UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one): [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
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 0-14087
FIRST COASTAL CORPORATION
------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1177661
- -------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization
1200 CONGRESS STREET, PORTLAND, MAINE 04102
- ------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(207) 774-5000
--------------------------
(Registrant's telephone number, including area code)
Not applicable
--------------------------------
(Former address, 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. Yes [X] No [ ]
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date, is:
Class: Common Stock, Par Value $1.00 per share
Outstanding at November 7, 2000: 1,240,789
INDEX
FIRST COASTAL CORPORATION AND SUBSIDIARY
PART I FINANCIAL INFORMATION Page
--------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
(Unaudited) as of September 30, 2000
and December 31, 1999
Condensed Consolidated Statements of 4
Operations (Unaudited) for the three
and nine months ended September 30, 2000
and 1999
Condensed Consolidated Statements of Cash 6
Flows (Unaudited) for the nine months
ended September 30, 2000 and 1999
Condensed Consolidated Statements of 7
Comprehensive Income (Unaudited) for the
three and nine months ended September 30,
2000 and 1999
Notes to Condensed Consolidated Financial 8
Statements (Unaudited), September 30, 2000
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures 22
About Market Risk
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of 23
Security Holders
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
- -----------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
First Coastal Corporation and Subsidiary September 30, December 31,
-------------- -------------
(in thousands) 2000 1999
- -------------------------------------------------------------------------------
ASSETS
Noninterest earning deposits and cash $ 7,833 $ 6,631
Interest earning deposits 5,588 5,793
---------- ----------
Cash and cash equivalents 13,421 12,424
Investment securities:
Available for sale (at market value;
amortized cost: 2000 $57,903; 1999 $53,781) 57,285 51,823
Federal Home Loan Bank stock (at cost) 1,837 1,391
Loans held for sale (at lower of cost or market) 181 83
Loans 125,210 120,533
Deferred loan fees, net 4 (16)
Allowance for loan losses (2,900) (2,882)
---------- ----------
Loans, net 122,314 117,635
Premises and equipment 3,034 2,559
Accrued interest receivable 1,337 1,251
Deferred tax asset 2,044 2,950
Other assets 319 466
---------- ----------
TOTAL ASSETS $ 201,772 $ 190,582
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 137,791 $ 140,137
Federal Home Loan Bank borrowings 28,117 27,748
Savings Bank Notes 1,958 2,268
Secured borrowings 15,472 2,980
Accrued expenses and other liabilities 422 535
---------- ----------
TOTAL LIABILITIES 183,760 173,668
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 par value; Authorized
1,000,000 shares, none outstanding - -
Common Stock, $1.00 par value; Authorized
6,700,000 shares, issued as of September 30,
2000 and December 31, 1999 - 1,360,527 shares 1,361 1,361
Paid-in-capital 31,751 31,751
Retained earnings (deficit) (13,683) (14,579)
Accumulated other comprehensive loss (403) (1,292)
Treasury stock (At September 30, 2000 and
December 31, 1999 equaled 113,733 and
34,534 shares, respectively) (1,014) (327)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 18,012 16,914
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 201,772 $ 190,582
========== ==========
See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary Three Months Ended September 30,
-------------------------------
(in thousands, except share and per 2000 1999
share amounts)
- -------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 2,856 $ 2,562
Interest and dividends on investment
securities 946 830
Other interest income 217 69
---------- ------------
TOTAL INTEREST AND DIVIDEND INCOME 4,019 3,461
INTEREST EXPENSE
Deposits 1,335 1,263
Borrowings:
Federal Home Loan Bank 460 308
Savings Bank Notes 44 59
Secured borrowings 183 27
---------- ------------
Total Interest Expense 2,022 1,657
---------- ------------
Net Interest Income Before Provision
for Loan Losses 1,997 1,804
Provision for loan losses (206) -
---------- ------------
Net Interest Income After Provision for
Loan Losses 2,203 1,804
NONINTEREST INCOME
Service charges on deposit accounts 153 129
Gain on sales of mortgage loans 25 32
Other 27 50
---------- ------------
205 211
---------- ------------
OPERATING EXPENSES
Salaries and employee benefits 903 724
Occupancy 203 139
Net cost of operations of real estate owned
and repossessions - 1
Other 835 626
---------- ------------
1,941 1,490
---------- ------------
INCOME BEFORE INCOME TAXES 467 525
Income Taxes 169 185
---------- ------------
NET INCOME $ 298 $ 340
========== ============
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,248,496 1,359,159
Net income per share $ 0.24 $ 0.25
========== ============
Diluted earnings per share:
Weighted average shares outstanding 1,259,287 1,373,093
Net income per share $ 0.24 $ 0.25
========== ============
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary
Nine Months Ended September 30,
(in thousands, except share and --------------------------------
per share amounts) 2000 1999
- --------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 8,330 $ 7,357
Interest and dividends on investment
securities 2,857 2,494
Other interest income 390 450
--------- ------------
TOTAL INTEREST AND DIVIDEND INCOME 11,577 10,301
INTEREST EXPENSE
Deposits 3,814 3,964
Borrowings
Federal Home Loan Bank 1,344 898
Savings Bank Notes 125 208
Secured borrowings 395 59
--------- ------------
Total Interest Expense 5,678 5,129
--------- ------------
Net Interest Income Before Provision
for Loan Losses 5,899 5,172
Provision for loan losses (206) -
--------- ------------
Net Interest Income After Provision
for Loan Losses 6,105 5,172
NONINTEREST INCOME
Service charges on deposit accounts 422 364
Gain on investment securities transactions 8 22
Gain on sales of mortgage loans and
servicing rights 79 549
Gain on sale of branch - 1,110
Other 59 95
--------- ------------
568 2,140
--------- ------------
OPERATING EXPENSES
Salaries and employee benefits 2,520 2,107
Occupancy 555 448
Net cost of operations of real estate
owned and repossessions (1) 5
Other 2,208 1,881
--------- ------------
5,282 4,441
--------- ------------
INCOME BEFORE INCOME TAXES 1,391 2,871
Income Taxes 495 1,005
--------- ------------
NET INCOME $ 896 $ 1,866
========= ============
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,277,643 1,360,066
Net income per share $ 0.70 $ 1.37
========== ============
Diluted earnings per share:
Weighted average shares outstanding 1,288,566 1,374,146
Net income per share $ 0.70 $ 1.36
========== ============
See notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
First Coastal Corporation and Subsidiary
Nine Months Ended
September 30,
---------------------------
(in thousands) 2000 1999
- -------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 896 $ 1,866
Adjustments to reconcile net income
to net cash provided by operating activities:
Writedowns of REO - 5
Depreciation and amortization 397 331
Amortization (accretion) of investment
securities premiums/discounts 113 166
Realized investment securities gains (8) (22)
Realized gains on assets held for sale (79) (549)
Loans originated for sale (4,107) (3,973)
Sales of loans originated for sale 4,088 4,372
Decrease (increase) in interest receivable (86) 58
Increase in interest payable 7 33
Net change in other assets 1,053 465
Net change in other liabilities (120) (207)
---------- ------------
Net cash provided by operating activities 2,154 2,545
---------- ------------
INVESTING ACTIVITIES
Sales and maturities of securities
available for sale 5,082 11,310
Purchases of investment securities
available for sale (10,206) (19,254)
Net change in loans (4,679) (12,917)
Net purchases of premises and equipment (872) (295)
---------- ------------
Net cash used by investing activities (10,675) (21,156)
---------- ------------
FINANCING ACTIVITIES
Net change in deposits (2,346) (8,880)
Proceeds from borrowings 23,000 3,000
Payments on borrowings (22,941) (1,826)
Net change in secured borrowings 12,492 5,182
Repurchase of common stock (687) (56)
---------- ------------
Net cash provided (used) by financing activities 9,518 (2,580)
---------- ------------
Increase (decrease) in cash and cash equivalents 997 (21,191)
Cash and cash equivalents at beginning of period 12,424 32,627
---------- ------------
Cash and cash equivalents at end of period $ 13,421 $ 11,436
========== ============
See notes to condensed consolidated financial statements.
6
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
First Coastal Corporation and Subsidiary Three Months Ended September 30,
--------------------------------
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
NET INCOME $ 298 $ 340
Other comprehensive income:
Unrealized holding gains (losses) arising
during the period (net of income taxes):
2000 - $200; 1999 - $(118) 377 (201)
---------- ------------
Comprehensive income $ 675 $ 139
========== ============
See notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
First Coastal Corporation and Subsidiary Nine Months Ended September 30,
--------------------------------
(dollars in thousands) 2000 1999
- -------------------------------------------------------------------------------
NET INCOME $ 896 $ 1,866
Other comprehensive income:
Unrealized holding gains (losses) arising
during the period (net of income
taxes): 2000 - $474; 1999 - $(396) 894 (741)
Reclassification adjustment for realized
(gains) losses included in net income,
net of income taxes (taxes equaled:
2000 - $(3); 1999 - $(7)) (5) (15)
---------- ------------
889 (756)
---------- ------------
Comprehensive income $ 1,785 $ 1,110
========== ============
See notes to condensed consolidated financial statements.
7
FIRST COASTAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000
NOTE 1 BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements of First
Coastal Corporation (the "Company") and its subsidiary, Coastal Bank, have been
prepared in conformity with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results and
other data for the three and nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999 and other documents filed by the
Company with the Securities and Exchange Commission.
STOCK REPURCHASE PROGRAM
In February 2000, the Company's Board of Directors authorized an extension of
the Company's stock repurchase program, with the intent to repurchase up to an
additional 68,000 shares, or a total of 136,000 shares (10% of the outstanding
common stock as of the June 1999 commencement date of the repurchase program).
As of September 30, 2000, the total amount of common stock repurchased by the
Company under the repurchase program totaled 113,733 shares, or 8.4% of its
outstanding common stock as of the original June 1999 commencement date of the
program. The stock repurchase program is expected to be in effect until
approximately February 2001, unless the full 136,000 shares are acquired sooner
or the number of shares authorized for repurchase is further increased. Under
the program, no shares knowingly will be purchased from officers or directors of
the Company or from persons who hold in excess of five percent of the Company's
outstanding shares of common stock. The Company continues to believe that its
stock is undervalued, and that the purchase of the stock represents an effective
utilization of capital and will result in increased earnings per share.
COMPUTATION OF EARNINGS PER SHARE
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standard ("SFAS") No. 128, Earnings Per Share, provides reporting standards for
basic and diluted earnings per share. Basic earnings per share is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. There is no adjustment made to income used to calculate basic and
diluted earnings per share.
8
The following table sets forth the approximate number of shares used to
calculate basic and diluted earnings per share ("EPS") for the three and nine
months ended September 30, 2000 and 1999.
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------
2000 1999 2000 1999
-------------------------------------------------------
Weighted average shares outstanding for basic EPS 1,248,496 1,359,159 1,277,643 1,360,066
Effect of dilutive stock options /(1)/ 10,791 13,934 10,923 14,080
-------------------------------------------------------
Weighted average shares outstanding for diluted
EPS 1,259,287 1,373,093 1,288,566 1,374,146
=======================================================
/(1)/ Shares considered anti-dilutive and therefore excluded from the
calculation of the Company's weighted average shares outstanding for
diluted EPS equaled 86,000 and 39,500 for the three months ended September
30, 2000 and 1999, respectively. Shares considered anti-dilutive and
therefore excluded from the calculation of the Company's weighted shares
outstanding for diluted EPS equaled 86,000 and 36,000 for the nine months
ended September 30, 2000 and 1999, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------- ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
BUSINESS
First Coastal Corporation (the "Company"), a Delaware corporation, is a bank
holding company whose sole operating subsidiary is Coastal Bank ("Coastal Bank"
or the "Bank"), a Maine chartered bank currently headquartered in Portland,
Maine. The Bank was formed in 1981 through the consolidation of Brunswick
Savings Institution and York County Savings Bank, which were organized in 1858
and 1860, respectively. The Company has no separate operations and its business
consists of the business of the Bank. The Bank is engaged in customary banking
activities, including attracting deposits and various lending activities, and
conducts its business from eight branches in the counties of Cumberland,
Sagadahoc and York. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation up to the limits provided by law.
This Quarterly Report on Form 10-Q, including statements made in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contains certain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Certain, but not
necessarily all, of such forward-looking statements can be identified by the use
of forward-looking terminology, such as "believes," "expects," "may," "will,"
"should," "estimates," or "anticipates" or the negative thereof or other
variations thereof or comparable terminology. All forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual transactions, results, performance or achievements of the Company to
be materially different from those expressed or implied by such forward-looking
statements. Although the Company has made such statements based on assumptions
which it believes to be reasonable, there can be no assurance that the actual
transactions, results, performance or achievements will not differ materially
from the Company's expectations. For example, there are a number of important
factors with respect to such forward-looking statements that could materially
and adversely affect the future results associated with forward-looking
statements, such as (i) the impact of changes in market rates of interest,
economic conditions, or competitive factors on the Company's deposit products
and loan demand; (ii) the possibility that certain transactions, such as the
opening of new branches, the introduction of new banking products or other
planned or contemplated events, may not occur or be successful; (iii) the
possibility that operating expenses may be higher than anticipated; (iv) the
effect of changes in the general economic and competitive conditions in markets
in which the Company operates; (v)
9
the Company's ability to continue to control its provision for loan losses,
noninterest expense and to maintain its margin; (vi) the level of demand for new
and existing products; and (vii) legislative and regulatory changes, changes in
tax policies, rates and regulations and changes in accounting principles,
policies or guidelines. Should one or more of these risks or other uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described in the forward-looking statements. The
Company does not intend to update forward-looking statements. Investors are also
directed to other information related to the Company in documents filed by the
Company with the Securities and Exchange Commission.
MAINE CASH ACCESS, LLC
As part of the Bank's continued focus on retail banking, in May 2000, Coastal
Bank, in conjunction with another community bank, introduced a statewide,
surcharge free ATM alliance as a means of extending the geographic reach of the
Bank's branch and ATM networks. Maine Cash Access currently involves a total of
17 Maine banks and approximately 140 ATMs.
NEW PORTLAND MAIN OFFICE
In June, the Company and the Bank relocated their main offices to 1200 Congress
Street, Portland, Maine. The Bank leases and occupies the first two floors of
the newly constructed three story building. The facility includes a branch and
three-lane drive-through, ATM, commercial and retail banking offices, and space
which supports the Bank's loan, deposit and computer operations. The new
facility is expected to improve customer accessibility, provide increased market
awareness of Coastal Bank, result in enhanced overall service for existing and
prospective customers, and provide space for growth.
NEW FALMOUTH BRANCH
On November 1, 2000, the Bank opened its newest retail branch in Falmouth,
Maine, providing Coastal Bank customers with a third Greater Portland banking
office. The new branch is prominently located in The Shops at Falmouth Village
and houses a full-service bank, including a drive-through teller and ATM
facility, safe deposit boxes, and a unique community center which the Bank plans
on making available for community use.
RESULTS OF OPERATIONS
OVERVIEW
The Company reported net income of $298,000 for the three months ended September
30, 2000, compared to net income of $340,000 for the same period in 1999. Net
income for the three months ended September 30, 2000 includes a provision for
loan loss credit of approximately $134,000 after tax, resulting from a $206,000
provision for loan loss credit related to the loan loss recovery of a previously
charged off loan of an equal amount and $45,000 in after tax planning expenses
associated with the Company's Greater Portland strategic branching initiatives.
The Company reported net income of $896,000 for the nine months ended September
30, 2000, compared to net income of $1,866,000 for the same period in 1999. Net
income for the nine months ended September 30, 1999 was positively impacted by
after-tax gains of approximately $733,000 and $300,000 recorded during the first
six months of 1999, resulting from the sale of the Bank's Kennebunk branch and
residential mortgage servicing portfolio. The Company also posted a $134,000
after tax provision for loan loss credit during the third quarter of 2000 as
previously stated. In addition, the Company estimates that it incurred
approximately $72,000 in after tax expenses for the nine months ended September
30, 2000, as a result of
10
the relocation of its main office from Westbrook to 1200 Congress Street,
Portland and cost associated with the Company's Greater Portland strategic
branching initiatives.
NET INTEREST INCOME
Net interest income before provision for loan losses increased by $193,000 and
$727,000 for the three and nine months ended September 30, 2000 as compared to
the same periods in 1999. The increase in net interest income for the three and
nine months ended September 30, 2000 was primarily the result of higher loan
balances and yields and an increase in the amount of average interest earning
assets as compared to average interest bearing liabilities.
Changes in net interest income are caused by changes in the amount and
composition of interest earning assets and interest bearing liabilities,
interest rate movements and the repricing of assets and liabilities as a result
of these movements, changes in the level of noninterest earning assets and
noninterest bearing liabilities and income recognition and income reversals
related to interest earning assets which become noninterest earning assets.
11
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yields, (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost, (iii) net
interest income, (iv) interest rate spread, and (v) net interest margin.
For the three months ended September 30:
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
Average Average
Balance Interest Yield /(1)/ Balance Interest Yield /(1)/
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Interest earning cash $ 12,711 $ 217 6.69% $ 5,127 $ 69 5.29%
Investments 58,362 946 6.43 55,061 830 5.98
Loans /(2)(3)/
Residential real estate mortgages 29,567 611 8.27 30,390 605 7.96
Commercial real estate mortgages 66,534 1,590 9.48 64,617 1,479 9.08
Commercial and industrial loans 12,481 301 9.58 8,051 182 8.98
Consumer loans 15,002 354 9.35 12,962 296 9.07
------------ ---------- ---------- --------
Total loans 123,584 2,856 9.17 116,020 2,562 8.76
Total interest earning assets 194,657 4,019 8.19 176,208 3,461 7.80
Noninterest earning assets 10,296 7,585
------------ ----------
Total assets $ 204,953 $ 183,793
============ ==========
LIABILITIES:
Deposits
Savings $ 53,775 498 3.68% $ 62,431 561 3.57%
NOW and money market accounts 15,718 73 1.84 19,797 114 2.28
Certificates of deposit 53,326 764 5.69 46,930 588 4.97
------------ ---------- ---------- --------
Total interest bearing deposits 122,819 1,335 4.31 129,158 1,263 3.88
Borrowings 32,215 504 6.21 23,720 367 6.14
Secured borrowings 18,106 183 4.00 2,612 27 4.06
------------ ---------- ---------- --------
Total interest bearing liabilities 173,140 2,022 4.63 155,490 1,657 4.23
Noninterest bearing deposits 13,289 10,869
Noninterest bearing liabilities 560 158
Stockholders' equity 17,964 17,276
------------ ----------
Total liabilities and stockholders' equity $ 204,953 $ 183,793
============ ==========
Net interest income before provision for
loan losses $ 1,977 $ 1,804
========== ========
Net interest rate spread /(4)/ 3.56% 3.57%
Net interest rate margin /(5)/ 4.07% 4.06%
/(1)/ Annualized.
/(2)/ For purposes of these computations, loans held for sale and nonaccrual
loans are included in the average loan amounts outstanding.
/(3)/ Fees from loans are included in interest income from loans.
/(4)/ Return on interest earning assets less cost of interest bearing
liabilities.
/(5)/ Net interest income divided by average interest earning assets.
12
The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yields, (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost, (iii) net
interest income, (iv) interest rate spread, and (v) net interest margin.
For the nine months ended September 30:
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
Average Average
Balance Interest Yield /(1)/ Balance Interest Yield /(1)/
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Interest earning cash $ 8,166 $ 390 6.27% $ 12,157 $ 450 4.88%
Investments 57,095 2,857 6.67 53,768 2,494 6.20
Loans /(2)(3)/
Residential real estate mortgages 29,587 1,803 8.13 32,008 1,912 7.96
Commercial real estate mortgages 67,918 4,726 9.27 59,738 4,068 9.10
Commercial and industrial loans 11,704 830 9.44 7,043 476 9.03
Consumer loans 14,190 971 9.11 13,206 901 9.12
------------- --------- ---------- -------
Total loans 123,399 8,330 8.99 111,995 7,357 8.78
Total interest earning assets 188,660 11,577 8.17 177,920 10,301 7.74
Noninterest earning assets 9,546 8,813
------------- ----------
Total assets $ 198,206 $ 186,733
============= ==========
LIABILITIES:
Deposits
Savings $ 55,108 1,524 3.68% $ 63,812 1,755 3.68%
NOW and money market accounts 17,468 277 2.11 19,340 334 2.31
Certificates of deposit 49,534 2,013 5.41 49,622 1,875 5.05
------------- --------- ---------- -------
Total interest bearing deposits 122,110 3,814 4.16 132,774 3,964 3.99
Borrowings 32,466 1,469 6.03 24,275 1,106 6.09
Secured borrowings 13,144 395 4.01 1,910 59 4.09
------------- --------- ---------- -------
Total interest bearing liabilities 167,720 5,678 4.51 158,959 5,129 4.31
Noninterest bearing deposits 12,216 11,313
Noninterest bearing liabilities 436 207
Stockholders' equity 17,834 16,254
------------- ----------
Total liabilities and stockholders' equity $ 198,206 $ 186,733
============= ==========
Net interest income before provision for
loan losses $ 5,899 $ 5,172
========= =======
Net interest rate spread /(4)/ 3.66% 3.43%
Net interest rate margin /(5)/ 4.17% 3.89%
(1) Annualized.
(2) For purposes of these computations, loans held for sale and nonaccrual
loans are included in the average loan amounts outstanding.
(3) Fees from loans are included in interest income from loans.
(4) Return on interest earning assets less cost of interest bearing
liabilities.
(5) Net interest income divided by average interest earning assets.
13
INTEREST INCOME
Interest income increased $558,000 and $1,276,000 for the three and nine months
ended September 30, 2000 as compared to the same periods in 1999. The increase
for the three months ended September 30, 2000 is mainly attributable to a $7.6
million increase in average loan balances and a $10.9 million increase in
average interest earning cash and securities balances. The yields on
securities, interest earning cash and loans increased on a combined basis by
0.39%, increasing the Company's yield on total interest earning assets for the
three months ended September 30, 2000 to 8.19% as compared to 7.80% for the
three months ended September 30, 1999.
The $1,276,000 increase in interest income for the nine months ended September
30, 2000 is primarily attributable to a $11.4 million increase in average loan
balances and an increase in the yield on investment securities, cash and loans
of 0.47%, 1.39% and 0.21%, respectively. Additionally, $4.0 million in average
interest earning cash balances was reallocated to higher yielding securities,
resulting in a 1.79% increase in the yield on these funds for the nine months
ended September 30, 2000 as compared to the same period in 1999. This shift in
the allocation of interest earning assets and the higher yield received on loans
and investment securities and cash contributed to the 0.43% increase in the
yield on total interest earning assets, to 8.17% for the nine months ended
September 30, 2000 as compared to 7.74% for the same period in 1999.
INTEREST EXPENSE
Interest expense increased $365,000 and $549,000 for the three and nine months
ended September 30, 2000 as compared to the same periods in 1999. The increase
in interest expense for the three months ended September 30, 2000 is primarily
attributable to a $17.7 million increase in average interest bearing liabilities
and a 0.40% increase in the cost of funds. Interest expense on deposits
increased $72,000 as a result of a 0.43% increase in interest rates paid on
deposits, offset by a $6.3 million decline in average balances. The decline in
average deposit balances was mainly the result of the transfer of one class of
commercial deposits totaling $3.5 million at September 30, 1999 to secured
borrowings in March of 2000.
The increase in interest expense for the nine months ended September 30, 2000
was primarily attributable to a $8.8 million increase in average interest
bearing liabilities and a 0.20% increase in the cost of funds for the nine
months ended September 30, 2000 as compared to the nine months ended September
30, 1999. Interest expense on deposits declined $150,000 for the nine months
ended September 30, 2000 as compared to the same period in 1999, resulting from
a $10.7 million decline in average deposit balances, primarily as a result of
the sale of the Bank's Kennebunk branch in May 1999, which included $12.5
million in deposits at the time of the sale. Offsetting this decrease was a
$699,000 increase in interest expense related to borrowings. This increase was
the result of an increase in average balances on FHLB borrowings and secured
borrowings of $8.2 million and $11.2 million, respectively, for the nine months
ended September 30, 2000 as compared to the same period in 1999. $7.0 million of
the increase in secured borrowings was the result of the increases in the
aforementioned transfer of one class of commercial deposits to secured
borrowings in March 2000. Secured borrowings have no maturity and may be
withdrawn at any time. In the event of a substantial withdrawal, it may be
necessary to replace these funds with borrowings from an alternative source
which may result in increased interest expense to the Company.
As competitive pressures continue, the cost of funds to financial institutions
may rise relative to market interest rates, thereby narrowing the spread on
interest earning assets as compared to interest bearing liabilities.
14
PROVISION FOR LOAN LOSSES
Provision for loan loss expense equaled a credit of $206,000 for the three and
nine months ended September 30, 2000. There was no provision for loan losses
expense for the three and nine months ended September 30, 1999. The negative
provision expense of $206,000 during the third quarter of 2000 is attributable
to a loan loss recovery of a previously charged off loan of an equal amount.
The absence of a provision for loan losses in 2000 and 1999 is primarily
attributable to the continued low level of nonperforming loans and potential
problem loans (as compared to historical levels), and the result of management's
review of the portfolio and determination of the adequacy of the allowance for
loan losses at September 30, 2000.
NONINTEREST INCOME
Noninterest income decreased $6,000 and $1.6 million for the three and nine
months ended September 30, 2000 as compared to the same period in 1999. This
decrease for the nine months ended September 30, 2000 is attributable to gains
which occurred in 1999 consisting of a $500,000 pre-tax gain received on the
sale of the Bank's residential mortgage servicing portfolio in the first quarter
of 1999 and a $1.1 million pre-tax gain received on the sale of the Bank's
Kennebunk branch in the second quarter of 1999.
OPERATING EXPENSES
Operating expense increased $451,000 and $841,000 for the three and nine months
ended September 30, 2000 as compared to the same periods in 1999. The increase
in salaries and benefits for the three and nine months ended September 30, 2000
of $179,000 and $413,000, respectively, as compared to the same period in 1999,
was primarily attributable to changes in staffing levels (including additional
staff in connection with the Bank's new main office in Portland and branch in
Falmouth) and annual salary increases. In addition, the Company estimates that
it incurred approximately $45,000 and $72,000 in special after tax expenses
during the three and nine months ended September 30, 2000, respectively, as a
result of the relocation of its main office from Westbrook to 1200 Congress
Street, Portland and costs associated with the Bank's Greater Portland strategic
branching initiatives. Marketing costs increased $92,000 for the nine months
ended September 30, 2000 as compared to the same period in 1999 as a result of
these initiatives and the promotion of new retail deposit programs. Management
anticipates operating expenses for the balance of 2000, 2001 and beyond to
further increase as a result of business initiatives that are currently underway
or contemplated, including (i) the lease expense and related occupancy costs
associated with its new main office, including related furniture, fixtures and
equipment expenses, which is estimated to increase the Company's occupancy
expense approximately $300,000 annually, (ii) the opening of the Bank's newest
branch in Falmouth, Maine, (iii) the opening of additional branches over the
next several years in the Greater Portland market, (iv) the introduction of a
number of new retail banking products, and (v) the Bank's continued expansion of
its overall banking activities.
FINANCIAL CONDITION
TOTAL ASSETS
At September 30, 2000, total assets equaled $201.8 million, representing an
increase of $11.2 million (or 5.9%), as compared to total assets of $190.6
million at December 31, 1999. This increase was primarily the result of a $1.0
million increase in cash and cash equivalents, a $5.5 million increase in
investment securities and a $4.7 million increase in loan balances. Deposit
balances declined $2.3 million during the nine months ended September 30, 2000
as a result of the transfer of one class of commercial deposits totaling $5.2
million at December 31, 1999 (transferred in March 2000) to secured borrowings,
which increased $12.5 million during this period.
15
INVESTMENTS
The Company's investment portfolio is comprised primarily of U.S. government
and agency obligations. Total investment securities at September 30, 2000 were
$59.1 million compared to $53.2 million at December 31, 1999, an increase of
$5.9 million. This increase is primarily attributable to the purchase of $5.9
million in mortgage-backed securities, $2.1 million in government obligations,
$2.1 million in government agency notes, $0.4 million in equities and a $1.3
million decline in the unrealized loss on available for sale securities,
partially offset by the sale and/or maturity of $2.4 million in government
obligations, and $3.5 million in prepayments and amortization on mortgage-backed
securities and amortization of premiums on investment securities.
The following table sets forth the amortized cost and fair value of investment
securities for each major security type at September 30, 2000.
September 30, 2000
-----------------------------------------------------
Gross Gross Fair
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains (Losses) Value
- ------------------------------------------------------------------------------------
Available for sale:
U.S. government obligations $ 20,106 $ 59 $ (216) $ 19,949
U.S. government agency notes 3,100 24 (58) 3,066
Mortgage backed securities 34,224 178 (605) 33,797
Equity securities 473 - - 473
--------- -------- ------- ---------
$ 57,903 $ 261 $ (879) $ 57,285
========= ======== ======== =========
The after-tax unrealized loss on investment securities classified as available
for sale was $403,000 and $1,292,000, at September 30, 2000 and December 31,
1999, respectively.
The following table represents the contractual maturities for investments in
debt securities for each major security type at September 30, 2000.
September 30, 2000
-----------------------------------------------------
Maturing
-----------------------------------------------------
After One
Within But within After
(in thousands) One Year Five Years Five Years Total
- ------------------------------------------------------------------------------------
Available for sale:
U.S. government obligations $ 248 $ - $ 19,701 $ 19,949
U.S. government agency - - 3,066 3,066
Mortgage backed securities - - 33,797 33,797
-------- --------- --------- ---------
$ 248 - $ 56,564 $ 56,812
======== ========= ========= =========
LOANS HELD FOR SALE
Loans held for sale equaled $181,000 at September 30, 2000 as compared to
$83,000 at December 31, 1999, an increase of $98,000. The outstanding dollar
amount of loans held for sale can vary greatly from period to period, affected
by such factors as mortgage origination levels, the timing and delivery of loan
sales, changes in market interest rates and asset liability management
strategies.
16
LOANS
Loans consisted of the following:
September 30, December 31,
--------------------------------
(in thousands) 2000 1999
- ---------------------------------------------------------------
Real estate mortgage loans:
Residential $ 28,388 $ 28,460
Commercial 65,571 66,833
Real estate construction 2,063 2,832
Commercial and industrial 12,976 9,446
Consumer and other 16,212 12,962
----------- -----------
Total $ 125,210 $ 120,533
=========== ===========
Loans increased $4.7 million (or 3.9%) at September 30, 2000 as compared to
December 31, 1999. The increase is attributable to a $3.5 million increase in
commercial and industrial loans and a $3.2 million increase in consumer loans,
primarily attributable to an increase in home equity loan outstandings.
Additionally, in October of 2000 the Bank purchased $4.6 million in student
loans from another Maine-based community bank. The yield on student loans
adjusts quarterly through the special allowance received from the federal
government and each loan carries a minimum guarantee of the federal government
of 98% of the original principal balance. The Bank purchased these loans in
part to improve the Company's overall interest rate sensitivity position and may
consider additional purchases of student loans.
ALLOWANCE FOR LOAN LOSSES ("ALLOWANCE")
The Company's Allowance was $2.9 million at September 30, 2000 and December 31,
1999. For the nine months ended September 30, 2000, loan loss recoveries
equaled $350,000, charged-off loans equaled $127,000 and the Company booked
negative provision expense of $206,000. During the quarter ended September 30,
2000, the Company booked negative provision expense of $206,000 following the
collection of the remaining $206,000 balance of a previously charged off loan.
This loan loss recovery represented a cash payment received as a result of the
sale of the borrower's property which secured the loan. The Allowance
represented 2.3% and 2.4% of total loans at September 30, 2000 and December 31,
1999, respectively. Management believes that in accordance with the Bank's
Allowance for Loan Loss Policy, the Allowance is adequate at September 30, 2000.
However, future additions to the Allowance may be necessary based on changes in
the financial condition of various borrowers, new information that becomes
available relative to various borrowers and loan collateral, growth in the size
or changes in the mix or concentration risk of the loan portfolio, as well as
changes in local, regional or national economic conditions. In addition,
various regulatory authorities, as an integral part of their examination
process, periodically review the Bank's Allowance. Such authorities may require
the Bank to increase the Allowance based upon information available to them and
their judgments at the time of their examination.
17
NONPERFORMING ASSETS
Information with respect to nonperforming assets is set forth below:
September 30, December 31,
-----------------------------
(in thousands) 2000 1999
- -------------------------------------------------------------------------
Nonaccrual loans $ 353 $ 373
Accruing loans past due 90 days or more 305 167
Restructured loans - -
Real estate owned and repossessions - -
-------- --------
Total $ 658 $ 540
======== ========
Nonperforming assets increased $118,000 at September 30, 2000 as compared to
December 31, 1999. While the current level of nonperforming assets remains low
compared to historical levels, deterioration in the local economy or real estate
market, or upward movements in interest rates could adversely impact the
performance and/or value of the underlying collateral for these loans and could
have an adverse impact on the Bank's loan portfolio, and in particular,
currently performing commercial real estate loans. In addition, deterioration
in the local economy or adverse changes in the financial condition of various
borrowers could have an impact on the Bank's entire loan portfolio (including
commercial real estate). These factors could result in an increased incidence
of loan defaults and, as a result, an increased level of nonperforming loans and
assets. In addition, while the current level of nonperforming assets is
encouraging, this level is considered by management to be so low that it is
unlikely to be sustained.
IMPAIRED LOANS
At September 30, 2000, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $353,000, as compared to
$373,000 at December 31, 1999. At September 30, 2000, the corresponding
allocated reserves totaled $9,000 (relating to one impaired loan with a balance
of $62,000). All impaired loans were classified as nonaccrual at September 30,
2000 and December 31, 1999. The income recorded on a cash basis relating to
impaired loans equaled $20,000 and $3,000 at September 30, 2000 and 1999,
respectively. The average balance of outstanding impaired loans was $420,000 and
$330,000 at September 30, 2000 and December 31, 1999, respectively. All of the
impaired loans were collateralized by real estate at September 30, 2000 and
December 31, 1999.
REAL ESTATE OWNED ("REO")
REO consists of properties acquired through mortgage loan foreclosure
proceedings, repossessions or in full or partial satisfaction of outstanding
loan obligations. At September 30, 2000 and December 31, 1999 the Bank had no
REO properties.
18
LIQUIDITY - BANK
Deposits totaled $137.8 million at September 30, 2000, a decrease of $2.3
million (or 1.7%) from the level of $140.1 million at December 31, 1999.
Deposit balances were as follows:
September 30, December 31,
------------------------------
(in thousands) 2000 1999
- ---------------------------------------------------------------------
Noninterest bearing demand deposits $ 14,284 $ 11,962
Interest bearing demand deposits 15,003 22,280
Savings and escrow deposits 54,294 58,775
Time deposits 54,210 47,120
------------- ------------
Total $ 137,791 $ 140,137
============= ============
The $2.3 million decline in deposit balances was primarily attributable to the
transfer of a portion of the commercial deposit portfolio (totaling $5.2 million
at December 31, 1999 and $10.1 million at the time of transfer in March 2000) to
secured borrowings. These funds have no maturity and may be withdrawn at any
time. In the event of a substantial withdrawal, it may be necessary to replace
these funds with borrowings from an alternative source which may result in
increased interest expense to the Bank.
LIQUIDITY - COMPANY
On a parent company only basis ("parent"), the Company conducts no separate
operations. Its business consists of the operations of its banking subsidiary.
In addition to debt service relating to the promissory notes issued by the
Company to a group of three Maine savings banks (the "Savings Banks") in the
aggregate principal amount of $2.0 million at September 30, 2000, the Company's
expenses consist primarily of Delaware franchise taxes associated with the
Company's authorized capital stock and various other expenses. These expenses,
including legal, certain audit and other professional fees, insurance and other
expenses, are allocated between the Bank and the Company based upon the relative
benefits derived.
In February 2000, the Company's Board of Directors authorized an extension of
the Company's stock repurchase program, with the intent to repurchase up to an
additional 68,000 shares, or a total of 136,000 shares (10% of the outstanding
common stock as of the June 1999 commencement date of the repurchase program).
As of September 30, 2000, the Company had repurchased 113,733 shares of its
common stock under the program. The stock repurchase program is expected to be
in effect until approximately February 2001 unless the full 136,000 shares are
acquired sooner or the number of shares authorized for repurchase is further
increased.
Payment of dividends by the Company on its stock is subject to various
restrictions. Among these restrictions is a requirement under Delaware
corporate law that dividends may be paid by the Company only out of its surplus
or, in the event there is no surplus, out of its net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year.
The principal source of cash for the Company would normally be a dividend from
the Bank; however, certain restrictions also exist regarding the ability of the
Bank to transfer funds to the Company in the form of cash dividends, loans or
advances. Maine corporate law generally provides that dividends may only be
paid out of unreserved and unrestricted earned surplus or unreserved and
unrestricted net earnings of the current fiscal year and the next preceding
fiscal year taken as a single period. Maine banking law also imposes certain
19
restrictions, including the requirement that the Bank establish and maintain
adequate levels of capital as set forth in rules adopted by the Maine Bureau of
Banking.
The Loan Agreement dated August 4, 1999, between the Company and the Savings
Banks contains certain terms, restrictions and covenants, such as restrictions
regarding the conditions under which cash dividends may be paid by the Company
(including a prohibition on the payment of cash dividends to its stockholders as
long as the Company's debt-to-equity ratio on a parent-only basis exceeds 50%),
and a requirement that the Company and the Bank maintain certain minimum capital
ratios. At September 30, 2000, the Company's debt-to-equity ratio and
regulatory capital ratios would have permitted the payment of a dividend by the
Company under the terms of the Loan Agreement.
On August 30, 2000, the Bank paid the Company a cash dividend of $500,000. At
September 30, 2000, the parent's cash and cash equivalents totaled $526,000.
The Company suspended the payment of cash dividends to its stockholders in the
fourth quarter of 1989 and has not paid any cash dividends to its stockholders
since that time.
20
CAPITAL - BANK
The table below sets forth the regulatory capital requirements and capital
ratios for the Bank at September 30, 2000 and December 31, 1999:
(dollars in thousands) September 30, 2000 December 31, 1999
- -----------------------------------------------------------------------------------------------------
Tier 1 capital (Leverage) to total assets /(1)/ ratio
Qualifying capital $ 17,808 $ 17,244
Actual % 8.77% 9.22%
Minimum requirements for capital adequacy % 4.00% 4.00%
Average quarterly assets $ 202,952 $ 187,070
Tier 1 capital to risk-weighted assets
Qualifying capital $ 17,808 $ 17,244
Actual % 15.86% 15.90%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 19,231 $ 18,618
Actual % 17.12% 17.17%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $ 112,318 $ 108,419
/(1)/ Calculated on an average quarterly basis less disallowed portion of the deferred tax asset.
CAPITAL - COMPANY
The table below sets forth the regulatory capital requirements and capital
ratios for the Company at September 30, 2000 and December 31, 1999:
(dollars in thousands) September 30, 2000 December 31, 1999
- ----------------------------------------------------------------------------------------------------
Tier 1 capital (Leverage) to total assets /(1)/ ratio
Qualifying capital $ 16,871 $ 15,756
Actual % 8.30% 8.37%
Minimum requirements for capital adequacy % 4.00-5.00% 4.00-5.00%
Average quarterly assets $ 203,233 $ 188,154
Tier 1 capital to risk-weighted assets
Qualifying capital $ 16,871 $ 15,756
Actual % 14.98% 14.56%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 18,297 $ 17,128
Actual % 16.25% 15.82%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $ 112,622 $ 108,243
/(1)/ Calculated on an average quarterly basis less disallowed portion of the
deferred tax asset.
21
YEAR 2000 ISSUE
In accordance with guidelines provided by the Federal Financial Institutions
Examination Council, the Company established a Year 2000 Action Committee to
address the risks related to potential computer problems associated with the
Year 2000 date change, including the development and implementation of a
strategy to minimize the impact of Year 2000 risk relating to the Bank's
information technology systems and non-information technology systems. During
the turn of the millennium, Bank staff was on hand to validate all systems,
including computer, telephone and ATMs, as well as testing for data integrity.
The Company did not experience any significant problems or interruptions in
service resulting from the Year 2000 date change or adverse implications to the
Bank's borrowers or depositors. The Company will continue to monitor its
computerized and other electronic systems throughout 2000 for any potential
problems that may arise. However, management does not anticipate any
disruptions in its operations resulting from Year 2000 systems problems.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Not applicable.
22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
As of September 30, 2000, there were various claims and lawsuits pending
against the Company incidental to the ordinary course of business. In the
opinion of management, after consultation with legal counsel, resolution of
these matters is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
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
- -----------------------------------------------------------
Not applicable.
Item 5. Other Information
- -------------------------
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) The exhibits that are filed with this Form 10-Q are set forth below:
27.1 Financial Data Schedule.
(b) No Reports on Form 8-K were filed by the Company during the third quarter
of 2000.
23
FIRST COASTAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST COASTAL CORPORATION
Date: November 14, 2000 By: /s/ Gregory T. Caswell
--------------------------------
Gregory T. Caswell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: November 14, 2000 By: /s/ Gregory T. Caswell
--------------------------------
Gregory T. Caswell
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 2000 By: /s/ Dennis D. Byrd
--------------------------------
Dennis D. Byrd
Vice President and Treasurer
(Principal Financial and Accounting Officer)
24
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
27.1 Financial Data Schedule (filed herewith).