<PAGE>

                                                                      Exhibit 13

First Coastal Corporation


1999


ANNUAL


REPORT







including its subsidiary
Coastal Bank
<PAGE>

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Letter to Stockholders                                                      1

Selected Consolidated Financial Data                                        5

Management's Discussion and Analysis of
Financial Condition and Results of Operations                               7

Market for Registrant's Common Equity and
Related Stockholder Matters                                                27

Report of Independent Accountants                                          28

Consolidated Financial Statements                                          29

Notes to Consolidated Financial Statements                                 34

Corporate and Stockholder Information                                      53
--------------------------------------------------------------------------------
<PAGE>

PRESIDENT'S LETTER
[PHOTO]


TO OUR STOCKHOLDERS:

During 1999 we made significant progress in a number of areas, both to further
improve shareholder value in First Coastal Corporation ("First Coastal" or the
"Company") and to reposition Coastal Bank ("Coastal" or the "Bank") for future
long-term, profitable growth.  We are pleased to have the opportunity to bring
our shareholders up to date on what transpired in 1999, as well as the Company's
plans for the future.

ACCOMPLISHMENTS IN 1999

Net income for the year ended December 31, 1999 equaled $2.2 million, or $1.62
per share fully diluted. The Company's financial results were positively
impacted by after tax gains of approximately $733,000 and $300,000 recorded
during the first six months of 1999, resulting from the sale of the Bank's
Kennebunk branch and residential loan servicing portfolio, respectively.  Net
income for the year ended December 31, 1998 equaled $1.6 million, after being
positively impacted by a nonrecurring $356,000 after tax gain associated with
the sale of real estate which presently houses the Bank's Westbrook headquarters
branch and operations center.  While core 1999 earnings, adjusted for the
nonrecurring items noted above, were essentially the same as compared to 1998, a
benefit of the Company's actions over the past two years to align its resources
with its strategies is that we have been able to take advantage of one-time
gains to bolster net income and enhance the Company's capital base.

The Company's focus on commercial banking exhibited significant progress in
1999, evidenced by a $17.7 million (30.0%) increase in commercial loan balances,
to $76.3 million, and a $5.0 million (67.6%) increase in commercial deposits and
secured borrowings.  The increase in commercial loan balances accounted for the
overall increase in total loan balances, by $14.7 million, to $120.5 million.
Deposit balances declined $8.4 million in 1999 as compared to 1998 as a result
of the Kennebunk branch sale, which included $12.5 million in deposits.

In June 1999, the Company commenced a stock repurchase program with the intent
to repurchase up to 5% (68,000 shares) of its then outstanding common stock.  On
February 8, 2000, the Company announced that this program had been extended and
that it plans to repurchase up to an additional 68,000 shares, or a total of
136,000 shares (10% of the outstanding common stock as of the June 1999
commencement of the program).  The stock repurchase program is expected to be
conducted for up to an additional twelve months, until February 2001.  We
continue to believe that First Coastal's stock is currently undervalued by the
market and that the purchase of the Company's stock represents an effective
utilization of capital.  As of March 27, 2000, the Company had repurchased
68,619 shares, totaling 5.04% of its outstanding common stock as of June 1999.

"BUILDING A NEW BANK" - FIRST COASTAL'S STRATEGY FOR 2000 AND BEYOND

The Company has made significant progress in addressing the numerous strategic
challenges that resulted from its problems which emerged in the late 1980's and
continued until the completion of the 1996 recapitalization.  While the
recapitalization brought to an end a period of financial risk that for years
threatened First Coastal's solvency, the Company that emerged from this period
faced significant issues. For a summary of the Company's history, including its
difficulties during this period, please see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Historical
Background," on page 7 following.

The Company's current strategic direction was formulated in 1997 and the plan
continues to evolve with changes in identified business opportunities as well as
changes in the financial services industry.  The Company's primary, long term
strategic objectives can be summarized as follows:


                                       1
<PAGE>

STRATEGIC OBJECTIVES

 . Improve the Company's long-term prospects for sustained growth in core
  earnings per share, with earnings and growth in earnings per share reaching or
  exceeding peer averages.

 . Develop Coastal Bank to become the independent community bank of choice for
  both commercial and retail customers in the Bank's primary market, which
  consists of the U.S. Interstate 95/295 corridor from Saco-to-Brunswick, with a
  particular emphasis on becoming well-established in the Greater Portland
  market.

 . Maximize shareholder value through the development of Coastal Bank's
  profitability, and overall market positioning and presence.

In order to position the Company to achieve these objectives while dealing with
the strategic challenges facing First Coastal following the 1996
recapitalization, we have been called upon, in essence, to "build a new bank."
The Company's strategic plan calls for the implementation of a number of
significant initiatives, some already implemented and some still pending, which
are intended to transform First Coastal into a better positioned financial
services company with excellent prospects for future profitable growth.  The
following are the business areas that are receiving the most focus with regard
to "building a new Coastal":

COMMERCIAL BANKING - Over the past three years, we have assembled a strong
commercial banking team that, in combination with Coastal's relatively flat
organizational structure and bank-wide focus on service, provides a superior
level of expertise and commitment to commercial customers in our market. Unlike
some areas of banking which have become increasingly more commodity-like and
transaction oriented, commercial banking continues to remain heavily reliant
upon expertise and customer service, and the development and maintenance of
sustainable business relationships.

While our 1999 results reflect the strength of the professionals working in this
area, the overall capabilities of this team were just enhanced with the addition
of Gordon I. Erikson, Jr., who is joining Coastal in April as Senior Vice
President, Commercial Banking. Gordon comes to Coastal following a 24-year
career with a major competitor, most recently as Senior Vice President, Retail
and Small Business Sales Leader, responsible for Maine. Gordon will be managing
Coastal's commercial business development effort, including both commercial
lending and cash management.

BRANCH NETWORK EXPANSION - Coastal's branch network has historically been
unsynergistic and by 1996 had been reduced to a disjointed collection of seven
branches spread over approximately 50 miles of the coastal I-95/I-295 corridor.
A key challenge of our strategic plan has been the development of a synergistic
branch network that will enable us to attain the strategic objectives discussed
above.  Of particular concern has been the lack of any visible presence (beyond
our Westbrook branch/operations center) in the State's most promising banking
market: the 35-mile stretch between Freeport and Saco, which encompasses the
Greater Portland market.  While we have no intention of attempting to replicate
the branching systems currently employed by the three regional banks which
dominate the Southern Maine market, particularly given the high cost of new
branch facilities and an environment of rapidly expanding e-commerce, additional
branch coverage is a necessity if the Company is to achieve the market presence
and customer accessibility required to compete effectively in the Greater
Portland market.

We began addressing this issue with the 1998 opening of our Downtown Portland
branch, "Coastal Business Bank," which provided us with a Portland base for our
commercial banking initiative.  In 1998 and 1999 we negotiated favorable terms
on the sale of the Westbrook headquarters and operations center and Kennebunk
branch as steps toward the redeployment of our resources in more strategically
significant locations.

                                       2
<PAGE>

NEW PORTLAND MAIN OFFICE - As we announced during the fourth quarter 1999, the
Bank has leased a new facility at 1200 Congress Street, Portland that is
currently under construction and is expected to be available for occupancy
during the second quarter of this year to serve as the Bank's new main office.
The Bank will occupy the first two floors, totaling approximately 19,000 square
feet, of the modern three story building, which will provide the Bank with ample
parking and a three-lane drive through.  The exciting aspect of this facility is
its exceptional accessibility and visibility - it will put Coastal Bank on the
map in a very significant way.  The building is located on one of Portland's
most heavily traveled arteries, is immediately accessible from a newly installed
traffic interchange and abuts a U.S. Interstate 295 on-ramp, making the location
easily accessible from I-295, downtown Portland, other portions of Portland and
surrounding communities.  In addition, the combination of the building's close
proximity to Congress Street, prominent architecture and proximity to I-295 will
provide excellent visibility from both Congress Street and I-295.

Coastal Bank will now have a "billboard" presence.  This will serve as a
cornerstone for long-term future growth that will make it easier for prospective
new customers to identify, and relate to, Coastal Bank, with the enhanced public
awareness of the Bank greatly benefitting our marketing efforts.  The facility
is a visible example of the Company's progress in "building a new Coastal."

ADDITIONAL BRANCHES -In addition to our new main office on Congress Street, our
strategic plan calls for at least two additional branches to be opened in the
Greater Portland market over the next three years.  We believe that a minimum of
two additional, well-located facilities are required for us to provide the
minimum effective coverage to serve a significant portion of the Greater
Portland market.  Though the cost of the main office and branch facilities is
significant, and will dampen earnings during their start-up periods, the
anticipated future growth in earnings associated with these facilities and their
overall impact on the Company's future is expected to be favorable.

OUR PEOPLE - We believe that in the highly competitive and rapidly changing
world of financial services, it is the quality and focus of our people that must
distinguish us, and will ultimately determine whether or not we are successful.
The hiring, retention and development of the right team is a continuous
priority.  Our growth and commitment to the local market have enabled us to
retain and recruit high quality staff despite strong competition for people.

RETAIL BANKING - Over the past year, retail banking has moved to the forefront
as an area that is receiving significant management focus and is expected to
contribute in a major way to the Company's future growth. Beginning in the
second quarter of 2000, and in conjunction with the opening of the 1200 Congress
Street main office, we will launch three comprehensive life-cycle segment
programs, known together as CoastalWorks/SM/.  These programs are designed to
increase customer loyalty by delivering uncommon value that sets Coastal apart
from other banks.

Related to the Bank's renewed focus on retail banking is the development of
Maine Cash Access/SM/.  In partnership with another community bank, Coastal has
developed a statewide, surcharge-free ATM alliance as a means of extending the
geographic reach of the Bank's branch and ATM network.  MaineCash Access/SM/,
consisting of approximately 16 Maine banks and 130 ATM machines, is anticipated
to be operational during the second quarter, 2000.  The availability of
statewide, surcharge-free ATM coverage will provide another reason for customers
to bank with Coastal.

TECHNOLOGY - Coastal Bank, already a leader in Internet banking technology in
its market, continues to invest in its technological infrastructure.  In
addition to the anticipated 2000 availability of expanded retail offerings such
as Internet banking and on-line mortgage lending, the Bank's investments in this
area are expected to improve the quality and efficiency of our service to
customers.


                                       3
<PAGE>

RESIDENTIAL LENDING - We did not meet our performance objectives in 1999 for
residential lending.  Loan originations declined $15.0 million (61.6%) to $9.3
million, compared to 1998, primarily as a result of higher interest rates which
led to a decline in originations associated with refinances, and our failure to
bolster origination volume through the use of outside originators.  Despite the
reduced volume in 1999, a number of steps were taken during the year and the
first quarter of 2000 that will, we believe, lead to an increase in residential
loan originations in 2000 and beyond.  These steps include significant staffing
changes, investment in market-leading technology, and securing additional
investors for the purchase of the Bank's secondary market loan products.

STOCK PRICE - First Coastal, along with a broad segment of the banking industry,
saw stock prices slump over the last year, continuing through the first quarter
of 2000.  While we cannot influence the macroeconomic forces that cause such
broad movements, we can secure long-term shareholder value through a prudent
stock repurchase program and continual focus on development of our core business
value.  We believe that by delivering an uncommon banking experience to our
customers, we offer exceptionally attractive value that will bring success to
our Company and our shareholders.

IN CLOSING...

We have made significant progress in repositioning First Coastal in a manner
that, we believe, will result in a much improved, more valuable banking company.
We have made this progress while still achieving favorable financial results, in
part augmented by the sale of non-strategic assets over the past two years.  The
next two years will be critical to our overall success as we continue the
repositioning of the Bank's branching system (at some near-term cost), continue
the expansion of our commercial banking activities and launch several new retail
banking programs.  We are proceeding on this course mindful of several risk
factors that could affect performance:  the economy, the expansion of which has
now reached record duration; the stock market, which  may be significantly
overvalued; increasingly fierce competition for loans; and the challenges
brought on by the technological revolution currently underway, one that in some
ways is significantly changing the banking industry.

2000 promises to be one of the most exciting years in the history of the
Company, with the new main office, potential other branching opportunities and
significant new products greatly enhancing Coastal's visibility in the market.
We believe we have the right combination of people, opportunity and business
plan to transform First Coastal into a strong performing banking company, one
that is well-positioned in Maine's best banking market for long term profitable
growth.  On behalf of management, staff and the Board of Directors, I would like
to take this opportunity to thank you for your continued support.


Gregory T. Caswell
President and Chief Executive Officer


                                       4
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

Selected Consolidated Financial Data of First Coastal Corporation

The following table sets forth, in summary form, certain selected financial data
of First Coastal Corporation (the "Company") as of and for each of the five
years in the period ended December 31, 1999.
<TABLE>
<CAPTION>



                                                                         Year Ended December 31,
                                                    -----------------------------------------------------------------
(in thousands, except share and per share data)            1999         1998         1997          1996         1995
---------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>         <C>          <C>           <C>          <C>
Statement of Operations Data:
Interest income                                      $   13,986   $   13,059    $  11,894     $  11,331     $  11,707
Interest expense (1)                                      6,864        6,567        5,876         5,653         5,850
                                                     ----------   ----------    ---------     ---------     ---------
Net interest income before
provision for loan losses                                 7,122        6,492        6,018         5,678         5,857

Provision for loan losses                                    --           --           --            --          (425)
                                                     ----------   ----------    ---------     ---------     ---------
Net interest income after provision
for loan losses                                           7,122        6,492        6,018         5,678         6,282

Investment securities/loan gains (2)                        580          215          370            45            13

Noninterest income (3)(4)(5)                              1,730        1,166          620           945           559

Operating expenses
                                                          6,056        5,450        5,067         5,142         5,194
Income tax expense (benefit) (6)                          1,150          859          679        (4,859)           --
                                                     ----------   ----------    ---------     ---------     ---------
Net income                                           $    2,226   $    1,564    $   1,262     $   6,385     $   1,660

Earnings Per Share:                                  ==========   ==========    =========     =========     =========

Basic earnings per share data:

   Weighted average shares outstanding                1,356,375    1,359,976    1,358,730       933,578      600,361

   Net income per share                              $     1.64   $     1.15   $      .93    $     6.84   $     2.77

Diluted earnings per share data:

   Weighted average shares outstanding                1,370,152    1,379,124    1,391,272       940,480      600,361

   Net income per share                              $     1.62   $     1.13   $      .91    $     6.79   $     2.77
</TABLE>

(1)  The 1999, 1998, 1997, 1996 and 1995 interest expense includes $258,000,
     $332,000, $477,000, $525,000 and $419,000, respectively, in interest
     expense associated with (i) the promissory note in the principal amount of
     $9.0 million issued to the FDIC in connection with the 1995 settlement of
     the FDIC's cross guaranty claim against its subsidiary Coastal Bank, which
     note was paid in full on July 24, 1996, and (ii) the promissory notes in
     the original aggregate principal amount of $4.0 million issued to a group
     of four Maine savings banks in connection with the recapitalization of the
     Company in July 1996.


(2)  In 1999, Coastal Bank sold its mortgage servicing portfolio and recognized
     a pre-tax gain of $460,000.

(3)  In 1996, Coastal Bank sold its branch in Kezar Falls, Maine and recognized
     a pre-tax gain of $366,000.

(4)  In 1998, Coastal Bank sold its combination headquarters branch and
     operations center located in Westbrook, Maine, resulting in a pre-tax gain
     of $539,000.

(5)  In 1999, Coastal Bank sold its branch in Kennebunk, Maine and recognized a
     pre-tax gain of $1.1 million.

(6)  The 1996 results include a $4.8 million tax benefit resulting from a
     reduction in the Company's valuation allowance against its deferred tax
     asset. See Note 12 to the Company's Consolidated Financial Statements.


                                       5
<PAGE>

<TABLE>
<CAPTION>


                                                                 December 31,
                               ----------------------------------------------------------------------------
(dollars in thousands)              1999          1998            1997           1996               1995
-----------------------------------------------------------------------------------------------------------
<S>                            <C>             <C>              <C>             <C>               <C>
Balance Sheet Data:
Total assets                   $190,582         $191,413         $146,400         $147,734         $145,453
Investment securities            51,823           47,048           22,887           26,692           19,712
Assets held for sale                 83               83            3,565            1,490              281
Loans, net of fees              120,517          105,776          104,165           98,515          100,528
Allowance for loan losses         2,882            2,735            2,665            2,666            2,659
Nonperforming assets                540              566              818            2,623            7,517
Deposits(1)(2)                  140,137          148,545          114,991          115,085          125,665
Borrowings                       27,748           22,545           13,294           15,000            6,000
Notes payable(3)                  2,268            2,600            3,000            4,000            9,000
Secured borrowings                2,980              967               --               --               --
Stockholders' equity             16,914           16,314           14,808           13,388            3,997
Financial Ratios:
Net interest rate spread           3.54%            3.68%            3.98%            4.12%            4.13%
Net interest rate margin           4.00             4.09             4.32             4.28             4.19
Return on average assets           1.19              .93              .84             4.57             1.14
Return on average equity          12.45             9.81             8.72           102.60            58.20
Equity to assets                   8.87             8.52            10.11             9.06             2.75
Tier 1 leverage capital            8.37             7.20             7.71             6.62             2.74
Total risk-based capital          15.82            14.32            13.29            11.54             5.54
</TABLE>


(1) The sale of the Bank's Kezar Falls, Maine branch in April 1996 included
    deposits totaling $9.9 million.
(2) The sale of the Bank's Kennebunk, Maine branch in May 1999 included
    deposits totaling $12.5 million.
(3) Notes payable consists of the FDIC Note in 1995 and the Savings Bank
    Notes in 1996, 1997, 1998 and 1999.



The 1996 financial results reflect the completion of the Company's
recapitalization plan, whereby the Company repaid in full its obligation to the
FDIC in the amount of $9.7 million ($9.0 million principal amount plus accrued
interest) (the "FDIC Note"), arising from the 1995 settlement of the FDIC's
cross guaranty claim against its subsidiary, Coastal Bank (the "Bank"). The
recapitalization plan included (i) the sale of 750,000 shares of the Company's
common stock at $5.00 per share, (ii) a dividend in the amount of $3.2 million
from the Bank to the Company; and (iii) the borrowing of $4.0 million from a
group of four Maine savings banks (the "Savings Banks") pursuant to which the
Company issued promissory notes in the aggregate principal amount of $4.0
million (the "Savings Bank Notes") with an original maturity date of December
31, 2001.

The Savings Bank Notes were amended effective August 4, 1999, whereby the terms
were modified to include, among other things, a reduction in the interest rate,
an extension of the maturity date until August 4, 2004 and to provide the
Company with a line of credit. For further information see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Significant Events - Amended Savings Bank Notes."

                                       6
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

BUSINESS

First Coastal Corporation (the "Company"), a Delaware corporation, is a bank
holding company whose sole operating subsidiary is Coastal Bank (the "Bank"), a
Maine chartered bank headquartered in Westbrook, Maine. The Company has no
separate operations and its business consists of the business of the Bank. The
principal business of the Bank consists of commercial and retail banking,
including attracting deposits from the general public and originating
residential mortgage, consumer, commercial real estate and small business loans.
The Bank conducts its business from seven offices in the counties of Cumberland,
Sagadahoc and York. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to the limits provided by law.

This Annual Report, including statements made in this Management's Discussion
and Analysis of Financial Condition and Results of Operations, contains certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Any statements with regard to the Company's
expectations as to its financial results and other aspects of its business,
including the Company's strategic business initiatives, net interest margin,
deposit growth, interest rates, additional branches, market and growth
opportunities and loan volume, constitute forward-looking statements. Certain,
but not necessarily all, of such forward-looking statements can be identified by
the use of forward-looking terminology, such as "believes," "expects," "may,"
"will," "should," "estimates," or "anticipates" or the negative thereof or other
variations thereof or comparable terminology. All forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual transactions, results, performance or achievements of the Company to
be materially different from those expressed or implied by such forward-looking
statements. Although the Company has made such statements based on assumptions
which it believes to be reasonable, there can be no assurance that the actual
transactions, results, performance or achievements will not differ materially
from the Company's expectations. For example, there are a number of important
factors with respect to such forward-looking statements that could materially
and adversely affect such forward-looking statements, such as (i) the impact of
changes in market rates of interest, economic conditions or competitive factors
on the Company's deposit products and loan demand and asset quality; (ii) the
possibility that certain transactions, such as the successful transition to a
suitable new headquarters, branch and operations center, the opening of new
branches, the introduction of new banking products or other planned or
contemplated events, may not occur or may not be initiated with the degree of
success contemplated; (iii) the possibility that operating expenses may be
higher than anticipated; (iv) the effect that changes in the general economic
and competitive conditions in markets in which the Company operates could have
on the Company's financial performance and condition; (v) the Company's ability
to control its provision for loan losses, and to achieve its goals with respect
to net interest rate spread and margin; and (vi) the level of demand for new and
existing products. Should one or more of these risks or other uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described in the forward-looking statements. The
Company does not intend to update forward-looking statements. Investors are also
directed to other information related to the Company in documents filed by the
Company with the Securities and Exchange Commission.

HISTORICAL BACKGROUND

Coastal Bank was formed in 1981 through the consolidation of Brunswick Savings
Institution and York County Savings Bank, which were organized in 1858 and 1862,
respectively. The Bank converted from mutual to stock form in 1984. In 1987 the
Bank was acquired by Suffield Financial Corporation of Suffield, Connecticut,
the bank holding company for Suffield Bank ("Suffield"). Following the
transaction the two banks experienced significant financial difficulties as a
result of the late 1980's, early 1990's real estate downturn. In September 1991
Suffield was placed in receivership by the Connecticut Department of Banking,
leaving Coastal Bank as the Company's sole operating subsidiary. Subsequent to
Suffield's failure, the Company's headquarters was moved to Portland, Maine and
the name of the Company was changed to First Coastal Corporation.

As a result of its financial difficulties in January 1992, Coastal Bank was
placed under an Order to Cease and Desist ("C&D") by the FDIC and the Maine
Bureau of Banking. The Bank's financial condition improved, as evidenced by the
1994 termination of the C&D and the 1996 termination of the memorandum of
understanding (which had replaced the C&D). However, as a result of the failure
of Suffield, the Company faced another serious threat to its financial future.
In 1991 the FDIC assessed a cross guaranty claim against the Bank for the losses
sustained by the Bank Insurance Fund as a result of Suffield's failure. This
claim was settled in 1994 for $9.0 million, with a note executed in January 1995
calling for payment, with interest, within two years. In July 1996 the Company
completed a recapitalization whereby the $9.7 million obligation


                                       7
<PAGE>

(with interest) was repaid in full. This was accomplished through a $3.1 million
registered public offering, $4.0 million in bank financing and a $3.2 million
dividend from the Bank. As part of the recapitalization, the Company's common
stock was listed on the Nasdaq SmallCap Market tier of the Nasdaq Stock Market
under the symbol "FCME".

Throughout the 1990's until the completion of the recapitalization in 1996, the
Company's attention and resources were largely focused on crisis management,
dealing with the Bank's financial difficulties and the cross guaranty claim that
represented significant threats to the Company's financial future. Following the
recapitalization the Company was able, for the first time in years, to focus
fully on its long term strategic direction and rebuilding the competitive
viability of the Bank. During the first half of 1997 the Company completed a
five year strategic plan, the implementation of which began during the second
half of 1997 and continued throughout 1999. Significant aspects to the plan
include the March 1998 opening of the Bank's new Downtown Portland office, which
is primarily focused on commercial lending and deposit services; the May 1998
introduction of Internet banking for businesses (Coastal Business PC) and new
cash management products for business; the continued development of a strong
commercial lending team and increased commercial loan volume; and the
introduction of a new savings account product which was largely responsible for
the Bank's 29.2% increase in total deposits in 1998. The strategic plan was
subsequently amended as additional opportunities were identified. The most
significant new initiatives involve the reorganization of the Bank's branching
network, evidenced by the 1998 sale of the Bank's combination headquarters
branch and operations center in Westbrook; the May 1999 sale of the Kennebunk
branch; the scheduled (second quarter 2000) opening of a new headquarters branch
and operations center in Portland; the contemplated opening of additional
branches in the Greater Portland market; and the planned 2000 launch of new
retail banking programs that represent significant improvements to the Bank's
retail product offerings.

SIGNIFICANT EVENTS

Sale of $44 Million Residential Mortgage Servicing Portfolio

On January 31, 1999 the Bank completed the sale of its residential mortgage
servicing portfolio, resulting in a pre-tax gain in the amount of $460,000
recorded in the first quarter of 1999. On a going forward basis, it is the
Bank's current intent to sell saleable residential loans on a servicing released
basis, subject to market conditions.

Sale of the Bank's Kennebunk Branch

On May 14, 1999, the Bank sold its branch located in Kennebunk, Maine and
recognized a pretax gain of $1.1 million. Under the terms of the purchase and
assumption agreement, the purchaser acquired all of the branch's deposits,
totaling $12.5 million, and certain branch assets, as well as assumed
responsibility for the Bank's lease obligations.

Stock Repurchase Program

In June 1999, the Company commenced a stock repurchase program with the intent
to purchase up to 68,000 shares of its common stock, representing approximately
5% of the 1,360,527 shares then outstanding. As of February 1, 2000, the Company
had repurchased 52, 619 shares, or 3.9% of its common stock.

On February 8, 2000, the Company announced that its Board of Directors
authorized an extension of the stock repurchase program and the repurchase of up
to an additional 68,000 shares, or a total of 136,000 shares (representing 10%
of the outstanding common stock as of the June 1999 commencement date of the
repurchase program). The stock repurchase program is expected to be in effect
for up to an additional twelve months, until approximately February 2001. Under
the program, no shares knowingly will be purchased from officers or directors of
the Company or from persons who hold in excess of five percent of the Company's
outstanding shares of common stock.

Pending Relocation of Headquarters Branch and Operations Center

In connection with the relocation of the Company's and the Bank's main office
(including the branch and operations center of the Bank) to a new facility
currently under construction at 1200 Congress Street, Portland, Maine, the Bank
entered into a lease agreement for 18,757 rentable square feet consisting of the
first two floors of a three-story building. The facility will include a branch
and three-lane drive-through, ATM, commercial and retail banking offices and
space to support the Bank's loan, deposit and computer operations. The new
facility is expected to improve customer accessibility, provide increased market
awareness of Coastal Bank, result in enhanced overall service for existing and
prospective customers and provide space for growth. The new facility will result
in increased operating expenses of approximately $300,000 on an annual basis as
compared to the Company's current 12,500 square foot facility. Occupancy is
expected to take place early in the second quarter of 2000. As a result, the
Bank's lease on its current headquarters, branch and operations center was
extended from March 15, 2000 to July 15, 2000.


                                       8
<PAGE>

Amended Savings Bank Notes

On August 4, 1999, the Company entered into the First Amendment to Loan
Agreement (the "First Amendment to Loan Agreement") amending the terms of the
Loan Agreement, dated as of July 24, 1996 (the "Loan Agreement"), between the
Company and a group of four Maine savings banks (the "Four Savings Banks").
Pursuant to the Loan Agreement, the Company borrowed a total of $4.0 million
evidenced by promissory notes (the "Savings Bank Notes") in the amount of $1.0
million to each of the Four Savings Banks. Prior to the effective date of such
modification to the Loan Agreement, the Savings Bank Notes bore interest,
payable quarterly, at an annual rate of 10.85%, with semi-annual principal
payments of $200,000 beginning in June 1998. The original maturity date was
December 31, 2001. Pursuant to the First Amendment to Loan Agreement and the
amended Savings Bank Notes (the "Amended Savings Bank Notes"), the term loan
(balance $2.4 million at the time of refinance) bears interest at an annual rate
of 8.0% until August 4, 2002, at which time the interest rate will convert to
the Prime Rate as published in THE WALL STREET JOURNAL (the "WSJ"), adjustable
daily, until the new maturity date of August 4, 2004. In addition, the Company
is entitled to draw against a working capital line of credit up to a combined
aggregate limit, including the balance outstanding at any time of the term loan,
of $4.0 million. The interest rate on the line of credit is equal to the Prime
Rate as published in the WSJ, adjusted daily and the maturity date is August 4,
2004.

In addition to reducing the interest rate, extending the maturity date, and
providing the Company with a line of credit, the First Amendment to Loan
Agreement modified or eliminated certain covenants and conditions contained in
the Loan Agreement, including among other things: (i) limitations on borrowing
by the Company and the Bank; (ii) prohibitions on transfers of assets of the
Company or any subsidiary; (iii) prohibition of capital expenditures over
$500,000 in any fiscal year; and (iv) certain provisions providing that it was a
default by the Company not to make certain reports or payments within specified
time frames, which provisions have been made generally less restrictive as to
time or amount. In addition, the First Amendment to Loan Agreement modified the
prohibition on the payment of cash dividends by the Company contained in the
Loan Agreement when the Company's debt-to-equity ratio on a parent only-basis
exceeds 30% to increase the permissible ratio threshold to 50%.

In connection with the Amended Savings Bank Notes, one of the Four Savings Banks
notes was purchased by one of the remaining three lenders. There is no
prepayment penalty associated with the Amended Savings Bank Notes. Other terms
and conditions, including the pledge of all of the Company's stock in the Bank
as collateral, were affirmed and remain in effect.

RESULTS OF OPERATIONS

Comparison of Year Ended December 31, 1999 to Year Ended December 31, 1998

Overview

The Company reported net income of $2.2 million (diluted earnings per share of
$1.62) for the year ended December 31, 1999, compared to net income of $1.6
million (diluted earnings per share of $1.13) for the year ended December 31,
1998. The results for 1999 includes after-tax gains of $733,000 and $300,000,
resulting from the sale of the Bank's Kennebunk branch and the sale of the
Bank's residential mortgage servicing portfolio, respectively. The results for
1998 include an after-tax gain of $356,000 resulting from the sale of the Bank's
headquarters branch and operations center. Securities sales gains totaled
$22,000 for the year ended December 31, 1999, as compared to $104,000 for the
year ended December 31, 1998. The Company incurred no provision for loan losses
expense for the years ended December 31, 1999 and 1998.

Net Interest Income

Net interest income equaled $7.1 million and $6.5 million for the years ended
December 31, 1999 and 1998, respectively. Changes in net interest income are
caused by interest rate movements, changes in the amount and the mix of
interest-earning assets and interest-bearing liabilities, and changes in the
level of noninterest-earning assets and noninterest-bearing liabilities.


                                      9
<PAGE>

The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average cost; (iii) net interest income; (iv) interest rate spread; and (v) net
interest margin.

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                      ----------------------------------------------------------------------------------------------
                                               1999                                  1998                           1997
                                      -------------------------------   -----------------------------   ----------------------------
                                        Average                         Average                         Average
                                        Balance  Interest       Yield    Balance   Interest     Yield   Balance    Interest    Yield
------------------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>        <C>            <C>     <C>        <C>          <C>     <C>        <C>         <C>

Assets:
Interest earning cash                 $ 10,250   $   521        5.01%   $ 19,097   $ 1,014      5.24%   $  8,550   $   475     5.56%
Investments
  Available for sale (1)                53,906     3,445        6.39      30,548     1,942      6.36      19,305     1,256     6.51
  Held to maturity                                                         2,860       184      6.44       7,774       512     6.58
Loans (2) (3)
  Residential real estate mortgages     31,439     2,510        7.98      34,867     2,975      8.53      36,722     3,141     8.55
  Commercial real estate mortgages      61,928     5,620        9.08      51,610     5,044      9.77      47,848     4,644     9.71
  Commercial and industrial loans        7,524       678        9.01       5,427       525      9.68       3,964       395     9.97
  Consumer loans                        13,135     1,212        9.23      14,211     1,375      9.68      15,144     1,471     9.71
                                      --------   -------                --------   -------              --------   -------

      Total loans                      114,026    10,020        8.79     106,115     9,919      9.35     103,678     9,651     9.31
                                                 -------                           -------                         -------
Total interest earning
assets                                 178,182    13,986        7.85     158,620    13,059      8.23     139,307    11,894     8.54
                                                 -------                           -------                         -------
Noninterest earning assets               9,263                             9,906                          10,799
                                      --------                          ---------                       --------
      Total assets                    $187,445                          $168,526                        $150,106
                                      ========                          ========                        ========

Liabilities:
Deposits
  Savings                             $ 62,914     2,310        3.67%   $ 52,750     1,993      3.78%   $ 34,831       945     2.71%
  NOW and money
  market accounts                       19,548       453        2.32      18,564       422      2.30      18,197       446     2.46
  Certificates of deposit               48,945     2,471        5.05      54,004     2,893      5.36      56,801     3,068     5.40
                                      --------   -------                --------   -------              --------   -------

Total interest bearing
deposits                               131,407     5,234        3.98     125,318     5,308      4.24     109,829     4,459     4.06

Savings Bank Notes                       2,473       258       10.44       2,898       332     11.46       3,641       477    13.09
FHLB Advances                           22,832     1,273        5.57      15,593       900      5.77      15,497       940     6.07
Secured borrowings                       2,463        99        4.03         646        27      4.21          --        --       --
                                      --------   -------                --------   -------              --------   -------

      Total interest bearing
      liabilities                      159,175     6,864        4.31     144,455     6,567      4.55     128,967     5,876     4.56
                                                 -------                           -------                         -------

Noninterest bearing deposits            10,198                             7,987                           6,483

Noninterest bearing liabilities            195                               149                             189
Stockholders' equity                    17,877                            15,935                          14,467
                                      --------                          --------                       ---------

      Total liabilities and
      stockholders' equity            $187,445                          $168,526                       $ 150,106
                                     =========                          ========                       =========

Net interest income                              $ 7,122                           $  6,492                        $ 6,018
                                                 =======                           ========                        =======
Net interest rate spread (4)                                    3.54%                           3.68%                          3.98%
Net interest rate margin (5)                                    4.00%                           4.09%                          4.32%
</TABLE>

(1)  Yield on available for sale securities based on historical cost equaled
     6.31%, 6.39% and 6.49% for the years ended December 31, 1999, 1998 and
     1997, respectively.

(2)  For purposes of these computations, loans held for sale and nonaccrual
     loans are included in the average loan amounts outstanding.

(3)  Included in interest income from loans for the years ended 1999, 1998 and
     1997 are fees of $133,000, $262,000 and $195,000, respectively.

(4)  Return on interest earning assets less cost of interest bearing
     liabilities.

(5)  Net interest income divided by average interest earning assets.



                                      10
<PAGE>

      The table below sets forth certain information regarding changes in
      interest income and expense of the Company for the periods indicated. For
      each category of interest earning assets and interest bearing liabilities,
      information is provided on changes attributable to (i) changes in rates
      (change in rate multiplied by old volume), (ii) changes in volume (change
      in volume multiplied by old rate), and (iii) changes in rate/volume (the
      change in interest due to both rate and volume has been allocated to rate
      and volume changes in proportion to the relationship of the absolute
      dollar amounts of the change in each category).
<TABLE>
<CAPTION>



                                             Year Ended December 31, 1999            Year Ended December 31, 1998
                                                    Compared to                               Compared to
                                             Year Ended December 31, 1998            Year Ended December 31, 1997
                                       ------------------------------------     --------------------------------
                                       Increase (Decrease)                      Increase (Decrease)
                                              due to                                  due to
                                       ------------------------------------     --------------------------------
(in thousands)                         Rate       Volume         Total          Rate       Volume         Total
-----------------------------------------------------------------------------------------------------------------
<S>                               <C>          <C>            <C>            <C>          <C>            <C>
Interest income:
   Loans(1)                        $  (638)     $   739        $   101        $    41      $   227        $   268
   Investments available for sale       18        1,485          1,503            (46)         732            686
   Investments held to maturity         --         (184)          (184)            (5)        (323)          (328)
   Interest earning cash               (23)        (470)          (493)           (47)         586            539
                                   -------      -------        -------        -------      -------        -------
   Total interest income              (643)       1,570            927            (57)       1,222          1,165
                                   -------      -------        -------        -------      -------        -------

Interest expense:
   Savings and checking                (31)         379            348            551          473          1,024
   Other time deposits                (150)        (272)          (422)           (24)        (151)          (175)
   Secured borrowings                   (4)          76             72             --           27             27
   FHLB advances                       (45)         418            373            (46)           6            (40)
   Savings Bank Notes                  (25)         (49)           (74)           (48)         (97)          (145)
                                   -------      -------        -------        -------      -------        -------
   Total interest expense             (255)         552            297            433          258            691
                                   -------      -------        -------        -------      -------        -------
Net change in net interest
income before provision for
loan losses                        $  (388)     $ 1,018        $   630        $  (490)     $   964        $   474
                                   =======      =======        =======        =======      =======        =======
</TABLE>

(1) For purposes of these computations, loans held for sale and nonaccrual loans
are included in loans.


     Net interest income increased by $630,000 for the year ended December 31,
     1999 as compared to the year ended December 31, 1998. This increase in net
     interest income is mainly attributable to a $1.0 million increase related
     to increased volume (an increase of $19.6 million in average interest
     earning assets, partially offset by a $14.7 million increase in average
     interest bearing liabilities). Offsetting this increase in net interest
     income attributable to volume is a net decrease of $0.4 million
     attributable to rate (net interest rate spread for the year ended December
     31, 1999 declined to 3.54% as compared to 3.68% for the year ended December
     31, 1998).

     As a result of the increase in interest earning assets of $19.6 million,
     total interest income increased $927,000. The increase in average earning
     assets is primarily attributable to increased average securities balances
     of $20.5 million for the year ended December 31, 1999, as compared to the
     year ended December 31, 1998, resulting in an increase in interest income
     attributable to securities of $1,319,000. Average loan balances increased
     $7.9 million, however; as a result of lower average yields (8.79% for 1999
     as compared to 9.35% for 1998), interest income attributable to the loan
     portfolio increased only $101,000 as compared to 1998. The average balance
     of interest earning cash declined $8.8 million, resulting in a $470,000
     decrease in interest income attributable to volume as compared to 1998,
     with the lower average yield earned on interest earning cash further
     reducing interest income by $23,000 as compared to 1998.



                                      11
<PAGE>

Total interest expense increased $297,000 for the year ended December 31, 1999
as compared to the year ended December 31, 1998. An increase in the average
balance of interest bearing liabilities of $14.7 million resulted in increased
interest expense of $552,000. This was offset in part by a decline in the
average yield on interest bearing liabilities of 0.24%, which resulted in
reduced interest expense of $255,000. Increases in average savings deposit
balances of $10.2 million, Federal Home Loan Bank advances of $7.2 million and
secured borrowings of $1.8 million accounted for the bulk of the increase in
interest bearing liabilities, resulting in increased interest expense
attributable to higher average balances in these categories of $379,000, 418,000
and $76,000, respectively. This increase was offset in part by a $5.1 million
decline in the average balance of certificates of deposits and a $425,000
decline in the average balance of the Savings Bank Notes, resulting in decreased
interest expense of $272,000 and $49,000, respectively (in addition to the
decline in total interest expense attributable to lower average yields). The
Company's average cost of interest bearing liabilities decreased to 4.31% for
the year ended December 31, 1999 as compared to 4.55% for the year ended
December 31, 1998.

As noted above, in part as a result of significant competitive pressure, the
yield on average loan balances declined 0.56% for the year ended December 31,
1999 as compared to the year ended December 31, 1998. Should competitive
pressure continue to increase, the cost of funds may rise and the loan yields
available may fall, thereby narrowing the spread on interest earning assets as
compared to interest bearing liabilities.

Provision for Loan Losses

There was no provision for loan losses for the years ended December 31, 1999 and
1998. The absence of provision for loan losses in 1999 and 1998 is primarily
attributable to the continued low level of nonperforming loans and potential
problem loans and management's review of the portfolio and its determination of
the adequacy of the allowance for loan losses (the "Allowance") at December 31,
1999. Despite the absence of provision expense, the level of the Allowance
increased modestly in both 1999 and 1998 as charged-off loans of $12,000 and
$77,000 for the years ended December 31, 1999 and 1998, respectively, were
offset by recoveries totaling $159,000 and $147,000, for the same respective
periods.

Noninterest Income

Noninterest income increased $929,000 for the year ended December 31, 1999 as
compared to the year ended December 31, 1998. The increase is attributable to a
$1.1 million pre-tax gain received on the sale of the Bank's Kennebunk branch in
the second quarter of 1999 and a $460,000 pre-tax gain received on the sale of
the Bank's residential mortgage servicing portfolio in the first quarter of
1999. Income for the year ended December 31, 1998 included a $539,000 pre-tax
gain received on the sale of the Bank's headquarters branch and operations
center located in Westbrook, Maine.

Operating Expenses

Operating expenses increased $606,000, or 11.1%, for the year ended December 31,
1999 as compared to the year ended December 31, 1998, as described in more
detail below:
                                                      Year Ended December 31,
                                                      -------------------------
(in thousands)                                        1999                 1998
-------------------------------------------------------------------------------
Salaries and benefits                               $2,932              $2,632
Occupancy                                              608                 536
Net cost of operations of real estate owned              5                   7
Data processing                                        384                 280
Equipment                                              534                 424
FDIC insurance                                          18                  15
Insurance - general                                    111                 137
Office/postage                                         247                 246
Legal                                                   73                  31
Marketing                                              144                 177
Other expenses                                       1,000                 965
                                                    ------              ------
       Total Operating Expenses                     $6,056              $5,450
                                                    ======              ======

                                      12
<PAGE>

The increase in operating expenses was primarily the result of additional costs
associated with several business initiatives implemented by the Bank during
1998, and the sale and leaseback of the Bank's headquarters branch and
operations center in the third quarter of 1998. The business initiatives include
the opening of the Portland branch, the development and implementation of an
Internet banking program for businesses, the development and introduction of a
new line of cash management services for businesses, and additional staffing
resulting from increased commercial lending activity. The increase in salaries
and benefits was primarily attributable to changes in staffing levels and annual
salary increases. The increase in operating expenses was partially offset by the
elimination of operating expenses associated with the Bank's former branch in
Kennebunk, which was sold in the second quarter of 1999. Management anticipates
operating expenses for 2000 and 2001 to further increase as a result of several
additional business initiatives that are currently contemplated or underway,
including (i) the Bank's lease of a new headquarters, branch and operations
center and related furniture, fixtures and equipment expenses, which is
estimated to increase the Company's occupancy expense approximately $300,000
annually, (ii) the opening of additional branches over the next several years in
the Greater Portland market, (iii) the introduction of a number of new retail
banking products, and (iv) additional staffing related to the Bank's continued
expansion of its commercial lending activities and other business initiatives,
including the new headquarters facility.

Income Tax Expense

The Company incurred income tax expense of $1,150,000 for the year ended
December 31, 1999 as compared to $859,000 for the year ended December 31, 1998.
The effective tax rate used was 34.1% and 35.5% for the years ended December 31,
1999 and 1998, respectively.

Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997
Overview

The Company reported net income of $1.6 million (diluted earnings per
share of $1.13) for the year ended December 31, 1998, compared to net income of
$1.3 million (diluted earnings per share of $.91) for the year ended December
31, 1997. The results for 1998 included a pre-tax gain of $539,000 resulting
from the sale of the Bank's headquarters branch and operations center.
Securities and loan sales gains totaled $215,000 for the year ended December 31,
1998 as compared to $370,000 for the year ended December 31, 1997. The Company
incurred no provision for loan losses expense for the years ended December 31,
1998 and 1997.

Net Interest Income

Net interest income equaled $6.5 million and $6.0 million for the years ended
December 31, 1998 and 1997, respectively. Changes in net interest income are
caused by interest rate movements, changes in the amount and the mix of
interest-earning assets and interest-bearing liabilities, and changes in the
level of noninterest-earning assets and noninterest-bearing liabilities.

Net interest income increased by $474,000 for the year ended December 31, 1998
as compared to the year ended December 31, 1997. This increase is primarily
attributable to an increase in the level of earning assets in 1998 as compared
to 1997, primarily in the categories of investments and interest earning
deposits. The Company's net interest rate spread for the year ended December 31,
1998 decreased to 3.68% as compared to 3.98% for the year ended December 31,
1997 and the net interest margin decreased to 4.09% for the year ended December
31, 1998 as compared to 4.32% for the year ended December 31, 1997. The decrease
in the net interest rate spread and net interest margin is primarily the result
of a .31% decline in the Company's yield on earning assets. The decline in the
yield on earning assets is primarily attributable to lower yielding investments
and interest earning deposits representing a larger percentage of the Bank's
total average assets, 33.1% for 1998 as compared to 25.6% for 1997. This shift
in the percentage of the Bank's assets allocated to these lower yielding assets
is largely the result of the growth in total deposits.

Interest income for the year ended December 31, 1998 increased $1,165,000 as
compared to the year ended December 31, 1997. The increase is primarily
attributable to an increase in average earning assets of $19.3 million,
including increases in investments available for sale ($11.2 million), interest
earning deposits ($10.5 million) and average loan balances ($2.4 million),
partially offset by a decline in investments held to maturity ($4.9 million).
The increase in interest earning assets was primarily the result of the increase
in total deposit balances, largely attributable to the introduction of the
Bank's new High Rise Savings product and also increased commercial deposit
balances. Savings deposits increased $28.9 million and commercial deposits
increased $2.9 million during the year ended December 31, 1998. This deposit
growth was primarily invested in cash and cash equivalents and investment
securities, increasing the Bank's concentration of these lower yielding assets,
as compared to loans, thereby lowering the overall yield on earning assets.


                                      13
<PAGE>

As a result of significant competition with regard to loan originations, the
yields on new loan originations, and in particular commercial real estate and
commercial and industrial loans, declined relative to interest rates in general.
Competitive factors resulted in increased loan prepayments in 1998, as well as
some reductions in contract interest rates for existing customers.

Interest expense increased $691,000 for the year ended December 31, 1998 as
compared to the year ended December 31, 1997. The increase is primarily the
result of a $1.0 million increase in interest expense paid on savings deposits
(attributable to a $17.9 million increase in average deposit balances and a
1.07% increase in rate). This increase was partially offset by (i) a $201,000
decline in interest expense paid on certificates of deposits and interest
bearing checking deposits (attributable to a $2.4 million decline in average
deposit balances and a .12% decline in rates), (ii) a $40,000 reduction in
interest expense on advances from the Federal Home Loan Bank ("FHLB") of Boston,
primarily the result of more favorable rates on borrowings, and (iii) a $145,000
reduction in interest expense relating to the Amended Savings Bank Notes. The
decline in interest expense on the notes resulted from a $1.0 million
unscheduled principal payment made in September 1997 and $200,000 scheduled
principal payments made in June and December of 1998.

In March 1998, the Company introduced a new savings deposit product called High
Rise Savings. The introductory interest rate paid on this product was tiered
(initially ranging from 4.64% to 5.59%) and was guaranteed through December 31,
1998 for accounts opened during the initial introductory period which ended July
3, 1998 (following the initial introductory period, the product's interest rates
were reduced). This account generated net new deposits of $28.9 million for the
year ended December 31, 1998 (the bulk of which were at the introductory rate).
In addition, a portion of the Bank's deposit customers converted their
pre-existing accounts to High Rise Savings accounts (generally at higher rates)
with High Rise balances at December 31, 1998 equal to $36.4 million. As a result
of this program, average savings deposit balances increased significantly, from
$34.5 million to $63.4 million, and the average rate on savings deposits
increased from 2.71% to 3.78%, thereby increasing the overall cost of deposits
to the Bank.

Additionally, the Bank introduced its new cash management program for businesses
in May 1998. The program represents secured borrowings, which include agreements
similar to repurchase agreements that are not FDIC insured. At December 31, 1998
these secured borrowings totaled $967,000 and were collateralized by $967,000 in
Bank-owned investment securities.

As competitive pressures continue, the cost of funds to financial institutions
may rise relative to market interest rates, thereby narrowing the spread on
interest earning assets as compared to interest bearing liabilities.

Provision for Loan Losses

There was no provision for loan losses for the years ended December 31, 1998 and
1997. The absence of provision for loan losses in 1998 and 1997 is primarily
attributable to the continued decline in nonperforming loans and potential
problem loans and management's review of the portfolio and its determination of
the adequacy of the Allowance at December 31, 1998. Despite the absence of
provision expense, the level of the Allowance remained essentially unchanged as
charged-off loans of $77,000 and $339,000 for the years ended December 31, 1998
and 1997, respectively, were offset by recoveries totaling $147,000 and
$338,000, for the same respective periods.

Noninterest Income

Noninterest income for the year ended December 31, 1998 increased $391,000
compared to the year ended December 31, 1997. The increase is primarily
attributable to the $539,000 gain received on the sale of the Bank's office
building located in Westbrook, Maine, which currently serves as the Bank's
combination headquarters branch and operations center. The increase in
noninterest income was offset by a $155,000 decline in loan and securities gains
for the year ended December 31, 1998 as compared to the year ended December 31,
1997. In conjunction with the sale of the Bank's off balance sheet mortgage
servicing portfolio on January 31, 1999 and the Bank's revamped residential
mortgage lending program, the Bank currently intends to sell saleable loans on a
servicing released basis and recognize the servicing fee income at the time of
sale rather than recording the income on servicing fees over the life of the
loan.



                                      14
<PAGE>

Operating Expenses

Operating expenses increased $383,000, or 7.5%, for the year ended December 31,
1998 as compared to the year ended December 31, 1997, as described in more
detail below:

                                                      Year Ended December 31,
                                                      -------------------------
(in thousands)                                              1998           1997
-------------------------------------------------------------------------------
Salaries and benefits                                        $2,632       $2,367
Occupancy                                                       536          446
Net cost of operations of real estate owned                       7           67
Data processing                                                 280          239
Equipment                                                       424          374
FDIC insurance                                                   15           15
Insurance - general                                             137          141
Office/postage                                                  246          296
Legal                                                            31           65
Marketing                                                       177          255
Other expenses                                                  965          802
                                                             ------       ------
       Total Operating Expenses                              $5,450       $5,067
                                                             ======       ======

The increase in operating expenses was primarily the result of additional costs
associated with several business initiatives implemented by the Bank during the
first and second quarters of 1998. These initiatives include the opening of the
Portland branch, Internet banking for businesses, the development and
introduction of a new line of cash management services for businesses, and
additional staffing resulting from increased commercial lending activity. The
increase in salaries and benefits represented $265,000 of the total increase and
was primarily attributable to changes in staffing levels, annual salary
increases and 401(k) matching contributions under the Bank's 401(k) defined
contribution plan.

Income Tax Expense

The Company incurred income tax expense of $859,000 for the year ended December
31, 1998 as compared to $679,000 for the year ended December 31, 1997. The
effective tax rate used was 35.5% and 35.0% for the years ended December 31,
1998 and 1997, respectively.

FINANCIAL CONDITION

Set forth below is a discussion of the material changes in the financial
condition of the Company.

General
At December 31, 1999, the Company's total assets equaled $190.6 million,
representing a decrease of $0.8 million (or 0.4%) from total assets of $191.4
million at December 31, 1998. This decline was the result of a $20.2 million
decline in cash and cash equivalents, offset by increases in loan balances
($14.7 million) and investment securities ($4.8 million). Deposits declined $8.4
million, largely as a result of the sale of the Bank's Kennebunk branch, which
consisted of $12.5 million in deposits at the time of the sale in May 1999. The
decline in deposit balances was partially offset by a $5.2 million increase in
FHLB borrowings and a $2.0 million increase in secured borrowings.

Investment Securities
The Company's investment portfolio is comprised primarily of U.S. government and
agency obligations. Total investment securities at December 31, 1999 was $51.8
million compared to $47.0 million at December 31, 1998. This increase is
primarily attributable to the purchase of $8.4 million in U.S. government
obligations (of which $4.0 million are Treasury Inflation Indexed Bonds), $3.0
million in U.S. government agency notes and $7.0 million in mortgage-backed
securities, partially offset by the sale of $3.1 million in U.S. government
obligations and $1.0 million in government agency notes, $7.5 million in
prepayment and amortization on mortgage-backed securities and amortization of
premiums or discounts on investment securities, and a $2.0 million pre-tax
unrealized loss on available for sale securities.



                                      15
<PAGE>

The following table sets forth the carrying amounts and maturities of investment
securities and weighted average rates at December 31, 1999, 1998 and 1997.


<TABLE>
<CAPTION>
                                 December 31, 1999    December 31, 1998    December 31, 1997
                                 -------------------------------------------------------------
                                 Carrying              Carrying             Carrying
(dollars in thousands)           Amount     Yield      Amount     Yield     Amount      Yield
----------------------------------------------------------------------------------------------
<S>                              <C>         <C>      <C>          <C>    <C>          <C>
Available for sale (at market
value)(1):
  U.S. Government obligations
     maturing in 0-5 years      $ 2,602      6.0%     $ 2,227      5.65%       --
     maturing in 5-10 years      15,663      6.0        9,972      5.9         --
     maturing in over 10 years    1,857      5.5        1,967      5.6         --
Mortgage backed securities
     maturing in 5-10 years          --       --          904      6.8         --
     maturing in over 10 years   31,229      6.4       31,493      7.2    $15,798         6.9%
Other                               472      n/a          485      n/a         89         n/a
                                -------               -------             -------
                                $51,823      6.2%     $47,048      6.7%   $15,887         6.9%
                                =======               =======             =======
Held to maturity (at amortized cost):
  U.S. government obligations
  maturing in one year or less                                            $   200         4.9%
  U.S. government agency callable
  notes maturing after:
     1-5 years (final maturity)                                             4,000         6.4
     5-10 years (final maturity)                                            2,800         6.9
                                                                          -------
                                                                            6,800         6.6
                                                                          -------
                                                                          $ 7,000         6.5%
                                                                          =======
</TABLE>

(1)  Yields on available for sale securities are calculated based on historical
     cost.


     Loans Held for Sale
     Loans held for sale at December 31, 1999 and 1998 equaled $83,000. The
     outstanding dollar amount of loans held for sale can vary greatly from
     period to period, affected by such factors as mortgage origination levels,
     the timing and delivery of loan sales, changes in market interest rates and
     asset/liability management strategies.

     Loans
     Loans increased $14.7 million (or 13.9%), from $105.9 million at December
     31, 1998 to $120.5 million at December 31, 1999. The increase was
     attributable to an increase of $14.1 million in commercial real estate
     loans, a $3.6 million increase in commercial and industrial loans and a
     $1.5 million increase in construction loans, partially offset by decreases
     in residential and consumer and other loans of $4.1 million and $0.4
     million, respectively.

     The following table sets forth the composition of the Company's loan
     portfolio at the dates indicated:

<TABLE>
<CAPTION>
                                                             December 31,
                              -------------------------------------------------------------------
(dollars in thousands)                1999          1998          1997         1996          1995
-------------------------------------------------------------------------------------------------
<S>                                <C>           <C>           <C>          <C>           <C>
Real estate mortgage loans:
     Residential                  $ 28,460       $ 32,555      $ 33,251     $30,981        $ 30,966
     Commercial                     66,833         52,747        48,705      48,456          50,797
Real estate
construction loans                   2,832          1,384         1,955         769             --
Commercial and
industrial loans                     9,446          5,872         5,166       3,059           2,524
Consumer and other loans            12,962         13,315        15,227      15,281          16,263
                                  --------       --------      --------     -------        --------
Total loans                       $120,533       $105,873      $104,304     $98,546        $100,550
                                  ========       ========      ========     =======        ========

Ratio of loans to:

Deposits                                86%            71%           91%         86%             80%

Assets                                  63%            55%           71%         67%             69%
</TABLE>


                                       16
<PAGE>

The Bank's loan growth during the period from the late 1980's until the
completion of the 1996 recapitalization was inhibited as a result of the
problems the Bank and the Company experienced during this period (see Historical
Background). The Bank's ability to originate commercial and industrial and
commercial real estate loans was particularly impacted by borrower uncertainties
with regard to the Bank's future. The completion of the 1996 recapitalization
allowed the Bank to compete more effectively for new loans. Since that time, and
in conjunction with the Company's strategic plan, significant effort and
resources have been focused on developing higher levels of loan volume.
Particular focus has been given to developing a strong commercial banking team
as management believes this is an area in which the Bank can develop a
competitive edge, particularly with regard to expertise and responsive customer
service.

During the past three years the attrition previously reflected in the Company's
loan balances has ceased, with modest growth achieved during 1997 and 1998, and
a 13.9% increase in 1999. Commercial real estate loans showed the largest
increase for the year ended December 31, 1999, $14.1 million (26.7%) as compared
to December 31, 1998. The opening of the Bank's downtown Portland branch, the
introduction of commercial cash management products and the introduction of
Internet banking for businesses, all during the first half of 1998, have been
and will continue to be important to the Bank's ability to generate profitable
growth in commercial loans.

Though commercial real estate loans are considered riskier than some other loan
types, and continue to make up a large percentage of the Company's loan
portfolio (55.5% at December 31, 1999), management believes that the combination
of its expertise in this area and its lending practices allow the Company to
manage the risk inherent in this type of lending.

Residential real estate loans declined $4.1 million during 1999, attributable to
a combination of a generally higher interest rate environment in 1999, resulting
in lower originations, and increased competitive pressures, resulting in a
higher percentage of the Bank's 1999 originations being secondary market
saleable as opposed to residential mortgage portfolio loans. The Bank has placed
a renewed emphasis on residential lending in 2000 through improved technology
and staffing in order to compete more effectively in this market.

Loan Originations

Residential mortgage loans originated by the Bank are primarily collateralized
by property located within its existing market area in Maine. The Bank is an
active residential mortgage lender. A significant percentage of residential
loans originated are 1-4 family residential real estate loans, the majority of
which are sold in the secondary market. In 1998 and years prior, the Bank
continued to service most of the loans it sold in the secondary market.
Beginning in 1999 the Bank began selling these loans on a servicing released
basis. Most of the Bank's residential loans are originated using the Federal
National Mortgage Association ("FNMA") underwriting guidelines.

The Bank's residential loan originations decreased 61.6% ($15.0 million) in 1999
as compared to 1998, primarily as a result of the higher interest rate
environment, which resulted in decreased consumer demand to refinance
residential mortgages. Historically, the Bank has relied upon the refinancing
market for a significant portion of its residential loan originations. The Bank
has developed a plan that it believes will increase residential loan volume by
placing greater emphasis on originating purchase money residential loans as
opposed to refinancings. The plan also includes improved utilization of
technology (an automated underwriting system) and increased use of commission
based loan originators, in addition to the Bank's branch-based originations.

Commercial loan originations increased in 1999, as is reflected in the $17.7
million increase (30.1%) in total commercial loans outstanding at December 31,
1999 as compared to December 31, 1998. The Bank currently plans to further
increase its commercial loan originations in 2000; however, the competition for
commercial loans continues to be intense and its ability to do so is affected by
both competitive and economic factors.

The level of residential, consumer and commercial loan originations going
forward will depend upon a number of factors, including the level of interest
rates, general economic conditions, the competitive environment and overall
profitability of these loans.


                                      17
<PAGE>

The following table represents residential real estate and consumer loan
originations for the years ended December 31, 1999, 1998 and 1997.

<TABLE>
<CAPTION>
                                              For the Year Ended December 31,
                                              ---------------------------------
(in thousands)                                1999           1998         1997
-------------------------------------------------------------------------------
<S>                                         <C>           <C>           <C>
Originations (1):
       Residential real estate               $9,345       $24,343       $18,216

       Consumer                               1,813         4,322         3,001
                                            -------       -------       -------
       Total                                $11,158       $28,665       $21,217
                                            =======       =======       =======
</TABLE>


(1) Includes refinancing of existing portfolio and off balance sheet serviced
    loans.



Secondary Market Activity

The Bank is active in secondary market transactions primarily through the sale
of long-term, fixed-rate residential mortgage loans that it originates. The sale
of these loans serves as a means for the Bank to manage its overall interest
rate sensitivity risk (consistent with the Bank's asset liability management
policy), generates fee income and provides additional funds for lending and
liquidity. The Bank generally seeks to originate longer term fixed-rate
mortgages only when commitments to sell these mortgages can readily be obtained.
Due to interest rate fluctuations and the timing between the commitment to the
borrower and the closing and subsequent sale of the loan in the secondary
market, such sales will be made at a premium or discount (depending on the
current interest rate environment) and will result in realized gains or losses
to the Bank on the transaction.

The Bank is an approved seller and servicer by and for the FNMA. However, on
January 31, 1999, the Bank sold all of its FNMA residential mortgage servicing
portfolio. The Bank currently sells all saleable loans on a servicing released
basis. At December 31, 1999, the Bank was not servicing loans for others as
compared to servicing $44.9 million of loans in its capacity as a subservicer at
December 31, 1998. There was no servicing fee income related to serviced loans
for the year ended December 31, 1999. Servicing fee income is reported as other
income in the consolidated statements of operations, and for the two years ended
December 31, 1998 and 1997, equaled $34,000 and $75,000, respectively.

Allowance For Loan Losses

The Bank's policy is to increase the Allowance by charging a provision for loan
losses based on periodic evaluations of the loan portfolio and current economic
trends. Deterioration in the local economy or real estate market, upward
movement in interest rates, or deterioration in the repayment capabilities or
intentions of individual borrowers, could have an adverse impact on the loan
portfolio that could result in the need for increased provision for loan losses.
The Bank holds a large concentration of commercial real estate loans and the
ultimate collectibility of this loan portfolio is particularly susceptible to
changes in local real estate market conditions.


                                      18
<PAGE>

     The following table represents the manner in which the Allowance is
     allocated among the various loan categories at December 31, 1999, 1998,
     1997, 1996 and 1995. The percentages represent the percent of loans in each
     category to total loans.


<TABLE>
<CAPTION>


                                                                     December 31,
                              ---------------------------------------------------------------------------------------------
                                    1999               1998                1997               1996                 1995
                              ---------------    ----------------    ----------------    ---------------    ---------------
                                      Percent             Percent             Percent            Percent            Percent
                                     of Loans            of Loans            of Loans           of Loans           of Loans
                                     to Total            to Total            to Total           to Total           to Total
(dollars in thousands)       Amount     Loans    Amount     Loans    Amount     Loans    Amount    Loans    Amount    Loans
----------------------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>      <C>        <C>      <C>        <C>      <C>       <C>      <C>       <C>
Real estate mortgage
loans:
  Residential                $  137      23.6%   $  165      30.8%   $  157      31.9%   $   61     31.4%   $   82     30.8%
  Commercial                  1,798      55.5     1,453      49.8     1,303      46.7     1,811     49.2     2,216     50.5
Real estate
construction loans               44       2.3        14       1.3        12       1.9         7       .8        --       --
Commercial and
industrial loans                243       7.8       133       5.5        67       4.9        40      3.1        13      2.5
Consumer and other
loans                           113      10.8       124      12.6       174      14.6       151     15.5       120     16.2
Unallocated                     547        --       846        --       952        --       596       --       228       --
                             ------    ------    ------    ------    ------    ------    ------   ------    ------   ------
Total                        $2,882     100.0%   $2,735     100.0%   $2,665     100.0%   $2,666    100.0%   $2,659    100.0%
                             ======    ======    ======    ======    ======    ======    ======   ======    ======   ======

Allowance as a
percentage of loans                      2.39%               2.58%               2.56%              2.71%              2.65%
Allowance as a
percentage of
nonperforming loans                    533.70%             496.37%             353.92%            124.29%             47.96%
Allowance as a
percentage of
nonperforming loans
(excluding restructured loans)         533.70%             496.37%             546.11%            124.29%            125.60%
</TABLE>

                                      19
<PAGE>

     The following table sets forth the changes in the Allowance, including
     charge-offs and recoveries, by loan category, for the past five years:

<TABLE>
<CAPTION>


                                                                                    December 31,
                                                       -----------------------------------------------------------------------------
(dollars in thousands)                                   1999              1998            1997             1996            1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>              <C>              <C>              <C>              <C>
Balance at beginning of period                         $ 2,735          $ 2,665          $ 2,666          $ 2,659          $ 4,042
Charge-offs:
    Real estate mortgage loans                              (5)             (35)            (298)             (93)          (1,113)
    Commercial and industrial loans                         --               --               --               --             (142)
    Consumer and other loans                                (7)             (42)             (41)            (196)             (78)
                                                       -------          -------          -------          -------          -------
Total charge-offs                                          (12)             (77)            (339)            (289)          (1,333)
Recoveries:
    Real estate mortgage loans                             105              114              304              163              172
    Commercial and industrial loans                         --               --                3               55              170
    Consumer and other loans                                54               33               31               78               33
                                                       -------          -------          -------          -------          -------
Total recoveries                                           159              147              338              296              375
                                                       -------          -------          -------          -------          -------
Net (charge-offs) recoveries                               147               70               (1)               7             (958)
Provision for loan losses                                   --               --               --               --             (425)
                                                       -------          -------          -------          -------          -------
Balance at end of period                               $ 2,882          $ 2,735          $ 2,665          $ 2,666          $ 2,659
                                                       =======          =======          =======          =======          =======

Net charge-offs as a percentage
of average loans                                          (.13)%           (.07)%            .00%            (.01)%            .91%

</TABLE>

     The balance of the Allowance increased by $147,000 at December 31, 1999 as
     compared to December 31, 1998 as a result of recoveries exceeding charge
     offs for the year ended 1999 (there was no provision expense recorded in
     1999, 1998 or 1997). The Allowance as a percentage of total loans declined
     to 2.39% at December 31, 1999 as compared to 2.58% at December 31, 1998.

     There has been no provision for loan losses in the last four years, with
     the Allowance remaining relatively unchanged during this period. In
     addition, the year ended December 31, 1995 reflected provision expense of a
     negative $425,000 as a result of provision for loan losses reversals. This
     is in contrast to years preceding 1993 when provision for loan losses was
     high as a result of the Bank's asset quality problems. The improvement in
     the amount of provision for loan losses is the result of a combination of
     factors, including: (i) a reduction in the amount of new, emerging loss
     exposure being identified during this period as compared to prior years
     when provision for loan losses was higher, (ii) a reduction or elimination
     of loss exposure previously allocated against certain loans generally
     resulting from improvement in the overall credit quality of these loans or
     loan payoffs, and (iii) significant loan loss recoveries.

     Management believes that in accordance with the Bank's allowance for loan
     loss policy, the Allowance is adequate at December 31, 1999. However,
     future additions to the Allowance may be necessary based on changes in the
     financial condition of various borrowers, new information that becomes
     available relative to various borrowers and loan collateral, growth in the
     size or changes in the mix or concentration risk of the loan portfolio, as
     well as changes in local, regional or national economic conditions. In
     addition, various regulatory authorities, as an integral part of their
     examination process, periodically review the Bank's Allowance. Such
     authorities may require the Bank to recognize additional provision for loan
     losses based upon information available to them and their judgments at the
     time of their examination.



                                      20
<PAGE>

Impaired Loans

Information with respect to the carrying amount of impaired loans is set forth
below:
<TABLE>
<CAPTION>


                                                                     December 31,
                                          ------------------------------------------------------------
                                                    1999                                1998
                                          --------------------------           -----------------------
                                                           Allowance                         Allowance
                                                           for Loan                           for Loan
                                                               Loss                               Loss
                                                         (Allocated                         (Allocated
(in thousands)                            Amount            Reserve)           Amount          Reserve)
------------------------------------------------------------------------------------------------------
<S>                                      <C>                <C>                <C>               <C>
Real estate mortgage loans:
     Commercial                             $373               $ 25             $ 430             $ 53

Commercial and industrial loans               --                 --                 9                2
                                            ----               ----             -----             ----
     Total                                  $373               $ 25             $ 439             $ 55
                                            ====               ====             =====             ====
</TABLE>

<TABLE>
<CAPTION>

Nonperforming Assets
Information with respect to nonperforming assets is set forth below:

                                                        December 31,
                                     -----------------------------------------------------
(in thousands)                      1999       1998         1997          1996        1995
------------------------------------------------------------------------------------------
<S>                                 <C>        <C>        <C>           <C>         <C>
Nonaccrual loans                    $373       $430         $387        $1,944      $1,948
Accruing loans past due 90
days or more                         167        121          101           201         169
Restructured loans                    --         --          265            --       3,427
Real estate owned and                 --         15           65           478       1,973
repossessions                       ----       ----         ----        ------      ------
                                    $540       $566         $818        $2,623      $7,517
                                    ====       ====         ====        ======      ======
</TABLE>

Nonperforming loans (consisting of nonaccrual loans, accruing loans past due 90
days or more and restructured loans) are comprised of the following:

<TABLE>
<CAPTION>


                                                      December 31,
                               -----------------------------------------------------
(in thousands)                    1999      1998         1997       1996        1995
------------------------------------------------------------------------------------
<S>                               <C>       <C>        <C>         <C>        <C>
Real estate mortgage loans:
    Residential                     --      $ 86       $114             --    $  386
    Commercial                    $373       430        501         $1,944     5,007
Consumer and other loans           167        35        138            201       151
                                  ----      ----       ----         ------    ------
Total nonperforming loans         $540      $551       $753         $2,145    $5,544
                                  ====      ====       ====         ======    ======
</TABLE>

The following table sets forth certain information regarding nonperforming
commercial loans (dollars in thousands):

<TABLE>
<CAPTION>



                    December 31,1999       December 31, 1998         December 31, 1997
                  -------------------     --------------------     ---------------------
                  Number                  Number                   Number
Type of Property      of  Outstanding         of   Outstanding         of    Outstanding
Security           Loans      Balance      Loans       Balance      Loans        Balance
----------------------------------------------------------------------------------------
<S>                    <C>       <C>          <C>         <C>         <C>         <C>
1-4 family
residential            1         $  8          1          $ 58          3           $107
5 or more family
residential            1           68          1            69          1            129
Non-residential
real estate            2          297          1           303          1            265
                     ---         ----       ----          ----       ----           ----
                       4         $373          3          $430          5           $501
                     ===         ====       ====          ====       ====           ====
</TABLE>


                                      21
<PAGE>

The Bank holds a large concentration of commercial real estate loans of which
the collateral coverage for these loans, should they become nonperforming, may
not be adequate to protect the Bank from potential losses. Deterioration in the
local economy or real estate market, or upward movements in interest rates could
adversely impact the performance and/or value of the underlying collateral for
these loans and could have an adverse impact on the Bank's loan portfolio, and
in particular, currently performing commercial real estate loans. In addition,
deterioration in the local economy or adverse changes in the financial condition
of various borrowers could have an impact on the Bank's entire loan portfolio
(including commercial real estate). These factors could result in an increased
incidence of loan defaults and, as a result, an increased level of nonperforming
loans and assets. In addition, while the current favorable trend in
nonperforming assets is encouraging, the current level of nonperforming assets
is considered by management to be at such a low level that it is not likely to
be sustained. For further information, see Note 5 to the Company's Consolidated
Financial Statements.

Potential Problem Loans

Potential problem loans are loans not otherwise identified as nonperforming
(nonaccrual loans, accruing loans past due 90 days or more and troubled debt
restructurings), which have some identified inherent risk of loss, yet are still
performing. In many cases borrowers have historically experienced, or are
currently experiencing, such problems as inadequate rental revenues, high
vacancy levels and cash flow problems, excessive debt loads, personal problems,
competitive pressures, or other difficulties.

At December 31, 1999, the Bank had identified approximately $1.0 million of
currently performing but potential problem loans, representing 0.5% of total
assets, ranging in size from $6,000 to $638,000. This compares to $173,000 of
potential problem loans at December 31, 1998. Management does not consider the
increase in potential problem loans to be reflective of a material decline in
overall asset quality as the level of potential problem loans at December 31,
1999 is still very low by historical standards and the level of potential
problem loans at December 31, 1998 was considered by management to be so low as
to represent an anomaly, and not reasonably sustainable.

The following table sets forth certain information regarding potential problem
loans at December 31, 1999:

<TABLE>
<CAPTION>

                                                    Number of
       Type of Security                            Outstanding          Balance
       Property                                          Loans     In thousands)
-------------------------------------------------------------------------------
<S>                                                <C>             <C>
       Single family                                       1          $   83
       Commercial real estate                              2              63
       Commercial other                                    6             893
                                                        ----          ------
                                                           9          $1,039
                                                        ====          ======
</TABLE>


Management is unable to predict the extent, if any, to which these loans may
become nonperforming in the future. An increase in the level of nonperforming or
potential problem loans could result in the need for increased provision for
loan losses. As of December 31, 1999, the Company believes the Bank's aggregate
allocated loan loss reserves against these potential problem loans, in
combination with the Bank's overall Allowance adequacy (including the
unallocated portion of the Allowance), is adequate to cover the loss exposure
estimated to be contained within these potential problem loans.

Real Estate Owned and Repossessions
Real estate owned ("REO") consists of properties acquired through mortgage loan
foreclosure proceedings, repossessions or in full or partial satisfaction of
outstanding loan obligations. The Bank had no REO properties at December 31,
1999, as compared to $15,000 at December 31, 1998.



                                       22
<PAGE>

LIQUIDITY

Bank

Deposits totaled $140.1 million at December 31, 1999, a decrease of $8.4 million
(or 5.7%) from the level of $148.5 million at December 31, 1998. This decrease
is primarily attributable to the sale of the Bank's Kennebunk branch, which
consisted of $12.5 million in deposits at the time of the sale in May 1999.
Included in deposit balances at December 31, 1999 are money market demand
account deposits totaling $5.2 million from one class of commercial deposits.
Subsequent to year end, these deposits grew to exceed $10 million and in March
2000, were transferred to secured borrowings. These borrowings have no term and
may fluctuate or terminate at any time. For further information on deposits see
Note 8 to the Company's Consolidated Financial Statements.

At December 31, 1999 and 1998, unfunded loan commitments equaled $20.2 million
and $17.5 million, respectively. Loan commitments include unfunded portions of
real estate, construction, commercial and other loans, unused lines of credit,
and the unused portion of home equity lines of credit, as well as contingent
obligations such as letters of credit. Loan commitments are subject to the same
credit policies as loans and generally have expiration dates and termination
clauses. Unused home equity line of credit commitments totaled $6.7 million at
December 31, 1999 as compared to home equity outstanding balances of $5.2
million.

The Bank has the capability of borrowing additional funds from the FHLB of
Boston, with an approximate availability of $26.8 million at December 31, 1999.
The Bank is also approved by the Federal Reserve Bank of Boston to obtain
liquidity from its "Discount Window". At December 31, 1999, the Bank had pledged
$10.1 million in 1-4 family residential real estate loans as collateral for
future borrowings of up to $9.1 million from the Federal Reserve. No funds have
been obtained from this source. The Company believes that its liquidity sources
will continue to provide funding sufficient to support operating activities,
loan originations and commitments, and deposit withdrawals.

Parent

On a parent company only basis, the Company conducts no separate operations. The
Company's business consists primarily of the operations of its bank subsidiary.
In addition to debt service relating to the Savings Bank Notes in the principal
amount of $2.3 million, the Company's expenses consist primarily of Delaware
franchise taxes associated with the Company's authorized capital stock, certain
legal and various other expenses. Expenses, including certain audit and
professional fees, insurance and other expenses, are allocated between the Bank
and the Company based upon the relative benefits derived. For further
information, see Notes 10 and 17 to the Company's Consolidated Financial
Statements.


Capital
Company

The table below sets forth the regulatory capital requirements and capital
ratios for the Company at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
(dollars in thousands)                                  1999               1998
------------------------------------------------------------------------------------
<S>                                                <C>                 <C>
Tier 1 capital (Leverage) to total assets
  (1) ratio
    Qualifying capital                             $    15,756         $    13,453
    Actual %                                              8.37%               7.20%
    Minimum requirements for
      capital adequacy %                             4.00-5.00%          4.00-5.00%
    Average quarterly assets                       $   188,154         $   186,757
Tier 1 capital to
  risk-weighted assets
    Qualifying capital                             $    15,756         $    13,453
    Actual %                                             14.56%              13.05%
    Minimum requirements for
      capital adequacy %                                  4.00%               4.00%
Total capital to risk-weighted
  assets (Tier 1 and Tier 2)
    Qualifying capital                             $    17,128         $    14,759
    Actual %                                             15.82%              14.32%
    Minimum requirement for
      capital adequacy %                                  8.00%               8.00%
    Risk-weighted assets
                                                   $   108,243         $   103,071
</TABLE>

(1)   Calculated on an average quarterly basis less disallowed portion of
      the deferred tax asset.

                                      23
<PAGE>

Bank

The table below sets forth the regulatory capital requirements and capital
ratios for the Bank at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
(dollars in thousands)                              1999                        1998
----------------------------------------------------------------------------------------
<S>                                                <C>                         <C>
Tier 1 capital (Leverage) to total assets
  (1) ratio
    Qualifying capital                             $ 17,244                    $ 14,709
    Actual %                                           9.22%                       7.90%
    Minimum requirements for
      capital adequacy %                               4.00%                       4.00%
    Average quarterly assets                       $187,070                    $186,077
Tier 1 capital to
  risk-weighted assets
    Qualifying capital                             $ 17,244                    $ 14,709
    Actual %                                          15.90%                      14.33%
    Minimum requirements for
      capital adequacy %                               4.00%                       4.00%
Total capital to risk-weighted
  assets (Tier 1 and Tier 2)
    Qualifying capital                             $ 18,618                    $ 16,010
    Actual %                                          17.17%                      15.60%
    Minimum requirement for
      capital adequacy %                               8.00%                       8.00%
    Risk-weighted assets                           $108,419                    $102,612
</TABLE>

(1)  Calculated on an average quarterly basis.

See Note 2 to the Company's Consolidated Financial Statements for certain
capital restrictions.

The Company suspended the payment of cash dividends to its stockholders in the
fourth quarter of 1989 and has not paid any cash dividends to its stockholders
since that time. See Note 10 to the Company's Consolidated Financial Statements
for dividend restrictions.

Asset Liability Management and Market Risk

The Company's actions with regard to interest rate risk, market risk and asset
and liability management are the responsibility of the Asset and Liability
Committee ("ALCO") which is, in part, comprised of members of the Bank's senior
management. ALCO is responsible for directing asset liability management ("ALM")
activities, including the development of specific ALM strategies to achieve the
Bank's objectives, and the management of interest rate risk. Interest rate risk
can be defined as the exposure of the Company's net income or financial position
to adverse movements in interest rates. In addition to impacting net interest
income, changes in the level of interest rates also affect (i) the amount of
loans originated, (ii) the ability of borrowers to repay loans, (iii) the
average length of time loans remain outstanding, which tends to increase when
current market loan rates are substantially higher than rates on existing loans
and, conversely, decrease when rates on existing loans are substantially higher
than current market loan rates (due to refinancings of loans at lower rates),
and (iv) the carrying value of investment securities classified as available for
sale and resultant adjustments to stockholders' equity.

The principal objective of the Company is to maintain an appropriate balance
between income enhancement and the risks associated with maximizing income
through the mismatch of the timing of interest rate changes between assets and
liabilities. Matching asset and liability maturities and interest rate changes
can reduce interest rate risk; however, net interest income may not necessarily
be enhanced as a result of such a strategy. The Company seeks to reduce the
volatility of its net interest income by managing the relationship of
interest-rate sensitive assets to interest-rate sensitive liabilities.

Management's efforts to control exposure to interest rate risk is complicated by
the uncertainty of the maturity, repricing and/or run off characteristics of a
portion of the Company's assets and liabilities, such as the Company's interest
bearing checking and savings products that have no contractual maturity, and the
unexpected changes in the balance of these products as a result of changes in
competitive or market conditions. Similarly, customers have the right to prepay
certain loans, for example residential mortgage loans, without prepayment
penalties. As a result, a significant portion of the Company's assets, including
mortgage based assets such as mortgage loans and mortgage backed securities, are
subject to prepayment risks. To measure the sensitivity of its income to changes
in interest rates, the Company utilizes a variety of methods, including
simulation models and gap analysis. The gap analysis measures the difference
between

                                      24
<PAGE>

rate sensitive assets and rate sensitive liabilities repricing or maturing
within specific time periods. A gap is considered positive when the amount of
interest rate sensitive assets exceeds the amount of interest rate sensitive
liabilities, and is considered negative when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets.
However, this method does not take into consideration management's ability to
exert some control over the timing of interest rate changes on certain deposits
and the ability to change the estimated maturity/repricing of those deposits
with no contractual maturity. Additionally, the gap analysis does not take into
account the prepayment characteristics of loans in a changing interest rate
environment. Therefore, the gap analysis is viewed as a complement to the
simulation model.

The following table shows the estimated maturity/repricing structure of the
interest sensitive assets and interest sensitive liabilities of the Company at
December 31, 1999.

<TABLE>
<CAPTION>
                                                                            Maturing/Repricing
                                        --------------------------------------------------------------------------------------------
                                                                  After One
                                                   After Three    Year but    After Three
                                         Within    Months but      within      Years but
                                          Three    within One      Three      within Five      After Five     Non-Rate
(dollars in thousands)                   Months      Year          Years        Years             Years      Sensitive      Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>           <C>          <C>           <C>            <C>            <C>           <C>
Assets
Interest earning deposits              $  5,793                                                                             $  5,793
Securities:
Available for sale(1)                     2,815      $  5,023     $  9,289      $  3,600       $ 32,015       $    472        53,214
Mortgage loans held for sale                 83            --           --            --             --             --            83
Loans(2)                                 18,927        25,600       18,658        23,767         33,254         (2,571)      117,635
Other assets                                 --            --           --            --             --         13,857        13,857
                                       --------       -------      -------      --------       --------       --------      --------
Total Assets                           $ 27,618      $ 30,623     $ 27,947      $ 27,367       $ 65,269       $ 11,758      $190,582
                                       ========       =======      =======      ========       ========       ========      ========
Liabilities and Equity
Savings, money market and NOW accounts $ 48,118            --           --            --             --       $ 32,937      $ 81,055
Certificate of deposit accounts          11,724      $ 20,321     $ 11,230      $  3,801       $     44             --        47,120
Other deposits                               --            --           --            --             --         11,962        11,962
FHLB advances                             3,000         5,000        9,748         3,000          7,000             --        27,748
Secured borrowings                        2,980            --           --            --             --             --         2,980
Savings Bank Notes                          101           316          942           909             --             --         2,268
Other liabilities                            --            --           --            --             --            535           535
Equity                                       --            --           --            --             --         16,914        16,914
                                       --------      --------      -------      --------       --------       --------      --------
Total Liabilities and Equity           $ 65,923      $ 25,637     $ 21,920      $  7,710       $  7,044       $ 62,348      $190,582
                                       ========       =======      =======      ========       ========       ========      ========

Periodic repricing difference
(Periodic gap)                          (38,305)     $  4,986     $  6,027      $ 19,657       $ 58,225       $(50,590)           --
Cumulative repricing difference
(Cumulative gap)                       $(38,305)     $(33,319)    $(27,292)     $ (7,635)      $ 50,590             --            --
Cumulative gap to total
assets                                    (20.1)%       (17.5)%      (14.3)%        (4.0)%         26.5%            --            --
</TABLE>


(1)   FHLB stock is classified as available for sale.

(2)   The allowance for loan losses, deferred origination fees and nonaccrual
      loans are included in the non-rate sensitive column.


          A more meaningful approach to measuring interest rate sensitivity is
          the simulation model, which analyzes resulting net income under
          various interest rate scenarios. Projected net interest income is
          modeled based on immediate movements or shifts in interest rates of
          100 and 200 basis points up or down, analyzed over a twelve month
          period. The model is based on the actual maturity and repricing
          characteristics of interest rate sensitive assets and liabilities and


                                      25
<PAGE>

     factors in budget projections for anticipated activity levels in the
     various asset and liability categories. Assumptions are also made with
     regard to principal prepayment speeds on loans and mortgage backed
     securities. The model also takes into account the Company's ability to
     exert greater control over the setting of interest rates on certain deposit
     products than it has over variable and adjustable rate loans, which are
     tied to published indices such as designated prime lending rates and the
     rate on U.S. Treasury securities.

     The following table reflects the estimated percentage change in net
     interest income for the next 12 months resulting from a change in interest
     rates of 200 basis points utilizing the Bank's simulation model.

<TABLE>
<CAPTION>
                     Change in Rates (1)    % Change in Net Interest Income
-------------------------------------------------------------------------------
<S>                  <C>                    <C>
                      +200 basis points                (1.7)%
                      -200 basis points                (1.3)%
</TABLE>

(1)  Includes various interest rate floors and ceilings established for certain
     deposit accounts: NOWs - floor 1%, ceiling 3%; Savings (other than High
     Rise Savings) - floor 1.50%, ceiling 3.75%; Money Market accounts - floor
     1.5%, ceiling 3.75%. At December 31, 1999 the average interest rates paid
     on NOWs, Savings (other than High Rise Savings) and Money Market accounts
     were 1.81%, 2.26% and 3.57%, respectively.

Based on the information and assumptions in effect at December 31, 1999,
management of the Company believes that a 200 basis point change in interest
rates up or down, and the resulting impact over a twelve month period, would not
adversely impact the Company's annualized net interest income by more than 2%
(and is within the limits of the Company's policy parameters of a 10% adverse
impact).

Regardless of the methodologies utilized to attempt to predict the impact that
changes in interest rates could have on the behavior of the Bank's assets and
liabilities, and ultimately earnings, there is no way of estimating this with
any degree of certainty. As discussed above the assumptions utilized are very
subjective and economic conditions and market forces, such as competition and
market product offerings are in a constant state of change.

Impact of Inflation and Changing Prices

The Company's financial statements have been prepared in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates have a more significant impact on a financial
institution's performance than the effect of general levels of inflation.
Interest rates do not necessarily move in the same direction or in the same
magnitude as the prices of goods and services. However, inflation can directly
affect the value of loan collateral, in particular real estate. Sharp decreases
in real estate prices, as discussed previously, have in the past resulted in
significant loan losses and losses on real estate acquired.

Year 2000 Issue

In accordance with guidelines provided by the Federal Financial Institutions
Examination Council, the Company established a Year 2000 Action Committee to
address the risks related to potential computer problems associated with the
Year 2000 date change, including the development and implementation of a
strategy to minimize the impact of Year 2000 risk relating to the Bank's
information technology systems and non-information technology systems. During
the turn of the millennium, Bank staff was on hand to validate all systems,
including computer, telephone and ATMs, as well as testing for data integrity.
As a result, the Company did not experience any significant problems or
interruptions in service resulting from the Year 2000 date change or adverse
implications to the Bank's borrowers or depositors. The Company will continue to
monitor its computerized and other electronic systems throughout 2000 for any
potential problems that may arise. However, management does not anticipate any
disruptions in its operations resulting from Year 2000 systems problems. The
Company incurred approximately $27,000 in external costs for its Year 2000
programs for the year ended December 31, 1999, which were expensed as incurred.


                                      26
<PAGE>

MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of December 31, 1999, the Company had approximately 1,394 holders of record
and 1,325,993 outstanding shares of common stock. The common stock is traded on
The Nasdaq SmallCap Market tier of The Nasdaq Stock Market under the symbol
"FCME".

The following table sets forth the high and low sales prices for the Company's
common stock traded on The Nasdaq SmallCap Market.

<TABLE>
<CAPTION>
                                                      High         Low
-------------------------------------------------------------------------------
<S>                                                   <C>         <C>
1999      First Quarter                               $10.250     $ 9.313
          Second Quarter                               10.375       9.000
          Third Quarter                                10.000       9.125
          Fourth Quarter                                9.813       8.000

1998      First Quarter                               $15.500     $13.625
          Second Quarter                               14.625      12.750
          Third Quarter                                13.000      10.000
          Fourth Quarter                               10.625       8.375
</TABLE>

No dividends were declared by the Company during the years 1994 through 1999.
There are certain restrictions on the ability of the Company to pay dividends
and on the ability of the Bank to transfer funds to the Company in the form of
cash dividends. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity" and "Note 10" to the Company's
Consolidated Financial Statements.


                                      27
<PAGE>

FINANCIAL STATEMENTS.

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors and Stockholders
  First Coastal Corporation:


In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, stockholders' equity
and cash flows present fairly, in all material respects, the financial position
of First Coastal Corporation and its subsidiary (the "Company") at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.



PricewaterhouseCoopers LLP
Portland, Maine
February 8, 2000



                                      28
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
First Coastal Corporation and Subsidiary                                           December 31,        December 31,
                                                                                      ---------          ---------
(in thousands, except share and per share amounts)                                         1999               1998
------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                <C>
ASSETS
Noninterest earning deposits and cash - Note 3                                        $   6,631          $   4,509
Interest earning deposits                                                                 5,793             28,118
                                                                                      ---------          ---------
   Cash and cash equivalents                                                             12,424             32,627
Investment securities - Note 4:
   Available for sale (at market value)(amortized cost: 1999
     $53,781; 1998 $47,037)                                                              51,823             47,048
Federal Home Loan Bank stock: at cost                                                     1,391              1,315
Loans held for sale - Note 1                                                                 83                 83

Loans - Note 5                                                                          120,533            105,873
   Less: Deferred loan fees, net                                                            (16)               (97)
         Allowance for loan losses - Note 6                                              (2,882)            (2,735)
                                                                                      ---------          ---------
                                                                                        117,635            103,041
Premises and equipment - Note 7                                                           2,559              2,554
Accrued interest receivable                                                               1,251              1,132
Real estate owned and repossessions                                                          --                 15
Deferred tax asset - Note 12                                                              2,950              3,354
Other assets                                                                                466                244
                                                                                      ---------          ---------
   TOTAL ASSETS                                                                       $ 190,582          $ 191,413
                                                                                      =========          =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits - Note 8                                                                     $ 140,137          $ 148,545
Advances from Federal Home Loan Bank - Note 9                                            27,748             22,545
Savings Bank Notes - Note 9                                                               2,268              2,600
Secured borrowings - Note 9                                                               2,980                967
Accrued expenses and other liabilities                                                      535                442
                                                                                      ---------          ---------
   TOTAL LIABILITIES                                                                    173,668            175,099
Commitment and Contingencies - Note 13
STOCKHOLDERS' EQUITY - Note 10
Preferred Stock, $1 par value; Authorized 1,000,000 shares, none issued                     --                 --
Common Stock, $1 par value; Authorized 6,700,000 shares, issued as of
       December 31, 1999 and December 31, 1998 - 1,360,527
       shares                                                                             1,361              1,361
Paid-in capital                                                                          31,751             31,751
Retained earnings (deficit)                                                             (14,579)           (16,805)
Accumulated other comprehensive income (loss)                                            (1,292)                 7
Treasury stock, at cost (At December 31, 1999 - 34,534 shares) - Note 20                   (327)                --
                                                                                      ---------          ---------
 TOTAL STOCKHOLDERS' EQUITY                                                              16,914             16,314
                                                                                      ---------          ---------
       TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                     $ 190,582          $ 191,413
                                                                                      =========          =========
</TABLE>

See notes to consolidated financial statements.



                                      29
<PAGE>

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF OPERATIONS
First Coastal Corporation and Subsidiary                                          Year Ended December 31,
                                                                      -----------------------------------------------
(in thousands, except share and per share amounts)                          1999              1998               1997
---------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>               <C>               <C>
Interest and Dividend Income
  Interest and fees on loans                                          $   10,020        $    9,919         $    9,651
  Interest and dividends on investment securities:
    Investment interest income                                             3,339             2,042              1,674
    Dividends                                                                106                84                 94
  Interest earning deposits                                                  521             1,014                475
                                                                      ----------        ----------         ----------
    Total Interest and Dividend Income                                    13,986            13,059             11,894
                                                                      ----------        ----------         ----------
Interest Expense
  Deposits - Note 8                                                        5,234             5,308              4,459
  Borrowings:
    Advances from Federal Home Loan Bank                                   1,273               900                940
    Savings Bank Notes                                                       258               332                477
    Secured borrowings                                                        99                27                 --
                                                                      ----------        ----------         ----------
  Total Interest Expense                                                   6,864             6,567              5,876
                                                                      ----------        ----------         ----------
Net Interest Income Before Provision for Loan Losses                       7,122             6,492              6,018
Provision for loan losses - Note 6                                            --                --                 --
                                                                      ----------        ----------         ----------
Net Interest Income After Provision for Loan Losses                        7,122             6,492              6,018
                                                                      ----------        ----------         ----------
Noninterest Income
  Services charges on deposit accounts                                       503               508                466
  Loan servicing fee income                                                   --                34                 76
  Gain on investment securities transactions                                  22               104                271
  Gain on sales of mortgage loans                                            558               111                 99
  Gain on sale of branch                                                   1,110                --                 --
  Gain on sale of assets                                                      --               539                 --
  Other                                                                      117                85                 78
                                                                      ----------        ----------         ----------
                                                                           2,310             1,381                990
                                                                      ----------        ----------         ----------
Operating Expenses
  Salaries and employee benefits - Note 11                                 2,932             2,632              2,367
  Occupancy                                                                  608               536                446
  Net cost of operations of real estate owned and repossessions                5                 7                 67
  Other                                                                    2,511             2,275              2,187
                                                                      ----------        ----------         ----------
                                                                           6,056             5,450              5,067
                                                                      ----------        ----------         ----------
Income Before Income Taxes                                                 3,376             2,423              1,941
Income Taxes - Note 12                                                     1,150               859                679
                                                                      ----------        ----------         ----------
NET INCOME                                                            $    2,226        $    1,564         $    1,262
                                                                      ==========        ==========         ==========
PER SHARE AMOUNTS - Note 18 Basic earnings per share:
  Weighted average shares outstanding                                  1,356,375         1,359,976          1,358,730
  Net income per share                                                $     1.64        $     1.15         $     0.93
                                                                      ==========        ==========         ==========
Diluted earnings per share:
  Weighted average shares outstanding                                  1,370,152        $1,379,124          1,391,272
  Net income per share                                                $     1.62        $     1.13         $     0.91
                                                                      ==========        ==========         ==========
</TABLE>

See notes to consolidated financial statements.


                                      30
<PAGE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
                                                                                                       Accumulated
                                                                                       Retained              Other
                                               Common      Treasury       Paid-In      Earnings      Comprehensive
(in thousands, except share amounts)            Stock         Stock       Capital      (Deficit)      Income/(Loss)        Total
--------------------------------------------------------------------------------------------------------------------------------
<S>                                           <C>         <C>           <C>          <C>                 <C>           <C>
Balances at December 31, 1996                 $1,358            --       $31,740      $(19,631)           $   (79)      $13,388
   Shares outstanding at December 31,
   1997: 1,359,194
   1997 net income                                                                       1,262                            1,262
   Increase in net unrealized gain on
   available for sale securities                                                                              151           151
   Exercise of common stock options                1            --             6            --                 --             7
                                              ------        ------       -------      --------            -------       -------
Balances at December 31, 1997                  1,359            --        31,746       (18,369)                72        14,808
   Shares outstanding at December 31,
   1998: 1,360,527
   1998 net income                                                                       1,564                            1,564
   Decrease in net unrealized gain on
   available for sale securities                                                                              (65)          (65)
   Exercise of common stock options                2            --             5            --                 --             7
                                              ------        ------       -------      --------            -------       -------
Balances at December 31, 1998                  1,361            --        31,751       (16,805)                 7        16,314
   Shares outstanding at December 31,
   1999: 1,325,993
   1999 net income                                                                       2,226                            2,226
   Decrease in net unrealized gain on
   available for sale securities                                                                           (1,299)       (1,299)
   Repurchase of common stock                              $  (327)                                                        (327)
                                              ------        ------       -------      --------            -------       -------
Balances at December 31, 1999                 $1,361       $  (327)      $31,751      $(14,579)           $(1,292)      $16,914
                                              ======       =======       =======      ========            =======       =======
</TABLE>


See notes to consolidated financial statements.


                                      31
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
First Coastal Corporation and Subsidiary                                             Year Ended December 31,
                                                                         ---------------------------------------------
(in thousands)                                                               1999              1998              1997
----------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>               <C>               <C>
Operating Activities
Net Income                                                               $  2,226          $  1,564          $  1,262
Adjustments to reconcile net income to net cash provided by
    operating activities:
  Writedowns of REO                                                             5                --                --
  (Gain) loss on sales of REO                                                  --                (7)                2
  Gain on sale of branch                                                   (1,110)               --                --
  Gain on sale of premises and equipment                                       --              (539)               --
  Depreciation and amortization                                               444               400               319
  Amortization of investment securities premiums (discounts)                  456               117                63
  Realized investment securities gains                                        (22)             (104)             (271)
  Realized gains on assets held for sale                                     (558)             (111)              (99)
  Loans originated and acquired for resale                                 (5,044)          (10,726)           (7,366)
  Sales of loans originated and acquired for resale                         5,602            14,319             5,390
  Decrease (increase) in interest receivable                                 (119)             (162)              109
  Increase in interest payable                                                 20                31                 2
  Net change in other assets                                                  192             1,449             1,371
  Net change in other liabilities                                              73               104                44
                                                                         --------          --------          --------
Net cash provided by operating activities                                   2,165             6,335               826
                                                                         --------          --------          --------
Investing Activities
  Sales of securities available for sale                                   11,708             6,927            15,831
  Maturities of securities held to maturity                                    --            10,000             3,000
  Maturities of securities available for sale                                 200                --             1,000
  Purchases of investment securities available for sale                   (18,492)          (37,973)          (15,469)
  Purchases of investment securities held to maturity                          --            (3,193)             (198)
  Net change in loans                                                     (14,594)           (1,541)           (5,651)
  Net sales (purchases) of premises and equipment                            (449)            1,139              (445)
                                                                         --------          --------          --------
Net cash used by investing activities                                     (21,627)          (24,641)           (1,932)
                                                                         --------          --------          --------
Financing Activities
  Net change in deposits                                                   (7,298)           33,554               (94)
  Net change in secured borrowings                                          2,013               967                --
  Proceeds from borrowings                                                 11,000            14,000             2,000
  Payments on borrowings                                                   (6,129)           (5,149)           (4,706)
  Proceeds from exercise of common stock options                               --                 7                 7
  Repurchase of common stock                                                 (327)               --                --
                                                                         --------          --------          --------
Net cash used by financing activities                                        (741)           43,379            (2,793)
                                                                         --------          --------          --------
Increase (decrease) in cash and cash equivalents                          (20,203)           25,073            (3,899)
Cash and cash equivalents at beginning of period                           32,627             7,554            11,453
                                                                         --------          --------          --------
Cash and cash equivalents (interest and non-interest
bearing) at end of period                                                $ 12,424          $ 32,627          $  7,554
                                                                         ========          ========          ========
Supplemental Disclosure of Information
Interest paid on deposits and borrowings                                 $  5,817          $  6,535          $  5,874
Income tax paid                                                          $     76          $     85                --
Noncash Investing Activities
Transfer of loans to real estate owned and repossessions                       --          $    153          $     21
</TABLE>

See notes to consolidated financial statements.


                                      32
<PAGE>

<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
First Coastal Corporation and Subsidiary                                   Year Ended December 31,
                                                                  --------------------------------------------
(dollars in thousands)                                                1999              1998              1997
--------------------------------------------------------------------------------------------------------------
<S>                                                                <C>               <C>               <C>
Net income                                                         $ 2,226           $ 1,564           $ 1,262
Other comprehensive income:
  Unrealized holding gains (losses) arising during the period
  (net of income taxes): 1999 - $(661); 1998 - $1; 1997 - $37       (1,285)                4               330

  Reclassification adjustment for realized gains included in
  net income (net of income taxes): 1999 - $(8); 1998 -
  $(35); 1997 - $(92)                                                  (14)              (69)             (179)
                                                                   -------           -------           -------
                                                                    (1,299)              (65)              151
                                                                   -------           -------           -------
                                                                   $   927           $ 1,499           $ 1,413
                                                                   =======           =======           =======
</TABLE>

See notes to consolidated financial statements.


                                      33
<PAGE>

Notes to Consolidated Financial Statements
First Coastal Corporation and Subsidiary
December 31, 1999

Note 1.  ACCOUNTING POLICIES

Business

First Coastal Corporation (the "Company") is a bank holding company whose sole
subsidiary is Coastal Bank, a Maine chartered, stock bank (the "Bank"). The
principal business of the Bank consists of retail and commercial banking,
including attracting deposits from the general public and originating
residential mortgage, consumer, commercial real estate and business loans.
Deposits are federally insured by the Bank Insurance Fund, which is administered
by the Federal Deposit Insurance Corporation ("FDIC").

Basis of Presentation

The consolidated financial statements of the Company and subsidiary have been
prepared in conformity with generally accepted accounting principles and
reporting practices applied in the banking industry. All significant
inter-company transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

While management uses available information to recognize losses on loans and
real estate owned ("REO"), future additions to the allowance for loan losses
(the "Allowance") or REO writedowns may be necessary based on changes in
economic conditions. In addition, various regulatory authorities, as an integral
part of their examination process, periodically review the Company's Allowance
and the carrying value of REO. Such authorities may require the Company to
recognize additions to the Allowance and/or write down the carrying value of REO
based on their judgments of information available to them at the time of their
examination.

New Accounting Standards

Effective January 1, 1998, the Company adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standard ("SFAS") No. 130,
Reporting Comprehensive Income. SFAS No. 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The requirements of the
pronouncement do not have a material effect on the Company's financial
condition, results of operations and cash flows.

Effective January 1, 1998, the Company adopted FASB SFAS No. 131, Financial
Reporting for Segments of a Business Enterprise. SFAS No. 131 requires that a
public business enterprise report financial and descriptive information about
its reportable operating segments. The Company has determined that it does not
currently have separately reportable operating segments under this
pronouncement.

In February 1998, FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits. SFAS No. 132 revises employers'
disclosures about pension and other postretirement benefit plans. The
requirements of this pronouncement were adopted for the Company's financial
statements for the year ending December 31, 1998. The requirements of this
pronouncement did not have a material effect on the Company's financial
condition, results of operations and cash flows.

In June 1998, FASB issued SFAS No. 133, Accounting for Derivative Instruments
and Hedging Activities, which establishes accounting and reporting standards for
derivative instruments, including certain derivatives embedded in other
contracts, and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The requirements
of this pronouncement will be adopted effective January 1, 2001 and are not
expected to have a material effect on the Company's financial condition, results
of operations and cash flows.


                                      34
<PAGE>

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of
three months or less (from the date of purchase) to be cash equivalents.

Investment Securities

Securities that may be sold as part of the Company's asset liability or
liquidity management or in response to or in anticipation of changes in interest
rates and resulting prepayment risk, or for other similar factors, are
classified as available-for-sale and carried at their fair market value, with
unrealized holding gains and losses (net of related taxes) excluded from
earnings and reported as a separate component of stockholders' equity.
Amortization of bond premiums and accretion of bond discounts are amortized over
the expected life of the investment. Realized gains and losses on the sales of
all securities are reported in earnings and computed using the specific
identification cost basis.

Loans Held for Sale

Loans held for sale are valued at the lower of cost or market as determined by
outstanding commitments from investors or current investor yield requirements
calculated on an aggregate loan basis. Changes in the carrying value are
reported in earnings as gains and losses on mortgage loans. It is the Bank's
current intent to sell saleable residential loans on a servicing released basis,
subject to market conditions.

The Company complies with SFAS 125, Accounting for Transfers of Financial Assets
and Liabilities. Under the financial-components approach of SFAS 125, after a
transfer of financial assets, an entity recognizes all financial and servicing
assets it controls and liabilities it has incurred and derecognizes all
financial and servicing assets it no longer controls and liabilities that have
been extinguished. If a transfer does not meet the criteria for a sale, the
transfer is accounted for as a secured borrowing with a pledge of collateral.

Loans

Loans are reported at their principal outstanding balance net of charge-offs,
unearned income and deferred loan origination fees and costs. Interest is
generally recognized when income is earned using the accrual method. Loan
origination and commitment fees and certain direct origination costs are
deferred and recognized over the life of the related loan as an adjustment of
yield, or taken into income when the related loan is sold.

The accrual of interest on loans is generally discontinued when principal or
interest is past due by ninety days or more, or earlier when, in the opinion of
management, full collection of principal or interest is unlikely, unless such
loans are well collateralized and in the process of collection. When a loan is
placed on nonaccrual status, unpaid interest credited to income in the current
year is reversed and interest accrued in prior years is charged to the
Allowance. Income on such loans is then recognized only to the extent that cash
is received and future collection of principal is probable.

Loans are restored to accrual status when principal and interest payments are
brought current and future payments are reasonably assured, following a
sustained period of repayment performance by the borrower in accordance with the
loan's contractual terms.

The Company follows SFAS No. 114, Accounting by Creditors for Impairment of a
Loan. Under this standard, a loan is considered impaired, based on current
information and events, if it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Management identifies impaired
loans on a loan-by-loan basis. Though the measurement of impaired loans is
generally based on the present value of expected future cash flows discounted at
the historical effective interest rate, all of the Company's impaired loans were
collateral-dependent, which are measured for impairment based on the fair value
of the collateral, net of the corresponding portion of the Allowance allocated
to these loans ("Allocated Reserves"), if any.

Troubled debt restructurings are renegotiated loans for which concessions, such
as the reduction of interest rates, deferral of interest or principal payments,
or partial forgiveness of principal and interest, have been granted, generally
due to a deterioration in a borrower's financial condition and/or value of the
loan collateral. Interest to be paid on a deferred or contingent basis is
reported in earnings only as collected.


                                      35
<PAGE>

Allowance for Loan Losses

The Allowance is maintained at a level believed adequate by management to absorb
potential losses inherent in the current loan portfolio in accordance with the
Bank's allowance for loan loss policy. Management's determination of the
adequacy of the Allowance is based on an evaluation of the portfolio, past and
expected loan loss experience, current economic conditions, trends in loan
outstandings and diversification of the loan portfolio, the results of the most
recent regulatory examinations, the results of loan portfolio reviews completed
by outside consultants, the nature and level of nonperforming assets, impaired
loans and loans that have been identified as potential problems, financial
condition of its borrowers, the adequacy of loan collateral and other relevant
factors. The Allowance is increased by provisions for loan losses charged
against income and recoveries on loans previously charged off.

Real Estate Owned and Repossessions

REO consists of properties acquired through mortgage loan foreclosure
proceedings or in full or partial satisfaction of loans. REO is initially
recorded at the lower of cost or fair value (minus estimated costs to sell) at
the date the property is acquired and any difference is charged to the Allowance
at the time of reclassification. Subsequently, the values of such properties are
reviewed by management and writedowns, if any, are charged to expense. All
expenses and income related to REO properties are included in the net cost of
operations and real estate owned in the Company's Consolidated Financial
Statements.

Premises and Equipment

Bank premises, furniture and equipment are carried at cost, less accumulated
depreciation and amortization computed using the straight-line method over the
estimated useful lives of the assets. Leasehold improvements are amortized on
the straight-line basis over the shorter of the estimated useful lives of the
improvements or the term of the related leases.

Income Taxes

Deferred income taxes and tax benefits are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. 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. The Company provides
deferred taxes for the estimated future tax effects attributable to temporary
differences and carryforwards when realization is more likely than not.

Risks and Uncertainties

In the normal course of its business, the Company encounters two significant
types of risk: economic and regulatory. There are four main components of
economic risk: interest rate risk, credit risk, market risk and competitive
risk. The Company is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different speeds, or on a
different basis, than its interest-earning assets. Credit risk is the risk of
default on the Company's loan portfolio that results from borrowers inability or
unwillingness to make contractually required payments. Market risk results from
changes in the value of assets and liabilities which may impact, favorably or
unfavorably, the realizability of those assets and liabilities held by the
Company. Competitive risk is the impact on the Company's operations resulting
from competitor's actions with regard to areas such as products offered, loan
and deposit pricing, branch facilities, strategic alliances and promotional
efforts.

The Company is subject to the regulations of various government agencies. These
regulations can and do change significantly from period to period. The Company
also undergoes periodic examinations by the regulatory agencies, which may
subject it to further changes with respect to areas such as capital adequacy,
asset valuations, amounts of required loan loss allowances and operating
restrictions resulting from the regulators' judgments based on information
available to them at the time of their examination. For further information, see
Note 2 to the Company's Consolidated Financial Statements.

Computation of Earnings per Share

Basic earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.



                                      36
<PAGE>

Note 2. REGULATORY MATTERS

Bank Regulatory Requirements

The Company and the Bank are subject to various regulatory requirements,
including capital requirements, administered by federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company and the Bank's
consolidated financial statements. Under capital adequacy guidelines issued by
the Federal Reserve Board for the Company and the regulatory framework for
prompt corrective action administered by the FDIC for the Bank, the Bank must
meet specific capital requirements that involve quantitative measures of the
Company and the Bank's assets, liabilities, and certain off-balance sheet items.
The Company and the Bank's capital amounts and classifications are also subject
to qualitative judgments by the regulators about components, risk weightings and
other factors.

Quantitative measures established by regulation to ensure capital compliance
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the tables below) of Tier 1 capital (leverage) to total assets, Tier 1
capital to risk-weighted assets, and Total capital to risk-weighted assets.
Management believes that, as of December 31, 1999, the Company and the Bank meet
all capital adequacy requirements to which they are subject.

As of December, 1999, the most recent notification from the FDIC categorized the
Bank as well capitalized under the regulatory framework for prompt corrective
action. There are no conditions or events since that notification that
management believes have changed the Bank's category.

Capital - Company
The tables below set forth the actual capital ratios and minimum regulatory
requirements for capital adequacy for the Company at December 31, 1999 and 1998:
<TABLE>
<CAPTION>

                                                                                                   Minimum
                                                                                               Requirement
                                                                                               for Capital
1999                                                                            Actual            Adequacy
----------------------------------------------------------------------------------------------------------
<S>                                                                            <C>            <C>
Tier 1 capital (Leverage) to total assets (1) ratio                              8.37%          4.00-5.00%
Tier 1 capital to risk-weighted assets                                          14.56                4.00
Total capital to risk-weighted assets (Tier 1 and Tier 2)                       15.82                8.00
</TABLE>

(1)  Calculated on an average quarterly basis less disallowed portion of the
     deferred tax asset.
<TABLE>
<CAPTION>
                                                                                                   Minimum
                                                                                               Requirement
                                                                                               for Capital
1998                                                                           Actual             Adequacy
-----------------------------------------------------------------------------------------------------------
<S>                                                                            <C>              <C>>
Tier 1 capital (Leverage) to total assets (1) ratio                              7.20%          4.00-5.00%
Tier 1 capital to risk-weighted assets                                          13.05                4.00
Total capital to risk-weighted assets (Tier 1 and Tier 2)                       14.32                8.00
</TABLE>

(1)  Calculated on an average quarterly basis less disallowed portion of the
     deferred tax asset.


                                      37
<PAGE>

Capital - Bank
The tables below set forth the actual capital ratios and minimum regulatory
requirements for capital adequacy and under prompt corrective action for the
Bank at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                                                                       Minimum
                                                                                                 Requirement to
                                                                                                        be well
                                                                                      Minimum       capitalized
                                                                               Requirement for     under Prompt
                                                                                       Capital       Corrective
1999                                                                  Actual          Adequacy           Action
---------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                <C>             <C>
Tier 1 capital (Leverage) to total assets (1) ratio                    9.22%             4.00%            5.00%
Tier 1 capital to risk-weighted assets                                15.90              4.00             6.00
Total capital to risk-weighted assets (Tier 1 and Tier 2)             17.17              8.00            10.00

(1)   Calculated on an average quarterly basis less disallowed portion of the deferred tax asset.
</TABLE>

<TABLE>
<CAPTION>
                                                                                                     Minimum
                                                                                              Requirement to
                                                                                                     be well
                                                                                   Minimum       capitalized
                                                                            Requirement for     under Prompt
                                                                                    Capital       Corrective
1998                                                               Actual          Adequacy           Action
---------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                <C>             <C>
Tier 1 capital (Leverage) to total assets (1) ratio                  7.90%             4.00%            5.00%
Tier 1 capital to risk-weighted assets                              14.33              4.00             6.00
Total capital to risk-weighted assets (Tier 1 and Tier 2)           15.60              8.00            10.00

(1)  Calculated on an average quarterly basis less disallowed portion of the deferred tax asset.
</TABLE>

Note 3. NONINTEREST EARNING DEPOSITS AND CASH

Noninterest bearing deposits and cash balances at December 31, 1999 are subject
to withdrawal and usage restrictions which require $100,000 to be maintained at
the Federal Reserve Bank of Boston to meet the Bank's reserve requirements.



                                      38
<PAGE>

Note 4. INVESTMENT SECURITIES

The following tables set forth the amortized cost, fair market value and gross
unrealized gains and losses of investment securities for each major security
type at December 31, 1999 and 1998:
<TABLE>
<CAPTION>

                                                         December 31, 1999
                                 --------------------------------------------------------------
                                                      Gross                Gross           Fair
                               Amortized         Unrealized           Unrealized         Market
(in thousands)                      Cost              Gains               Losses          Value
-----------------------------------------------------------------------------------------------
<S>                              <C>                <C>                 <C>             <C>
Available for sale:
  U.S. government obligations    $20,025                 --             $   (824)       $19,201
  U.S. government agency notes     1,000                 --                  (79)           921
  Mortgage backed securities      32,284            $    35               (1,090)        31,229
  Other                              472                 --                   --            472
                                 -------            -------             --------        -------
                                 $53,781            $    35             $ (1,993)       $51,823
                                 =======            =======             ========        =======
</TABLE>

<TABLE>
<CAPTION>

                                                         December 31, 1998
                                 --------------------------------------------------------------
                                                      Gross                Gross           Fair
                               Amortized         Unrealized           Unrealized         Market
(in thousands)                      Cost              Gains               Losses          Value
-----------------------------------------------------------------------------------------------
<S>                              <C>                 <C>                <C>            <C>
Available for sale:
  U.S. government obligations    $14,269              $   3             $   (107)      $14,165
  Mortgage backed securities      32,283                137                  (22)       32,398
  Other                              485                 --                   --           485
                                 -------              -----             --------       -------
                                 $47,037              $ 140             $   (129)      $47,048
                                 =======              =====             ========       =======
  </TABLE>


The Company's cash flows for the year ended December 31, 1999 includes purchases
and maturities of mortgage backed securities of $7.0 million and $7.5 million,
respectively. The Company's cash flows for the year ended December 31, 1998
includes purchases and maturities of mortgage backed securities of $25.8 million
and $16.9 million, respectively. There were no sales of mortgage backed
securities for the years ended December 31, 1999 and 1998.

The following is a summary of gross realized gains and losses on investment
securities sold for 1999, 1998 and 1997. All security gains and losses were
related to securities classified as available for sale. For computation of gross
realized gains and losses, cost was determined by the specific identification
method.
<TABLE>
<CAPTION>

                                                         December 31,
                                 ---------------------------------------------------------
                                       1999                  1998                1997
                                  Gross Realized        Gross Realized      Gross Realized
                                 -----------------     ----------------    ----------------
                                 Gains      Losses     Gains     Losses    Gains     Losses
                                 -----     -------     -----     ------    -----     ------
<S>                               <C>       <C>        <C>         <C>     <C>       <C>
Sales of:
U.S. government obligations       $ 32          --        --         --     $ 62         --
U.S. government agency notes        11          --        --         --       --         --
Corporate notes                     21          --        --         --       --         --
Mortgage-backed securities          --          --        --         --       39         --
Other                                1       $ (43)     $104         --      170         --
                                  ----       -----      ----       ----     ----         --
                                  $ 65       $ (43)     $104         --     $271         --
                                  ====       =====      ====       ====     ====         ==
</TABLE>


                                      39
<PAGE>

The following table represents the contractual maturities, amortized cost and
fair value for investments in debt securities for each major security type at
December 31, 1999. Expected maturities may differ from contractual maturity
dates due to the ability of certain borrowers to prepay their obligations.

<TABLE>
<CAPTION>

                                                         Available for Sale Securities
                                                      -----------------------------------
(in thousands)                                        Amortized Cost          Fair Value
-----------------------------------------------------------------------------------------
<S>                                                   <C>                         <C>
Due in one year or less                               $   523                     $   523
Due from 1 -5 years                                     2,089                       2,079
Due from 5 - 10 years                                  16,359                      15,663
Due after 10 years                                      2,054                       1,857
                                                      -------                     -------
    Subtotal                                           21,025                      20,122
Mortgage backed securities                             32,284                      31,229
                                                      -------                     -------
    Total                                             $53,309                     $51,351
                                                      =======                     =======
</TABLE>

At December 31, 1999, the Company's securities pledged as collateral for public
and private deposits totaled $18.3 million.

Note 5. LOANS

The composition of the loan portfolio was as follows:
<TABLE>
<CAPTION>

                                                                     December 31,
                                                      ------------------------------------
(in thousands)                                           1999                         1998
------------------------------------------------------------------------------------------
<S>                                                  <C>                          <C>
Real estate mortgage loans:
  Residential                                        $ 28,460                     $ 32,555
  Commercial                                           66,833                       52,747
Real estate construction                                2,832                        1,384
Commercial and industrial                               9,446                        5,872
Consumer and other                                     12,962                       13,315
                                                     --------                     --------
  Total                                              $120,533                     $105,873
                                                     ========                     ========
</TABLE>

Included in interest and fees on loans as reported in the consolidated
statements of operations are origination fees, commitment fees, late charges and
application fees for the years ended December 31, 1999, 1998 and 1997 of
$133,000, $262,000 and $195,000, respectively.

On January 31, 1999, the Bank completed the settlement of the sale of all of its
residential mortgage servicing portfolio, resulting in a pretax gain in the
amount of $460,000 recorded in 1999. The Bank had no loans serviced for others
at December 31, 1999, as compared to servicing $44.9 million of loans in its
capacity as a subservicer at December 31, 1998.

At December 31, 1999 and 1998, loans included $395,000 and $404,000,
respectively, in loans to a partnership in which a director is a general
partner, which loans were originally made prior to such director's nomination
and election as a director. The loans are current and being paid in accordance
with the terms of the loan agreement.

Impaired Loans

At December 31, 1999, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $373,000, as compared to
$439,000 at December 31, 1998. At December 31, 1999 and 1998, the corresponding
Allocated Reserves totaled $25,000 (relating to two impaired loans with balances
totaling $77,000) and $55,000 (relating to all impaired loans), respectively.
All impaired loans were classified as nonaccrual at December 31, 1999. An amount
equal to $430,000 of the $439,000 total impaired loans was classified as
nonaccrual and the remaining $9,000 was classified as potential problem loans at
December 31, 1998. The income recorded on a cash basis relating to impaired
loans equaled $16,000 and $22,000 at December 31, 1999 and 1998, respectively.
The average balance of outstanding impaired loans was $330,000 and $414,000 for
1999 and 1998, respectively. All of the impaired loans were collateralized by
real estate at December 31, 1999.


                                      40
<PAGE>

Non-Performing Assets


The table below sets forth information with respect to nonperforming assets:
<TABLE>
<CAPTION>
                                                         December 31,
                                              -------------------------------
(in thousands)                                 1999         1998         1997
-----------------------------------------------------------------------------
<S>                                           <C>           <C>          <C>
Nonaccrual loans                              $373          $430         $387
Accruing loans past due 90 days or more        167           121          101
Restructured loans                              --            --          265
Real estate owned and repossessions             --            15           65
                                              ----          ----         ----
       Total                                  $540          $566         $818
                                              ====          ====         ====
</TABLE>

Interest income recognized on nonaccrual and restructured loans totaled $19,000,
$16,000 and $122,000 in 1999, 1998 and 1997, respectively. Had interest income
on these loans been paid at the contracted rates and due dates, the Company
would have recorded additional interest income in 1999, 1998 and 1997 of $9,000,
$8,000 and $26,000, respectively.

Note 6. ALLOWANCE FOR LOAN LOSSES

Changes in the Allowance were as follows:

                                                         December 31,
                                              ---------------------------------
(in thousands)                                 1999          1998         1997
-------------------------------------------------------------------------------
Balance at beginning of year                  $ 2,735      $ 2,665      $ 2,666
Charge-offs                                       (12)         (77)        (339)
Recoveries                                        159          147          338
                                              -------      -------      -------
       Net charge-offs                            147           70           (1)
Provision for loan losses                          --           --           --
                                              -------      -------      -------
Balance at end of year                        $ 2,882      $ 2,735      $ 2,665
                                              =======      =======      =======



The Allowance represented 2.39% and 2.58% of total loans, and 533.7% and 496.4%
of nonperforming loans at December 31, 1999 and December 31, 1998, respectively.

Note 7. PREMISES AND EQUIPMENT

Premises and equipment consisted of the following:


                                                               December 31,
                                                           ------------------
(in thousands)                                              1999        1998
-----------------------------------------------------------------------------
Land                                                       $  408      $  408
Building and building improvements                          1,684       1,579
Leasehold improvements                                        475         282
Equipment                                                   4,080       4,061
                                                           ------      ------
                                                            6,647       6,330
Less: Accumulated depreciation and amortization             4,088       3,776
                                                           ------      ------
       Total                                               $2,559      $2,554
                                                           ======      ======



On September 15, 1998, the Bank sold its headquarters branch and operations
center and recognized a pre-tax gain of $539,000. As a result of the sale, the
Bank entered into a lease arrangement with the buyer until March 15, 2000, which
was subsequently extended until July 15, 2000. The Company plans to relocate its
headquarters branch and operations center in May 2000. Additionally, in May 1999
the Bank sold its Kennebunk branch and recognized a gain of $1.1 million.



                                      41
<PAGE>

[PG NUMBER]

Note 8. DEPOSITS
Deposit balances at year end consisted of the following:

<TABLE>
<CAPTION>
                                   December 31, 1999          December 31, 1998
                                 ----------------------    ----------------------
                                               Weighted                  Weighted
(dollars in thousands)            Balance  Average Rate     Balance  Average Rate
-------------------------------------------------------    ----------------------
<S>                              <C>               <C>     <C>              <C>
Noninterest bearing demand
deposits                         $ 11,962                  $ 10,447
Interest bearing demand
deposits                           22,280          2.32%     21,680         2.30%
Savings and escrow deposits        58,775          3.67      63,393         3.78
Time deposits                      47,120          5.05      53,025         5.36
                                 --------                  --------
Total                            $140,137          3.98%   $148,545         4.24%
                                 ========                  ========
</TABLE>

The sale of the Bank's branch located in Kennebunk, Maine in May 1999, included
deposits totaling $12.5 million. Included in 1999 and 1998 time deposits are
$1,937,000 and $2,984,000, respectively, of deposits of $100,000 or more.

At December 31, 1999, the maturities and weighted average interest rates of time
deposits were as follows:

<TABLE>
<CAPTION>
                                         Balance        Weighted Average
Maturities                        (in thousands)           Interest Rate
---------------------------------------------------------------------------
<S>                                      <C>                        <C>
12 months or less                        $32,045                    4.95%
1 - 2 years                                7,751                    5.29
2 - 3 years                                3,479                    5.40
3 - 4 years                                2,280                    5.53
4 -5 years                                 1,521                    5.34
5 years or more                               44                    5.62
                                        --------
   Total                                 $47,120                    5.05%
                                        ========
</TABLE>


The following is a detail of interest expense on deposits for the three years
ending December 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                       December 31,
                                              ----------------------------------
(in thousands)                                     1999        1998        1997
--------------------------------------------------------------------------------
<S>                                               <C>         <C>         <C>
Interest bearing demand deposits                  $  453      $  422      $  446
Savings deposits                                   2,310       1,993         945
Other time deposits                                2,367       2,743       2,915
Time deposits of $100,000 or more                    104         150         153
                                                  ------      ------      ------
                                                  $5,234      $5,308      $4,459
                                                  ======      ======      ======
</TABLE>

Note 9. BORROWINGS

Advances From Federal Home Loan Bank ("FHLB") of Boston All advances from the
FHLB of Boston outstanding at December 31, 1999 were fixed rate, with the
maturities as follows:

<TABLE>
<CAPTION>
                                                                   Weighted
                                  Balance                           Average
    Due Date                (in thousands)           Rates    Interest Rate
---------------------------------------------------------------------------
<S>                                 <C>          <C>                   <C>
    2000                           $8,000        5.74-5.79%            5.76
    2001                            6,748        6.05-6.25             6.20
    2003                            3,000             4.99             4.99
    2004                            3,000             5.79             5.79
    2005                            4,000             5.06             5.06
    2008                            3,000             5.16             5.16
                                  -------
                                  $27,748                              5.62%
                                  =======
</TABLE>


Under applicable FHLB regulations, member banks are required to maintain at all
times an amount of qualified collateral that is at least sufficient to satisfy
the established collateral maintenance level. The Bank maintains qualified
collateral well in excess of its current borrowings (and sufficient to support
the FHLB advances). The Bank estimates that it has approximately $26.8 million
in additional short-term borrowing capacity with the FHLB as of December 31,
1999. This amount fluctuates based on qualified collateral.



                                      42
<PAGE>

Amended Savings Bank Notes

On August 4, 1999, the Company entered into the First Amendment to Loan
Agreement (the "First Amendment to Loan Agreement") amending the terms of the
Loan Agreement, dated as of July 24, 1996 (the "Loan Agreement"), between the
Company and a group of four Maine savings banks (the "Four Savings Banks").
Pursuant to the Loan Agreement, the Company borrowed a total of $4.0 million
evidenced by promissory notes (the "Savings Bank Notes") in the amount of $1.0
million to each of the Four Savings Banks. Prior to the effective date of such
modification to the Loan Agreement, the Savings Bank Notes bore interest,
payable quarterly, at an annual rate of 10.85%, with semi-annual principal
payments of $200,000 beginning in June 1998. The original maturity date was
December 31, 2001. Pursuant to the First Amendment to Loan Agreement and the
amended Savings Bank Notes (the "Amended Savings Bank Notes"), the term loan
(balance $2.4 million at the time of refinance) bears interest at an annual rate
of 8.0% until August 4, 2002, at which time the interest rate will convert to
the Prime Rate as published in THE WALL STREET JOURNAL (the "WSJ"), adjustable
daily, until the new maturity date of August 4, 2004. In addition, the Company
is entitled to draw against a working capital line of credit up to a combined
aggregate limit, including the balance outstanding at any time on the term loan,
of $4.0 million. The interest rate on the line of credit is equal to the Prime
Rate as published in the WSJ, adjusted daily and the maturity date is August 4,
2004.

In addition to reducing the interest rate, extending the maturity date, and
providing the Company with a line of credit, the First Amendment to Loan
Agreement modified or eliminated certain covenants and conditions contained in
the Loan Agreement including, among other things: (i) limitations on borrowings
by the Company and the Bank; (ii) prohibitions on transfers of assets of the
Company or any subsidiary; (iii) prohibition of capital expenditures over
$500,000 in any fiscal year; and (iv) certain provisions providing that it was a
default by the Company should it fail to make certain reports or payments within
specified time frames, which provisions have been made generally less
restrictive as to time or amount. In addition, the First Amendment to Loan
Agreement modified the prohibition on the payment of cash dividends by the
Company contained in the Loan Agreement when the Company's debt-to-equity ratio
on a parent only-basis exceeds 30% to increase the permissible ratio threshold
to 50%.

In connection with the Amended Savings Bank Notes, one of the Four Savings Banks
notes was purchased by one of the remaining three lenders. There is no
prepayment penalty associated with the Amended Savings Bank Notes. Other terms
and conditions, including the pledge of all of the Company's stock in the Bank
as collateral, were affirmed and remain in effect.

Secured Borrowings
In May 1998, the Bank introduced a new cash management program for businesses.
The program represents secured borrowings, which include agreements similar to
repurchase agreements that are not FDIC insured. At December 31, 1999 and 1998
these secured borrowings totaled approximately $3.0 million and $1.0 million,
respectively, and were collateralized by approximately $3.0 million and $1.0
million, respectively, in Bank owned investment securities.

Federal Reserve Bank of Boston
The Bank also has been approved by the Federal Reserve Bank of Boston to obtain
funds from its discount window for the purpose of maintaining the Bank's
liquidity. At December 31, 1999, the Bank had pledged $10.1 million in 1-4
family residential real estate loans as collateral for future borrowings of up
to $9.1 million from the Federal Reserve. No funds have been obtained from this
source.

Note 10. RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES

Payment of dividends by the Company on its stock is subject to various
restrictions. Among these restrictions is a requirement under Delaware corporate
law that dividends may be paid by the Company out of its surplus or, in the
event there is no surplus, out of its net profits for the fiscal year in which
the dividend is declared and/or the preceding fiscal year.

The principal source of cash for the Company would normally be a dividend from
the Bank; however, certain restrictions also exist regarding the ability of the
Bank to transfer funds to the Company in the form of cash dividends, loans or
advances. Maine corporate law generally provides that dividends may only be paid
out of unreserved and unrestricted earned surplus or unreserved and unrestricted
net earnings of the current fiscal year and the next preceding fiscal year taken
as a single period. Maine banking law also imposes certain restrictions,
including the requirement that the Bank establish and maintain adequate levels
of capital as set forth in rules adopted by the Maine Bureau of Banking.



                                      43
<PAGE>

The Loan Agreement, as amended by the First Amendment to Loan Agreement,
contains certain terms, restrictions and covenants, including restrictions
regarding the conditions under which cash dividends may be paid by the Company.
For further information see "Note 9 -- Borrowings -- Amended Savings Bank
Notes."

Note 11. BENEFIT PLANS

Pension Plan

The Board of Directors of the Bank terminated the Bank's defined benefit plan
and implemented a defined contribution plan ("401(k) Plan") for all eligible
employees effective August 1, 1997. All employees of the Bank are eligible to
participate in the 401(k) Plan upon completion of 1,000 hours of service
subsequent to their date of hire. Plan participants may elect to contribute up
to 15% of their salary on a pre-tax basis. The Bank provides matching
contributions up to 6% of compensation. For the year ended December 31, 1999 and
1998, the Bank incurred expenses relating to the 401(k) Plan totaling $57,000
and $98,000, respectively.

Future benefit accruals under the defined benefit plan were eliminated as of
July 31, 1997 and the plan was terminated as of September 30, 1997. During 1998
the Bank received a determination ruling from the Internal Revenue Service
("IRS") with respect to the termination of the defined benefit plan. The
settlement and distribution of the defined benefit plan assets occurred in
December 1998 and did not have a material effect on the Company's financial
statements. In connection with the defined benefit plan termination the Company
elected to contribute $125,000 of the excess plan assets to the 401(k) Plan to
be utilized as future matching employer contributions.

Stock Option and Equity Incentive Plan

The Company adopted the First Coastal Corporation 1996 Stock Option and Equity
Incentive Plan (the "1996 Plan") to provide for the grant of options to purchase
shares of common stock of the Company to directors and employees of the Company
and to employees of any subsidiary of the Company and to permit the award to
employees of the Company and of any subsidiary of the Company of shares of
common stock as a bonus, which shares may be subject to restrictions based on
continued service or performance. Upon adoption of the Plan, there were 130,000
shares of common stock of the Company reserved for issuance in connection with
option grants and restricted stock awards. All options granted to directors vest
immediately and all options granted to executive officers and employees have a
three to five year vesting period.

On May 18, 1999, the stockholders of the Company approved amendments to the 1996
Plan, which amendments (i) increased the number of shares of common stock
available for issuance pursuant to incentive awards granted under the 1996 Plan
by 130,000 to 260,000, (ii) increased the number of shares of common stock
subject to options that are granted to each non-employee director as of each
annual meeting date from 500 shares of common stock to 1,000 shares of common
stock, and (iii) extended the term of the 1996 Plan to April 2, 2009.

Options granted under the 1996 Plan must have an exercise price not less than
the fair market value of a share of common stock on the date of grant of the
option (or 110% in the case of an incentive stock option granted to an optionee
beneficially owning more than 10% of the outstanding common stock). The option's
maximum term is 10 years (or five years in the case of an incentive stock option
granted to an optionee beneficially owning more than 10% of the outstanding
common stock). At December 31, 1999, there were 126,334 shares of common stock
of the Company available for grant under the 1996 Plan.

On January 1, 1996 the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, to be effective May 2, 1996, the date on which the Company's Board
of Directors adopted the 1996 Plan. As permitted by SFAS No. 123, the Company
has chosen to apply APB Opinion No. 25, Accounting for Stock Issued to Employees
(APB 25) and related interpretations in accounting for its 1996 Plan.
Accordingly, no compensation cost has been recognized for options granted under
the 1996 Plan. Had compensation cost for the Company's 1996 Plan been determined
based upon the fair value at the grant dates for awards under the 1996 Plan
consistent with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
on the following table.

                                      44
<PAGE>

<TABLE>
<CAPTION>

                                        1999                      1998                  1997
                              ---------------------     ---------------------    ---------------------
                                    As          Pro           As          Pro           As         Pro
                              Reported        Forma     Reported        Forma     Reported       Forma
                              --------       ------     --------       ------     --------      ------
<S>                             <C>          <C>          <C>          <C>          <C>          <C>
Net income (in thousands)       $2,226       $2,140       $1,564       $1,484       $1,262       $,211

Basic earnings per share        $ 1.64       $ 1.58       $ 1.15       $ 1.09       $  .93       $ .89

Fully diluted earnings
per share                       $ 1.62       $ 1.56       $ 1.13       $ 1.08       $  .91       $ .87
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:


<TABLE>
<CAPTION>
Weighted Averages                                  1999       1998      1997
-------------------------------------------------------------------------------
<S>                                              <C>        <C>       <C>
Expected Option Life (years)                         7          7         7
Volatility                                       30.00%     35.00%    35.00%
Annual Dividend Amount                           $0.00      $0.00     $0.00
Risk-free Rate of Return                          6.28%      4.98%     5.96%
</TABLE>

The weighted average fair value of options granted for the years ended December
31, 1999, 1998 and 1997 were $4.09, $5.18 and $7.06, respectively.

A summary of the status of the 1996 Plan as of December 31, 1999, 1998 and 1997,
and changes during the year then ended is presented below:

<TABLE>
<CAPTION>
                                                     1999                           1998                          1997
                                             -------------------------    ------------------------     ------------------------
                                                              Weighted                    Weighted                     Weighted
                                                      Average Exercise            Average Exercise             Average Exercise
                                              Shares   Price Per Share    Shares   Price Per Share     Shares   Price Per Share
-------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>                <C>       <C>            <C>           <C>               <C>
Outstanding at beginning of year             91,167             $ 8.64    70,500            $ 7.82     57,000            $ 5.59

     Granted                                 40,500               8.87    22,000             11.04     17,500             14.45
     Exercised                                   --                 --    (1,333)             5.00     (1,333)             5.00

     Forfeited                                 (667)              5.00        --                --     (2,667)             5.00
                                            -------                       ------                       ------
Outstanding at end of year                  131,000             $ 8.73    91,167            $ 8.64     70,500            $ 7.82
                                            =======                       ======                       ======
</TABLE>


The following table summarizes information about the 1996 Plan's stock options
at December 31, 1999, 1998 and 1997:


<TABLE>
<CAPTION>
                                    Options Outstanding                              Options Exercisable
                   --------------------------------------------------------   ---------------------------------
     Range of               Number     Weighed-average             Weighted           Number           Weighted
     Exercise          Outstanding           Remaining              Average      Exercisable            Average
      Prices        at December 31    Contractual life       Exercise Price   at December 31     Exercise Price
---------------------------------------------------------------------------------------------------------------
<S>                        <C>               <C>                  <C>               <C>               <C>
1999 $5.00-$7.25           51,000            6.5 years            $ 5.66            51,000               $ 5.66
     $8.50-$9.44           40,500            9.8 years            $ 8.87             6,000               $ 9.44
     $9.63-$15.25          39,500            8.4 years            $12.55            21,833               $13.04

1998 $5.00-$7.25           51,667            7.5 years            $ 5.65            34,442               $ 5.65
     $9.63-$15.25          39,500            9.4 years            $12.55             5,829               $14.45

1997 $5.00-$7.25           53,000            8.6 years            $ 5.64            21,667               $ 5.52
     $9.63-$15.25          17,500            9.9 years            $14.45             2,500               $ 9.63
</TABLE>



                                       45
<PAGE>

Note 12.  INCOME TAXES

A summary of income tax expense is as follows:


<TABLE>
<CAPTION>
                                                      December 31,
                                        ----------------------------------------
(in thousands)                            1999             1998             1997
--------------------------------------------------------------------------------
<S>                                     <C>              <C>              <C>
Current                                 $  124           $   64               --
Deferred                                 1,026              795           $  679
                                        ------           ------           ------
                                        $1,150           $  859           $  679
                                        ======           ======           ======
</TABLE>


A reconciliation of the difference between income tax expense and the amount
computed by applying the statutory federal income tax rate to income before
income taxes is as follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                   -----------------------------
(in thousands)                                        1999       1998      1997
--------------------------------------------------------------------------------
<S>                                                 <C>        <C>        <C>
Federal income tax at statutory rate                $1,148     $  824     $  660
Increase resulting from other items, net                 2         35         19
                                                    ------     ------     ------
Income tax expense                                  $1,150     $  859     $  679
                                                    ======     ======     ======
</TABLE>


Significant components of deferred income tax assets and liabilities at December
31, 1999 and 1998 are presented below:

<TABLE>
<CAPTION>
                                                                December 31,
                                                           ---------------------
(in thousands)                                                1999         1998
--------------------------------------------------------------------------------
<S>                                                        <C>          <C>
Deferred tax assets:
  Loans, principally due to allowance for losses           $   980      $   930
  REO, principally due to writedowns                            --            7
  Deferred loan fees                                             5           33
  Reserve for mortgage servicing rights                         --           45
  Federal net operating loss credit and tax
  credit carryforward                                        1,467        2,660
  Alternative minimum tax credit carryforward                  134           68
  Investment tax credit carryforward                            30           77
  Unrealized loss on investments                               666           --
  Other                                                         --           22
                                                           -------      -------
Total gross deferred tax assets before
valuation reserve                                            3,282        3,842
Valuation reserve                                              (30)         (77)
                                                           -------      -------
Total gross deferred tax asset                               3,252        3,765
Deferred tax liabilities:
  Unrealized gain on investments                                --            4
  Difference between tax and book basis of fixed assets        254          184
  Capital loss on stock transaction                             --           23
  Other                                                         48          200
                                                           -------      -------
Total gross deferred tax liabilities                           302          411
                                                           -------      -------
Net deferred taxes                                         $ 2,950      $ 3,354
                                                           =======      =======
</TABLE>


The deferred tax asset represents the estimated amount of future deductions for
tax reporting purposes previously expensed for financial reporting purposes, and
the benefit from future income taxes the Company will not have to pay as a
result of the net operating loss ("NOL") carryforwards. The Company will only
recognize a deferred tax asset when, based on available evidence, realization is
more likely than not. The Company has recorded a valuation allowance at December
31, 1999 and 1998 of $30,000 and $77,000, respectively, for investment tax
credit carryforwards which are expected to expire.

     At December 31, 1999, the Company had a NOL carryforward for federal income
tax return purposes of approximately $4.3 million available to offset future
taxable income. The NOL carryforward for federal income tax return purposes will
expire in the years 2007 to 2011. If there is a subsequent "change of ownership"
of the Company as defined by Section 382 of the Internal Revenue Code of 1986,
as amended (the "Code"), the Company's NOL carryforwards are subject to
limitation as provided by the Code.


                                       46
<PAGE>

Note 13.  COMMITMENTS AND CONTINGENCIES

Unfunded Loan Commitments

Unfunded loan commitments for December 31, 1999 and 1998 were approximately
$20.2 million and $17.5 million, respectively.


<TABLE>
<CAPTION>
The breakdown of such loan commitments is as follows:
(in thousands)                                                  1999       1998
-------------------------------------------------------------------------------
<S>                                                          <C>         <C>
Real Estate:
       Commitments to originate residential mortgages        $ 1,493     $   502
       Commitments to originate commercial loans               1,862       4,748
Unadvanced portions of construction loans                      1,860         427
Commercial lines of credit (unused)                            6,985       4,154
Commercial letters of credit (unused)                          1,279          61
Consumer lines of credit (e.g. home equity
lines) (unused)                                                6,730       7,630
                                                             -------     -------
Total                                                        $20,209     $17,522
                                                             =======     =======
</TABLE>


Included in unfunded loan commitments at December 31, 1999 and 1998 are fixed
rate loan commitments totaling $6.6 million and $5.5 million, respectively.

Loan commitments include unfunded portions of real estate, construction and
other loans and unused lines of credit. Loan commitments are subject to the same
credit policies as loans and have expiration dates and termination clauses.

Lease Obligations

The Company currently leases its headquarters branch and operations center and
two of its remaining six branches (excluding its headquarters branch), and has a
ground lease relating to a third branch, under terms of operating leases which
include renewal options (some with escalating clauses) ranging from one to five
years. On September 15, 1998 the Bank sold its headquarters branch and
operations center and entered into a lease arrangement with the buyer until
March 15, 2000, which was subsequently extended until July 15, 2000 (the lease
payments for this short term lease are reflected in the table below). On October
26, 1999, the Bank entered into a ten-year lease (with options extending beyond
this date) for a new headquarters, branch and operations center currently under
construction at 1200 Congress Street, Portland, Maine. Delivery of the facility
to the Bank is expected to occur during the second quarter of 2000, at which
time the ten-year lease term and payment under the terms of the lease commences.
The lease payments for this lease are also reflected in the table below. Rental
expense totaled approximately $254,000, $151,000 and $91,000 for the three years
ended December 31, 1999, 1998 and 1997, respectively.

Approximate minimum lease payments over the remaining term of the leases at
December 31, 1999 are as follows:


<TABLE>
<CAPTION>
(dollars in thousands)                                              December 31,
--------------------------------------------------------------------------------
<S>                                                                       <C>
     2000                                                                 $  391
     2001                                                                    342
     2002                                                                    337
     2003                                                                    337
     2004 and  thereafter                                                  1,226
                                                                          ------
                                                                          $2,633
                                                                          ======
</TABLE>

Litigation

As of December 31, 1999, there were various claims and lawsuits pending against
the Company incidental to the ordinary course of business. In the opinion of
management, after consultation with legal counsel, resolution of these matters
is not expected to have a material effect on the consolidated financial position
or results of operations.


                                       47
<PAGE>

Note 14. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK

Concentration of Commercial Real Estate Assets

At December 31, 1999, the Bank had approximately $68.4 million of commercial
real estate mortgage loans, representing 56.8% of total loans at such date,
comprised primarily of loans collateralized by apartment buildings, mixed use
commercial buildings, retail buildings, office buildings and other income
producing properties. The Bank's concentration of commercial real estate assets
(representing commercial real estate loans and real estate owned) was 35.9% and
27.6% of total assets at December 31, 1999 and 1998, respectively. At December
31, 1999, the Bank also had approximately $9.4 million of commercial business
loans.

Banks with loans concentrated in commercial real estate may be adversely
affected by problems in the real estate market or the economy in general.
Commercial real estate lending involves significant additional risks as compared
to one-to-four family residential mortgage lending, and typically accounts for a
disproportionate share of charge-offs, delinquent loans and real estate owned
through foreclosure or by deed in lieu of foreclosure. Such lending generally
involves larger loan balances (to a single borrower or groups of related
borrowers) than is involved with residential and other types of consumer
lending, and is more susceptible to adverse future developments. If the cash
flow from income producing property collateralizing real estate loans is reduced
(for example, because leases are not obtained or renewed, or lease rates
decline), the borrower's ability to repay these loans may be materially
impaired. These risks can be significantly affected by considerations of supply
and demand in the market and by general economic conditions.

Note 15.  DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments as determined
under SFAS No. 107 are as follows:

<TABLE>
<CAPTION>
                                                December 31, 1999    December 31, 1998
                                             --------------------   ------------------
                                                 Book        Fair       Book      Fair
(in thousands)                                  Value       Value      Value     Value
---------------------------------------------------------------------------------------
<S>                                           <C>        <C>        <C>        <C>
Financial Assets:
    Cash and cash equivalents (1)             $ 12,424   $ 12,424   $ 32,627   $ 32,627
    Investment securities(2)
       Available for sale (at market value)     51,823     51,823     47,048     47,048
Federal Home Loan Bank stock                     1,391      1,391      1,315      1,315
Loans held for sale                                 83         83         83         83
Loans, net of allowance(3)                     117,635    116,262    103,041    106,437
Financial Liabilities:
  Deposits(4)                                 $140,137   $139,951   $148,545   $149,413
  Borrowings(5)                                 30,016     29,805     25,145     25,270
  Secured borrowings(6)                          2,980      2,980        967        967
</TABLE>

----------
(1)  The carrying amount of cash and cash equivalents approximates fair value
     due to their short maturity.

(2)  The fair value of investment securities is based on quoted market prices,
     if available. If prices are not available, quotes for similar instruments
     and/or information supplied to management is used.

(3)  The fair market value for fixed and adjustable rate loans was estimated
     using the discounted cash flow analysis using current interest rates for
     similar loans. Variable rate loans are considered to be at fair value,
     since such loans change directly with the market rates. The estimated fair
     values of nonperforming loans are calculated by using book value less the
     specific amount of allocated reserve from the allowance for loan losses.

(4)  For deposit liabilities with no defined maturities, the fair value is the
     amount payable on demand. Term deposits were estimated using the discounted
     cash flow analysis using current interest rates for similar deposits.

(5)  The fair value for FHLB borrowings and the Savings Bank Notes was estimated
     using the discounted cash flow analysis using current interest rates for
     similar borrowings.

(6)  Secured borrowings are variable rate and considered to be at fair value,
     since such rates change directly with market rates.


                                       48
<PAGE>

Note 16. OPERATING EXPENSE

Operating expenses for the year ended December 31, 1999, 1998 and 1997 were as
follows:

<TABLE>
<CAPTION>
                                                        Year Ended December 31,
                                                     ---------------------------
(in thousands)                                          1999      1998      1997
--------------------------------------------------------------------------------
<S>                                                   <C>       <C>       <C>
Salaries and benefits                                 $2,932    $2,632    $2,367
Occupancy                                                608       536       446
Net cost of operations of real estate owned                5         7        67
Data processing                                          384       280       239
Equipment                                                534       424       374
FDIC insurance                                            18        15        15
Insurance - general                                      111       137       141
Office/postage                                           247       246       296
Legal                                                     73        31        65
Marketing                                                144       177       255
Other expenses                                         1,000       965       802
                                                      ------    ------    ------
    Total Operating Expenses                          $6,056    $5,450    $5,067
                                                      ======    ======    ======
</TABLE>


Note 17. FIRST COASTAL CORPORATION
    CONDENSED FINANCIAL INFORMATION


<TABLE>
<CAPTION>
BALANCE SHEETS                                                   December 31,
                                                             ------------------
(in thousands)                                                 1999         1998
--------------------------------------------------------------------------------
<S>                                                          <C>         <C>
Assets
Cash                                                         $   811     $   831
Investment in subsidiaries                                    15,951      14,716
Deferred tax asset                                             2,461       3,310
Other assets                                                      45          57
                                                             -------     -------
       Total assets                                          $19,268     $18,914
                                                             =======     =======
Liabilities
Savings Bank Notes                                           $ 2,268     $ 2,600
Other liabilities                                                 86          --
Stockholders' equity                                          16,914      16,314
                                                             -------     -------
       Total liabilities and stockholders' equity            $19,268     $18,914
                                                             =======     =======
</TABLE>


                                       49
<PAGE>

<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
                                                         Year Ended December 31,
                                                     -----------------------------
(in thousands)                                         1999        1998       1997
----------------------------------------------------------------------------------
<S>                                                  <C>        <C>        <C>
Interest and dividend income
   Dividends from subsidiary                              --    $ 1,680    $ 1,500
   Interest income                                        --          5         12
                                                     -------    -------    -------
                                                          --      1,685      1,512
                                                     -------    -------    -------
Interest Expense
   Savings Bank Notes                                $   258        332        477
                                                     -------    -------    -------
   Total Interest Expense                                258        332        477
                                                     -------    -------    -------
Net Interest Income (loss)                              (258)     1,353      1,035
                                                     -------    -------    -------
Operating Expenses:
     Salaries benefits                                     7         13         12
     Stockholder relations                                69         54         48
     Professional fees                                    74        102         58
     Other                                                61         46         61
                                                     -------    -------    -------
                                                         211        215        179
                                                     -------    -------    -------
Income (loss) before income tax and equity in
undistributed net income of subsidiaries                (469)     1,138        856
Income tax benefit                                      (160)      (149)      (226)
Equity in undistributed net income of subsidiaries     2,535        277        180
                                                     -------    -------    -------
Net Income                                           $ 2,226    $ 1,564    $ 1,262
                                                     =======    =======    =======
</TABLE>


<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
                                                          Year Ended December 31,
                                                     ------------------------------
(in thousands)                                         1999         1998      1997
-----------------------------------------------------------------------------------
<S>                                                  <C>        <C>        <C>
Operating Activiites:
Net Income                                           $ 2,226    $ 1,564    $ 1,262
   Net change in other assets                            862       (185)      (168)
   Net change in other liabilities                        86        (20)       (40)
   Equity in undistributed earnings of subsidiaries   (2,535)      (277)      (180)
                                                     -------    -------    -------
Net cash provided by operating activities                639      1,082        874
                                                     -------    -------    -------
   Financing Activities:
   Payment on borrowings                                (332)      (400)    (1,000)
   Net proceeds from sale of common stock                 --          7          7
   Repurchase of common stock                           (327)
                                                     -------    -------    -------
Net cash used by financing activities                   (659)      (393)      (993)
                                                     -------    -------    -------
Increase (decrease) in cash and cash equivalents         (20)       689       (119)
Cash and cash equivalents at beginning of year           831        142        261
                                                     -------    -------    -------
Cash and cash equivalents at end of year             $   811    $   831    $   142
                                                     =======    =======    =======
Supplemental Disclosures of Information
   Interest paid on borrowings                       $   246    $   315    $   477
   Income tax paid                                        76         85         --
Non-Cash Investing and Financing Activities
   Change in unrealized holding gains (losses) on
   investment securities available for sale          $(1,299)   $   (65)   $   151
</TABLE>


See Note 9 for discussion on the Savings Bank Notes and Note 10 for restrictions
on the payment of dividends by Subsidiary to the Company.


                                       50
<PAGE>

Note 18. EARNINGS PER SHARE

The following is a reconciliation of the income (numerator) and number of shares
(denominator) of the basic and diluted earnings per share ("EPS") calculations:


<TABLE>
<CAPTION>
                                                            For the Years Ended December 31,
                    ------------------------------------------------------------------------------------------------------------
                                 1999                                1998                                  1997
                    ---------------------------------   --------------------------------   -------------------------------------

                                     Number       Per                    Number      Per                      Number         Per
                                         of     Share                        of    Share                          of       Share
                        Income       Shares    Amount       Income       Shares   Amount       Income         Shares      Amount
--------------------------------------------------------------------------------------------------------------------------------
<S>                 <C>           <C>          <C>      <C>           <C>         <C>      <C>              <C>            <C>
Net Income          $2,226,000                          $1,564,000                         $1,262,000

Basic EPS
Income available
to common
stockholders         2,226,000    1,356,375     $1.64    1,564,000    1,359,976    $1.15    1,262,000      1,358,730       $0.93
Effect of
dilutive stock
options                     --       13,777                     --       19,148                   --          32,542
                    ----------    ---------             ----------    ---------           ----------       ---------
Diluted EPS
Income available
to common
stockholders and
assumed exercises   $2,226,000    1,370,152     $1.62   $1,564,000    1,379,124    $1.13   $1,262,000      1,391,272       $0.91
                    ==========    =========             ==========    =========            ==========      =========
</TABLE>


At December 31, 1999, outstanding options to purchase 39,500 shares of common
stock at a price per share ranging from $9.625 to $15.25 were not included in
the computation of diluted earnings per share because the exercise price of the
options was greater than the average market price of common shares. At December
31, 1998, outstanding options to purchase 15,000 and 3,000 shares of common
stock at a price per share of $15.25 and $13.56, respectively, were not included
in the computation of diluted earnings per share because the exercise price of
the options was greater than the average market price of common shares. At
December 31, 1997, outstanding options to purchase 15,000 shares of common stock
at $15.25 per share were not included in the computation of diluted earnings per
share because the exercise price of the options was greater than the average
market price of common shares.

Note 19.  STOCKHOLDER RIGHTS PLAN

On February 25, 1998 the Board of Directors of the Company adopted a
Stockholders Rights Plan in which preferred stock purchase rights have been
granted as a dividend at the rate of one right for each share of common stock
held of record as of the close of business on March 10, 1998. The rights will be
exercisable, subject to certain terms and conditions, only if a person or group
in the future becomes the beneficial owner of 10% or more of the common stock or
announces a tender or exchange offer which would result in its ownership of 10%
or more of the common stock.

Each right, when exercisable at $50.00 per Right, would entitle the holder
thereof to purchase 1/10th of a share of a newly created series of preferred
stock of the Company designated as "Series A Junior Participating Preferred
Stock." Under certain circumstances, each holder of a right, other than the
acquiring person, would be entitled to purchase a certain number of shares of
common stock of the Company for each right at one-half of the then-current
market price. If the Company is acquired in a merger, or 50% or more of the
Company's assets are sold in one or more related transactions, each right would
entitle the holder thereof to purchase common stock of the acquiring company at
half of the then-current market price of such common stock.

When exercisable, the Board of Directors may exchange one share of common stock
for each right, other than rights held by the acquiring person. The rights are
redeemable for $.001 per right until becoming exercisable and will expire on
February 24, 2008.


                                       51
<PAGE>

Note 20.  STOCK REPURCHASE PROGRAM

In June 1999,the Company commenced a stock repurchase program, with the intent
to purchase up to 68,000 shares of its common stock, representing approximately
5% of the 1,360,527 shares then outstanding. As of February 1, 2000, the Company
had repurchased 52,619 shares, or 3.9% of its common stock. For the year ended
1999, the Company had acquired 34,534 shares of its common stock at a total cost
of $327,000, or an average price of $9.47 per share.

On February 8, 2000, the Company announced that its Board of Directors had
authorized an extension of the stock repurchase program and the repurchase of up
to an additional 68,000 shares, or a total of 136,000 shares (representing
approximately 10% of the outstanding common stock as of the June 1999
commencement date of the repurchase program). The stock repurchase program is
expected to be in effect for up to an additional twelve months, until
approximately February 2001. Under the program, no shares knowingly will be
purchased from officers or directors of the Company or from persons who hold in
excess of 5% of the Company's outstanding shares of common stock.


Note 21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                            Quarter Ended,
                                                                 -------------------------------------------------------------------
(in thousands, except share and per share
information)                                                           3/31               6/30               9/30              12/31
                                                                 ----------         ----------         ----------         ----------
<S>                                                               <C>                <C>                <C>                <C>
1999
Interest income                                                      $3,338             $3,502             $3,461             $3,685
Interest expense                                                      1,781              1,691              1,657              1,735
                                                                 ----------         ----------         ----------         ----------
Net interest income                                                   1,557              1,811              1,804              1,950
Provision for loan losses                                                --                 --                 --                 --
Noninterest income                                                      134                146                179                161
Securities and loan sales gains                                         448                 91                 32                  9
Gain on sale of assets                                                                   1,110                 --                 --
Operating expense                                                     1,452              1,499              1,490              1,615
                                                                 ----------         ----------         ----------         ----------
Income before income taxes                                              687              1,659                525                505
Income tax expense                                                      232                588                185                145
                                                                 ----------         ----------         ----------         ----------
Net income                                                             $455             $1,071               $340               $360
                                                                 ==========         ==========         ==========         ==========
Basic earnings per share:
  Weighted average shares outstanding                             1,360,527          1,360,527          1,359,159          1,345,438
  Earnings per share                                                   $.33               $.79               $.25               $.27
                                                                 ==========         ==========         ==========         ==========
Diluted earnings per share:
  Weighted average shares outstanding                             1,374,838          1,374,426          1,373,093          1,358,282
  Earnings per share                                                   $.33               $.78               $.25               $.27
                                                                 ==========         ==========         ==========         ==========
1998
Interest income                                                      $2,978             $3,149             $3,373             $3,559
Interest expense                                                      1,375              1,547              1,751              1,894
                                                                 ----------         ----------         ----------         ----------
Net interest income                                                   1,603              1,602              1,622              1,665
Provision for loan losses                                                --                 --                 --                 --
Noninterest income                                                      138                162                711                155
Securities and loan sales gains                                           6                 46                119                 44
Operating expense                                                     1,302              1,359              1,493              1,296
                                                                 ----------         ----------         ----------         ----------
Income before income taxes                                              445                451                959                568
Income tax expense                                                      160                159                338                202
                                                                 ----------         ----------         ----------         ----------
Net income                                                             $285               $292               $621               $366
                                                                 ==========         ==========         ==========         ==========
Basic earnings per share:
  Weighted average shares outstanding                             1,359,194          1,359,633          1,360,527          1,360,527
  Earnings per share                                                   $.21               $.21               $.46               $.27
                                                                 ==========         ==========         ==========         ==========
Diluted earnings per share:
  Weighted average shares outstanding                             1,381,707          1,380,177          1,378,264          1,375,324
  Earnings per share                                                   $.21               $.21               $.45               $.27
                                                                 ==========         ==========         ==========         ==========
</TABLE>


                                       52
<PAGE>

--------------------------------------------------------------------------------
CORPORATE AND STOCKHOLDER INFORMATION
--------------------------------------------------------------------------------

FIRST COASTAL CORPORATION

DIRECTORS

David B. Hawkes, Sr.
Chairman of the Board
First Coastal Corporation and
Coastal Bank
Business Consultant/Owner
Cloudhawk Management Consultants

Gregory T. Caswell
President and Chief Executive Officer
First Coastal Corporation and
Coastal Bank

Dennis D. Byrd
Vice President and Treasurer
First Coastal Corporation
Executive Vice President, Chief Financial Officer and Treasurer
Coastal Bank

MaryEllen FitzGerald
President/Owner
Critical Insights
Marketing Research

Roger E. Klein
President
Interest Rate Futures Research Corporation
Investment Advisor

Normand E. Simard
President
York County Biscuit Company

Edward K. Simensky
President
Simensky & Thomson
Accountants

Charles A. Stewart III
Treasurer
M.C.S. Enterprises
Real Estate Investment

OFFICERS

Gregory T. Caswell
President and Chief Executive Officer
Dennis D. Byrd
Vice President and Treasurer
William E. Saufley, Esq.
Vice President and General Counsel
Patricia J. Briand
Corporate Secretary

--------------------------------------------------------------------------------

COASTAL BANK


CORPORATE OFFICE
Colonel Westbrook Executive Park
36 Thomas Drive
Westbrook, ME 04092
(207) 774-5000

Effective June 1, 2000 (approximate):
1200 Congress Street
Portland, ME 04102
(207) 774-5000

P.O. Box 8550
Portland, ME 04104

DIRECTORS

David B. Hawkes, Sr.,
  Chairman of the Board
Dennis D. Byrd
Gregory T. Caswell
MaryEllen FitzGerald
Roger E. Klein
Normand E. Simard
Edward K. Simensky
Charles A. Stewart III

OFFICERS

Gregory T. Caswell
President and Chief Executive Officer

Dennis D. Byrd
Executive Vice President, Chief Financial Officer and Treasurer

Robert S. Blackwood, Jr.
Senior Vice President Commercial Lending

Gordon I. Erikson, Jr.
Senior Vice President Commercial Banking

William E. Saufley
Senior Vice President Human Resources
and General Counsel

Edward M. Williams
Senior Vice President Retail Banking

David C. Cyr
Vice President Credit Administration

William J. Mann
Vice President Commercial Lending

Cynthia J. McDougall
Vice President Residential Lending

Debra J. McPhail
Vice President Operations and Security

Richard A. Morin
Vice President Director of Mortgage Lending

Taloma B. Nickerson
Vice President Retail Operations

Maureen E. Pride
Regional Vice President, Greater Portland

Janet S. Ross
Vice President Commercial Lending

Timothy J. Tower
Vice President Commercial Lending

Daniel P. Walsh
Vice President Commercial Lending

Pamela J. Bowerman
AVP Branch Manager

Patricia J. Briand
AVP Corporate Secretary

Robert H. Crozier
AVP Branch Manager

Teresa L. Dutton
AVP Branch Manager

Thomas V. Manderson
AVP Controller

Laurie L. Mooney
AVP Branch Manager

Carolyn S. Thomas
AVP Credit Administration



                                       53
<PAGE>

--------------------------------------------------------------------------------
CORPORATE AND STOCKHOLDER INFORMATION
--------------------------------------------------------------------------------

COASTAL BANK BRANCH OFFICES

120 Exchange Street
Portland, ME 04101
   Linda Corey, Assistant Branch Manager

83 Maine Street
Brunswick, ME 04011
   Pamela J. Bowerman, AVP/Manager

14 Gurnett Road
Brunswick, ME 04011
   Teri L. Dutton, AVP/Manager

47 Topsham Fair Mall Road
Topsham, ME 04086
   Dawn Ross, Assistant Branch Manager

8 Mallet Drive
Freeport, ME 04032
   Robert Crozier, AVP/Manager

Suite 32, 4 Scammon Drive
Saco Valley Shopping Center
Saco, ME 04072
   Laurie L. Mooney, AVP/Manager

Opening June 1, 2000 (approximate):
1200 Congress Street
Portland, ME 04102
   Maureen E. Pride, Regional VP



Corporate Headquarters

First Coastal Corporation
Colonel Westbrook Executive Park
36 Thomas Drive
Westbrook, ME 04092
(207) 774-5000

Effective June 1, 2000 (approximate):
1200 Congress Street
Portland, ME 04102
(207) 774-5000

P.O. Box 8550
Portland, ME 04104

Annual Meeting
The 2000 Annual Meeting of the Stockholders of First Coastal Corporation will be
held at 10:00 a.m. on Tuesday, May 16, 1999 at the Double Tree Hotel, Portland,
Maine.

Stock Listing
First Coastal Corporation stock is listed on The Nasdaq SmallCap Market tier of
The Nasdaq Stock Market under the symbol "FCME".

Transfer Agent/Registrar
ChaseMellon Shareholder Services
111 Founders Plaza, Suite 1100r
East Hartford, CT 06108

Independent Accountants
PricewaterhouseCoopers LLP
130 Middle Street
Portland, ME 04104


Legal Counsel

William E. Saufley, Esq.
Vice President and General Counsel
First Coastal Corporation

Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N.W.
Washington,  D.C. 20004

Bernstein Shur Sawyer & Nelson
100 Middle Street
P.O. Box 9729
Portland, ME 04104-5029

Form 10-K

The Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission will be provided to stockholders upon written request. Requests
should be addressed to: Investor Relations, First Coastal Corporation, 36 Thomas
Drive, Westbrook, ME 04092. Requests after June 1, 2000 should be addressed to:
Investor Relations, First Coastal Corporation, 1200 Congress Street, Portland,
ME 04102.

Investors are also directed to view copies of the Company's Annual Report on
Form 10-K and other documents filed with the Securities and Exchange Commission
through the Company's website address listed below:

Internet Address
First Coastal Corporation
   www.firstcoastal.com
Coastal Bank
   www.coastalbankme.com

                                      54