UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1999
------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------------- -----------------------
Commission File Number: 0-28938
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Coast Bancorp
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 77-0401327
- -------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
740 Front Street, Santa Cruz, California 95060
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(831) 458-4500
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
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.
/X/ Yes / / No
No. of shares of Common Stock outstanding on September 30, 1999: 4,805,378
---------
COAST BANCORP
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
PART I
Page
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Item 3 Quantitative and Qualitative Disclosures about Market Risk 17
PART II
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
PART I
Item 1. Financial Statements
COAST BANCORP
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 DECEMBER 31, 1998
ASSETS ------------------ -----------------
(unaudited)
Cash and due from banks $18,746,000 $23,084,000
Federal funds sold 6,800,000 29,000,000
--------------------------------------
Total cash and equivalents 25,546,000 52,084,000
Securities:
Available for sale, at fair value 116,729,000 106,960,000
Loans:
Commercial 36,185,000 38,874,000
Real estate-term 116,936,000 95,360,000
Real estate-construction 39,542,000 22,206,000
Installment and other 4,468,000 4,536,000
--------------------------------------
Total loans 197,131,000 160,976,000
Unearned income (4,145,000) (3,272,000)
Allowance for credit losses (3,668,000) (3,871,000)
--------------------------------------
Net loans 189,318,000 153,833,000
Bank premises and equipment-net 2,124,000 2,408,000
Accrued interest receivable and other assets 16,371,000 9,463,000
--------------------------------------
TOTAL ASSETS $350,088,000 $324,748,000
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand $77,058,000 $75,978,000
Interest-bearing demand 94,764,000 100,707,000
Savings 59,210,000 51,873,000
Time 51,767,000 52,252,000
--------------------------------------
Total deposits 282,799,000 280,810,000
Other borrowings 31,500,000 10,416,000
Accrued expenses and other liabilities 3,856,000 3,325,000
--------------------------------------
Total liabilities 318,155,000 294,551,000
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock-no par value; 10,000,000 shares authorized; - -
no shares issued
Common stock-no par value; 20,000,000 shares authorized; 21,049,000 20,689,000
shares outstanding: 4,805,378 in 1999 and 4,768,678 in 1998
Accumulated other comprehensive income (loss) (2,161,000) 317,000
Retained earnings 13,045,000 9,191,000
--------------------------------------
Total stockholders' equity 31,933,000 30,197,000
--------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $350,088,000 $324,748,000
======================================
See notes to unaudited condensed consolidated financial statements
-1-
COAST BANCORP
CONDENSED CONSOLIDATED INCOME STATEMENTS
(unaudited)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
Loans, including fees $5,042,000 $4,126,000 $13,603,000 $12,496,000
Securities:
Taxable 1,632,000 1,306,000 4,509,000 3,757,000
Nontaxable 193,000 191,000 577,000 523,000
Federal funds sold 118,000 596,000 691,000 949,000
---------------------------------------------------------------------
Total interest income 6,985,000 6,219,000 19,380,000 17,725,000
Interest expense:
Deposits 1,497,000 1,556,000 4,476,000 3,975,000
Other borrowings 327,000 273,000 668,000 1,033,000
---------------------------------------------------------------------
Total interest expense 1,824,000 1,829,000 5,144,000 5,008,000
---------------------------------------------------------------------
Net interest income 5,161,000 4,390,000 14,236,000 12,717,000
Provision for credit losses - 75,000 - 225,000
---------------------------------------------------------------------
Net interest income after provision for
credit losses 5,161,000 4,315,000 14,236,000 12,492,000
Noninterest income:
Customer service fees 729,000 590,000 2,006,000 1,767,000
Gain from sale of loans 403,000 599,000 1,033,000 1,894,000
Loan servicing fees 199,000 255,000 638,000 750,000
Gains on sales of securities - 1,000 52,000 13,000
Other 40,000 42,000 124,000 130,000
---------------------------------------------------------------------
Total noninterest income 1,371,000 1,487,000 3,853,000 4,554,000
Noninterest expenses:
Salaries and benefits 1,929,000 1,672,000 5,470,000 4,773,000
Occupancy 328,000 297,000 936,000 859,000
Equipment 287,000 276,000 856,000 828,000
Customer services 177,000 180,000 519,000 514,000
Advertising and promotion 131,000 201,000 376,000 504,000
Stationery and postage 121,000 106,000 324,000 299,000
Professional services 94,000 94,000 272,000 296,000
Data processing 93,000 63,000 275,000 208,000
Insurance 56,000 48,000 164,000 165,000
Other 246,000 177,000 692,000 592,000
---------------------------------------------------------------------
Total noninterest expenses 3,462,000 3,114,000 9,884,000 9,038,000
---------------------------------------------------------------------
Income before income taxes 3,070,000 2,688,000 8,205,000 8,008,000
Income taxes 1,212,000 1,120,000 3,202,000 3,327,000
---------------------------------------------------------------------
Net income $1,858,000 $1,568,000 $5,003,000 $4,681,000
=====================================================================
Earnings per share:
Basic $.39 $.33 $1.05 $.97
=====================================================================
Diluted $.38 $.32 $1.02 $.94
=====================================================================
See notes to unaudited condensed consolidated financial statements
-2-
COAST BANCORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,003,000 $4,681,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for credit losses - 225,000
Depreciation and amortization (364,000) 88,000
(Gains) on securities transactions (52,000) (13,000)
Deferred income taxes (497,000) 100,000
Proceeds from loan sales 64,859,000 60,028,000
Origination of loans held for sale (59,660,000) (63,509,000)
Accrued interest receivable and other assets (4,681,000) (1,228,000)
Accrued expenses and other liabilities 531,000 749,000
Increase in unearned income 1,945,000 1,582,000
Other operating activities - (252,000)
--------------------------------------
Net cash provided by operating activities 7,084,000 2,451,000
--------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities 25,708,000 15,787,000
Proceeds from sales of securities available for sale 4,600,000 25,418,000
Purchases of securities available for sale (44,382,000) (59,498,000)
Net decrease in loans (41,557,000) (2,111,000)
Purchases of bank premises and equipment (275,000) (925,000)
--------------------------------------
Net cash used in investing activities (55,906,000) (21,329,000)
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 1,989,000 64,181,000
Net proceeds from (repayment of) other borrowings 21,084,000 (19,414,000)
Exercise of stock options 360,000 186,000
Payment of cash dividends (1,149,000) (983,000)
Repurchase of common stock - (2,651,000)
Payment of fractional shares resulting from stock dividend - (7,000)
--------------------------------------
Net cash provided by financing activities 22,284,000 41,312,000
--------------------------------------
Net (decrease) increase in cash and equivalents (26,538,000) 22,434,000
Cash and equivalents, beginning of period 52,084,000 30,853,000
--------------------------------------
Cash and equivalents, end of period $25,546,000 $53,287,000
======================================
SUPPLEMENTAL CASH FLOW INFORMATION CASH PAID DURING
THE PERIOD FOR:
Interest $5,180,000 $4,907,000
Income taxes 2,554,000 3,146,000
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Additions to other real estate owned $- $85,000
See notes to unaudited condensed consolidated financial statements
-3-
COAST BANCORP
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION - These financial statements reflect, in
management's opinion, all adjustments, consisting of adjustments of a
normal recurring nature, which are necessary for a fair presentation of
Coast Bancorp's financial position and results of operations and cash
flows for the periods presented. The results of interim periods are not
necessarily indicative of results of operations expected for the full
year. These financial statements should be read in conjunction with the
audited consolidated financial statements for 1998 included in the Company's
Annual Report on Form 10-K.
2. EARNINGS PER SHARE - Basic earnings per share is computed by dividing net
income by the number of weighted average common shares outstanding. Diluted
earnings per share reflects potential dilution from outstanding stock
options, using the treasury stock method. The number of weighted average
shares used in computing basic and diluted earnings per share are as
follows:
Three months ended September 30,
------------------------------------------------
1999 1998
---- ----
Basic shares 4,796,339 4,796,158
Dilutive effect of stock options 122,871 151,556
-----------------------------------------------
Diluted shares 4,919,210 4,947,714
===============================================
===============================================
Nine months ended September 30,
-----------------------------------------------
1999 1998
---- ----
Basic shares 4,783,829 4,815,534
Dilutive effect of stock options 116,167 141,004
-----------------------------------------------
Diluted shares 4,899,996 4,956,538
===============================================
3. COMPREHENSIVE INCOME - The Company's source of other comprehensive income is
unrealized gains and losses on securities available for sale. Total
comprehensive income was computed as follows:
Three Months Ended
September 30,
----------------------------------------
1999 1998
----------------------------------------
Net income $1,858,000 $1,568,000
Other comprehensive income (loss) (1,128,000) 341,000
----------------------------------------
Total comprehensive income $730,000 $1,909,000
========================================
Nine Months Ended
September 30,
----------------------------------------
1999 1998
----------------------------------------
Net income $5,003,000 $4,681,000
Other comprehensive income (loss) (2,478,000) 251,000
----------------------------------------
Total comprehensive income $2,525,000 $4,932,000
========================================
4. RECLASSIFICATIONS - Certain amounts in the 1998 financial statements have
been reclassified to conform to the 1999 presentation. These reclassifications
had no impact on stockholders' equity or net income.
-4-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
Company's unaudited Condensed Consolidated Financial Statements, including the
Notes, appearing elsewhere in this report.
This document may contain forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those projected. For a discussion of factors that could cause actual results to
differ, please see the Company's publicly available Securities and Exchange
Commission filings, including its Annual Report on Form 10-K for the year ended
December 31, 1998, and particularly the discussion of risk factors within the
document.
OVERVIEW
Net income for the three months ended September 30, 1999 was $1,858,000 compared
to $1,568,000 for the three months ended September 30, 1998. Net income for the
nine months ended September 30, 1999 was $5,003,000 compared to $4,681,000 for
the nine months ended September 30, 1998. During 1999 an increase in net
interest income combined with decreases in the provision for credit losses was
offset by a decrease in noninterest income and an increase in noninterest
expenses.
All yields and rates paid discussed in this report are presented on an
annualized basis.
EARNINGS SUMMARY
NET INTEREST INCOME
Net interest income refers to the difference between interest and fees earned on
loans and investments and the interest paid on deposits and other borrowed
funds. It is the largest component of the net earnings of a financial
institution. The primary factors to consider in analyzing net interest income
are the composition and volume of earning assets and interest-bearing
liabilities, the amount of noninterest bearing liabilities and nonaccrual loans,
and changes in market interest rates.
Table I sets forth average balance sheet information, interest income and
expense, average yields and rates, and net interest income and net interest
margin for the three and nine months ended September 30, 1999 and 1998.
-5-
Table I Components of Net Interest Income
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------
1999 1998
---- ----
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE -------- RATE (4) BALANCE -------- RATE (4)
------- -------- ------- --------
(DOLLARS IN THOUSANDS)
Assets:
Loans (1)(2) $193,021 $5,042 10.4% $148,596 $4,126 11.1%
Securities:
Taxable 97,023 1,632 6.7% 78,128 1,306 6.7%
Nontaxable (3) 15,299 292 7.6% 14,921 290 7.8%
Federal funds sold 9,370 118 5.0% 42,666 596 5.6%
---------------------------- -------------------------------
Total earning assets 314,713 7,084 9.0% 284,311 6,318 8.9%
Cash and due from banks 16,983 18,178
Allowance for credit
losses (3,757) (3,723)
Unearned income (3,747) (2,900)
Bank premises and
equipment, net 2,196 2,377
Other assets 12,229 9,047
------------- ----------------
Total assets $338,617 $307,290
============== ================
Interest-bearing
liabilities:
Deposits:
Demand $93,542 380 1.6% $91,833 461 2.0%
Savings 57,430 510 3.6% 42,144 390 3.7%
Time 52,053 607 4.7% 53,961 705 5.2%
---------------------------- -------------------------------
Total deposits 203,025 1,497 2.9% 187,938 1,556 3.3%
Borrowed funds 25,562 327 5.1% 20,051 273 5.4%
---------------------------- -------------------------------
Total interest-bearing
liabilities 228,587 1,824 3.2% 207,989 1,829 3.5%
Demand deposits 73,513 68,346
Other liabilities 4,063 3,176
Stockholders' equity 32,454 27,779
------------- ----------------
Total liabilities and
stockholders' equity $338,617 $307,290
============== ================
Net interest income and
margin $5,260 6.7% $4,489 6.3%
============== ===============
(1) Loan fees totaling $377,000 and $281,000 are included in loan interest
income for the three months ended September 30, 1999 and 1998.
(2) Average nonaccrual loans totaling $1,994,000 and $58,000 are included in
average loans for the three months ended September 30, 1999 and 1998.
(3) Tax exempt income includes $99,000 in 1999 and 1998, to adjust to a fully
taxable equivalent basis using the federal statutory rate of 34%.
(4) Annualized
-6-
Table I Components of Net Interest Income
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------------
1999 1998
---- ----
AVERAGE INTEREST AVERAGE AVERAGE INTEREST AVERAGE
BALANCE -------- RATE (4) BALANCE -------- RATE (4)
------- -------- ------- --------
(DOLLARS IN THOUSANDS)
Assets:
Loans (1)(2) $176,314 $13,603 10.3% $149,662 $12,496 11.1%
Securities:
Taxable 92,180 4,509 6.5% 75,573 3,757 6.6%
Nontaxable (3) 15,261 874 7.6% 13,423 792 7.9%
Federal funds sold 19,275 691 4.8% 23,376 949 5.4%
--------------------------- ------------------------------
Total earning assets 303,030 19,677 8.7% 262,034 17,994 9.2%
Cash and due from banks 16,192 17,901
Allowance for credit
losses (3,831) (3,682)
Unearned income (3,574) (2,666)
Bank premises and
equipment, net 2,286 2,202
Other assets 10,807 8,983
------------- ---------------
Total assets $324,910 $284,772
============= ===============
Interest-bearing liabilities:
Deposits:
Demand $93,565 1,182 1.7% $83,348 1,222 2.0%
Savings 56,583 1,511 3.6% 32,318 821 3.4%
Time 51,676 1,783 4.6% 49,796 1,932 5.2%
--------------------------- ------------------------------
Total deposits 201,824 4,476 3.0% 165,462 3,975 3.2%
Borrowed funds 17,194 668 5.2% 25,201 1,033 5.5%
--------------------------- ------------------------------
Total interest-bearing
liabilities 219,018 5,144 3.1% 190,663 5,008 3.5%
Demand deposits 69,590 63,064
Other liabilities 3,700 2,865
Stockholders' equity 32,602 28,180
------------ ---------------
Total liabilities and
stockholders' equity $324,910 $284,772
============= ===============
Net interest income and
margin $14,533 6.4% $12,986 6.6%
============= =============
(1) Loan fees totaling $1,123,000 and $950,000 are included in loan interest
income for the nine months ended September 30, 1999 and 1998.
(2) Average nonaccrual loans totaling $1,676,000 and $243,000 are included in
average loans for the nine months ended September 30, 1999 and 1998.
(3) Tax exempt income includes $297,000 and $269,000 in 1999 and 1998, to adjust
to a fully taxable equivalent basis using the federal statutory rate of 34%.
(4) Annualized
-7-
For the three months ended September 30, 1999, net interest income, on a
fully taxable-equivalent basis, was $5,260,000 or 6.7% of average earning
assets, an increase of 17% over $4,489,000 or 6.3% of average earning assets
in the comparable period in 1998. For the nine months ended September 30,
1999, net interest income, on a fully taxable-equivalent basis, was
$14,533,000 or 6.4% of average earning assets, an increase of 12% over
$12,986,000 or 6.6% of average earning assets in the comparable period in
1998. The increase in 1999 reflects higher levels of earning assets
partially offset by an increase in interest-bearing liabilities.
Interest income, on a fully taxable-equivalent basis, was $7,084,000 and
$6,318,000 for the three months and $19,677,000 and $17,994,000 for the nine
months ended September 30, 1999 and 1998. The increase in 1999 resulted from
the growth in average earning assets partially offset by decreases in
yields. Loan yields averaged 10.4% and 11.1% for the three months and 10.3%
and 11.1% for the nine months ended September 30, 1999 and 1998.
Approximately 84% of the Bank's loans have interest rates indexed to the
prime rate which are variable or reset within 3 months. The Bank's average
prime rate was 8.10% and 8.50% for the three month and 7.87% and 8.50% for
the nine month periods ended September 30, 1999 and 1998. Average earning
assets were $314,713,000 and $303,030,000 for the three and nine months
ended September 30, 1999 compared to $284,311,000 and $262,034,000 for the
same periods in the growth in average earning assets resulted from increased
levels of deposits which were invested primarily in loans and securities.
The increase in interest income during 1999, on a fully taxable-equivalent
basis, was partially offset by an increase in interest expense resulting
from the growth in interest bearing deposits partially offset by the
decrease in rates paid. The average rate paid on interest bearing deposits
was 2.9% and 3.3% for the three months ended September 30, 1999 and 1998 and
3.0% and 3.2% for the nine months ended September 30, 1999 and 1998.
NONINTEREST INCOME
Table 2 summarizes the sources of noninterest income for the periods indicated:
Table 2 - Noninterest Income
(Dollars in thousands)
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1999 1998
---- ----
Customer service fees $729 $590
Gain on sale of loans 403 599
Loan servicing fees 199 255
Gains on sales of securities - 1
Other 40 2
----------------------
Total noninterest income $1,371 $1,487
======================
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1999 1998
---- ----
Customer service fees $2,006 $1,767
Gain on sale of loans 1,033 1,894
Loan servicing fees 638 750
Gains on sales of securities 52 13
Other 124 130
----------------------
Total noninterest income $3,853 $4,554
======================
The Company sells SBA loans and FHLMC conforming mortgage loans with SBA loan
sales providing the primary source of gains on sale. Gains on sale of loans
decreased as a result of a lower volume of Small Business Administration (SBA)
loans sold and a significant decline in market prices for SBA loans in 1999
compared to 1998.
-8-
NONINTEREST EXPENSES
The major components of noninterest expenses stated in dollars and as a
percentage of average earning assets are set forth in Table 3 for the periods
indicated.
Table 3 - Noninterest Expenses
(Dollars in thousands)
THREE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1999 1998
---- ----
Salaries and benefits $1929 2.45% $1,672 2.35%
Occupancy 328 .42% 297 .42%
Equipment 287 .36% 276 .39%
Customer services 177 .22% 180 .25%
Advertising and promotion 131 .17% 201 .28%
Stationery and postage 121 .15% 106 .15%
Data processing 93 .12% 63 .09%
Professional services 94 .12% 94 .13%
Insurance 56 .07% 48 .07%
Other 246 .31% 177 .25%
------------------------------------------------------
Total noninterest expenses $3,462 4.40% $3,114 4.38%
======================================================
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
1999 1998
---- ----
Salaries and benefits $5,470 2.41% $4,773 2.43%
Occupancy 936 .41% 859 .44%
Equipment 856 .38% 828 .42%
Customer services 519 .23% 514 .26%
Advertising and promotion 376 .17% 504 .26%
Stationery and postage 324 .14% 299 .15%
Data processing 275 .12% 296 .15%
Professional services 272 .12% 208 .11%
Insurance 164 .07% 165 .08%
Other 692 .30% 592 .30%
------------------------------------------------------
Total noninterest expenses $9,884 4.35% $9,038 4.60%
======================================================
The increases in 1999 were primarily related to higher staff and occupancy costs
and increases in other noninterest expenses partially offset by decreases in
advertising and promotion. The increase in noninterest expenses reflects the
opening of a new branch in August 1998 and the growth in total loans, deposits
and assets. The decrease in noninterest expense as a percentage of average
earning assets for the nine month period in 1999 compared to 1998 is the result
of the rate of growth in average earning assets in 1999 exceeding the rate of
increase in noninterest expenses.
INCOME TAXES
The Company's effective tax rate was 39.4% and 39.0% for the three and nine
months ended September 30, 1999 compared to 41.7% and 41.5% for the same periods
in 1998. Changes in the effective tax rate for the Company are primarily due to
fluctuations in the proportion of tax exempt income generated from investment
securities to pre-tax income.
BALANCE SHEET ANALYSIS
Total assets were $350.1 million at September 30, 1999, compared to $324.7
million at the end of 1998. Based on average balances, third quarter 1999
average total assets of $338.6 million represent an increase of 10%
over the third quarter of 1998 while the nine month 1999 average total assets of
$324.9 million represent an increase of 14% over the nine months 1998.
EARNING ASSETS
LOANS
Total gross loans at September 30, 1999 were $197.1 million, a 22% increase
from $161.0 million at December 31, 1998. Average loans in the three and nine
months of 1999 were $193,021,000 and $176,314,000 representing increases of 30%
and 18% over the same period in 1998. The 1999 increases primarily reflected
growth in average real estate loans, particularly commercial real estate, SBA
guaranteed commercial real estate, construction and residential mortgage loans,
which in the opinion of the Company is due to favorable local economic
conditions and the level of interest rates. The origination of all types of real
estate loans is significantly affected by the level of interest rates and
general economic conditions. There can be no assurance the Company will maintain
current origination levels in its construction, SBA, commercial real estate and
residential mortgage lending operations as interest rates or economic conditions
change.
-9-
Risk Elements
Lending money involves an inherent risk of nonpayment. Through the
administration of loan policies and monitoring of the portfolio, management
seeks to reduce such risks. The allowance for credit losses is an estimate to
provide a financial buffer for losses, both identified and unidentified, in the
loan portfolio.
Nonaccrual Loans, Loans Past Due and OREO
The accrual of interest is discontinued and any accrued and unpaid interest is
reversed when the payment of principal or interest is 90 days past due unless
the amount is well secured and in the process of collection. Income on such
loans is then recognized only to the extent that cash is received and where the
future collection of principal is probable. At September 30, 1999 nonaccrual
loans totaled $1,836,000 or .93% of total loans compared to $1,108,000 or .69%
of total loans at December 31, 1998. Nonaccrual loans at September 30, 1999
consist of one commercial real estate loan, partially guaranteed by the SBA, and
an extension of credit to one commercial borrower. The commercial borrower's
loan is collaterlized by residential property.
Table 4 presents the composition of nonperforming assets at September 30, 1999.
Table 4 Nonperforming Assets
(dollars in thousands)
SEPTEMBER 30, 1999
-------------------
Nonperforming Assets:
Loans Past Due 90 Days or More $353
Nonaccrual Loans 1,836
-------------------
Total Nonperforming Loans 2,189
OREO -
-------------------
Total Nonperforming Assets $2,189
===================
Nonperforming Loans as a Percent of Total Loans 1.11%
OREO as a Percent of Total Assets -
Nonperforming Assets as a Percent of Total Assets 0.63%
Allowance for Credit Losses $3,668
As a Percent of Total Loans 1.86%
As a Percent of Nonaccrual Loans 200%
As a Percent of Nonperforming Loans 168%
PROVISION AND ALLOWANCE FOR CREDIT LOSSES
Management has established an evaluation process designed to determine the
adequacy of the allowance for credit losses. This process attempts to assess the
risk of loss inherent in the portfolio by segregating the allowance for credit
losses into three components: "historical losses;" "specific;" and
"margin for imprecision." The "historical losses" component is calculated as a
function of the prior four years loss experience for commercial, real estate and
consumer loan types. The four years are assigned weightings of 35%, 30%, 20% and
15% beginning with the most recent year. The "specific" component is established
by allocating a portion of the allowance to individual classified credits on the
basis of specific circumstances and assessments. The "margin for imprecision"
component is an unallocated portion that supplements the first two components as
a conservative margin to guard against unforeseen factors. The "historical
losses" and "specific" components include management's judgment of the effect of
current and forecasted economic conditions on the ability of the Company's
borrowers to repay; an evaluation of the allowance for credit losses in relation
to the size of the overall loan portfolio; an evaluation of the composition of,
and growth trends within, the loan portfolio; consideration of the relationship
of the allowance for credit losses to nonperforming loans; net charge-off
trends; and other factors. While this evaluation process utilizes historical and
other objective information, the classification of loans and the establishment
of the allowance for credit losses, relies, to a great extent, on the judgment
and experience of management. We evaluate the adequacy of our allowance for
credit losses quarterly.
-10-
It is the policy of management to maintain the allowance for credit losses at a
level adequate for known and inherent risks in the loan portfolio. Based on
information currently available to analyze loan loss potential, including
economic factors, overall credit quality, historical delinquency and a history
of actual charge-offs, management believes that the loan loss provision and
allowance are adequate; however, no assurance of the ultimate level of credit
losses can be given with any certainty. Loans are charged against the allowance
when management believes that the collectibility of the principal is unlikely.
An analysis of activity in the allowance for credit losses is presented in Table
5.
TABLE 5 Allowance for Credit Losses
(Dollars in thousands)
NINE MONTHS ENDED
SEPTEMBER 30, 1999
---------------------------
Total Loans Outstanding $197,131
Average Total Loans 176,314
Allowance for credit losses:
Balance, January 1 $3,871
Charge-offs by Loan Category:
Commercial 253
Installment and other 3
Real Estate construction -
Real Estate-term -
-------------
Total Charge-Offs 256
Recoveries by Loan Category:
Commercial 48
Installment and other 1
Real Estate construction -
Real Estate-term 4
-------------
Total Recoveries 53
Net Charge-Offs 203
Provision Charged to Expense -
-------------
Balance, September 30 $3,668
=============
Ratios:
Net Charge-offs to Average Loans 0.12%
Reserve to Total Loans 1.86%
OTHER INTEREST-EARNING ASSETS
For the three and nine months ended September 30, 1999, the average balance
of investment securities and federal funds sold totaled $121,692,000, and
$126,716,000, from $135,715,000 and $112,372,000 for the same periods in 1998.
The decrease in the three month periods from 1998 to 1999 reflects redeploying
federal funds sold into loans. The increase in the 1999 nine month period
resulted from investing additional liquidity in investment securities.
Additional liquidity was generated by the excess of the increase in average
deposits over the increase in average loans. Management also uses borrowed funds
to increase earning assets and enhance the Company's interest rate risk profile.
-11-
FUNDING
Deposits represent the Company's principal source of funds for investment.
Deposits are primarily core deposits in that they are demand, savings, and time
deposits under $100,000 generated from local businesses and individuals. These
sources represent relatively stable, long term deposit relationships
which minimize fluctuations in overall deposit balances. We have accepted a $20
million time deposit from the State of California in part to replace borrowed
funds and to increase earning assets. The State of California time deposit is
renewable approximately every three months at a rate similar to the three month
U.S. Treasury bill. The Bank has never used brokered deposits.
Deposits increased $1,989,000 from year-end or 1% to $282,799,000 as of
September 30, 1999. Average total deposits in the three and nine months of 1999
of $276,537,000 and $271,414,000 increased from $256,284,000 and $228,526,000 in
the same periods in 1998.
Another source of funding for the Company is borrowed funds. Management uses
borrowed funds to increase earning assets, prudently leverage capital and
minimize interest rate risk. Typically, these funds result from the use of
advances from the FHLB and agreements to sell investment securities with a
repurchase at a designated future date, also known as repurchase agreements.
Repurchase agreements are conducted with major banks and investment brokerage
firms. The maturity of these arrangements for the Bank has generally been 30 to
270 days. Repurchase agreements totaled $15,000,000 at September 30, 1999.
Advances from the FHLB may vary in maturity from 1 to 10 years. Advances from
the FHLB at September 30, 1999 totaled $15,000,000, payable at maturity in 2003
and 2004. The advances are callable by the FHLB beginning in February 1999
($10,000,000) and March 2000 ($5,000,000) and bear interest at a weighted
average rate of 4.9%. The average balance of borrowed funds was $25,562,000 and
$17,194,000 during the three and nine months ended September 30, 1999 compared
to $20,051,000 and $25,201,000 for the same periods in 1998. The decrease in
average borrowed funds for the nine months ended September 30, 1999 reflects the
substitution of time deposits from the State of California for borrowed funds
during the first quarter of 1998.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity management refers to the Company's ability to provide funds on an
ongoing basis to meet fluctuations in deposit levels as well as the credit needs
and requirements of its clients. Both assets and liabilities contribute to the
Bank's liquidity position. Federal funds lines, short-term investments and
securities, and loan repayments contribute to liquidity, along with deposit
increases, while loan funding and deposit withdrawals decrease liquidity. The
Company assesses the likelihood of projected funding requirements by reviewing
historical funding patterns, current and forecasted economic conditions and
individual client funding needs. The Bank maintains informal lines of credit
with its correspondent banks for short-term liquidity needs. These informal
lines of credit are not committed facilities by the correspondent banks and no
fees are paid by the Company to maintain them.
The Bank manages its liquidity by maintaining a majority of its investment
portfolio in liquid investments in addition to its federal funds sold. Liquidity
is measured by various ratios, including the liquidity ratio of net liquid
assets compared to total assets. As of September 30, 1999, this ratio was 13.2%.
Other key liquidity ratios are the ratios of loans to deposits and federal funds
sold to deposits, which were 69.7% and 2.4%, respectively,
as of September 30, 1999. The measures of liquidity have decreased since
December 31, 1998 as federal funds sold have been shifted to loans and
investment securities.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is a measure of the exposure of the Company's future
earnings due to changes in interest rates. If assets and liabilities do not
reprice simultaneously and in equal volumes, the potential for such exposure
exists. It is management's objective to achieve a near-matched to modestly
asset-sensitive cumulative position at one year, such that the net interest
margin of the Company increases as market interest rates rise and decreases when
short-term interest rates decline.
-12-
One quantitative measure of the "mismatch" between asset and liability repricing
is the interest rate sensitivity "gap" analysis. All interest-earning assets and
funding sources are classified as to their expected repricing or maturity date,
whichever is sooner. Within each time period, the difference between asset and
liability balances, or "gap," is calculated. Positive cumulative gaps in early
time periods suggest that earnings will increase if interest rates rise.
Negative gaps suggest that earnings will decline when interest rates rise. Table
6 presents the gap analysis for the Company at September 30, 1999. Mortgage
backed securities are reported in the period of their expected repricing based
upon estimated prepayments developed from recent experience.
Table 6 Interest Rate Sensitivity
(Dollars in thousands)
OVER THREE
NEXT DAY AND MONTHS AND OVER ONE AND
WITHIN THREE WITHIN ONE WITHIN FIVE OVER FIVE
IMMEDIATELY MONTHS YEAR YEARS YEARS TOTAL
----------- ------ ---- ----- ----- ----
(DOLLARS IN THOUSANDS)
As of September 30, 1999
Rate Sensitive Assets:
Federal Funds Sold $6,800 $- $- $- $- $6,800
Investment Securities:
Treasury and Agency
Obligations - - - 7,307 - 7,307
Mortgage-Backed
Securities..... - 2,388 10,395 33,626 32,196 78,605
Municipal Securities - 225 333 3,244 10,746 14,548
Corporate Securities - 9,433 - - 4,085 13,518
Other - - - - 2,751 2,751
=============================================================================================
Total Investment Securities - 12,046 10,728 44,177 49,778 116,729
Loans Excluding
Nonaccrual Loans 102,746 61,245 1,671 15,989 13,644 195,295
=============================================================================================
Total Rate Sensitive
Assets $109,546 $73,291 $12,399 $60,167 $63,422 $318,823
---------------------------------------------------------------------------------------------
Rate Sensitive Liabilities:
Deposits:
Demand and Savings $153,974 $- $- $- $- $153,974
Time - 38,428 12,211 1,128 - 51,767
=============================================================================================
Total Interest-bearing
Deposits 153,974 38,428 12,211 1,128 - 205,741
Other Borrowings - 6,500 - 15,000 - 31,500
=============================================================================================
Total Rate Sensitive
Liabilities $153,974 $44,928 $12,211 $16,128 $- $237,241
=============================================================================================
Gap $(44,428) $28,363 $(9,812) $44,038 $63,422 $81,582
Cumulative Gap $(44,428) $(16,065) $(25,877) $18,162 $81,582
-13-
The Company's positive cumulative total gap results from the exclusion from the
above table of noninterest-bearing demand deposits, which represent a
significant portion of the Company's funding sources. The Company maintains a
negative cumulative gap in the immediate, next day and within three months and
the over three months and within one year time periods and a positive cumulative
gap in all other time periods. The Company's experience indicates money market
deposit rates tend to lag changes in the prime rate which immediately impact the
prime-based loan portfolio. Even in the Company's negative gap time periods,
rising rates result in an increase in net interest income. Should interest rates
stabilize or decline in future periods, it is reasonable to assume that the
Company's net interest margin, as well as net interest income, may decline
correspondingly.
CAPITAL RESOURCES
Management seeks to maintain adequate capital to support
anticipated asset growth and credit risks, and to ensure that the Company and
the Bank are in compliance with all regulatory capital guidelines. The primary
source of new capital for the Company has been the retention of earnings. The
Company does not have any material commitments for capital expenditures as of
September 30, 1999.
The Company pays a quarterly cash dividend on its common stock as part of
efforts to enhance shareholder value. The Company's goal is to maintain a strong
capital position that will permit payment of a consistent cash dividend which
may grow commensurately with earnings growth.
During 1997, the Board of Directors approved a stock repurchase program
authorizing open market purchases of up to 3% of the shares outstanding, or
approximately 145,837 shares, in order to enhance long term shareholder value.
As of September 30, 1999, 145,500 shares had been purchased under the program.
The Company and the Bank are subject to capital adequacy guidelines issued by
the federal bank regulatory authorities. Under these guidelines, the minimum
total risk-based capital requirement is 10.0% of risk-weighted assets and
certain off-balance sheet items for a "well capitalized" depository institution.
At least 6.0% of the 10.0% total risk-based capital ratio must consist of Tier 1
capital, defined as tangible common equity, and the remainder may consist of
subordinated debt, cumulative preferred stock and a limited amount of the
allowance for credit losses.
The federal regulatory authorities have established minimum capital leverage
ratio guidelines. The ratio is determined using Tier 1 capital divided by
quarterly average total assets. The guidelines require a minimum of 3.0% to 5.0%
of quarterly average total assets.
The Bank's risk-based capital ratios were in excess of regulatory guidelines for
a "well capitalized" depository institution as of September 30, 1999, and
December 31, 1998. Capital ratios for the Company and the Bank are set forth in
Table 7:
Table 7 Capital Ratios
The Company:
SEPTEMBER 30, 1999 DECEMBER 31,1998
------------------ ----------------
Total risk-based capital ratio 14.6% 15.4%
Tier 1 risk-based capital ratio 13.4% 14.2%
Tier 1 leverage ratio 10.0% 9.5%
Coast Commercial Bank:
SEPTEMBER 30, 1999 DECEMBER 31,1998
------------------ ----------------
Total risk-based capital ratio 14.0% 14.8%
Tier 1 risk-based capital ratio 12.7% 13.6%
Tier 1 leverage ratio 9.5% 9.1%
-14-
YEAR 2000 READINESS DISCLOSURE
The year 2000 problem exists because many computer systems use only the last two
digits to refer to a year. This convention could affect date-sensitive
calculations that treat "00" as the year 1900 rather than 2000. Another issue is
that the year 2000 is a leap year and some programs may not properly provide for
February 29, 2000.
This discussion of the implications of the year 2000 problem for us contains
numerous forward-looking statements on inherently uncertain information. The
cost of the project and the date on which we plan to complete the internal year
2000 modifications are based on management's best estimates, which were derived
utilizing a number of assumptions of future events including the continued
availability of internal and external resources, third party modifications and
other factors. We cannot guarantee, however, these estimates, and actual results
could differ. Moreover, although management believes it will be able to make the
necessary modifications in advance, there can be no guarantee that the failure
to modify the systems would not have a material adverse impact on us.
Readiness Preparation
Our plan to address the year 2000 issues includes a process of inventory,
analysis, modification, testing and certification, and implementation. In 1997
we alerted our business customers of the year 2000 problem and are now assessing
the readiness preparations of our major customers and suppliers. Reviews of our
information systems and information provided by our primary vendors, large
customers and suppliers have not identified any year 2000 readiness issues which
appear to be unresolvable by December 31, 1999.
Our major critical information system is our core transaction processing
software which provides transaction processing for loans, deposits and general
ledger. The vendor supplying our core transaction processing software has
provided evidence of year 2000 readiness. We have obtained satisfaction
regarding the the year 2000 readiness of various systems that integrate
information into the core processing software. Testing of the core processing
software and other systems which integrate into the core processing software has
been completed. Other purchased software and systems supported by external
parties has been tested as part of the year 2000 program. No significant
information systems have been found not ready for year 2000. Additional testing
may be conducted as on-going product updates by software vendors are installed.
A freeze on installation of software upgrades is planned for the fourth quarter
of 1999. In addition, contingency plans have been developed to reduce the impact
of potential events that may occur. We cannot guarantee, however, that the
systems of vendors or customers with which we conduct business will be completed
on a timely basis, or that contingency plans will shield operations from
failures that may occur.
We do not significantly rely on embedded technology in our critical processes.
Embedded technology typically controls operations such as power management and
related facilities functions. Year 2000 risks associated with embedded
technology in our facilities appear low.
We rely on suppliers and customers, and we are addressing year 2000 issues with
both groups. We have identified vendors upon whom there is significant reliance
and made inquiries regarding year 2000 readiness plans and status. Appropriate
measures to minimize risk will be undertaken with those that appear to pose a
significant risk. Replacements may be effected where necessary. We have,
however, no viable alternative for some suppliers, such as power distribution
and local telephone companies. While all our significant suppliers, including
power distribution and local telephone companies, have stated they are Year 2000
ready, we continue to monitor the information provided by these companies, and
we will use the information for contingency planning. As with all financial
institutions, we place a high degree of reliance on the systems of other
institutions, including government agencies, to settle transactions. Principal
settlement methods associated with major payment systems have been tested as
part of their integration with the core processing system.
We also rely on our customers to make necessary preparations for year 2000 so
that their business operations will not be interrupted, thus threatening their
ability to honor their financial commitments. Borrowers, funding sources and
large depositors have been reviewed to determine those with financial volumes
sufficiently large to warrant inquiry and assessment of their year 2000
readiness preparation. Financial volumes include loans and unused commitments,
collected deposit balances, ACH, and foreign exchange, etc.
-15-
The population of customers with loans and unused commitments outstanding
("borrowers") pose the highest risk level of concern for any lender. Business
purpose borrowings exceeding $50,000 were assigned one of three year 2000 risk
levels: low, medium or high. Borrowers representing 3% and 28% of outstanding
loans were assigned high and medium year 2000 risk levels, respectively.
Ongoing reassessments with risk mitigation plans have been made for all levels
of risk. Customers with low and medium risk were reassessed on an annual basis,
while customers with high risk have been reassessed quarterly. The risk
mitigation plan evaluates whether year 2000 issues will materially affect the
customer's cash flows, asset account values related to its balance sheet, and/or
collateral pledged to us. The risk mitigation plan is incorporated into the
normal credit review process.
Cost
Amounts expensed in the first nine months of 1999 were not significant to our
financial position or results of operations. Although the remaining costs
associated with achieving year 2000 compliance have not yet been determined,
management believes the amounts expensed during 1999 will not have a material
effect on our financial position, results of operations or cash flows. In
addition, we have replaced certain equipment and software to ensure year 2000
readiness. The cost of the replacement items will be expensed over the useful
lives of those assets. During 1998, six existing automated teller machines were
replaced with new machines at a cost of approximately $300,000 due in part to
year 2000 issues with the existing equipment. The cost of other identified
replacement items and contingency equipment is estimated at less than $100,000.
Estimated total costs could change as our analysis continues.
Risks
The principal risks associated with the year 2000 problem can be grouped into
three categories:
- we do not successfully ready our operations for the next century,
- disruption of our operations due to operational failures of third
parties, and
- business interruption among fund providers and obligors such that
expected funding and repayment does not take place.
The only risk largely under our control is preparing our internal operations for
the year 2000. We, like other financial institutions, are heavily dependent on
our computer systems. The complexity of these systems and their interdependence
make it impracticable to switch to alternative systems without interruptions if
necessary modifications are not completed on schedule. Management believes it
has made the necessary modifications on schedule.
Failure of third parties may jeopardize our operations, but the seriousness of
this risk depends on the nature and duration of the failures. The most serious
impact on our operations from suppliers would result if basic services such as
telecommunications, electric power suppliers and services provided by other
financial institutions and governmental agencies were disrupted. Some public
disclosure about readiness preparation among basic infrastructure and other
suppliers is now available. We are unable, however, to estimate the likelihood
of significant disruptions among our basic infrastructure suppliers. In view of
the unknown probability of occurrence and impact on operations, we consider the
loss of basic infrastructure services to be the most reasonably likely worst
case year 2000 scenario.
Operational failures among our customers could affect their ability to continue
to provide funding or meet obligations when due. The information we develop in
the customer assessments described earlier allows us to identify those customers
that exhibit a risk of not making the adequate preparations for the century
change. We are taking appropriate actions to manage these risks.
Program Assessment
Senior management and banking regulators regularly assess our year 2000
preparations. Additionally, a consulting and services firm has been retained to
review and advise senior management on internally developed testing plans for
critical systems and on contingency planning.
-16-
Contingency Plans
We have developed remediation contingency plans and business resumption
contingency plans specific to the year 2000. Remediation contingency plans
address the actions to be taken if the current approach to remediating a system
is falling behind schedule or otherwise appears in jeopardy of failing to
deliver a year 2000 ready system when needed. Business resumption contingency
plans address the actions that would be taken if critical business functions can
not be carried out in the normal manner upon entering the next century due to
system or supplier failure. The testing of business resumption contingency plans
has been completed for all mission critical areas. Most contingent action plans
prepared at this time involve manual processing of transactions. Given the size,
scope and complexity of our operations, and the results of contingency plan
tests, manual processing appears a viable alternative for our information
systems.
The Company's disclosure and announcement herein concerning its Year 2000
planning and programs are intended to constitute "year 2000 readiness
disclosures" as defined in the recently-enacted Year 2000 Information and
Readiness Disclosure Act (the "Act"). The Act provided certain protection from
liability for certain public and private statements concerning an entity's Year
2000 readiness and the Year 2000 readiness of its products and services.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
In management's opinion there has not been a material change in the
Compnany's market risk profile at September 30, 1999 compared to
December 31, 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 5. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
On October 20, 1999, the Coast Bancorp Board of Directors declared a
cash dividend of eight cents ($0.08) per share, payable November 24, 1999, to
shareholders of record on November 4, 1999.
Item 5. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit Number
10.20 Consulting Agreement by and between Coast Bancorp, Coast Commercial Bank and Harvey J. Nickelson
dated July 22, 1999
10.21 Amended and Restated Salary Continuation Agreement by and between Coast Bancorp, Coast Commercial
Bank and Harvey J. Nickelson dated July 23, 1999
10.22 Amended and Restated Salary Continuation Agreement by and between Coast Bancorp, Coast Commercial
Bank and David V. Heald dated July 23, 1999
10.23 Executive Salary Continuation Agreement by and between Coast Bancorp, Coast Commercial Bank and
Sandra Anderson dated July 23, 1999
10.24 Executive Salary Continuation Agreement by and between Coast Bancorp, Coast Commercial Bank and
Terry A. Chandler dated July 23, 1999
10.25 Executive Salary Continuation Agreement by and between Coast Bancorp, Coast Commercial Bank and
Richard Hofstetter dated July 23, 1999
10.26 Executive Salary Continuation Agreement by and between Coast Bancorp, Coast Commercial Bank and
Bruce H. Kendall dated July 23, 1999
10.27 Life Insurance Endorsement Method Split Dollar Plan Agreement between Coast Bancorp, Coast
Commercial Bank and Harvey J. Nickelson dated October 1, 1999
10.28 Life Insurance Endorsement Method Split Dollar Plan Agreement between Coast Bancorp, Coast
Commercial Bank and David V. Heald dated October 1, 1999
10.29 Life Insurance Endorsement Method Split Dollar Plan Agreement between Coast Bancorp, Coast
Commercial Bank and Sandra Anderson dated October 1, 1999
10.30 Life Insurance Endorsement Method Split Dollar Plan Agreement between Coast Bancorp, Coast
Commercial Bank and Terry A. Chandler dated October 1, 1999
10.31 Life Insurance Endorsement Method Split Dollar Plan Agreement between Coast Bancorp, Coast
Commercial Bank and Richard Hofstetter dated October 1, 1999
10.32 Life Insurance Endorsement Method Split Dollar Plan Agreement between Coast Bancorp, Coast
Commercial Bank and Bruce H. Kendall dated October 1, 1999
27 Financial Data Schedule
b. Reports on Form 8-K
Not applicable
-17-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COAST BANCORP
---------------------------------------
(REGISTRANT)
Date: November 11, 1999
/s/ HARVEY J. NICKELSON
---------------------------------------
Harvey J. Nickelson
President and Chief Executive Officer
/s/ BRUCE H. KENDALL
---------------------------------------
Bruce H. Kendall
Senior Vice President
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
-18-