UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

For the quarterly period ended March 31, 2000

For the transition period from _____________________________________.

Commission file number: 333-68207

FIRST COASTAL BANCSHARES

Registrant’s telephone number, including area code: (310) 322-2222

Not applicable
(Former name or 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(c) of the Securities Exchange Act of 1934 during the preceding 12 months (of 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 [_]

APPLICABLE ONLY TO CORPORATE ISSUERS

On May 5, 2000, there were 1,232,428 shares of First Coastal Bancshares Common Stock outstanding.

First Coastal Bancshares
March 31, 2000

INDEX

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

First Coastal Bancshares and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited — Dollar Amounts in Thousands)

Item 1 — Financial Statements — Continued

First Coastal Bancshares and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited — Dollar Amounts in Thousands, Except EPS)

Item 1 — Financial Statements — Continued

First Coastal Bancshares and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders' Equity
(Unaudited — Dollar Amounts in Thousands)

Item 1 — Financial Statements — Continued

First Coastal Bancshares and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited — Dollar Amounts in Thousands)

Item 1 — Financial Statements — Continued

First Coastal Bancshares and Subsidiaries
Notes to Consolidated Financial Statements

Note 1 — Basis of Presentation and Management Representation

The accompanying financial information has been prepared in accordance with the Securities and Exchange Commission rules and regulations for quarterly reporting and therefore does not necessarily include all information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles. This information should be read in conjunction with the Company’s Form 10-KSB filed on March 30, 2000 and Form SB-2 filed on February 12, 1999.

The consolidated financial statements include First Coastal Bancshares and its wholly owned subsidiaries, First Coastal Bank, N.A. (the “Bank”) and First Coastal Capital Trust.

Operating results for interim periods are not necessarily indicative of operating results for an entire fiscal year. In the opinion of management, the unaudited financial information for the three-month period ended March 31, 2000 and 1999, reflect all adjustments, consisting only of normal recurring accruals and provisions, necessary for a fair presentation thereof.

Some matters discussed in this Form 10-QSB may be “forward-looking statements” within the meaning of the Private Litigation Reform Act of 1995 and therefore may involve risks, uncertainties and other factors which may cause our actual results to be materially different from the results expressed or implied by our forward-looking statements. These statements generally appear with words such as “anticipate”, “believe”, “estimate”, “may”, “intend”, and “expect”.

Note 2 — Acquisition of American Independent Bank, N.A.

On March 8, 1999, the Bank acquired 100% of the outstanding common stock of American Independent Bank, N.A. (AIB) for approximately $6.5 million in cash. AIB had total assets of approximately $38 million on March 8, 1999. The acquisition was accounted for using the purchase method of accounting in accordance with Accounting Principles Board Opinion No, 16. “Business Combinations”. Under this method of accounting, the purchase price was allocated to the assets, deposits and liabilities assumed based on their fair values as of the acquisition date, which were not materially different from their book values. The financial statements include the operations of AIB from the date of the acquisition. Goodwill arising from the transaction totaled approximately $4.0 million and is being amortized over fifteen years on a straight-line basis.

Note 2 — Acquisition of American Independent Bank, N.A. — Continued

The following table sets forth selected pro forma unaudited combined financial results of the Company and AIB. The pro forma operating data reflects the effect of the acquisition of AIB as if it was consummated at the beginning of each period presented. The pro forma results are not indicative of the results that would have occurred had the acquisition been in effect for the full periods presented, nor are they indicative of the results of future operations.

These pro forma disclosures include adjustment to interest expense from the funds borrowed to fund a portion of the purchase as well as adjustments to per share data to reflect the issuance of common stock to fund the balance of the purchase. No adjustments have been reflected in these amounts for the anticipated cost savings to be derived from this merger.

Note 3 — Earnings Per Share

Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128, “Earnings per Share”. Accordingly, basic earnings per share are computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during each period. The computation of diluted earnings per share also considers the number of shares issuable upon the assumed exercise of outstanding common stock options and the number of shares issuable upon the assumed conversion of the convertible preferred stock. These items were anti-dilutive for the periods reported and therefore dilutive earnings per shares are reported as the same as basic earnings per share.

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

Income Summary

For the three months ended March 31, 2000, the Company reported a net loss of $49,000, or $0.08 basic loss per share compared to a net loss $93,000, or $.26 basic loss per share for the same three month period in 1999. The annualized return on average assets was (0.15)% for 2000 compared to (0.42)% for 1999. Annualized return on average shareholders’ equity for 2000 and 1999 was (3.02)% and (5.17)%, respectively.

Net Interest Income

Net interest income is the amount by which the interest and amortization of fees generated from loans and other earning assets exceed the cost of funding those assets, usually deposit account interest expense. Net interest income depends on the difference (the “interest rate spread”) between gross interest and fees earned on the loans and investment portfolios and the interest rates paid on deposits and borrowings. Net interest income was $1,285,000 for the quarter ended March 31, 2000, compared to $897,000 for the quarter ended March 31, 1999.

The total amount of net interest income increased for the quarter ended March 31, 2000 compared to the same period in 1999 due to the significant increase in interest-earning assets. This increase was primarily due to the acquisition of American Independent Bank.

The following table sets forth the components of net interest income, average earning assets and net interest margin:

The net interest margin decreased in the first quarter of 2000 compared to the same quarter in 1999. Contributing to the decrease in net interest margin was the interest expense relating to the recently issued $6.6 million in preferred securities. Interest expense incurred on these securities, net of tax effect, was $116,000 in the first quarter of 2000. Had the distribution not been charged to earnings, the Company would have recognized net income of $67,000 in the first quarter of 2000.

The prime rate was 7.75% for the first six months of 1999 and then experienced 25 basis point increases in June, August and November to end the year at 8.50%. During the first quarter of 2000 prime was increased 25 basis points in February and March. As of March 31, 2000 prime was 9.00%.

Provision for Loan Losses

The Company contributed $45,000 to the allowance for loan losses in the first quarter of 2000. The Company made no contribution to the allowance for loan losses in the first quarter of 1999. Management believes that the allowance, which stands at 1.4% of total loans at March 31, 2000, is adequate to cover future losses.

Changes in the allowance for loan losses for the quarter ended March 31, 2000 and 1999 are as follows (dollar amounts in thousands):

Non– Interest Income

Non–Interest Income represents deposit account service charges and other types of non-loan related fee income. Non-interest income for the quarter ended March 31, 2000 totaled $255,000 compared to $140,000 for the same period ended 1999. This represents an increase of $115,000. The increase is primarily the result of an additional $75,000 in service charges and fee income related to operations of the AIB branches after the acquisition on March 8, 1999 and the recovery of previous $33,000 of operational losses.

Non–Interest Expense

Non– Interest Expenses represent salaries, occupancy expenses, professional expenses, outside services and other miscellaneous expenses necessary to conduct business. Non-interest expense for the quarter ended March 31, 2000 totaled $1,508,000 compared to $1,157,000 for the same period during 1999. This increase was primarily the result of increased operating costs related with the branches acquired in the AIB acquisition.

Income Taxes

The Company’s income tax provision for the first quarter of 2000 was $36,000, resulting in an effective rate of 41.0% on loss before taxes and goodwill amortization. The tax benefit for the first quarter of 1999 was $27,000, resulting in an effective rate of 41.0% on income before taxes and goodwill amortization.

Balance Sheet Analysis

Total assets at March 31, 2000 were $133.7 million, up 2.6% from the $130.3 million reported at December 31, 1999. This increase was centered in short-term investments, which were funded by short-term borrowings as well as overall growth in deposits that have increased 10.2% since December 31, 1999.

Asset Quality

The following table sets forth the components of non-performing assets and related ratios: (dollar amounts in thousands)

The primary ratios of loan quality have not changed significantly in the first quarter of 2000. Nonperforming loans as a percent of total loans increased to 1.50% at March 31, 2000, compared to 1.31% at December 31, 1999. The allowance for loan losses as a percent of nonperforming loans increased to 92.47% at March 31, 2000, up from 90.63% at December 31, 1999. A portion of this increase is due to the $45,000 provision made to the Allowance for Loan Loss and net loan recoveries of $78,000.

Other Borrowings

Other borrowings at March 31, 2000 consist of $21.0 million in short-term borrowings from the Federal Home Loan Bank and $935,000 in long-term borrowings from a correspondent bank. The Company uses these sources to fund asset growth and offset fluctuations in demand deposits.

Trust Preferred Securities

During the first quarter of 1999 the Company completed an offering of $6.6 million in 11 7/8% Cumulative Preferred Securities through a wholly owned subsidiary, First Coastal Capital Trust. Under generally accepted accounting policies, the securities are reported as liabilities of the Company and the interest payments and amortization of the related costs of the offering ($1.0 million) are reported as interest expense. The Trust Preferred Securities mature on December 31, 2028.

Capital

Total shareholders’ equity at March 31, 2000 totaled $6.3 million, compared to $6.6 million at December 31, 1999. This decrease was attributable to the increase in net unrealized loss on available-for-sale investments of $96,000, dividends of preferred stock of $54,000 and the net loss of $49,000.

The Bank maintains capital ratios above the Federal regulatory guidelines for a “well-capitalized” bank. The ratios are as follows:

The Company’s ratios at March 31, 2000 were 3.35% for Tier 1 capital to average assets, 5.04% for Tier 1 capital to risk-weighted assets and 12.13% for Total capital to risk-weighted assets.

Liquidity

Management is not aware of any future capital expenditures or other significant demands on commitments that would severely impair liquidity.

Year 2000 Compliance

During the periods leading up to January 1, 2000, the Company addressed the potential problems associated with the possibility that the computers that control or operate the Company’s information technology system and infrastructure may not have been programmed to read four-digit date codes and upon the arrival of the year 2000, may have recognized the two-digit code “00” as the year 1900, causing systems to fail to function or generate erroneous data.

The Company expended approximately $123,000 through the periods ended December 31, 1999 in connection with its Year 2000 compliance program. The Company experienced no significant problems related to its information technology systems upon arrival of the Year 2000, nor was there any interruption in service to its customers.

PART II — OTHER INFORMATION

     Item 1 — Legal Proceedings

Signatures

Pursuant to the requirement of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.