unvested, underlying shares times the difference between the exercise price per share and the fair market value of each share on the date of termination. This pay out is subject to any restrictions in the Company's Articles of Incorporation or in any financing agreement, indenture or other agreement which binds the Company. The Board of Directors, upon the recommendation of the Compensation Committee, may at any time, amend, suspend or terminate the Plan, however, such action may not impair or alter the rights of any option holder under any outstanding Stock Option Agreement. If no earlier termination occurs, the Plan will expire on May 26, 2003. The term of any option granted under the Plan may not exceed that date. Employment Agreements The Company has not entered into any employment agreements with its executive officers. 50 CERTAIN TRANSACTIONS Loan Transactions The Bank has had, and expects to have in the future, various loan and other banking transactions in the ordinary course of business with the directors, executive officers, and principal shareholders of the Bank and the Company (or an associate of such person). All such transactions: (i) have been and will be made in the ordinary course of business; (ii) have been and will be made on substantially the same terms, including interest rates and collateral on loans, as those more prevailing at the time for comparable transactions with unrelated persons; and (iii) in the opinion of management do not and will not involve more than the normal risk of collectability or present other unfavorable features. At March 31, 1998, the total dollar amount of extensions of credit to directors, and executive officers identified in "Management -- Directors and Executive Officers", and any of their associates was approximately $8 million, which represented approximately 69.7% of total shareholders' equity at March 31, 1998, and which is below the percentage generally permitted under applicable Federal banking regulations. Debentures Messrs. William C. Bullock and Perry B. Hansen each own Debentures issued by the Company in the original principal amount of $150,000, for a total aggregate original principal amount of $300,000. The debt evidenced by the Debentures is unsecured. Upon the liquidation, dissolution or winding up of the Company, the debt evidenced by the Debentures, including interest earned thereon, will be paid prior to any payments made to holders of Common Stock and Series A Preferred Stock. See "Risk Factors -- Restrictions on Payments of Dividends by the Company." Interest on the principal amount of debt evidenced by the Debentures accrues at the rate of 1% per annum in excess of the prime rate of interest of BankBoston, N.A., (prime rate was 8.5% as of March 31, 1998). Accrued interest is payable on March 31, June 30, September 30, and December 31 of each year until the Debentures are paid in full or converted into shares of Common Stock. On or prior to September 30, 2002, the holders of the Debentures must convert the entire principal amount thereof into shares of Common Stock of the Company at a conversion rate equal to $4.50 of principal amount of the Debentures for one share of Common Stock (after giving effect to the 9:1 Stock Split and a 3% stock dividend, a 5% stock dividend and a 5% stock dividend in 1996, 1997 and 1998 respectively), subject to adjustment for any further recapitalization of the Common Stock (such as a split or reverse split of Common Stock). The payment of interest and any principal amount under the Debentures is subordinated to the prior payment of the principal and interest on all existing and future obligations of the Company for money borrowed from any bank, trust company, insurance company, or other financial institution engaged in the business of lending money, whether such senior indebtedness is secured or unsecured or collateralized or not collateralized. Other Transactions with Affiliates The Company's general counsel is the law firm of Gross, Minsky, Mogul and Singal, P.A. Norman Minsky, the clerk of the Company, a director of the Bank and a shareholder of the Company, is of counsel within this firm. The firm also represents the Bank in real estate and commercial loan closings, wherein the Bank's borrower typically pays the legal fees and expenses. The Company and the Bank have utilized Bacon Printing Company for certain printing services and to purchase office supplies. John S. Bacon, a Director of the Bank, is President of Bacon Printing Company. During the fiscal years ended December 31, 1996 and December 31, 1997, the Company and the Bank paid to Bacon Printing Company for services and office supplies a total of $76,000 and $86,000, respectively. 51 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of March 31, 1998, the ownership of the Common Stock by (i) each person who is known by the Company to own of record or beneficially own more than five percent (5%) of the Common Stock, (ii) each of the directors and Named Executive Officers of the Company and the Bank named under "Management -- Executive Compensation -- Summary Compensation Table", and (iii) all directors and executive officers of the Company and the Bank as a group. Except as otherwise indicated, to the Company's knowledge, the shareholders listed in the table have sole voting and investment power with respect to the shares indicated.
Percentage of Class (1) ----------------------- Number of Shares Before After Name and Address of Beneficial Owner Beneficially Owned Offering Offering - ------------------------------------------ -------------------- ---------- --------- The Bullock Family Trust (2) (3) ......... 226,044 12.6% 9.4% c/o William C. Bullock, Jr. RR2, Box 121 Orrington, Maine 04474 William C. Bullock, Jr. (2) (3) .......... 226,044 12.6% 9.4% RR2, Box 121 Orrington, Maine 04474 Perry B. Hansen (4) ...................... 181,224 10.2% 7.7% 4521 Shadowbrook Court Bettendorf, Iowa 52922 Edwin N. Clift (5) ....................... 119,889 6.8% 5.1% RR 3, Box 800 Holden, Maine 04429 Joseph P. Irish (6) ...................... 84,069 5.1% 3.7% P.O. Box 2 Troy, Maine 04987 Leonard E. Minsky ........................ 71,370 4.3% 3.2% 114 Linden Street Bangor, Maine 04401 Joseph H. Cyr (7) ........................ 70,200 4.2% 3.1% 25 South Brunswick Street Old Town, Maine 04468 John S. Bacon (8) ........................ 69,417 4.2% 3.1% 1846 Ohio Street Bangor, Maine 04401 Joseph Sewall (9) ........................ 58,401 3.5% 2.6% c/o James W. Sewall Co. 147 Center Street Old Town, Maine 04468 Dennis L. Shubert, M. D. (10) ............ 46,269 2.8% 2.1% 137 Balsam Drive Bangor, Maine 04401 Harold S. Wright (11) .................... 44,811 2.7% 2.0% 43J Longrale Park Bangor, Maine 04401 J. Donald Mackintosh (12) ................ 44,730 2.7% 2.0% RFD #2, Box 266 Ellsworth, Maine 04605
52
Percentage of Class (1) ----------------------- Number of Shares Before After Name and Address of Beneficial Owner Beneficially Owned Offering Offering - ------------------------------------------ -------------------- ---------- --------- Norman Minsky (13) ....................... 40,734 2.5% 1.8% 272 Kenduskeag Avenue Bangor, ME 04401 Susan B. Singer (14) ..................... 38,853 2.3% 1.7% 109 Judson Boulevard Bangor, Maine 04401 Robert E. Knowles (15) ................... 37,161 2.2% 1.6% P.O. Box 164 Unity, Maine 04988 Lloyd D. Robinson (16) ................... 35,604 2.1% 1.6% RR #2 Box 6935 Carmel, Maine 04419 John R. Graham, III (17) ................. 33,651 2.0% 1.5% 20 Dunning Boulevard Bangor, Maine 04401 Frederick A. Oldenburg, Jr. (18) ......... 18,918 1.1% * 2487 Ohio Street Bangor, Maine 04401 All Officers and Directors as a Group (25 persons) (19) ............ 1,458,567 63.1% 50.1%
- ---------- * Denotes ownership of less than 1% of outstanding Common Stock. (1) Pursuant to the rules of the Securities and Exchange Commission, shares of Common Stock which an individual or group has a right to acquire within 60 days of the date of this Prospectus pursuant to the exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. (2) Includes 33,327 shares of Common Stock issuable upon the conversion of the Debentures, 77,760 shares of Common Stock issuable upon the conversion of the Series A Preferred Stock and 27,306 shares of Common Stock issuable upon the exercise of stock options. (3) Mr. Bullock is the trustee of The Bullock Family Trust. Mr. Bullock disclaims any beneficial interest in the 17,154 shares of Common held by the Scrooge and Marley Family Trust, of which Martha D. Bullock, the daughter of Mr. Bullock, is the Trustee. (4) Includes 33,327 shares of Common Stock issuable upon the conversion of the Debentures, 66,645 shares of Common Stock issuable upon the conversion of the Series A Preferred Stock and 13,122 shares of Common Stock issuable upon the exercise of stock options. (5) Includes 22,212 shares of Common Stock issued upon the conversion of the Series A Preferred Stock and 75,474 shares of Common Stock issuable upon the exercise of stock options. (6) Includes 4,950 shares of Common Stock issuable upon the exercise of stock options. (7) Includes 4,950 shares of Common Stock issuable upon the exercise of stock options. These shares are jointly owned with his spouse, Suzanne Cyr. (8) Includes 1,890 shares of Common Stock issuable upon the exercise of stock options. (9) Includes 55,341 shares of Common Stock held in the name of James W. Sewall Co., of which Mr. Sewall holds an ownership interest. Also includes 3,060 shares of Common Stock issuable to Mr. Sewall upon the exercise of stock options. (10) Includes 41,319 shares of Common Stock held by Walden Partnership, of which Dr. Shubert holds a controlling interest. Also includes 4,950 shares of Common Stock held in the name of Dr. Shubert. 53 (11) Includes 11,106 shares of Common Stock issuable upon the conversion of the Series A Preferred Stock and 16,983 shares of Common Stock issuable upon the exercise of stock options. (12) Includes 30,897 shares of Common Stock held jointly with his spouse, Janet Mackintosh, and 4,950 shares of Common Stock issuable to Mr. Mackintosh upon the exercise of stock options. (13) Includes 35,784 shares issued to GMM&S Associates, of which Norman Minsky owns a controlling interest. Also includes 4,950 shares of Common Stock held in the name of Norman Minsky. (14) Includes 4,950 shares of Common Stock issuable upon the exercise of stock options. (15) Includes 32,211 shares of Common Stock held jointly with his spouse, Rae Jean Knowles, and 4,950 shares of Common Stock issuable upon the exercise of stock options. (16) Includes 30,654 shares of Common Stock held jointly with his spouse, Carlene Robinson, and 4,950 shares issuable upon the exercise of stock options. (17) Includes 4,950 shares of Common Stock issuable upon the exercise of stock options. (18) Includes 17,028 shares of Common Stock held under the name Penobscot Respiratory PA FBO Frederick A. Oldenburg, Jr. and 1,890 shares of Common Stock issuable upon the exercise of stock options. (19) Includes 22,212 shares of Common Stock issuable upon the conversion of Series A Preferred Stock held by, and 215,010 shares of Common Stock issuable upon the exercise of stock options granted to, the executive officers of the Bank. See Notes (1) through (18). 54 DESCRIPTION OF SECURITIES The following description of the securities of the Company and certain provisions of the Company's Articles of Incorporation (the "Articles"), and the Bylaws, are summaries thereof and are qualified by reference to the Articles and Bylaws, copies of which have been filed with the Commission as exhibits to the Company's Registration Statement, of which this Prospectus forms a part. The authorized capital stock of the Company consists of 4,000,000 shares of Common Stock par value $1.00 per share, 50,000 shares of Series A Preferred Stock, $1.00 par value per share and 950,000 shares of undesignated Serial Preferred Stock, par value $.01 per share. Common Stock As of March 31, 1998 there were 1,655,640 shares of Common Stock outstanding and held of record by 55 shareholders. Based upon the number of shares outstanding as of that date and giving effect to the issuance of the 600,000 shares of Common Stock offered by the Company hereby, there will be 2,255,640 shares of Common Stock outstanding upon the closing of the Offering. Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders and do not have cumulative voting rights. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor, subject to any preferential dividend rights of the Series A Preferred Stock and any other outstanding Serial Preferred Stock. Upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive ratably the net assets of the Company available after the payment of all debts and other liabilities and subject to the prior rights of the Series A Preferred Stock and any other outstanding Preferred Stock. Holders of the Common Stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of Common Stock are, and the shares offered by the Company in the Offering will be, when issued in consideration for payment thereof, fully paid and nonassessable. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of the Series A Preferred Stock and any other Serial Preferred Stock which the Company may designate and issue in the future. See "Risk Factors -- Restrictions on Payment of Dividends by the Company." Upon the closing of the Offering, there will be no shares of Serial Preferred Stock outstanding. Serial Preferred Stock The Board of Directors is authorized, without further shareholder approval, to issue from time to time up to an aggregate of 950,000 shares of Serial Preferred Stock in one or more series and to fix or alter the designations, preferences, rights and qualifications, limitations or restrictions of the shares of each such series thereof, including the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series. The Company has no present plans to issue any such shares of Serial Preferred Stock. See "--Anti-Takeover Effects of Certain Provisions of Maine Law and the Company's Articles of Incorporation and Bylaws." Series A Preferred Stock The total number of shares of Series A Preferred Stock issued and outstanding is 19,566 shares. The shares of Series A Preferred Stock are owned by the following individuals or entities in the following amounts: The Bullock Family Trust (7,609 shares), Perry B. Hansen (6,522 shares), Edwin N. Clift (2,174 shares), Charles W. Hart (2,174 shares), and Harold S. Wright (1,087 shares). Holders of Series A Preferred Stock are entitled to dividends calculated on a per annum basis equal to the total stated value of the Series A Preferred Stock held multiplied by the prime reference rate in effect from time to time as announced by BankBoston, N.A. Dividends are to be declared quarterly on March 31, June 30, September 30, and December 31 of each year. The dividends payable on the Series A Preferred Stock will be cumulative, meaning that if dividends are not paid when declared, they will accumulate and be payable in full before any dividends are paid on the Common Stock. However, the payment of any dividends on the redemption of the Series A Preferred Stock is subordinate to the payment of any debt by the Company, including debt evidenced by the Debentures and the M&I Loan. See "Risk Factors -- Restriction on Payment of Dividends by the Company." The Series A Preferred Stock is non-voting. 55 Each share of Series A Preferred Stock is convertible into approximately 10.2 shares of Common Stock based upon a conversion price of approximately $4.50 in stated value of Series A Preferred Stock for each share of Common Stock, after giving effect to the 9:1 Stock Split and subject to further adjustments to reflect other stock splits, stock dividends, recapitalizations and other similar grants. Holders of Series A Preferred Stock have the right to convert the Series A Preferred Stock into Common Stock at any time after issuance of the Series A Preferred Stock and until October 1, 2002. If there are cumulative dividends outstanding with respect to Series A Preferred Stock to be converted into Common Stock, the Company is obligated to pay such dividends before paying any dividends on the Common Stock. After October 1, 2002, and to the extent not previously converted into Common Stock, the Series A Preferred Stock may be redeemed by the Company for a price equal to the sum of its stated value plus unpaid and accrued dividends. However, the Series A Preferred Stock may not be called or redeemed by the Company unless such redemption is approved in advance by the Federal Reserve Bank of Boston. In the event of a merger or the sale of a majority of the shares of Common Stock of the Company, the holders of the Series A Preferred Stock are required to have their Series A Preferred Stock redeemed or, at the option of the holder, converted into shares of Common Stock at the rate described above. Subject to the conversion and redemption rights described above, the Series A Preferred Stock will remain outstanding indefinitely. The holders of Series A Preferred Stock are not entitled to the benefits of any sinking fund provision. Except as described above, shares of Series A Preferred Stock are not convertible into any other security or other property of the Company. No share of Series A Preferred Stock is subject to any further call or assessment and all shares are fully paid and nonassessable. Options As of March 31, 1998, options to purchase a total of 540,027 shares ("Option Shares") of Common Stock were outstanding, approximately 389,385 of which are subject to lock-up agreements entered into with the Underwriter. Beginning 90 days after the date of this Prospectus, approximately 150,642 Options Shares which are not subject to lock-up agreements will be eligible for sale in reliance on Rule 701 promulgated under the Securities Act, subject to the vesting requirements for each option grant. The Company has 9,288 shares (69,288 shares upon completion of the Offering) remaining and available to grant as options in the future under the Stock Option Plan. In addition, the Company may reallocate the number of shares with respect to options previously granted under the Stock Option Plan that terminate without being exercised, expire, are forfeited or canceled and the number of shares of Common Stock that are surrendered in payment of any options or any tax withholding requirements. See "Management -- Stock Option Plan" and "Shares Eligible for Future Sale." Mandatory Convertible Debentures The Company has issued the Debentures in the original principal amount of $150,000, for a total aggregate original principal amount of $300,000. The debt evidenced by the Debentures is unsecured. Upon the liquidation, dissolution, or winding up of the Company, the debt evidenced by the Debentures, including interest earned thereon, will be paid prior to any payments made to holders of Common Stock and Series A Preferred Stock. The Debentures are convertible into approximately 66,654 shares of Common Stock. See "Certain Transactions -- Debentures." Restrictions on Changes in Control Under the Federal Change in Bank Control Act (the "Control Act"), a notice must be submitted to the Federal Reserve if any person, or group acting in concert, seeks to acquire 10% or more of any class of outstanding voting securities of the Company, unless the Federal Reserve determines that the acquisition will not result in a change of control of the Company. Under the Control Act, the Federal Reserve has sixty (60) days within which to act on such notice, taking into consideration certain factors, including the financial and managerial resources of the acquiror, the convenience and needs of the community served by the bank holding company and its subsidiary banks, and the antitrust effects of the acquisition. Under the BHCA, a company is generally required to obtain prior approval of the Federal Reserve before it may obtain control of a bank holding company. Control is generally described to mean the beneficial ownership of 25% or more of all outstanding voting securities of a company. Likewise, under Maine law, the prior approval of the Superintendent of the Bureau of Banking is required for the acquisition of control of the Company by any person or company. Control is defined under Maine law by reference to the BHCA and regulations issued thereunder. 56 Anti-Takeover Effects of Certain Provisions of Maine Law and the Company's Articles of Incorporation and Bylaws The Company is subject to several provisions under Maine law which may deter or frustrate unsolicited attempts to acquire certain Maine corporations. These provisions, commonly referred to as the "Fair Price Provisions", apply to all public corporations organized in Maine. The Fair Price Provisions generally require that certain change of control transactions between a public corporation and an affiliate must be approved by at least a majority of the disinterested directors or shareholders (not including those shares beneficially owned by an "interested shareholder"). The Fair Price Provisions are also included in the Articles of Incorporation but approval of 80%, rather than a majority, of the disinterested directors and shareholders, is required in connection with a change of control transaction. These anti-takeover provisions of Maine law and the Articles of Incorporation could result in the Company being less attractive to a potential acquiror and/or result in shareholders receiving less for their shares than otherwise might be available in the event of an unsolicited takeover attempt. See Risk Factors -- "Risks Related to Anti-Takeover Effects of Certain Provisions of Maine Law." In addition, certain of these provisions of the Articles of Incorporation and Bylaws, which provisions are summarized in the following paragraphs, may be deemed to have an anti-takeover effect and may delay, defer or prevent a tender offer or takeover attempt that a shareholder might consider in its best interest, including those attempts that might result in a premium over the market price for the shares held by shareholders. Classified Board of Directors The Company has nine (9) directors. The Board of Directors may increase or decrease the number of directors by affirmative vote of 67% of the directors in office at the time of the vote. The minimum number of directors is three (3) and the maximim number of directors is twenty-five (25). The Company's Board of Directors is divided into three classes of directors serving staggered three-year terms. As a result, approximately one-third of the Board of Directors will be elected each year. These provisions, when coupled with the provision of the Articles of Incorporation authorizing the Board of Directors to fill vacant directorships, may deter a shareholder from removing incumbent directors and simultaneously gaining control of the Board of Directors by filling the vacancies created by such removal with its own nominees. Advance Notice Requirements for Shareholder Proposals and Director Nominations The Bylaws provide that shareholders seeking to bring business before an annual meeting of shareholders, or to nominate candidates for election as directors at an annual meeting of shareholders, must provide timely notice thereof in writing. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal executive offices of the Company not less than 10 days nor more than 60 days prior to the Company's notice of annual meeting of shareholders. The Bylaws also specify certain requirements as to the form and content of a shareholder's notice. These provisions may preclude shareholders from bringing matters before an annual meeting of shareholders or from making nominations for directors at an annual meeting of shareholders. Authorized But Unissued Shares The authorized but unissued shares of Common Stock and Serial Preferred Stock are available for future issuance without shareholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital. The issuance of additional shares of Common Stock and Serial Preferred Stock could render more difficult or discourage an attempt to obtain control of the Company by means of a proxy contest, tender offer, merger or otherwise. The Maine Business Corporation Act ("MBCA") provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's articles of incorporation or bylaws, unless a corporation's certificate of incorporation or bylaws, as the case may be, requires a greater percentage. Limitation of Liability and Indemnification Matters The Articles of Incorporation provide that, except to the extent prohibited by MBCA, the Company's directors shall not be personally liable to the Company or its shareholders for monetary damages for any breach of fiduciary duty as directors of the Company. Section 19 of the MBCA empowers a corporation to purchase and maintain insurance and 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 (whether civil, criminal, administrative or investigative) by reason of the fact that such person is or was 57 a director or officer of the Company, or is or was serving at the request of the Company as a director or officer of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding; provided however, that this provision shall not eliminate or limit liability in the case where such person is found (i) not to have acted honestly or on the reasonable belief that such person's action was in or not opposed to the best interests of the corporation or its shareholders, or (ii) with respect to criminal action, to have had reasonable cause to believe that such person's conduct was unlawful. The MBCA provides further that the indemnification permitted thereunder shall not be deemed exclusive of any other rights to which the directors and officers may be entitled under the corporation's bylaws, any agreement, a vote of shareholders or otherwise. The Articles of Incorporation eliminate the personal liability and provide indemnification to the fullest extent permitted by Section 19 of the MBCA. At present, there is no pending litigation or proceeding involving any director, officer, employee or agent as to which indemnification will be required or permitted under the Articles of Incorporation. The Company is not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or controlling persons pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Transfer Agent and Registrar The Bank shall be the transfer agent and registrar for the Common Stock. 58 SUPERVISION AND REGULATION Bank holding companies and state banks are extensively regulated under both federal and state law. These laws and regulations are intended to protect depositors, not shareholders. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in the applicable law or regulation may have a material effect on the business and prospects of the Company and the Bank. See "Risk Factors -- Supervision and Regulation." General As a bank holding company, the Company is subject to the regulation and supervision of the Federal Reserve under the BHCA. The Company is also subject to the regulation and supervision of the Bureau by virtue of provisions of Maine law which govern financial institution holding companies such as the Company. Under applicable federal law, the Company must obtain the approval of the Federal Reserve Board before it acquires all or substantially all of the assets of a bank or another bank holding company, merges or consolidates with another bank holding company, or acquires direct or indirect ownership or control of any voting shares of a bank or bank holding company if, after such acquisition, it would own or control more than 5% of any class of voting shares of such bank or bank holding company (unless it already owns or controls a majority of such shares). Similarly, under applicable Maine law, the Company must obtain the prior approval of the Maine Superintendent of the Bureau of Banking before acquiring more than 5% of the voting shares of a Maine financial institution or of any financial institution holding company which directly or indirectly controls a Maine financial institution. Under certain circumstances, the Company may be required to obtain Federal Reserve Board approval before redeeming any of its equity securities in an amount in excess of 10% of its net worth in any twelve-month period. Furthermore, under certain circumstances, any redemptions, dividends, or distributions with respect to the Company's Common Stock and Preferred Stock may be considered an unsafe or unsound practice by the Federal Reserve Board. Before any "company," as defined in the BHCA, may acquire "control," as defined in the BHCA, over the Company, the prior approval of the Federal Reserve Board generally is required. In addition, before any individual or entity which is not required to seek prior approval from the Federal Reserve Board may acquire control of the Company, prior notice to the Federal Reserve Board generally is required. Similarly, notice to and approval by the Maine Superintendent of the Bureau of Banking is required before any "financial institution holding company," as defined in the Maine Banking Code, may acquire more than 5% of a Maine financial institution or Maine financial institution holding company. Under the BHCA and the Maine Banking Code, the Company is permitted, directly or through subsidiaries, to engage in a variety of financial activities deemed by the Federal Reserve Board to be so closely related to banking, or managing or controlling banks, as to be a proper incident thereto. A bank holding company normally is not permitted, however, to acquire direct or indirect control of any company which is not a bank or not engaged in activities determined by the Federal Reserve Board to be closely related to banking. Certain exemptions are available with respect to subsidiaries engaged in activities that have been determined by regulation to be closely related to banking such as making or servicing loans, underwriting credit life insurance, performing certain data processing services, acting as an investment or financial advisor, and providing securities brokerage services. As a condition to the approval by the Federal Reserve of the Company's application to become a bank holding company, the Federal Reserve imposed additional requirements on the Company, including the following: (i) the Company may not incur any debt in addition to that evidenced by the Debentures and the M&I Loan without the prior approval of the Federal Reserve Bank of Boston; and (ii) except with the prior approval of the Federal Reserve Bank of Boston, the Company cannot repurchase any outstanding Common Stock while its debt to equity ratio exceeds 30% or the proposed stock repurchase would cause its debt to equity ratio to exceed 30%. The Federal Reserve Board possesses cease and desist powers over bank holding companies to prevent or remedy unsafe or unsound practices or violations of law. These and other restrictions limit how the Company may conduct its business and obtain financing. The Bank is also subject to continued regular supervision and examination by applicable federal and state banking agencies. The Bank is a Maine state-chartered bank that is a member of the Federal Reserve System. The Federal Reserve exercises primary supervision over the Bank through periodic examination. The Bank is also subject to regulation by the FDIC as well as the Bureau. The FDIC has authority to terminate insurance for accounts pursuant to procedures established for that purpose. The Bank must comply with various requirements and 59 restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon and limitations on the types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy. Payment of Dividends The Company is a legal entity separate and distinct from the Bank. The principal source of cash flow of the Company, including cash flow to pay dividends on its stock or principal and interest on debt, if any, is dividends from the Bank. There are statutory and regulatory limitations on the payment of dividends by the Bank to the Company, as well as by the Company to its shareholders. See "Risk Factors -- Restrictions on Payments of Dividends by the Bank to the Company" and "Risk Factors -- Restrictions on Payment of Dividends by the Company." In addition to the statutory prohibition against the withdrawal of any portion of the Bank's capital and certain statutory limitations on the payment of dividends, under Maine law the Bank may not pay dividends if it is insolvent or if the payment of such dividends would render the Bank insolvent. In addition, Maine law generally requires that dividends may be paid only out of either unreserved and unrestricted earned surplus or out of the unreserved and unrestricted net earnings of the then current and preceding fiscal years. If the dividends are to be paid only out of net earnings, shareholders must be notified of the source of the dividend and of the fact that there was no earned surplus from which to pay the dividend. The payment of dividends by any state bank that is a member of the Federal Reserve System is affected by the requirement to maintain adequate capital pursuant to the capital adequacy guidelines issued by the Federal Reserve Board. The objective of the guidelines is to place a constraint on the extent to which a bank can leverage its equity capital base. The guidelines provide for a minimum ratio of Tier 1 capital to total assets of 4% and for a minimum ratio of total capital to risk-weighted assets of 8% using the Year-End 1992 standard, of which at least 4% should be in the form of Tier 1 capital. For purposes of calculating these ratios, Tier 1 capital must represent at least 50% of qualifying total capital and generally consists of the sum of common shareholders' equity, qualifying noncumulative perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, minus goodwill, other specified intangible assets that the Federal Reserve Board deems appropriate, specified investments in unconsolidated banking or finance subsidiaries, and certain other subsidiaries, determined on a case-by-case basis ("Tier 1 Capital"). The Company's Common Stock and Series A Preferred Stock qualify as Tier 1 Capital for those purposes. The Debentures do not qualify as Tier 1 capital, but qualify as Tier 2 supplementary capital, as described below. The guidelines and regulations further provide that capital adequacy is to be considered on a case-by-case basis in view of various qualitative factors that affect a bank's overall financial condition. In the assessment of capital adequacy of banks, total assets consist of the average of total assets required to be included in a bank's Report of Condition and Income ("Call Report"), minus goodwill, intangible assets and any other assets deducted in determining Tier 1 capital. Total capital is determined by adding the sum of Tier 1 and qualifying Tier 2 supplementary capital elements, such as allowance for loan and lease losses, perpetual preferred stock, hybrid capital instruments, term subordinated debt and intermediate-term preferred stock, less the same deductions from capital as set forth above. Risk-weighted assets are also calculated in accordance with applicable rules and regulations. The above regulations and restrictions on dividends paid by the Bank may limit the Company's ability to obtain funds from such dividends for its cash needs, including funds for payment of operating expenses, and dividends on the Common Stock. If, in the opinion of the applicable federal bank regulatory authority, a depository institution or holding company is engaged in or is about to engage in an unsafe or unsound practice (which, depending on the financial condition of the depository institution or holding company, could include the payment of dividends), such authority may require, after notice and hearing (except in the case of an emergency proceeding where there is no notice or hearing), that such institution or holding company cease and desist from such practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution's or holding company's capital base to an inadequate level would be such an unsafe and unsound banking practice. Moreover, the Federal Reserve and 60 the FDIC have issued policy statements which provide that bank holding companies and insured depository institutions generally should only pay dividends out of current operating earnings. In addition, under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a FDIC-insured depository institution may not pay any dividend if payment would cause it to become undercapitalized or once it is undercapitalized. See "FDICIA." The payment of dividends by the Company and the Bank also may be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines. Transactions With Affiliates and Insiders The Bank is subject to Section 23A of the Federal Reserve Act, which places limits on the amount of loans or extensions of credit to, or investments in, or certain other transactions with, affiliates, including the Company. In addition, limits are placed on the amount of advances to third parties collateralized by the securities or obligations of affiliates. Most of these loans and certain other transactions must be secured in prescribed amounts. The Bank is also subject to Section 23B of the Federal Reserve Act, which, among other things, prohibits an institution from engaging in transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable transactions with non-affiliated companies. Capital Adequacy The federal banking agencies have adopted risk-based capital guidelines for banks and bank holding companies. The minimum guideline for the ratio of total capital to risk-weighted assets ("Total Risk Based Capital" ratio) for "adequately capitalized" institutions is 8%. The minimum adequate capitalization guideline for the ratio of Tier 1 Capital to risk-weighted assets ("Tier 1 Risk Based Capital" ratio) is 4%. At March 31, 1998, the Company's Tier 1 Risk Based Capital and Total Risk Based Capital ratios were 10.25% and 11.78%, respectively. In addition, the federal banking agencies have established minimum leverage ratio guidelines for banks and bank holding companies. Their guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and certain other intangible assets (the "Leverage Ratio"), of 3% for banks that meet certain specific criteria and 40% for other institutions. The Company's Leverage Ratio at March 31, 1998 was 6.38%. Failure to meet capital guidelines could subject a bank to a variety of enforcement remedies, including the termination of deposit insurance by the FDIC, and to certain restrictions on its business. See "FDICIA." Holding Company Structure and Support of the Bank Because the Company is the parent holding company of the Bank, its right to participate in the assets of any subsidiary upon the Bank's liquidation or reorganization will be subject to the prior claims of the subsidiary's creditors (including depositors in the case of bank subsidiaries) except to the extent that the Company may itself be a creditor with recognized claims against the subsidiary. Under the Federal Deposit Insurance Act (the "FDIA"), a depository institution insured by the FDIC can be held liable for any loss incurred by, or reasonably expected to be incurred by the FDIC in connection with (i) the default of a commonly-controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to any commonly-controlled FDIC-insured depository institution "in danger of default." "Default" is defined generally as the appointment of a conservator or receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance. The FDIC's claim for damages is superior to claims of depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institution. The Bank is subject to these cross-guarantee provisions. FDICIA The FDICIA requires the federal banking regulators to take "prompt corrective action" in respect of FDIC-insured depository institutions that do not meet minimum capital requirements. FDICIA established five capital tiers: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." An FDIC-insured depository institution is well capitalized if it maintains a Leverage Ratio of at least 5%, a risk adjusted Tier 1 Capital Ratio of at least 6% and a Total Capital Ratio of at least 10% and is not 61 subject to a directive, order or written agreement to meet and maintain specific capital levels. An insured depository institution is defined to be adequately capitalized if it meets all of its minimum capital requirements as described above. In addition, an insured depository institution will be considered undercapitalized if it fails to meet any minimum required measure, significantly undercapitalized if it is significantly below any such measure and critically undercapitalized if it fails to maintain a level of tangible equity equal to not less than 2% of total assets. An insured depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives an unsatisfactory examination rating. The capital-based prompt corrective action provisions of FDICIA and their implementing regulations apply to FDIC-insured depository institutions and are not directly applicable to holding companies which control such institution. However, the Federal Reserve Board has indicated that, in regulating bank holding companies, it will take appropriate action at the holding company level based on an assessment of the effectiveness of supervisory actions imposed upon subsidiary depository institutions pursuant to such provisions and regulations. FDICIA generally prohibits an FDIC-insured depository institution from making any capital distribution (including payment of dividends) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve. In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. A depository institution's holding company must guarantee the capital plan, up to an amount equal to the lesser of 5% of the depository institution's assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan. The federal banking agencies may not accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator. The Company and the Bank, at December 31, 1997 and March 31, 1998, were "well capitalized" under the criteria discussed above. FDIC Insurance Premiums The Bank is required to pay semiannual FDIC deposit insurance assessments. Each financial institution is assigned to one of three capital groups -- well capitalized, adequately capitalized or undercapitalized -- and further assigned to one of three subgroups within a capital group, on the basis of supervisory evaluations by the institution's primary federal and, if applicable, state supervisors and other information relevant to the institution's financial condition and the risk posed to the FDIC deposit insurance fund. The actual assessment rate applicable to a particular institution (and any applicable refund) will, therefore, depend in part upon the risk assessment classification so assigned to the institution by the FDIC. The FDIC is authorized by federal law to raise insurance premiums in certain circumstances. Any increase in premiums would have an adverse effect on the Bank and the Company's earnings. Under the FDIA, insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by a federal bank regulatory agency. Interstate Banking The acquisition by the Company of more than 5% of the outstanding voting securities or substantially all of the assets of a bank located outside of the State of Maine is regulated by the BHCA. Such acquisition is also subject to the law of the state in which the bank to be acquired is located. Under certain circumstances, the Company might not be permitted to acquire an interest in another bank located outside Maine. Further, any company attempting to acquire control of the Company or the Bank also may be subject to certain limitations on interstate banking. Even assuming that the law of the state in which the bank is located permits acquisition, the Maine Banking Code requires prior approval of the Superintendent of the Bureau of Banking for certain acquisitions of more than 5% of a financial institution having operations conducted outside of Maine. 62 The status of interstate banking legislation adopted by individual states has been in a constant state of change in recent years. While federal law has substantially liberalized interstate banking, a number of states have adopted some form of legislation which limits interstate banking by bank holding companies. Interstate Act Subject to certain conditions and exceptions, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Interstate Act"), (i) permits bank holding company acquisitions of banks of a minimum age of up to five years as established by state law in any state, (ii) permits mergers of national and state banks across state lines unless the state has opted out of the interstate bank merger provisions, (iii) permits branching de novo by national and state banks into other states and (iv) permits certain interstate bank agency activities one year after enactment. Subject to certain limitations, Maine law permits out of state financial institutions, federal associations and national banks to establish de novo branches or to acquire branches in Maine. Monetary Policy And Economic Control The commercial banking business in which the Bank engages is affected not only by general economic conditions, but also by the monetary policies of the Federal Reserve. Changes in the discount rate on member bank borrowing, availability of borrowing at the "discount window," open market operations, the imposition of changes in reserve requirements against members banks' deposits and assets of foreign branches and the imposition of and change in reserve requirements against certain borrowings by banks and their affiliates are some of the instruments of monetary policy available to the Federal Reserve. These monetary policies are used in varying combinations to influence overall growth and distributions of bank loans, investments and deposits, and this use may affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks and are expected to do so in the future. Deregulation There have been significant changes in the banking industry in past years. Many of these changes have been effected by federal legislation intended to deregulate the banking industry. This legislation has, among other things, eliminated interest rate restrictions on time deposit accounts and increased the power of nonbanks to expand into traditional banking services. Future changes in the banking industry may include some modification of prohibitions on the types of businesses in which bank holding companies may engage. In addition, other types of financial institutions, including mutual funds, securities brokerage companies, insurance companies and investment banking firms, have been given, and may continue to be given, powers to engage in activities which traditionally have been engaged in only by banks. Such changes may place the Company and the Bank in more direct competition with other financial institutions. See "Risk Factors -- Deregulation of the Banking Industry." Community Reinvestment Act The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their jurisdiction, the Federal Reserve, the FDIC, the Office of the Comptroller of the Currency and the Office of Thrift Supervision evaluate the record of such financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or facility. Other Regulations Interest and certain other charges collected or contracted for by banks are subject to state usury laws and certain federal laws concerning interest rates. The Bank's loan operations are also subject to certain federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers, the Home Mortgage Disclosure Act of 1975 requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves, the Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit, the Fair Credit Reporting Act of 1978 governing the use and provision of information to credit reporting agencies, the Fair Debt Collection Act governing the manner in which consumer debts may be collected by collection agencies and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations 63 of the Bank also are subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, and the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services. 64 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement among Advest, Inc., the sole Underwriter in the Offering (the "Underwriter") and the Company, the Underwriter has agreed to purchase from the Company, and the Company has agreed to sell to the Underwriter 600,000 shares of Common Stock. The Underwriter is committed to purchase and pay for all such shares if any are purchased. The Underwriting Agreement provides that the obligations of the Underwriter is subject to approval of certain matters by their counsel and to various other conditions. The Company has been advised that the Underwriter proposes to offer the shares of Common Stock directly to the public at the Offering price set forth on the cover page of this Prospectus and to certain selected dealers at such price less a concession of $ per share. The Underwriter may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the initial public offering of the shares, the public offering price, concession and reallowance to dealers may be changed by the Underwriter. In addition, the Company has agreed to pay a supplemental financial advisory fee of $25,000 to Advest, Inc. payable upon consummation of the public offering. The Company has granted to the Underwriter an option exercisable during the thirty (30) day period beginning on the effective date of the Registration Statement, to purchase up to 90,000 additional shares of Common Stock, solely to cover overallotments, if any, at the public offering price less the underwriting discount, as set forth on the cover page of this Prospectus. If purchased, such additional shares will be sold by the Underwriter on the same terms as those on which the 600,000 shares are being sold. The executive officers and directors of the Company and the Bank have agreed that they will not publicly sell, contract to publicly sell, or otherwise publicly dispose of, any shares of Common Stock for a period of 180 days from the date of this Prospectus, without the written consent of the Underwriter. Up to 10% of the shares of Common Stock offered hereby may be reserved for sale to the Company's employees, directors and other persons with direct business relationships with the Company. Sales of shares to such persons will be at the initial public offering price. The number of shares available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the Underwriter to the general public on the same terms as the other shares offered hereby. The Company and the Underwriter have agreed to indemnify each other against certain liabilities including liabilities under the Securities Act, or to contribute to payments that the Underwriter or the Company may be required to make in respect thereof. The foregoing is a summary of the principal terms of the Underwriting Agreement and does not purport to be complete. Reference is made to a copy of the Underwriting Agreement which is on file as an exhibit to the Registration Statement. The Underwriter has informed the Company that the Underwriter may make sales to accounts over which they exercise discretionary authority. Prior to this Offering there has been no public market for the Common Stock. The Offering price of the Common Stock was determined by negotiations between the Company and the Underwriter. The factors considered in determining such prices and terms, in addition to prevailing market conditions, included the history of and the prospects for the industry in which the Company competes, an assessment of the Company's management, the prospects of the Company, an assessment of the Company's results of operations, its capital structure and such other factors as were deemed relevant. See "Risk Factors -- Absence of Trading Market." In connection with the Offering, the Underwriter may purchase and sell Common Stock in the open market. These transactions may include overallotment and stabilizing transactions and purchases to cover syndicate short positions created by the Underwriter in connection with the Offering. Stabilizing transactions consist of certain bids or purchases for the purpose of preventing or retarding a decline in the market price of the Common Stock; and syndicate short positions created by the Underwriter involves the sale by the Underwriter of a greater number of shares of Common Stock than they are required to purchase from the Company in the Offering. The Underwriter also may impose a penalty bid, whereby selling concessions allowed to syndicate members or other broker-dealers in respect of the securities sold in the Offering for their account may be reclaimed by the syndicate if such shares of Common Stock are repurchased by the syndicate in stabilizing or covering transactions. These activities may 65 stabilize, maintain or otherwise affect the market price of the Common Stock, which may be higher than the price that might otherwise prevail in the open market. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise, and these activities, if commenced, may be discontinued at any time. 66 SHARES ELIGIBLE FOR FUTURE SALE Upon the closing of the Offering, the Company will have an aggregate of 2,255,640 shares of Common Stock outstanding, assuming no exercise of the Underwriter's over-allotment option of 90,000 shares, no conversion of the Debentures or Series A Preferred Stock and no exercise of outstanding options to purchase Common Stock. Of these shares, the 600,000 shares of Common Stock sold in the Offering will be freely tradable without restriction or further registration under the Securities Act, except that any shares held by "affiliates" of the Company, as that term is defined in Rule 144 promulgated under the Securities Act, may generally only be sold in compliance with the limitation described below. The remaining 1,655,640 shares of outstanding Common Stock will be deemed "restricted securities" as defined under Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below and the provisions of Rules 144, 144(k) and 701, additional shares will be available for sale in the public market (subject in the case of shares held by affiliates to compliance with certain volume restrictions) as follows: (i) 853,047 shares will be eligible for sale 90 to 180 days after the date of this Prospectus, and (ii) 802,593 shares will be eligible for sale upon the expiration of lock-up agreements 180 days after the date of this Prospectus. In addition, there are approximately 266,589 shares of Common Stock issuable upon conversion of the outstanding Series A Preferred Stock and Debentures, which may be eligible for future sale, subject to the above restrictions. There are also outstanding options to purchase 540,027 shares of Common Stock which will be eligible for sale in the public market from time to time subject to vesting and, in the case of certain options, to the expiration of lock-up agreements. In general, under Rule 144, a person (or persons whose shares are aggregated), including an affiliate, who has beneficially owned shares for at least one year is entitled to sell, within any three-month period commencing 90 days after the date of this Prospectus, a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock (approximately 22,600 shares immediately after the Offering) or (ii) the average weekly trading volume in the Common Stock during the four calendar weeks preceding the date on which notice of such sale is filed, subject to certain restrictions. In addition, a person who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years would be entitled to sell such shares under Rule 144(k) without regard to the requirements described above. To the extent that shares were acquired from an affiliate of the Company, such affiliate's holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate. Rule 701 promulgated under the Securities Act provides that shares of Common Stock acquired pursuant to written plans such as the Stock Option Plan may be resold by persons other than affiliates, beginning 90 days after the date of this Prospectus, subject only to the manner of sale provisions of Rule 144, and by affiliates, beginning 90 days after the date of this Prospectus, subject to all provisions of Rule 144 except its one-year minimum holding period. After the date of this Prospectus, the Company intends to file a Form S-8 registration statement under the Securities Act to register all shares of Common Stock issuable under the Stock Option Plan. Such registration statement is expected to become effective immediately upon filing, and shares covered by that registration statement will thereupon be eligible for sale in the public markets, subject to certain lock-up agreements and Rule 144 limitations applicable to affiliates. See "Management -- Director Compensation" and "Management -- Stock Option Plan." Prior to the Offering, there has not been any public market for the Common Stock of the Company, and no prediction can be made as to the effect, if any, that market sales of shares of Common Stock or the availability of shares for sale will have on the market price of the Common Stock prevailing from time to time. Nevertheless, sales of substantial amounts of Common Stock in the public market could adversely affect the market price of the Common Stock and could impair the Company's future ability to raise capital through the sale of its equity securities. All directors and executive officers and certain shareholders of the Company (holding an aggregate of approximately 802,593 shares of Common Stock) have agreed that they will not, without the prior written consent of the representatives of the Underwriter, sell or otherwise dispose of any shares of Common Stock or options to acquire shares of Common Stock during the 180-day period following the date of this Prospectus. See "Underwriting." 67 The Company has agreed not to sell or otherwise dispose of any shares of Common Stock during the 180-day period following the date of the Prospectus, except the Company may issue and grant options to purchase shares of Common Stock under the Stock Option Plan. In addition, the Company may issue shares of Common Stock in connection with any acquisition of another company if the terms of such issuance provide that such Common Stock shall not be resold prior to the expiration of the 180-day period referenced in the preceding sentence. See "Risk Factors -- Shares Eligible for Future Sale." LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Hutchins, Wheeler & Dittmar, A Professional Corporation, Boston, Massachusetts. Certain legal matters will be passed upon for the Underwriter by Tyler Cooper & Alcorn, LLP, Hartford, Connecticut. EXPERTS The balance sheets as of December 31, 1997 and 1996 and the statements of income, shareholders' equity, and cash flows for each of the two years in the period ended December 31, 1997, included in this Prospectus, have been included herein in reliance on the report of Berry, Dunn, McNeil & Parker, independent accountants, given on the authority of that firm as experts in accounting and auditing. 68 MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997 AND 1996 WITH INDEPENDENT AUDITORS' REPORT MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY TABLE OF CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS
Page ----------- Independent Auditors' Report .......................................................... F-2 Consolidated Statements of Financial Condition at December 31, 1997 and 1996 ........................................................... F-3 Consolidated Statements of Income for the Years Ended December 31, 1997 and 1996 ...... F-4 Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1997 and 1996 ........................................................... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997 and 1996 ........................................................... F-6 Notes to Consolidated Financial Statements ............................................ F-7 - F-21 Consolidated Statements of Financial Condition at March 31, 1998 (Unaudited) .......... F-22 Consolidated Statements of Income for the Three Months Ended March 31, 1998 and 1997 (Unaudited) .......................................................................... F-23 Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 1998 and 1997 (Unaudited) .................................................. F-24 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997 (Unaudited) ..................................................................... F-25 Notes to Condensed Unaudited Consolidated Financial Statements ........................ F-26
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders Merrill Merchants Bancshares, Inc. We have audited the consolidated statements of financial condition of Merrill Merchants Bancshares, Inc. and Subsidiary as of December 31, 1997 and 1996 and the related consolidated statements of income, changes in shareholders' equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Merrill Merchants Bancshares, Inc. and Subsidiary at December 31, 1997 and 1996 and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Berry Dunn McNeil & Parker Bangor, Maine January 16, 1998 (except for Note 15 and Note 22, as to which date is July 20, 1998) F-2 MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1997 AND 1996 (In Thousands, Except Number of Shares and per Share Data)
1997 1996 ----------- ----------- ASSETS Cash and due from banks ................................................... $ 7,486 $ 6,567 Interest-bearing deposits with banks ...................................... 523 24 Federal funds sold ........................................................ 2,650 2,000 -------- -------- Total cash and cash equivalents ....................................... 10,659 8,591 Investment securities Available for sale ....................................................... 42,864 37,891 To be held to maturity ................................................... 1,962 3,123 Loans held for sale ....................................................... 508 341 Loans receivable .......................................................... 118,888 105,429 Less allowance for loan losses ........................................... 1,717 1,450 -------- -------- Net loans receivable .................................................. 117,171 103,979 Other real estate owned ................................................... 43 340 Properties and equipment, net ............................................. 2,806 2,267 Deferred income tax benefit ............................................... 129 146 Accrued income and other assets ........................................... 2,477 1,747 -------- -------- Total assets .......................................................... $178,619 $158,425 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits ........................................................... $ 25,018 $ 21,543 Savings and NOW deposits .................................................. 64,513 51,942 Certificates of deposit ................................................... 56,781 53,219 -------- -------- Total deposits ........................................................ 146,312 126,704 Securities sold under agreements to repurchase (term and demand) .......... 11,897 12,164 Other borrowed funds ...................................................... 5,144 2,832 Accrued expenses and other liabilities .................................... 1,104 3,059 Long-term debt ............................................................ 2,895 3,695 Mandatory convertible debentures .......................................... 300 300 -------- -------- Total liabilities ..................................................... 167,652 148,754 -------- -------- Commitments (Notes 6, 7, 14, 15, 17 and 19) Shareholders' equity Convertible cumulative preferred stock, par value $1; authorized 50,000 shares, issued and outstanding 19,566 shares .................... 20 20 Common stock, par value $1; authorized 4,000,000 shares, issued and outstanding 1,542,123 and 1,468,953 shares in 1997 and 1996, respectively ..................................................... 1,542 1,469 Capital surplus .......................................................... 7,754 7,331 Retained earnings ........................................................ 1,647 861 Unrealized gain (loss) on securities available for sale, net of tax of $2 and $(5) in 1997 and 1996, respectively.............................. 4 (10) -------- -------- Total shareholders' equity ............................................ 10,967 9,671 -------- -------- Total liabilities and shareholders' equity ............................ $178,619 $158,425 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1997 AND 1996 (In Thousands, Except Number of Shares and per Share Data)
1997 1996 ------------ ------------ Interest and dividend income Interest and fees on loans .................................... $ 10,669 $ 9,683 Interest on investment securities ............................. 2,184 1,788 Dividends on investment securities ............................ 191 197 Interest on federal funds sold ................................ 171 158 -------- -------- Total interest and dividend income .......................... 13,215 11,826 -------- -------- Interest expense Interest on deposits .......................................... 5,126 4,428 Interest on borrowed funds .................................... 934 955 -------- -------- Total interest expense ...................................... 6,060 5,383 -------- -------- Net interest income ......................................... 7,155 6,443 Provision for loan losses ...................................... 355 360 -------- -------- Net interest income after provision for loan losses ......... 6,800 6,083 -------- -------- Other income Service charges on deposit accounts ........................... 476 486 Other service charges and fees ................................ 485 381 Trust fees .................................................... 534 439 Other ......................................................... 138 114 Net gain on sale of mortgage loans ............................ 91 69 -------- -------- Total other income .......................................... 1,724 1,489 -------- -------- Other expense Salaries and employee benefits ................................ 3,121 2,905 Occupancy expense ............................................. 626 526 Equipment expense ............................................. 524 462 Data processing ............................................... 605 577 Other ......................................................... 1,481 1,343 -------- -------- Total other expense ......................................... 6,357 5,813 -------- -------- Income before income taxes ..................................... 2,167 1,759 Income tax expense ............................................. 765 639 -------- -------- Net income .................................................. $ 1,402 $ 1,120 ======== ======== Per share data Basic earnings per common share ............................... $ 0.82 $ 0.65 ======== ======== Diluted earnings per common share ............................. $ 0.71 $ 0.58 ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1997 AND 1996 (In Thousands, Except Number of Shares and per Share Data)
Unrealized Convertible Gain (Loss) Cumulative on Securities Total Preferred Common Capital Retained Available Shareholders' Stock Stock Surplus Earnings for Sale Equity ------------- -------- --------- ---------- --------------- -------------- Balance at December 31, 1995 .............. $20 $1,426 $7,108 $ 82 $ 125 $ 8,761 Net income ................................ -- -- -- 1,120 -- 1,120 3% common stock dividend declared ......... -- 43 223 (267) -- (1) Convertible cumulative preferred stock dividends declared, $3.80 per share...... -- -- -- (74) -- (74) Change in unrealized gain (loss) on securities available for sale, net of deferred income taxes of $69 ............ -- -- -- -- (135) (135) --- ------ ------ ------ ------ -------- Balance at December 31, 1996 .............. 20 1,469 7,331 861 (10) 9,671 Net income ................................ -- -- -- 1,402 -- 1,402 5% common stock dividend declared ......... -- 73 423 (497) -- (1) Common stock cash dividend declared, $.03 per share........................... -- -- -- (43) -- (43) Convertible cumulative preferred stock dividends declared, $3.88 per share...... -- -- -- (76) -- (76) Change in unrealized gain (loss) on securities available for sale, net of deferred income taxes of $7 ............. -- -- -- -- 14 14 --- ------ ------ ------ ------ -------- Balance at December 31, 1997 .............. $20 $1,542 $7,754 $1,647 $ 4 $10,967 === ====== ====== ====== ====== ========
The accompanying notes are an integral part of these consolidated financial statements. F-5 MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997 AND 1996 (In Thousands)
1997 1996 ----------- ----------- Cash flows from operating activities Net income ............................................................................ $ 1,402 $ 1,120 Adjustments to reconcile net income to net cash provided by operating activities Depreciation ......................................................................... 379 290 Amortization ......................................................................... 83 107 Net accretion of discounts on investment securities .................................. (69) (28) Deferred income taxes ................................................................ 18 (266) Originations of loans held for sale .................................................. (7,173) (5,521) Proceeds from sale of loans held for sale ............................................ 7,026 6,955 (Increase) decrease in accrued income and other assets ............................... (154) 64 Increase (decrease) in accrued expenses and other liabilities ........................ 140 (14) Decrease in deferred loan fees, net .................................................. (33) (19) Provision for loan losses ............................................................ 355 360 Net gain on sale of mortgage loans, investment securities, property and equipment .... (83) (51) --------- --------- Net cash provided by operating activities ........................................... 1,891 2,997 --------- --------- Cash flows from investing activities Net loans made to customers ........................................................... (13,405) (10,893) Acquisition of premises and equipment ................................................. (927) (1,012) Purchase of investment securities available for sale .................................. (39,510) (31,165) Proceeds from sales and maturities of investment securities Sales and maturities of available for sale securities ................................ 32,538 18,248 Maturities of held to maturity securities ............................................ 1,157 4,078 Proceeds from sale of other real estate owned ......................................... 190 -- Acquisition of life insurance policy .................................................. (599) -- --------- --------- Net cash used in investing activities ............................................... (20,556) (20,744) --------- --------- Cash flows from financing activities Net increase in demand, savings and NOW deposits ...................................... 16,046 15,667 Net increase (decrease) in certificates of deposit .................................... 3,562 (303) Net increase (decrease) in securities sold under agreement to repurchase .............. (267) 1,991 Net increase in other borrowed funds .................................................. 2,312 2,640 Payment of long-term debt ............................................................. (800) (305) Dividends paid on convertible cumulative preferred stock and common stock ............. (120) (75) --------- --------- Net cash provided by financing activities ........................................... 20,733 19,615 --------- --------- Net increase in cash and cash equivalents .............................................. 2,068 1,868 Cash and cash equivalents, beginning of period ......................................... 8,591 6,723 --------- --------- Cash and cash equivalents, end of period ............................................... $ 10,659 $ 8,591 ========= ========= Supplemental disclosures of cash flow information Cash paid for interest ................................................................ $ 6,058 $ 5,429 Transfers to other real estate owned .................................................. 70 49 Income tax paid ....................................................................... 773 855
The accompanying notes are an integral part of these consolidated financial statements. F-6 MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements December 31, 1997 and 1996 (Presented in Thousands, Except As Noted) 1. Summary of Significant Accounting Policies The accounting and reporting policies conform to generally accepted accounting principles and to general practice within the banking industry. The following is a summary of the significant accounting and reporting policies. Nature of Business Merrill Merchants Bancshares, Inc. is a one-bank holding company that owns all of the common stock of Merrill Merchants Bank ("Bank"). The Bank operates branches in Bangor (three offices), Orono, Pittsfield, and Brewer, Maine. The Bank's lending activities are conducted principally in central Maine. The Bank grants single family and multi-family residential loans, commercial real estate loans, commercial loans, and a variety of consumer loans. In addition, the Bank grants loans for the construction of residential homes, multi-family properties and commercial real estate properties. Most loans granted by the Bank are either collateralized by real estate or guaranteed by federal and local governmental authorities. The ability and willingness of the single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity within the borrowers' geographic areas and real estate values. The ability and willingness of commercial real estate, commercial and construction loan borrowers to honor their repayment commitments is generally dependent on the health of the real estate economic sector in the borrowers' geographic areas and the general economy. The Bank is under the supervision of the Board of Governors of the Federal Reserve System and the Maine Bureau of Banking, and its deposits are insured by the Federal Deposit Insurance Corporation (FDIC). Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans. In connection with the determination of the allowance for loan losses and the carrying value of real estate owned, management obtains independent appraisals for significant properties. Financial Statement Presentation The accompanying consolidated financial statements include the accounts of Merrill Merchants Bancshares, Inc. and its wholly-owned subsidiary, Merrill Merchants Bank, a state-chartered bank. All intercompany accounts and transactions have been eliminated in the consolidated financial statements. Investment Securities Investment debt securities that management has the ability and intent to hold to maturity are classified as held to maturity and carried at amortized cost. Other marketable securities are classified as available for sale and are carried at fair value. Unrealized gains and losses on securities available for sale, net of income taxes, are recognized as direct increases or decreases in shareholders' equity. Cost of securities sold is recognized using the specific identification method. Premiums are amortized and discounts are accreted using methods approximating the interest method. Loans Held for Sale Residential mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated market value. Gains or losses on sales of loans are recognized at the time of sale and are based upon the difference between the selling price and the carrying amount of loans sold. F-7 Other Real Estate Owned Other real estate owned (OREO) includes real estate and repossessed personal property held for sale which have been acquired principally through foreclosure or a similar conveyance of title. Real estate may be considered to be in-substance foreclosed and included in OREO, prior to the conveyance of title when specific criteria are met. Both foreclosed and in-substance foreclosed real estate, as well as repossessed personal property, are carried at the lower of their recorded amounts or fair value less estimated costs of disposal. Any write-downs at, or prior to, the dates of acquisition are charged to the allowance for loan losses. Subsequent write-downs are recorded in noninterest expense. Expenses incurred in connection with holding such assets and gains and losses upon sale are included in other expenses or other income. Loans Receivable Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs. Interest on loans is accrued and credited to income based on the principal amount outstanding. The accrual of interest on loans is discontinued when, in the opinion of management, there is an indication that the borrower may be unable to meet payments as they become due. Upon such discontinuance, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. The allowance for loan losses is maintained at a level adequate to absorb probable losses. Management determines the adequacy of the allowance based upon reviews of individual credits, recent loss experience, current economic conditions, the risk characteristics of the various categories of loans and other pertinent factors. Loans deemed uncollectible are charged to the allowance. Provisions for loan losses and recoveries on loans previously charged off are added to the allowance. Loans considered to be impaired are reduced to the present value of expected future cash flows or to the fair value of collateral, by allocating a portion of the allowance for loan losses to such loans. If these allocations cause the allowance for loan losses to require an increase, such increase is included in the provision for loan losses. Loan Servicing The cost of mortgage servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. Fair values are estimated using discounted cash flows based on a current market interest rate. No rights were impaired at December 31, 1997 or 1996. Properties and Equipment Properties and equipment are stated at cost, less accumulated depreciation. The provision for depreciation is computed principally by accelerated methods. Organization Costs and Goodwill Organization costs and goodwill are being amortized using the straight-line method over seven and fifteen years, respectively. Loan Origination Fees and Costs Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan. Income Taxes The Company records deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Off-Balance-Sheet Financial Instruments In the ordinary course of business, the Bank has entered into off-balance-sheet financial instruments consisting of commitments to extend credit and unadvanced commitments under commercial and home equity lines of credit and overdraft protection accounts. Such financial instruments are recorded in the consolidated financial statements when they become payable. F-8 Cash and Cash Equivalents For the purpose of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as cash and due from banks, interest-bearing deposits with banks and federal funds sold. Earnings Per Share The Company has adopted SFAS No. 128, "Earnings Per Share." SFAS 128 specifies the computation and disclosure requirements for earnings per share for entities with publicly held common stock or potential common stock. The effect of SFAS No. 128 on the Company's financial statements is to retroactively present basic and diluted earnings per share. The basic earnings per share computation is based upon the weighted-average number of shares of stock outstanding during the period. Potential common stock is considered in the calculation of weighted-average shares outstanding for diluted earnings per share. The Company declared 5% and 3% stock dividends in 1997 and 1996. Earnings and cash dividends per share and weighted-average shares outstanding have been retroactively restated to reflect the stock dividends, as well as the stock dividends in 1998 described in Note 22. The Company adopted SFAS No. 129, "Disclosure of Information about Capital Structure" in 1997. This statement has no effect on the Company's financial statements as the capital disclosures meet the requirements of SFAS No. 129. 2. Cash and Due from Banks The Federal Reserve Board requires the Company to maintain a rolling average compensating balance of $400 in amounts on deposit. 3. Investment Securities The carrying amounts of investment securities as shown in the consolidated statements of financial condition and their approximate fair values at December 31, 1997 and 1996 were as follows:
Securities available for sale ------------------------------ Amortized Unrealized Unrealized Fair Cost Gains Losses Value ------------ ------------- ---------------- ---------- December 31, 1997 - ------------------------------------------------------ U.S. Treasury securities ............................. $ 20,973 $ 79 $ (9) $21,043 U.S. Government agencies and corporations ............ 3,581 2 (4) 3,579 Mortgage-backed securities and collateralized mortgage obligations ......................................... 15,912 20 (81) 15,851 State and local government debt securities ........... 1,402 -- -- 1,402 U.S. Government and agency money market funds ........ 166 -- -- 166 Other securities ..................................... 823 -- -- 823 ---------- ----------- ------------ ------- $ 42,857 $ 101 $ (94) $42,864 ========== =========== ============ ======= Securities held to maturity ------------------------------ Amortized Unrealized Unrealized Fair Cost Gains Losses Value ---------- ----------- ------------ ------- December 31, 1997 - ------------------------------------------------------- Mortgage-backed securities and collateralized mortgage obligations ......................................... $ 1,962 $ -- $ (4) $ 1,958 ========== ============ ============ =======
F-9
Securities available for sale -------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------------- ------------------ ----------------- ---------- December 31, 1996 - --------------------------------------------------- U.S. Treasury securities .......................... $ 18,907 $ 113 $ (29) $18,991 U.S. Government agencies and corporations ......... 496 1 -- 497 Mortgage-backed securities and collateralized mortgage obligations ............................. 11,188 10 (110) 11,088 U.S. Government and agency money market funds ..................................... 6,548 -- -- 6,548 Other securities .................................. 767 -- -- 767 ---------- ----------- ----------- ------- $ 37,906 $ 124 $ (139) $37,891 ========== =========== =========== ======= Securities held to maturity -------------------------------------- Amortized Unrealized Unrealized Fair Cost Gains Losses Value --------- - -------------- ----------- ------- December 31, 1996 - ---------------------------------------------------- Mortgage-backed securities and collateralized mortgage obligations ............................. $ 3,123 $ 3 $ (21) $ 3,105 ========== =============== =========== =======
Investment securities with amortized cost and fair value of approximately $30,629 and $21,780 at December 31, 1997 and 1996, respectively, were pledged to secure public deposits, treasury tax and loan deposits and borrowings and for other purposes required or permitted by law. The amortized cost and fair value of debt securities at December 31, 1997 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Securities available for Securities held to sale maturity ------------------------ ---------------------- Amortized Fair Amortized Fair Cost Value Cost Value ----------- ---------- ----------- -------- Due in one year or less ............ $13,852 $13,858 $ 866 $ 864 Due from one to five years ......... 13,220 13,277 -- -- Due from five to ten years ......... 5,804 5,772 1,000 999 Due after ten years ................ 8,991 8,968 96 95 ------- ------- ------ ------ $41,867 $41,875 $1,962 $1,958 ======= ======= ====== ======
Mortgage-backed securities and collateralized mortgage obligations are allocated among the above maturity groupings based on their final maturity dates. During 1997 and 1996, the Company sold U.S. Government and agency money market funds securities available for sale for total proceeds of $27,302 and $15,104, respectively. The sales resulted in no gains or losses for 1997 and 1996. 4. Loans Receivable The components of loans receivable were as follows:
1997 1996 ----------- ----------- Commercial ....................... $ 20,819 $ 22,134 Commercial real estate ........... 40,984 34,908 Construction ..................... 3,012 1,941 Residential real estate .......... 26,638 23,827 Home equity ...................... 20,036 15,726 Consumer ......................... 7,461 6,978 Less deferred loan fees .......... (62) (85) -------- -------- Total .......................... $118,888 $105,429 ======== ========
F-10 The Bank services residential mortgage loans sold to investors under nonrecourse agreements amounting to $38,301 and $36,425 at December 31, 1997 and 1996, respectively. Mortgage loan sales resulted in a net gain on loan sales of $91 and $69 in 1997 and 1996, respectively. Mortgage servicing rights of $69 and $74 were capitalized in 1997 and 1996, respectively. Amortization of mortgage servicing rights was $24 and $4 in 1997 and 1996, respectively. Impaired loans recorded in conformity with SFAS No. 114, as amended by SFAS No. 118, totaled $2,499 and $599 at December 31, 1997 and 1996, respectively. The total allowance for loan losses related to these loans was $486 and $165 at December 31, 1997 and 1996, respectively. The average balance of outstanding impaired loans was $1,159 and $492 for 1997 and 1996, respectively. Interest income recognized for cash payments on impaired loans during 1997 and 1996 was not material to the consolidated financial statements. 5. Allowance for Loan Losses An analysis of the allowance for loan losses at December 31, 1997 and 1996 is as follows:
1997 1996 --------- --------- Balance at beginning of year ................... $1,450 $1,133 Add: Provision for loan losses ................. 355 360 Recoveries of previous charge-offs .......... 12 5 Less: Loans charged off ........................ (100) (48) ------ ------ Balance at end of year ......................... $1,717 $1,450 ====== ======
6. Properties and Equipment Properties and equipment are comprised of the following:
1997 1996 -------- --------- Land ....................................... $ 245 $ 198 Bank premises .............................. 1,862 695 Furniture and equipment .................... 2,029 1,524 Leasehold improvements ..................... 195 103 Construction in progress ................... -- 897 ------ ------ Total cost ............................. 4,331 3,417 Less accumulated depreciation .......... 1,525 1,150 ------ ------ Net properties and equipment ........... $2,806 $2,267 ====== ======
Certain Bank facilities and equipment are leased under various operating leases. Rental expense was approximately $217 and $188 for 1997 and 1996, respectively. Future minimum rental commitments under noncancelable leases at December 31, 1997 are: 1998 .............................. $ 434 1999 .............................. 234 2000 .............................. 244 2001 .............................. 242 2002 .............................. 187 Thereafter ........................ 402 ------ $1,743 ======
The Bank has entered into an agreement to purchase a parcel of land for $200. F-11 7. Employee Benefit Plans The Company has established a defined contribution pension plan under Section 401(k) of the Internal Revenue Code. Plan participants, who consist of all employees meeting minimum age and service requirements who elect to participate, are permitted to contribute a percentage of their wages to the plan on a pre-tax basis. The Company matches a portion of each employee's contribution, resulting in an expense of $39 and $32 for 1997 and 1996, respectively. The Company has established nonqualified deferred compensation arrangements for certain officers. Expense under these arrangements totaled $8 and $17 for 1997 and 1996, respectively. Effective June 26, 1997, the Company adopted a nonqualified supplemental executive retirement plan for the benefit of the key employees. A life insurance policy was acquired for the purpose of serving as the primary funding source. As of December 31, 1997, the cash value of this policy was $599. 8. Deposits The aggregate amount of certificates of deposit with a minimum denomination of $100 was $10,522 and $9,097 at December 31, 1997 and 1996, respectively. At December 31, 1997, the scheduled maturities of certificates of deposit are as follows: 1998 ........................ $36,235 1999 ........................ 11,592 2000 ........................ 3,425 2001 ........................ 545 2002 and thereafter ......... 4,984 ------- $56,781 =======
9. Borrowed Funds Securities sold under agreements to repurchase generally mature within one to four days from the transaction date. Other borrowed funds consist of Federal Home Loan Bank (FHLB) advances and treasury, tax and loan deposits. Treasury tax and loan deposits are repaid upon notification by the U.S. Treasury. Information concerning securities sold under agreements to repurchase is summarized as follows:
1997 1996 ------------ ------------ Average balance during the year .................... $ 11,931 $ 11,770 Average interest rate during the year .............. 4.28% 4.42% Maximum month-end balance during the year .......... 12,991 14,070
The Bank is required to own stock of the FHLB in order to borrow from the FHLB. FHLB advances are collateralized by a pledge of certain mortgage loans and by a lien on the Bank's FHLB stock of $491 at December 31, 1997, which is included in investment securities available for sale in the consolidated statements of financial condition. A summary of borrowing from the FHLB at December 31, 1997 is as follows:
Final Maturity Interest Rate - ---------------------------- -------------- September 1999 .......... 5.79% $ 264 September 2002 .......... 6.18 287 September 2007 .......... 6.47 688 ------ $1,239 ======
F-12 10. Long-Term Debt The Company has a $2,895 note payable collateralized by all of the stock of the Bank. Annual principal payments of $362 and $396 are due in 1998 and 1999, respectively, with a remaining unpaid note balance due on October 16, 2000. Payments of interest are due quarterly at the six-month Treasury rate plus 1.75% (7.10% at December 31, 1997). Prior to 1997, the interest rate was equal to the lender's base rate; thereafter, the interest rate is reset every six months. The note agreement contains certain restrictive covenants including maintenance of certain net worth and equity levels, prior approval of dividend payments, certain investments, fixed asset expenditures, debenture principal reductions, stock issuance or redemption, debt incurrence, mergers or management changes. The Company and Bank were in compliance with such covenants at December 31, 1997 and 1996. Maturities on long-term debt and FHLB borrowings (Note 9) are as follows:
Long-Term FHLB Debt Total --------- ---------- -------- 1998 ............... $ 253 $ 362 $ 615 1999 ............... 229 396 625 2000 ............... 120 2,137 2,257 2001 ............... 128 -- 128 2002 ............... 119 -- 119 Thereafter ......... 390 -- 390 ------ ------ ------ Total .......... $1,239 $2,895 $4,134 ====== ====== ======
11. Mandatory Convertible Debentures The Company issued $300 of mandatory convertible debentures which bear interest at 1% per annum in excess of the prime rate of interest of the Bank of Boston N.A. Interest is payable on March 31, June 30, September 30, and December 31 of each year until the debentures are paid in full or converted into shares of common stock. On or prior to September 30, 2002, the holders of the debentures must convert the entire principal amount into shares of common stock of Merrill Merchants Bancshares, Inc. at a conversion rate equal to $4.73 of principal amount of debentures for one share of common stock, subject to adjustment for any recapitalization of common stock, such as a split or reverse split of common stock. The debentures are unsecured and any payment of interest or principal will be subordinated to the timely payment of principal and interest on all existing and future obligations of the Company for borrowed money from any bank trust company, insurance company or other financial institution engaged in the business of lending money. 12. Income Taxes Income tax expense consists of:
Current Deferred Total --------- ---------- ------ 1997 - -------- Federal ......... $722 $ 18 $740 State ........... 25 -- 25 ---- ------ ---- $747 $ 18 $765 ==== ====== ==== 1996 - ------- Federal ......... $880 $ (266) $614 State ........... 25 -- 25 ---- ------ ---- $905 $ (266) $639 ==== ====== ====
F-13 The actual tax expense differs from the expected tax expense computed by applying the applicable U.S. federal corporate income tax rate to income before income taxes as follows:
1997 1996 ------ ------- Computed tax expense .......................... $737 $598 Increase in income tax expense resulting from: State taxes, net of federal benefit .......... 16 16 Other ........................................ 12 25 ---- ---- $765 $639 ==== ====
The tax effects of temporary differences that give rise to deferred income tax assets and liabilities are as follows:
1997 1996 --------------------- -------------------- Asset Liability Asset Liability ------- ----------- ------- ---------- Allowance for loan losses ......... $153 $-- $124 $-- Start-up costs .................... -- 49 -- 33 Mortgage servicing rights ......... -- 39 -- 24 Deferred compensation ............. 29 -- 31 -- Other ............................. 35 -- 49 -- ---- --- ---- --- $217 $88 $204 $57 ==== === ==== ===
Management expects the Company will realize all deferred income tax benefits to offset the income tax liabilities arising from the reversal of taxable temporary differences and taxable income generated in future years. Accordingly, the Company has not established a valuation allowance for deferred income tax benefits. 13. Related Parties The Bank has entered into loan transactions with its directors, executive officers, significant shareholders and their affiliates (related parties). Such transactions were made in the ordinary course of business on substantially the same terms and conditions, including interest rates and collateral, as those prevailing at the same time for comparable transactions with other customers, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features. The aggregate amounts of loans outstanding to such related parties which exceed $60 in the aggregate at December 31, 1997 and 1996 were $2,562 and $3,190, respectively. New loans to such related parties totaled $77 in 1997 and $1,554 in 1996, and repayments totaled $705 in 1997 and $556 in 1996. Commitments, as described in Note 14, to related parties totaled $4,240 and $3,655 at December 31, 1997 and 1996, respectively. 14. Financial Instruments With Off-Balance-Sheet Risk The Bank is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers which involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statements of financial condition. The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual notional amount of those instruments. The Bank follows the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments, including requiring collateral or other security to support financial instruments with credit risk. F-14 The Bank's commitments at December 31, 1997 and 1996 are as follows:
1997 1996 --------- --------- Commitments to extend credit ............ $ 4,392 $ 5,334 Letters of credit ....................... 804 522 Unadvanced commitments Commercial lines of credit ............. 14,741 12,488 Construction lines of credit ........... 893 718 Home equity lines of credit ............ 10,421 9,464 Overdraft protection accounts .......... 1,397 1,353 Credit card lines ...................... 2,157 1,916
15. Shareholders' Equity The Company is prohibited from repurchasing any of its outstanding common stock while its debt-to-equity ratio exceeds 30% or the proposed stock repurchase would cause its debt-to-equity ratio to exceed 30%. The Company's debt-to-equity ratio at December 31, 1997 and 1996 was 29.1% and 41.3%, respectively. The shareholders of the Company have entered into an agreement whereby all stock becoming available for sale or other transfer must first be offered to the other shareholders and then to the Company under the same terms and conditions. Shareholders who are officers also have the option under the agreement to require the Company to purchase all of their stock at book value (excluding goodwill) in certain circumstances. In 1998, the shareholders and the Company agreed to terminate the agreement. The termination will have an effective date concurrent with the effective date of the Form SB-2 registration statement filed with the Securities and Exchange Commission. Holders of preferred stock are entitled to dividends equal to the total stated value of $42.53 per share multiplied by the prime rate in effect from time to time as announced by Bank of Boston. The dividends payable on the preferred stock are cumulative, meaning that if dividends are not paid when declared, they will accumulate and be payable in full before any dividends are paid on common stock. However, the payment of any dividends on or the redemption of the preferred stock is subordinate to the payment of any debt by the Company. The preferred stock is non-voting. Each share of preferred stock is convertible into one share of common stock, subject to appropriate adjustment upon a recapitalization of the common stock (such as a split or reverse split). After October 1, 2002, and to the extent not previously converted into common stock, the preferred stock may be redeemed by the Company for a price equal to the sum of its stated value plus unpaid and accrued dividends. However, the preferred stock may not be called or redeemed by the Company unless approved in advance by the Federal Reserve Bank of Boston. 16. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands, except for number of shares and per-share data):
1997 1996 ------------- ------------- Basic earnings per share Net income, as reported ................................................. $ 1,402 $ 1,120 Preferred stock dividends declared ...................................... (76) (74) ---------- ---------- Income available to common shareholders ............................... $ 1,326 $ 1,046 ========== ========== Weighted-average shares outstanding ..................................... 1,542,123 1,542,123 Effect of subsequent stock dividend (Note 22) ........................... 77,103 77,103 ---------- ---------- Restated weighted-average shares outstanding .......................... 1,619,226 1,619,226 ========== ========== Basic earnings per share ................................................ $ 0.82 $ 0.65 ========== ========== Diluted earnings per share Net income, as reported ................................................. $ 1,402 $ 1,120 Interest on mandatory convertible debentures, net of tax ................ 19 19 ---------- ---------- Income available to common shareholders ............................... $ 1,421 $ 1,139 ========== ========== Weighted-average shares outstanding ..................................... 1,542,123 1,542,123 Effect of stock options, net of assumed treasury stock purchases ........ 112,491 72,522 Effect of convertible preferred stock ................................... 190,440 190,440 Effect of mandatory convertible debentures .............................. 63,486 63,486 Effect of subsequent stock dividend (Note 22) ........................... 95,445 93,447 ---------- ---------- Adjusted and restated weighted-average shares outstanding ............. 2,003,985 1,962,018 ========== ========== Diluted earnings per share .............................................. $ 0.71 $ 0.58 ========== ==========
F-15 17. Regulatory Matters The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory -- and possibly additional discretionary -- actions by regulators that, if undertaken, could have a direct material effect on the Company and Bank's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company's and Bank's assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's and Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes as of December 31, 1997, that the Company and Bank meet all capital adequacy requirements to which they are subject. As of December 31, 1997 and 1996, the most recent notification from the Federal Reserve Bank categorized the Company and Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized well capitalized, the Company and Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed this category. The Company's and Bank's actual capital amounts and ratios are also presented in the table. No deduction was made from capital for interest-rate risk in 1997 and 1996.
To be well capitalized under prompt For capital corrective action Actual adequacy purposes provisions ---------------------- ------------------- ---------------------- Amount Ratio Amount Ratio Amount Ratio ---------- ----------- -------- ---------- ---------- ----------- As of December 31, 1997 Total capital (to risk weighted assets) Consolidated .......................... $12,201 11.30% $8,635 8.00% N/A Bank .................................. 14,974 13.88 8,632 8.00 $10,790 10.00% Tier I capital (to risk weighted assets) Consolidated .......................... 10,547 9.77 4,318 4.00 N/A Bank .................................. 13,621 12.62 4,316 4.00 6,474 6.00 Tier I capital (to average assets) Consolidated .......................... 10,547 6.06 6,981 4.00 N/A Bank .................................. 13,621 7.85 6,960 4.00 8,700 5.00 As of December 31, 1996 Total capital (to risk weighted assets) Consolidated .......................... 10,667 11.10 7,690 8.00 N/A Bank .................................. 13,848 14.42 7,693 8.00 9,617 10.00 Tier I capital (to risk weighted assets) Consolidated .......................... 9,162 9.53 3,845 4.00 N/A Bank .................................. 12,645 13.17 3,832 4.00 5,748 6.00 Tier I capital (to average assets) Consolidated .......................... 9,162 5.98 6,135 4.00 N/A Bank .................................. 12,645 8.29 6,094 4.00 7,617 5.00
F-16 18. Other Expense Other expense amounts are summarized as follows for 1997 and 1996:
1997 1996 --------- --------- Professional fees ............................................. $ 215 $ 217 Other ......................................................... 211 198 Printing, postage, stationery and supplies .................... 189 180 Advertising and promotion ..................................... 191 155 Bankcard processing ........................................... 191 145 Amortization .................................................. 107 107 Travel, meetings, conventions and employee education .......... 101 102 Trust expense ................................................. 106 96 Telephone ..................................................... 86 73 Insurance ..................................................... 84 70 ------ ------ Total ..................................................... $1,481 $1,343 ====== ======
19. Stock Options Under the Employee and Director Stock Option Plan, the incentive stock option plan (ISO) for officers and key employees and the nonstatutory stock option plan (Non-ISO) for directors provide for the issuance of up to 558,000 shares of common stock. The purchase price of the stock covered by each option shall be its fair market value, which must be equal to at least 100% of the book value of common stock, on the date such option is granted. All options are granted subject to an initial vesting period which ended on December 31, 1997 after which options become exercisable until May 26, 2003. The Company accounts for these options in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." The exercise price of each option equals the market price of the Company's stock on the date of grant, no compensation cost has been recognized for the plan. Had compensation cost for the plan been determined based on the fair value of the options at the grant dates consistent with the method described in SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's 1997 net income and earnings per share would have been reduced to the pro forma amounts indicated below. In 1996, no options were granted; thus, pro forma amounts are the same as reported.
Earnings per Share ----------------------- (In thousands except for per-share data) Net Income Basic Diluted - ------------------------------------------ ------------ ---------- ---------- 1997 - ---- As reported ........................... $1,402 $ 0.82 $ 0.71 Pro forma ............................. 1,392 0.81 0.70 1996 - ---- As reported ........................... $1,120 $ 0.65 $ 0.58 Pro forma ............................. 1,120 0.65 0.58
The fair value of each option is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for all grants in 1997: dividend yield of 0%, risk-free interest rate of 6%, and expected lives of five years. No volatility was assumed as it would not materially affect the fair value of the options. F-17 A summary of the status of the plan as of December 31, 1997 and 1996, and changes during the years then ended, is presented below.
1997 1996 ------------------------------ ----------------------------- Weighted Weighted Number Average Number Average of Shares Exercise Price of Shares Exercise Price ----------- ---------------- ----------- --------------- Outstanding at beginning of year ............ 421,218 $ 5.24 409,851 $ 5.36 Granted during the year ..................... 27,900 6.59 -- -- Expired during the year ..................... -- -- (927) -- Additional shares for which options are exercisable due to stock dividends ......... 20,799 -- 12,294 -- ------- ------- ------- ------ Outstanding at end of year .................. 469,917 $ 5.09 421,218 $ 5.24 ======= =======
The following information applies to options outstanding at December 31, 1997: Number outstanding .................................. 469,917 Range of exercise prices ............................ $4.82 - $6.59 Weighted-average exercise price ..................... $ 5.09 Weighted-average remaining contractual life ......... 6 years
20. Fair Value of Financial Instruments Fair value estimates, methods and assumptions are set forth below for the Company's financial instruments. Cash and Due from Banks, Interest-Bearing Deposits with Banks and Federal Funds Sold. The fair value of cash and due from banks, interest-bearing deposits with banks and federal funds sold approximates their relative book values at December 31, 1997, as these financial instruments have short maturities. Investment Securities. The fair values of investment securities are estimated based on bid prices published in financial newspapers or bid quotations received from securities dealers. Loans Receivable. Fair values are estimated for portfolios of loans receivable with similar financial characteristics. The fair values approximate carrying value for all loans with variable interest rates. The fair values of fixed rate loans are calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the risk inherent in the loan. The estimates of maturity are based on the Bank's historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of current economic and lending conditions, and the effects of estimated prepayments. Management has made estimates of fair value using 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 below would be indicative of the value negotiated in the actual sale. Accrued Interest Receivable. The fair value approximates the carrying value as this financial instrument has a short maturity. It is the Bank's policy to stop accruing interest on loans for which it is probable that the interest is not collectible. Therefore, the fair value of this financial instrument has been adjusted to reflect credit risk. Deposits. The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW accounts and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is 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 deposits compared to the cost of borrowing funds in the market. If that value were considered, the fair value of the Bank's net assets could increase. Borrowed Funds. The fair value approximates the carrying value as these financial instruments have short maturities, variable interest rates, or both. F-18 Accrued Interest Payable. The fair value approximates the book value as this financial instrument has a short maturity. The Company's off-balance sheet instruments consist of loan commitments. Fair values for loan commitments have not been presented as the future revenue derived from such financial instruments is not significant. 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 property 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. Summary A summary of the estimated fair values for the Company's significant financial instruments at December 31, 1997 and 1996 follows:
Estimate of December 31, 1997 Carrying Value Fair Value - -------------------------------------------- ---------------- ------------ Financial Assets Cash and cash equivalents ................. $ 10,659 $ 10,659 Securities available for sale ............. 42,864 42,864 Securities to be held to maturity ......... 1,962 1,958 Loans held for sale ....................... 508 511 Loans receivable, net ..................... 117,171 117,372 Accrued interest receivable ............... 1,109 1,109 Financial Liabilities Deposits .................................. 146,312 146,842 Accrued interest payable .................. 227 227 Borrowed funds ............................ 20,236 20,236 December 31, 1996 - --------------------------------------------- Financial Assets Cash and cash equivalents ................. $ 8,591 $ 8,591 Securities available for sale ............. 37,891 37,891 Securities to be held to maturity ......... 3,123 3,105 Loans held for sale ....................... 341 341 Loans receivable, net ..................... 103,979 104,240 Accrued interest receivable ............... 947 947 Financial Liabilities Deposits .................................. 126,704 127,394 Accrued interest payable .................. 160 160 Borrowed funds ............................ 18,991 18,991
F-19 21. Parent Company Financial Information The following is summarized financial statement information for Merrill Merchants Bancshares, Inc. as of December 31, 1997 and 1996 and for the years then ended: SUMMARIZED BALANCE SHEET INFORMATION
1997 1996 --------- ----------- ASSETS Cash and cash equivalents ............................................ $ 1 $ 27 Investment securities (fair value of $166,000 and $548,000 at December 31, 1997 and 1996, respectively) ........................... 166 548 Investment in Merrill Merchants Bank ................................. 14,041 13,154 Accrued income and other assets ...................................... 1 2 Deferred income tax benefit .......................................... 498 406 ------- ------- Total assets ...................................................... $14,707 $14,137 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Accrued expenses and other liabilities .............................. $ 545 $ 471 Long-term debt ...................................................... 2,895 3,695 Mandatory convertible debentures .................................... 300 300 ------- ------- Total liabilities ................................................. 3,740 4,466 ------- ------- Shareholders' equity Convertible cumulative preferred stock .............................. 20 20 Common stock ........................................................ 1,542 1,469 Capital surplus ..................................................... 7,754 7,331 Retained earnings ................................................... 1,647 861 Unrealized gain (loss) on securities available for sale ............. 4 (10) ------- ------- Total shareholders' equity ........................................ 10,967 9,671 ------- ------- Total liabilities and shareholders' equity ........................ $14,707 $14,137 ======= ======= SUMMARIZED STATEMENTS OF INCOME INFORMATION Dividends from bank subsidiary ....................................... $ 701 $ -- Interest income on investments ....................................... 12 36 ------- ------- Total income ...................................................... 713 36 ------- ------- Interest expense on borrowed funds ................................... 270 346 Operating expenses ................................................... 5 2 ------- ------- Total expenses .................................................... 275 348 ------- ------- Income (loss) before income tax benefit .............................. 438 (312) Income tax benefit ................................................... 91 96 ------- ------- Income (loss) before equity in undistributed net income of subsidiary 529 (216) Equity in undistributed net income of subsidiary ..................... 873 1,336 ------- ------- Net income ........................................................ $ 1,402 $ 1,120 ======= =======
F-20
1997 1996 --------- ------------- SUMMARIZED STATEMENTS OF CASH FLOWS INFORMATION Cash flows from operating activities Net income ....................................................... $1,402 $ 1,120 Adjustments to reconcile net income to net cash provided (used) by operating activities Deferred income tax benefit ...................................... (91) (96) Equity in undistributed net income of subsidiary ................. (873) (1,336) Decrease in accrued income and other assets ...................... 1 36 Increase in accrued expenses and other liabilities ............... 73 397 ------ ------- Net cash provided by operating activities ...................... 512 121 ------ ------- Cash flows from investing activities Proceeds from sale of investment securities ...................... 602 654 Purchase of investment securities ................................ (220) (370) ------ ------- Net cash provided by investing activities ...................... 382 284 ------ ------- Cash flows from financing activities Dividends paid on convertible cumulative preferred stock ......... (76) (74) Dividends paid on common stock ................................... (44) (1) Payment of long-term debt ........................................ (800) (305) ------ --------- Net cash used by financing activities .......................... (920) (380) ------ --------- Net increase (decrease) in cash and cash equivalents .............. (26) 25 Cash and cash equivalents, beginning of year ...................... 27 2 ------ --------- Cash and cash equivalents, end of year ............................ $ 1 $ 27 ====== =========
22. Subsequent Events Common Stock Dividends On February 28, 1998, the Company declared a 5% stock dividend on its common stock. Earnings per share for 1997 and 1996 have been restated to reflect this stock dividend. In 1998, the Company increased the number of authorized shares of common stock and declared a stock split effected in the form of an 800% stock dividend, with an effective date of July 20, 1998. All share and per share information presented in the accompanying consolidated financial statements has been retroactively adjusted for the stock split. Impact of Recently Issued Accounting Standards SFAS No. 130, "Reporting Comprehensive Income," is effective for years beginning after December 15, 1997. The Statement contains certain presentation and disclosure requirements concerning the components of comprehensive income and the changes therein. Adoption of the Statement will require certain changes in the format of the consolidated statement of changes in shareholders' equity. In 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities." The SOP requires costs of start-up activities to be expensed as incurred. The SOP is effective for years beginning after December 15, 1998. Adoption of the SOP is expected to have no effect on net income for 1999. F-21 MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION MARCH 31, 1998 (Unaudited) (In Thousands, Except Number of Shares and per Share Data) ASSETS Cash and due from banks .................................................................. $ 5,959 Interest-bearing deposits with banks ..................................................... 816 -------- Total cash and cash equivalents ....................................................... 6,775 Investment securities Available for sale ...................................................................... 43,839 To be held to maturity .................................................................. 1,740 Loans held for sale ...................................................................... 2,127 Loans receivable ......................................................................... 117,708 Less allowance for loan losses .......................................................... 1,799 -------- Net loans receivable .................................................................. 115,909 Properties and equipment, net ............................................................ 2,751 Deferred income tax benefit .............................................................. 128 Accrued income and other assets .......................................................... 2,484 -------- Total assets .......................................................................... $175,753 ======== LIABILITIES AND SHAREHOLDERS' EQUITY Demand deposits .......................................................................... $ 20,229 Savings and NOW deposits ................................................................. 64,214 Certificates of deposit .................................................................. 55,955 -------- Total deposits ........................................................................ 140,398 Securities sold under agreements to repurchase (term and demand) ......................... 13,554 Other borrowed funds ..................................................................... 5,856 Accrued expenses and other liabilities ................................................... 1,394 Long-term debt ........................................................................... 2,745 Mandatory convertible debentures ......................................................... 300 -------- Total liabilities ..................................................................... 164,247 -------- Shareholders' equity Convertible cumulative preferred stock, par value $1; authorized 50,000 shares, issued and outstanding 19,566 shares ............................................................... 20 Common stock, par value $1; authorized 4,000,000 shares, issued and outstanding 1,655,640 shares ........................................................................ 1,656 Capital surplus .......................................................................... 8,387 Retained earnings ........................................................................ 1,394 Unrealized gain on securities available for sale ......................................... 49 -------- Total shareholders' equity ............................................................ 11,506 -------- Total liabilities and shareholders' equity ............................................ $175,753 ========
The accompanying notes are an integral part of these consolidated financial statements. F-22 MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited) (In Thousands, Except Number of Shares and per Share Data)
1998 1997 ----------- ----------- Interest and dividend income Interest and fees on loans ........................................... $ 2,827 $ 2,497 Interest on investment securities .................................... 645 531 Dividends on investment securities ................................... 17 29 Interest on federal funds sold and interest-bearing deposits ......... 21 17 ------- ------- Total interest and dividend income ................................. 3,510 3,074 Interest expense Interest on deposits ................................................. 1,364 1,190 Interest on borrowed funds ........................................... 249 219 ------- ------- Total interest expense ............................................. 1,613 1,409 ------- ------- Net interest income ................................................ 1,897 1,665 Provision for loan losses ............................................. 90 75 ------- ------- Net interest income after provision for loan losses ................ 1,807 1,590 ------- ------- Other income Service charges on deposit accounts .................................. 120 118 Other service charges and fees ....................................... 115 111 Trust fees ........................................................... 151 119 Other ................................................................ 45 35 Net gain on sale of mortgage loans ................................... 50 21 ------- ------- Total other income ................................................. 481 404 ------- ------- Other expense Salaries and employee benefits ....................................... 852 760 Occupancy expense .................................................... 166 163 Equipment expense .................................................... 123 118 Data processing ...................................................... 160 149 Other ................................................................ 394 363 ------- ------- Total other expense ................................................ 1,695 1,553 ------- ------- Income before income taxes ............................................ 593 441 Income tax expense .................................................... 213 161 ------- ------- Net income ......................................................... $ 380 $ 280 ======= ======= Basic earnings per common share ....................................... $ 0.22 $ 0.16 ======= ======= Diluted earnings per common share ..................................... $ 0.19 $ 0.14 ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-23 MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited) (In Thousands, Except Number of Shares and per Share Data)
Unrealized Gain (Loss) Convertible on Securities Total Cumulative Common Capital Retained Available Shareholders' Preferred Stock Stock Surplus Earnings for Sale Equity ----------------- -------- --------- ---------- --------------- -------------- Balance at December 31, 1996 ................ $20 $1,469 $7,331 $ 861 $ (10) $ 9,671 Net income .................................. -- -- -- 280 -- 280 Change in unrealized gain (loss) on securities available for sale, net of deferred income taxes of $63................ -- -- -- -- (123) (123) --- ------ ------ ------ ------ ------- Total comprehensive income ................ -- -- -- 280 (123) 157 Convertible cumulative preferred stock dividends declared, $0.97 per share......... -- -- -- (19) -- (19) --- ------ ------ ------ ------ ------- Balance at March 31, 1997 ................... $20 $1,469 $7,331 $1,122 $ (133) $ 9,809 === ====== ====== ====== ====== ======= Balance at December 31, 1997 ................ $20 $1,542 $7,754 $1,647 $ 4 $10,967 Net income .................................. -- -- -- 380 -- 380 Change in unrealized gain (loss) on securities available for sale, net of deferred income taxes of $23................ -- -- -- -- 45 45 --- ------ ------ ------ ------ ------- Total comprehensive income .................. -- -- -- 380 45 425 Common stock options exercised .............. -- 35 145 -- -- 180 5% common stock dividend declared ........... -- 79 488 (568) -- (1) Common stock cash dividend declared, $.03 per share.............................. -- -- -- (46) -- (46) Convertible cumulative preferred stock dividends declared, $0.97 per share......... -- -- -- (19) -- (19) --- ------ ------ ------ ------ -------- Balance at March 31, 1998 ................... $20 $1,656 $8,387 $1,394 $ 49 $11,506 === ====== ====== ====== ====== ========
The accompanying notes are an integral part of these consolidated financial statements. F-24 MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 (Unaudited) (In Thousands)
1998 1997 ------------- ------------- Cash flows from operating activities Net income ....................................................................... $ 380 $ 280 Adjustments to reconcile net income to net cash provided by operating activities Depreciation .................................................................... 86 72 Amortization .................................................................... 34 30 Net accretion of discounts on investment securities ............................. (24) (14) Deferred income taxes ........................................................... 5 4 Originations of loans held for sale ............................................. (6,447) (1,915) Proceeds from sale of loans held for sale ....................................... 4,839 2,181 (Increase) decrease in accrued income and other assets .......................... (12) 22 Increase in accrued expenses and other liabilities .............................. 265 205 Decrease in deferred loan fees, net ............................................. (5) (4) Provision for loan losses ....................................................... 90 75 Provision for losses on other real estate owned ................................. 5 -- Net gain on sale of mortgage loans .............................................. (50) (21) Net loss on property and equipment .............................................. 1 9 --------- --------- Net cash (used) provided by operating activities .............................. (833) 924 --------- --------- Cash flows from investing activities Net (increase) decrease in loans to customers .................................... 1,177 (2,458) Acquisition of premises and equipment ............................................ (32) (356) Purchase of investment securities available for sale ............................. (4,614) (6,211) Proceeds from sales and maturities of investment securities ...................... Sales and maturities of available for sale securities ........................... 3,739 7,279 Maturities of held to maturity securities ....................................... 222 253 Proceeds from sale of other real estate owned .................................... 38 -- --------- --------- Net cash provided (used) in investing activities .............................. 530 (1,493) --------- --------- Cash flows from financing activities Net decrease in demand, savings and NOW deposits ................................. (5,088) (933) Net increase (decrease) in certificates of deposit ............................... (826) 1,085 Net increase in securities sold under agreement to repurchase .................... 1,657 104 Net increase in other borrowed funds ............................................. 712 3,168 Payment of long-term debt ........................................................ (150) -- Dividends paid on convertible cumulative preferred stock and common stock ........ (66) (19) Proceeds from stock issuance ..................................................... 180 -- --------- --------- Net cash (used) provided by financing activities .............................. (3,581) 3,405 --------- --------- Net (decrease) increase in cash and cash equivalents .............................. (3,884) 2,836 Cash and cash equivalents, beginning of period .................................... 10,659 8,591 --------- --------- Cash and cash equivalents, end of period .......................................... $ 6,775 $11,427 ========= ========= Supplemental disclosures of cash flow information Cash paid for interest ........................................................... $ 1,602 $ 1,412 Transfers to other real estate owned ............................................. -- 28 Income tax paid .................................................................. 71 56
The accompanying notes are an integral part of these consolidated financial statements. F-25 MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARY Notes to Condensed Unaudited Consolidated Financial Statements March 31, 1998 and 1997 1. Financial Statement Presentation The accompanying consolidated financial statements include the accounts of Merrill Merchants Bancshares, Inc. and its wholly-owned subsidiary, Merrill Merchants Bank, a state-chartered bank. All intercompany accounts and transactions have been eliminated in the consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (consisting of only normal recurring adjustments) to present fairly the Company's consolidated financial position as of March 31, 1998, and the consolidated results of their operations and their consolidated cash flows for the three months ended March 31, 1998 and 1997. The results of operations for the three months ended March 31, 1998 are not necessarily indicative of the results to be expected for the full year. 2. Impact of Recently Issued Accounting Standards The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," in 1998. The Statement contains certain presentation and disclosure requirements concerning the components of comprehensive income and the changes therein. The consolidated statement of changes in shareholders' equity has been presented in accordance with the requirements of the Statement. The statement requires comprehensive income to be reported for all periods presented. Comprehensive income includes both net income and other comprehensive income. Other comprehensive income consists of the change in unrealized gains and losses on securities available for sale. The Company has presented earnings per share data in accordance with SFAS No. 128, "Earnings per Share." The Statement requires publicly traded entities to present basic and diluted earnings per common share. In 1998, the American Institute of Certified Public Accountants issued Statement of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities." The SOP requires costs of start-up activities to be expensed as incurred. The SOP is effective for years beginning after December 15, 1998. Adoption of the SOP is expected to have no effect on net income for 1999. 3. Stock Options A summary of the status of the Employee and Director Stock Option Plan as of March 31, 1998, and changes during the three months then ended, is presented below.
Weighted Number Average of Shares Exercise Price ----------- --------------- Outstanding at beginning of period ............................. 469,917 $ 5.09 Granted during the period ...................................... 81,900 6.84 Exercised during the period .................................... (34,848) 5.16 Additional shares for which options are exercisable due to stock dividends ..................................................... 23,058 -- ------- ------- Outstanding at end of period ................................... 540,027 $ 5.15 =======
4. Common Stock Dividends On February 28, 1998, the Company declared a 5% stock dividend on its common stock. Earnings per share have been restated to reflect this stock dividend. In 1998, the Company increased the number of authorized shares of common stock and declared a stock split effected in the form of an 800% stock dividend, with an effective date of July 20, 1998. All share and per share information presented in the accompanying consolidated financial statements has been retroactively adjusted for the stock split. F-26 5. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share for the three months then ended (in thousands, except for number of shares and per-share data):
1998 1997 ------------- ------------- Basic earnings per share Net income, as reported ................................................. $ 380 $ 280 Preferred stock dividends declared ...................................... (19) (19) ---------- ---------- Income available to common shareholders ................................ $ 361 $ 261 ========== ========== Weighted-average shares outstanding ..................................... 1,641,969 1,619,226 ========== ========== Basic earnings per share ................................................ $ 0.22 $ 0.16 ========== ========== Diluted earnings per share Net income, as reported ................................................. $ 380 $ 280 Interest on mandatory convertible debentures, net of tax ................ 5 5 ---------- ---------- Income available to common shareholders ................................ $ 385 $ 285 ========== ========== Weighted-average shares outstanding ..................................... 1,641,969 1,619,226 Effect of stock options, net of assumed treasury stock purchases ........ 131,706 95,778 Effect of convertible preferred stock ................................... 66,654 66,654 Effect of mandatory convertible debentures .............................. 199,935 199,935 ---------- ---------- Adjusted weighted-average shares outstanding ........................... 2,040,264 1,981,593 ========== ========== Diluted earnings per share .............................................. $ 0.19 $ 0.14 ========== ==========
F-27 ============================================================================== No dealer, salesperson or other person has been authorized to give any information or make any representations not contained in this Prospectus and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Underwriter. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy to any person in any jurisdiction in which such offer or solicitation is unlawful or to any person to whom it is unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to the date hereof. ---------------------------------- TABLE OF CONTENTS
Page Available Information .................... ii Prospectus Summary ....................... 1 The Company and the Bank ................. 1 Risk Factors ............................. 8 Use of Proceeds .......................... 14 Market for Common Stock .................. 14 Dividends ................................ 15 Capitalization ........................... 16 Dilution ................................. 17 Selected Consolidated Financial Data ..... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations ............................ 20 Business ................................. 35 Management ............................... 43 Certain Transactions ..................... 51 Security Ownership of Certain Beneficial Owners and Management ................. 52 Description of Securities ................ 55 Supervision and Regulation ............... 59 Underwriting ............................. 65 Shares Eligible for Future Sale .......... 67 Legal Matters ............................ 68 Experts .................................. 68 Financial Statements ..................... F-1
Until , 1998 (25 days after the date of this Prospectus), all DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 600,000 Shares [Logo] Merrill Merchants Bancshares, Inc. Common Stock ---------------------------------- PROSPECTUS ---------------------------------- Advest, Inc. , 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Amended and Restated Articles of Incorporation of the Company and the Amended and Restated Bylaws of the Company require it to indemnify its directors and officers against liabilities, fines, penalties, settlements, claims and reasonable expenses incurred by them in connection with any proceeding to which they may be made a party by reason of their service in those capacities to the fullest extent permitted by the MBCA. The MBCA permits a corporation to indemnify its present and former directors and officers if ordered to do so by a court or after a determination by its independent counsel, shareholders or a majority of its disinterested directors that the person to be indemnified acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation. ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The estimated expenses, other than underwriting discounts and commissions, in connection with the Offering are as follows: SEC Registration Fee* ..................... $ 3,000 NASD Filing Fee* .......................... 1,500 Nasdaq Fees* .............................. 48,750 Blue Sky Fees and Expenses* ............... 7,500 Printing Expenses* ........................ 70,000 Legal Fees and Expenses* .................. 225,000 Auditing and Accounting Service* .......... 50,000 Transfer Agent Fees and Expenses* ......... 3,000 Miscellaneous* ............................ 66,250 -------- Total .................................. $475,000 ========
*Estimated ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES None. ITEM 27. EXHIBITS 1. Form of Underwriting Agreement. 3.1 Articles of Incorporation of the Company presently in effect, as amended to date. 3.2 Form of Restated Articles of Incorporation to be effective upon the closing of the Offering. 3.3 By-laws of the Company presently in effect. 3.4 Form of Restated By-laws of the Company to be effective upon the closing of the Offering. 4.1 Form of Common Stock Certificate. 5. Opinion of Hutchins, Wheeler & Dittmar, re: legality. 10.1 Loan Agreements between the Company and M&I Bank. 10.2 Operating Agreement between the Company and M&M Consulting Limited Liability Company. 10.3* Services Agreements between the Company and M&M Consulting Limited Liability Company. 10.4*+ Data Processing Services Agreement between the Company and M&I Data Services, a Division of Marshall & Ilsley Corporation. 10.5* Financial Services Agreement with Financial Institutions Service Corporation. 10.6 Life Insurance Endorsement Method Split Dollar Plan Agreement between Merrill Merchants Bank and Edwin Clift. 10.7 Form of Unfunded Deferred Compensation Agreement. 10.8 Executive Supplemental Retirement Plan. 10.9 Form of Mandatory Convertible Debentures. 10.10* Correspondent Trust Services Agreement with Northern Trust Company. 10.11 Stock Option Plan, as amended.
II-1 10.12 Form of Stock Option Agreement. 10.13 1998 Directors' Deferred Compensation Plan. 10.14+ Stock Option Plan of the Company to be effective upon the closing of the Offering. 21. Subsidiaries of the Company. 23.1 + Consent of Berry Dunn McNeil & Parker. 23.2 Consent of Hutchins, Wheeler & Dittmar (included in Exhibit 5). 24. Power of Attorney (contained in signature section of Registration Statement). 27 Financial Data Schedule
* Confidential treatment requested + Filed as part of this Amendment No. 2 ITEM 28. UNDERTAKINGS (a) The undersigned Company hereby undertakes to provide to the Underwriter at the Closing Date specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (c) The undersigned Company hereby undertakes to, for purposes of determining any liability under the Securities Act, treat the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company under Rule 424(b)(1), or (4) or 497(h) under the Securities Act as part of this registration statement as of the time the Commission declared it effective. (d) The undersigned Company hereby undertakes to, for purposes of determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities. II-2 SIGNATURES IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS OF FILING ON FORM SB-2 AND AUTHORIZED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, IN THE CITY OF BANGOR, STATE OF MAINE ON JULY 31, 1998. Merrill Merchants Bancshares, Inc. /s/ Deborah A. Jordan --------------------------------------- By Deborah A. Jordan Treasurer Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed by the following person in the capacities and on the dates indicated: Name Capacity Date - -------------------------------------- ------------------------------------- -------------- * Chief Executive Officer, President, July 31, 1998 - ------------------------------------ Director (principal executive Edwin N. Clift officer) /s/ Deborah A. Jordan Treasurer (principal financial and July 31, 1998 - ------------------------------------ accounting officer) Deborah A. Jordan * Chairman, Director July 31, 1998 - ------------------------------------ William C. Bullock, Jr. * Director July 31, 1998 - ------------------------------------ Joseph H. Cyr * Director, Secretary July 31, 1998 - ------------------------------------ Perry B. Hansen * Director July 31, 1998 - ------------------------------------ Leonard E. Minsky * Director July 31, 1998 - ------------------------------------ Joseph Sewall * Director July 31, 1998 - ------------------------------------ Dennis L. Shubert, M.D. * Director July 31, 1998 - ------------------------------------ Susan B. Singer * Director July 31, 1998 - ------------------------------------ Harold S. Wright *By: /s/ Deborah A. Jordan - ------------------------------------ Deborah A. Jordan Attorney-in-Fact
II-3 EX-10.4 2 ADDENDUM TO DATA PROCESSING SERVICES AGREEMENT EXHIBIT 10.4 [Confidential portions of this Exhibit have been omitted and filed separately with the Commission. Omitted terms are indicated by ***.] ADDENDUM TO DATA PROCESSING SERVICES AGREEMENT THIS ADDENDUM,, to the Data Processing Services Agreement (the "Agreement") dated May 8, 1992 is made as of this 30th day of May 1995, by and between the undersigned parties, does hereby alter, amend, and modify the Agreement and supersedes and takes precedence over any conflicting provisions contained in the Agreement. FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, the undersigned parties agree as follows Section 2 (d) of the Agreement is deleted in its entirety and is hereby replaced with the following: "d. Terms of Payment. Customer shall pay the Minimum Monthly Fee on the first day of the month in which the Services are to be performed. Any other amounts due hereunder shall be paid within thirty (30) days of invoice, unless otherwise provided herein. To effect the payment, Customer hereby authorizes M&I to initiate debit entries from and, if necessary, initiate credit entries and adjustments to Customer's account at the depository designated in the ACH Authorization Agreement. Debit entries for the Minimum Monthly Fee will be made on the first day of each month for which Services will be rendered under the Agreement. In the event that a payment day is a nonbusiness day, entries will be made on the first preceding business day. Customer shall authorize, on the attached ACH Authorization Agreement, debits from and credits to its account for payment for Services received under the Agreement. The Customer shall also pay any collection fees and reasonable attorneys' fees incurred by M&I in collecting payment of the charges and any other amounts for which Customer is liable under the terms and conditions of this Agreement." All terms and conditions set forth in the underlying Agreement shall remain in full force and effect under this Amendment. IN WITNESS WHEREOF, the undersigned parties have duly executed this Addendum in a manner appropriate to each. M&I DATA SERVICES, A DIVISION OF THE MARSHALL & ILSLEY CORPORATION ("M&I") 4900 West Brown Deer Road Brown Deer, WI 53223-0528 By: /s/ Patrick C. Foy ----------------------------------------- Name: Patrick C. Foy Title: President, Outsourcing Business Group MERRILL MERCHANTS BANCSHARES, INC. ("Customer") 201 Main Street Bangor, ME 04402 By: /s/ R.C. Williams, Jr. ----------------------------------------- Name: R.C. Williams, Jr. Title: SVP Operations - 2 - AUTHORIZATION AGREEMENT The undersigned ("Customer") hereby authorizes M&I Data Services, a division of the Marshall & Ilsley Corporation ("M&I") to initiate debit entries and to initiate, if necessary, credit entries and adjustments for any excess debit entries or debit entries made in error, to Customer's account indicated below and the depository named below, to debit and/or credit the same such account. This authority is to remain in full force and effect for the period coinciding with the term (and any renewals thereof) of the Data Processing Services Agreement made the 8th day of May 1992 and any addenda thereto (the "Agreement"), pursuant to the terms and conditions specified in the Agreement. DEPOSITORY NAME: _______________________________________________________ ADDRESS: _______________________________________________________ CITY/STATE/ZIP: _______________________________________________________ TELEPHONE NUMBER: _______________________________________________________ ROUTING TRANSIT NUMBER: _______________________________________________________ ACCOUNT NUMBER: _______________________________________________________ M&I DATA SERVICES, A DIVISION OF THE MARSHALL & ILSLEY CORPORATION ("M&I") 4900 West Brown Deer Road Brown Deer, WI 53223-0528 By: /s/ Patrick C. Foy ----------------------------------------- Name: Patrick C. Foy Title: President, Outsourcing Business Group MERRILL MERCHANTS BANCSHARES, INC. ("Customer") 201 Main Street - 3 - Bangor, ME 04402 By: /s/ R.C. Williams, Jr. ----------------------------------------- Name: R.C. Williams, Jr. Title: SVP Operations - 4 - ADDENDUM TO DATA PROCESSING SERVICES AGREEMENT THIS ADDENDUM, to the Data Processing Services Agreement (the "Agreement") dated May 8, 1992, is made as of this 30th day of June 1992 by and between the undersigned parties, does hereby alter, amend, and modify the Agreement and supersedes and takes precedence over any conflicting provisions contained in the Agreement. FOR GOOD AND VALUABLE CONSIDERATION,, the receipt and sufficiency of which are hereby acknowledged, the undersigned parties agree as follows: The reference to "July 1, 1992" in Section 27(k) of the Agreement is deleted and replaced with "October 1, 1992." IN WITNESS WHEREOF, the undersigned parties have duly executed this Addendum in a manner appropriate to each. M&I DATA SERVICES, INC. ("M&I") By: /s/ Michael V. Ruane ----------------------------------------- Michael V. Ruane, Vice Pres. MERRILL MERCHANTS BANCSHARES, INC. ("Customer") By: /s/ Edwin N. Clift ----------------------------------------- Edwin N. Clift, President & CEO - 5 - DATA PROCESSING SERVICES AGREEMENT THIS DATA PROCESSING SERVICES AGREEMENT is made as of this 8th day of May 1992 (the "Agreement") by and between M&I Data Services, Inc., a Wisconsin corporation ("M&I") and Merrill Merchants Bancshares, Inc., a Maine corporation, together with its subsidiaries and affiliates (collectively referred to as the "Customer"). RECITALS WHEREAS, M&I provides data processing services to customers located across the country; and WHEREAS, M&I desires to provide data processing services to Customer, and Customer desires to have M&I provide it with such services. NOW, THEREFORE, in consideration of the recitals and for the good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Services. M&I shall provide Customer with the data processing services requested by Customer utilizing the version of the banking system software made available from time to time by M&I through the M&I Service Bureau (the "Services"). A further description of the Services is attached as Exhibit A, as modified by the User Manuals, copies of which will be provided, or made available, to Customer. Future affiliates and subsidiaries will be added as requested by Customer and agreed to by M&I from time to time. Customer agrees to principally use M&I for Customer's data processing. The Services which will be provided under this Agreement include, but are not limited to, Deposit Accounting, Loan Accounting, Financial Control, CIF, PCTeller, ATM, EFT (the "Core Services"), and others agreed upon. Unless otherwise agreed in writing between M&I and Customer, and subject to the other provisions of the Agreement, M&I shall make the On-line Services available to Customer, subject to normal downtime and maintenance, at times indicated on the M&I On- line Availability Schedule, as modified from time to time. 2. Fees and Taxes. Customer agrees to pay for the Services received hereunder as follows: a. Amount of Fees. Commencing on the Conversion Date (as defined in Section 3) and on the first day of each month thereafter through the end of the term of this Agreement, Customer shall pay M&I a minimum monthly fee not less than $*** per month, (the "Minimum Monthly Fee"). The Minimum Monthly Fee will be adjusted: (a) as of the date M&I makes effective a price increase; and (b) on the first day of any month after: (i) the - 6 - * [Confidential portions of this Exhibit have been omitted and filed separately with the Commission. Omitted terms are indicated by ***.] Additional Use Fee (as defined below) is greater than *** percent (***%) of the Minimum Monthly Fee; or (ii) Customer expands the Services used hereunder to include an additional application. The Minimum Monthly Fee may not be decreased. Adjustments to the Minimum Monthly Fee shall be based on the Services, transactions, and volumes used by the Customer during the Adjustment Period (as defined below), or the period from commencement of services to the date of the adjustment during the initial three (3) months of the Agreement. The Minimum Monthly Fee shall not be more than *** percent (***%) of the average monthly charges during the Adjustment Period. Customer shall also pay M&I an additional use fee each month where M&I charges for the Services actually used by Customer during the applicable month are greater than the Minimum Monthly Fee. M&I shall compute the Customer's actual usage charges based on M&I's then-current standard published prices, and any amounts due M&I in excess of the Minimum Monthly Fee shall be paid by Customer (the "Additional Use Fee"). Customer also agrees to pay all communication costs, telecommunication charges, printline charges and other output costs, start-up fees, pass-through charges, out-of-pocket expenses, conversion expenses and fees, workshop fees, training fees, late fees or charges billed as miscellaneous on Customer's invoice (the "Miscellaneous Fees"). The M&I standard published prices as of the date of this Agreement are set forth on the fee schedule attached as Exhibit B. b. Discount. M&I shall provide Customer with a *** percent (***%) discount on Services excluding communication costs, telecommunication charges, printline charges and other output costs, start-up fees, pass-through charges, out-of-pocket expenses, conversion expenses and fees, workshop fees, training fees, late fees, or charges billed as Miscellaneous on the Customer's invoice. The discount shall be in effect for the term of the Agreement. c. Additional Charges. In addition to the charges described above or set forth in Exhibit B. Customer agrees to pay for any manufacturers, sales, use, excise, personal property, or any other tax or charge, or duty or assessment levied or assessed by any governmental authority upon or as a result of the execution or performance of any service pursuant to this Agreement or materials furnished with respect to the Agreement, except those taxes based on M&I's net income. d. Terms of Payment. Customer shall pay the Minimum Monthly Fee on the first day of the month in which the Services are to be performed, and shall pay the Additional Use Fee and any Miscellaneous Fees within ten (10) days of the date such amounts are Invoiced to Customer. Any other amounts due hereunder shall be paid within thirty (30) days of invoice, unless otherwise provided herein. The Customer shall also pay any collection fees and reasonable attorney's fees incurred by M&I in collecting payment of the charges and any other amounts for which Customer is liable under the terms and conditions of this Agreement. - 7 - * [Confidential portions of this Exhibit have been omitted and filed separately with the Commission.] e. Modification of Terms and Pricing. If Customer is in default and M&I elects to continue to perform the Services, or if the Customer's tangible capital or reserve requirements computed in accordance with applicable federal regulations for itself or any of its affiliates receiving Services hereunder are less than the required regulatory minimums, Customer agrees to pay M&I all unamortized conversion expenses in advance of M&I performing any additional Services. In addition, Customer agrees that all charges for Services shall be computed using M&I's then-current standard published prices, without application of any credits, other than remote site credits (printline and transaction), paid in advance as determined by M&I. At M&I's option, such Services shall be provided on a month-to-month basis. 3. Term. a. Initial Term. This Agreement shall be effective upon execution by both parties, and both parties will promptly undertake the conversion activities necessary to process Customer's data. M&I currently anticipates, subject to Customer's timely and satisfactory completion of its responsibilities described in the M&I Conversion Manual and in the Conversion Schedule to be established by M&I, and agreed to by Customer, that all conversion activities will be completed on _______________________ (the "Conversion Date"). The term of this Agreement shall continue for a period of eighty-four (84) months from the Conversion Date. b. Renewal Obligations. During any renewal term, or for any Services provided after the end of the initial term, whether or not the Agreement is renewed, Customer agrees that the terms of this Agreement shall continue to apply, except that all charges for Services shall be computed using M&I's then-current standard published prices, without application of any credits other than remote site credits (printline and transaction), paid in advance as determined by M&I. At M&I's option, such Services shall be provided by M&I on a month-to-month basis. 4. Affiliates. All processing for Customer and Customer's subsidiaries and affiliates which M&I does shall be included as part of the Services provided under this Agreement and shall be done in accordance with the terms and conditions of this Agreement. Customer agrees that it is responsible for assuring compliance with the Agreement by its affiliates and subsidiaries. Customer agrees to be responsible for the submission of its affiliates, data to M&I for processing and for the transmission to Customer's affiliates of such data processed by and received from M&I. Customer agrees to pay any and all fees owed under this Agreement for Services hereunder. 5. Confidentiality. Both parties will, to the extent and in accordance with their policies used to protect their own information of similar Importance, use their best efforts to refrain from and prevent the use of or disclosure of any confidential information of the other party, disclosed or obtained by such party while performing its obligations under this - 8 - Agreement, except when such use or disclosure is for the purpose of providing the Services. Neither party will have an obligation of confidentiality with regard to any information insofar as the same: (1) was known to such party prior to disclosure; (2) is or becomes publicly available other than as a result of a breach of this Agreement; or (3) is disclosed to such party by a third party not subject to an obligation of confidentiality. Nor shall the obligation of confidentiality occur where disclosure is made pursuant to: (1) any law of the United States or any state thereof; (2) the order of any court or governmental agency; or (3) the rules and regulations of any governmental agency. 6. Programming. M&I reserves the right to determine the programming (whether hardware or software) utilized with the equipment used in fulfilling its duties under this Agreement. All programs (including ideas and know-how and concepts) developed by M&I are and remain its sole property. 7. Equipment. Customer shall obtain and maintain at its own expense such data processing and communications equipment as may be necessary or appropriate to facilitate the proper use and receipt of the Services. Customer shall pay all installation, monthly, and other charges relating to the installation and use of communications lines in connection with the Services. M&I shall not be responsible for the reliability monitoring or continued availability of the communications lines used by Customer in accessing the Services. 8. Supplies. Customer shall pay for all supplies used in connection with the Services. All forms, supplies, or materials used in processing Customer's items and input data shall meet M&I's specifications. 9. Systems Modification; Amendment of Services. M&I may modify, amend, enhance, update, or provide the appropriate replacement for any of the Services, the software used to provide the Services, or any element of its systems at any time to: (1) improve the Services or (2) facilitate the continued economic provisions of the Service, M&I may, at any time, withdraw any of the Services upon providing one hundred eighty (180) days' prior written notice to Customer, M&I may also terminate any of the Services immediately upon any regulatory, legislative, or judicial determination that providing such Services is inconsistent with applicable law or regulation or upon imposition by any such authority of restrictions or conditions which would detract from the economic or other benefits to M&I or Customer to any element of the Services. 10. Disaster Recovery. M&I maintains, and shall continue to maintain throughout the term of this Agreement, off-site disaster recovery capabilities which permit M&I to recover from a disaster and continue providing Services to Customers within a commercially reasonable period. An executive summary of the current disaster recovery plan, which may change from time to time, is available upon request from M&I at no charge. M&I shall test the operation and effectiveness of its disaster recovery plan at least annually. M&I maintains, - 9 - and shall continue to maintain throughout the term of this Agreement, a backup power supply system to guard against electrical outages. 11. Events of Default. It shall be an Event of Default on the part of the Customer if: (1) Customer is insolvent, or a receiver or conservator shall be appointed with respect to the Customer; or (2) Customer shall fail to pay any sum due M&I within the prescribed time; or (3) if the Customer shall fail to perform any of its other covenants or obligations under this Agreement. It shall be an Event of Default on the part of M&I If M&I shall fail to perform any of its obligations under this Agreement where the failure of M&I to perform has a material adverse Impact on Customer and is material to the provision of the Services, except for those obligations under Section 20 of this Agreement as to which the Agreement provides specific remedies for M&I's failure to perform. The defaulting party shall have ten (10) days from the date of receipt of notice from the nondefaulting party of nonpayment or nonperformance to cure such an Event of Default, before the nondefaulting party may exercise any remedies it may have as a result of the Event of Default. 12. Remedies Upon Default; Limitation of Liabilities. If an Event of Default occurs on the part of the Customer, and is not cured within the ten (10) day period prescribed in Section 11, M&I may: (1) terminate this Agreement; (2) terminate access to its central processing unit by the Customer; and (3) declare all amounts payable under this Agreement to be immediately due payable and file suit for or otherwise obtain payment from the Customer of any fees or other sums due it pursuant to this Agreement, plus any actual damages to its equipment or systems caused by the Customer's actions, failures to act, equipment, systems or communication facilities, plus any profits lost because of the Customer's default. If an Event of Default occurs on the part of M&I, and is not cured within the ten (10) day period prescribed in Section 11, the Customer may only: (1) terminate this Agreement and (2) file suit or otherwise obtain payment of an aggregate amount of up to the greater of (a) *** dollars ($***) or (b) the amount of fees paid by the Customer to M&I hereunder during the three (3) months immediately preceding the Event of Default. Either party may also seek specific performance, including injunctive relief, for a breach of Section 5 of this Agreement. M&I and the Customer agree that these damage provisions are reasonable in light of all present predictable circumstances (including expectable actual damages in that the fees to be charged by M&I hereunder do not include amounts sufficient to insure against greater claims). M&I and Customer expressly waive all claims for additional, incidental, consequential, compensatory, or punitive damages and agree that the remedies set forth in this Agreement shall be the sole and exclusive remedies of the parties. No lawsuit or other action may be brought by either party hereto or on any claim or controversy based upon or arising in any way out of this Agreement after one (1) year from the date of the occurrence allegedly giving rise to the action, except for nonpayment of sums due to M&I by Customer. M&I agrees that except in the case of an Event of Default relating to a breach by the Customer of its confidentiality obligations under Section 5 of this Agreement, M&I will not exercise its remedy to terminate Customer's access to the M&I central processing unit so long as: (a) Customer is current in the payment of all amounts due M&I as reflected on M&I's last invoice - 10 - * [Confidential portions of this Exhibit have been omitted and filed separately with the Commission. Omitted terms are indicated by ***.] to Customer; and (b) only exercise such remedy after providing Customer with sixty (60) days' prior written notice. 13. Termination. a. End of Initial Term. This Agreement shall automatically be extended at the end of the initial eighty-four (84) month term for an additional eighteen (18) month renewal term, unless the Customer gives M&I at least one hundred eighty (180) days' prior written notice of its intent to terminate, which notice may be given during the initial term on the Agreement. b. Renewal Term. During the renewal term, this Agreement shall be automatically extended for an additional one (1) month on each monthly anniversary date so that the term shall always be not less than one (1) month less than eighteen (18) months, unless either party gives written notice to the other party of notice to terminate, in which event the automatic monthly renewals will end and the Agreement will terminate at the end of the unexpired portion of the term in existence on the date notice to terminate is given. c. Termination Upon Default. This Agreement may also terminate upon an Event of Default and failure to cure beyond applicable cure periods at the option of the nondefaulting party as set forth in Section 12 hereof. d. Termination by Customer. Customer may terminate this Agreement at any time, and without cause, by giving M&I at least one hundred eighty (180) days' prior written notice and paying M&I the then-applicable buyout amount set forth in Section 21. 14. Regulatory Assurances. M&I and Customer acknowledge and agree that the performance of these Services will be subject to regulation and examination by Customer's regulatory agencies to the same extent as if such Services were being performed by Customer, Upon request, M&I agrees to provide any appropriate assurances to such agency and agrees to subject itself to any required examination or regulation. Customer agrees to reimburse M&I for reasonable costs actually incurred due to any such examination or regulation that is performed solely for the purpose of examining data processing services used by Customer. a. Notice Requirements. The Customer shall be responsible for complying with all regulatory notice provisions to any applicable governmental agency, which shall include providing timely and adequate notice to the Chief Examiner of the Federal Home Loan Bank Board, the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or their successors, as applicable (collectively, the "Federal Agency"), as of the effective date of Services under this Agreement, identifying those records to which this Agreement shall apply and the location at which such Services are to be performed. - 11 - b. Examination of Records. The parties agree that the records maintained and produced under this Agreement shall, at all times, be available for examination and audit by governmental agencies having jurisdiction over the Customer's business including (without limitation) the Federal Agency. The Director of Examinations of the Federal Agency or his designated representative shall have the right to ask for and to receive directly from M&I any reports, summaries, or information contained in or derived from data in the possession of M&I related to the Customer. M&I shall notify Customer as soon as possible of any formal request by an authorized governmental agency to examine Customer's records maintained by M&I, if M&I is permitted to make such a disclosure to Customer under applicable law or regulations. Customer agrees that M&I is authorized to provide all such described records when formally required to do so by this authorized governmental agency. c. Fidelity Bonds. At Customer's request, M&I shall obtain, at Customer's expense, fidelity bond coverage for M&I and its employees as such coverage is required by any governmental or regulatory agency. d. Notice of Changes. Customer shall give to the Director of Examinations of the Federal Agency at least thirty (30) days' notice of the termination of this Agreement or of any material changes in the Services to be provided hereunder. e. Insurance. Throughout the term of this Agreement, M&I shall maintain insurance coverage (or shall be self-insured) for losses from fire, disaster, and other causes contributing to interruption of the Services. The proceeds of such insurance shall be payable to M&I. Nothing in this Agreement shall be construed as to permit Customer to receive any of such proceeds, or to be named as an additional loss payee under any insurance policy. f. Financial Information. Customer agrees to provide M&I with a copy of the Call Report filed with the Federal Agency simultaneously with its filing with the Federal Agency, and to provide such additional financial information as to its creditors or others as M&I may reasonably request. 15. Transportation and/or Transmission of Data. The responsibility and expense for transportation and/or transmission of and risk of loss of data and media to and from M&I's datacenters shall be borne by Customer. M&I will notify Customer of the time by which Customer's data and media must be delivered to M&I for processing for M&I to provide Customer's processed data within the time period indicated by M&I. 16. Responsibility. a. General. M&I agrees to perform the Services in a commercially reasonable manner which is similar to the services provided to other M&I customers, and no other or higher degree of care. Except as otherwise described herein, M&I assumes no other - 12 - obligation as to performance or quality of the Services provided, all other risks of error being expressly assumed by Customer. M&I shall not be responsible for loss or damage due to delays in processing or in the delivery of processed data as a result of any of the causes excused by Section 19 hereof. M&I WILL IN NO EVENT BE LIABLE FOR ANY INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES INCURRED BY CUSTOMER INCLUDING BUT NOT LIMITED TO, LOST PROFITS OR BUSINESS OPERATION LOSS, REGARDLESS OF WHETHER M&I WAS ADVISED OF THE POSSIBLE OCCURRENCE OF SUCH DAMAGES, b. Reliance on Data Supplied. M&I will process items and data and perform those Services described in this Agreement on the basis of Information furnished by Customer. M&I shall be entitled to rely upon any such data, information, or instructions as provided by Customer. If any error results from incorrect input supplied by Customer, Customer shall be responsible for discovering and reporting such error and supplying the data necessary to correct such error to M&I for processing at the earliest possible time. Customer will indemnify and hold M&I harmless from any cost, claim, damage, or liability (including attorney's fees) whatsoever arising out of such data, information or instructions, or any inaccuracy or inadequacy therein. Customer assumes all risk of loss, delay, and miscommunication in the transportation or transmission by electronic means of data and information from any terminal or remote unit unless the same is caused by or attributable to any act or omission on M&I's part, which act or omission does not meet the standard of care in Section 16(a), or was caused by or attributable to any gross negligence or willful failure on M&I's part to comply with its obligations under this Agreement, c. Data Backup. Customer shall maintain adequate records including microfilm images of items being transported to M&I, or at least ten (10) business days' backup on magnetic tape or other electronic media where transactions are being transmitted to M&I, from which reconstruction of lost or damaged items or data can be made. Customer assumes all responsibility and liability for any loss or damage resulting from failure to maintain such records. d. Audit. M&I shall cause a third-party review of its data processing systems and Services to be conducted annually by its independent auditors. M&I shall provide Customer upon request, at its then-current charge, one copy of the report resulting from such review. e. Regulatory Compliance. Customer is responsible for determining that the Services performed in its behalf, any forms which are used with its customers, and all records it retains comply with all applicable laws. Should Customer need information from the Services M&I provides in order to comply with applicable Federal or State laws and regulations, Customer's sole remedy, and M&I's sole obligation shall be for M&I to provide the ability to process the information requested from the Customer as promptly as is commercially practicable. - 13 - f. Balancing and Controls. On a daily basis, Customer shall review all input and output, controls reports, and documentation, to ensure the integrity of data processed by M&I. In addition, Customer shall, on a daily basis, check exception reports to verify that all file maintenance entries and nondollar transactions were correctly entered. Customer is responsible for initiating timely remedial action to correct any improperly processed data which these reviews would disclose. g. Service Deficiencies. If Customer is aware that a defect exists in a Service, Customer shall be responsible for making whatever appropriate adjustments may thereafter be necessary until M&I corrects the defect and, if requested by Customer,' M&I will, at M&I's expense, assist Customer in making such corrections through the most cost-effective means, whether manual, by system reruns, or program modifications. M&I will, where reasonable, make every effort to correct any known material defect as soon as commercially reasonable at M&I's expense, 17. Ownership of Data. Customer is the owner of all of its data supplied by Customer to M&I for processing hereunder. Customer acknowledges that it has no rights in any of the software, systems documentation, guidelines, procedures, and similar related materials or any modifications thereof except with respect to M&I's use of the same during the term of this Agreement to process data. Upon termination of this Agreement, M&I shall provide Customer with all copies of Customer's data in a format that is being used by M&I at that time for processing such data. Prior to the release of the Customer's data: (1) all amounts owed under this Agreement by Customer to M&I shall be current and paid in full, and (2) Customer shall pay M&I its "Estimated Deconversion Expenses" as described below. Customer agrees to pay M&I for M&I's work in providing such data at M&I's rates then in effect for computer and personnel time, supplies, and other items as required, and Customer further agrees to pay M&I for any and all charges associated with the deconversion of Customer's data based on M&I's then-current charges for such Services. M&I shall make a good faith estimate of all of such costs, expenses, and charges which shall be paid by Customer in advance (the "Estimated Deconversion Expenses"), The difference, if any, between the actual expenses and the prepaid Estimated Deconversion Expenses shall be promptly paid after determination. 18. Warranties. M&I represents and warrants that: a. Capability of Computer Systems and Software. M&I's computer systems (hardware and software) are capable of performing the Services in accordance with the provisions of this Agreement. The software used to provide the Services will operate substantially in accordance with the specifications and documentation for the software as modified from time to time to incorporate enhancements or modifications of the software to provide the Services. - 14 - b. Quality of Service. The reports and Services made available to Customer shall be in substantial conformity with the User Manuals, as amended from time to time, copies of which have been, or will be, provided to Customer. c. Property Rights. M&I has the right to provide the Services hereunder, using all computer software required for that purpose. d. Organization and Approvals. M&I is a validly organized corporate entity with valid authority to enter into this Agreement. This Agreement has been duly authorized by all necessary corporate action, e. Disclaimer of Warranties. EXCEPT AS DESCRIBED IN THIS SECTION OF THIS AGREEMENT M&I DISCLAIMS ALL OTHER WARRANTIES WHETHER WRITTEN, ORAL, EXPRESSED OR IMPLIED INCLUDING WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 19. Force Majeure. M&I shall not be liable to Customer if M&I's fulfillment or performance of any terms or provisions of this Agreement is delayed or prevented by revolution or other civil disorders, wars, acts of enemies, strikes, electrical equipment or availability failure, labor disputes, fires, floods, acts of God, federal, state, or municipal action, statute, ordinance or regulation, or, without limiting the foregoing, any other causes not within its reasonable control, and which by the exercise of reasonable diligence it is unable to prevent, whether of the class of causes hereinbefore enumerated or not. 20. Data Services Reliability and Responsiveness. Subject to the nonoccurrence for a force majeure and the performance of Customer's obligations described in this Agreement, M&I agrees that the services will be provided in accordance with the following standard. M&I will initiate batch processing transmission to Customer or make the processed items and reports available for delivery within six (6) hours after receiving all input data from Customer, and with such performance being achieved a minimum of ninety percent (90%) of the time measured over a calendar month. M&I will ensure that its on-line network is available for the processing of Customer's on-line transactions at a minimum of ninety-five percent (95%) of the time measured over a calendar month at the point of departure from M&I's communications controller. Upon receipt of data transmitted by Customer at M&I's communications controller, M&I will process the transaction within 2.5 seconds for teller transactions and within 4.0 seconds for CRT transactions at a minimum ninety-seven percent (97%) of the time measured over a calendar month. Customer will notify M&I in writing if this level of performance is not achieved, and M&I shall have ninety (90) days to meet this performance standard. If after ninety (90) days the performance standard still has not been met, the Customer's sole remedy shall be to either (i) terminate the agreement without penalty upon giving M&I written notice within thirty (30) days after the expiration of the ninety (90) day cure period, or (ii) accept such deficient levels which M&I does achieve. M&I assumes no other liability, express or implied, with respect to its obligations set forth in this paragraph. - 15 - 21. Contract Buyout. a. Customer may terminate this Agreement at any time by giving M&I at least one hundred eighty (180) days' prior written notice and paying M&I *** percent (***%) of the total estimated remaining unpaid monthly processing fees. For the purpose of this computation, total estimated remaining unpaid monthly processing fees shall be equal to the mean average of the total monthly fees paid in the three (3) months preceding the termination notice, multiplied by the number of months remaining in the Agreement. b. The contract buyout amount set forth above shall be paid prior to the deconversion of any affected accounts. The contract buyout amount shall be paid by Customer regardless of the form by which the termination occurs, including but not limited to, sale of assets or stocks assumption of liabilities, merger, consolidation, absorption, liquidation, or termination as a result of an Event of Default on the part of Customer (as described in Section 11 of this Agreement). 22. IRS Filing. Customer has complied with all laws, regulations, procedures, and requirements in attempting to secure correct Tax Identification Numbers (TINs) for Customer's payees and agrees to attest to this compliance by affidavit provided annually. Customer authorizes M&I to act as Customer's agent and sign on Customer's behalf the Affidavit required by the Internal Revenue Service on Form 4804, or any successor form. Customer acknowledges that M&I's execution of the Form 4804 Affidavit on Customer's behalf does not relieve Customer of responsibility to provide accurate TINs or liability for any penalties which may be assessed for failure to comply with TIN requirements. Customer agrees to hold M&I harmless from any liabilities, claims, expenses, penalties, or damages (including attorneys' fees) which may be assessed or incurred as a result of the failure to comply with TIN requirements. 23 Expense Reimbursements. Customer agrees to reimburse M&I for all out-of-pocket expenses (travel, lodging, meals, long distance telephone calls, and printing and copying charges) reasonably incurred in connection with the conversion of Customer's accounts to the M&I system. The reimbursement of such expenses is in addition to conversion charges which may arise after the conversion, or with respect to accounts which are not currently customer accounts which are to be converted to the M&I system. M&I shall estimate such expenses in advance, and Customer shall pay such expenses in three (3) equal payments as follows: first, upon execution of this Agreement; second, upon delivery by M&I of conversion test reports; and final, on the conversion date. M&I shall provide Customer with a summary invoice of actual expenses, and any adjustments shall be paid upon delivery of the invoice. 24. Conversion Obligations. Both parties agree to make a good faith effort to convert Customer's data in a timely fashion and to perform the conversion in accordance with the - 16 - * [Confidential portions of this Exhibit have been omitted and filed separately with the Commission. Omitted terms are indicated by ***.] responsibilities set forth in the M&I Conversion Manual, the Conversion Schedule, and this Agreement. Customer agrees to maintain an adequate staff of persons who are knowledgeable with the systems currently used by Customer to process data, Customer further agrees to provide such Services and perform such obligations as are contemplated by the M&I Conversion Manual and the Conversion Schedule, and as necessary for Customer to timely and adequately perform its obligations herein and therein. Customer shall pay or reimburse M&I for all out-of-pocket expenses and on a time-and materials basis for any of its personnel, or any independent contractors who perform conversion or related services (including items identified as Customer Responsibilities in the Conversion Manual) for Customer. Customer further agrees to cooperate fully with all reasonable requests of M&I necessary to effect the conversion in a timely and efficient manner. Customer agrees to reimburse M&I for all conversion charges whether for the initial conversion, or for the subsequent conversion of additional accounts as they are incurred, or for the conversion of products not identified in the Proposal. 25. Product Support. (This Section of the Agreement shall not apply to this Agreement if so indicated on Exhibit A). Customer agrees to maintain a staff of individuals who are trained and understand the system used to provide the Services required for M&I to provide the ongoing Services. The individuals will have primary responsibility for assisting and guiding the Customer's user community in the proper use of the systems, and providing first line of support to the users after conversion. The primary contact with M&I's technical, operational, and product support staff will be through these individuals. 26. Use of the Services. (a) Customer assumes exclusive responsibility for the consequences of any instructions Customer may give M&I, for Customer's failure to properly access the Services in the manner prescribed by M&I, and for Customer's failure to supply accurate input information; (b) Customer agrees that it will use the Services in accordance with such reasonable policies as may be established by M&I from time to time as set forth in any materials furnished by M&I to Customer; (c) Customer agrees that, except as otherwise permitted by M&I, Customer will use the Services only for its own internal business purposes and will not sell or otherwise provide, directly or indirectly, any of the Services or any portion thereof to any third party; and (d) Customer agrees and represents that (i) this Agreement has been approved by its Board of Directors, or that the officer executing this Agreement has been specifically authorized by Customer's Board of Directors to execute this Agreement, (ii) the performance of this Agreement by the Customer will not affect the safety or soundness of the Customer or any of its affiliates, and (iii) this Agreement, and the obligations evidenced hereby, will be properly reflected on the books and records of the Customer, and the Customer will provide evidence of the same to M&I upon request. 27. Miscellaneous a. Governing Law. This Agreement shall be construed and governed by the laws of the state of Wisconsin. - 17 - b. Amendment. This Agreement, including the Schedules hereto, may be amended only by an instrument in writing executed by the parties or their permitted assignees. c. Assignment. This Agreement may not be assigned by either party without the prior written consent of the other party, which such consent shall not be unreasonably withheld, provided that M&I may freely assign this Agreement to any company that is directly or indirectly (1) in control of M&I, (ii) under the control of M&I, or (iii) under common control with M&I. d. Section Headings. Section headings are for reference purposes only and shall not affect the interpretation or meaning of this Agreement. e. Notices. All communications or notices required or permitted by this Agreement shall be in writing and shall be deemed to have been given at the earlier of the date when actually delivered to an officer of a party or when deposited in the United States mail, certified or registered mail, postage prepaid, return receipt requested, and addressed as set forth on the signature page, unless and until any of such parties notifies the others. f. No Waiver of Performance. Failure by either party at any time to require performance by the other party to claim a breach of any provision of this Agreement will not be construed as a waiver of any right accruing under this Agreement, nor affect any subsequent breach, nor affect the effectiveness of this Agreement or any part hereof, nor prejudice either party as regards any subsequent action. g. Entire Agreement; Conflicting Provisions. This Agreement, together with the Schedules hereto, constitutes the entire agreement between the Customer and M&I with respect to the subject matter hereof. There are no restrictions, promises, warranties, covenants, or undertakings other than those expressly set forth herein and therein. This Agreement supersedes all prior negotiations, agreements, and undertakings between the parties with respect to such subject matter. In the event of any conflict between the terms of the main body of this Agreement and any of the Schedules hereto, the terms of the main body of this Agreement shall govern. h. Execution in Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which shall together constitute one and the same Agreement. i. Enforceability. The invalidity or enforceability of any provision hereof shall not affect or impair any other provisions. j. Scope of Agreements. If the scope of any of the provisions of the Agreement is too broad in any respect whatsoever to permit enforcement to its full extent, then such provisions shall be enforced to the maximum extent permitted by law and the parties hereto - 18 - consent and agree that such scope may be judicially modified accordingly and that the whole of such provisions of this Agreement shall not thereby fail, but that the scope of such provisions shall be curtailed only to the extent necessary to conform to law. k. Miscellaneous. Product support and programming conversion fees will be waived in connection with the conversion of Customer onto M&I's data processing systems. However, in the event Customer fails to obtain the appropriate regulatory approvals necessary for the operation of a Financial Institution on or before July 1, 1992, this Agreement shall be automatically null and void ab initio and neither party shall have liability to each other under this Agreement, except that Customer shall pay for any costs incurred by M&I as a result of any conversion activities performed by M&I. l. Computer-Based Training. During the first twelve (12) months of the Agreement, M&I will provide Customer, at no additional charge, two (2) copies of any Computer-Based Training (CBT) course relating to the applications converted onto M&I's data processing systems. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in their names as of the date first above written. M&I DATA SERVICES, INC, (M&I) 770 North Water Street Milwaukee, WI 53202 By: /s/ Joseph L. Delgadillo ----------------------------------------- Name: Joseph L. Delgadillo Senior Vice President M&I DATA SERVICES INC. ("M&I") 770 North Water Street Milwaukee, WI 53202 By: /s/ Michael V. Ruane ----------------------------------------- Name: Michael V. Ruane, Vice Pres. MERRILL MERCHANTS BANCSHARES, INC., (the "Customer") 201 Main Street Bangor, ME By: /s/ Perry B. Hansen ----------------------------------------- Name: Perry B. Hansen, President - 19 - AFFIDAVIT STATE OF Illinois COUNTY OF Rock Island I, Perry B. Hansen , being first duly sworn, on oath, depose and say: 1. I am an employee of Merrill Merchants Bancshares, Inc. I have personal knowledge of my employer's practices with regard to procuring and reporting Tax Identification Numbers (TINs) and authority to execute this Affidavit on my employer's behalf. 2. Merrill Merchants Bancshares, Inc. has complied with all laws, regulations, procedures and requirements in attempting to secure correct TINs for its payees. This compliance has been pursued with due diligence, and any failure to secure correct TINs is due to reasonable cause. /s/ Perry B. Hansen --------------------------------------------- Customer's Representative Perry B. Hansen President Subscribed and sworn to before me this 14th day of May 1992, /s/ John T. Kustes - ------------------ Notary Public My Commission: "OFFICIAL SEAL" JOHN T. KUSTES Notary Public, State of Illinois My Commission Expires 05/08/96 - 20 - ATTORNEY-IN-FACT APPOINTMENT Customer hereby appoints M&I Data Services, Inc. ("M&I") as customer's attorney-in-fact and empowers M&I to authorize the Internal Revenue Service (IRS) to release information documents supplied to the IRS by M&I to states which participate in the "Combined Federal/State Program." Customer agrees to hold M&I harmless from any liabilities, claims, expenses, penalties, or damages (including attorneys' fees) which may be assessed or incurred as a result of the release of information. MERRILL MERCHANTS BANCSHARES, INC, ("Customer") By /s/ Perry B. Hansen ------------------- Customer's Representative Perry B. Hansen, President - 21 - SCHEDULE M&I ON-LINE AVAILABILITY The following is a list of standard hours of availability by each on-line service. times are CST/CDT. o Cardholder (CRT Maintenance) Monday-Thursday 7:00 a.m.- 6:45 p.m. Friday 7:00 a.m.- 9:30 p.m. Saturday 7:00 a.m.- 4:30 p.m. o CIS & Deposit System (Maintenance and Dollar Transactions) Monday-Thursday 7:00 a.m.- 6:45 p.m.* Friday 7:00 a.m.- 9:30 p.m.* Saturday 7:00 a.m.- 4:30 p.m. o Data Entry (Account Reconciliation System) Monday-Friday 7:00 a.m.-10:00 p.m. o Data Entry (Financial Control) Monday-Thursday 7:00 a.m.-11:00 p.m. Friday 7:00 a.m.-12:00 Midnight Saturday 7:00 a.m.- 4:30 p.m. o Decision Management System Monday-Thursday 7:00 a.m.- 6:45 p.m. Friday 7:00 a.m.- 9:30 p.m. Saturday 7:00 a.m.- 4:30 p.m. o Data Entry (Trust) Monday-Friday 7:00 a.m. - 5:00 p.m. o Financial Control On-line Monday-Friday 7:00 a.m. - 8:00 p.m. Saturday 7:00 a.m. - 4:30 p.m. - 22 - o Loan System (CRT Maintenance) Monday-Thursday 7:00 a.m. - 6:15 p.m. Friday 7:00 a.m. - 8:30 p.m. Saturday 7:00 a.m. - 4:30 p.m. o Management Information Service Monday-Thursday 7:00 a.m. - 6:45 p.m. Friday 7:00 a.m. - 9:30 p.m. Saturday 7:00 a.m. - 4:30 p.m. (Except Money Market Info.) o Teller Terminals Monday-Thursday 7:00 a.m. - 7:00 p.m. Friday 7:00 a.m. - 9:30 p.m. Saturday 7:00 a.m. - 4:30 p.m. *CIS access to loan data is based on Loan System hours of availability. West Coast availability for CIS, Loans, and Deposits for Monday-Friday is 8:00 a.m.-10:00 p.m., CST/CDT. - 23 - EXHIBIT A FINANCIAL SERVICE PRODUCTS - - Deposit Services - - Loan Services - - Teller/Platform Services - - Automated Funds Transfer - - Automated Clearinghouse - - Corporate Cash Management Services Customer Information System - - Financial Control - - Tickler System - - Management Information Service - - IRS Reporting - - INFO Center - - EFT Services - - Safe Deposit System - - Item Processing - - Remote Site Support - - Trust Services - - Audit Services - 24 - EXHIBIT B FEE SCHEDULE - 25 - Table of Contents - -------------------------------------------------------------------------------- Core Processing Products Deposit Services...........................................................1 On-line Services...........................................................4 IRS Reporting Services.....................................................4 Fundtech Fedplus Wire Transfer.............................................5 Currency Transaction Reporting.............................................5 Safe Deposit...............................................................6 Loan Services..............................................................6 On-line Collections/Queuing................................................8 Letter Writer..............................................................8 Tickler System.............................................................8 Note Pad...................................................................8 On-line Inquiry Generator..................................................9 User-defined Security......................................................9 Audit Services.............................................................9 Financial Control (General Ledger).........................................9 Accounts Payable..........................................................11 Fixed Assets..............................................................11 Management Information Service............................................11 Test/Training Bank........................................................11 File Maintenance Services.................................................11 Master File Unload Services...............................................12 MICASH Cash Management Services Account Reconciliation....................................................13 Treasury Connection.......................................................14 Cash Management Network Access............................................15 Automated Clearinghouse (ACH) Originating.................................16 Automated Clearinghouse (ACH) Receiving...................................17 Balance Reporting.........................................................17 Cash Manager..............................................................18 EDI Receiving.............................................................18 Relationship Management Customer Information System (CIS).........................................19 Account Analysis..........................................................20 Customer Profitability....................................................20 EASE Marketing Solutions..................................................21 Profitability Modeling....................................................22 Relationship Packaging (RPS)..............................................22 Delivery Services Platform Services.........................................................23 Home Banking Services.....................................................24 EFT Services..............................................................29 BankCard Services Cardholder..............................................32 BankCard Services Visa Commercial Card....................................36 BankCard Services Merchant................................................37 BankCard Services Support Services........................................40 - -------------------------------------------------------------------------------- M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Confidential Effective March 1, 1998 i Table of Contents - -------------------------------------------------------------------------------- Information Management Information Desktop.......................................................45 RAMIS.....................................................................45 STAR View.................................................................47 Microfiche................................................................47 Remote Site Support.......................................................48 Client Support Services The Support Center........................................................49 Network Services..........................................................49 Services Continuity.......................................................50 User Manuals..............................................................51 Programming and Development...............................................51 Consulting Services.......................................................51 Education Services........................................................52 Additional Services.......................................................53 Appendix A-System Reports Index - -------------------------------------------------------------------------------- M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Confidential Effective March 1, 1998 Page ii Core Processing Products - -------------------------------------------------------------------------------- DEPOSIT SERVICES - -------------------------------------------------------------------------------- Accounts Demand .435 per open account Money Market .435 per open account Savings .435 per open account NOW Accounts .435 per open account Line of Credit Accounts .67 per open account Time Deposit IDs .32 per open deposit ID Transactions 1 - 250,000 .031 per monetary transaction 250,001 - 500,000 .028 per monetary transaction 500,001 - 750,000 .025 per monetary transaction 750,001 - 1,000,000 .023 per monetary transaction Over 1,000,000 .019 per monetary transaction Minimum Fee 250.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Backdating of Transactions 500.00 per application Applies to Remote Item Capture Minimum Fee 1,000.00 per request transmissions. Applications may include Deposits, Loans, General Ledger, and Remotes. - ---------------------------------------------- -------------------------------------- ------------------------------------- Branch Change--Automated .08 per keyword - ---------------------------------------------- -------------------------------------- ------------------------------------- Checks Issued (Troy) .15 per check Includes CD interest and club Check Signature Plate 100.00 per signature plate checks. Setup fee applies. - ---------------------------------------------- -------------------------------------- ------------------------------------- Check Ordering--On-line .0075 per open demand deposit Setup fee not applicable. and NOW account - ---------------------------------------------- -------------------------------------- ------------------------------------- Checking Account Verification--On-line Harland Telechex Inquiries No charge Deluxe ChexSystems Inquiries .05 per inquiry - ---------------------------------------------- -------------------------------------- ------------------------------------- Criteria Posting Transactions .065 per NSF item Minimum Fee 50.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Custom Statement Formatter (CSF) Setup fee applies (per quote). Deposit Statement Plus No charge Deposit Statement Premium Plus .02 per statement copy Customer-designed Format .02 per statement copy - ---------------------------------------------- -------------------------------------- ------------------------------------- Deposit Escrow Subaccounting .25 per relationship Charges for Deposit Escrow Subaccounting reports can be found on page 3 under Reports--Nonstandard. Setup fee applies. - ---------------------------------------------- -------------------------------------- ------------------------------------- Exception Processing--On-line Setup fee not applicable. Transactions .04 per transaction Minimum Fee 50.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Funds Transfer--Automated (AFT) Accounts .08 per account Minimum Fee 50.00 per institution - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 1 Core Processing Products - -------------------------------------------------------------------------------- DEPOSIT SERVICES - -------------------------------------------------------------------------------- Integrated Funds Management System (IFMS) Setup charge of $1,000.00 applies. Deposit to Deposit Deposit to other M&I Applications No charge Transactions to Third Party No charge Other M&I applications may include Investments to Third Party .10 per transaction M&I Loan and Trust Systems. Third Party Interface Setup .20 per account relationship Per quote Setup charge for interface to BankCard Services is $1,000.00 - ---------------------------------------------- -------------------------------------- ------------------------------------- Interest Plan Test 250.00 per interest plan R-0346 available for commercial accounts only. - ---------------------------------------------- -------------------------------------- ------------------------------------- Mass Changes 30.00 per request Keywords .08 per transaction - ---------------------------------------------- -------------------------------------- ------------------------------------- Money Manager Subledger Accounts .235 per account The number of accounts equals the highest number of money manager accounts established during the billing period. For setup, keyword change prices apply. - ---------------------------------------------- -------------------------------------- ------------------------------------- On-line Dollar On-line dollar charges apply only to Accounts .044 per account customers not using On-line Teller. Minimum Fee 50.00 per institution Accounts include demand, line of Deposit Live Log Transactions .027 per transaction credit, money market, NOW, savings, and time deposit (Level 1-3) accounts. - ---------------------------------------------- -------------------------------------- ------------------------------------- Product Conversion--Automated .08 per keyword - ---------------------------------------------- -------------------------------------- ------------------------------------- Reaccrual Processing 250.00 per interest plan R-0345; available for commercial accounts only. - ---------------------------------------------- -------------------------------------- ------------------------------------- Retention Closed Accounts .05 per account Closed Time Deposit IDs .05 per deposit ID Cycle--12 Months .075 per account Three-month cycle retention Minimum Fee 25.00 per institution provided at no charge. Twelve-month cycle retention includes the History Analysis Report, R-2830. Transaction Retention .05 per 1,000 transactions/day Applicable for transactions retained past cycle date. - ---------------------------------------------- -------------------------------------- ------------------------------------- Retirement Account Reporting Retirement deposits can be open and 1 - 20,000 .44 per deposit closed deposit IDs and open and Over 20,000 .39 per deposit closed Level 0 retirement accounts. Minimum Fee 50.00 per institution Includes all IRS reporting (1099s, 5498s). - ---------------------------------------------- -------------------------------------- ------------------------------------- Reports--Standard 12.00 per additional copy Two copies of many reports provided at no charge. Please refer to Appendix A for the listing of deposit reports, number of copies provided at no charge, and the recommended frequency for each report. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 2 Core Processing Products - -------------------------------------------------------------------------------- DEPOSIT SERVICES - -------------------------------------------------------------------------------- Reports--Nonstandard Refer to Appendix A. Bank Control Print 65.00 per application/report Deposit Escrow Subaccounting 27.00 per report Deposit Escrow Subaccounting Reports: R-4800, R-4810, R-4820, R-4830, R-4840. Name and Address List, Labels, and 3x5 Cards Base Fee 35.00 per request List .04 per account Labels .06 per label 3x5 Cards .075 per 3x5 card Magnetic Tape 150.00 per tape New Interest Rate Exceptions 27.00 first report in a month Additional Reports 1.80 per additional copy R-4200 Original Issue Discount 27.00 per report/per request Schedule CMR 630.00 per request Summary of Deposits 27.00 per parameter requested Sweep Report 27.00 per report Time Deposit Audit Report 27.00 per report R-0350 and R-0360 Transaction Code Usage Report 27.00 per report R-1241 Transaction Journal--Daily 65.00 per additional copy One copy of the R-1010, Transaction Trial Balance--Daily Journal, at no charge. R-1000, R-1001 65.00 per copy Remote print institutions receive R-4000, R-4001 65.00 per additional copy one copy of the R-1000 or R-1001 at no charge. One copy of the R-4000 or R-4001 provided per day at no charge. Trust Escrow Report 27.00 first copy in a month Additional Reports 1.80 per additional copy R-2225 - ---------------------------------------------- -------------------------------------- ------------------------------------- Reversal of Transactions 500.00 per application Applies to Remote Item Capture Minimum Fee 1,000.00 per request transmissions. Applications may include Deposits, Loans, General Ledger, and Remotes. - ---------------------------------------------- -------------------------------------- ------------------------------------- Service Charge Test 250.00 per service charge R-0340 - ---------------------------------------------- -------------------------------------- ------------------------------------- Saturday Processing .055 per open account - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 3 Core Processing Products - -------------------------------------------------------------------------------- ON-LINE SERVICES - -------------------------------------------------------------------------------- On-line Teller Prices for On-line Teller include Base Fee 70.00 per institution usage of On-line Dollar. Accounts .059 per account Deposit Live Log Transactions .027 per transaction Accounts include demand, line of Loan Realtime Transactions .027 per transaction credit, money market, NOW, savings, No-book Transactions .0031 per outstanding transaction and time deposit (Level 1-3) accounts. - ---------------------------------------------- -------------------------------------- ------------------------------------- Controller-based Teller System Support 50.00 per institution for the first controller Additional Controllers 5.00 per additional controller - ---------------------------------------------- -------------------------------------- ------------------------------------- Tellerlink 100.00 per institution Setup fees apply to Tellerlink and Large Currency Transaction Reporting 50.00 per institution Large Currency Reporting. ---------------------------------------------- -------------------------------------- ------------------------------------- Teller Trial Balance 27.00 per report R-0200 - -------------------------------------------------------------------------------- IRS REPORTING SERVICES - -------------------------------------------------------------------------------- IRS Government Reporting System Base Fee 35.00 per institution/federal taxpayer ID On-line Transactions .40 per transaction Amended Forms 1.00 per amendment - ---------------------------------------------- -------------------------------------- ------------------------------------- IRS 1098, 1099 Processing Announced in 4th quarter IRS 1099/1098 Form Mailing Announced in 4th quarter - ---------------------------------------------- -------------------------------------- ------------------------------------- B-Notice Reporting .75 per record Minimum Fee 300.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- IRS Notice 972CG, Notice of Proposed Civil Penalty .55 per record Minimum Fee 235.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- IRS TIN Audit Tape Report 125.00 per run - ---------------------------------------------- -------------------------------------- ------------------------------------- Loan Tax ID Solicitation Letters 40.00 per report R-6869 - ---------------------------------------------- -------------------------------------- ------------------------------------- Tax ID Name and Address List 40.00 per report - ---------------------------------------------- -------------------------------------- ------------------------------------- Tax ID Number Report 40.00 per report R-2250 - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 4 Core Processing Products - -------------------------------------------------------------------------------- IRS REPORTING SERVICES - -------------------------------------------------------------------------------- W-9 Reporting .095 per form Base Fee 40.00 per request Instruction Sheets .04 per sheet Additional Reports 40.00 per report Name and Address List, Labels, and 3x5 Cards Base Fee 35.00 per request List .04 per account Labels .06 per label 3x5 Cards .075 per 3x5 card - ---------------------------------------------- ---------------------------------------------------------------------------- FUNDTECH FEDPLUS WIRE TRANSFER Third-party fees apply. Remote setup charges may apply. - ---------------------------------------------- -------------------------------------- ------------------------------------- Interface Support Fee 150.00 per bank - ---------------------------------------------- ---------------------------------------------------------------------------- CURRENCY TRANSACTION REPORTING Setup fee not applicable except for Remote MICR customers (per quote). - ---------------------------------------------- -------------------------------------- ------------------------------------- Base Fee 50.00 per institution Includes standard reports, six months CTR on-line retention, and 15 days cash transaction retention. - ---------------------------------------------- -------------------------------------- ------------------------------------- Forms (4789) 2.00 per form Created on mag tape or paper. - ---------------------------------------------- -------------------------------------- ------------------------------------- Extended Retention On-line Retention .35 per 1,000 items/day Charge applies to CTR retention Minimum Fee 10.00 per month (beyond six months) and cash transaction retention (beyond 15 days). - ---------------------------------------------- -------------------------------------- ------------------------------------- Suspicious Activity Tracking Global Suspicious Activity Reports .25 per TIN reported Extended cash transaction retention required for this feature. Minimum Fee 10.00 per report Maximum charge for a report not to exceed $500.00. Individual TIN Request Reports 10.00 per report Maximum of 30 TINs per day. - ---------------------------------------------- -------------------------------------- ------------------------------------- Exemption Tracking Exemption Report Requests .50 per TIN reported Report can be requested on up to 12 Minimum Fee 10.00 per report TINs per day or on all existing exempt customers. Extended cash transaction retention required for this feature. - ---------------------------------------------- -------------------------------------- ------------------------------------- Exemption CTR Record History TIN History Requests 50.00 per report Mag tape reporting required. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 5 Core Processing Products - -------------------------------------------------------------------------------- - ---------------------------------------------- -------------------------------------- ------------------------------------- SAFE DEPOSIT Setup fee not applicable. - ---------------------------------------------- -------------------------------------- ------------------------------------- Base Fee 25.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Boxes .075 per box - ---------------------------------------------- -------------------------------------- ------------------------------------- LOAN SERVICES - ---------------------------------------------- -------------------------------------- ------------------------------------- Loans 1.21 per open note Includes commercial, installment, Minimum Fee 250.00 per institution mortgage, floor plan, and revolving Paid Loan Retention .05 per paid/closed note credit loans. - ---------------------------------------------- -------------------------------------- ------------------------------------- Accounts .20 per account without associated notes - ---------------------------------------------- -------------------------------------- ------------------------------------- Bank Control 65.00 per application/report - ---------------------------------------------- -------------------------------------- ------------------------------------- Checks .15 per check issued Includes refund, escrow disbursement, and investor checks. - ---------------------------------------------- -------------------------------------- ------------------------------------- Collateral Processing Setup fee not applicable. Please Items .18 per collateral item refer to Appendix A for report Minimum Fee 50.00 per institution frequencies. - ---------------------------------------------- -------------------------------------- ------------------------------------- Coupon Book Orders .065 per book ordered - ---------------------------------------------- -------------------------------------- ------------------------------------- CRA/HMDA Extract Request First Financial Institution in Holding 1,000.00 per institution Company Additional Institutions in Holding Company 250.00 per additional institution Diskette Tape (Reel) 120.00 per diskette Tape (Cartridge) 150.00 per tape Transmission 75.00 per cartridge 6.75 per transmission One time setup fee applies per quote. - ---------------------------------------------- -------------------------------------- ------------------------------------- Escrow Analysis .21 per note analyzed Price applies for both Test and Final. Refer to Loan Customer Statements for additional charges. - ---------------------------------------------- -------------------------------------- ------------------------------------- Escrow Tax/Insurance .075 per account Refer to Tape/Transmission Processing for additional charges. - ---------------------------------------------- -------------------------------------- ------------------------------------- Investor Reporting Please refer to Appendix A for GNMA 80.00 per institution tape-related investor reports. FNMA or FHLMC .17 per participation Minimum Fee 100.00 per institution This minimum fee only applies to FNMA or FHLMC (not to GNMA). - ---------------------------------------------- -------------------------------------- ------------------------------------- Mass Changes 30.00 per request Keywords .08 per transaction - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 6 Core Processing Products - -------------------------------------------------------------------------------- LOAN SERVICES - -------------------------------------------------------------------------------- Name and Address List, Labels, and 3x5 Cards R-6260, R-6261, R-6265, R-6808, Base Fee 35.00 per request R-6809. List .04 per account Labels .06 per label 3x5 Cards .075 per 3x5 card By Keyword .06 per label - ---------------------------------------------- -------------------------------------- ------------------------------------- Notices Please refer to Appendix A for Customer Notices .05 per notice specific notice titles and report numbers. Customized Notices Premium (CSF) .02 per notice Setup fee applies for CSF notices. - ----------------------------------------------- ------------------------------------- ------------------------------------- Reports The prices apply to copies Daily Hard Copy Reports exceeding the report frequencies 1 - 5,000 Accounts 23.00 per additional copy which are listed in Appendix A. 5,001 - 10,000 Accounts 29.00 per additional copy Over 10,000 Accounts 36.00 per additional copy Weekly Hard Copy Reports 1 - 5,000 Accounts 44.00 per additional copy 5,001 - 10,000 Accounts 56.00 per additional copy Over 10,000 Accounts 67.00 per additional copy Monthly Hard Copy Reports 1 - 5,000 Accounts 65.00 per additional copy 5,001 - 10,000 Accounts 77.00 per additional copy Over 10,000 Accounts 88.00 per additional copy Semiannual/Annual Hard Copy Reports 1 - 5,000 Accounts 114.00 per additional copy 5,001 - 10,000 Accounts 137.00 per additional copy Over 10,000 Accounts 158.00 per additional copy - ----------------------------------------------- ------------------------------------- ------------------------------------- Revolving Credit With Check Access Premium .08 per note Setup fee not applicable. - ----------------------------------------------- ------------------------------------- ------------------------------------- Sale of Servicing 1.00 per note Conversion/Consulting/Programming Per quote - ----------------------------------------------- ------------------------------------- ------------------------------------- Saturday Processing .071 per note - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 7 Core Processing Products - -------------------------------------------------------------------------------- LOAN SERVICES - -------------------------------------------------------------------------------- Statements Loan Transaction Detail on Combined Statements .05 per note Please refer to CIS for Combined Statement pricing. Customer Statements .05 per statement Please refer to Appendix A for specific statement titles and report numbers. Customized Statements Premium (CSF) .02 per statement Setup fee applies for CSF statements. - ----------------------------------------------- ------------------------------------- ------------------------------------- Tape/Transmission Processing 80.00 per tape Tape Processing for noninvestor Credit Bureau Tapes 80.00 per credit bureau includes tax/insurance escrow Insurance Tapes/Transmission 80.00 per company disbursement and FHLB. - ----------------------------------------------- ------------------------------------- ------------------------------------- CFI Laser Pro Interface Third-party fees apply Setup/Consulting Fee 3,000.00 per institution Additional Institutions in Holding 1,000.00 per additional institution Company Interface Support Fee 100.00 per institution Additional Institutions in Holding 50.00 per additional institution Company - ----------------------------------------------- ---------------------------------------------------------------------------- ON-LINE COLLECTIONS/QUEUING On-line Collections/Queuing incorporates Task Tracking. Please refer to Appendix A for report frequencies. Setup fee not applicable. - ----------------------------------------------- ---------------------------------------------------------------------------- Active/Inactive Accounts .50 per account Dormant/Paid-off Accounts .10 per account - ---------------------------------------------- -------------------------------------- ------------------------------------- LETTER WRITER Setup fee not applicable. - ---------------------------------------------- -------------------------------------- ------------------------------------- Nightly Batch Printed Letters .25 per letter produced - ---------------------------------------------- -------------------------------------- ------------------------------------- Print Immediate Letters .50 per letter produced - ---------------------------------------------- ---------------------------------------------------------------------------- TICKLER SYSTEM Setup fee not applicable. - ---------------------------------------------- -------------------------------------- ------------------------------------- Base Fee 30.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Tickler Items .06 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- NOTE PAD Setup fee not applicable. - ---------------------------------------------- -------------------------------------- ------------------------------------- Note Pad Data .0005 per line - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 8 Core Processing Products - ---------------------------------------------- ---------------------------------------------------------------------------- ON-LINE INQUIRY GENERATOR Setup fee of $1,200.00 applies. - ---------------------------------------------- ---------------------------------------------------------------------------- Custom Screens - Based on Number of Accounts Accounts are total open deposit 0 - 25,000 20.00 per screen accounts and loan notes. 25,001 - 50,000 25.00 per screen 50,001 - 90,000 30.00 per screen 90,001 - 150,000 35.00 per screen Over 150,000 35.00 + 5.00 for every 50,000 accounts over 150,000 - ---------------------------------------------- -------------------------------------- ------------------------------------- USER-DEFINED SECURITY - ---------------------------------------------- -------------------------------------- ------------------------------------- Protected Functions 1.75 per screen Minimum Fee 30.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- AUDIT SERVICES - ---------------------------------------------- -------------------------------------- ------------------------------------- Account Verification Request Fee 50.00 per account category Positive or Negative Verification .32 per account Trial Balance 25.00 per report File Footings and Histograms 25.00 per account category - ---------------------------------------------- -------------------------------------- ------------------------------------- Consulting/Custom Programming 140.00 per hour Minimum charge of 1 hour applies - ---------------------------------------------- ---------------------------------------------------------------------------- FINANCIAL CONTROL (GENERAL LEDGER) - ---------------------------------------------- -------------------------------------- ------------------------------------- Base Fee 100.00 per institution Detail Accounts .535 per open and closed account Transactions .039 per monetary transaction - ---------------------------------------------- -------------------------------------- ------------------------------------- Budget Spread 25.00 per report GLR 512 - ---------------------------------------------- -------------------------------------- ------------------------------------- Budget Upload (PC) 200.00 per uploaded diskette Includes input, testing, verification and upload. Information Formatting 140.00 per hour Minimum charge of 1 hour applies. Additional charge if diskette received from customer is improperly formatted. Diskette Fee 25.00 per preformatted diskette - ---------------------------------------------- -------------------------------------- ------------------------------------- Chart of Accounts One copy of GLR 960 per quarter Account Header and Detail List 25.00 per additional report provided at no charge. Indented Chart of Accounts 25.00 per report GLR 962 Center Sequence (all accounts) 25.00 per report GLR 964 Chart Comparison 50.00 per report FIN010 - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 9 Core Processing Products - ---------------------------------------------- ---------------------------------------------------------------------------- FINANCIAL CONTROL (GENERAL LEDGER) - ---------------------------------------------- -------------------------------------- ------------------------------------- Consolidated Quarterly Analysis 100.00 per report GLR 975 - ---------------------------------------------- -------------------------------------- ------------------------------------- Consolidation Report 100.00 per set of reports GLR 321-325; setup fee applies. - ---------------------------------------------- -------------------------------------- ------------------------------------- Cost Center Reports One GLR 380 provided per month at Monthly No charge no charge; additional reports cost Daily Reports 25.00 per cost center the same as GLR 370. - ---------------------------------------------- -------------------------------------- ------------------------------------- Detail Account Analysis Weekly 15.00 per account GLR 370 Month to Date 50.00 per additional report One month-to-date report provided Year to Date 50.00 per report at no charge. When requested Annual 50.00 per report through Customer Service, the price for the year to date is $100 per report and the price for the Annual Report is $150 per report. - ---------------------------------------------- -------------------------------------- ------------------------------------- Detail Quarterly Analysis 50.00 per report GLR 970 - ---------------------------------------------- -------------------------------------- ------------------------------------- Financial Statements (monthly) 25.00 per additional request One set of the GLR 303, 310-312 provided at no charge. - ---------------------------------------------- -------------------------------------- ------------------------------------- Full Print of Master Records 25.00 per report GLR 950 - ---------------------------------------------- -------------------------------------- ------------------------------------- Application Interface Base Fee 140.00 per institution Tables for Interface (control totals) .0265 per parameter Consolidated Transactions .0335 per transaction Application Interface Only 500.00 per institution Interface Mass Change Applications 140.00 per hour Minimum charge of 1 hour applies. - ---------------------------------------------- -------------------------------------- ------------------------------------- Hierarchy Table Changes 140.00 per hour Minimum charge of 1 hour applies. - ---------------------------------------------- -------------------------------------- ------------------------------------- Historical Data Storage 100.00 per additional year Current and prior two years provided at no charge. Two additional years provided at $100 per month for each year retained. - ---------------------------------------------- -------------------------------------- ------------------------------------- Interface Control File Listing by Account 25.00 per report GLR295 - ---------------------------------------------- -------------------------------------- ------------------------------------- Financial Control On-line (FCO) Cost includes all Financial Control On-line Account Inquiry .036 per detail account reports with the exception of GLR On-line Report Inquiry 100.00 per institution 220, GLR 240, and GLR 250. These On-line Transaction History .0125 per transaction reports are available at a cost of Minimum Fee 25.00 per institution $.01 per detail account. - ---------------------------------------------- -------------------------------------- ------------------------------------- Matrix Reports/Report Writer 25.00 per request - ---------------------------------------------- -------------------------------------- ------------------------------------- Saturday Processing .105 per detail account - ---------------------------------------------- -------------------------------------- ------------------------------------- Standard Descriptions 30.00 per institution For MICR capture of GL tickets. - ---------------------------------------------- -------------------------------------- ------------------------------------- Subledger Reports 15.00 per report GLR 371-379 - ---------------------------------------------- -------------------------------------- ------------------------------------- Transaction Journal Daily (Snapshot) .07 per parameter GLR 298 Minimum Fee 25.00 per institution - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 10 Core Processing Products - ---------------------------------------------- ---------------------------------------------------------------------------- ACCOUNTS PAYABLE One-time, third-party licensing fee applies. - ---------------------------------------------- -------------------------------------- ------------------------------------- Base Fee 100.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Vendors .50 per vendor - ---------------------------------------------- -------------------------------------- ------------------------------------- Information Expert 150.00 per run - ---------------------------------------------- -------------------------------------- ------------------------------------- Invoices .73 per invoice - ---------------------------------------------- -------------------------------------- ------------------------------------- Name and Address Labels Base Fee 35.00 per request Labels .06 per label - ---------------------------------------------- ---------------------------------------------------------------------------- FIXED ASSETS One-time, third-party licensing fee applies. - ---------------------------------------------- -------------------------------------- ------------------------------------- Base Fee 60.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Accounts .065 per account - ---------------------------------------------- -------------------------------------- ------------------------------------- Transactions .23 per transaction - ---------------------------------------------- -------------------------------------- ------------------------------------- MANAGEMENT INFORMATION SERVICE - ---------------------------------------------- -------------------------------------- ------------------------------------- Base Fee 42.00 per institution One account inquiry fee is waived Account Inquiry Access 17.00 per account if customer uses M&I's item capture system. - ---------------------------------------------- ---------------------------------------------------------------------------- TEST/TRAINING BANK - ---------------------------------------------- ---------------------------------------------------------------------------- Minimum Fee 1,000.00 per institution - ---------------------------------------------- ---------------------------------------------------------------------------- FILE MAINTENANCE SERVICES - ---------------------------------------------- ---------------------------------------------------------------------------- NCOA (National Change of Address) Scrub Service Setup Fee 250.00 per request Includes one copy of report. Processing Fee 2.25 per 1,000 records - ---------------------------------------------- -------------------------------------- ------------------------------------- ZIP + 4 CASS Delivery Point Certification Setup Fee 250.00 per request Processing Fee 7.50 per 1,000 records - ---------------------------------------------- -------------------------------------- ------------------------------------- Area Code Update Service Setup Fee 350.00 per request Processing Fee 2.25 per 1,000 records - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 11 Core Processing Products - ---------------------------------------------- ---------------------------------------------------------------------------- MASTER FILE UNLOAD SERVICES - ---------------------------------------------- ---------------------------------------------------------------------------- Master File Unload to 3420 Reel Tapes First Reel Tape 150.00 per tape Additional Reel Tapes 50.00 per tape Master File Unload to 3480/90 Cartridge Tapes First Cartridge Tape 75.00 per cartridge Additional Cartridge Tapes 40.00 per cartridge - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 12 MICASH Cash Management Services - ---------------------------------------------- ---------------------------------------------------------------------------- ACCOUNT RECONCILIATION Prices are per account cycle. Setup fee applicable per quote. - ---------------------------------------------- ---------------------------------------------------------------------------- Plan 1 Base Fee 33.00 per account First 1,000 Items No charge Over 1,000 Items .031 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- Plan 2 Base Fee 35.00 per account First 1,000 Items No charge Over 1,000 Items .031 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- Plan 3 Base Fee 39.00 per account First 1,000 Items No charge Over 1,000 Items .035 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- Deposit Reconciliation (Plan 9) Base Fee 33.00 per account First 1,000 Items No charge Over 1,000 Items .031 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- Fine Sorting Base Fee 16.25 per account First 1,000 Items No charge Over 1,000 Items .015 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- Transaction/Exception Item Retention .0011 per item/greater than 35 days - ---------------------------------------------- -------------------------------------- ------------------------------------- Data Entry Input by M&I Issued Items .28 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- Multiple Statements 1.50 per multiple statement component/per account - ---------------------------------------------- -------------------------------------- ------------------------------------- Midcycle Account Setup 20.00 per account - ---------------------------------------------- -------------------------------------- ------------------------------------- Midcycle Statements 1.50 per multiple statement component/per account - ---------------------------------------------- -------------------------------------- ------------------------------------- Special Statements Per cycle Special statements are billed per request at the same rate as Plan 1, 2, or 3. - ---------------------------------------------- -------------------------------------- ------------------------------------- Tape Output 25.00 per tape/per account - ---------------------------------------------- -------------------------------------- ------------------------------------- Transmission Output 6.25 per transmission/per Transmission of a paid file to a account customer's PC requires use of the Treasury Connection System and Cash Management Network Access. Please refer to Treasury Connection for complete detail of fees for PC file transmissions. Software required to support transmissions to a customer mainframe is dependent upon the type of mainframe used and is billed at the rate stated above. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 13 MICASH Cash Management Services - ---------------------------------------------- ---------------------------------------------------------------------------- TREASURY CONNECTION - ---------------------------------------------- ---------------------------------------------------------------------------- Conversion Fees Bank Conversion 250.00 per institution Conversion Training - 5-day Class 555.00 per individual Windows Upgrade Class - 3 Days 365.00 per individual - ---------------------------------------------- -------------------------------------- ------------------------------------- Windows-based Software License Fee 200.00 per corporate customer Corporate Customer Setup 50.00 per corporate customer M&I Customer Setup 150.00 per corporate customer - ---------------------------------------------- -------------------------------------- ------------------------------------- Balance Reporting The $55 base fee includes previous Balance Reporting Base Fee 55.00/65.00 per institution and intraday balance and Over Three Accounts 5.00 per account transaction reporting for each Touch-tone Balance Reporting corporate customer's first three (audio response unit) 30.00 first three accounts accounts. If the institution Over Three Accounts 5.00 per additional account elects to have M&I provide customer Fax Reporting 1.00 per page support and administration for their corporate customers, the $65 base fee applies. Data Retention 7 Days No charge 14 Days 5.00 per account/month 31 Days 10.00 per account/month 45 Days 15.00 per account/month 62 Days 20.00 per account/month - ---------------------------------------------- -------------------------------------- ------------------------------------- Additional Services Book Transfer 15.00 + base per module Stop Payment 15.00 + base per module Wire Transfer 15.00 + base per module - ---------------------------------------------- -------------------------------------- ------------------------------------- Deposit Reporting Base Fee 15.00 per corporate customer Transactions .10 per transaction - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 14 MICASH Cash Management Services - ---------------------------------------------- ---------------------------------------------------------------------------- TREASURY CONNECTION - ---------------------------------------------- ---------------------------------------------------------------------------- Electronic Statement Processing (ESP) File Download Fees - PC Recon Paid File (ESP 701) 10.00 per customer Recon Paid File Transmission 6.25 per customer Setup 140.00 per customer Recon Paid File (ESP 703) Translated EDI 10.00 per customer Setup Per quote Recon Paid File (ESP 708) Account Analysis 10.00 per customer Setup 140.00 per customer Recon Paid File (ESP 709) DDA Statements 10.00 per customer Setup 140.00 per customer PC ACH Intercept 10.00 per customer Setup Per quote - ---------------------------------------------- -------------------------------------- ------------------------------------- File Transfer Upload Fees - PC ACH, Account Reconciliation, and Customer-initiated ACH Transfer Fees EDI transmission fees also apply. ACH Transfer Maintenance 10.00 per customer PC ACH Maintenance 12.00 per customer PC ACH Transmissions 6.25 per transmission PC ACH Transactions .10 per transaction Fed Charges Pass through File Adjustments 5.00 per correction File Transfer Setup 125.00 per customer Recon Issued File (ESP 702) Recon Issued 10.00 per customer Recon Issued Setup 140.00 per customer - ---------------------------------------------- ---------------------------------------------------------------------------- CASH MANAGEMENT NETWORK ACCESS The Cash Management Network Access is required for all customers who either receive or send data with a PC. It is required when using the following PC-based file transfer services: ACH Origination, Balance File Download, and Recon Paid File Download. - ---------------------------------------------- -------------------------------------- ------------------------------------- High Density .20 per connect minute Minimum connect time of 2 minutes per connection. - ---------------------------------------------- -------------------------------------- ------------------------------------- Low, Medium Density .25 per connect minute Minimum connect time of 2 minutes per connection. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 15 MICASH Cash Management Services - ---------------------------------------------- ---------------------------------------------------------------------------- AUTOMATED CLEARINGHOUSE (ACH) ORIGINATING - ---------------------------------------------- -------------------------------------- ------------------------------------- ACH Origination From Deposit System .07 per transaction - ---------------------------------------------- -------------------------------------- ------------------------------------- ACH Origination From Loan System .07 per transaction - ---------------------------------------------- -------------------------------------- ------------------------------------- Credit Limit Processing .20 per ACH batch (per day) Represents the number of batch header records within an ACH file. - ---------------------------------------------- -------------------------------------- ------------------------------------- Data Entry From Listing Base Fee 60.00 per run Transactions .25 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- Data Entry Return/NOC Charges 25.00 per company Transactions .05 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- External Funds Transfer Base Fee 45.00 per institution Accounts .077 per account - ---------------------------------------------- -------------------------------------- ------------------------------------- File Adjustments 5.00 per correction - ---------------------------------------------- -------------------------------------- ------------------------------------- NACHA Format Transmission 16.50 per run Transactions 1 - 1,000 .038 per item 1,001 - 3,000 .035 per item Over 3,000 .033 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- NACHA Format Tape 21.00 per run Transactions 1 - 1,000 .038 per item 1,001 - 3,000 .035 per item Over 3,000 .033 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- PC Entry Through PC ACH Treasury Connection Fees for PC-based ACH Origination are outlined under Treasury Connection. - ---------------------------------------------- -------------------------------------- ------------------------------------- Setup Fees Standard NACHA File Tape (new sending point) 125.00 per company Nonstandard File (new sending point) Per quote Mainframe Transmission Per quote Chargeback Reporting Per quote - ---------------------------------------------- -------------------------------------- ------------------------------------- TREM (combination ACH/PAC processing) Tape or Transmission 35.00 per run ACH Items .037 per item PAC Items .09 per item Chargeback Reporting 25.00 per institution - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 16 MICASH Cash Management Services - ---------------------------------------------- ---------------------------------------------------------------------------- AUTOMATED CLEARINGHOUSE (ACH) RECEIVING - ---------------------------------------------- -------------------------------------- ------------------------------------- Base Fee 42.50 per institution Transactions 1 - 3,000 .038 per item 3,001 - 7,000 .035 per item 7,001 - 12,000 .033 per item Over 12,000 .031 per item - ---------------------------------------------- -------------------------------------- ------------------------------------- Automated Check Charge Processing Base Fee 10.00 per institution Transactions .025 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Incoming File Report 10.00 per report - ---------------------------------------------- -------------------------------------- ------------------------------------- Manual Settlement Fee 15.00 per entry - ---------------------------------------------- -------------------------------------- ------------------------------------- On-line Return Processing .005 per record stored Maintains transaction information on file for inquiry access and return item capability. Setup fee applies (per quote). - ---------------------------------------------- -------------------------------------- ------------------------------------- BALANCE REPORTING - ---------------------------------------------- -------------------------------------- ------------------------------------- Outbound Data Exchange Transmission of a paid file to a Transmission to Corporate Customer customer's PC requires use of the Base Charge 2.10 per account/per day Treasury Connection System and Cash Data Reported .10 per field Management Network Access. Please Setup Fee Per quote refer to Treasury Connection for Transmission to a Third Party complete detail of fees for PC file Base Charge 2.45 per account/per day transmissions. Software required Data Reported .15 per field to support transmissions to a Setup Fee Per quote customer mainframe is dependent Transmission Through a Third-party Network upon the type of mainframe used and Base Charge 3.25 per account/per day is billed at the rate stated above. Data Reported .15 per field Setup Fee Per quote This reporting is done through a third party to another third-party network. Transmission to Bank Base Charge 1.00 per account/per day Add/Change/Delete 25.00 per add, change, or delete Setup Fee Per quote - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 17 MICASH Cash Management Services - ---------------------------------------------- -------------------------------------- ------------------------------------- BALANCE REPORTING - ---------------------------------------------- -------------------------------------- ------------------------------------- Inbound Data Exchange Transmission Through a Third-party Network Base Charge 3.25 per account/per day Data Reported .15 per field Setup Fee Per quote - ---------------------------------------------- ---------------------------------------------------------------------------- CASH MANAGER - ---------------------------------------------- ---------------------------------------------------------------------------- Trust Services Base Fee 300.00 per institution Additional Banks in Holding Company 100.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Preferred Vendor Accounts 15.00 per investment account Preferred vendors include AIM, Accounts for Trust Customers 8.00 per investment account Federated, Goldman Sachs, M&I and Provident Funds. - ---------------------------------------------- -------------------------------------- ------------------------------------- Other Vendors Accounts 20.00 per investment account Accounts for Trust Customers 10.00 per investment account - ---------------------------------------------- -------------------------------------- ------------------------------------- One-time Programming/Training Fee Training is done at M&I, based on Trust Services 20 hours per institution predefined training dates, with Deposits 10 hours per institution travel expense the responsibility of the customer. Programming is charged at $140 per hour. - ---------------------------------------------- ---------------------------------------------------------------------------- EDI RECEIVING - ---------------------------------------------- ---------------------------------------------------------------------------- Base Fee 20.00 per company Addenda No charge Transaction No charge Translated Addenda No charge - ---------------------------------------------- -------------------------------------- ------------------------------------- Report 3.00 per report EDI Translated Addenda Report. - ---------------------------------------------- -------------------------------------- ------------------------------------- Transmission 2.50 per transmission - ---------------------------------------------- -------------------------------------- ------------------------------------- Start-up Fees Conversion Setup 1,250.00 per financial institution Nonstandard Translated Data Per quote per company Transmission Setup 75.00 per company Transmission Setup Per quote per destination - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 18 Relationship Management - ---------------------------------------------- ---------------------------------------------------------------------------- CUSTOMER INFORMATION SYSTEM (CIS) - ---------------------------------------------- -------------------------------------- ------------------------------------- Base Fee 150.00 per institution Accounts include open, closed, and Customers .033 per customer historical accounts. Accounts .022 per account - ---------------------------------------------- -------------------------------------- ------------------------------------- Aggregate Indebtedness Setup fee not applicable. Base Fee 75.00 per request R-8675 Accounts Analyzed .001 per account analyzed - ---------------------------------------------- -------------------------------------- ------------------------------------- Customer Match-Merge Base Fee 100.00 per request 1 - 100,000 Customers .06 per customer Over 100,000 Customers .04 per customer - ---------------------------------------------- -------------------------------------- ------------------------------------- Customer Match Report Only Base Fee 100.00 per request 1 - 100,000 Customers .03 per customer Over 100,000 Customers .02 per customer - ---------------------------------------------- -------------------------------------- ------------------------------------- File Purge Procedure (CIS) One purge provided per year at no charge. Account Purge 150.00 per additional request R-8310 Customer Suspect/Purge 150.00 per additional copy R-8305 Miscellaneous Accounts to History 150.00 per additional request R-8300 - ---------------------------------------------- -------------------------------------- ------------------------------------- Marketing (CIS) Includes Householding (R-8620), Request Fee 60.00 per request ZIP Code sort, Market Customer Analysis .0063 per customer on file Profile (R-8630), and CIS Selected Magnetic Tape Creation Interface 80.00 per tape Name and Address List (R-8625). File .006 per customer selected Labels .06 per label - ---------------------------------------------- -------------------------------------- ------------------------------------- Combined Statement Processing Setup fee not applicable. Base Fee 80.00 per institution Account Fee .057 per primary account - ---------------------------------------------- -------------------------------------- ------------------------------------- Custom Statement Formatter (CSF) Processing Premium .02 per statement - ---------------------------------------------- -------------------------------------- ------------------------------------- Combined Statement Profile 55.00 per report R-8415 - ---------------------------------------------- -------------------------------------- ------------------------------------- Customer Profile I 55.00 per report R-8400 - ---------------------------------------------- -------------------------------------- ------------------------------------- Customer Profile II R-8401 Base Fee 200.00 per request Customer Fee .002 per customer selected Hard Copy .002 per customer selected Microfiche .001 per customer selected - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 19 Relationship Management - ---------------------------------------------- ---------------------------------------------------------------------------- CUSTOMER INFORMATION SYSTEM (CIS) - ---------------------------------------------- ---------------------------------------------------------------------------- Miscellaneous Account Update .005 per record changed Maintains third-party vendor Tape Handling 150.00 per tape information on CIS. Setup fee Transmission 6.75 per transmission applies (per quote). - ---------------------------------------------- -------------------------------------- ------------------------------------- Miscellaneous Account Profile 55.00 per report R-8410 - ---------------------------------------------- -------------------------------------- ------------------------------------- ACCOUNT ANALYSIS - ---------------------------------------------- -------------------------------------- ------------------------------------- Account Processing .55 per account Setup fee applies (per quote). Minimum Fee 150.00 per institution Statement Processing No charge CSF Statement Processing Premium .02 per statement On-line Statement Requests .25 per statement - ---------------------------------------------- -------------------------------------- ------------------------------------- Account Analysis (Deposit System) Requires 12-month cycle retention. Base Fee 80.00 per institution Account Processing .35 per account Account Analysis Error Report 27.00 per report R-0410 Account Analysis Summary Report 27.00 per report R-0405 - ---------------------------------------------- -------------------------------------- ------------------------------------- CUSTOMER PROFITABILITY - ---------------------------------------------- -------------------------------------- ------------------------------------- Accounts Setup fee applies (per quote). 1 - 2,500 .27 per account with 250.00 minimum fee 2,501 - 5,000 600.00 per institution 5,001 - 10,000 720.00 per institution 10,001 - 15,000 960.00 per institution 15,001 - 20,000 1,200.00 per institution 20,001 - 25,000 1,500.00 per institution 25,001 - 30,000 1,800.00 per institution 30,001 - 40,000 2,220.00 per institution 40,001 - 50,000 2,640.00 per institution 50,001 - 75,000 3,360.00 per institution 75,001 - 100,000 4,200.00 per institution Over 100,000 Per quote - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 20 Relationship Management - ---------------------------------------------- ---------------------------------------------------------------------------- EASE MARKETING SOLUTIONS Additional services available (i.e., demographics package, prospect lists, LAN version, multiple stand-alone PCs, third-party tapes) per quote. Please contact your account manager for multiple-bank holding company pricing. - ---------------------------------------------- ---------------------------------------------------------------------------- MCIF Software purchase includes one Software 5,000.00 one-time setup fee software license, one security device, and associated manuals. Installation and Setup Installation includes setup (to/from) meeting, testing, and report review. Less Than 100,000 Accounts 5,000.00 one-time setup fee All banks are householded at the 100,001 - 300,000 Accounts 7,500.00 one-time setup fee corporate level. Please contact Over 300,000 Accounts 12,500.00 one-time setup fee your account manager for pricing if Holding Company 1,500.00 one-time setup fee, per householding needs to be done at bank the individual bank level. -------------------------------------------- -------------------------------------- ------------------------------------- Training Two students from the financial Level I MCIF (2 days) 600.00 per student institution are required to attend Level II MCIF (2 days) 600.00 per student the Level I training at the M&I datacenter. - ---------------------------------------------- -------------------------------------- ------------------------------------- Accounts/Records Recurring MCIF monthly pricing for 0 - 10,000 330.00 per institution quarterly update processing. 10,001 - 20,000 440.00 per institution 20,001 - 30,000 535.00 per institution 30,001 - 40,000 600.00 per institution 40,001 - 50,000 660.00 per institution 50,001 - 60,000 710.00 per institution 60,001 - 70,000 760.00 per institution 70,001 - 80,000 820.00 per institution 80,001 - 90,000 870.00 per institution 90,001 - 100,000 930.00 per institution 100,001 - 150,000 1,005.00 per institution 150,001 - 200,000 1,060.00 per institution 200,001 - 250,000 1,110.00 per institution 250,001 - 300,000 1,185.00 per institution 300,001 - 400,000 1,290.00 per institution Additional Accounts (over 400,000) .0041 per account Holding Company 50.00 per additional bank - ---------------------------------------------- -------------------------------------- ------------------------------------- CRA Link Reports and Map--One County 1,500.00 per request Reports and Map--Additional Counties 500.00 per county/per request Reports Only--Additional Counties 250.00 per county/per request - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 21 Relationship Management - ---------------------------------------------- ---------------------------------------------------------------------------- PROFITABILITY MODELING - ---------------------------------------------- -------------------------------------- ------------------------------------- 1-4 Workstations 3,000.00 per workstation Licenses are per machine, also 5-10 Workstations 2,700.00 per workstation called per workstation. More Than 10 Workstations 2,500.00 per workstation Pricing is based on threshold method applied to each separate purchase. One hour of support per month per institution is provided at no additional charge. Additional support will be billed at $140.00 per hour. - ---------------------------------------------- -------------------------------------- ------------------------------------- Consulting Services Per quote - ---------------------------------------------- -------------------------------------- ------------------------------------- RELATIONSHIP PACKAGING (RPS) Start-up fee of $500.00 per institution applies. - ---------------------------------------------- -------------------------------------- ------------------------------------- Package Memberships 0-2,000 .22 per package member 2,001-20,000 .20 per package member over 20,000 .18 per package member Minimum Fee 150.00 per institution - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 22 Delivery Services - ----------------------------------------------- --------------------------------------------------------------------------- PLATFORM SERVICES - ----------------------------------------------- --------------------------------------------------------------------------- PCTeller Workstation License Software 1,200.00 per workstation Software Maintenance Fee 10.00 per workstation Tutorial (CBT) 70.00 per workstation - ----------------------------------------------- ------------------------------------- ------------------------------------- PCTeller Site License Software (unlimited use per site) 8,000.00 per site Software Maintenance Fee 40.00 per site Tutorial (CBT) 300.00 per site - ----------------------------------------------- ------------------------------------- ------------------------------------- PCTeller Optional Services Professional Services/ Enhancements Technical support 140.00 per hour 140.00 per hour Per contract. - ----------------------------------------------- ------------------------------------- ------------------------------------- Salespartner Workstation License Software 3,500.00 per workstation Software Maintenance Fee 45.00 per workstation Tutorial (CBT) 200.00 per workstation - ----------------------------------------------- ------------------------------------- ------------------------------------- Salespartner Site License Software (unlimited use per site) 11,250.00 per site Software Maintenance Fee 120.00 per site Tutorial (CBT) 500.00 per site - ----------------------------------------------- ------------------------------------- ------------------------------------- Salespartner Usage Fees Active History .30 per officer number Prospects .01 per prospect record Sales Session Results .025 per sales session - ----------------------------------------------- ------------------------------------- ------------------------------------- Salespartner Optional Services Professional Services/ Enhancements Technical support 140.00 per hour 140.00 per hour Per contract. - ----------------------------------------------- ------------------------------------- ------------------------------------- BankerInsight Workstation License Software 3,200.00 per workstation Software Upgrade from Salespartner 500.00 per workstation Monthly Software Maintenance Fee 42.00 per workstation Tutorial 200.00 per workstation - ----------------------------------------------- ------------------------------------- ------------------------------------- BankerInsight Site License Software 15,000.00 per site Includes up to 12 workstations per Additional Licenses in Excess of 12 1,000.00 per site site. Software Upgrade from Salespartner 3,000.00 per site Includes up to 12 workstations per site. Upgrade Additional Licenses in Excess of 12 500.00 per site Software Maintenance Fee 250.00 per site Tutorial 500.00 per site - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 23 Delivery Services - ----------------------------------------------- --------------------------------------------------------------------------- PLATFORM SERVICES - ----------------------------------------------- ------------------------------------- ------------------------------------- BankerInsight Usage Fees Active History .30 per officer number Prospects .01 per prospect record Sales Session Results .025 per sales session - ----------------------------------------------- ------------------------------------- ------------------------------------- BankerInsight Optional Services Professional Services/ Enhancements Technical Support 140.00 per hour 140.00 per hour Per contract. - ----------------------------------------------- ------------------------------------- ------------------------------------- BankerInsight Call Center Computer Telephony Integration (CTI) Workstation fee 250.00 per workstation Price is in addition to standard license fees. Maximum fee 5,000.00 up to 30 workstations Fee excludes all Gensys costs Call Center Consulting Per quote - ----------------------------------------------- --------------------------------------------------------------------------- HOME BANKING SERVICES - ----------------------------------------------- --------------------------------------------------------------------------- Money Talks Inquiries .028 per inquiry Transfers .028 per transaction - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 24 Delivery Services - ----------------------------------------------- --------------------------------------------------------------------------- HOME BANKING SERVICES - ----------------------------------------------- --------------------------------------------------------------------------- Telephone Banking DirectVoice (Shared VRU) Implementation Fee 15,000.00 per institution Implementation fee includes 4 ports, documentation, custom voice Monthly Minimum Fee 180.00 per institution recording, customized fax statement Transaction Processing .06 per transaction header/footers, development, Additional Port Fee testing, and customer support. At Implementation 3,000.00 per port After Implementation 3,500.00 per port Transfer Connect Option Implementation Fee 2,500.00 per institution Base Fee 25.00 per institution Transaction Processing .20 per transaction This option provides the ability to Fax Statement Fee .50 per statement transfer from voice response system Call Volume Reports to another 800 number. Monthly No Charge Weekly 15.00 per institution Daily 30.00 per insitution Header/Footer Revision 100.00 per revision Professional Voice Rerecordings 200.00 per recording Application Modification Changes 140.00 per hour Additional Languages Spanish or Mandarin Chinese Implementation Fee 5,000.00 per institution Maintenance Fee 100.00 per language - ----------------------------------------------- ------------------------------------- ------------------------------------- Conversion of Customer-owned VRU Conversion Support Single Institution 3,500.00 per institution Includes 25 hours of support. Holding Company - first bank, single box script 3,500.00 per institution Includes 25 hours of support. Holding Company - additional banks, single box script 1,000.00 per institution Holding Company - Multiple boxes/scripts 3,500.00 per institution Additional support beyond 25 hrs 140.00 per hour Mass Keyword Change Implementation Fee 30.00 per request Keywords .08 per transaction - ----------------------------------------------- ------------------------------------- ------------------------------------- M&I VRU Purchase Program Per quote - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 25 Delivery Services - ----------------------------------------------- --------------------------------------------------------------------------- HOME BANKING SERVICES - ----------------------------------------------- --------------------------------------------------------------------------- Touch-tone Bill Payment Implementation Fee 10,000.00 per institution Minimum Fee 750.00 per institution User Fee - option #1 3.25 per account Includes 24x7 customer service. Bill Payment Fee .35 per bill payment User Fee - option #2 4.75 per account 10 bill payments and 24x7 customer service included. Return Item/Stop Payment Fee 15.00 per occurrence Customer Set-up fee 10.00 per customer - ----------------------------------------------- ------------------------------------- ------------------------------------- PC Banking Direct PC Implementation Fee 30,000.00 per institution Minimum Fee 2,000.00 per institution Banking & Bill Payment User Fee Option #1 5.00 per customer Includes 24x7 customer service. Bill Payment Fee .35 per bill payment Option #2 8.00 per customer 10 bill payments and 24x7 customer service included. Touch Tone Bill Payment with PC Banking No charge Applies to stop payments/transfers Excess Stop Payments/Transfers .15 per occurrence in excess of 30 Return Item/Stop payment Fee 15.00 per occurrence Customer Set-up fee 10.00 per customer User Kit Fulfillment 2.00 per kit Conversion Training 600.00 per person Direct PC Banking Demonstrations Per quote Two day class. One person required to attend. - ----------------------------------------------- ------------------------------------- ------------------------------------- Direct Business Implementation Fee 30,000.00 per institution Minimum Fee 2,000.00 per institution Banking & Bill Payment User Fee Option #1 5.00 per customer Includes 24x7 customer service. Bill Payment Fee .35 per bill payment Option #2 8.00 per customer 10 bill payments and 24x7 customer services included. Touch Tone Bill Payment with PC Banking No charge Excess Stop Payments/Transfers .15 per occurrence Applies to stop payments/transfers Return Item/Stop Payment Fee 15.00 per occurrence in excess of 30. Customer Set-up fee 10.00 per customer User Kit Fulfillment 2.00 per kit Conversion Training 600.00 per person Direct Business Demonstrations Per quote Two day class. One person required to attend. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 26 Delivery Services - ----------------------------------------------- --------------------------------------------------------------------------- HOME BANKING SERVICES - ----------------------------------------------- --------------------------------------------------------------------------- Microsoft Money '98 Implementation Fee 30,000.00 per institution Minimum Fee 2,000.00 per institution Banking & Bill Payment User Fee Option #1 5.00 per customer Includes 24x7 customer service. Bill Payment Fee .35 per bill payment Option #2 8.00 per customer 10 bill payments and 24x7 customer Excess Stop Payments/Transfers .15 per occurrence service included. Return Item/Stop Payment Fee 15.00 per occurrence Applies to stop payments/transfers Customer Set-up fee 10.00 per customer in excess of 30. - ----------------------------------------------- ------------------------------------- ------------------------------------- Internet Banking DirectNet Implementation Fee 45,000.00 per institution Monthly Minimum 2,500.00 per institution Per User Fees - Banking Product Option #1 5.00 per customer Includes 24x7 customer service. Bill Payment Fee .35 per bill payment Option #2 8.00 per customer 10 bill payments and 24x7 customer service included. Excess Stop Payments/Transfers .15 per occurrence Applies to stop payments/transfers Check Image Fee .07 per item stored in excess of 30. Credit Card Add-on Module Implementation Fee 10,000.00 per institution Additional User Fee .50 per user Return Item/Stop Payment Fee 15.00 per occurrence Conversion Training 600.00 per student Two day class. One person required Direct Net Demonstrations Per quote to attend. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 27 Delivery Services - ----------------------------------------------- --------------------------------------------------------------------------- HOME BANKING SERVICES - ----------------------------------------------- --------------------------------------------------------------------------- Internet Services Web Site Services Implementation Fee Per quote Implementation fee depends on content, graphics, number of pages, and other variables. Hosting Fee 250.00 per Web site Includes up to 50MB storage space. Maintenance Account 100.00 per Web site Domain Name Registration 100.00 per name registered One time fee. Multi-media Add-on Per quote Audio Clip Per quote E-Mail 10.00 per account One time fee. Web Site Changes 80.00 per hour Refers to HTML and graphic changes. Programming Changes 140.00 per hour Refers to CGI or other programming Web Consulting Services 140.00 per hour changes. Electronic Commerce Services Per Quote Market Development Consulting Services 150.00 per hour Seminars M&I Customers 500.00 per day Non-M&I Customers 750.00 per day Call Center Customer Service Training Provided at M&I Data Services. Provided at M&I Data Services. Six Steps to a Successful Call 150.00 per person 1/2 day Voice Quality 150.00 per person 1/2 day Resolving Difficult Customer Situations 150.00 per person 1/2 day Sales Training Telephone Sales Conversation 500.00 per person 1 day Customer/Onsite Training/Consulting 150.00 per hour Travel Time 150.00 per hour Expenses as incurred - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 28 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- EFT SERVICES Refer to your account manager for one-time setup fees and other special project pricing. Regional and national network processing fees will be passed through at cost. - ---------------------------------------------- -------------------------------------- ------------------------------------- Network Administration Fee 75.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Terminal Support 1 - 15 150.00 per terminal 16 - 40 115.00 per terminal 41 - 125 75.00 per terminal 126 - 225 55.00 per terminal Over 225 20.00 per terminal - ---------------------------------------------- -------------------------------------- ------------------------------------- Point-of-sale (POS) Terminal Support 10.00 per terminal Dial Terminal--WATS .09 per transaction - ---------------------------------------------- -------------------------------------- ------------------------------------- Transaction Switching/Routing 1 - 50,000 .0489 per transaction 50,001 - 200,000 .0455 per transaction 200,001 - 500,000 .0420 per transaction 500,001 - 2,500,000 .039 per transaction Over 2,500,000 .027 per transaction - ---------------------------------------------- -------------------------------------- ------------------------------------- Cardbase Management Base Fee 150.00 per institution Cardholders 1 - 25,000 .088 per cardholder 25,001 - 50,000 .082 per cardholder 50,001 - 200,000 .08 per cardholder 200,001 - 750,000 .073 per cardholder Over 750,000 .067 per cardholder - ---------------------------------------------- -------------------------------------- ------------------------------------- Transaction Authorization (On Us) Positive Balance Authorization 1 - 750,000 .081 per transaction 750,001 - 2,500,000 .07 per transaction 2,500,001 - 5,000,000 .061 per transaction Over 5,000,000 .058 per transaction Negative File/Positive Files Without Balance Authorization .05 per transaction - ---------------------------------------------- -------------------------------------- ------------------------------------- CAF Support-TANDEM (customer selected PIN support) .036 per account - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 29 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- EFT SERVICES - ---------------------------------------------- -------------------------------------- ------------------------------------- VISA Check Card or MasterMoney Cardholder .125 per cardholder One Network Administration fee will be assessed per institution per month. If your institution is not invoiced for this fee, it will be added when VISA check or MasterMoney card is implemented. Special assessments, fines, and other fees from VISA will be passed through at cost. Transaction Authorization/Settlement This cardholder fee is in addition to the cardbase management "cardbase" fee. 1 - 750,000 .081 per transaction 750,001 - 2,500,000 .07 per transaction Transaction authorization 2,500,001 - 5,000,000 .061 per transaction settlement does not include the Over 5,000,000 .058 per transaction pass-through transaction fees from VISA Guarantee Fee .00715 per settled transaction VISA or MasterCard. Those fees are Compliance Fees (franchise .00091 percentage of gross settled daily directly to your counterfeit) sales institution. Minimum fee charge of $300 per quarter for associate-type and principal-type memberships. VISA Card Activation .15 per account and MasterCard are restructuring Lost/Stolen Cards Reported 8.25 per card prices in this area. Upon completion of their changes, M&I will reevaluate this price. - ---------------------------------------------- -------------------------------------- ------------------------------------- ATM Surcharging Terminal Support One-time fee of $2,000 per 1 - 15 50.00 per terminal institution and $20 per terminal 16 - 40 40.00 per terminal reload apply. Additional fees for 41 - 125 28.00 per terminal customized programming, multiple 126 - 225 15.00 per terminal screen load images, or surcharging Over 225 12.00 per terminal rates and network certification may apply. - ---------------------------------------------- -------------------------------------- ------------------------------------- Special ATM Transaction Support Setup fee applies. Stamp Dispensing No charge Dispensing transactions receive Phone Card Dispensing No charge standard switching/routing Check Cashing/coin Dispensing No charge transaction charge. - ---------------------------------------------- -------------------------------------- ------------------------------------- Dialup ATM Support 75.00 per terminal Customer is responsible for Transaction Fee .05 per transaction communications cost for circuit connecting the ATM to the phone company. This service is provided to allow M&I to periodically test the ATM. - ---------------------------------------------- -------------------------------------- ------------------------------------- PIN Production and Mailing .45 per account - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 30 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- EFT SERVICES Refer to your account manager for one-time setup fees and other special project pricing. Regional and national network processing fees will be passed through at cost. - ---------------------------------------------- -------------------------------------- ------------------------------------- Card Production (New/Reissue) Mass Reissue and Instant Issue Per quote Embossed, Returned to Institution .74 per card Fee is in addition to cost of Embossed, Inserted, Returned to plastic material. Institution .87 per card Mailed Direct to Cardholder 1.17 per card May increase incrementally with Marketing Inserts postage rate. 150 - 1,050 .055 per insert Minimum quantity of 150 inserts. 1,051 - 1,575 .05 per insert 1,576 - 4,200 .04 per insert 4,201 - 10,500 .03 per insert Over 10,500 .025 per insert Customer Card Carrier 90.00 per carrier type/institution Card Retrieval Request 30.00 per account Card "Destroy" Request 15.00 per account - ---------------------------------------------- -------------------------------------- ------------------------------------- Off-line Institution Premium 65.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Service Charging Transactions settled to customer Semiannual and Annual .30 per service charge accounts through ACH are subject to transaction M&I ACH transaction fees. Monthly .05 per service charge transaction - ---------------------------------------------- -------------------------------------- ------------------------------------- Transmissions--Activity/Balances (see Remote Site Support) - ---------------------------------------------- -------------------------------------- ------------------------------------- Name and Address List, Labels Base Fee 35.00 per request List .04 per account Labels .06 per label - ---------------------------------------------- -------------------------------------- ------------------------------------- Reruns 27.00 per additional run First two each month are free. - ---------------------------------------------- -------------------------------------- ------------------------------------- ATM Screen Changes One-time Screen Development 250.00 per terminal type Seasonal Screen Maintenance 175.00 per terminal type Reload Terminal 20.00 per terminal - ---------------------------------------------- -------------------------------------- ------------------------------------- ATM Statement Printing Institution must process Deposit Mini Statement .16 per page Accounts, Cardbase Management, and Full Statement .39 first page ATM at M&I. Additional Page .16 per page - ---------------------------------------------- -------------------------------------- ------------------------------------- Reports Hard Copy 27.00 per additional copy Microfiche 65.00 per institution Includes one fiche original and one fiche copy. Additional fiche copies available at $.40 per fiche card. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 31 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- EFT SERVICES Refer to your account manager for one-time setup fees and other special project pricing. Regional and national network processing fees will be passed through at cost. - ---------------------------------------------- ---------------------------------------------------------------------------- EFT One-time Setup Fees (mandatory) ATM Terminal 200.00 per terminal Card Activation 1,500.00 per institution Cardbase 400.00 per cardbase Cardbase Conversion Per quote Interface to Existing Networks 8,200.00 per institution Installation Per quote Institution 300.00 per institution New Network Certification Per quote EFT One-time Setup fees (optional) Statement Printing (full) 4,000.00 per institution Statement Printing (mini) 2,000.00 per institution Transmissions--Activity/Balances 1,325.00 per M&I format Training Per catalog See Education Center Service Bureau Training Catalog for determination of fees. - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES CARDHOLDER Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Automated Balance Transfer Checks 1 Check Kit 1.20 per kit 2 Check Kits 1.75 per kit 3 Check Kits 2.30 per kit Postage First Class Postal Rate Per kit - ---------------------------------------------- -------------------------------------- ------------------------------------- Auto Payment Auto Payment .0337 per payment Auto Payment Rejects 10.00 per payment reject - ---------------------------------------------- -------------------------------------- ------------------------------------- Card Issuance Card Issuance .50 per card Plastics--Regular .53 per generic card Plastics--Gold 1.25 per card Plastics--Customs Design Per Quote PIN Mailers .15 per account Postage First Class Postal Rate Per card or per PIN PIN Pulls 10.00 per request Card Pulls 20.00 per request Held Plastics 20.00 per card Emergency Card Issuance 10.00 per card - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 32 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES CARDHOLDER Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Card Receipt Verification CRV Access Fee (VRU) 1.00 per VRU call CRV Telecommunications Fee 25.00 CRV Operator Assistance 1.60 per manually assisted call - ---------------------------------------------- -------------------------------------- ------------------------------------- CIS Monthly CIS Interface 55.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Classic and Premier Checks Classic/Premier Check Booklets 7.00 per booklet ordered - ---------------------------------------------- -------------------------------------- ------------------------------------- Correspondence Letters Printed .30 per letter Overlimit Notices .05 per notice Past Due Notices .05 per notice Postage First Class Postal Rate Per letter or notice - ---------------------------------------------- -------------------------------------- ------------------------------------- Credit Services Control Card Development 125.00 per occurrence, per hour 750.00 minimum Control Card maintenance (On-Going) 125.00 per occurrence, per hour 750.00 minimum Scorecard Development (Pooled) 125.00 per occurrence, per hour 1,500.00 minimum Batch Feed Tape Error Charge (Ditto 150.00 per occurrence Review) Application Underwritten (Pre-approved/Non Pre-approved) 8.00 per application Pooled Scorecard Usage 0.63 per score, per application scored Credit Limit Increase Requests 8.00 per request underwritten Non-TRIAD - ---------------------------------------------- -------------------------------------- ------------------------------------- Processing Services Base Fee 100.00 per institution, per product Custom File Minimum Fee Actual Per custom file Account Support Fee 1.915 per account on file Daily Package Postage First Class Postal Rate Per package Authorizations .084 per authorization request Transaction Processing .049 per item processed Payment Processing Fee .189 per payment received at Lock Box Compliance Fee - Visa .00027 percentage of gross purchases Compliance Fee - MasterCard .00027 percentage of gross purchases and cash advances - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 33 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES CARDHOLDER Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Risk Management Lost/Stolen Cards 8.25 per account Fraud Detection System (Intercept) .03 per authorization & payment transaction - ---------------------------------------------- -------------------------------------- ------------------------------------- Statements Statements .41 per account Annual Summary Statements .45 per account Held Statements 20.00 per statement held Postage First Class Postal Rate Per statement - ---------------------------------------------- -------------------------------------- ------------------------------------- TRIAD Start Up Fee 2,500.00 Reporting Fee 250.00 per custom SPID level report Behavior Score Fee (Per Account Pricing) Per Quote Per score Monthly Management Fee 750.00 - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 34 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES CARDHOLDER Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Visa and MasterCard Fees Visa Franchise Fees .00069 percentage of gross purchases Visa Advertising/Marketing Fees .00015 percentage of gross purchases Visa Processing Guarantee Fees .013 per gross sale, credit, and cash advance item Visa Non-Charter Member Fee .0009 percentage of gross purchases Visa Surcharge for 20 Qtrs or Less .00069 percentage of gross purchases MasterCard Franchise Fees .00065 percentage of gross purchases .0002 percentage of cash advances MasterCard Daily Operations Fees .00015 percentage of gross purchases & cash adv. MasterCard INET Access Fee .018 per gross sale & cash advance item MasterCard Connectivity Fee 500.0 per principal member MasterCard Surcharge for 20 Qtrs or Less .000325 per gross sale & cash advance item Visa Exception File Fee Pass Through Per account listed Electronic Warning Bulletins--MasterCard Pass Through Per account listed Multiple/Foreign Listings Pass Through Per account listed Annual BIN Fees Pass Through Per BIN Inactive BIN Fees Pass Through Per BIN Emergency Card Replacement Service Pass Through Per BIN - ---------------------------------------------- -------------------------------------- ------------------------------------- NOTE: This list represents some of the more common association fees. Additional association fees incurred will be passed through. There will be a 25% handling fee assessed by BankCard Services to special assessments and fines. Association fees are established by MasterCard and Visa. The effective dates for fee changes are established by the associations. BankCard Services makes every effort to obtain fee changes from the associations and communicate the changes to you in a timely fashion - ---------------------------------------------- -------------------------------------- ------------------------------------- Welcome (Convenience) Checks Welcome Check Package 1.75 per package Includes postage Support Fee 15.00 Returned Items 5.00 per returned item Major Letter Revisions 150.00 per revision Minor Letter Revisions 35.00 per revision - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 35 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES VISA COMMERCIAL CARD Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Card Issuance Card Issuance .50 per card Plastics--Regular .53 per generic card Plastics--Custom Design Per Quote Per order PIN Mailers .15 per account Postage First Class Postal Rate Per card or per PIN PIN Pulls 10.00 per request Card Pulls 20.00 per request Held Plastics 20.00 per card Emergency Card Issuance 10.00 per card - ---------------------------------------------- -------------------------------------- ------------------------------------- Correspondence Letters Printed .30 per letter Overlimit Notices .05 per notice Past Due Notices .05 per notice Postage First Class Postal Rate Per letter or notice - ---------------------------------------------- -------------------------------------- ------------------------------------- Processing Services Base Fee 100.00 per institution, per product Custom File Minimum Fee Actual Per custom file Account Support Fee 1.915 per account on file Control Account Support Fee .75 per account Corporate Account Support Fee 1.00 per account Daily Package Postage First Class Postal Rate Per package Authorizations .232 per authorization request Transaction Processing .12 item processed Payment processing Fee .19 per payment received at Lock Box Compliance Fee - Visa .00027 percentage of gross purchases - ---------------------------------------------- -------------------------------------- ------------------------------------- Risk Management Lost/Stolen Cards 8.25 per account Fraud Detection System (Intercept) .03 per authorization & payment transaction - ---------------------------------------------- -------------------------------------- ------------------------------------- Statements Individual Statements .45 per statement Corporate Statements 1.50 per statement Control Statements 1.50 per statement Multi-page Statement (after 4 pages) .03 per page Held Statements 20.00 per statement held Postage First Class Postal Rate Per statement - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 36 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES VISA COMMERCIAL CARD Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Visa Fees Visa Franchise Fees .00069 percentage of gross purchases Visa Advertising/Marketing Fees .00015 percentage of gross purchases Visa Processing Guarantee Fees .013 per gross sale, credit and cash advance item Visa Exception File Fee Pass Through Per account listed Visa Non-Charter Member Fee .0009 percentage of gross purchases Visa Surcharge for 20 Qtrs or Less .00069 percentage of gross purchases Multiple/Foreign Listings Pass Through Per account listed Annual BIN Fees Pass Through Per BIN Inactive BIN Fees Pass Through Per BIN Emergency Card Replacement Service Pass Through Per Card - ------------------------------------------------------------------------------------- ------------------------------------- NOTE: This list represents some of the more common association fees. Additional association fees incurred will be passed through. There will be a 25% handling fee assessed by BankCard Services to special assessments and fines. Association fees are established by MasterCard and Visa. The effective dates for fee changes are established by the associations. BankCard Services makes every effort to obtain fee changes from the associations and communicate the changes to you in a timely fashion. - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES MERCHANT Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Expanded Services Customer Service .75 per account 2.50 per call Risk Monitoring 1.49 per account Merchant Underwriting 10.00 per application New Merchant Training 35.00 per new account Portfolio Management Per Quote Percentage of net sales Agent Bank Program Per Quote - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 37 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES MERCHANT Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Global Payment Systems (National Data Corporation and MAPP) Authorizations Voice .615 per request Voice AVS .30 per request ARU WATS .50 per request Dial Terminal Local .079 per request Dial Terminal 950 .095 per request Dial Terminal WATS .135 per request Terminal AVS .02 per request Draft Capture Electronic Drafts .055 per draft Electronic Deposits .10 per deposit Help Desk (mandatory) 1.50 per merchant, per terminal PC Help Desk (mandatory) 3.00 for the first 3 minutes .85 for each add'l minute Inactive Terminal I.D. Fee 3.00 per inactive T.I.D. - ---------------------------------------------- -------------------------------------- ------------------------------------- MIARRS (Risk Reporting Services) Accounts on file 1.09 per account MIARRS Faxes .30 per fax page - ---------------------------------------------- -------------------------------------- ------------------------------------- Processing Services Base Fee Gross Deposit 100.00 per institution Net Deposit 200.00 per institution Cash Advance Institutions Only 100.00 per institution Custom File Minimum Fee Actual Per custom file Account Support Fee 3.20 per account Daily Package Postage First Class Postal Rate Per daily package Transaction Processing .039 per transaction Deposit Entry .039 per deposit Paper Draft Entry .31 per paper draft Chargebacks 12.50 per chargeback Statements .39 per statement Postage First Class Postal Rate Per statement Monthly Discount ACH Billing .25 per ACH item Compliance Fee - Visa .00023 percentage of gross sales Compliance Fee - MasterCard .00023 percentage of gross sales and cash advances - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 38 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES MERCHANT Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- TELEMONEY (Effective March 1, 1998, merchants Authorizations will no longer be added to Dial Terminal Local .10 per request TELEMONEY) Dial Terminal 950 .115 per request Dial Terminal WATS .185 per request Terminal AVS .02 per request Draft Capture Electronic Drafts .055 per draft Electronic Deposits .10 per deposit Help Desk (mandatory) 2.00 per merchant, per terminal Inactive Site I.D. Fee 3.00 per inactive site I.D. - ---------------------------------------------- -------------------------------------- ------------------------------------- TIRS Reports Faxes .30 per fax page - ---------------------------------------------- -------------------------------------- ------------------------------------- Visa and MasterCard Fees Visa Franchise Fees .00084 percentage of gross sales Master Card Franchise Fees .00095 percentage of gross sales and cash advances Interchange Fees Pass Through Net sales per item MasterCard Connectivity Fee 500.00 per principal member - ------------------------------------------------------------------------------------- ------------------------------------- NOTE: This list represents some of the more common association fees. Additional association fees incurred will be passed through. There will be a 25% handling fee assessed by BankCard Services to special assessments and fines. Association fees are established by MasterCard and Visa. The effective dates for fee changes are established by the associations. BankCard Services makes every effort to obtain fee changes from the associations and communicate the changes to you in a timely fashion. - ---------------------------------------------- -------------------------------------- ------------------------------------- VITAL Processing Services (VISANET) Authorizations Dial Terminal Local .079 per request Dial Terminal 950 .095 per request Dial Terminal WATS .135 per request Terminal AVS .02 per request Draft Capture Electronic Drafts .055 per authorization request Electronic Deposits .10 per deposit Help Desk (mandatory) 4.00 per merchant, per terminal - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 39 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES SUPPORT SERVICES Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Account Processing Rush Applications 10.00 per application Rush Maintenance 10.00 per request Application & Form Non-Compliance Fee 10.00 per submitted non-compliant item - ---------------------------------------------- -------------------------------------- ------------------------------------- Card Delivery Rush Fast Card - Business Day 20.00 per card Fast Card - Saturday Delivery 30.00 per card - ---------------------------------------------- -------------------------------------- ------------------------------------- Custom System Reports Masterfile Tape Request Per Quote Per reel, per request CA7 Scheduler Setup Per Quote Tandem Range Report 125.00 per report Mark IV (Media-Hardcopy Report) 120.00 per hour 100.00 per report Mark IV (Media-Tape) 120.00 per hour 95.00 per tape Mark IV (Media-Mailing Labels) 120.00 per hour .04 per label (75.00 minimum) - ---------------------------------------------- -------------------------------------- ------------------------------------- Exceptions Exception Processing Estimated per exception Dual Account Support Fee 2.00 per dual account Applied in addition to the account Payment Rejects 10.00 per payment reject support fee. Daily Settlement Faxes 50.00 per institution - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 40 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES SUPPORT SERVICES Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Merchant Support Fees New Association Setup Fee 200.00 per new association Rush Fee (Set-up, Billing, Maintenance, 10.00 per request etc.) Transaction (MRA) Reject Fee 10.00 per item Forms Non-Compliance Fee 10.00 per submitted non-compliant form Crtfd Apps/Hardware Non-Compliance Fee 1,000.00 per non-compliant app/hdwr reject ACH Return Fee 20.00 per item Merchant Customer Service 10.00 per merchant, per call Data Transmissions Per Quote Magnetic Tape handling Per Quote Crtfd Apps/Hardware Review Fee 500.00 per new request to review/research Terminal Download Programming 25.00 per non-BCS sold terminal Hypercom Terminal Download 25.00 per Hypercom terminal MAPP Monthly Operating Fee (custom banks only) 940.00 MAPP RJE File Fee (custom banks only) 125.00 MAPP Microfiche Recreates 25.00 per recreate MAPP On-Line Access Per Quote VISANET OLI Fee 190.00 per User ID VISANET OLA Fee 190.00 per User ID VISANET Transaction File Delivery 190.00 Applies to Custom banks only - ---------------------------------------------- -------------------------------------- ------------------------------------- Programming Requests Agent Setup - TS1 200.00 per agent Client Product Code Setup - TS2 Per Quote Per code Bank Control Option Changes 50.00 per request Adding/Removing Hardcode Per Quote Cost/Timeframe Request 125.00 minimum per request File Update Per Quote RMS3 Report Change, Add, Delete 100.00 per request Code Scans Per Quote Correlation Changes/New 50.00 - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 41 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES SUPPORT SERVICES Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Programming Requests Mark IV (Media-Buck Slips) 120.00 per hour .04 per slip (75.00 minimum) Mark IV (Media - Diskette) 120.00 per hour 50.00 per diskette Total Access (Media - Hardcopy Report) 120.00 per hour 100.00 per report Total Access (Media - Tape) 120.00 per hour 100.00 per tape Total Access (Media - Diskette) 120.00 per hour 50.00 per diskette Total Access (Media - Label Setup) 75.00 per set-up 120.00 per hour .05 label Total Access (Media - download S drive) 100.00 per download Total Access (Internet Transfers) 50.00 plus media output cost per transfer Total Access Rush Charges A request not meeting standard Reduce standard time frame: time-frames will incur rush costs. 25% price doubles 50% price triples 75% price quadruples - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 42 Delivery Services - ---------------------------------------------- ---------------------------------------------------------------------------- BANKCARD SERVICES SUPPORT SERVICES Prices are subject to change with 30 days' prior notice. - ---------------------------------------------- -------------------------------------- ------------------------------------- Projects Statement Inserts Non-Select Per Quote Per non-select Statement Inserts Selective 125.00 per bank .075 per account Statement Inserts 100% billing 125.00 per bank PR Statement Messages - Cardholder Tandem Range Controls No Charge Automatic Credit Line Increase 125.00 per hour Skip-A-Payment Per Quote Annual Summary Statement Per Quote Solicitations Per Quote Custom Projects Per Quote Change in Terms Per Quote 1098 Project Per Quote Form 1,250.00 set-up 1099C Project .10 per form Form 315.00 per bank CIS Interface Setup Per Quote Bonus Point Program Per Quote CRV Setup Fee Per Quote Per bank Welcome Checks Setup Fee-Custom 500.00 one time Welcome Checks Setup Fee-Generic 150.00 one time, per version Auto Pay Enrollment Fee 50.00 one time, per version Business Report Distribution 300.00 per institution, one time Special Logo Setup Fee-Classic/Premier Per Quote Per company, per mailing 120.00 Per Classic/Premier RLT Letter Setup Fee check setup Audit Confirmations 5.00 per letter Plastic Orders (Custom File) Per Quote Invoice Total +30% - ---------------------------------------------- -------------------------------------- ------------------------------------- Research Due Diligence 100.00 per request, per hour Fiche Retrieval 2.00 per page Research Requests 25.00 per request, per hour One hour minimum applies - ---------------------------------------------- -------------------------------------- ------------------------------------- Statement Copy Requests 01-25 copies 2.00 per statement 50 copies plus Per Quote - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 43
THIS PAGE INTENTIONALLY LEFT BLANK - -------------------------------------------------------------------------------- M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Confidential Effective March 1, 1998 Page 44 Information Management - -------------------------------------------------------------------------------- - ---------------------------------------------- ---------------------------------------------------------------------------- INFORMATION DESKTOP Five hours of support per month per contract institution provided at no additional charge. Additional support will be billed at $140.00 per hour. - ---------------------------------------------- ---------------------------------------------------------------------------- Data Management Fee (DataBank) Per quote Pricing depends on customer's specific requirements. - ---------------------------------------------- -------------------------------------- ------------------------------------- Desktop Fee Includes software license fees for Workstation Software Per quote InFormatter and Report Edge. - ---------------------------------------------- -------------------------------------- ------------------------------------- InFormatter Report Production Per quote Pricing depends on customer's specific requirements. - ---------------------------------------------- -------------------------------------- ------------------------------------- Data Solutions Use of the DataBank for deposit, Asset/Liability Per quote loan, and general ledger is a Call Report Per quote prerequisite for these services. Third-party asset/ liability or call report software not included. - ---------------------------------------------- -------------------------------------- ------------------------------------- Report Edge CPU Usage .10 per CPU second Applicable only to Report Edge usage (not InFormatter). - ---------------------------------------------- -------------------------------------- ------------------------------------- Training Instructor's/Consultant's travel Introduction to Report Edge (2 days) 600.00 per person expenses and travel time, as well Introduction to InFormatter (2 days) 600.00 per person as equipment costs for services Financial Reporting With Report Edge provided at alternate locations, (1 day) 300.00 per person are the responsibility of the Advanced InFormatter (2 days) 600.00 per person customer. Advanced Report Edge (2 days) 600.00 per person Consulting Per quote - ---------------------------------------------- ---------------------------------------------------------------------------- RAMIS Setup fee may apply for RAMIS application extracts. Contact the INFO Center for prices. - ---------------------------------------------- -------------------------------------- ------------------------------------- Base Fee 50.00 per contract institution Includes the INFO Center newsletter, one hour of hotline support, product updates, and user conferences. Required for RAMIS institutions. - ---------------------------------------------- -------------------------------------- ------------------------------------- RAMIS Application Extracts Deposit System extracts occur twice Deposit System .021 per open & closed account per month. More frequent extracts are available. Contact the INFO Center for prices. Financial Control .0485 per open & closed account/cost Financial Control extracts occur center once per month. More frequent extracts are available. Contact the INFO Center for prices. Loan System .0439 per open & closed Loan System extracts occur twice account or commitment per month. More frequent extracts are available. Contact the INFO Center for prices. CIS Customer Files .012 per customer CIS extracts occur twice per month. More frequent extracts are available. Contact the INFO Center for prices. Cardbase Management .0079 per open & closed cardholder Cardbase Management extracts occur daily. .1313 per sales session Salestracking extracts occur once Salestracking per month for history and once per week for the customer file. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 45 Information Management - ---------------------------------------------- ---------------------------------------------------------------------------- RAMIS Setup fee may apply for RAMIS application extracts. Contact the INFO Center for prices. - ---------------------------------------------- -------------------------------------- ------------------------------------- RAMIS Application Extracts (continued) Account Analysis extracts occur Account Analysis twice per month based on Bank Detail Account File .0042 per record Control frequency. Service Fee File .0004 per record - ---------------------------------------------- -------------------------------------- ------------------------------------- RAMIS Usage Based on IBM Model 3090E. Price is CPU Fee .0019 per 1/100 CPU second adjusted according to relative CPU power of current CPU. - ---------------------------------------------- -------------------------------------- ------------------------------------- Training CPU usage charges accrued during Beginning RAMIS (2 days) 420.00 per person/per course the class are not included in the All Other RAMIS Courses (1 day) 210.00 per person/per course course fee. Services are provided at M&I datacenters in Brown Deer, Wisconsin, or Tampa, Florida. Training sessions can be scheduled on-site for institutions with six or more people attending. Please contact the INFO Center for more information. Instructor's travel expenses and travel time, as well as equipment costs for services provided at alternate locations, are the responsibility of the customer. - ---------------------------------------------- -------------------------------------- ------------------------------------- RAMIS Download Facility Does not include communication Setup and Configuration 1,000.00 per workstation software, link, and hardware. Base Fee 105.00 per institution Contact the INFO Center for detailed requirements. - ---------------------------------------------- -------------------------------------- ------------------------------------- RAMIS Consulting/Custom Programming 140.00 per hour (1 hr. minimum fee) Consultant's travel expenses and travel time, as well as equipment costs for services provided at alternate locations, are the responsibility of the customer. RAMIS CPU charges apply. - ---------------------------------------------- -------------------------------------- ------------------------------------- Data Transfer Facility (DTF) Setup Fee 450.00 per institution Base Fee--Data File 90.00 per institution Software Applications CALL REPORTER II Less Than 100M Assets 30.00 per institution 100M - 300M Assets 40.00 per institution Greater Than 300M Assets 45.00 per institution With Foreign Offices 80.00 per institution Holding Company 45.00 per holding company consolidation Postage 10.00 per quarter/per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- IPS Upload Setup and Configuration 1,500.00 per workstation - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 46 Information Management - ---------------------------------------------- ---------------------------------------------------------------------------- STAR VIEW Setup fee applies. Load and storage fees are invoiced separately for deposits, loans, general ledger, electronic funds, and deposit statements. All other applications are combined for billing purposes. - ---------------------------------------------- ---------------------------------------------------------------------------- Full System Administration 115.00 per institution Total system administration performed by M&I. Partial System Administration 65.00 per institution Partial system administration performed by client. - ---------------------------------------------- -------------------------------------- ------------------------------------- Load Fee .0036 per report page loaded to STAR View - ---------------------------------------------- -------------------------------------- ------------------------------------- Disk Storage No charge Disk storage is provided for the time period when reports are frequently accessed, or when immediate response time is required based on the historical report access frequency, and is managed by M&I. - ---------------------------------------------- -------------------------------------- ------------------------------------- Tape Storage .00001 per report page, per day Tape retention is available for up retained to two years of storage. - ---------------------------------------------- -------------------------------------- ------------------------------------- Optical Storage--7 Years .007 per report page Initially reports are also stored on loaded to Optical 7 disk at no additional charge. The length of disk storage time depends on the frequency the report is accessed. - ---------------------------------------------- -------------------------------------- ------------------------------------- Optical Storage--10 Years .009 per report page loaded to Initially reports are also stored on Optical 10 disk at no additional charge. The length of disk storage time depends on the frequency the report is accessed. - ---------------------------------------------- -------------------------------------- ------------------------------------- Optical Retention--Statement Viewing .01 per statement page loaded to optical - ---------------------------------------------- -------------------------------------- ------------------------------------- Initial Setup Fee 500.00 per institution - ---------------------------------------------- -------------------------------------- ------------------------------------- Training Training is held in the form of a STAR View -- Viewing 140.00 per hour for up to 3 students conference call. Call the INFO Center training coordinator, STAR View -- Administrator 140.00 per hour for up to 3 students Extension 69055, for more information. STAR RDS -- Administrator 140.00 per hour for up to 3 students - ---------------------------------------------- ---------------------------------------------------------------------------- MICROFICHE - ---------------------------------------------- ---------------------------------------------------------------------------- Original .008 per report page Minimum Fee .80 per fiche card Duplicate Fiche Copies First Copy No charge Additional Fiche Copies .40 per fiche card - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 47 Information Management - ---------------------------------------------- ---------------------------------------------------------------------------- REMOTE SITE SUPPORT Setup fee applies. Prices exclude telecommunication costs. - ---------------------------------------------- -------------------------------------- ------------------------------------- Remote Report Printing Credit Deposit System (.14) per account Accounts include open level 0 Loan System (.20) per open note accounts and open time IDs. Financial Control (General Ledger) (.25) per account - ---------------------------------------------- -------------------------------------- ------------------------------------- Transmission Fee (Daily) 6.75 per transmission - ---------------------------------------------- -------------------------------------- ------------------------------------- New Transmission Setup to a New Destination Includes establishing a new ID Per quote destination ID, JCL, allocating datasets, establishing communication link and up to 2 tests. Remote transmission setup may require additional hardware and software costs which are not included in this price. - ---------------------------------------------- -------------------------------------- ------------------------------------- New Transmission Setup to an Existing Includes JCL, allocating datasets, Destination ID Per quote and up to 2 tests. Remote transmission setup may require additional hardware and software costs which are not included in this price. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 48 Client Support Services - ---------------------------------------------- ---------------------------------------------------------------------------- THE SUPPORT CENTER - ---------------------------------------------- -------------------------------------- ------------------------------------- Report Reruns For Most Recent 10 Processing Days Or One Previous Month-end 50.00 per request Older Data Files Per quote Older file dates may not be available. - ---------------------------------------------- -------------------------------------- ------------------------------------- Balancing - Deposit/Loan or General Ledger Phone Support 140.00 per hour Minimum charge of 1 hour applies. On-site Training/Support 1,000.00 per day plus travel expenses - ---------------------------------------------- -------------------------------------- ------------------------------------- Account Number Generation Request Fee 35.00 per request List .04 per account Labels .06 per label - ---------------------------------------------- -------------------------------------- ------------------------------------- Bank Control Changes 140.00 per hour Applicable to changes requested on nonrestricted fields/segments. Minimum charge of one hour applies. - ---------------------------------------------- ---------------------------------------------------------------------------- NETWORK SERVICES - ---------------------------------------------- -------------------------------------- ------------------------------------- Network Design 3,000.00 per design Examples include designs done for reengineering or disaster recovery purposes. - ---------------------------------------------- -------------------------------------- ------------------------------------- Network Implementation 750.00 per location Applicable for new locations or when moving existing offices. One request required per location. - ---------------------------------------------- -------------------------------------- ------------------------------------- Change Request Not applicable for new locations, (Terminal Line Authorization) 50.00 per request moving existing offices or new product purchases (e.g., PCTeller). One request required per location. - ---------------------------------------------- -------------------------------------- ------------------------------------- Late Change Request Applies to requests received with (Terminal Line Authorization) 150.00 per request one week or less lead time. Every effort will be made to complete request, but completion cannot be guaranteed. Incomplete requests are not charged. One request required per location. - ---------------------------------------------- -------------------------------------- ------------------------------------- Professional Services 200.00 per hour One hour minimum. - ---------------------------------------------- -------------------------------------- ------------------------------------- Network Consulting 200.00 per hour One hour minimum. - ---------------------------------------------- -------------------------------------- ------------------------------------- Advantis Network Connectivity Dial Services - Local-Prime .065 per 1/100 hour Dial Services - Local-Nonprime .030 per 1/100 hour 800 Dial Surcharge .0775 per 1/100 hour Applies to prime and nonprime hours - ---------------------------------------------- -------------------------------------- ------------------------------------- Circuits Per quote - ---------------------------------------------- -------------------------------------- ------------------------------------- CPI Communication Line 500.00 per institution Fee subject to change based on third party vendor and customer usage changes. Applicable to customers who use CPI for mortgage processing. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 49 Client Support Services - ---------------------------------------------- ---------------------------------------------------------------------------- NETWORK SERVICES - ---------------------------------------------- -------------------------------------- ------------------------------------- Equipment Per quote - ---------------------------------------------- -------------------------------------- ------------------------------------- Network Support Logical unit volume is based on the M&I Managed Network Support number of terminals defined to the 1-100 Logical units (LUs) 4.00 per LU M&I network. 101-300 Logical units (LUs) 3.00 per LU 301-800 Logical units (LUs) 2.50 per LU over 800 Logical units (LUs) 2.00 per LU Customer Managed Network Support 1.00 per LU Modem Support Per unit Fee based on modem characteristics and reflects pass through cost. - ---------------------------------------------- ---------------------------------------------------------------------------- SERVICES CONTINUITY Several M&I-owned facilities around the United States are available as proof encoding, item processing, and print-back hot sites. Our item processing recovery has been enhanced to include full POD and bulk file services. Additional setup and testing fees may apply. When a disaster occurs, a declaration fee and usage fee will apply. - ---------------------------------------------- -------------------------------------- ------------------------------------- Assets up to $200 Million The setup fee includes programming, Setup Fee 8,000.00 per institution product support, plan assessment, plan presentation, and the creation of a manual. Start-up fees for multibank holding companies will be determined on a case-by-case basis. Monthly Base Fee 300.00 per institution Monthly fees include one test per year. Monthly fees for multibank holding companies will be determined on a case-by-case basis. Declaration Fee 1,500.00 per occurrence This represents the minimum fee if a disaster is declared. Additional Support Per quote Transaction Fees Current price Transaction fees are dependent on the services utilized. Each M&I datacenter has unique item pricing. - ---------------------------------------------- -------------------------------------- ------------------------------------- Assets Between $200 Million and $500 Million Setup Fee 12,000.00 per institution Please refer to notes above. Monthly Base Fee 375.00 per institution Please refer to notes above. Declaration Fee 2,000.00 per occurrence Please refer to notes above. Additional Support Per quote Transaction Fees Current price Please refer to notes above. - ---------------------------------------------- -------------------------------------- ------------------------------------- Assets Over $500 Million Setup Fee 17,500.00 per institution Please refer to notes above. Monthly Base Fee 500.00 per institution Please refer to notes above. Declaration Fee 4,000.00 per occurrence Please refer to notes above. Additional Support Per quote Transaction Fees Current price Please refer to notes above. - ---------------------------------------------- -------------------------------------- ------------------------------------- Services Continuity Consulting Per quote - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 50 Client Support Services - ---------------------------------------------- ---------------------------------------------------------------------------- SERVICES CONTINUITY Several M&I-owned facilities around the United States are available as proof encoding, item processing, and print-back hot sites. Our item processing recovery has been enhanced to include full POD and bulk file services. Additional setup and testing fees may apply. When a disaster occurs, a declaration fee and usage fee will apply. - ---------------------------------------------- -------------------------------------- ------------------------------------- Customer Site Validation Option 10,000.00 per institution This service is provided to allow Circuit Related Costs Pass through customers to validate hardware and Optional/Customized Testing Per quote communication links to the hot site and validate the recovered data. Optional/Customized Testing includes, but is not limited to, customer requested third party vendor testing, dual hot site support, and abnormal tape support. - ---------------------------------------------- -------------------------------------- ------------------------------------- Customized Services Communications Network Restoration PC, LAN, and WAN Recovery Per quote Recovery Planning Consulting Services Per quote Other Customized Services Per quote Per quote - ---------------------------------------------- ---------------------------------------------------------------------------- USER MANUALS - ---------------------------------------------- -------------------------------------- ------------------------------------- Deposit User Manual 600.00 per additional set Two sets of deposit and loan user Loan User Manual 700.00 per additional set manuals are provided at no charge. - ---------------------------------------------- -------------------------------------- ------------------------------------- Individual User Manuals 100.00 per additional volume One volume of all other user manuals is provided at no charge. - ---------------------------------------------- -------------------------------------- ------------------------------------- On-line Documentation 1,500.00 per year Annual fee is reduced to $500 if paper updates are discontinued. - ---------------------------------------------- ---------------------------------------------------------------------------- PROGRAMMING AND DEVELOPMENT - ---------------------------------------------- ---------------------------------------------------------------------------- Programming 140.00 per hour Product Development 140.00 per hour Product Support 140.00 per hour - ---------------------------------------------- -------------------------------------- ------------------------------------- CONSULTING SERVICES - ---------------------------------------------- -------------------------------------- ------------------------------------- Profit Improvement Review Per quote Operational Review Per quote - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 51 Client Support Services - ---------------------------------------------- ---------------------------------------------------------------------------- EDUCATION SERVICES Please see the Education Center's 1998 Service Bureau Training Catalog for course descriptions, dates, and additional services. - ---------------------------------------------- -------------------------------------- ------------------------------------- Product Workshops One-day Class 300.00 per student Prices apply to classes conducted Two-day Class 500.00 per student at the Brown Deer Operations Three-day Class 700.00 per student Center. Prices will vary for Four-day Class 850.00 per student classes conducted elsewhere. Five-day Class 1,000.00 per student - ---------------------------------------------- -------------------------------------- ------------------------------------- Customized Training/Consulting 140.00 per hour - ---------------------------------------------- -------------------------------------- ------------------------------------- Training Center Room Rental Per quote - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 52
ADDITIONAL SERVICES - ---------------------------------------------- ------------------------------- Account Reconciliation Auto Check Pay Per quote - ---------------------------------------------- ------------------------------- BankCard Services Special Services Per quote - ---------------------------------------------- ------------------------------- Bond On-line Trading Per quote - ---------------------------------------------- ------------------------------- Construction Lending Per quote - ---------------------------------------------- ------------------------------- Controlled Disbursement Per quote - ---------------------------------------------- ------------------------------- Conversion Per quote - ---------------------------------------------- ------------------------------- Datacenter Services Proof Encoding Per quote Item Capture/Proof of Deposit Per quote Item Sorting/Bulk File Per quote Lockbox Per quote Statement Rendering Per quote - ---------------------------------------------- ------------------------------- Deconversion Tapes Per quote - ---------------------------------------------- ------------------------------- Delivery/Postage Per quote - ---------------------------------------------- ------------------------------- Deposit Memo Post/Intra Day Posting Per quote - ---------------------------------------------- ------------------------------- Depository Transfer Service Per quote - ---------------------------------------------- ------------------------------- Discount Brokerage Per quote - ---------------------------------------------- ------------------------------- Management Information Link (MIL) Per quote - ---------------------------------------------- ------------------------------- MICASH Control System Per quote - ---------------------------------------------- ------------------------------- Microfilming Per quote - ---------------------------------------------- ------------------------------- Multiple Session Manager (TPX) Per quote - ---------------------------------------------- ------------------------------- Office Communications Per quote - ---------------------------------------------- ------------------------------- Ported Systems Per quote - ---------------------------------------------- ------------------------------- Sharedraft Processing Per quote - ---------------------------------------------- ------------------------------- Specialized Data Entry Per quote - ---------------------------------------------- ------------------------------- Supplies--Partnership Plus Per quote - ---------------------------------------------- ------------------------------- Tape Creation Per quote - ---------------------------------------------- ------------------------------- Teller Cassettes/Diskettes Maintenance Per quote - ---------------------------------------------- ------------------------------- Travel Per quote - ---------------------------------------------- ------------------------------- Video Conferencing Per quote - ---------------------------------------------- ------------------------------- - ------------------------------------------------------------------------------ M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Confidential Effective March 1, 1998 Page 53 THIS PAGE INTENTIONALLY LEFT BLANK. - ------------------------------------------------------------------------------ M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Confidential Effective March 1, 1998 Page 54
Appendix A-System Reports - -------------------------------------------------------------------------------- Number of Copies Provided Recommended The Deposit System Reports in Numerical Order: at No Charge (1) Frequency -------------- ----------------- ---------- R-0110 Deposit Card Dollar List 2 Daily R-0120 Card Entry Pack 2 Daily R-0120 Card Entry Update 2 Daily R-0140 Customer Labels Report 0 (2) R-0150 Merge Control Totals 2 Daily R-0150 Merge Control Totals 2 Daily R-0151 Merge Totals By Source 2 Daily R-0200 On-line Trial Balance 0 (3) R-0202 Teller Detailed No-book Report 1 Monthly R-0205 On-line No-Book Exceptions 2 Daily R-0210 Teller Transaction Journal 2 Daily R-0211 Teller LEOD Transaction Journal 2 Daily R-0212 Teller Funds Availability Exception Report 2 Daily R-0220 Teller Terminal Totals 2 Daily R-0230 Teller Host Totals 2 Daily R-0231 Teller LEOD Host Totals 2 Daily R-0240 Check Authorization Report 2 Daily R-0250 On-line Dollar Transaction Journal 2 Daily R-0255 Batch Transaction Journal 2 Daily R-0260 On-line Dollar G/L Interface 2 Daily R-0265 On-line Dollar User ID Totals 2 Daily R-0270 On-line Dollar Reversal Report 2 Daily R-0280 Transaction Monitor Profile Maintenance 2 Daily R-0290 On-line Account Update 2 Daily R-0293 Overdraft EOD Returned Items 2 Daily R-0294 On-line Exception Totals 2 Daily R-0295 EOD Exception Disposition 2 Daily R-0296 CRT/Item Processing Comparison Suspects 2 Daily R-0298 On-line Exception Decisions Direct/Analysis/Waive Fee Sum. 2 Daily R-0320 ZIP Code Analysis 2 Monthly R-0340 Service Charge Test 0 (4) R-0345 Reaccrual Processing 0 (5) R-0346 Interest Plan Test Processing 0 (5) R-0350 Summary of Deposits 0 (2) R-0360 FDIC Summary of Accounts and Deposits 0 (2) R-0405 Account Analysis Summary of Reports 0 (6) R-0410 Account Analysis Error Report 0 (6) R-0420 Account Analysis Summary 2 Monthly R-0500 Rev Credit/LOC Avl Balance Update 2 Daily R-1000 Trial Balance 0 (2) (1) Charge for additional deposit report copies can be found on page 2 of the Product Price List under Reports--Standard. (2) Charges can be found on page 3 of the Product Price List under Reports--Nonstandard. (3) Charges per report can be found on page 4 of the Product Price List under On-line Services. (4) Charges per report can be found on page 3 of the Product Price List under Deposit Services. (5) Charges per report can be found on page 2 of the Product Price List under Deposit Services. (6) Charges for deposit account analysis can be found on page 20 of the Product Price List. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 55 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Deposit System Reports in Numerical Order: at No Charge (1) Frequency -------------- ----------------- ---------- R-1001 Trial Balance 0 (2) R-1002 Dormant Trial Balance 2 Daily R-1003 Escheatment Suspect Report 2 Monthly R-1008 Consumer Account Profile 2 Daily R-1009 Rev/Credit LOC Transaction Journal 2 Daily R-1010 Transaction Journal 1 (2) R-1011 List of Reports 2 Daily R-1013 Accrual Adjustment Report 2 Daily R-1015 Control Totals 2 Daily R-1016 Control Totals 4 Daily R-1018 PRA/LOC Detail Totals 2 Daily R-1019 PRA/LOC Control Totals 2 Daily R-1020 PRA/LOC Trial Balance 2 Daily R-1031 New Overdraft Accounts 2 Daily R-1032 New Overdraft Account Detail 2 Daily R-1040 Stop Payment Maintenance 2 Daily R-1041 Stop Payment Suspects 2 Daily R-1045 New Stop Payment Notice 2 Daily R-1050 Hold Maintenance 2 Daily R-1051 Hold Report 2 Daily R-1060 Nonposted Transactions 2 Daily R-1070 Special Transactions 2 Daily R-1080 Transaction Reversals 2 Daily R-1200 Automatic Transfer (ATS) 2 Daily R-1220 Automatic Transfer Maintenance 2 Daily R-1230 Automatic Transfer Transactions 2 Daily R-1241 Sweep Report 0 (2) R-1400 Cash Flows Withdrawals-Time Deposit 2 Monthly R-1401 Cash Flows Deposit/Sales-Time Dpt 2 Monthly R-1402 Cash Flows New PRA/LOC Loans 2 Monthly R-1403 Cash Flows Principal Payments 2 Monthly R-2020 New Accounts 2 Daily R-2030 Account Master Changes 2 Daily R-2031 Federal Withholding Exemption Change Report 2 Daily R-2040 Old Overdraft Accounts 2 Daily R-2042 Overdraft Accounts by Officer 2 Daily R-2043 High Dollar Overdraft Accounts 2 Daily R-2044 Exceptions by Account 2 Daily R-2045 Exceptions by Control Sequence 2 Daily R-2050 Kiting Suspect 2 Daily R-2051 Large Transaction 2 Daily R-2055 High Activity 2 Daily R-2056 Excessive Transaction 2 Daily R-2057 Excessive Transaction History 2 Daily (1) Charge for additional deposit report copies can be found on page 2 of the Product Price List under Reports--Standard. (2) Charges can be found on page 3 of the Product Price List under Reports--Nonstandard. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 56 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Deposit System Reports in Numerical Order: at No Charge (1) Frequency -------------- ----------------- ---------- R-2058 Value Dated Transaction 2 Daily R-2059 Value Dated Adjustments 2 Daily R-2060 Balance Fluctuation 2 Daily R-2070 Large Balance Report 2 Daily R-2080 Uncollected Funds 2 Daily R-2085 Expedited Funds Availability Exceptions 2 Daily R-2086 Expedited Funds Availability Suspects 2 Daily R-2092 Stop Payments 2 Daily R-2100 NSF Activity 2 Daily R-2105 NSF Income Summary 2 Daily R-2110 Coded Accounts Audit 2 Daily R-2150 Address Changes 2 Daily R-2160 Special Mail Instructions 2 Daily R-2180 Collection-Disbursement 2 Daily R-2190 New Inactive/Dormant Accounts 2 Daily R-2191 Inactive/Dormant Notice 2 Daily R-2193 Escheated Funds Report 2 Daily R-2210 Zero Balance Accounts 2 Daily R-2220 Closed Accounts 2 Daily R-2225 Trust/Escrow Report 0 (2) R-2250 Tax Identification Numbers 0 (3) R-2251 Deposit System B-Notice Matched 1 (4) R-2252 Deposit System B-Notice Unmatched 1 (4) R-2253 B-Notice Tape Exceptions 1 (4) R-2254 Deposit System Second B-Notice Unmatched 1 (4) R-2255 Backup Withholding Report 2 Monthly R-2300 Miscellaneous Service Charges 2 Daily R-2310 Analysis Miscellaneous Charges 2 Daily R-2315 Analysis Item Fees 2 Daily R-2320 Direct Service Charges 2 Daily R-2355 Target Balance Report 2 Daily R-2360 Investable Balance Report 2 Daily R-2365 Due From Banks Daily Report 2 Daily R-2366 Due From Banks Cycle-To-Date 2 Daily R-2367 Due From Banks Year-To-Date 2 Daily R-2400 Purged Accounts 2 Daily R-2410 Foreign Accounts 2 Daily R-2420 Mail Code Accounts 2 Daily R-2500 End-of-Year 2 Annually R-2600 Share Drafts 2 Daily R-2640 Retirement Account Plan Service Charge Notice 1 Daily R-2641 Retirement Account Employer Service Charge Notice 1 Daily (1) Charge for additional deposit report copies can be found on page 2 of the Product Price List under Reports--Standard. (2) Charges per report can be found on page 3 of the Product Price List under Reports--Nonstandard. (3) Charges per report can be found on page 4 of the Product Price List under IRS Reporting Services. (4) These reports are provided as part of B-Notice Reporting. Please refer to IRS Reporting Services on page 4 for prices. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 57 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Deposit System Reports in Numerical Order: at No Charge (1) Frequency -------------- ----------------- ---------- R-2645 Retirement Account Plan Service Charges Created 1 Daily R-2646 Retirement Account Plan Service Charges Assessed 1 Daily R-2647 Retirement Account Employer Service Charges Created 1 Daily R-2648 Retirement Account Employer Service Charges Assessed 1 Daily R-2650 Retirement Account Trial Balance 1 Daily R-2655 Retirement Account Transaction Journal 1 Daily R-2656 RA Code Maintenance 1 Daily R-2660 Retirement Account Distribution Plan Suspects 1 Daily R-2661 Retirement Account Distribution Requirement Notice 1 Daily R-2662 Retirement Account Under Distribution Notice 1 Daily R-2665 Retirement Account Over/Under Contribution 1 Daily R-2670 Retirement Account Distribution Exceptions 1 Daily R-2675 Retirement Account Distributions Journal 1 Daily R-2676 Retirement Account Distribution Notice 1 Daily R-2678 Retirement Account Anticipated Check Distributions 2 Daily R-2680 Retirement Account Distribution Calculation Report 1 Daily R-2685 Retirement Account Under Dist./Withholding Election Notice 1 Daily R-2687 Retirement Account Required Minimum Distribution Notice 1 Annually R-2690 Retirement Account Maintenance Report 1 Daily R-2693 Retirement account Purge Report 1 Annually R-2695 Retirement Account Employer Detail 1 Daily R-2698 Retirement Account Processing Error 1 Daily R-2700 Package Post 2 Daily R-2750 Interest Paid Report 2 Daily R-2800 Service Charge Analysis 2 Daily R-2810 Service Charge Referrals 2 Daily R-2820 Related Service Charges 2 Daily R-2830 Analysis History 2 Monthly R-2840 Account Analysis Statement 0 (2) R-2850 Float Entry and Adjustment 2 Daily R-2860 Proof-of-Deposit Float 2 Daily R-2890 Periodic Fees 2 Daily R-2900 PRA/LOC Master Changes 2 Daily R-2905 PRA/LOC Dollar Transactions 2 Daily R-2910 PRA/LOC New Accounts 2 Daily R-2930 PRA/LOC Review Control 2 Daily R-2940 PRA/LOC Closed Account 2 Daily R-2950 Credit Life Alert 2 Daily R-2960 Full Delinquent Accounts 2 Daily R-2965 Collection Card 2 Daily R-2970 Payments on Delinquent/Collection Accounts 2 Daily R-2975 Credit Life Report 2 Daily R-2980 Credit Review Report 2 Daily (1) Charge for additional deposit report copies can be found on page 2 of the Product Price List under Reports--Standard. (2) Charges for deposit account analysis statements can be found on page 20 of the Product Price List. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 58 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Deposit System Reports in Numerical Order: at No Charge (1) Frequency -------------- ----------------- ---------- R-2990 Aged Delinquency Report 2 Daily R-2995 Charge-Offs 2 Daily R-3010 Deposit System Check Register 2 Daily R-3015 Deposit System Check Register - MICR 2 Daily R-3020 Deposit System Interest Check Accounts 2 Daily R-3100 OD and Insufficient Funds Notices 2 Daily R-3100 Unavailable Funds Overdraft Notice 2 Daily R-3100 Uncollected Funds Overdraft Notice 2 Daily R-3100 Unavailable Funds Insufficient Funds 2 Daily R-3105 OD and Insufficient Funds Notices 2 Daily R-3105 Unavailable Funds Overdraft Notice 2 Daily R-3105 Uncollected Funds Overdraft Notice 2 Daily R-3105 Unavailable Funds Insufficient Funds Notice 2 Daily R-3105 Maturity Notice 2 Daily R-3110 On-line Overdraft Notice 2 Daily R-3110 On-line Unavailable Funds OD Notice 2 Daily R-3110 On-line Insufficient Funds Notice 2 Daily R-3110 On-line Uncollected Funds Return Items Notice 2 Daily R-3110 On-line Uncollected Funds OD Notice 2 Daily R-3110 On-line Unavailable Funds Insufficient Funds Notice 2 Daily R-3111 Maturity Notice 2 Daily R-3115 Maturity Notice 2 Daily R-3120 Confirmation of Transaction Notice 2 Daily R-3200 New Loan Notice 2 Daily R-3250 PRA/LOC Billing Notice 2 Daily R-3300 Maturity Notice 2 Daily R-3305 Maturity Notice 2 Daily R-3311 Maturity Notice 2 Daily R-3315 Maturity Notice 2 Daily R-3400 Renewal Notice 2 Daily R-3500 Interest Notice 2 Daily R-3510 Interest Rate Change Notice 2 Daily R-3600 Past Due Notice 2 Daily R-3650 Delinquent Notice 2 Daily R-3800 No Signature On-File Notice 2 Daily R-3900 Funds Availability Exception Notice 2 Daily R-4000 Time Deposit Trial Balance 1 (2) R-4001 Time Deposit Trial Balance 1 (2) R-4002 Reserve Category Totals 2 Daily R-4010 TD Dollar Transactions 2 Daily R-4020 New Time Deposits 2 Daily R-4100 Mature Time Deposits 2 Daily R-4105 Maturity Forecast 2 Daily R-4110 Available Time Deposits 2 Daily (1) Charge for additional deposit report copies can be found on page 2 of the Product Price List under Reports--Standard. (2) Charges for Deposit Trial Balance can be found on page 3 of the Product Price List under Reports--Nonstandard. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 59 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Deposit System Reports in Numerical Order: at No Charge (1) Frequency -------------- ----------------- ---------- R-4120 Time Deposit Demand List 2 Daily R-4130 Time Deposits $100,000 and Over 2 Daily R-4150 Checks Written 2 Daily R-4160 Checks Due 2 Daily R-4161 Checks Difference 2 Daily R-4170 Time Deposit Interest Added On 2 Daily R-4180 Time Deposit Interest Transferred 2 Daily R-4190 Time Deposit Rate Changes During Term 2 Daily R-4200 New Interest Rate Exceptions 0 (2) R-4220 Closed Time Deposits 2 Daily R-4300 Time Deposit Totals by Term 2 Daily R-4310 Time Deposit Totals by Maturity 2 Daily R-4500 Schedule E Worksheet 2 Quarterly R-4800 Landlord/Tenant Profile 0 (3) R-4810 Landlord/Tenant Activity 0 (3) R-4820 Landlord/Tenant Check Register 0 (3) R-4830 Landlord/Tenant Register Recap 0 (3) R-4840 CIS Exception Report 0 (3) R-4998 Processing Error Report-DP 2 Daily R-4999 Detail Inventory of Reports-DP 2 Daily R-5000 3x5 Cards 2 Daily R-9600 Bank Control Change Report 2 Daily IMR5000 RIM Release List for DDA 2 Daily IMR5001 RIM Release List for DDA 2 Daily Number of Copies Provided Recommended The IFMS Reports in Numerical Order: at No Charge (1) Frequency ---- ----------------- ---------- R-30010 Automated Transfers 2 Daily R-30015 On-line Transfers 2 Daily R-30020 Transfer Maintenance 2 Daily R-30025 Transfer Instructions 2 Daily R-30060 Transfers Not Made 2 Daily R-30120 Transfer Notice 2 Daily R-30999 Daily Inventory of Reports 2 Daily (1) Charge for additional deposit report copies can be found on page 2 of the Product Price List under Reports--Standard. (2) Charges for deposit account analysis statements can be found on page 20 of the Product Price List. (3) Charges for Landlord/Tenant reports (Deposit Escrow Subaccounting) can be found on page 3 under Reports--Nonstandard. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 60 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Loan System Reports in Numerical Order: at No Charge (1) Frequency ----------- ----------------- ---------- R-6000 List of Reports 2 Daily R-6001 List of Reports 2 Daily R-6004 Automatic D/L Transfer Report 2 Daily R-6005 ACH Loan Activity Report 2 Daily R-6006 Mass Change Summary 2 Daily R-6007 Future Transactions 2 Daily R-6008 Transactions Transmitted 2 Daily R-6009 Posting Rejects 2 Daily R-6010 Maintenance Cross Check 2 Daily R-6015 Purchased Loan Payments 2 Daily R-6020 Edit List 2 Daily R-6030 Paid Loan List 2 Daily R-6031 Paid Loan Notice 2 Daily R-6032 Payoff Quote Letter 0 (2) R-6035 Loan Servicing Transfer Audit Report 2 Daily R-6040 New Loan List 2 Daily R-6041 Loan Renewal List 2 Daily R-6042 New Loans This Period 2 Weekly R-6043 Period Loan Renewal List 2 Weekly R-6044 Monthly New Loan List 2 Weekly R-6050 Daily Transaction Journal 2 Daily R-6051 Daily DDA Escrow Activity 2 Daily R-6052 Principal Balance Change Advice 2 Daily R-6053 Shortages on Paid Bills 2 Monthly R-6054 Unapplied Funds Activity 2 Daily R-6055 Commitment Daily Transaction Journal 2 Daily R-6057 Settlement Transaction Report 2 Daily R-6058 Automatic Extended Maturity List 2 Daily R-6059 Projected Maturity Extension Notice 2 Daily R-6060 Change Index Rate 2 Daily R-6061 Advice of Rate Change 2 Daily R-6062 Participant Rate Change 2 Daily R-6063 Regulation Z Rate Change Notice 0 (2) R-6064 Balloon Payment Notice 2 Daily R-6065 Variable Plan Payment/Rate Change 0 (2) R-6066 Pending Change Notice 0 (2) R-6067 Amortization Schedule 0 (2) R-6068 Variable Plan Amortization Schedule 0 (2) R-6069 Defaulted Loan Listing 2 Daily R-6070 Accrual Listing 2 Daily R-6071 COF Accrual Listing 2 Daily R-6072 Add-On Earnings 2 Monthly R-6073 Simple Interest Earnings 2 Monthly R-6075 Fee Earnings 2 Monthly (1) Charges for additional loan report copies can be found on page 7 of the Product Price List under Reports. (2) Charges for Loan Customer Statements can be found on page 7 of the Product Price List under Statements. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 61 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Loan System Reports in Numerical Order: at No Charge (1) Frequency ----------- ----------------- ---------- R-6076 Matched Funds Interest Settlement Sequence 2 Daily R-6077 Cost of Funds/Matched Funds Accounting Report 2 Daily R-6080 Billing Maintenance 2 Daily R-6085 Floor Plan Bill 2 Monthly R-6088 Revolving Credit Statement 0 (2) R-6090 Loan Statement (Bill) 0 (2) R-6091 Charge Advice 2 Daily R-6092 Fee Charge Advice 2 Daily R-6093 Guarantor Billing Copy 2 Daily R-6094 Last Payment Notice 2 Daily R-6095 Account Fee Payment Notice 2 Daily R-6096 ACH Transactions List 2 Daily R-6097 Note Fee Bill 2 Daily R-6098 Note Fee Charge Advice 2 Daily R-6099 Participant Credit Advice 2 Daily R-6100 Statement Summary 2 Daily R-6110 Correction Change Report 2 Daily R-6111 Name/Address Change 2 Daily R-6112 Cumulative Correction Change Report 2 Monthly R-6113 Cumulative Name/Address Change 2 Monthly R-6115 Keyword Transfer, Control Totals 2 Daily R-6116 Keyword Transfer, Daily Fee Totals 2 Daily R-6117 Keyword Transfer Daily Commitment Totals 2 Daily R-6150 Cost of Funds Transaction Journal 2 Daily R-6160 Change Cost of Funds Index 2 Daily R-6200 Account Balance Status 2 Daily R-6210 Account Listing 2 Monthly R-6220 A/R Review List 2 Monthly R-6221 F/P Review List 2 Monthly R-6225 Outstanding Loans Over 2 Monthly R-6228 Miscellaneous Balances Under 2 Weekly R-6229 Credit Balance 2 Daily R-6230 Loans Over Bank Limit 2 Monthly R-6231 Employee/Officer/Director 2 Monthly R-6235 Officer Lending Limits 2 Daily R-6240 Loans By Risk Rating 2 Monthly R-6241 Small Business Loans 2 Monthly R-6250 Director/Officer of Other Banks 2 Monthly R-6260 3x5 Card (Account) 0 (2) R-6261 Zero Balance Card 0 (2) R-6265 CIF Card (Note) 0 (2) R-6270 Commitments and Usage 2 Monthly R-6271 Account Usage Over Limit 2 Daily R-6273 Commitment Allocation 2 Daily (1) Charges for additional loan report copies can be found on page 7 of the Product Price List under Reports. (2) Charges for Loan Customer Statements can be found on page 7 of the Product Price List under Statements. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 62 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Loan System Reports in Numerical Order: at No Charge (1) Frequency ----------- ----------------- ---------- R-6275 Commitments by Type 2 Daily R-6277 Inactive Commitments 2 Daily R-6278 Unused Commitment Balance 2 Daily R-6279 Commitment Interface Balances 2 Daily R-6280 Curtailment Billing 2 Monthly R-6281 Summary and Comparison 2 Monthly R-6282 Monthly Account Summary 2 Monthly R-6283 Notes and Interest 2 Monthly R-6290 Maturing Notes Review 2 Weekly R-6300 Account Inquiry 2 Daily R-6305 Loan Information Letter 2 Daily R-6310 Note Inquiry 2 Daily R-6315 Part Inquiry 2 Daily R-6318 Part Transaction Journal 2 Daily R-6320 Specifics Invoices 2 Monthly R-6330 F/P Open Item List 2 Weekly R-6335 Billing List 2 Daily R-6336 Billing Inquiry Report 2 Daily R-6340 Loans by Interest Rate 2 Monthly R-6350 Accruals Over and Short 2 Daily R-6360 Loans by Officer 2 Monthly R-6370 Parts Bought and Sold 2 Monthly R-6373 Schedule RC-N 2 Monthly R-6374 Delinquency Ratio Report 2 Monthly R-6376 HUD Delinquent Loan Report 2 Monthly R-6377 HUD 27050--A Form 2 Daily R-6378 HUD 92068--C Form 2 Monthly R-6379 Floor Plan Past Due List 2 Monthly R-6380 Past Due List 2 Daily R-6381 Fees Past Due List 2 Weekly R-6382 Aged Delinquency Report 1 Daily R-6383 Executive Past Due List 2 Daily R-6384 Fee Past Due Notice 2 Daily R-6385 Past Due Notice 2 Daily R-6386 Transactions to Delinquent Loans 2 Daily R-6387 Collection Status Information 2 Daily (Collection Referral Card) R-6388 Delinquent Summary 2 Weekly R-6390 Loans by SIC Code 2 Monthly R-6398 Floor Plan Late Notice 2 Daily R-6400 Trial Balance 1 Weekly R-6401 Cumulative Trial Balance 2 Daily R-6402 Short Trial Balance 2 Daily R-6410 Term Note Review List 2 Monthly (1) Charges for additional loan report copies can be found on page 7 of the Product Price List under Reports. (2) Charges for Loan 3x5 cards can be found on page 6 of the Product Price List. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 63 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Loan System Reports in Numerical Order: at No Charge (1) Frequency ----------- ----------------- ---------- R-6420 Floor Plan Transactions 2 Monthly R-6430 Demand Note List 2 Monthly R-6450 Account User 2 Monthly R-6460 Note User 2 Monthly R-6470 Commitment Exceptions 2 Monthly R-6475 Portfolio Quality Report 2 Monthly R-6480 Expiring Dates 2 Monthly R-6485 Expiring Commitments 2 Daily R-6490 Indirect Liabilities 2 Monthly R-6500 Cumulative Transaction Journal 2 Monthly R-6510 Account Summary Listing 2 Monthly R-6511 Student Loans 2 Monthly R-6512 Historical Yield Report 2 Daily R-6515 Monthly Yield Report 2 Monthly R-6518 Management Report 2 Monthly R-6521 Federal Call Report 2 Monthly R-6522 Small Business/Farm Loans 2 Monthly R-6523 Loan Officer Summary 2 Monthly R-6530 Loans by Collateral 2 Monthly R-6540 Rate Sensitivity 2 Monthly R-6541 Notes by Index 2 Monthly R-6542 Repricing Opportunities 2 Monthly R-6543 RC-J Repricing Report 2 Monthly R-6544 Cash Flow Projections 2 Monthly R-6550 Unapplied Funds Report 2 Daily R-6555 Buydown Funds 2 Daily R-6560 FHA Remittance 2 Daily R-6561 FHA Risk Based Premium 2 Daily R-6562 FHA Risked Based Premium Tape 0 (2) R-6570 FHA Assisted Payments 2 Monthly R-6580 Accrual/Non-Accrual Changes 2 Daily R-6582 Non-Accrual Loan List 2 Daily R-6584 Accrual/Non-Accrual Review 2 Daily R-6586 Deferred Active Loan List 2 Monthly R-6590 Charge-Off Summary 2 Daily R-6592 Charge-Off History 2 Daily R-6610 Fee Management Report 2 Monthly R-6611 Fee Detail Report 2 Daily R-6612 Fee History Transaction 2 Daily R-6800 Interest Paid by Account 2 Annually R-6801 Interest Paid by Account Statement 2 Annually R-6802 Interest Paid by Note 1 Annually R-6803 Interest Paid by Note Statement 1 Annually R-6804 Fees Paid by Account 2 Annually (1) Charges for additional loan report copies can be found on page 7 of the Product Price List under Reports. (2) Charges for Loan Tapes can be found on page 7 of the Product Price List under Tape/Transmission Processing. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 64 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Loan System Reports in Numerical Order: at No Charge (1) Frequency ----------- ----------------- ---------- R-6805 Fees Paid by Account Statement 2 Annually R-6807 Year-to-Date Activity Statement 0 (2) R-6808 Mailing Labels 0 (3) R-6809 Filing Labels 0 (3) R-6810 Discount Note List 2 Annually R-6840 Account Historical List 2 Annually R-6841 Part Historical Listing 2 Annually R-6842 Floor Plan History List 2 Semiannually R-6845 Loans by Census Tract 2 Annually R-6850 Record Deletion - Purge 2 Semiannually R-6851 Zero Balance Loan List 2 Monthly R-6860 Account Summary Two-Year 1 Annually R-6861 Deleted Account Summary 2 Annually R-6862 Inactive Account List 2 Annually R-6868 Year-end 1098 Mag Tape 0 Annually R-6869 Year-end Tax ID Solicitation Letter 0 (4) R-6870 Federal Reporting of Interest 2 Annually R-6871 Year-end Loans Paid Ahead 2 Annually R-6872 Schedule CMR 2 Daily R-6874 FHLB - Schedule F 2 Daily R-6876 Loans Pledged to FHLB (No Magnetic Tape) 2 Monthly R-6881 Loan Application Register Section I (FDIC) 2 Monthly R-6882 Loan Application Register Section II (OTS) 2 Monthly R-6900 Balance Verification 2 Daily R-6997 Commitment Control Totals 2 Daily R-6998 Daily Fee Totals 2 Daily R-6999 Control Totals 2 Daily R-7030 Floor Plan Loan List 2 Daily R-7031 Floor Plan Option Change 2 Daily R-7032 Floor Plan Audit Report 2 Monthly R-7035 Dealer Outstanding 2 Monthly R-7040 Prepaid Dealer 2 Daily R-7062 New Insurance Report 2 Monthly R-7064 SI Insurance Earnings Detail 2 Monthly R-7065 Voluntary Insurance Report 2 Daily R-7066 Insurance Solicitation Tape 0 (2) R-7070 Expiring Insurance Report 2 Daily R-7075 Voluntary Insurance Recalculations 2 Daily R-7100 Company List of Reports 2 Daily R-7110 Company Inquiry 2 Daily R-7111 Company Inquiry (expanded investor) 2 Daily R-7120 Company Activity Report 2 Daily (1) Charges for additional loan report copies can be found on page 7 of the Product Price List under Reports. (2) Charges for Loan Customer Statements can be found on page 7 of the Product Price List under Statements. (3) Charges for labels can be found on page 6 of the Product Price List. (4) Charges can be found on page 4 under IRS Reporting Services. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 65 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Loan System Reports in Numerical Order: at No Charge (1) Frequency ----------- ----------------- ---------- R-7130 Company Statement 0 (3) R-7140 Company Maintenance 2 Daily R-7150 Company Transaction Journal 2 Daily R-7160 Company Edit List 2 Daily R-7190 Check Register 2 Daily R-7195 Escrow Disbursement Check Voucher 2 Daily R-7196 Transferred/Sold Loan Transaction Journal 2 Daily R-7200 Coupon Orders 2 Daily R-7201 Credit Bureau Paid Out Loans 2 Weekly R-7205 Trans Union Credit Bureau (Tape) 0 (2) R-7206 ACB (Associated Credit Bureau Services) (Tape) 0 (2) R-7207 TRW Credit Bureau (Tape) 0 (2) R-7209 Credit Bureau Summary 2 Monthly R-7211 CBI (Credit Bureau Incorporated of Atlanta) (Tape) 0 (2) R-7215 IRS Tax Form 1041 2 Daily R-7216 Schedule K-1 2 Daily R-7226 Credit Information Tape (for insurance and credit institutions) 0 (2) R-7227 Credit Information Report (No Magnetic Tape) 2 Monthly R-7230 SDC Warehousing Interface Report 2 Daily R-7245 BAI Transmission 2 Daily R-7260 Escrow, Unapplied, Buydown Checks 2 Daily R-7264 GNMA I Pool Security Holder Check 2 Daily R-7300 Escrow Balance Listing 2 Daily R-7320 Escrow Shortage Notice 0 (3) R-7327 Payoff Escrow Account Disclosure Statement 0 (3) R-7328 Escrow Payoff Review Report 2 Daily R-7329 Initial Escrow Analysis Review Report 2 Daily R-7330 Escrow Analysis Statement--Detail 0 (3) R-7331 Initial Escrow Analysis Disclosure Statement 0 (3) R-7332 Escrow Review Report 2 Daily R-7333 Escrow Mismatch 2 Daily R-7334 Escrow Reconciliation 2 Daily R-7335 Adds Audit Report Listing 2 Daily R-7336 Escrow Adjustment Notice 2 Daily R-7337 Escrow Analysis Audit 2 Daily R-7339 Audit Report Listing 2 Daily R-7340 Tax Bill Request List 2 Daily R-7360 Tax Bill Request Notice 2 Daily R-7362 Payoff Notice to Payee 2 Daily R-7363 Payoff Remittance Notice to Investor 2 Daily R-7365 Escrow Disbursement Edit 2 Daily R-7366 Paid Escrow Report 2 Daily R-7370 Escrow Exception List 2 Daily (1) Charges for additional loan report copies can be found on page 7 of the Product Price List under Reports. (2) Charges for Loan Tapes can be found on page 7 of the Product Price List under Tape/Transmission Processing. (3) Charges for Loan Customer Statements can be found on page 7 of the Product Price List under Statements. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 66 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Loan System Reports in Numerical Order: at No Charge (1) Frequency ----------- ----------------- ---------- R-7371 Escrow Delinquency Report 2 Daily R-7375 Escrow Balance Report 2 Monthly R-7380 Escrows Coming Due Next Month 2 Daily R-7381 Auto Escrow Overage Status Report 2 Daily R-7385 Escrow Insurance Premium Notice 2 Daily R-7390 Escrow Insurance Expiration Notice 2 Daily R-7401 FNMA LASER Loan Activity-Form 493 0 (2) R-7402 FNMA LASER Activity Summary-Form 490 2 Monthly R-7403 FNMA LASER Payment/Rate Change-Form 498 0 (2) R-7404 FNMA MBS Summary 2 Monthly R-7405 Monthly Accounting Report 2 Monthly R-7406 Monthly Summary Report 2 Monthly R-7410 Single Debit Reconciliation 2 Daily R-7411 FNMA Summary Trial Balance 3 Weekly R-7412 FNMA Summary Principal Adjustment Schedule-Form 575 3 Weekly R-7413 FNMA Summary of Delinquent Loans-Form 576 3 Weekly R-7414 FNMA Summary Monthly Activity Report-Form 574 3 Weekly R-7420 Single Debit 2 Daily R-7421 FNMA MBS Liquidation Schedule-Form 2020 3 Weekly R-7422 FNMA MBS Monthly Accounting Report-Form 2010 3 Weekly R-7423 FNMA MBS Monthly Summary Report and 3 Weekly Certification-Form 2030 R-7424 FNMA Request for Release of Documents-- 2 Daily FNMA Form 2009 R-7430 GNMA Excess Funds/Advance 2 Monthly R-7431 GNMA MBS Liquidation Schedule-Form 11710E 0 (2) R-7432 GNMA MBS Monthly Account Report-Form 11710A 0 (2) R-7433 GNMA MBS Issuers' Monthly Summary Report- 2 Monthly Form 11710D R-7434 GNMA Quarterly Loan Level Data Submission 0 (2) R-7435 GNMA Security Holder Combined Advice 0 (2) R-7436 GNMA Security Holder Advice 2 Monthly R-7438 GNMA Security Holder Register 0 Monthly R-7440 Report in Lieu of FHLMC Form 308 2 Monthly R-7441 FHLMC Form 308 Loan Level Monthly Accounting 0 (2) R-7442 FHLMC Report of Mortgages Paid in Full - 2 Daily Net Yield Reporting Concept-Form 315 R-7443 FHLMC Super Arc Remittance 2 Monthly R-7444 FHLMC Summary of Mortgage Transferred or 2 Daily Reinstated-Form 116 R-7448 FHLMC Account Group Control - 0 (2) Net Yield Reporting Concept-Form 308 R-7449 FHLMC Remittance Reconciliation-Form 330 2 Monthly R-7450 Monthly Payment/Note Rate Change 2 Daily (1) Charges for additional loan report copies can be found on page 7 of the Product Price List under Reports. (2) Charges for Investor Reporting can be found on page 6 of the Product Price List under Loan Services. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 67 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of Copies Provided Recommended The Loan System Reports in Numerical Order: at No Charge (1) Frequency ----------- ----------------- ---------- R-7451 Monthly Payment/Rate Change Report 2 Daily R-7452 Interim Remit Journal 2 Daily R-7460 Investor Daily Transaction 2 Daily R-7461 LASER Loan Activity/Summary 0 (2) R-7462 Delinquent Report 2 Daily R-7463 LASER Monthly Payment/Note Rate Change 0 (2) R-7464 Cutoff Journal 2 Daily R-7465 Investor Pay-off Report Rate Change 2 Daily R-7466 Investor Remittance Tran Journal 2 Daily R-7468 Net Yield Reconciliation Summary 2 Daily R-7469 Loans Removed Report 2 Daily R-7470 Investor Trial Balance 2 Daily R-7471 Cutoff Investor Trial 2 Daily R-7472 Investor Trial Balance (expanded) 2 Monthly R-7473 Reconciliation: Actual Pool Balance to the Security Balance 2 Daily R-7474 Investor Cutoff Trial Balance 2 Daily R-7475 Test of Expected P&I Custodial Account Balance at Cutoff 2 Daily R-7476 Prepayment Report 2 Daily R-7477 Loans Added Report 2 Daily R-7478 Loans by Investor 2 Daily R-7480 Remittance Exceptions (AES) 2 Daily R-7481 AES Delinquent Report-Form 470 3 Weekly R-7482 AES Prepayment Report 3 Weekly R-7483 AES Curtailment Report 3 Weekly R-7484 AES Reconciliation Summary Report 3 Weekly R-7490 Loans Pledged to FHLB (Mag Tape) 0 (3) R-7491 Group Reconciliation and Settlement 3 Weekly R-7510 Pool/Group Custodial Account Activity 6 Daily R-7520 Summary of Funds Transferred 4 Daily R-7521 Detail Funds Transfer 2 Daily R-7530 Today's Remittance 2 Daily R-8000 Detailed Inventory of Reports - Collateral 2 Daily R-8001 Detailed Inventory of Reports - Tickler 2 Daily R-8002 Detailed Inventory of Reports - Loans 2 Daily Number of The On-line Collection System Reports Copies Provided Recommended in Numerical Order: at No Charge (1) Frequency ---------------- ----------- R-11500 Employee Performance Report 2 Daily R-11510 Daily Collections Recap 2 Daily R-11520 30-Day Promise Recap 2 Daily (1) Charges for additional loan report copies can be found on page 7 of the Product Price List under Reports. (2) Charges for Investor Reporting can be found on page 6 of the Product Price List under Loan Services. (3) Charges for FHLB Tape can be found on page 7 of the Product Price List under Tape/Transmission Processing. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 68 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of The On-line Collection System Reports Copies Provided Recommended in Numerical Order: at No Charge (1) Frequency ---------------- ----------- R-11525 Productivity Report 2 Daily R-11550 Portfolio Tracking Report 2 Daily R-11555 Credit Bureau Request Report 2 Daily R-11560 Contact History Report 2 Daily R-11565 Special Requests Report 2 Daily R-11570 Name and Address Change Report 2 Daily R-11580 Accounts By Queue Report 2 Daily R-11590 Employee Transaction Journal Report 2 Daily R-11600 Hourly Performance Report 2 Daily R-11610 Accounts By Follow-up Report 2 Daily R-11620 Queue Distribution Recap Report 2 Daily R-11625 Account Purge Recap Report 2 Monthly R-11630 Account Purge Contact History Report 2 Monthly R-11640 No Collection Activity Report 2 Daily Number of The Student Loan System Reports Copies Provided Recommended in Numerical Order: at No Charge (1) Frequency ------------------ ---------- R-6625 Student Loan Summary 2 Daily R-6626 Loan Aging Report 2 Daily R-6627 Student Loan Reference Card 2 Daily R-6628 Disbursement Journal 2 Daily R-6629 Disbursal Forecast 2 Daily R-6630 Student Loan Combination 2 Daily R-6631 Applications Deleted Report 2 Daily R-6632 Student Loan Maintenance Cross Check 2 Daily R-6634 Student Loan Payment Schedule 2 Daily Number of The Tickler System Reports Copies Provided Recommended in Numerical Order: at No Charge (1) Frequency ------------------ ---------- R-7905 Tickler Daily Activity 2 Daily R-7910 New Tickler Report 2 Daily R-7915 Tickler Status Changes 2 Daily R-7920 Tickler Entity Summary 2 Daily R-7925 Tickler Past Due Report 2 Daily R-7926 Tickler Cross Reference 2 Daily R-7927 Tickler Detail List 2 Daily R-7930 Individual Tickler by Entity 2 Daily R-7935 Closed Tickler Report 2 Daily (1) Charges for additional loan report copies can be found on page 7 of the Product Price List under Reports. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 69 Appendix A-System Reports - --------------------------------------------------------------------------------------------------------------------------- Number of The Collateral System Reports Copies Provided Recommended in Numerical Order: at No Charge (1) Frequency ------------------ ---------- R-6700 Collateral Edit List 2 Daily R-6705 Collateral Receipt 2 Daily R-6710 Collateral Cross Check 2 Daily R-6715 Collateral Maintenance 2 Daily R-6716 Obligation Maintenance 2 Daily R-6720 Collateral Exception Notice 2 Daily R-6721 Aged Exception Report 2 Monthly R-6722 Dollar Limit Exceptions 2 Monthly R-6725 Asset Ledger 2 Daily R-6730 Collateral History List 2 Monthly R-6735 Collateral Holders List 2 Monthly R-6740 Margin Report 2 Daily R-6741 Detail Margin Report 2 Daily R-6742 Under Margin Summary Report 2 Daily R-6745 Securities Not Automatically Priced 2 Daily R-6750 Collateral Maturity 2 Weekly R-6755 Severe Price Fluctuation 2 Daily R-6760 Collateral on Inactive Accounts 2 Weekly R-6765 Collateral Purge 2 Semiannually (1) Charges for additional loan report copies can be found on page 7 of the Product Price List under Reports. (2) Charges for Investor Reporting can be found on page 6 of the Product Price List under Loan Services. (3) Charges for FHLB Tape can be found on page 7 of the Product Price List under Tape/Transmission Processing. - --------------------------------------------------------------------------------------------------------------------------- Confidential M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Effective March 1, 1998 Page 70
Index - -------------------------------------------------------------------------------- --A-- Account Analysis, 20 Account Analysis (Deposit System), 20 Account Analysis, RAMIS Application Extracts, 46 Account Analysis, Treasury Connection, 15 Account Inquiry Access, Management Information Service, 11 Account Number Generation, The Support Center, 49 Account Processing, Account Analysis, 20 Account Processing, BankCard Services Support Services, 40 Account Purge, Customer Information System (CIS), 19 Account Reconciliation, 13 Account Verification, Audit Services, 9 Accounts for Trust Customers, Cash Manager, 18 Accounts Payable, 11 Accounts, Cash Manager, 18 Accounts, Customer Information System (CIS), 19 Accounts, Customer Profitability, 20 Accounts, Deposit Services, 1 Accounts, Fixed Assets, 11 Accounts, Loan Services, 6 Accounts, On-line Services, 4 Accounts/Records, EASE Marketing Solutions, 21 ACH Items, Automated Clearinghouse (ACH) Originating, 16 ACH Origination From Deposit System, 16 ACH Origination From Loan System, 16 ACH Transfer Maintenance, Treasury Connection, 15 Active/Inactive Accounts, On-line Collections/Queuing, 8 Addenda, EDI Receiving, 18 Advantis Network Connectivity, Network Services, 49 Aggregate Indebtedness, Customer Information System (CIS), 19 Amended Forms, IRS Government Reporting, 4 Application Interface, Financial Control, 10 Area Code Update Service, File Maintenance Services, 11 Asset/Liability, Information Desktop, 45 ATM Screen Changes, EFT Services, 31 ATM Statement Printing, EFT Services, 31 ATM Surcharging Terminal Support, EFT Services, 30 ATM Terminal, EFT Setup Fees, 32 Audit Services, 9 Auto Check Pay, 53 Auto Payment, BankCard Services Cardholder, 32 Automated Balance Transfer Checks, BankCard Services Cardholder, 32 Automated Balance Transfer Checks, BankCard Services Credit Cards, 40 Automated Check Charge Processing, Automated Clearinghouse (ACH) Receiving, 17 Automated Clearinghouse (ACH) Originating, 16 Automated Clearinghouse (ACH) Receiving, 17 --B-- Backdating of Transactions, 1 Balance Reporting, 17 Balance Reporting, Treasury Connection, 14 Balancing, The Support Center, 49 Bank Control Changes, The Support Center, 49 Bank Control Print, Deposit Services, 3 Bank Control, Loan Services, 6 BankCard Services Cardholder, 32 BankCard Services Merchant, 37 BankCard Services Support Services, 40 BankCard Services Visa Commercial Card, 36 BankerInsight Call Center Computer Telphony Integration (CTI), 24 BankerInsight Optional Services, 24 BankerInsight Site License, 23 BankerInsight Usage Fees, 24 BankerInsight Workstation License, 23 B-Notice Reporting, 4 Bond On-line Trading, 53 Book Transfer, Treasury Connection, 14 Branch Change--Automated, 1 Budget Spread, Financial Control, 9 Budget Upload (PC), Financial Control, 9 --C-- CAF Support TANDUM, EFT Services, 29 Call Report, Information Desktop, 45 Card "Destroy" Request, EFT Services, 31 Card Activation, EFT Services, 30 Card Activation, EFT Setup Fees, 32 Card Issuance, BankCard Services Cardholder, 32 Card Issuance, BankCard Services Visa Commercial Card, 36 Card Production, EFT Services, 31 Card Receipt Verification, BankCard Services Cardholder, 33 Card Retrieval Request, EFT Services, 31 Cardbase Conversion, EFT Setup Fees, 32 Cardbase Management, EFT Services, 29 Cardbase Management, RAMIS Application Extracts, 45 Cardbase, EFT Setup Fees, 32 Cardholders, EFT Services, 29 Cash Management Network Access, 15 Cash Manager, 18 - ------------------------------------------------------------------------------- M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Confidential Effective March 1, 1998 Page 71 Index - -------------------------------------------------------------------------------- CFI laser Pro Interface, Loan Services, 8 Change Request, Network Services, 49 Chargeback Reporting, Automated Clearinghouse (ACH) Originating, 16 Chart of Accounts, Financial Control, 9 Check Cashing/Coin Dispensing, EFT Services, 30 Check Ordering--On-line, 1 Check Signature Plate, 1 Checking Account Verification--On-line, 1 Checking Account Verification--On-line, Deluxe ChexSystems Inquiries, 1 Checking Account Verification--On-line, Harland Telechex Inquiries, 1 Checks Issued (Troy), 1 Checks, Loan Services, 6 Circuits, Network Services, 49 CIS Customer Files, RAMIS Application Extracts, 45 CIS, BankCard Services Cardholder, 33 Classic and Premier, BankCard Services Cardholder, 33 Closed Accounts, Deposit Services, 2 Closed Time Deposit IDs, Deposit Services, 2 Collateral Processing, Loan Services, 6 Combined Statement Processing, Customer Information System (CIS), 19 Combined Statement Profile, Customer Information System (CIS), 19 Communications Network Restoration, Services Continuity, 51 Compliance Fees, EFT Services, 30 Consolidated Quarterly Analysis, Financial Control, 10 Consolidated Transactions, Financial Control, 10 Consolidation Report, Financial Control, 10 Construction Lending, 53 Consulting Services, 51 Controlled Disbursement, 53 Controller-based Teller System Support, On-line Services, 4 Conversion, 53 Conversion of Customer-owned VRU, Home Banking Services, 25 Correspondence, BankCard Services Cardholder, 33 Correspondence, BankCard Services Visa Commercial Card, 36 Cost Center Reports, Financial Control, 10 Coupon Book Orders, Loan Services, 6 CPI Communication Line, Network Services, 49 CPU Fee, RAMIS, 46 CRA Link, EASE Marketing Solutions, 21 CRA/HMDA Extract Request, 6 Credit Limit Processing, Automated Clearinghouse (ACH) Originating, 16 Credit Services, BankCard Services Cardholder, 33 Criteria Posting, 1 CSF Statement Processing Premium, Account Analysis, 20 Currency Transaction Reporting, 5 Custom Screens, On-line Inquiry Generator, 9 Custom Statement Fomatter (CSF), Deposit Statement Plus, 1 Custom Statement Formatter (CSF), 1 Custom Statement Formatter (CSF), Customer-designed Format, 1 Custom Statement Formatter (CSF), Deposit Statement Premium Plus, 1 Custom Statement Formatter, Customer Information System, 19 Customer Card Carrier, EFT Services, 31 Customer Information System (CIS), 19 Customer Match Report Only, Customer Information System (CIS), 19 Customer Profile I, Customer Information System (CIS), 19 Customer Profile II, Customer Information System (CIS), 19 Customer Profitability, 20 Customer Suspect/Purge, Customer Information System (CIS), 19 Customer-initiated ACH Transfer Fees, Treasury Connection, 15 Customers, Customer Information System (CIS), 19 Cycle--12 Months, Deposit Services, 2 --D-- Data Entry From Listing, Automated Clearinghouse (ACH) Originating, 16 Data Entry Input by M&I, Account Reconciliation, 13 Data Entry Return/NOC Charges, Automated Clearinghouse (ACH) Originating, 16 Data Management Fee (DataBank), Information Desktop, 45 Data Retention, Treasury Connection, 14 DDA Statements, Treasury Connection, 15 Declaration Fee, Services Continuity, 50 Deconversion Tapes, 53 Demand Account, 1 Deposit Account Analysis. See Account Analysis (Deposit System) Deposit Escrow Subaccounting, 1, 3 Deposit Live Log Transactions, 2 Deposit Live-log Transactions, On-line Services, 4 Deposit Memo Post/Intra Day Posting, 53 Deposit Reporting, Treasury Connection, 14 Deposit Services, 1 Deposit System, RAMIS Application Extracts, 45 Desktop Fee, Information Desktop, 45 Detail Account Analysis, Financial Control, 10 Detail Accounts, Financial Control, 9 Detail Quarterly Analysis, Financial Control, 10 Dial Terminal--WATS, EFT Services, 29 Dialup ATM Support, EFT Services, 30 Disaster Recovery. See Services Continuity - ------------------------------------------------------------------------------- M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Confidential Effective March 1, 1998 Page 72 Index - -------------------------------------------------------------------------------- Discount Brokerage, 53 Disk Storage, STAR View, 47 Dormant/Paid-off Accounts, On-line Collections/Queuing, 8 Duplicate Fiche Copies, Microfiche, 47 --E-- EASE Marketing Solutions, 21 EDI Receiving, 18 Education Services, 52 EFT One-time Setup Fees, 32 EFT Services, 29 Electronic Statement Processing (ESP) File Download Fees - PC, Treasury Connection, 15 Equipment, Network Services, 49 Escrow Analysis, Loan Services, 6 Escrow Tax/Insurance, Loan Services, 6 Exception Processing--On-line, 1 Exemption CTR Record History, 5 Exemption Tracking, 5 Expanded Services, BankCard Services Merchant, 37 Extended Retention, 5 External Funds Transfer, Automated Clearinghouse (ACH) Originating, 16 --F-- Fax Reporting, Treasury Connection, 14 Fed Charges, Treasury Connection, 15 File Adjustments, Automated Clearinghouse (ACH) Originating, 16 File Adjustments, Treasury Connection, 15 File Footings and Histograms, Audit Services, 9 File maintenance Services, 11 File Purge Procedure (CIS), 19 File Transfer Setup, Treasury Connection, 15 File Transfer Upload Fees - PC, Treasury Connection, 15 Financial Control, 9 Financial Control On-line (FCO), 10 Financial Control, RAMIS Application Extracts, 45 Financial Statements (monthly), Financial Control, 10 Fine Sorting, Account Reconciliation, 13 Fixed Assets, 11 FNMA or FHLMC, Investor Reporting, 6 Full Print of Master Records, Financial Control, 10 Full System Administration, STAR View, 47 Funds Transfer--Automated (AFT), 1 Fundtech Fedplus Wire Transfer, 5 --G-- Global Payment Systems, BankCard Services Merchant, 38 GNMA, Investor Reporting, 6 --H-- Hierarchy Table Changes, Financial Control, 10 Historical Data Storage, Financial Control, 10 --I-- Inbound Data Exchange, Balance Reporting, 18 Incoming File Report, Automated Clearinghouse (ACH) Receiving, 17 Information Desktop, 45 Information Expert, Accounts Payable, 11 Information Formatting, Financial Control, 9 InFormatter Report Production, Information Desktop, 45 Insurance Tapes/Transmission, Loan Services, 8 Integrated Funds Management System (IFMS), Deposit Services, 2 Interest Plan Test, 2 Interface Control File, Financial Control, 10 Interface Mass Change Applications, Financial Control, 10 Internet Banking, Home Banking Services, 27 Internet Services, Home Banking Services, 28 Investor Reporting, Loan Services, 6 Invoices, Accounts Payable, 11 IPS Upload, RAMIS, 46 IRS 1098, 1099 Processing, 4 IRS Government Reporting System, 4 IRS Notice 972CG, Notice of Proposed Civil Penalty, 4 IRS Reporting Services, 4 IRS TIN Audit Tape Report, 4 Item Capture/Proof of Deposit, 53 Item Sorting/Bulkfile, 53 --K-- Keywords, Deposit Services, 2 Keywords, Loan Services, 6 --L-- Labels, Customer Information System (CIS), 19 Large Currency Transaction Reporting, On-line Services, 4 Late Change Request, Network Services, 49 Letter Writer, 8 Line of Credit Accounts, 1 List, Account Number Generation, 49 Load Fee, STAR View, 47 Loan Realtime Transactions, On-line Services, 4 Loan Services, 6 Loan System, RAMIS Application Extracts, 45 Loan Tax ID Solicitation Letters, 4 Loan Transaction Detail on Combined Statements, 8 Lockbox, 53 - ------------------------------------------------------------------------------- M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Confidential Effective March 1, 1998 Page 73 Index - -------------------------------------------------------------------------------- Lost/Stolen Cards Reported, EFT Services, 30 --M-- M&I VRU Purchase Program, Home Banking Services, 25 Magnetic Tape Creation Interface File, Customer Information System (CIS), 19 Magnetic Tape, Deposit Services, 3 Mainframe Transmission, Automated Clearinghouse (ACH) Originating, 16 Management Information Link (MIL), 53 Management Information Service, 11 Manual Settlement Fee, Automated Clearinghouse (ACH) Receiving, 17 Marketing (CIS), 19 Marketing Inserts, EFT Services, 31 Mass Changes, Deposit Services, 2 Mass Changes, Loan Services, 6 Master File Unload Services, 12 Master File Unload to 3420 Reel Tapes, Master File Unload Services, 12 Master File Unload to 3480/90 Cartridge Tapes, Master File Unload Services, 12 Matrix Reports/Report Writer, Financial Control, 10 MCIF, EASE Marketing Solutions, 21 MIARRS (Risk Reporting Services), BankCard Services Merchant, 38 MICARD Special Services, 53 MICASH Control System, 53 Microfiche, 47 Midcycle Statements, Account Reconciliation, 13 Miscellaneous Account Profile, Customer Information System (CIS), 20 Miscellaneous Account Update, Customer Information System (CIS), 20 Money Manager Subledger Accounts, 2 Money Market Account, 1 Money Talks, Home Banking Services, 24 Multiple Session Manager (TPX), 53 Multiple Statements, Account Reconciliation, 13 --N-- NACHA Format Tape, Automated Clearinghouse (ACH) Originating, 16 NACHA Format Transmission, Automated Clearinghouse (ACH) Originating, 16 Name and Address Labels, Accounts Payable, 11 Name and Address List, Deposit Services, 3 Name and Address List, EFT Services, 31 Name and Address List, Loan Services, 7 Name and Address List, W-9 Reporting, 5 NCOA (National Change of Address), File Maintenance Services, 11 Negative File/Positive Files Without Balance Authorization, EFT Services, 29 Network Administration Fee, EFT Services, 29 Network Design, Network Services, 49 Network Services, 49 Network Support, 50 New Agent Setup Fee, BankCard Services Credit Cards, 41 New Interest Rate Exceptions, Deposit Services, 3 Nightly Batch Printed Letters, Letter Writer, 8 No-book Transactions, On-line Services, 4 Nonstandard File, Automated Clearinghouse (ACH) Originating, 16 Note Pad, 8 Notices, Loan Services, 7 NOW Accounts, 1 --O-- Off-line Institution Premium, EFT Services, 31 One-time Programming/Training Fee, Cash Manager, 18 On-line Account Inquiry, Financial Control, 10 On-line Collections/Queuing, 8 On-line Documentation, 51 On-line Dollar, 2 On-line Inquiry Generator, 9 On-line Report Inquiry, Financial Control, 10 On-line Return Processing, Automated Clearinghouse (ACH) Receiving, 17 On-line Services, 4 On-line Statement Requests, Account Analysis, 20 On-line Teller, On-line Services, 4 On-line Transaction History, Financial Control, 10 On-line Transactions, IRS Government Reporting, 4 Operational Review, Consulting Services, 51 Optical Storage, STAR View, 47 Original Issue Discount, Deposit Services, 3 Original, Microfiche, 47 Outbound Data Exchange, Balance Reporting, 17 --P-- PAC Items, Automated Clearinghouse (ACH) Originating, 16 Paid Loan Retention, Loan Services, 6 Partial System Administration, STAR View, 47 PC ACH Intercept, Treasury Connection, 15 PC ACH Maintenance, Treasury Connection, 15 PC ACH Transactions, Treasury Connection, 15 PC ACH Transmissions, Treasury Connection, 15 PC Banking, Home Banking Services, 26 - ------------------------------------------------------------------------------- M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Confidential Effective March 1, 1998 Page 74 Index - -------------------------------------------------------------------------------- PC Entry Through PC ACH Treasury Connection, Automated Clearinghouse (ACH) Originating, 16 PC, LAN, and WAN Recovery, Services Continuity, 51 PCTeller Optional Services, 23 PCTeller Site License, 23 PCTeller Workstation License, 23 Phone Support, Balancing, 49 PIN Production and Mailing, EFT Services, 30 Platform Services, 23 Point-of-sale (POS), EFT Services, 29 Ported Systems, 53 Positive Balance Authorization, EFT Services, 29 Print Immediate Letters, Letter Writer, 8 Processing Services, BankCard Services Cardholder, 33 Processing Services, BankCard Services Merchant, 38 Processing Services, BankCard Services Visa Commercial Card, 36 Product Conversion--Automated, Deposit Services, 2 Product Development, 51 Product Support, Programming and Development, 51 Professional Services, Network Services, 49 Profit Improvement Review, Consulting Services, 51 Profitability Modeling, 22 Programming, 51 Programming and Development, 51 Programming Requests, BankCard Services Support Services, 41 Projects, BankCard Services Support Services, 43 Proof Encoding, 53 Protected Functions, User-defined Security, 9 --R-- RAMIS, 45 RAMIS Application Extracts, 45 RAMIS Download Facility, 46 RAMIS Usage, 46 Reaccrual Processing, Deposit Services, 2 Recon Issued, Treasury Connection, 15 Recon Paid Files, Treasury Connection, 15 Relationship Packaging (RPS), 22 Remote Report Printing Credit, 48 Remote Site Support, 48 Report Edge CPU Usage, Information Desktop, 45 Report Reruns, 49 Report, EDI Receiving, 18 Reports and Map, EASE Marketing Solutions, 21 Reports, Loan Services, 7 Reports--Nonstandard, Deposit Services, 3 Reports--Standard, Deposit Services, 2 Reruns, EFT Services, 31 Research, BankCard Services Support Services, 43 Retention, Deposit Services, 2 Retirement Account Reporting, 2 Reversal of Transactions, Deposit Services, 3 Revolving Credit With Check Access, Loan Services, 7 Risk Management, BankCard Services Cardholder, 34 Risk Management, BankCard Services Visa Commercial Card, 36 --S-- Safe Deposit, 6 Sale of Servicing, Loan Services, 7 Salespartner Optional Services, 23 Salespartner Site License, 23 Salespartner Usage Fees, 23 Salespartner Workstation License, 23 Salestracking, RAMIS Application Extracts, 45 Saturday Processing, Deposit Services, 3 Saturday Processing, Financial Control, 10 Saturday Processing, Loan Services, 7 Savings Account, 1 Schedule CMR, Deposit Services, 3 Scrub Service, File Maintenance Services, 11 Service Charge Test, Deposit Services, 3 Service Charging, EFT Services, 31 Services Continuity, 50 Sharedraft Processing, 53 Special ATM Transaction Support, EFT Services, 30 Special Statements, Account Reconciliation, 13 Specialized Data Entry, 53 Standard Descriptions, Financial Control, 10 Standard NACHA File Tape, Automated Clearinghouse (ACH) Originating, 16 STAR View, 47 Statement Printing, EFT Setup Fees, 32 Statement Processing, Account Analysis, 20 Statement Rendering, 53 Statements, BankCard Services Visa Commercial Card, 36 Statements, Loan Services, 8 Stop Payment, Treasury Connection, 14 Subledger Reports, Financial Control, 10 Summary of Deposits, 3 Supplies--Partnership Plus, 53 Suspicious Activity Tracking, 5 Sweep Report, Deposit Services, 3 --T-- Tape Creation, 53 Tape Handling, Customer Information System (CIS), 20 Tape or Transmission, Automated Clearinghouse (ACH) Originating, 16 - ------------------------------------------------------------------------------- M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Confidential Effective March 1, 1998 Page 75 Index - -------------------------------------------------------------------------------- Tape Output, Account Reconciliation, 13 Tape Storage, STAR View, 47 Tape/Transmission Processing, Loan Services, 8 Task Tracking, 8. See On-line Collections/Queuing Tax ID Name and Address List, 4 Tax ID Number Report, 4 TELEMONEY, 39 Telephone Banking, Home Banking Services, 25 Teller Cassettes/Diskettes Maintenance, 53 Teller Trial Balance, On-line Services, 4 Tellerlink, On-line Services, 4 Terminal Line Authorization, Network Services, 49 Terminal Support, EFT Services, 29 Test/Training Bank, 11 The Support Center, 49 Tickler System, 8 Time Deposit Audit Report, Deposit Services, 3 Time Deposit IDs, 1 TIRS Reports, 39 Touch-tone Balance Reporting, Treasury Connection, 14 Touch-tone Bill Payment, Home Banking Services, 26 Training, EASE Marketing Solutions, 21 Training, Information Desktop, 45 Training, RAMIS, 46 Training, STAR View, 47 Transaction Authorization (On Us) , EFT Services, 29 Transaction Authorization/Settlement, EFT Services, 30 Transaction Fees, Services Continuity, 50 Transaction Journal Daily, Deposit Services, 3 Transaction Journal Daily, Financial Control, 10 Transaction Retention, Deposit Services, 2 Transaction Switching/Routing, EFT Services, 29 Transaction, EDI Receiving, 18 Transaction/Exception Item Retention, Account Reconciliation, 13 Transactions, Automated Clearinghouse (ACH) Receiving, 17 Transactions, Deposit Services, 1 Transactions, Financial Control, 9 Transactions, Fixed Assets, 11 Translated Addenda, EDI Receiving, 18 Translated EDI, Treasury Connection, 15 Transmission Fee (daily), Remote Site Support, 48 Transmission Output, Account Reconciliation, 13 Transmission Through a Third-party Network, Balance Reporting, 17 Transmission To a Third Party, Balance Reporting, 17 Transmission to Bank, Balance Reporting, 17 Transmission to Corporate Customer, Balance Reporting, 17 Transmission, Customer Information System (CIS), 20 Transmission, EDI Receiving, 18 Transmissions--Activity/Balances, EFT Services, 31 Transmissions--Activity/Balances, EFT Setup Fees, 32 Travel, 53 Treasury Connection, 14, 15 TREM, Automated Clearinghouse (ACH) Originating, 16 TRIAD, BankCard Services Cardholder, 34 Trial Balance, Audit Services, 9 Trial Balance, Deposit Services, 3 Trust Escrow Report, Deposit Services, 3 Trust Services, Cash Manager, 18 TYMNET. See Cash Management Network Access --U-- User Manuals, 51 User-defined Security, 9 --V-- Vendors, Accounts Payable, 11 Video Conferencing, 53 Visa and Master Card Fees, BankCard Services Cardholder, 35 Visa and MasterCard Fees, 39 VISA Check Card or MasterMoney Cardholder, EFT Services, 30 Visa Fees, BankCard Services Visa Commercial Card, 37 VISA Guarantee Fee, EFT Services, 30 VITAL Processing Services (VISANET), 39 --W-- W-9 Reporting, 5 Welcome (Convenience) Checks, BankCard Services Cardholder, 35 Welcome (Convenience) Checks, BankCard Services Credit Cards, 40 Windows-Based Software License Fee, Treasury Connection, 14 Wire Transfer, Treasury Connection, 14 Workstation Software, Information Desktop, 45 --Z-- ZIP + 4 CASS Delivery Point Certification, File Maintenance Services, 11 - ------------------------------------------------------------------------------- M&I DATA SERVICES - 1997 PRODUCT PRICE LIST Confidential Effective March 1, 1998 Page 76 EX-10.14 3 AMENDED AND RESTATED 1993 STOCK OPTION PLAN Merrill Merchants Bancshares, Inc. Amended and Restated 1993 STOCK OPTION PLAN 1. Purpose of Plan. The purposes of the 1993 Stock Option Plan are as follows: A. To further the interests of MERRILL MERCHANTS BANCSHARES, INC. (MMBI) and its shareholders by enabling employees and members of the Board of Directors of Merrill Merchants Bancshares, Inc. and Merrill Merchants Bank (MMB) to acquire shares of MMBI common Stock under the terms and conditions and in the manner contemplated by this Plan thereby increasing their personal involvement in Merrill Merchants Bancshares, Inc. and Merrill Merchants Bank; and B. To enable MMBI & MMB to obtain and retain the services of employees by providing such employees with an opportunity to become owners of MMBI Common Stock under the terms and conditions and in the manner contemplated by this Plan; and C. To enable MMBI and MMB to attract and retain the services of qualified individuals to serve on its Board of Directors by providing such individuals with an opportunity to become owners of MMBI common Stock under the terms and conditions and in the manner contemplated by the Plan. 2. Administration of Plan. A. The Plan shall be administered by the Merrill Merchants Bancshares, Inc. Compensation Committee (the "Compensation Committee") of the Board of Directors of Merrill Merchants Bancshares, Inc. as the same may be constituted from time to time in accordance with the bylaws of Merrill Merchants Bancshares, Inc. B. Subject to the express terms and conditions of the Plan, the Compensation Committee shall have full power to construe the Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations necessary or advisable for its administration. Such power shall include but not be limited to authorizations to establish appropriate standards for determining whether to grant any options in any particular year or years. C. The Compensation Committee may from time to time determine to which persons eligible for selection as participants in the Plan, if any, options shall be granted under the Plan, the number of shares which may be issued upon exercise of any such option, and whether such options are to be designated and treated as ISOs in accordance with Section 3 hereof. 3. ISOs and Non-ISOs. It is intended that this Plan meet all of the qualifications requirements imposed by Section 422 of the Internal Revenue Code of 1986 ("Code") with respect to incentive stock options ("ISOs") so that options granted under the Plan to key employees of Merrill Merchants Bancshares, Inc. and Merrill Merchants Bank and designated as ISOs at the time of grant will qualify and be treated as ISOs under the Code. The preceding sentence notwithstanding, it is also recognized and intended that options granted under the Plan to directors of Merrill Merchants Bancshares, Inc. and Merrill Merchants Bank who are not also employees will not qualify or be treated as ISOs under the Code, and it is further intended that options which are not designated and to be treated as ISOs may from time to time be granted to employees of Merrill Merchants Bancshares, Inc. and Merrill Merchants Bank. The Compensation Committee shall expressly designate an option as either an ISO or a non-ISO at the time of the grant thereof, but in the event of a failure to make a designation with respect to any option or in the event any option is otherwise disqualified from treatment as an ISO under the terms of this Plan or Section 422 of the Code, such options shall be, and be treated as, Non-Statutory Stock Options. 4. Eligible Participants. All employees of Merrill Merchants Bancshares, Inc. and Merrill Merchants Bank, shall be eligible for participation under the Plan. Non-employee directors will receive a non-discretionary option common stock upon the adoption of the plan or their addition to the board. Awards will be based on the current value of the stock upon reward. 5. Shares Subject to Plan. The stock to be offered under the Plan shall not exceed 645,900 shares of the issued and outstanding common stock on a fully converted basis of MMBI, $1 par value per share, as of the effective date of MMBI's Registration Statement on Form SB-2 filed with the Securities Exchange Commission under the Securities Act of 1993, with respect to an initial public offering of its common stock. Shares issued to participants upon the exercise of options granted under the Plan may be authorized but heretofore unissued shares. 6. Purchase Price. The purchase price of the stock covered by each option shall be an amount as determined by the Compensation Committee at the time of grant, and in the case of any option designated as an ISO, shall be its fair market value which must be equal to at least 100% of the book value of the Common stock of Merrill Merchants Bancshares, Inc. on the date such option is granted. In the case of an employee or director who owns 10% or more of Merrill Merchants Bancshares, Inc. stock, the exercise price for an ISO or non-ISO must be equal to 110% of the fair market value of the stock. The purchase price of any shares purchased will be paid in full at the time of each such purchase by certified or cashier's check payable to the order of Merrill Merchants Bancshares, Inc. 7. Vesting and Exercise of Options. Options shall be granted subject to such vesting requirements, if any, as are deemed appropriate or desirable by the Compensation Committee. All vested options shall be exercisable in such installments during the period prior to their expiration dates as the Compensation Committee shall determine, or may, if so determined by the Compensation Committee, be exercisable either in whole or in part at any time prior to their expiration dates. The option holder shall have the right cumulatively to purchase any shares not so purchased and such right shall continue until the option period ends. The foregoing notwithstanding, the aggregate fair market value (determined at the time of grant of the option) of stock for which an ISO is exercisable by its holder in any calendar year shall not exceed $100,000. 8. Terms and Conditions of Options. The terms and conditions of each option granted under the Plan shall be evidenced by a Stock Option Agreement executed by Merrill Merchants Bancshares, Inc. and the participant and no option shall be effective for any purpose unless and until the Stock Option Agreement evidencing same has been executed by all parties thereto. Each such Stock Option Agreement shall contain the following provisions: A. The number of shares which may be issued upon exercise of the option, the purchase price or prices per share and the means of payment for the shares. B. The term of the option and the date on which the option and all rights thereunder shall expire, as determined by the Compensation Committee. Such expiration date shall not be later than ten (10) years after the date such option is granted, and the option shall be subject to earlier termination upon the death, permanent disability or termination of employment of the option holder, unless exercised within the periods as provided in Sections 10 and 11 hereof. C. Such terms and conditions of exercise as may be determined by the Compensation Committee. D. Such restrictions on transfer of the options, and such restrictions on transfer of shares purchased by exercise of the option and forfeiture provisions, as may be determined by the Compensation Committee, provided that each option will be exercisable only by the optionee during his or her lifetime and will not be transferable other than by will or by the laws of descent and distribution. E. A statement clearly identifying the status of the option as either an ISO or a non-ISO. F. Such other terms and conditions not inconsistent with the Plan as may be determined by the Compensation Committee, including provisions required by Section 12 hereof or otherwise relating to or required for compliance with all applicable federal and state securities laws. 9. Continuance of Employment. Each person to whom an ISO is granted under the Plan may be required to agree in writing, as a condition to the granting of the option, to remain in the employ of Merrill Merchants Bancshares, Inc. or Merrill Merchants Bank following the date of grant of the option for such period, not less than one (1) year, as may be fixed by the Compensation Committee. Nothing contained in the Plan or in any option granted under the plan shall confer upon any option holder any right with respect to the continuation of employment by Merrill Merchants Bancshares, Inc. or Merrill Merchants Bank or interfere in any way with the right of Merrill Merchants Bancshares, Inc. or Merrill Merchants Bank (subject to the terms of any separate employment agreement to the contrary) at any time to terminate such employment or to increase or decrease the compensation of the option holder from the rate in existence at the time of granting of an option. 10. Termination of Employment. If an option holder ceases to be employed by Merrill Merchants Bancshares, Inc. or Merrill Merchants Bank for any reason other than death or permanent and total disability of such holder, then to the extent the option could have been exercised on the date of termination, the option may be exercised at any time within three (3) months after the termination. To the extent that an option could have been exercised on the date of termination because of total and permanent disability of the option holder, such option may be exercised at any time within one (1) year of the date of such termination. 11. Death of Option Holder. If an option holder dies while employed or while serving on the Board of Directors of Merrill Merchants Bancshares, Inc. or Merrill Merchants Bank, or within three (3) months after ceasing to be an employee or Board member, the options shall expire one (1) year after the date of death unless by its terms it expires sooner. During such period after such death, the option may be exercised, to the extent it could have been exercised on the date of death, by the person or persons to whom the option holders' rights under the option shall pass by will or by the laws of descent and distribution. 12. Securities Act Considerations. It is the intention of Merrill Merchants Bancshares, Inc. that the offering and the sale of shares of Common Stock obtainable upon the exercise of options granted under this Plan will qualify for an exemption from the registration requirements of the Securities Act of 1933 ("Act"). In that regard and for that purpose, it is hereby provided as follows: A. The Compensation Committee is authorized and empowered to suspend the period of exercise of any option outstanding under the Plan or to terminate any such option altogether, in either case upon written notice to the holder of the option, if the Compensation Committee believes or has reason to believe that the existence of the option or the exercise thereof does or would violate any provisions of the Act or of the securities law of any state which are or may be applicable. B. Each Stock Option Agreement evidencing an option granted hereunder may require that the holder of the option, at the time and as a condition precedent to each exercise of any portion thereof, provide to Merrill Merchants Bancshares, Inc. a written statement confirming such holder's investment intent and other matters with respect to any shares to be purchased upon exercise of the option. All of the foregoing to be in such form as the Compensation Committee, upon advice of counsel, shall determine to be adequate and appropriate. 13. Issuance of Shares. No person entitled to exercise any option granted under the Plan shall have any of the rights or privileges of shareholders of Merrill Merchants Bancshares, Inc. in respect of any share of stock issuable upon exercise of such option until certificates representing such shares shall have been issued and delivered. No shares shall be issued and delivered upon exercise of any option unless and until, in the opinion of counsel for Merrill Merchants Bancshares, Inc. any applicable requirements of the Securities Act of 1933, any applicable requirements of the "blue sky" laws of any State, and any other requirements of law, of any national securities exchange on which stock of the same class is then listed, or of any regulatory bodies having jurisdiction over such issuance and deliver, shall have been fully complied with. Each option holder may, by accepting an option, be required to represent and agree, for the option holder and transferees by will or the laws of descent and distribution, that if stock of the same class as that subject to the option holder or such transferees will advise Merrill Merchants Bancshares, Inc. of any contemplated sale of shares purchased upon exercise of the option prior to such sale, unless such contemplated sale is on such an exchange at the price prevailing at the time of the sale. If an option holder is so required to represent and agree, the notice of exercise of any portion of an option held by such option holder shall be accompanied by a signed representation and agreement in writing to the foregoing effect. 14. Amendment, Suspension or Termination the Plan. The Board of Directors upon the recommendation of the Compensation Committee may, at any time, amend, suspend or terminate the Plan. However, no such action by the Board of Directors may (i) increase the aggregate number of shares which may be issued upon exercise of options granted under the Plan, except for adjustments permitted under Section 15 of the Plan, or (ii) change the designation of the employees or directors eligible to receive options under the Plan. No amendment, suspension or termination of the Plan shall, without the consent of the participant, alter or impair any right or obligations under any outstanding stock option agreement. 15. Adjustments. Subject to any provisions in the Certificate of Incorporation of Merrill Merchants Bancshares to the contrary, if the outstanding shares of Merrill Merchants Bancshares, Inc. Common Stock are increased, decreased or exchanged for a different number or kind of shares or securities of Merrill Merchants Bancshares, Inc. as a result of a stock dividend, stock split, reverse stock split, reclassification or other recapitalization, an appropriate and proportionate adjustment shall be made in the number and kind of shares for which options may be granted under this Plan and in the maximum number of shares for which options may be granted to any one person hereunder. A corresponding adjustment changing the number or kind of shares allocated to unexercised options or portions thereof, which shall have been granted prior to any such change, shall likewise be made. Any such adjustment in the outstanding options shall be made without change in the aggregate purchase price applicable to the unexercised portion of the option but with a corresponding adjustment in the price for each share or other unit of any security covered by the option. Adjustments under this Section or under Section 16 hereof shall be made by the Compensation Committee, whose determinations as to what adjustments shall be made, and the extent thereof, shall be final, binding and conclusive. No fractional shares of stock shall be sold or issued under the Plan or pursuant to any such adjustment. 16. Sale of Holdings. Upon the dissolution or liquidation of Merrill Merchants Bancshares, Inc., or upon a reorganization, merger or consolidation of Merrill Merchants Bancshares, Inc. with one or more corporations as a result of which Merrill Merchants Bancshares, Inc. is not the surviving corporation, or upon the sale of substantially all of the property or more than eighty percent (80%) of the then outstanding stock of Merrill Merchants Bancshares, Inc. to another corporation, the Plan shall terminate, and any option theretofore granted hereunder shall terminate unless provision be made in writing in connection with such transaction for the continuance of the Plan and for the assumption of options theretofore granted, or the substitution for such options of new options covering the stock of a successor employer corporation, or a parent or subsidiary thereof, with appropriate adjustments as to number and kind of shares and prices, in which event the Plan and options theretofore granted shall continue in the manner and under the terms so provided. If any outstanding option is terminated in accordance with the preceding sentence as a result of a reorganization, merger or consolidation of Merrill Merchants Bancshares, Inc. or the sale of substantially all of the property or more than eighty percent (80%) of the then outstanding stock of Merrill Merchants Bancshares, Inc., Merrill Merchants Bancshares, Inc. shall, subject to any restrictions contained in its Certificate of Incorporation or in any financing agreement, indenture or other agreement to which Merrill Merchants Bancshares, Inc. is now or may then be a party or by which Merrill Merchants Bancshares, Inc. is or may be bound, pay to the holder of each outstanding option which is thus terminated an amount equal to (i) the number of shares as to which such terminated option had not yet become exercisable on the date of termination, times (ii) the difference between the exercise price per share under such option and fair market value of each share of Merrill Merchants Bancshares, Inc. Common Stock on the date of termination. 17. Effective Date and Termination of Plan. A. This Plan shall become effective upon (1) its approval by the holders of a majority of the outstanding shares of Merrill Merchants Bancshares, Inc. Common Stock, and by the holders of the requisite percentage of the outstanding shares of any other class or series of stock of Merrill Merchants Bancshares, Inc. which is entitled to vote as a class heron, and (2) the taking of any further action which the approving shareholders may require as a condition to the effectiveness hereof. B. Unless sooner terminated by the Board of Directors or in accordance with Section 16 hereof, the Plan shall terminate on the day immediately preceding the tenth anniversary of the earlier of (i) the date of adoption of the Plan, and (ii) the date on which the Plan is approved by the shareholders of Merrill Merchants Bancshares, Inc. Said Plan was approved at the annual meeting of Merrill Merchants Bancshares, Inc. on May 27, 1993, therefore said Plan will terminate on May 26, 2003, meaning that no option may be granted under this Plan after May 26, 2003. Paragraph 5 of said Plan was amended by the shareholders on April 25, 1995, on April 24, 1997, and on the effective date of MMBI's Registration Statement on Form SB-2 filed with the Securities Exchange Commission under the Securities Act of 1993, with respect to an initial public offering of its common stock. EX-23.1 4 CONSENTS OF EXPERTS AND COUNSEL EXHIBIT 23.1 CONSENT OF ACCOUNTANTS We consent to the inclusion in this Registration Statement on Form SB-2 (File No. 333-56197) of our report dated January 16, 1998, on our audits of the consolidated financial statements of Merrill Merchants Bancshares, Inc. and Subsidiary. We also consent to the reference to our firm under the captions "Experts" and "Financial Information." July 31, 1998 /s/ BERRY DUNN McNEIL & PARKER ----------------------------- BERRY DUNN McNEIL & PARKER -----END PRIVACY-ENHANCED MESSAGE-----