SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934.
For the Quarter ended: September 30, 1999 Commission File No. 0-18096
MID-COAST BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 01-0454232
- -------------------------------------------------------------------------------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification No.)
1768 Atlantic Highway, PO Box 589
Waldoboro, Maine 04572
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 832-7521
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding of each of the registrant's classes of
common stock, as of September 30, 1999, is 717,759.
Transitional Small Business Disclosure Format: Yes No X
----- -----
Page 1 of 20
MID-COAST BANCORP, INC.,
Index
PART I FINANCIAL INFORMATION Page
Item 1: Consolidated Balance Sheets of Mid-Coast Bancorp, Inc.
(Unaudited) at September 30, 1999 and March 31, 1999 3
Consolidated Statements of Income of Mid-Coast Bancorp, Inc.
(Unaudited), Three Months Ended and Six Months Ended
September 30, 1999 and 1998 5
Consolidated Statement of Changes in Stockholders' Equity of
Mid-Coast Bancorp, Inc. (Unaudited) for the period April 1,
1998 to September 30, 1999 6
Consolidated Statements of Cash Flows of Mid-Coast Bancorp,
Inc. (Unaudited), for the Six Months Ended September 30,
1999 and 1998 7
Notes to the Consolidated Financial Statements (Unaudited) 8
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II OTHER INFORMATION 19
SIGNATURES 20
MID-COAST BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, March 31,
1999 1999
------------- ---------
ASSETS
Cash and due from banks $ 1,517,090 $ 1,583,693
Interest bearing deposits 124,112 93,095
Federal funds sold 2,755,000 2,120,000
----------------------------
Cash and cash equivalents 4,396,202 3,796,788
Time deposits 2,575,000 2,079,000
Investment securities available for sale 6,498,119 5,216,681
Held to maturity investment securities (market value of
$185,767 at September 30, 1999 and $186,415 at March
31, 1999) 200,000 200,000
Investment in Federal Home Loan Bank stock 734,500 734,500
Loans held for sale 682,879 179,000
Loans 58,616,545 56,429,522
Less: Allowance for loan losses 445,794 404,385
Deferred loan fees 71,346 60,589
----------------------------
58,099,405 55,964,548
Bank premises and equipment, net 1,663,095 1,734,619
Other assets:
Accrued interest receivable- loans 315,690 288,413
Accrued interest receivable- time deposits 15,455 18,328
Accrued interest receivable- investment and
mortgage-backed securities 90,092 70,213
Deferred income taxes 143,106 113,137
Prepaid expenses and other assets 355,207 375,636
Real estate owned\other repo assets 0 0
----------------------------
Total other assets 919,550 865,727
----------------------------
Total assets $75,768,750 $70,770,863
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits $ 3,542,287 $ 3,106,977
NOW Accounts 6,390,466 5,309,433
Savings 8,375,960 6,582,120
Money Market deposit accounts 5,460,448 4,711,304
Certificates of deposit 33,658,752 32,705,039
----------------------------
Total deposits 57,427,913 52,414,873
Advances from the Federal Home Loan Bank 12,465,000 12,715,000
Accrued expenses and other liabilities 366,781 267,370
----------------------------
Total liabilities 70,259,694 65,397,243
----------------------------
Stockholders' equity
Common stock, $1 par value, 1,500,000 shares authorized;
717,759 shares issued and outstanding (715,457 shares
at March 31) 717,759 715,457
Paid-in capital 1,535,924 1,535,412
Retained earnings 3,543,145 3,371,524
Accumulated other comprehensive income (88,267) (25,500)
Unearned compensation (199,505) (223,273)
----------------------------
Total stockholders' equity 5,509,056 5,373,620
----------------------------
Total liabilities and stockholders' equity $75,768,750 $70,770,863
============================
MID-COAST BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Six Months Ended Three Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
Interest on loans $2,415,626 $2,279,621 $1,227,897 $1,133,638
Interest on investment securities 136,246 141,704 74,790 73,725
Interest on mortgage-backed securities 46,996 0 23,295 0
Other interest income 134,784 172,557 68,134 98,821
-------------------------------------------------------
Total interest income 2,733,652 2,593,882 1,394,116 1,306,184
Interest expense:
Interest on deposits 1,055,269 1,038,741 537,067 529,424
Interest on borrowings 342,910 377,048 172,039 184,001
-------------------------------------------------------
Total interest expense 1,398,179 1,415,789 709,106 713,425
-------------------------------------------------------
Net interest income 1,335,473 1,178,093 685,010 592,759
Provision for loan losses 37,000 30,000 18,000 18,000
-------------------------------------------------------
Net interest income after
provision for loan losses 1,298,473 1,148,093 667,010 574,759
Other income:
Loan servicing and other loan fees 32,936 25,228 17,691 13,183
Gain on sale of loans 68,989 69,791 35,927 40,408
Deposit account fees 117,860 90,327 60,987 40,743
Miscellaneous 15,775 21,118 8,290 11,006
-------------------------------------------------------
235,560 206,464 122,895 105,340
Other expenses:
Compensation of directors, officers and staff 449,112 405,702 244,525 198,129
Building occupancy 49,644 48,458 25,097 23,654
Repairs and maintenance 30,447 47,801 14,163 30,475
Depreciation, amortization and software expense 142,563 122,302 71,111 62,927
Advertising 20,818 55,300 9,000 29,526
Insurance expense 40,873 38,011 18,357 18,871
Professional fees 43,270 58,858 26,409 35,993
Employee benefits 107,014 89,882 52,133 47,760
Real estate owned 156 7,511 0 1,709
Other 285,768 289,770 148,944 147,361
-------------------------------------------------------
1,169,665 1,163,595 609,739 596,405
-------------------------------------------------------
Income before income taxes 364,368 190,962 180,166 83,694
Income tax expense 122,135 72,033 62,387 36,668
-------------------------------------------------------
Net income $ 242,233 $ 118,929 $ 117,779 $ 47,026
=======================================================
Earnings per share - basic $ 0.34 $ 0.17 $ 0.17 $ 0.07
=======================================================
Earnings per share - diluted $ 0.34 $ 0.17 $ 0.17 $ 0.07
=======================================================
MID-COAST BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
For the Period April 1, 1998 to September 30, 1999
Accumulated
Other Comprehensive Total
Common Paid-In Retained Income Unearned Stockholders'
Stock Capital Earnings (Loss) Compensation Equity
------ ------- -------- ------------------- ------------ -------------
Balance March 31, 1998 $711,960 $1,521,041 $3,253,517 $ 0 $(145,783) $5,340,735
Net income 0 0 118,929 0 0 118,929
Net change in market value of
investments available for sale,
net of taxes 0 0 0 7,577 0 7,577
Total comprehensive income 126,506
Acquisition of shares for stock award plan 0 0 0 0 (109,630) (109,630)
Amortization of unearned compensation 0 0 0 0 16,070 16,070
Issuance of 2,549 shares
of common stock upon
exercise of options 2,549 6,889 0 0 0 9,438
Cash dividends declared
($.10 per share) 0 0 (71,148) 0 0 (71,148)
-------------------------------------------------------------------------------------
Balance September 30, 1998 714,509 1,527,930 3,301,298 7,577 (239,343) 5,311,971
Net income 138,857 138,857
Net change in market value of
Investments available for sale,
net of taxes 0 0 0 (33,077) 0 (33,077)
Total comprehensive income 105,780
Amortization of unearned compensation 0 0 0 0 16,070 16,070
Issuance of 2,442 shares
of common stock upon
exercise of options 948 7,482 0 0 0 8,430
Cash dividends declared
($.10 per share) 0 0 (68,631) 0 0 (68,631)
-------------------------------------------------------------------------------------
Balance March 31, 1999 715,457 1,535,412 3,371,524 (25,500) (223,273) 5,373,620
Net income 0 0 242,233 0 0 242,233
Net change in market value
Investments available for sale,
net of taxes 0 0 0 (62,767) 0 (62,767)
Total comprehensive income 179,466
Issuance of 2,302 shares
of common stock upon
exercise of options 2,302 5,326 0 0 0 7,628
Cash dividends declared
($.10 per share) 0 0 (70,612) 0 0 (70,611)
Amortization of unearned compensation 0 0 0 0 19,131 19,131
Other activity related to Recognition and
Retention Plan 0 (4,814) 0 0 4,637 (177)
-------------------------------------------------------------------------------------
Balance September 30, 1999 $717,759 $1,535,924 $3,543,145 $(88,267) $(199,505) $5,509,056
=====================================================================================
MID-COAST BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended Six months ended
September 30, September 30,
1999 1998
---------------- ----------------
Cash flows from operating activities:
Net income $ 242,233 $ 118,929
Adjustments to reconcile net income to net
cash used by operating activities:
Depreciation, amortization, and accretion 110,284 40,761
Provision for losses on loans 37,000 30,000
Gain on sale of loans (68,989) (69,791)
Net change in deferred loan fees 10,757 6,148
Loss on sale of Real Estate Owned 0 4,285
Loans originated for sale (2,630,800) (3,216,421)
Proceeds from sales of loans 2,195,910 3,062,566
Increase in other assets (19,495) (62,634)
Increase other liabilities 99,411 43,086
--------------------------------
Net cash used by operating activities (23,689) (43,071)
Cash flows from investing activities:
Loan originations and repayments, net (2,182,614) (2,541,226)
Net (increase)\decrease in time deposits (496,000) 1,000
Investment and mortgage-backed securities:
Purchases (1,491,237) (3,706,544)
Proceeds from sales, maturities and repayments 110,984 3,000,646
Purchases of property and equipment (17,909) (280,696)
Proceeds from sale of real estate owned 0 51,780
--------------------------------
Net cash used by investing activities (4,076,776) (3,475,040)
Cash flows from financing activities:
Net increase in certificates
of deposits 953,713 3,259,727
Net increase in demand, NOW, savings
and money market deposit accounts 4,059,327 3,907,661
FHLB Advances 750,000 4,000,000
FHLB Advances paid (1,000,000) (3,250,000)
Dividends paid in cash (70,612) (71,148)
Sale of common stock 7,451 9,438
Acquisition of shares for stock award plan 0 (109,630)
--------------------------------
Net cash provided by financing activities 4,699,879 7,746,048
--------------------------------
Net increase in cash and cash equivalents 599,414 4,227,937
Cash and cash equivalents, at beginning of period 3,796,788 3,968,030
--------------------------------
Cash and cash equivalents, at end of period $ 4,396,202 $ 8,195,967
================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999
1. Financial Statements
--------------------
The accompanying consolidated financial statements include the accounts
of Mid-Coast Bancorp, Inc. (the "Company") and its wholly-owned
subsidiary, The Waldoboro Bank, F.S.B. (the "Bank"). The accounts of
the Bank include its wholly-owned subsidiary, The First Waldoboro
Corporation. Such consolidated financial statements are unaudited.
However, in the opinion of management, all adjustments necessary for a
fair presentation of the consolidated financial statements have been
included, and all such adjustments are of a normal and recurring
nature.
Amounts presented in the consolidated financial statements as of March
31, 1999 were derived from audited consolidated financial statements.
2. Dividends Paid
--------------
The Board of Directors of the Company declared a cash dividend of $.10
for each share of common stock, which was payable on June 30, 1999 to
shareholders of record on June 1, 1999.
3. Investments Available for Sale
------------------------------
Unrealized gains and losses, net of tax, on securities available for
sale are reported as a component of accumulated other comprehensive
income until realized. If a decline in market value is considered other
than temporary, the loss is charged to net securities gains (losses).
4. Stock Award Plan
----------------
The Company maintains a Recognition and Retention Plan for officers and
directors. The cost of this stock is recorded in unearned compensation
as a component of stockholders' equity. Once awarded, the unearned
compensation is amortized as compensation expense during the vesting
period.
Forward Looking Statements
Certain statements contained herein are not based on historical facts
and are "forward-looking statements" within the meaning of Section 21A of the
Securities Exchange Act of 1934. Forward-looking statements which are based
on various assumptions (some of which are beyond the Company's control), may
be identified by reference to a future period or periods, or by the use of
forward-looking terminology, such as "may," "will," "believe," "expect,"
"estimate," "anticipate," "continue," or similar terms or variations on those
terms, or the negative of these terms. Actual results could differ
materially from those set forth in forward looking statements due to a
variety of factors, including, but not limited to, those related to the
economic environment, particularly in the market areas in which the company
operates, competitive products and pricing, fiscal and monetary policies of
the U.S. Government, changes in government regulations affecting financial
institutions, including regulatory fees and capital requirements, changes in
prevailing interest rates, acquisitions and the integration of acquired
businesses, credit risk management, asset-liability management, the financial
and securities markets and the availability of and costs associated with
sources of liquidity.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions that may be made
to any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Mid-Coast Bancorp, Inc. (the "Company" or "Bancorp") was incorporated
for the purpose of becoming the holding company for The Waldoboro Bank,
F.S.B. (the "Bank") a federally-chartered savings association. The results
of the Company essentially represent the operations of the Bank. The Bank
converted to stock form in 1989, and issued 237,500 shares of common stock at
$8.00 per share. On March 31, 1998 the Bank completed a three-for-one stock
split and as of June 30, 1999 had 715,632 shares outstanding.
The Bank had total assets of $75.8 million as of September 30, 1999.
The Bank conducts its business through an office located in Waldoboro, Maine,
where it was originally founded in 1891 as a Maine building and loan
association, and three branches located in Belfast, Jefferson and Rockland,
Maine. The Bank received its federal charter on August 9, 1983 and its
deposits are currently insured up to applicable limits by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation.
The Bank considers its primary market area to be located in Waldoboro,
Rockland, Belfast and Jefferson including the surrounding communities in
Waldo, Knox and Lincoln counties, Maine.
The Bank's business strategy is to operate as a well-capitalized and
profitable community bank dedicated to financing loans secured by residential
and commercial real estate, enabling borrowers to refinance, construct or
improve property. The Bank has implemented this strategy by: (i) closely
monitoring the needs of customers and providing quality service; (ii)
originating residential mortgage loans, construction loans, commercial real
estate loans, consumer loans, and by offering checking accounts and other
financial services and products; (iii) focusing on expanding the volume of
the Bank's commercial real estate and commercial lending activities to serve
the needs of the small business community; and (iv) focusing on expanding the
volume of the Bank's mortgage loan servicing portfolio.
The Company's results of operations reflects the Bank's efforts to
structure its balance sheet to expand its commercial loans, commercial real
estate loans and commercial transactional deposit relationships. From this
strategy, the Bank anticipates its non-interest income will increase.
Waldoboro's earnings are primarily dependent upon its net interest income,
which is determined by (i) the difference between yields on interest-earning
assets and rates paid on interest-bearing liabilities (known as the interest
rate spread) and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities outstanding.
The Bank and the entire financial services industry are significantly
affected by prevailing economic conditions as well as government policies and
regulations concerning, among other things, monetary and fiscal affairs,
housing and financial institutions. Deposit flows are influenced by a number
of factors including interest rates on money market funds and other competing
investments, account maturities and levels of personal income and savings.
Lending activities are influenced by, among other things, the demand for and
supply of housing, conditions in the construction industry and the
availability and cost of funds, and loan refinancing in response to declining
interest rates. Sources of funds for lending activities include deposits,
loan payments, proceeds from sales of loans and investments, investment
returns and borrowings.
Mid-Coast Bancorp, Inc. is headquartered at 1768 Atlantic Highway in
Waldoboro, Maine, (207) 832-7521. The Company's stock trades on the Nasdaq
SmallCap Market under the symbol "MCBN."
Comparison of Financial Condition at September 30,1999 and March 31,1999
Total assets increased $5.0 million or 7.1% to $75.8 million at
September 30, 1999 from $70.8 million at March 31, 1999. The growth in
assets is primarily due to an increase in deposits, which were used to fund
the purchase of investments and originate loans.
Total loans, including loans held for sale, increased $2.7 million, or
4.7%, from $56.6 million to $59.3 million at September 30, 1999.
The following table shows loans held for sale and loans at September
30, 1999 and March 31, 1999, the net change and the percentage of change:
September 30, 1999 March 31, 1999 Change % change
------------------ -------------- ------ --------
Loans held for sale $ 682,879 $ 179,000 $ 503,879 281.5%
Real estate mortgages-residential 36,767,735 35,973,168 794,567 2.2
Real estate mortgages-commercial 9,507,336 9,699,298 (191,962) (2.0)
Construction, net of undisbursed 3,108,603 2,824,413 284,190 10.1
Other commercial 3,159,161 2,618,523 540,638 20.6
Home equity 1,757,176 1,467,125 290,051 19.8
Installment, passbook, and other 4,316,534 3,846,995 469,539 12.2
------------------------------------------------------------
Total $59,299,424 $56,608,522 $2,690,902 4.8%
============================================================
Loans held for sale consist of fixed rate residential mortgage loans to be
sold in the secondary market. The growth in other commercial loans and
consumer loans has been primarily a result of the Bank's branch expansion
during 1998, a positive economic climate in the Bank's market area and
active solicitation of the business by the Bank's lending team.
Investments, including Time Deposits, increased $1.8 million to $10.0
million at September 30, 1999. Time Deposits increased $496,000 or 23.9% and
investments available for sale increased $1.3 million or 24.6%. The increase
in the investment portfolio reflects management's decision to maximize the
yield on deposit growth not currently used to fund loan growth.
At September 30, 1999 total liabilities increased $4.9 million to $70.3
million. Demand deposits (non-interest bearing deposits) increased $435,310
or 14.0%, NOW, Savings and Money Market accounts increased $3.6 million or
21.8%, and Certificates of Deposit increased $953,713 or 2.9%. The $5.0
million growth in deposits for the six month period and $3.4 million growth
for the three month period ended September 30, 1999 reflect the results from
the Bank's branch expansion during 1998 and the favorable economic climate of
the Bank's market area. The increase in transaction accounts (non
Certificates of Deposit) reflects the Bank's successful strategy to expand
it's marketing efforts to attract such deposits.
Total Stockholders' Equity increased $135,436 to $5.5 million at
September 30, 1999. The increase in equity is attributable to net income of
$242,233 which is partially offset by the payment of a cash dividend of
$70,611 and the decline in accumulated other comprehensive income of $62,767,
due to changes in market value of investments available for sale.
Asset Quality and Allowance for Loan Losses
At March 31, 1999 and September 30, 1999 total loans contractually past
due 90 days or more amounted to $143,131 or 0.25% of loans and $241,312 or
0.41%, respectively. Non-accrual of interest on these loans totaled $7,253
at March 31, 1999 and $0 at September 30, 1999. At March 31, 1999, the Bank
had $69,580 of accruing loans, which were 90 days or more delinquent as
compared to $241,312 at September 30, 1999.
The accrual of interest income is discontinued when a loan becomes
delinquent and in management's opinion is deemed uncollectible in whole or in
part as to principal and/or interest. In these cases, interest on such loans
is recognized only when received. It is the policy of the Bank to generally
place all loans that are 90 days or more past due on nonaccrual status,
unless in management's judgment the loan is well secured and in the process
of collection. Management determined that the $241,312 of loans which were 90
days delinquent at September 30, 1999 are well secured and did not deemed it
necessary to place the loans on nonaccrual status.
Total non-performing assets, including real estate owned (REO), totaled
$143,131 or 0.20% of total assets at March 31, 1999 compared to $241,312 or
0.32% at September 30, 1999.
The allowance for loan losses amounted to $445,794 at September 30,
1999 compared to $404,385 at March 31, 1999. The increase in allowance for
loan losses is primarily due to the current periodic provision for loan
losses of $37,000 and net recoveries of $4,409. The Bank's allowance for loan
losses as a percentage of total loans was 0.75% at September 30, 1999.
RESULTS OF OPERATIONS
Three and Six Months Ended September 30, 1999 and 1998
Net Income
Mid-Coast recorded net income of $117,779 or $0.17 per share (fully
diluted) for the three months ended September 30, 1999 and $242,233 or $0.34
per share (fully diluted) for the six months ended September 30, 1999. Net
income for the three month period increased $70,753 or 150% and for the six
month period increased $123,304 or 103.7% when compared to the same periods
in 1998.
The increase in net income has resulted from increases to total
interest income, decreases in total interest expense, and increases in fee
income, net of increases in provision for loan losses, non interest expense
and applicable income taxes. Discussion of all of these components follows.
These results are attributed to a number of factors including, the
Bank's 1998 branch expansion to Belfast and Jefferson, increased and
consistent marketing efforts and a positive economic climate in Mid Coast
Maine.
Interest Income
Total interest income amounted to $1,394,116 and $2,733,652 for the
three and six months ended September 30, 1999, respectively. These amounts
represent increases of $87,932 or 6.7% for the three month period and
$139,770 or 5.4% for the six month period when compared to the same periods
in 1998. The increases in total interest income are attributable to the
growth in interest earning assets.
The following table shows total interest earning assets, and the
percentage of total interest earning assets to total assets at the dates
indicated:
Total interest % of
earning assets total assets
-------------- ------------
At:
September 30, 1999 $72,186,155 95.3%
June 30, 1999 68,216,254 94.5
March 31, 1999 67,051,798 94.7
September 30, 1998 67,011,713 94.5
The yield on average interest earning assets amounted to 7.88% and 7.83% for
the three and six months ended September 30, 1999, respectively.
Interest Expense
Total interest expense amounted to $709,106 and $1,398,179 for the
three and six months ended September 30, 1999, respectively. These amounts
represent decreases of $4,319 or 0.6% and $17,610 or 1.2% for the three and
six month periods , respectively. The decreases in total interest expense are
primarily attributable to the net impact of the pay down of Advances from the
Federal Home Loan Bank and the growth in lower costing transaction accounts.
The cost of funds (total annualized interest expense as a percentage of
average funding) was 4.13% for the three months and six months ended
September 30, 1999, respectively.
The following table shows balances of Certificates of deposit,
Transaction deposit accounts (Demand deposits, NOW accounts, savings
accounts, and money market accounts) and Advances from the Federal Home Loan
Bank and their respective percentage to total funding at the dates indicated:
September 30, 1999 June 30, 1999 March 31, 1999 September 30, 1998
------------------ ------------- -------------- ------------------
Certificates of deposit $33,658,752 $32,503,840 $32,705,039 $31,294,561
% of total funding 48.2% 48.9% 50.2% 48.0%
Transaction accounts 23,769,161 21,530,316 19,709,834 21,044,243
% of total funding 34.0% 32.4% 30.3% 32.2%
Total deposits 57,427,913 54,034,156 52,414,873 52,338,804
% of total funding 82.2% 81.3% 80.5% 80.2%
FHLB advances 12,465,000 12,465,000 12,715,000 12,940,000
% of total funding 17.8% 18.7% 19.5% 19.8%
Total funding $69,892,913 $66,499,156 $65,129,873 $65,278,804
% of total funding 100.00% 100.00% 100.00% 100.00%
Net Interest Income
As a result of increases in total interest income and decreases in
total interest expense, net interest income increased $92,251 or 15.6% for
the three month period and increased $157,380 or 13.4% for the six month
period ended September 30, 1999, respectively, when compared to the same
periods in 1998. Net interest margin (annualized net interest income as a
percentage of average earning assets) was 3.87% and 3.82% for the three
months and six months ended September 30, 1999.
When compared to the prior quarter, net interest income increased
$34,547 or 5.3%. This increase is primarily due to an increase in total
interest income created by the increase in volume of interest earning assets.
Changes in net interest income occur from volume changes in interest
earning assets and interest bearing liabilities, the mix of these components,
and changes in interest rates. Loans, the primary component of interest
earning assets, are comprised of products having fixed rates of interest over
the life of the loan and variable rates of interest that change periodically
as changes in the prime lending rate and other indices change. As of
September 30, 1999, approximately $37.5 million or 63.9% of total loans had
adjustable rates of interest.
Provisions for Loan Losses
The allowance for loan losses is established through a provision for
loan losses based on management's evaluation of the risk inherent in its loan
portfolio and the general economy. Such evaluation considers numerous
factors including general economic conditions, loan portfolio compositions,
prior loss experience, the estimated fair value of the underlying collateral
and other factors that warrant recognition in providing for an adequate loan
loss allowance. The Bank's provision for loan losses amounted to $18,000 and
$37,000 for the three-month and six month period ended September 30, 1999,
respectively, compared to $18,000 and $30,000 for the same periods in 1998.
Non Interest Income
Total non interest income increased $17,555 or 16.7% for the three
month period and increased $29,096 or 14.1% for the six month period ended
September 30, 1999, when compared to the same periods in 1998. These
increases are primarily attributable to the growth in transaction deposit
account fees and the growth in loan servicing fees.
When compared to the prior quarter, non interest income increased
$10,230 or 9.1%. This increase occurred in loan servicing fee income, gain on
sale of loans and deposit account fees.
As of September 30, 1999, loans serviced for others amounted to $12.0
million, compared to $11.7 million at March 31, 1999 and $9.3 million at
September 30, 1998.
Non Interest Expenses
Total non interest expenses increased $13,334 or 2.2% for the three
month period and increased $6,069 or 0.52% for the six month period ended
September 30, 1999, respectively, when compared to the same periods in 1998.
These increases are the net effect of increases in compensation related
expenses (including benefits) associated with the increase in staff related
to the 1998 branch expansion and the growth in lending personnel to implement
the Bank's strategy to increase it's commercial loan and deposit business,
decreases in marketing and other promotional expenses related to the branch
expansion and increases in other expenses related to the overall growth in
business.
When compared to the prior quarter, total non interest expenses
increased $49,814 or 8.9%, primarily due to approximately $32,000 for an
additional payroll period during the quarter and a $9,548 increase in
professional fees related to corporate planning..
Asset/Liability Management
Like many other financial institutions, the Bank's most significant
form of market risk is interest rate risk. The Bank is subject to interest
rate risk to the degree that the Bank's interest-bearing liabilities,
primarily deposits with short and medium-term maturities, mature or reprice
at different rates than the Bank's interest-earning assets. The Bank
believes it is critical to manage the relationship between interest rates and
the effect on the Bank's net portfolio value ("NPV"). This approach
calculates the difference between the present value of expected cash flows
from assets and the present value of expected cash flows from liabilities, as
well as cash flows from off-balance sheet contracts. The Bank manages assets
and liabilities within the context of the marketplace, regulatory limitations
and within limits established by the Bank's Board of Directors on the amount
of change in NPV which is acceptable given certain interest rate changes.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the Bank's
assets mature or reprice more quickly or to a greater extent than the Bank's
liabilities, the Bank's net portfolio value and net interest income would
tend to increase during periods of rising interest rates but decrease during
periods of falling interest rates. Conversely, if the Bank's assets mature
or reprice more slowly or to a lessor extent than the Bank's liabilities, the
Bank's net portfolio value and net interest income would tend to decrease
during periods of rising interest rates but increase during periods of
falling interest rates. The Bank's policy has been to mitigate the interest
rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits by pursuing certain
strategies designed to decrease the vulnerability of the Bank's earnings to
material and prolonged changes in interest rates. In this regard, the Bank's
attempts to minimize interest rate risk by, among other things, emphasizing
the origination and retention of adjustable-rate loans and loans with shorter
maturities and the sale of long-term one-to-four family fixed-rate loans in
the secondary market.
Liquidity and Capital Resources
On September 30, 1999, the Holding Company's stockholders' equity was
$5,509,056 or 7.27% of total assets compared to $5,373,620 or 7.59% at March
31, 1999.
The Office of Thrift Supervision ("OTS") requires savings institutions
such as Waldoboro to maintain a specified ratio of cash and short-term
investment securities to new withdrawal deposits and borrowings with
maturities of one year or less. This minimum OTS required liquidity ratio is
currently 4%. This rate may vary from time to time, depending upon general
economic conditions and deposit flows. As a part of its asset/liability
management program, Waldoboro has historically maintained liquidity in excess
of regulatory requirements to better match its short-term liabilities. At
September 30, 1999, Waldoboro's liquid assets amounted to $9,286,742,
resulting in a liquidity ratio of 16.27%, compared to 22.38% at September 30,
1998. Historically, the bank maintains a liquidity ratio of approximately
15%.
On October 26, 1999, the board of directors declared a $0.10 cent per
share cash dividend and a 5% stock dividend to be distributed to shareholders
on December 31, 1999 to shareholders of record as of the close of business on
December 1, 1999.
The minimum capital standards set by the OTS have three components: (1)
tangible capital; (2) leverage ratio or "core" capital; and (3) risk-based
capital. The tangible capital requirement is 1.5% and the leverage ratio or
"core" capital requirement is 3% of an institution's adjusted total assets.
The risk-based capital requirement is 8% of risk-weighted assets. The
institution is also subject to the capital requirements outlined under the
FDIC Improvement Act that requires Tier 1 (Core) Capital of 4.0%. The amount
of an institution's risk-weighted assets is determined by assigning a "risk-
weighted" value to each of the institution's assets. Under the regulations,
the "risk-weighting" of a particular type of assets depends upon the degree
of credit risk that is deemed to be associated with that type of asset.
At September 30, 1999, Waldoboro had tangible capital of $5,353,000 or
7.03% of adjusted total assets, which exceeds the minimum required tangible
capital and leverage ratio or "core" capital requirements. Waldoboro had
risk-based capital of $5,799,000 or 12.83% of risk-weighted assets at
September 30, 1999.
Year 2000
The Holding Company has conducted a review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and has
developed a plan to resolve the issue. The Year 2000 issue is the result of
computer programs being written using two digits rather than four to define
the applicable year. Any of the Holding Company's programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations. The Holding Company has adopted the regulatory plan to
address this issue which has five phases. The Company has substantially
completed all five phases. The following is a brief synopsis of each phase:
1) Awareness Phase - This phase consists of defining the Year 2000 problem
and developing a strategy that encompasses all of the bank's and our
vendor's systems. This phase has been completed by the institution.
2) Assessment Phase - This phase consists of assessing the Year 2000
problem and detailing the steps necessary to address the issue. This
phase must identify all software, hardware, other miscellaneous items,
and customer and vendor interdependencies affected by the Year 2000
issue. This phase also sets a timeline and responsibilities for each
section of the plan. While this phase is largely complete management
recognizes that other issues could arise that would need to be
assessed.
3) Renovation Phase - This phase includes upgrades to hardware and
software, system upgrades, vendor certifications, and other associated
changes. For those applications handled by an outside vendor
management has had ongoing discussions about how the vendors are
addressing this issue, and we will continue to monitor their progress.
The Holding Company has completed this phase.
4) Validation Phase - This phase consists of testing all hardware and
software to ensure that it is compatible with our systems. In addition
to testing components, connections with other systems must be verified
and all changes should be accepted by internal and external users.
Management has established controls to assure the effective and timely
completion of all hardware and software testing prior to final
implementation.
As with the renovation phase, the Company will be in ongoing
discussions with its vendors on the success of their validation
efforts. The Company has completed testing all of its critical systems
and has completed this phase.
5) Implementation Phase - During the final phase all systems should be
certified as Year 2000 compliant. Any systems that fail certification
must be addressed and contingency plans must be implemented to ensure
continuity. The Company has completed this phase. In addition, all new
systems and changes to existing systems must be verified as Year 2000
compliant.
The Holding Company presently believes that because of the conversion
to new software in fiscal 1997, the year 2000 problem will not pose
significant operational problems for the Holding Company's and the Bank's
computer systems and that it does not anticipate any material costs to be
incurred. Also, the Bank's loan portfolio is not significantly concentrated
with any single borrower (at September 30, 1999, the largest commercial loan
relationship approximated $715,000) and consists largely of loans secured by
real estate. These factors help mitigate year 2000 risks pertaining to the
valuation of the loan portfolio. The Bank has contacted its significant loan
customers regarding their Year 2000 efforts and believes, based on the
information provided, that its significant loan customers are compliant. In
addition, the Company has developed a contingency plan in case any systems
are not operational after the year 2000. This plan will be continually
reviewed and revised to address all critical systems. It should also be
noted that the Bank's regulatory agency, The Office of Thrift Supervision,
has been monitoring, and plans to continue monitoring, the Bank's progress in
addressing Year 2000 matters. The Bank on July 14, 1999 had its year 2000
examination by the OTS. To date the Bank has spent approximately $27,000 on
the Year 2000 issue primarily due to the purchase of computer hardware,
related installation cost and overtime for key employees.
Financial Services Modernization Bill
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The U.S. Congress recently passed legislation intended to modernize
the financial services industry by establishing a comprehensive framework
to permit affiliations among commercial banks, insurance companies and
other financial service providers. The legislation is being forwarded to
the President for his approval. Generally, the legislation would (i)
repeal the historical restrictions and eliminate many federal and state law
barriers to affiliations among banks and securities firms, insurance
companies and other financial service providers, (ii) provide a uniform
framework for the activities of banks, savings institutions and their
holding companies, (iii) broaden the activities that may be conducted by
national banks, banking subsidiaries of bank holding companies and their
financial subsidiaries, (iv) provide an enhanced framework for protecting
the privacy of consumers' information, (v) adopt a number of provisions
related to the capitalization, membership, corporate governance and other
measures designed to modernize the Federal Home Loan Bank system, (vi)
modify the laws governing the implementation of the Community Reinvestment
Act and (vii) address a variety of other legal and regulatory issues
affecting both day-to-day operations and long-term activities of financial
institutions, including the functional regulation of securities and
insurance activities conducted in a financial holding company.
In particular, the pending legislation would restrict certain of the
powers that unitary savings and loan holding companies currently have.
Unitary savings and loan holding companies that are "grandfathered," i.e.,
became a unitary savings and loan holding company pursuant to an
application filed with the OTS before May 4, 1999, (such as the Company)
would retain their authority under current law. All other savings and loan
holding companies would be limited to financially related activities
permissible for bank holding companies, as defined under the new law. The
proposed legislation would also prohibit non-financial companies from
acquiring savings and loan holding companies.
Bank holding companies would be permitted to engage in a wider
variety of financial activities than permitted under current law,
particularly with respect to insurance and securities activities. In
addition, in a change from current law, bank holding companies will be in a
position to be owned, controlled or acquired by any company engaged in
financially related activities.
We do not believe that the proposed legislation, as publicly
reported, would have a material adverse effect on our operations in the
near term. However, to the extent the legislation permits banks,
securities firms and insurance companies to affiliate, the financial
services industry may experience further consolidation. This could result
in a growing number of larger financial institutions that offer a wider
variety of financial services than we currently offer and that can
aggressively compete in the markets we currently serve.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
There was no material litigation pending to which the Registrant was a
party or to which the property of the Registrant was subject during the
quarter ended September 30, 1999.
Item 2. Changes in Securities and Use of Proceeds.
------------------------------------------
None.
Item 3. Defaults Upon Senior Securities.
--------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
On July 28, 1999, at the Annual Meeting of Shareholders of Mid-Coast
Bancorp, Inc. Samuel Cohen, Ronald Dolloff and Lincoln O. Orff were
elected as Directors for a term of three years and until their
respective successors are appointed. The vote for the directors was as
follows:
FOR WITHHELD
--- --------
Samuel Cohen 526,181 42,904
Ronald Dolloff 502,015 67,070
Lincoln O. Orff 504,040 65,045
Wesley Richardson, George Seaver, Peter Van Alstine, Waite Weston, Robert
Spear and Sharon Crowe are continuing as Directors following said meeting.
In addition, the shareholders also voted to ratify at the annual
meeting the appointment of Baker, Newman & Noyes as the Company's independent
auditors for the 2000 fiscal year. The vote ratifying the appointment of the
independent auditors was:
FOR 567,387
AGAINST 1,620
ABSTAIN 78
Item 5. Other Information.
------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits required by Item 601 of Regulation S-B.
(27) Financial Data Schedule*
*Submitted only with filing in electronic format.
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of The Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MID-COAST BANCORP, INC.
Date November 9, 1999 /s/ Wesley E. Richardson
------------------------ -------------------------------
(Signature)
Wesley E. Richardson
President and Treasurer