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 MARCH 31, 2001
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 IRS Employer Identification No.)
of 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)
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 May 7, 2001: 1,199,989
INDEX
FIRST COASTAL CORPORATION AND SUBSIDIARY
PART I FINANCIAL INFORMATION Page
--------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) as of March 3
31, 2001 and December 31, 2000
Condensed Consolidated Statements of Operations (Unaudited) 4
for the three months ended March 31, 2001 and 2000
Condensed Consolidated Statements of Cash Flows (Unaudited) 5
for the three months ended March 31, 2001 and 2000
Condensed Consolidated Statements of Comprehensive Income 6
(Unaudited) for the three months ended March 31, 2001 and 2000
Notes to Condensed Consolidated Financial Statements 7
(Unaudited), March 31, 2001
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
- -----------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
First Coastal Corporation and Subsidiary March 31, December 31,
-----------------------------
(in thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Noninterest earning deposits and cash $ 9,995 $ 6,559
Interest earning deposits 11,984 29,688
------------ ------------
Cash and cash equivalents 21,979 36,247
Investment securities:
Available for sale (at market value; amortized cost: 2001 $49,930; 2000 $43,876) 50,432 43,785
Federal Home Loan Bank stock (at cost) 1,745 1,745
Loans held for sale (at lower of cost or market) 1,061 298
Loans 143,080 131,609
Deferred loan fees, net (22) (1)
Allowance for loan losses (2,934) (2,814)
------------ ------------
Loans, net 140,124 128,794
Premises and equipment 4,542 4,551
Accrued interest receivable 1,421 1,447
Real estate owned and repossessions 46 46
Deferred tax asset 1,401 1,741
Other assets 267 397
------------ ------------
TOTAL ASSETS $ 223,018 $ 219,051
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 149,232 $ 143,358
Federal Home Loan Bank borrowings 34,680 32,901
Savings Bank Notes 1,741 1,850
Secured borrowings 17,860 21,969
Accrued expenses and other liabilities 671 589
------------ ------------
TOTAL LIABILITIES 204,184 200,667
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 March 31,
2001 and December 31, 2000 - 1,360,727 shares 1,361 1,361
Paid-in-capital 31,751 31,751
Retained earnings (deficit) (13,130) (13,387)
Accumulated other comprehensive gain (loss) 332 (61)
Treasury stock (At March 31, 2001 and December 31, 2000 equaled 160,738 and
143,038 shares, respectively) (1,480) (1,280)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 18,834 18,384
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 223,018 $ 219,051
============ ============
See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary Three Months Ended March 31,
-----------------------------
(in thousands, except share and per share amounts) 2001 2000
- -----------------------------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 3,095 $ 2,692
Interest and dividends on investment securities 777 958
Other interest income 270 71
------------ ------------
TOTAL INTEREST AND DIVIDEND INCOME 4,142 3,721
INTEREST EXPENSE
Deposits 1,427 1,270
Borrowings:
Federal Home Loan Bank 489 422
Savings Bank Notes 41 48
Secured borrowings 179 41
------------ ------------
Total Interest Expense 2,136 1,781
------------ ------------
Net Interest Income Before Provision for Loan Losses 2,006 1,940
Provision for loan losses - -
------------ ------------
Net Interest Income After Provision for Loan Losses 2,006 1,940
NONINTEREST INCOME
Service charges on deposit accounts 150 117
Gain on investment securities transactions 247 -
Gain on sales of mortgage loans 27 21
Other 64 22
------------ ------------
488 160
------------ ------------
OPERATING EXPENSES
Salaries and employee benefits 932 775
Occupancy 287 178
Other 881 651
------------ ------------
2,100 1,604
------------ ------------
INCOME BEFORE INCOME TAXES 394 496
Income Taxes 137 177
------------ ------------
NET INCOME $ 257 $ 319
============ ============
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,205,496 1,306,607
Net income per share $ 0.21 $ 0.24
============ ============
Diluted earnings per share:
Weighted average shares outstanding 1,231,276 1,318,949
Net income per share $ 0.21 $ 0.24
============ ============
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
First Coastal Corporation and Subsidiary Three Months Ended March 31,
----------------------------
(in thousands) 2001 2000
- -----------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net Income $ 257 $ 319
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 175 117
Amortization (accretion) of investment securities premiums/discounts (25) (287)
Realized investment securities gains (247) -
Realized gains on assets held for sale (27) (21)
Loans originated for sale (2,332) (1,183)
Sales of loans originated for sale 1,596 746
Decrease in interest receivable 26 16
Increase in interest payable 12 3
Net change in other assets 470 342
Net change in other liabilities 70 58
------------ ------------
Net cash provided (used) by operating activities (25) 110
------------ ------------
INVESTING ACTIVITIES
Sales and maturities of securities available for sale 15,167 1,411
Purchases of investment securities available for sale (21,149) (3,955)
Net change in loans (11,330) (3,179)
Net purchases of premises and equipment (166) (256)
------------ ------------
Net cash used by investing activities (17,478) (5,979)
------------ ------------
FINANCING ACTIVITIES
Net change in deposits 5,874 (9,148)
Proceeds from borrowings 2,000 8,000
Payments on borrowings (330) (3,308)
Net change in secured borrowings (4,109) 12,427
Repurchase of common stock (200) (297)
------------ ------------
Net cash provided by financing activities 3,235 7,674
------------ ------------
Increase (decrease) in cash and cash equivalents (14,268) 1,805
Cash and cash equivalents at beginning of period 36,247 12,424
------------ ------------
Cash and cash equivalents at end of period $ 21,979 $ 14,229
============ ============
See notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
First Coastal Corporation and Subsidiary Three Months Ended March 31,
----------------------------
(dollars in thousands) 2001 2000
- -------------------------------------------------------------------------------------------------------------
NET INCOME $ 257 $ 319
Other comprehensive income:
Unrealized holding gains arising during the period (net of income taxes):
2001 - $125; 2000 - $188 232 354
Reclassification adjustment for realized gains included in net income, net of
income taxes (taxes equaled: 2001 - $86) 161 -
------------ ------------
393 354
------------ ------------
Comprehensive income $ 650 $ 673
============ ============
See notes to condensed consolidated financial statements.
6
FIRST COASTAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
MARCH 31, 2001
NOTE 1 BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements of First
Coastal Corporation (the "Company") and its subsidiary, Coastal Bank (the
"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. The
December 31, 2000 financial data in the Condensed Consolidated Balance Sheets is
derived from the consolidated financial statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 2000. 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 months ended March 31, 2001 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2001. 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, 2000 and other documents filed by the
Company with the Securities and Exchange Commission.
PENDING MERGER TRANSACTION
On April 2, 2001 the Company announced that it had entered into a definitive
agreement for Norway Bancorp ("Norway"), the mutual holding parent company of
Norway Savings Bank ("Norway Savings"), to acquire the Company in a cash
acquisition of $21.00 for each outstanding share of the Company's common stock.
Under the proposed agreement, the Company will be merged into a newly formed
subsidiary of Norway Bancorp, and the Bank will merge into Norway Savings Bank
(the "Merger Transaction"). The acquisition of the Company and the Bank will be
accomplished through a three-step process. First, the Company will merge with a
newly formed subsidiary of Norway Bancorp created for the purposes of the
merger. As a result of this merger, the Company will be the surviving
corporation and Norway will be its sole stockholder. At the effective time of
the merger, each share of the Company's common stock will be converted into the
right to receive $21.00 in cash. Second, the Company will be merged into
Norway. Finally, the Bank will be merged into Norway Savings, with Norway
Savings being the surviving bank. The combination of the two banks is expected
to create the fourth largest Maine-based bank, based on a combined approximately
$580 million in assets. The combined bank will have 18 offices in southern and
western Maine. The Merger Transaction is subject to the receipt of stockholder
and regulatory approvals and is expected to close in the third quarter of 2001.
In connection with the Merger Transaction, the Company has filed a proxy
statement with the Securities and Exchange Commission. Following clearance of
that proxy statement by the SEC, stockholders are urged to read the proxy
statement when it becomes available because it will contain important
information relating to the Merger Transaction and the special meeting of
stockholders.
STOCK REPURCHASE PROGRAM
During the quarter ended March 31, 2001, the Company repurchased 17,700 shares
of its common stock under the Company's stock repurchase program. As of March
31, 2001, the Company had repurchased a total of 160,738 shares of its common
stock since inception of the repurchase program in June 1999. In light of the
pending proposed Merger Transaction between the Company and Norway Bancorp, the
Company has suspended all stock repurchases.
7
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.
The following table sets forth the approximate number of shares used to
calculate basic and diluted earnings per share ("EPS") for the three months
ended March 31, 2001 and 2000.
Three Months Ended
March 31,
---------------------
2001 2000
---------------------
Weighted average shares outstanding for basic EPS 1,205,496 1,306,607
Effect of dilutive stock options /1/ 25,780 12,342
--------- ---------
Weighted average shares outstanding for diluted EPS 1,231,276 1,318,949
========= =========
/1/ Shares considered anti-dilutive and therefore excluded from the calculation
of the Company's weighted average shares outstanding for diluted EPS equaled
22,000 and 55,000 for the three months ended March 31, 2001 and 2000,
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. In making forward-looking
statements, the Company claims the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act of
1995. 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
8
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) matters related to the
Merger Transaction, (ii) the impact of changes in market rates of interest,
economic conditions, or competitive factors on the Company's deposit products
and loan demand; (iii) the possibility that certain transactions, such as the
pending Merger Transaction, the opening of new branches, the introduction of new
banking products or other planned or contemplated events, may not occur or be
successful; (iv) the possibility that operating expenses may be higher than
anticipated; (v) the effect of changes in the general economic and competitive
conditions in markets in which the Company operates; (vi) the Company's ability
to continue to control its provision for loan losses, noninterest expense and to
maintain its margin; (vii) 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.
RESULTS OF OPERATIONS
OVERVIEW
The Company reported net income of $257,000 for the three months ended March 31,
2001 as compared to net income of $319,000 for the same period in 2000. Net
income for the three months ended March 31, 2001 was positively impacted by
after-tax securities gains of $161,000, offset by $91,000 in after tax expenses
related to the pending merger. Additionally, operating expense for the three
months ended March 31, 2001 were higher as compared to the same period in 2000,
primarily attributable to costs associated with the June 2000 opening of the
Bank's new Portland main office and the November 2000 opening of the Bank's
Falmouth branch.
NET INTEREST INCOME
Net interest income before provision for loan losses increased by $66,000 for
the three months ended March 31, 2001 as compared to the same period in 2000.
The increase in net interest income for the three months ended March 31, 2001
was primarily the result of higher balances 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.
9
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 March 31,
--------------------------------------------------------------------------------
2001 2000
--------------------------------------------------------------------------------
Average Average
Balance Interest Yield (1) Balance Interest Yield (1)
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Interest earning cash $ 19,256 $ 270 5.62% $ 5,202 $ 71 5.39%
Investments 44,384 777 7.10 54,878 958 7.00
Loans (2)
Residential real estate mortgages 28,744 601 8.36 29,685 589 7.94
Commercial real estate mortgages 69,919 1,567 9.09 68,566 1,564 9.15
Commercial and industrial loans 13,780 322 9.49 10,507 241 9.21
Consumer loans 28,703 605 8.55 13,332 298 8.96
----------- ----------- ---------- -----------
Total loans 141,146 3,095 8.89 122,090 2,692 8.84
Total interest earning assets 204,786 4,142 8.20 182,170 3,721 8.19
Noninterest earning assets 11,223 8,940
----------- ----------
Total assets $ 216,009 $ 191,110
=========== ==========
LIABILITIES:
Deposits
Savings $ 59,537 554 3.78% $ 57,533 532 3.71%
NOW and money market accounts 15,233 69 1.85 21,427 131 2.46
Certificates of deposit 55,594 804 5.86 47,105 607 5.17
----------- ----------- ---------- -----------
Total interest bearing deposits 130,364 1,427 4.44 126,065 1,270 4.04
Borrowings 34,804 530 6.17 31,693 470 5.95
Secured borrowings 17,679 179 4.11 4,129 41 3.97
----------- ----------- ---------- -----------
Total interest bearing liabilities 182,847 2,136 4.74 161,887 1,781 4.41
Noninterest bearing deposits 13,494 11,160
Noninterest bearing liabilities 247 345
Stockholders' equity 19,421 17,718
----------- ----------
Total liabilities and stockholders' equity $ 216,009 $ 191,110
=========== ==========
Net interest income before provision for
loan losses $ 2,006 $ 1,940
=========== ===========
Net interest rate spread (3) 3.46% 3.78%
Net interest rate margin (4) 3.97% 4.27%
(1) Annualized.
(2) For purposes of these computations, loans held for sale and nonaccrual
loans are included in the average loan amounts outstanding.
(3) Return on interest earning assets less cost of interest bearing
liabilities.
(4) Net interest income divided by average interest earning assets.
10
INTEREST INCOME
Interest income increased $421,000 for the three months ended March 31, 2001 as
compared to the same period in 2000. The increase for the three months ended
March 31, 2001 is mainly attributable to a $19.1 million increase in average
loan balances (primarily consumer and commercial and industrial) and a $3.6
million increase in average interest earning cash and securities balances. The
Company's yield on total interest earning assets for the three months ended
March 31, 2001 equaled 8.20% as compared to 8.19% for the three months ended
March 31, 2000.
INTEREST EXPENSE
Interest expense increased $355,000 for the three months ended March 31, 2001 as
compared to the same period in 2000. The increase in interest expense for the
three months ended March 31, 2001 is primarily attributable to a $21.0 million
increase in average interest bearing liabilities and a 0.33% increase in the
cost of funds. Interest expense on deposits increased $157,000 as a result of a
0.40% increase in interest rates paid on deposits, and a $4.3 million increase
in average deposit balances, which increased as a result of the opening of the
Bank's Portland main office and Falmouth branch. Interest expense on borrowings
increased $198,000 as a result of increased average balances of $16.7 million,
partially offset by a 0.24% decline in interest rates paid. The increase in
borrowings is primarily attributable to a $13.6 million increase in secured
borrowings. Secured borrowings include agreements similar to repurchase
agreements that are not FDIC insured, have no term and may fluctuate or
terminate at any time.
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.
PROVISION FOR LOAN LOSSES
There was no provision for loan loss expense for the three months ended March
31, 2001 and 2000. The absence of a provision for loan losses in 2001 and 2000
is primarily attributable to the continued low level of nonperforming loans and
potential problem loans, and the result of management's review of the portfolio
and determination of the adequacy of the allowance for loan losses at March 31,
2001.
NONINTEREST INCOME
Noninterest income increased $328,000 for the three months ended March 31, 2001
as compared to the same period in 2000. This increase is attributable to
securities gains totaling $247,000 for the three months ended March 31, 2001 as
compared to no securities gains for the same period in 2000. Additionally,
service charges on deposit accounts and other income increased $75,000 for the
three months ended March 31, 2001 as compared to the same period in 2000. This
increase is primarily attributable to rental income received on property owned
by the Bank for future branch expansion, growth in deposit balances resulting
from the opening of the Bank's branches in Portland and Falmouth, and the
introduction of the Bank's new relationship program for retail customers.
OPERATING EXPENSES
Operating expense increased $496,000 for the three months ended March 31, 2001
as compared to the same period in 2000. This increase was primarily the result
of (i) a $157,000 increase in salaries and benefits expense, attributable to
annual salary increases and additional staff associated with the opening of the
Bank's new main office in Portland (June 2000) and branch in Falmouth (November
2000), (ii) a $109,000 increase in occupancy expense (rent and utilities)
relating to the Bank's new branches, and (iii) a $230,000 increase
11
in other expenses, of which $140,000 was attributable to legal fees associated
with the pending merger. The Company anticipates to incur approximately $210,000
in merger related expenses during the second and third quarter of 2001.
Additionally, loan servicing costs increased $42,000 for the three months ended
March 31, 2001 as compared to the same period in 2000, as a result of an
increase in student loan balances, from $4.4 million at March 31, 2000 to $18.4
million at March 31, 2001. Management anticipates operating expenses for the
balance of 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, (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 March 31, 2001, total assets equaled $223.0 million, representing an increase
of $3.9 million (or 1.8%), as compared to total assets of $219.1 million at
December 31, 2000. This increase was primarily the result of an $11.5 million
increase in loan balances and a $6.6 million increase in investment securities.
The funding of these increases was accomplished in part by the reallocation of
$14.3 million in cash and cash equivalents to loans and securities, with the
remaining increases funded by increased deposit balances, offset in part by a
reduction in borrowings.
INVESTMENTS
The Company's investment portfolio is comprised primarily of U.S. government
and agency obligations. Total investment securities increased $6.6 million
during the quarter, from $45.5 million at December 31, 2000 to $52.1 million at
March 31, 2001. This increase is primarily attributable to the purchase of
$20.2 million in mortgage-backed securities and $1.0 million in corporate notes,
offset in part by the sale of $8.5 million in U.S. government obligations, $1.0
million in government agency notes, $3.9 million in mortgage-backed securities
and $1.1 million in prepayments and amortization on mortgage-backed securities,
amortization of premiums on investment securities and the net change in the
unrealized loss on available for sale securities.
The following table sets forth the amortized cost and fair value of investment
securities for each major security type at March 31, 2001.
March 31, 2001
-----------------------------------------------
Gross Gross Fair
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains (Losses) Value
- ------------------------------------------------------------------------------
Available for sale:
U.S. government obligations $ 2,369 $ 97 - $ 2,466
Mortgage backed securities 45,322 262 $ (72) 45,512
Corporate notes 1,646 215 - 1,861
Equity securities 593 - - 593
-------- --- ------ ---------
$ 49,930 $ 574 $ (72) $ 50,432
======== ====== ====== =========
The after-tax unrealized gain (loss) on investment securities classified as
available for sale was $332,000 and $(61,000), at March 31, 2001 and December
31, 2000, respectively.
12
The following table represents the contractual maturities for investments in
debt securities for each major security type at March 31, 2001.
March 31, 2001
---------------------------------------------------------------
Maturing
---------------------------------------------------------------
After One
Within But within After
(in thousands) One Year Five Years Five Years Total
- ----------------------------------------------------------------------------------------------
Available for sale:
U.S. government obligations $ 249 - $ 2,217 $ 2,466
Mortgage backed securities - - 45,512 45,512
U.S. corporate notes - $ 1,861 - 1,861
-------- -------- --------- ---------
$ 249 $ 1,861 $ 47,729 $ 49,839
======== ======== ========= =========
LOANS HELD FOR SALE
Loans held for sale equaled $1.1 million at March 31, 2001 as compared to $0.3
at December 31, 2000, an increase of $0.8 million. 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.
LOANS
Loans consisted of the following:
March 31, December 31,
-----------------------------
(in thousands) 2001 2000
- ----------------------------------------------------------
Real estate mortgage loans:
Residential $ 26,841 $ 27,745
Commercial 66,964 65,417
Real estate construction 4,031 3,450
Commercial and industrial 15,221 13,107
Consumer and other 30,023 21,890
-----------------------------
Total $ 143,080 $ 131,609
=============================
Loans increased $11.5 million (or 8.7%) at March 31, 2001 as compared to
December 31, 2000. The increase is attributable to an $8.1 million increase in
consumer loans, a $2.1 million increase in commercial and industrial loans, a
$1.6 million increase in commercial real estate loans and a $0.6 million
increase in construction loans, partially offset by a $0.9 million decline in
residential mortgage balances.
The increase in consumer loans during the quarter ended March 31, 2001 is
primarily the result of the purchase of $5.6 million in student loans and $2.3
million in student loan originations. 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.
13
ALLOWANCE FOR LOAN LOSSES ("ALLOWANCE")
The Company's Allowance was $2.9 million and $2.8 million at March 31, 2001 and
December 31, 2000, respectively. For the three months ended March 31, 2001,
loan loss recoveries equaled $120,000 and there were no charged-off loans.
The Allowance represented 2.1% of total loans at March 31, 2001 and December 31,
2000. Management believes that in accordance with the Bank's Allowance for Loan
Loss Policy, the Allowance is adequate at March 31, 2001. 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.
NONPERFORMING ASSETS
Information with respect to nonperforming assets is set forth below:
March 31, December 31,
----------------------------
(in thousands) 2001 2000
- ---------------------------------------------------------------------
Nonaccrual loans $ 1,276 $ 1,358
Accruing loans past due 90 days or more 712 352
Restructured loans - -
Real estate owned and repossessions 46 46
--------- ---------
Total $ 2,034 $ 1,756
========= =========
Nonperforming assets increased $278,000 at March 31, 2001 as compared to
December 31, 2000. The $712,000 balance of accruing loans past due 90 days or
more includes $633,000 in government guaranteed student loans, which carry a
minimum guarantee of 98% of the original principal balance. The increase in the
balance of accruing loans past due 90 days or more at March 31, 2001 as compared
to December 31, 2000 is primarily the result of a $7.9 million increase in
student loan balances, which generally carry a higher deliquency rate than more
traditional unsecured loans.
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 March 31, 2001, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $1,468,000 as compared
to $1,358,000 at December 31, 2000. At March 31, 2001, the corresponding
allocated reserves totaled $53,000 (relating to two impaired loans with a
balance of $599,000). All nonaccrual loans were classified as impaired at March
31, 2001 and December 31, 2000. The income recorded on a cash basis relating to
impaired loans equaled $40,000 and $8,000 for the three months ended March 31,
2001 and 2000, respectively. The average balance of outstanding impaired loans
14
was $1,468,000 for the three months ended March 31, 2001 and $656,000 for the
twelve months ended December 31, 2000.
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 March 31, 2001 and December 31, 2000 the Bank's REO
properties totaled $46,000, consisting of one residential property.
LIQUIDITY - BANK
Deposits totaled $149.2 million at March 31, 2001, an increase of $5.9 million
(or 4.1%) from the level of $143.4 million at December 31, 2000.
Deposit balances were as follows:
March 31, December 31,
-----------------------------
(in thousands) 2001 2000
- ------------------------------------------------------------------
Noninterest bearing demand deposits $ 14,407 $ 14,119
Interest bearing demand deposits 16,550 16,018
Savings and escrow deposits 62,000 58,066
Time deposits 56,275 55,155
---------- ----------
Total $ 149,232 $ 143,358
========== ==========
The $5.9 million increase in deposit balances was primarily attributable to
growth in savings account balances resulting from the opening of the Bank's new
main office in June 2000 and Falmouth branch in November 2000.
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") (the
outstanding aggregate principal amount of such notes was $1.7 million at March
31, 2001) 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.
During the quarter ended March 31, 2001 the Company repurchased 17,700 shares of
its common stock under the stock repurchase program authorized by its Board of
Directors. As of March 31, 2001, the Company had repurchased a total of 160,738
shares of its common stock since inception of the repurchase program in June
1999. In light of the pending Merger Transaction between the Company and
Norway, the Company has suspended all stock repurchases.
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.
Additionally, under the terms of the pending Merger
15
Transaction between the Company and Norway, the Company is prohibited from
paying dividends to its stockholders.
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
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 (the "Loan Agreement"), 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 March 31, 2001, 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 April 30, 2001, the Bank paid the Company a cash dividend of $1,398,596. At
March 31, 2001, the parent's cash and cash equivalents totaled $67,000.
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.
16
CAPITAL - BANK
The table below sets forth the regulatory capital requirements and capital
ratios for the Bank at March 31, 2001 and December 31, 2000:
(dollars in thousands) March 31, 2001 December 31, 2000
- -------------------------------------------------------------------------------------------------------
Tier 1 capital (Leverage) to total assets /(1)/ ratio
Qualifying capital $ 18,546 $ 18,143
Actual % 8.66% 8.60%
Minimum requirements for capital adequacy % 4.00% 4.00%
Average quarterly assets $214,267 $210,989
Tier 1 capital to risk-weighted assets
Qualifying capital $ 18,546 $ 18,143
Actual % 14.72% 14.79%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 20,138 $ 19,962
Actual % 15.98% 16.05%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $126,009 $122,626
(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 March 31, 2001 and December 31, 2000:
(dollars in thousands) March 31, 2001 December 31, 2000
- -------------------------------------------------------------------------------------------------------
Tier 1 capital (Leverage) to total assets /(1)/ ratio
Qualifying capital $ 17,600 $ 17,204
Actual % 8.18% 8.14%
Minimum requirements for capital adequacy % 4.00-5.00% 4.00-5.00%
Average quarterly assets $ 216,104 $ 211,406
Tier 1 capital to risk-weighted assets
Qualifying capital $ 17,600 $ 17,204
Actual % 13.81% 13.97%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 19,198 $ 18,759
Actual % 15.06% 15.23%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $ 125,202 $ 123,158
(1) Calculated on an average quarterly basis less disallowed portion of the deferred tax asset.
17
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Not applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Not applicable.
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) None.
(b) The Company filed a Current Report on Form 8-K on March 22, 2001 announcing
the date of its 2001 annual meeting of stockholders. Subsequent to the
filing of the Form 8-K, the meeting has been postponed as a result of the
pending Merger Transaction.
18
FIRST COASTAL CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST COASTAL CORPORATION
Date: May 14, 2001 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: May 14, 2001 By: /s/ Gregory T. Caswell
-------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 2001 By: /s/ Dennis D. Byrd
-------------------------------------
Dennis D. Byrd
Vice President and Treasurer
(Principal Financial and Accounting Officer)
19