SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
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| QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended June 30, 2002 |
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| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT |
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| For the transition period from to |
Commission File No. 000-32827
COAST BANCORP
(Exact name of Registration as Specified in its Charter)
California |
| 77-0567091 |
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
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553B Higuera Street, San Luis Obispo, CA 93401 | ||
(Address of principal executive offices) | ||
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(805) 541-0400 | ||
(Registrant’s telephone number, including area code) | ||
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Not applicable | ||
(Former name, former address and former fiscal year, if changed since last report) | ||
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:
Common Stock — As of July 15, 2002, there were 632,400 shares of the issuer’s common stock outstanding.
Transitional Small Business Disclosure Format
(Check one)
yes: o no: ý
PART I — FINANCIAL INFORMATION
Statement of Financial Condition (unaudited)
(in thousands) |
| June 30, |
| December 31, |
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ASSETS |
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Cash and due from banks |
| $ | 5,250 |
| $ | 3,899 |
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Federal funds sold |
| 6,005 |
| 8,650 |
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TOTAL CASH AND CASH EQUIVALENTS |
| 11,255 |
| 12,549 |
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Interest-bearing deposits |
| — |
| — |
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Investment securities: |
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Securities held to maturity |
| — |
| — |
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Securities available for sale |
| 8,179 |
| 11,264 |
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TOTAL INVESTMENT SECURITIES |
| 8,179 |
| 11,264 |
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Loans: |
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Commercial |
| 14,246 |
| 15,061 |
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Real estate — construction |
| 5,471 |
| 5,738 |
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Real estate — other |
| 33,821 |
| 31,064 |
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Consumer |
| 25,835 |
| 25,055 |
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TOTAL LOANS |
| 79,373 |
| 76,918 |
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Net deferred loan fees |
| (293 | ) | (274 | ) | ||
Allowance for credit losses |
| (940 | ) | (850 | ) | ||
NET LOANS |
| 78,140 |
| 75,794 |
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Premises and equipment |
| 5,113 |
| 3,894 |
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Deferred taxes |
| 192 |
| 213 |
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Federal reserve bank stock, at cost |
| 202 |
| 189 |
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Other assets |
| 786 |
| 724 |
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TOTAL ASSETS |
| $ | 103,867 |
| $ | 104,627 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Deposits: |
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Noninterest-bearing demand |
| $ | 26,774 |
| $ | 24,831 |
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Money market and NOW |
| 26,494 |
| 29,958 |
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Savings |
| 5,145 |
| 4,610 |
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Time deposits of $100,000 or more |
| 20,704 |
| 20,932 |
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Other time deposits |
| 16,342 |
| 16,195 |
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TOTAL DEPOSITS |
| 95,459 |
| 96,526 |
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Notes payable |
| 730 |
| 735 |
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Other liabilities |
| 161 |
| 210 |
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TOTAL LIABILITIES |
| 96,350 |
| 97,471 |
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Stockholders’ equity |
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Preferred stock — 10,000,000 authorized, none outstanding |
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Common stock no par value; 10,000,000 shares authorized; issued and outstanding: 632,400 in 2002 and 632,400 in 2001 |
| 6,324 |
| 6,324 |
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Retained earnings |
| 1,102 |
| 732 |
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Accumulated other comprehensive income — net unrealized (losses) gains on available-for-sale securities |
| 91 |
| 100 |
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TOTAL STOCKHOLDERS’ EQUITY |
| 7,517 |
| 7,156 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 103,867 |
| $ | 104,627 |
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2
The unaudited financial statements have been prepared in accordance with the instructions to form 10-QSB and contain statements relating to future results of the Company that are considered to be “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, credit loss reserve adequacy, and simulation of changes in interest rates and litigation results. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties, including, but not limited to, changes in political and economic conditions, interest rate fluctuations, competitive product and pricing pressures within the Company’s markets, equity and fixed income market fluctuations, personal and corporate customers’ bankruptcies, inflation, acquisitions and integrations of acquired businesses, technological change, changes in law, changes in fiscal, monetary, regulatory and tax policies, monetary fluctuations, the California energy crisis, success in gaining regulatory approvals when required as well as other risks and uncertainties detailed elsewhere in this quarterly report or from time to time in the filings of the Company with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date on which such statements are made, and the corporation undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. The accompanying financial information should be read in conjunction with the Bank’s Annual Report on Form 10-KSB for the year ended December 31, 2001.
On June 1, 2001 Coast Bancorp acquired all of the outstanding shares of Coast National Bank’s common stock in a non-cash transaction. Coast Bancorp has no material business activity other than the involvement in Coast National Bank. Financial information presented herein for June 30, 2002 and comparative information for December 31, 2001 and June 30, 2001.
Coast National Bank commenced operations June 16, 1997 with two offices and $6,250,000.00 in capital. All shares sold and issued were of one class. In June 1998 the Morro Bay branch was opened, expanding our customer base and service area. In June 1999 the Los Osos branch was also opened to further serve the needs of the residents of the North Coast. Coast National Bank anticipates being able to satisfy its cash requirements, near term, with continuing deposit growth.
For the three months ended June 30, 2002 the company reported net income of $234,000 or $0.36 diluted earnings per share compared to net income of $141,000 and $0.21 diluted earnings per share for the same period during 2001. For the six month ended June 30, 2002 the company reported net income of $370,000 or $0.56 diluted earnings per share compared to net income of $286,000 and $0.44 diluted earnings per share for the same period during 2001.
Net interest income is the amount by which the interest and amortization of fees generated from loans and other earning assets exceed the cost of funding those assets, usually deposit account interest expense. Net interest income depends on the difference (the “interest rate spread’) between gross interest and fees earned on the loans and investment portfolios and the interest rates paid on deposits and borrowings. Net interest income was $2,336,000 for the six month ended June 30, 2002, compared to $2,072,000 for the quarter ended June 30, 2001 an increase of 12.7%.
The following table sets forth the components of net interest income, average earning assets and net interest margin (in thousands): Net interest margin is calculated by using net interest income divided by average earning assets.
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| Three Months Ended |
| Six Months Ended |
| Year Ended December 31, |
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| 2002 |
| 2001 |
| 2002 |
| 2001 |
| 2001 |
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Interest Income |
| $ | 1,578 |
| $ | 1,801 |
| $ | 3,122 |
| $ | 3,657 |
| $ | 7,084 |
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Interest Expense |
| 382 |
| 767 |
| 786 |
| 1,585 |
| 2,773 |
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Net Interest Income |
| $ | 1,196 |
| $ | 1,034 |
| $ | 2,336 |
| $ | 2,072 |
| $ | 4,331 |
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Average Earning Assets |
| $ | 95,190 |
| $ | 94,284 |
| $ | 96,592 |
| $ | 91,260 |
| $ | 93,823 |
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Net Interest Margin |
| 5.03 | % | 4.39 | % | 4.84 | % | 4.54 | % | 4.59 | % | |||||
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The 12.7% increase in net interest income for the first six months of 2002 as compared to the first six months of 2001 was primarily the result of the significant drop in interest expense. The Company has experienced an increase in the net interest margin due to the decline in high interest rate deposits.
Management of the Company believes that the allowance for loan losses is adequate. The Company has established a monitoring system for loans in order to identify impaired loans and potential problem loans and to permit periodic evaluation of impairment and adequacy of the allowance for loan losses in a timely manner. The monitoring system and allowance for loan losses methodology have evolved over a period of years, and loan classifications have been incorporated into the determination of the allowance for loan losses. This monitoring system and allowance methodology includes a loan-by-loan analysis for all classified loans as well as loss factors for the balance of the unclassified portfolio. Classified loans are reviewed individually to estimate the amount of probable losses that needs to be included in the allowance. These reviews include analysis of financial information as well as evaluation of collateral securing the credit. Loss factors on the unclassified portion of the portfolio are based on such factors as historical loss experience, current portfolio delinquency and trends, and other inherent risk factors such as economic conditions, concentrations in the portfolio, risk levels of particular loan categories, internal loan review and management oversight.
The Company made a $80,000 contribution to the allowance for loan losses for the six months ended June 30, 2002 compared to $63,000 for the same period in 2001. Management believes that the allowance, which equals 1.14% of total loans at June 30, 2002, is adequate to cover future losses. The allowance for loan losses at December 31, 2001 was 1.1% of total loans.
Changes in the allowance for loan losses for the three months ended and the six months ended June 30, 2002 and 2001 are as follows (dollar amounts in thousands):
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| Three Months Ended |
| Six Months Ended |
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| 2002 |
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| 2002 |
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Allowance, Beginning of Period |
| $ | 875 |
| $ | 725 |
| $ | 850 |
| $ | 700 |
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Provision for Loan Losses |
| 60 |
| 38 |
| 80 |
| 63 |
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Loans Charged Off — net of Recoveries |
| 5 |
| (13 | ) | 10 |
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Allowance, End of Period |
| $ | 940 |
| $ | 750 |
| $ | 940 |
| $ | 750 |
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Noninterest income represents deposit account service charges and other types of non-loan related fee income. Noninterest income for the three months ended June 30, 2002 totaled $348,000 compared to $146,000 for the same period in 2001 a 138.36% increase. Noninterest income for the six months ended June 30, 2002 totaled $459,000 compared to $266,000 for the same period in 2001 a 72.5% increase. This increase is primarily due to the realized gains on the sale of investment securities and realized gains on the sale of the guaranteed portion of SBA loans.
Noninterest expense represents salaries, occupancy expenses, professional expenses, outside services and other miscellaneous expenses necessary to conduct business. Noninterest expense for the three months ended June 30, 2002 totaled $1,052,000 compared to $898,000 for the same period in 2001 a 17.1% increase. Noninterest expense for the six months ended June 30, 2002 totaled $2,044,000 compared to $1,782,000 for the same period in 2001 a 14.7% increase. This increase is primarily due to the opening of a government guaranteed lending department specializing in Small Business Administration lending programs during the latter part of 2000 and the overall expansion of the customer base.
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Income Taxes
The Company recorded a $198,000 tax provision for the three months ended June 30, 2002 compared to $103,000 during the same period in 2001. The six months ended tax provision was $301,000 compared to $207,000 or the same period in 2001. The Company is fully taxable on its earnings in 2001.
Total assets as of June 30, 2002 decreased .66% to $103.9 million in comparison to total assets of $104.6 million as of December 31, 2001. Total assets increased by 0.7 million or 0.7% to 103.9 million as of June 30, 2002, compared to $103.2 million at June 30, 2001. Management has restricted growth of the company to maintain well-capitalized capital ratios.
Asset quality has remained excellent at the Company. As of December 31, 2001 the Company had $55,000 on nonaccrual. This amount represents the guaranteed portion of a U.S. Small Business administration loan awaiting buy back. As of June 30, 2001 and June 30, 2002 the Company had no loans on nonaccrual or loans 90 day past due and still accruing. The Bank has had no OREO during 2000 or 2001.
The objective of the Company’s asset/liability strategy is to manage liquidity and interest rate risk is to ensure the safety and soundness of the Bank and it’s capital base, while maintaining adequate net interest margins and spreads to provide an appropriate return to the shareholders.
Shareholders equity at June 30, 2002 was $7.5 million, an increase of $.4 million over $ 7.1 million at December 31, 2001. Shareholders equity increased primarily from net income of $370,000.
The Company is required to meet certain minimum risk-based capital guidelines and leverage ratios set by the banks regulatory authorities. The risk-based capital standards establish capital requirements that are more sensitive to risk differences between various assets, consider off balance sheet activities in assessing capital adequacy, and minimize the disincentives to holding liquid, low risk assets. The leverage ratio consists of tangible Tier I capital divided by average total assets.
Coast Bancorp maintains capital ratios above the Federal regulatory guidelines for “well-capitalized” bank holding companies. The ratios are as follows:
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| Minimum Requirements |
| Well |
| Six Months Ended |
| December 31, 2001 |
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Total risk-based capital ratio |
| 8.00 | % | 10.00 | % | 10.51 | % | 10.48 | % |
Tier 1 risk-based capital ratio |
| 4.00 | % | 6.00 | % | 9.39 | % | 9.41 | % |
Tier 1 leverage capital ratio |
| 4.00 | % | 5.00 | % | 7.53 | % | 7.15 | % |
Management is not aware of any future capital expenditures or other significant demands on commitments, which would severely impair liquidity. For the six months ended June 30, 2002 the bank has a loan to deposit ratio of 81.9% and total investments to assets of 14.72%.
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Not applicable.
ITEM 2 — CHANGES IN SECURITIES
Not applicable.
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Coast Bancorp’s 2002 Annual Meeting of Shareholders was held on May 22, 2002 (the “Meeting”). The Meeting involved the following proposals:
1. To elect eleven (11) persons to the Board of Directors to serve until the next Annual Meeting of Shareholders and until their successors are elected and have qualified.
2. To approve the appointment of Vavrinek, Trine, Day & Co. LLP as independent public accountants for the Company’s 2002 fiscal year; and
(b) Proxies for the meeting were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended. There were no solicitations in opposition management’s nominees as listed in the proxy statement, and all such nominees were elected.
On Proposal No. 2 to approve the appointment of Vavrinek, Trine, Day & Co. LLP as independent public accountants for the Company’s 2002 fiscal year, 490,140 shares voted in favor of approval, 0 shares voted against approval, 5,550 shares abstained, and there were 0 broker non-votes. Accordingly, Proposal No. 2 was passed by the shareholders.
(c) There was no settlement between the Company and any other person terminating any solicitation subject to Rule 14a-11.
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On May 29, 2002, the Company filed Registration Statement No. 333-89342 on Form SB-2 with the Securities and Exchange Commission. The Registration Statement related to new shares of the Company’s common stock issuable to the public for an aggregate consideration of up to $3,000,000. By letter dated August 12, 2002, the registration statement was withdrawn before being declared effective. No securities were sold in connection with the offering.
ITEM 6 — EXHIBITS AND REPORTS OF FORM 8-K
A) Exhibits
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EXHIBIT 99.1 — CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
EXHIBIT 99.2 - — CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350
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In accordance with the requirements of the Exchange Act of 1934, the registrant has caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized.
COAST BANCORP
Date: | August 14, 2002 | /s/ Jack Wauchope |
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| Jack Wauchope |
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| Chief Executive Officer |
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| [Principal Executive Officer] |
Date: | August 14, 2002 | /s/ Thomas Sherman |
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| Thomas Sherman |
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| Chief Financial Officer |
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| [Principal Financial Officer] |
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