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 Quarter Ended March 31, 2002
[ ] 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: 0-19684
COASTAL FINANCIAL CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
State of Delaware 57-0925911
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2619 OAK STREET, MYRTLE BEACH, S. C. 29577
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (843) 205-2000
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of March 31, 2002.
Common Stock $.01 Par Value Per Share 10,578,483 Shares
- ------------------------------------- ------------------
(Class) (Outstanding)
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2002
TABLE OF CONTENTS PAGE
- ----------------- ----
PART I- Consolidated Financial Information
Item
1. Consolidated Financial Statements (unaudited):
Consolidated Statements of Financial Condition
as of September 30, 2001 and March 31, 2002 3
Consolidated Statements of Operations for the three
months ended March 31, 2001 and 2002 4-5
Consolidated Statements of Operations for the six 6-7
months ended March 31, 2001 and 2002
Consolidated Statements of Cash Flows for the six
months ended March 31, 2001 and 2002 8-9
Consolidated Statements of Stockholders' Equity
and Comprehensive Income for the six months ended
March 31, 2001 and 2002 10
Notes to Consolidated Financial Statements 11-14
2.Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-23
3.Quantitative and Qualitative Disclosures About 24
Market Risk
Part II - Other Information
Item
1.Legal Proceedings 25
2.Changes in Securities and Use of Proceeds 25
3.Defaults Upon Senior Securities 25
4.Submission of Matters to a Vote of Securities Holders 25
5. Other information 25
6.Exhibits and Reports on Form 8-K 26-27
Signatures 28
2
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30,March 31,
2001 2002
---- ----
(Unaudited)
(In thousands,
except share data)
ASSETS:
Cash and amounts due from banks $ 24,966 $ 16,597
Short-term interest-bearing deposits 9,354 2,251
Investment securities available for sale 192,553 221,789
Loans receivable (net of allowance for
loan losses of $7,159 at September 30,
2001 and $7,428 at March 31, 2002) 488,754 513,612
Loans receivable held for sale 16,274 11,794
Real estate acquired through foreclosure 2,363 1,988
Office property and equipment, net 13,150 13,999
Federal Home Loan Bank stock, at cost 7,624 8,309
Accrued interest receivable on loans 2,783 2,411
Accrued interest receivable on investments 1,341 1,401
Other assets and deferred charges 4,052 4,543
--------- ---------
$ 763,214 $ 798,694
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits $ 530,364 $ 556,186
Securities sold under agreements to
repurchase 18,703 17,927
Advances from Federal Home Loan Bank 140,036 152,282
Other borrowings 2,069 2,069
Drafts outstanding 2,577 1,218
Advances by borrowers for property taxes
and insurance 1,250 645
Accrued interest payable 1,184 1,392
Other liabilities 9,783 8,579
--------- ---------
Total liabilities 705,966 740,298
--------- ---------
STOCKHOLDERS' EQUITY:
Serial preferred stock, 1,000,000 shares
authorized and unissued -- --
Common stock, $.01 par value, 15,000,000
shares authorized; 10,693,325 shares at
September 30, 2001 and 10,578,483 shares
at March 31, 2002 issued and outstanding 107 106
Additional paid-in capital 9,744 9,744
Retained earnings 47,496 51,033
Treasury stock, at cost (324,483 and 439,325
shares, respectively) (3,620) (4,392)
Accumulated other comprehensive income,
net of tax 3,521 1,905
--------- ---------
Total stockholders' equity 57,248 58,396
--------- ---------
$ 763,214 $ 798,694
========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2002
2001 2002
---- ----
(Unaudited)
(In thousands,
except share data)
Interest income:
Loans receivable $ 11,665 $ 9,869
Investment securities 633 556
Mortgage-backed securities 2,913 2,550
Other 198 12
-------- --------
Total interest income 15,409 12,987
-------- --------
Interest expense:
Deposits 5,142 3,217
Securities sold under agreements to
repurchase 907 96
Advances from Federal Home Loan Bank 2,997 1,840
-------- --------
Total interest expense 9,046 5,153
-------- --------
Net interest income 6,363 7,834
Provision for loan losses 225 255
-------- --------
Net interest income after provision
for loan losses 6,138 7,579
-------- --------
Other income:
Fees and service charges 667 743
Loss from real estate owned (48) (44)
Gain on sale of loans receivable, net 330 256
Gain (loss) on sale of securities
available for sale 327 (60)
Other income 971 808
-------- --------
2,247 1,703
-------- --------
General and administrative expenses:
Salaries and employee benefits 2,653 3,068
Net occupancy, furniture and fixtures
and data processing expense 1,026 1,170
FDIC insurance premium 20 24
Other expenses 856 964
-------- --------
4,555 5,226
-------- --------
Income before income taxes and
extraordinary item 3,830 4,056
Income taxes 1,344 1,467
-------- --------
Income before extraordinary item 2,486 2,589
-------- --------
(CONTINUED)
4
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2002
2001 2002
---- ----
(Unaudited)
(In thousands,
except share data)
Extraordinary loss on extinguishment of
debt, net of income taxes of $137 and
$74, respectively 256 122
---------- ----------
Net income $ 2,230 $ 2,467
========== ==========
Earnings per common share
before extraordinary item
Basic $ .23 $ .24
========== ==========
Diluted $ .23 $ .24
========== ==========
Effect of extraordinary item on
earnings per common share
Basic $ (.02) $ (.01)
=========== ==========
Diluted $ (.03) $ (.01)
=========== ==========
Earnings per common share
after extraordinary item
Basic $ .21 .23
=========== ==========
Diluted $ .20 .23
=========== ==========
Weighted average common shares
outstanding - basic 10,839,000 10,584,000
=========== ==========
Weighted average common shares
outstanding - diluted 10,964,000 10,826,000
=========== ==========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND 2002
2001 2002
---- ----
(Unaudited)
(In thousands,
except share data)
Interest income:
Loans receivable $ 23,663 $ 20,121
Investment securities 1,256 1,131
Mortgage-backed securities 5,789 5,023
Other 355 80
-------- --------
Total interest income 31,063 26,355
-------- --------
Interest expense:
Deposits 9,897 6,826
Securities sold under agreements to
repurchase 2,097 222
Advances from Federal Home Loan Bank 6,497 3,767
-------- --------
Total interest expense 18,491 10,815
-------- --------
Net interest income 12,572 15,540
Provision for loan losses 495 505
-------- --------
Net interest income after provision
for loan losses 12,077 15,035
-------- --------
Other income:
Fees and service charges 1,219 1,510
Loss from real estate owned (138) (150)
Gain on sale of loans receivable, net 480 812
Gain on sale of securities
available for sale 356 71
Other income 1,968 1,634
-------- --------
3,885 3,877
-------- --------
General and administrative expenses:
Salaries and employee benefits 5,068 6,070
Net occupancy, furniture and fixtures
and data processing expense 1,954 2,281
FDIC insurance premium 40 47
Other expenses 1,593 2,079
-------- --------
8,655 10,477
-------- --------
Income before income taxes and
extraordinary item 7,307 8,435
Income taxes 2,605 3,089
-------- --------
Income before extraordinary item 4,702 5,346
-------- --------
(CONTINUED)
6
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND 2002
2001 2002
---- ----
(Unaudited)
(In thousands,
except share data)
Extraordinary loss on extinguishment of
debt, net of income taxes of $137 and
$257, respectively 256 419
----------- -----------
Net income $ 4,446 $ 4,927
=========== ===========
Earnings per common share
before extraordinary item
Basic $ .43 $ .50
=========== ===========
Diluted $ .43 $ .49
=========== ===========
Effect of extraordinary item on
earnings per common share
Basic $ (.02) $ (.04)
=========== ===========
Diluted $ (.03) $ (.04)
=========== ===========
Earnings per common share
after extraordinary item
Basic $ .41 $ .46
=========== ===========
Diluted $ .40 $ .45
=========== ===========
Weighted average common shares
outstanding - basic 10,911,000 10,657,000
=========== ===========
Weighted average common shares
outstanding - diluted 11,012,000 10,913,000
=========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND 2002
2001 2002
---- ----
(Unaudited)
(In thousands)
Cash flows from operating activities:
Net income $ 4,446 $ 4,927
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation 737 955
Provision for loan losses 495 505
Gain on sale of mortgage-backed
securities available for sale (356) (71)
Origination of loans receivable
held for sale (14,882) (48,468)
Proceeds from sales of loans receivable
held for sale 13,187 52,948
(Increase) decrease in:
Other assets and deferred charges (710) (491)
Accrued interest receivable (217) 312
Increase (decrease)in:
Accrued interest payable 1,041 208
Other liabilities (2,726) (213)
--------- ---------
Net cash provided by
operating activities 1,015 10,612
--------- ---------
Cash flows from investing activities:
Purchases of investment securities
available for sale (99,501) (94,647)
Proceeds from sales of investment
securities available for sale 86,396 71,876
Origination of loans receivable, net (100,445) (203,532)
Principal collected on loans receivable, net 92,818 128,873
Principal collected on mortgage-backed
securities, net 15,181 39,990
Proceeds from sale of real estate
acquired through foreclosure, net 430 680
Purchases of office properties and
equipment (1,406) (1,804)
Sales (purchases) of FHLB stock, net 863 (685)
--------- ---------
Net cash used in
investing activities (5,664) (59,249)
--------- ---------
(CONTINUED)
8
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND 2002 (CONTINUED)
2001 2002
---- ----
(Unaudited)
(In thousands)
Cash flows from financing activities:
Increase in deposits, net $ 104,071 $ 25,822
Decrease in securities sold
under agreement to repurchase, net (53,254) (776)
Proceeds from FHLB advances 242,655 171,762
Repayment of FHLB advances (268,278) (159,516)
Decrease in advance payments by borrowers
for property taxes and insurance, net (642) (605)
Decrease in drafts outstanding, net (307) (1,359)
Repurchase of treasury stock, at cost (1,069) (1,287)
Dividends to stockholders (939) (1,058)
Exercise of stock options 20 182
--------- ---------
Net cash provided by financing activities 22,257 33,165
--------- ---------
Net increase(decrease)in cash and cash
equivalents 17,608 (15,472)
--------- ---------
Cash and cash equivalents at beginning
of the period 17,167 34,320
--------- ---------
Cash and cash equivalents at end
of the period $ 34,775 $ 18,848
========= =========
Supplemental information:
Interest paid $ 17,450 $ 10,607
========= =========
Income taxes paid $ 3,001 $ 4,030
========= =========
Supplemental schedule of non-cash investing
and financing transactions:
Transfer of mortgage loans to real estate
acquired through foreclosure $ 806 $ 305
========= =========
Securitization of mortgage loans into
mortgage-backed securities $ 7,566 $ 48,991
========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Accumulated
Other
Compre-
Additional hensive Total
Common Paid-In Treasury Retained Income Stockholders'
Stock Capital Stock Earnings (Loss) Equity
----- ------- ----- -------- ------ ------
(Unaudited)
(In thousands)
Balance at September
30, 2000 $ 109 $ 9,744 $ (1,702) $ 40,319 $ (1,525) $ 46,945
Net income -- -- -- 4,446 -- 4,446
Other comprehensive
income, net of tax:
Unrealized gains arising
during period, net of
taxes of $2,434 -- -- -- -- 3,971 --
Less: reclassification
adjustment for gains
included in net income,
net of taxes of $135 -- -- -- -- (221) --
-------- ------
Other comprehensive income -- -- -- -- 3,750 3,750
-------- ------
Comprehensive income -- -- -- -- -- 8,196
Treasury stock repurchases (1) -- (1,068) -- -- (1,069)
Exercise of stock
options -- 37 (17) -- 20
Cash dividends -- -- -- (939) -- (939)
-------- -------- -------- -------- -------- --------
Balance at March 31, 2001 $ 108 $ 9,744 $ (2,733) $ 43,809 $ 2,225 $ 53,153
======== ======== ======== ======== ======== ========
Balance at September
30, 2001 $ 107 $ 9,744 $ (3,620) $ 47,496 $ 3,521 $ 57,248
Net income -- -- -- 4,927 -- 4,927
Other comprehensive
loss, net of tax:
Unrealized losses arising
during period, net of
taxes of $1,018 -- -- -- -- (1,660) --
Less: reclassification
adjustment for gains
included in net income,
net of taxes of $27 -- -- -- -- 44 --
-------- ------
Other comprehensive loss -- -- -- -- (1,616) (1,616)
-------- ------
Comprehensive income -- -- -- -- -- 3,311
Treasury stock repurchases (1) -- (1,286) -- -- (1,287)
Exercise of stock
options -- -- 514 (332) -- 182
Cash dividends -- -- -- (1,058) -- (1,058)
-------- -------- -------- -------- -------- --------
Balance at March 31, 2002 $ 106 $ 9,744 $ (4,392) $ 51,033 $ 1,905 $ 58,396
======== ======== ======== ======== ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures necessary for a complete presentation of financial condition,
results of operations, cash flows and changes in stockholders' equity in
conformity with accounting principles generally accepted in the United States of
America. All adjustments, consisting only of normal recurring accruals, which in
the opinion of management are necessary for fair presentation of the interim
financial statements, have been included. The results of operations for the
three and six month periods ended March 31, 2002 are not necessarily indicative
of the results which may be expected for the entire fiscal year. These unaudited
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements and related notes for the
year ended September 30, 2001, included in the Company's 2001 Annual Report to
Stockholders. The principal business of the Company is conducted by its
wholly-owned subsidiary, Coastal Federal Bank (the "Bank"). The information
presented hereon, therefore, relates primarily to the Bank.
(2) LOANS RECEIVABLE, NET
Loans receivable, net consists of the following:
September 30, March 31,
2001 2002
---- ----
(Unaudited)
(In thousands)
First mortgage loans:
Single family to 4 family units $ 252,396 $ 251,939
Other, primarily commercial
real estate 137,282 160,649
Construction loans 60,765 64,187
Consumer and commercial loans:
Installment consumer loans 14,539 13,970
Mobile home loans 2,056 2,313
Deposit account loans 1,221 1,087
Equity lines of credit 22,379 22,839
Commercial and other loans 18,886 16,264
--------- ---------
509,524 533,248
Less:
Allowance for loan losses 7,159 7,428
Deferred loan costs, net (372) (230)
Undisbursed portion of loans in process 13,983 12,438
--------- ---------
$ 488,754 $ 513,612
========= =========
11
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in the allowance for loan losses consist of the following
for the six months ended:
Six Months Ended March 31,
2001 2002
(Unaudited)
(Dollars in thousands)
Allowance at beginning of period $7,064 $7,159
Provision for loan losses ......... 495 505
------ ------
Recoveries:
Residential real estate .......... -- --
Commercial real estate ........... -- --
Consumer ......................... 41 18
------ ------
Total recoveries ............... 41 18
------ ------
Charge-offs:
Residential real estate .......... 105 57
Commercial real estate ........... 51 --
Consumer ......................... 285 197
------ ------
Total charge-offs .............. 441 254
------ ------
Net charge-offs ................ 400 236
------ ------
Allowance at end of period ....... $7,159 $7,428
====== ======
Ratio of allowance to net
loans outstanding at the
end of the period ................ 1.37% 1.41%
====== ======
Ratio of net charge-offs
to average loans outstanding
during the period (annualized)... .17% .09%
====== ======
Non-accrual loans, which were over ninety days delinquent, totaled approximately
$5.5 million at March 31, 2002 and 2001. For the quarter ended March 31, 2001,
interest income, which would have been recorded, would have been approximately
$108,000. For the quarter ended March 31, 2002, interest income, which would
have been recorded, would have been approximately $131,000. For the six months
ended March 31, 2001 and 2002, interest income, which would have been recorded,
would have been approximately $175,000 and $262,000, respectively, had
non-accruing loans been current in accordance with their original terms.
At March 31, 2002, impaired loans totaled $3.2 million. There were $4.4 million
in impaired loans at March 31, 2001. Included in the allowance for loan losses
at March 31, 2002 was $225,000 related to impaired loans compared to $333,000 at
March 31, 2001. The average recorded investment in impaired loans for the six
months ended March 31, 2002 was $3.3 million compared to $4.4 million for the
six months ended March 31, 2001. Interest income of $7,000 was recognized on
impaired loans for the quarter and six months ended March 31, 2002. Interest
income of $32,000 was recognized on impaired loans for the quarter ended March
31, 2001. Interest income of $88,000 was recognized on impaired loans for the
six months ended March 31, 2001.
(3) DEPOSITS
Deposits consist of the following:
September 30, 2001 March 31, 2002
----------------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
(Unaudited)
(In thousands)
Transaction accounts $298,655 1.96% $296,547 1.40%
Passbook accounts 33,317 1.70 35,368 1.22
Certificate accounts 198,392 4.82 224,271 3.47
-------- ---- -------- ----
$530,364 3.01% $556,186 2.22%
======== ==== ======== ====
12
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(4) ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from Federal Home Loan Bank ("FHLB") consist of the following:
September 30, 2001 March 31, 2002
----------------------------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
Maturing within: (Unaudited)
(In thousands)
1 year $ 1,400 4.15% $ 25,100 2.47%
2 years 23,231 4.30 16,762 2.96
3 years 2,220 5.21 235 4.92
4 years 400 5.24 27,970 6.20
5 years and thereafter 112,785 5.73 82,215 5.47
- - -------- ---- -------- ----
$140,036 5.46% $152,282 4.89%
======== ==== ======== ====
At September 30, 2001, and March 31, 2002, the Bank had pledged first mortgage
loans and mortgage-backed securities with unpaid balances of approximately
$204.0 million and $191.3 million, respectively, as collateral for FHLB
advances. At September 30, 2001, included in the one, two and five years
maturities were $109.0 million of advances subject to call provisions. At March
31, 2002, included in the four and five years and thereafter maturities were
$106.0 million of advances subject to call provisions. Call provisions are more
likely to be exercised by the FHLB when rates rise.
(5) EARNINGS PER SHARE
Basic earnings per share for the three and six month periods ended March 31,
2001 and 2002, are computed by dividing net income by the weighted average
common shares outstanding during the respective periods. Diluted earnings per
share for the three and six month periods ended March 31, 2001 and 2002, are
computed by dividing net earnings by the weighted average dilutive shares
outstanding during the respective periods. All share and per share data have
been retroactively restated for all common stock splits and dividends.
RECONCILIATION OF AVERAGE SHARES OUTSTANDING
(Unaudited in thousands)
For the Quarter Ended March 31,
2001 2001 2002 2002
----------------------------------------------------------------
BASIC DILUTED BASIC DILUTED
----------------------------------------------------------------
Weighted average shares outstanding 10,839,000 10,839,000 10,584,000 10,584,000
----------------------------------------------------------------
Effective of Dilutive Securities:
Stock options -- 125,000 -- 242,000
10,839,000 10,964,000 10,584,000 10,826,000
----------------------------------------------------------------
For the Six Months Ended March 31,
2001 2001 2002 2002
----------------------------------------------------------------
BASIC DILUTED BASIC DILUTED
----------------------------------------------------------------
Weighted average shares outstanding 10,911,000 10,911,000 10,657,000 10,657,000
----------------------------------------------------------------
Effective of Dilutive Securities:
Stock options -- 101,000 -- 256,000
10,911,000 11,012,000 10,657,000 10,913,000
----------------------------------------------------------------
13
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(6) COMMON STOCK DIVIDENDS
On July 31, 2001, the Company declared a 3 for 2 stock split in the form of a
50% stock dividend aggregating approximately 3,579,000 shares. All share and per
share data have been retroactively restated for all common stock splits and
dividends.
(7) EXTRAORDINARY ITEM
The extraordinary item for the quarter and six months ended March 31, 2001,
relates to prepayment penalties on advances from FHLB of $256,000 net of income
taxes of $137,000.
The extraordinary item for the quarter ended March 31, 2002, relates to
prepayment penalties on advances from FHLB of $196,000, net of income taxes of
$74,000. For the six months ended March 31, 2002, prepayment penalties on
advances from FHLB were $676,000 net of income taxes of $257,000.
14
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS
- --------------------------
This report may contain certain "forward-looking statements" within the meaning
of Section 27A of the Securities Exchange Act of 1934, as amended, that
represent the Company's expectations or beliefs concerning future events. Such
forward-looking statements are about matters that are inherently subject to
risks and uncertainties. Factors that could influence the matters discussed in
certain forward-looking statements include the timing and amount of revenues
that may be recognized by the Company, continuation of current revenue and
expense trends (including trends affecting charge-offs), absence of unforeseen
changes in the Company's markets, legal and regulatory changes, and general
changes in the economy (particularly in the markets served by the Company). The
Company disclaims any obligation to update such forward looking statements.
SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------
The Bank considers its policy regarding the allowance for loan losses to be its
most critical accounting policy due to the significant degree of management
judgment. The Bank has developed policies and procedures for assessing the
adequacy of the Allowance, recognizing that this process requires a number of
assumptions and estimates with respect to its loan portfolio. The Bank
assessments may be impacted in future periods by changes in economic conditions,
the impact of regulatory examinations, and the discovery of information with
respect to borrowers, which is not known to management at the time of the
issuance of the consolidated financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
- ------------------------------
In the normal course of operations, the Bank engages in a variety of financial
transactions that, in accordance with generally accepted accounting principles,
or are recorded in amounts that differ from the notional amounts. These
transactions involve, to varying degrees, elements of credit, interest rate, and
liquidity risk. Such transactions are used by the Bank for general corporate
purposes or for customer needs. Corporate purpose transactions are used to help
manage customers' requests for funding.
The Bank's off-balance sheet arrangements, which principally include lending
commitments and derivatives, are described below. At March 31, 2002 and 2001,
the Bank had no interests in non-consolidated special purpose entities.
Lending Commitments. Lending Commitments include loan commitments, standby
letters of credit, unused business credit card lines, and documentary letters of
credit. These instruments are not recorded in the consolidated balance sheet
until funds are advanced under the commitments. The Bank provides these lending
commitments to customers in the normal course of business.
For commercial customers, loan commitments generally take the form of revolving
credit arrangements to finance customers' working capital requirements. For
retail customers, loan commitments are generally lines of credit secured by
residential property. At March 31, 2002, commercial and retail loan commitments
totaled $60.5 million. Standby letters of credit are conditional commitments to
guarantee performance, typically contract or financial integrity, of a customer
to a third party and totaled $3.6 million at March 31, 2002. Unused business
credit card lines, which totaled $733,000 at March 31, 2002, are generally for
short-term borrowings. The Bank applies essentially the same credit policies and
standards as it does in the lending process when making these commitments.
Derivatives. The Bank originates certain fixed rate residential loans with the
intention of selling these loans. Between the time that the Bank enters into an
interest rate lock or a commitment to originate a fixed rate residential loan
with a potential borrower and the time the closed loan is sold, the Bank is
subject to variability in the market prices related to these commitments. The
Bank believes that it is prudent to limit the variability of expected proceeds
from the sales through forward sales of "to be issued" mortgage backed
securities and loans ("forward sales commitments").
15
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The commitment to originate fixed rate residential loans and forward sales
commitments are freestanding derivative instruments. They do not generally
qualify for hedge accounting treatment so their fair value adjustments are
recorded through the income statement in net gains on sale of loans. The
commitments to originate fixed rate conforming loans totaled $6.2 million at
March 31, 2002. The fair value of the commitments was a gain of approximately
$10,000 at March 31,2002. The forward sales commitments totaled $12.0 million at
March 31, 2002. The fair value of these commitments was a gain of approximately
$2,000.
16
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 2001 TO MARCH 31,
- --------------------------------------------------------------------------------
2002
- ----
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Historically, the Bank has maintained its liquidity at levels believed by
management to be adequate to meet the requirements of normal operations,
potential deposit out-flows and strong loan demand and still allow for optimal
investment of funds and return on assets.
The principal sources of funds for the Company are cash flows from operations,
consisting mainly of loan payments, retail customer deposits, advances from the
FHLB, and loan sales. The principal use of cash flows is the origination of
loans receivable and purchase of investment securities. The Company originated
loans receivable of $115.3 million for the six months ended March 31, 2001,
compared to $252.0 million for the six months ended March 31, 2002, primarily as
a result of reduced interest rates. A portion of these loan originations were
financed through loan principal repayments, which amounted to $92.8 million and
$128.9 million for the six month periods ended March 31, 2001 and 2002,
respectively. In addition, the Company sells certain loans in the secondary
market to finance future loan originations. Generally, these loans have
consisted only of mortgage loans, which have been originated within the previous
year. For the six month period ended March 31, 2001, the Company sold $13.2
million in mortgage loans held for sale, compared to $52.9 million sold for the
six month period ended March 31, 2002. Loan originations have increased as a
result of falling interest rates over the last twelve months. Consequently, the
Bank has experienced prepayment of a portion of its mortgage loan portfolio.
Many of the Bank's adjustable rate mortgage loans were refinanced into
conforming fixed rate mortgage loans. A significant portion of these fixed rate
loans were sold into the secondary market.
For the six month period ended March 31, 2001, the Company purchased $99.5
million in investment and mortgage-backed securities. For the six month period
ended March 31, 2002, the Company purchased $94.6 million in investment and
mortgage-backed securities. These purchases were funded primarily by repayments
of $40.0 million within the securities portfolio and sales of investment
securities of $71.9 million.
Overall the Bank experienced an increase of $25.8 million in deposits for the
six month period ended March 31, 2002. For the six month period ended March 31,
2002, transaction accounts decreased $2.1 million which the Bank primarily
believes is due to seasonal effects of customer withdrawals during the winter
months. During the same period, certificate accounts increased $25.9 million
primarily due to special offers in many of the Bank's new Sales Centers. At
March 31, 2002, the Company had $188.9 million of certificates of deposits,
which were due to mature within one year. The Company believes that the majority
of these certificates of deposits will renew with the Bank.
As a result of $4.9 million in net income, less the cash dividends paid to
stockholders of approximately $1.1 million, treasury stock repurchases of
approximately $1.3 million and the net change in unrealized gain on securities
available for sale, net of income tax of $1.6 million, stockholders' equity
increased from $57.2 million at September 30, 2001 to $58.4 million at March 31,
2002.
OTS regulations require that the Bank calculate and maintain a minimum
regulatory capital requirement on a quarterly basis and satisfy such requirement
as of the calculation date and throughout the quarter. The Bank's capital, as
calculated under OTS regulations, is approximately $58.1 million at March 31,
2002, exceeding the core capital requirement by $26.2 million. At March 31,
2002, the Bank's risk-based capital of approximately $64.0 million exceeded its
current risk-based capital requirement by $25.3 million. (For further
information see Regulatory Capital Matters)
17
PART1. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE THREE MONTHS ENDED
- -----------------------------------------------------------------------------
MARCH 31, 2001 AND 2002
- -----------------------
GENERAL
- -------
Net income increased from the $2.2 million for the three months ended March 31,
2001, to $2.5 million for the three months ended March 31, 2002, or 10.6%. Net
interest income increased $1.5 million primarily as a result of a decrease of
$2.4 million in interest income and a $3.9 million decrease in interest expense.
Provision for loan losses was $225,000 for the three months ended March 31, 2001
compared to $255,000 for the quarter ended March 31, 2002. Other income
decreased $544,000. General and administrative expense was $4.6 million for the
quarter ended March 31, 2001 compared to $5.2 million for the quarter ended
March 31, 2002.
INTEREST INCOME
- ---------------
Interest income for the three months ended March 31, 2002, decreased to $13.0
million as compared to $15.4 million for the three months ended March 31, 2001.
The earning asset yield for the three months ended March 31, 2002, was 7.24%
compared to a yield of 8.31% for the three months ended March 31, 2001. The
average yield on loans receivable for the three months ended March 31, 2002,was
7.65% compared to 8.90% for the three months ended March 31, 2001. The yield on
investments decreased to 6.30% for the three months ended March 31, 2002, from
7.00% for the three months ended March 31, 2001. Total average interest-earning
assets were $724.4 million for the quarter ended March 31, 2002 as compared to
$751.2 million for the quarter ended March 31, 2001. The decrease in average
interest-earning assets is primarily due to a decrease in average loans
receivable of approximately $8.1 million, investment securities of approximately
$5.4 million and cash in FHLB of approximately $10.4 million.
INTEREST EXPENSE
- ----------------
Interest expense on interest-bearing liabilities was $5.2 million for the three
months ended March 31, 2002, as compared to $9.0 million for March 31, 2001. The
average cost of deposits for the three months ended March 31, 2002, was 2.38%
compared to 4.45% for the three months ended March 31, 2001. The cost of
interest-bearing liabilities was 2.92% for the three months ended March 31,
2002, as compared to 4.99% for the three months ended March 31, 2001. The cost
of FHLB advances and reverse repurchase agreements was 4.99% and 2.18%,
respectively, for the three months ended March 31, 2002. For the three months
ended March 31, 2001, the cost of FHLB advances and reverse repurchase
agreements was 5.91% and 6.07%, respectively. Total average interest-bearing
liabilities decreased from $725.6 million at March 31, 2001 to $706.8 million at
March 31, 2002. The decrease in average interest-bearing liabilities is due to
an increase in average deposits of approximately $77.9 million. This was offset
primarily by a decrease in reverse repurchase agreements of $43.6 million and
FHLB advances of $55.2 million.
NET INTEREST INCOME
- -------------------
Net interest income was $7.8 million for the three months ended March 31, 2002,
as compared to $6.4 million for the three months ended March 31, 2001. The net
interest margin was 4.32% for the three months ended March 31, 2002, compared to
3.32% for the three months ended March 31, 2001. With the reduction in interest
rates, it is expected that the Bank's yield on interest earning assets and cost
of deposits and borrowings will continue to decline. Consequently, it is
expected that a substantial portion of the Bank's loan portfolio will be subject
to refinancing at lower rates. It is expected that the refinancing of loans at
lower rates and repricing of loans tied to prime or treasury rates will outpace
the repricing of deposits and borrowings. Should interest rates remain at these
historically low levels, the Bank could experience a reduced margin in the
second half of fiscal 2002.
18
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS - CONTINUED
COMPARISONS OF THE THREE MONTHS ENDED MARCH 31, 2001 AND 2002
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses was $225,000 for the three months ended March 31,
2001 compared to $255,000 for the three months ended March 31, 2002. For the
three months ended March 31, 2002, net charge-offs were $71,000 compared to net
charge-offs of $227,000 for the three months ended March 31, 2001. The allowance
for loan losses as a percentage of total loans was 1.41% at March 31, 2002,
compared to 1.42% at September 30, 2001 and 1.37% at March 31, 2001. Loans
delinquent 90 days or more were 1.06% of total loans at March 31, 2002, compared
to .64% at September 30, 2001. The allowance for loan losses was 134% of loans
delinquent more than 90 days at March 31, 2002, as compared to 220% at September
30, 2001. Management believes that the current level of allowance is adequate
considering the Company's current loss experience and delinquency trends, among
other criteria.
OTHER INCOME
- ------------
For the three months ended March 31, 2002, other income was $1.7 million
compared to $2.2 million for the three months ended March 31, 2001. As a result
of increased transaction account balances of approximately $37.5 million, fees
and service charges from deposit accounts were $743,000 for the three months
ended March 31, 2002, compared to $667,000 for the three months ended March 31,
2001. Gain on sale of loans was $256,000 for the quarter ended March 31, 2002,
compared to $330,000 for the quarter ended March 31, 2001. Loss on sales of
securities was $60,000 for the quarter ended March 31, 2002, compared to a gain
of $327,000 for the quarter ended March 31, 2001. Other income was $808,000 for
the three months ended March 31, 2002, as compared to $971,000 for the three
months ended March 31, 2001.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses were $4.6 million for the quarter ended
March 31, 2001 compared to $5.2 million for the quarter ended March 31, 2002.
Salaries and employee benefits were $2.7 million for the three months ended
March 31, 2001, as compared to $3.1 million for the three months ended March 31,
2002 primarily due to the addition of new Sales Centers and additional business
banking Associates. Also as a result of new Sales Centers, net occupancy,
furniture and fixtures and data processing expenses increased $144,000 when
comparing the two periods. The Bank had eleven, twelve and sixteen operating
Sales Centers at September 30, 1999, 2000, 2001 and March 31, 2002,
respectively. Other expenses were $964,000 for the quarter ended March 31, 2002,
compared to $856,000 for the quarter ended March 31, 2001. This increase is
primarily attributed to the Bank's name change from Coastal Federal Savings Bank
to Coastal Federal Bank. As a result of this change, the Bank has incurred
additional marketing expenses of $38,000 and a loss on the disposal of old
signage of $60,000.
INCOME TAXES
- ------------
Income taxes were $1.3 million for the three months ended March 31, 2001,
compared to $1.5 million for the three months ended March 31, 2002.
EXTRAORDINARY ITEM
- -------------------
The extraordinary item for the quarter ended March 31, 2002 relates to penalties
incurred from the early repayment of advances from FHLB of $196,000, net of
income taxes of $74,000.
19
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS - CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 2001 AND 2002
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE SIX MONTHS ENDED
- ---------------------------------------------------------------------------
MARCH 31, 2001 AND 2002.
- ------------------------
GENERAL
- -------
Net income increased from $4.4 million for the six months ended March 31, 2001,
to $4.9 million for the six months ended March 31, 2002, or 10.8%. Net interest
income increased $3.0 million primarily as a result of a decrease in interest
income of $4.7 million offset by a decrease of $7.7 million in interest expense.
Provision for loan losses increased slightly from $495,000 for the six months
ended March 31, 2001, to $505,000 for the six months ended March 31, 2002. Other
income decreased $8,000. General and administrative expenses increased $1.8
million.
INTEREST INCOME
- ---------------
Interest income for the six months ended March 31, 2002, decreased to $26.4
million as compared to $31.1 million for the six months ended March 31, 2001.
The earning asset yield for the six months ended March 31, 2002, was 7.39%
compared to a yield of 8.45% for the six months ended March 31, 2001. The
average yield on loans receivable for the six months ended March 31, 2002, was
7.83% compared to 9.02% for the six months ended March 31, 2001. The yield on
investments decreased to 6.36% for the six months ended March 31, 2002, from
7.06% for the six months ended March 31, 2001. Total average earning assets were
$719.5 million for the six months period ended March 31, 2002, as compared to
$725.6 million for the six month period ended March 31, 2001.
INTEREST EXPENSE
- ----------------
Interest expense on interest-bearing liabilities was $10.8 million for the six
months ended March 31, 2002, as compared to $18.5 million for the six months
ended March 31, 2001. The average cost of deposits for the six months ended
March 31, 2002, was 2.54% compared to 4.28% for the six months ended March 31,
2001. The cost of interest-bearing liabilities was 3.08% for the six months
ended March 31, 2002, as compared to 5.07% for the six months ended March 31,
2001. Total average interest-bearing liabilities decreased from $725.6 million
at March 31, 2001 to $702.0 million at March 31, 2002.
NET INTEREST INCOME
- -------------------
Net interest income was $15.5 million for the six months ended March 31, 2002,
as compared to $12.6 million for the six months ended March 31, 2001. The net
interest margin increased to 4.31% for the six months ended March 31, 2002, from
3.38% for the six months ended March 31, 2001.
20
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS - CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 2001 AND 2002
PROVISIONS FOR LOAN LOSSES
- --------------------------
The provisions for loan losses increased slightly from $495,000 for the period
ended March 31, 2001, to $505,000 for the six months ended March 31, 2002. For
the six months ended March 31, 2002, net charge-offs were $236,000 compared to
net charge-offs of $400,000 for the six months ended March 31, 2001. The
allowance for loan losses as a percentage of total loans was 1.41% at March 31,
2002, compared to 1.42% at September 30, 2001. Management believes that the
current level of allowance is adequate considering the Company's current loss
experience and delinquency trends, among other criteria.
OTHER INCOME
- ------------
For the six months ended March 31, 2002 and 2001, other income was $3.9 million.
Fees and service charges for the six months ended March 31, 2002 were $1.5
million compared to $1.2 million for the six months ended March 31, 2001. As a
result of falling interest rates, particularly in the first quarter of fiscal
2002, the Bank experienced significant refinancing of its adjustable mortgage
loans. The majority of these loans were refinanced into fixed rate mortgages,
which were sold to the secondary market. As a result, gain on sale of loans was
$480,000 for the six months ended March 31, 2001, compared to $812,000 for the
six months ended March 31, 2002. Gain on sale of securities was $356,000 for the
six months ended March 31, 2001, compared to gains of $71,000 for the six months
ended March 31, 2002. Other income was $1.6 million for the six months ended
March 31, 2002, compared to $2.0 million for the six months ended March 31,
2001.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses increased from $8.7 million for the six
months ended March 31, 2001 to $10.5 million for the six months ended March 31,
2002. Salaries and employee benefits increased $1.0 million, or 19.8% primarily
due to staffing for new Sales Centers and additional business banking
Associates. Other expenses were $2.1 million for the six months ended March 31,
2002, compared to $1.6 million for the six months ended March 31, 2001. This
increase is primarily attributed to the Bank's name change from Coastal Federal
Savings Bank to Coastal Federal Bank. As a result of this change, the Bank has
incurred additional marketing expenses of $83,000 and a loss from the disposal
of old signage of $60,000. In addition, the Bank disposed of telephone equipment
and incurred a loss of $120,000.
INCOME TAXES
- ------------
Income taxes increased from $2.6 million for the six months ended March 31,
2001, to $3.1 million for the six months ended March 31, 2002, as a result of
increased income before taxes.
EXTRAORDINARY ITEM
- ------------------
The extraordinary item for the six months ended March 31, 2002 relates to
prepayment penalties on advances from FHLB of $676,000, net of income taxes of
$257,000.
21
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 2001 AND 2002
REGULATORY CAPITAL MATTERS
- --------------------------
To be categorized as "Well Capitalized" under the prompt corrective action
regulations adopted by the Federal Banking Agencies, the Bank must maintain a
total risk-based capital ratio as set forth in the following table and not be
subject to a capital directive order.
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
------ ----------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars In Thousands)
As of March 31, 2002:
Total Capital: $63,953 13.25% $38,609 8.00% $48,261 10.00%
(To Risk Weighted Assets)
Tier 1 Capital: $58,093 12.04% N/A N/A $28,957 6.00%
(To Risk Weighted Assets)
Tier 1 Capital: $58,093 7.30% $31,937 4.00% $39,921 5.00%
(To Total Assets)
Tangible Capital: $58,093 7.30% $11,976 1.50% N/A N/A
(To Total Assets)
22
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 2001 AND 2002
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------
In July 2001, the FASB issued Statement No. 141, Business Combinations, and
Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill. Statement 142 will
require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of Statement 142. Statement 142 also requires
that intangible assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with Statement No. 121, Accounting for
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The
Company adopted Statement 141 in July 2001 and adopted Statement 142 on October
1, 2001. The Company does not have any intangible assets affected by these
standards.
In August 2001, the Financial Accounting Standards Board issued SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived Assets which addresses
the financial accounting and reporting for the impairment or disposal of
long-lived assets. While SFAS 144 supersedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, it
retains many of the fundamental provisions of that Statement. The provisions of
SFAS 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company will adopt SFAS 144 on October 1, 2002 and does not expect a
material impact from its adoption.
EFFECT ON INFLATION AND CHANGING PRICES
- ---------------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles which require the
measurement of financial position and results of operations in terms of
historical dollars, without consideration of change in the relative purchasing
power over time due to inflation. Unlike most industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of inflation. Interest
rates do not necessarily change in the same magnitude as the price of goods and
services.
23
PART I. FINANCIAL INFORMATION
Item 3. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 2001 AND 2002
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
At March 31, 2002, the Company does not believe there are material changes which
have occurred in market risk disclosures included in the Company's Annual Report
to Stockholders for the year ended September 30, 2001, filed as an exhibit to
the Company's Annual Report on form 10-K.
24
PART II. OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Item 1. Legal Proceedings
-----------------
The Company is not a defendant in any lawsuits. The subsidiaries are
defendants in lawsuits arising out of the normal course of business. Based upon
current information received from counsel representing the subsidiaries in these
matters, the Company believes none of the lawsuits would have a material impact
on the Company's financial status.
Item 2. Changes In Securities and Use of Proceeds
-----------------------------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Company's annual stockholders meeting held on January 30, 2002 the
following items were ratified:
(a) The election as directors of all nominees: James C. Benton and
James P. Creel.
At the meeting, a total of 10,643,646 votes were entitled to be cast. Votes for
Benton were 8,465,939 with 22,672 withheld; and votes for Creel were 8,465,700
with 23,850 withheld.
The directors whose terms continued and the years their terms expire are as
follows: James H. Dusenbury (2004), Michael C. Gerald (2004), James T. Clemmons
(2003), Frank A. Thompson, II (2003) and G. David Bishop (2003).
Item 5. Other Information
Not Applicable.
25
PART II. OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3 (a) Certificate of Incorporation of Coastal Financial
Corporation (1)
(b) Certificate of Amendment to Certificate of
Incorporation of Coastal Financial Corporation (6)
(c) Bylaws of Coastal Financial Corporation (1)
10 (a) Employment Agreement with Michael C. Gerald (2)
(b) Employment Agreement with Jerry L. Rexroad (2)
(c) Employment Agreement with Phillip G. Stalvey (4)
(d) Employment Agreement with Jimmy R. Graham (2)
(e) Employment Agreement with Steven J. Sherry (7)
(f) 1990 Stock Option Plan (2)
(g) Directors Performance Plan (3)
(h) Loan Agreement with Bankers Bank (5)
(i) Coastal Financial Corporation 2000 Stock Option Plan (8)
(b) No reports on Form 8-K have been filed during the quarter covered by
this report.
_____________
(1) Incorporated by reference to Registration Statement on Form S-4 filed with
the Securities and Exchange Commission on November 26, 1990.
(2) Incorporated by reference to 1995 Form 10-K filed with the Securities and
Exchange Commission on December 29, 1995.
(3) Incorporated by reference to the definitive proxy statement for the 1996
Annual Meeting of Stockholders.
(4) Incorporated by reference to 1997 Form 10-K filed with the Securities and
Exchange Commission on January 2, 1998.
(5) Incorporated by reference to December 31, 1997 Form 10-Q filed with
Securities and Exchange Commission on February 13, 1998.
26
PART II. OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
(6) Incorporated by reference to March 31, 1998 Form 10-Q filed with Securities
and Exchange Commission on May 15, 1998.
(7) Incorporated by reference to 1998 Form 10-K filed with Securities and
Exchange Commission on December 29, 1998.
(8) Incorporated by reference to the definitive proxy statement for the 2000
Annual Meeting of Stockholders filed December 22, 1999.
27
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COASTAL FINANCIAL CORPORATION
May 15, 2002 /s/ Michael C. Gerald
- ------------ ---------------------
Date Michael C. Gerald
President and Chief Executive Officer
May 15, 2002 /s/ Jerry L. Rexroad
- ------------ --------------------
Date Jerry L. Rexroad
Executive Vice President and
Chief Financial Officer
28