SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the quarter ended September 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the transition period from _______________ to
_________________.
Commission File Number 0-25933
SOUTHCOAST FINANCIAL CORPORATION
(Exact Name of Small Business Issuer as Specified in its Charter)
South Carolina 58-2384011
(State of Incorporation) (I.R.S. Employer Identification Number)
530 Johnnie Dodds Boulevard, Mt. Pleasant, SC 29464
(Address of Principal Executive Offices)
(843) 884-0504
(Issuer's Telephone Number)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter periods that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: Common Stock - No Par
Value: 954,074, Shares Outstanding on October 31, 2000.
Transitional Small Business Disclosure Format (Check one):
[ ] Yes [X] No
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
SOUTHCOAST FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
2000 1999
---- ----
ASSETS
<S> <C> <C>
Cash and due from banks ......................................................... $ 4,519,072 $ 1,786,411
Federal funds sold .............................................................. 2,660,000 1,310,000
Investment securities available for sale ........................................ 4,271,420 3,121,049
Loans, net of allowance of $910,758 and $835,000 ................................ 67,147,936 43,153,421
Property and equipment - net .................................................... 5,889,645 4,513,284
Other assets .................................................................... 1,978,407 1,364,381
------------ ------------
Total assets ................................................................ $ 86,466,480 $ 55,248,546
============ ============
LIABILITIES
Deposits
Noninterest-bearing ........................................................... $ 8,339,142 $ 5,667,155
Interest bearing .............................................................. 55,341,170 32,577,797
------------ ------------
Total deposits .............................................................. 63,680,312 38,244,952
Other borrowings ................................................................ 12,950,000 6,899,904
Other liabilities ............................................................... 492,897 382,892
------------ ------------
Total liabilities ........................................................... 77,123,209 45,527,748
------------ ------------
SHAREHOLDERS' EQUITY
Common stock (no par value; 20,000,000 shares authorized;
977,541 shares outstanding at September 30, 2000
and 1,047,987 outstanding at December 31, 1999) ............................... 9,950,819 10,520,053
Retained deficit ................................................................ (562,081) (714,147)
Accumulated other comprehensive (loss) .......................................... (45,467) (85,108)
------------ ------------
Total shareholders' equity .................................................. 9,343,271 9,720,798
------------ ------------
Total liabilities and shareholders' equity .................................. $ 86,466,480 $ 55,248,546
============ ============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
SOUTHCOAST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Nine months Nine months Three Months Three months
ended ended ended ended
Sept. 30,2000 Sept 30, 1999 Sept. 30,2000 Sept. 30,1999
------------- ------------- ------------- -------------
INTEREST INCOME
<S> <C> <C> <C> <C>
Loans, including fees .......................................... $ 4,205,871 $ 1,791,833 $ 1,617,565 $ 816,752
Investment securities .......................................... 239,740 192,624 100,467 80,146
Federal funds sold ............................................ 90,824 107,318 55,007 22,855
----------- ----------- ----------- -----------
Total interest income ...................................... 4,536,435 2,091,775 1,773,039 919,753
INTEREST EXPENSE
Deposits and borrowings ........................................ 2,389,542 768,129 1,023,476 370,709
----------- ----------- ----------- -----------
Net interest income ........................................ 2,146,893 1,323,646 749,563 549,044
PROVISION FOR POSSIBLE LOAN LOSSES ................................ 90,000 480,000 30,000 30,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses .......... 2,056,893 843,646 719,563 519,044
----------- ----------- ----------- -----------
NONINTEREST INCOME
Service fees on deposit accounts ............................... 159,955 65,283 62,260 22,981
Fees on loans sold ............................................. 166,877 42,163 108,873 11,719
Other .......................................................... 96,526 58,530 37,968 21,104
----------- ----------- ----------- -----------
Total non interest income .................................. 423,358 165,976 209,101 55,804
----------- ----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits ................................. 1,416,017 913,089 509,710 336,725
Occupancy ...................................................... 101,014 44,756 38,564 14,669
Furniture and equipment ........................................ 251,931 115,630 95,573 47,864
Advertising and public relations ............................. 46,081 63,315 21,545 24,460
Professional fees .............................................. 64,468 95,433 25,747 35,568
Travel and entertainment ....................................... 88,499 69,821 30,592 30,406
Telephone, postage and supplies ................................ 144,624 104,721 54,190 51,945
Other operating ................................................ 138,733 33,030 58,259 11,716
Total noninterest expenses ................................. 2,251,367 1,439,795 834,180 553,353
----------- ----------- ----------- -----------
Income (loss) before income taxes .......................... 228,884 (430,171) 94,484 21,495
INCOME TAX (BENEFIT) ............................................. 76,818 (147,296) 32,722 7,172
Net income (loss) .......................................... $ 152,066 $ (282,875) $ 61,762 $ 14,323
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON SHARE ............................... $ .15 $ (0.27) $ 0.06 $ 0.01
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING ............................... 1,023,581 1,047,987 993,616 1,047,987
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SOUTHCOAST FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Total
Common stock other share-
------------ Paid-in Retained comprehensive holders'
Shares Amount capital deficit income (loss) equity
------ ------ ------- ------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1999 ................. 1,047,987 $ 5,239,935 $5,280,118 $ (451,147) $ 5,678 $ 10,074,584
Net loss .............................. - - - (282,875) - (282,875)
Other comprehensive income, net of tax:
Unrealized holding losses on
securities available for sale ..... - - - - (89,134) (89,134)
------------
Comprehensive income (loss) ........... - - - - - (372,009)
------------
Par value conversion upon
exchange of stock ................... 5,280,118 (5,280,118) - - -
------------ ---------- ------------ ------------ ------------
BALANCE, Sept 30,1999 .................... 1,047,987 $ 10,520,053 (734,022) (83,456) $ 9,702,575
========= ============ ========== ============ ============ ============
BALANCE, JANUARY 1, 2000 ................. 1,047,987 10,520,053 - (714,147) (85,108) 9,720,798
Net income ............................ - - - 152,066 - 152,066
Other comprehensive loss, net of tax:
Unrealized holding gains on
securities available for sale ..... - - - - 39,641 39,641
------------
Comprehensive income .................. - - - - - 191,707
Repurchase of common stock ............ (70,446) (569,234) - - - (569,234)
--------- ------------ ---------- ------------ ------------ ------------
BALANCE, Sept. 30, 2000 .................. 977,541 $ 9,950,819 $ - $ (562,081) $ (45,467) 9,343,271
========= ============ ========== ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
SOUTHCOAST FINANCIAL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the nine months ended September 30
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
OPERATING ACTIVITIES ............................................................. $ 152,066 $ (282,875)
Net income (loss)
Adjustments to reconcile net income (loss) to net
cash provided for operating activities:
Income tax (benefit) ...................................................... 76,818 (184,611)
Provision for possible loan losses ........................................ 90,000 480,000
Depreciation and amortization ............................................. 240,760 61,687
Increase in other assets .................................................. (711,264) (211,165)
Increase in other liabilities ............................................. 110,005 173,510
------------ ------------
Net cash (used) provided by operating activities ........................ (41,615) 36,546
------------ ------------
INVESTING ACTIVITIES
Increase (decrease) in federal funds sold ..................................... (1,350,000) 2,810,000
Purchase of investment securities available for sale .......................... (1,096,810) (2,057,314)
Net increase in loans ......................................................... (24,084,515) (25,426,182)
Purchase of property and equipment ............................................ (1,610,621) (2,637,748)
------------ ------------
Net cash used for investing activities .................................. (28,141,946) (27,311,244)
------------ ------------
FINANCING ACTIVITIES
Increase in Federal Home Loan Bank borrowing .................................. 6,050,096 3,950,000
Purchase of corporate stock ................................................... (569,234) -
Net increase in deposits ...................................................... 25,435,360 23,673,610
------------ ------------
Net cash provided by financing activities ............................... 30,916,222 27,623,610
------------ ------------
Increase in cash and due from banks ..................................... 2,732,661 348,912
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD ..................................... 1,786,411 1,211,451
------------ ------------
CASH AND DUE FROM BANKS, END OF PERIOD ........................................... $ 4,519,072 $ 1,560,363
============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
SOUTHCOAST FINANCIAL CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and item 310 (b) of
Regulation S-B of the Securities and Exchange Commission. Accordingly they do
not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. However, in the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included.
NOTE 2 - ORGANIZATION
Southcoast Financial Corporation (the "Company") is a South Carolina
corporation organized in 1999 for the purpose of being a holding company for
Southcoast Community Bank (the "Bank"). On April 29, 1999, pursuant to a Plan of
Exchange approved by the shareholders, all of the outstanding shares of capital
stock of the Bank were exchanged for shares of common stock of the Company. The
Company presently engages in no business other than that of owning the Bank and
has no employees. The results for the period ending September 30, 1999, reflect
the previous filing of Southcoast Community Bank.
NOTE 3 - NET INCOME (LOSS) PER SHARE
Net income per share is computed on the basis of the weighted average
number of common shares outstanding in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share". The Company does not have
any instruments which are dilutive; therefore, only basic net income per share
of common stock is presented.
In March, 1999, the Company declared an eleven-for-ten stock split of
the Company's common stock. The weighted average number of shares and all other
share data have been restated for all periods presented to reflect this stock
split.
6
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with the financial statements and related notes appearing in the Form 10-KSB of
Southcoast Financial Corporation. This discussion concentrates on the nine
months of operations ending September 30, 2000, compared to the same period
ending September 30, 1999 and the three months of operations ending September
30, 2000, compared to the same quarter ending September 30, 1999. Results of
operations for the period ending September 30, 2000 are not necessarily
indicative of the results to be attained for any other period. Statements
included in Management's Discussion and Analysis which are not historical in
nature are intended to be, and are hereby identified as "forward looking
statements" for purposes of the safe harbor provided by section 21E of the
Securities Exchange Act of 1934, as amended. The Company cautions readers that
forward looking statements including without limitation, those relating to the
Company's new offices, future business prospects, revenues, working capital,
liquidity, capital needs, interest costs, and income, are subject to certain
risks and uncertainties that could cause actual results to differ from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Company's reports filed with the Securities and Exchange
Commission.
NET INTEREST INCOME
Net interest income is the difference between the interest earned on interest
earning assets and the interest paid for funds acquired to support those assets.
Net interest income, the principal source of the Company's earnings, was
$2,146,893 for the nine months ended September 30, 2000, compared to $1,323,646
for the nine months ended September 30, 1999. For the quarter ended September
30, 2000, net interest income was $749,563 compared to $549,094 for the quarter
ended September 30, 1999.
Changes that affect net interest income are changes in the average rate earned
on interest earning assets, changes in the average rate paid on interest bearing
liabilities, and changes in the volume of interest earning assets and interest
bearing liabilities.
Average earning assets for the nine months ending September 30, 2000 increased
to $62.6 million, or 108 percent, from the $30.1 million reported for the nine
months ending September 30, 1999. The increase was mainly attributable to the
increase in loans, supported by a $32.2 million increase in interest bearing
liabilities, which resulted from favorable economic conditions in the
Charleston, South Carolina market; the opening of the bank's first branch in the
third quarter of 1999; its second branch in May 2000; and the Company's
marketing efforts.
Average earning assets for the quarter ending September 30, 2000 increased to
$73.9 million, or 92 percent, from the $38.5 million reported for the quarter
ended September 30, 1999. Average loans increased $32.6 million, supported by an
increase in average interest bearing funds of $ 35.0 million.
The following table reflects changes in the Company's net interest income that
are primarily a result of changes in volume and rates of its interest earning
assets and interest bearing liabilities. The increase in net interest income is
due to increased volume of earning assets and interest-bearing liabilities,
slightly offset by a decrease in the Company's net interest spread. The net
interest spread is the difference between the yield on earning assets minus the
average rate of interest bearing liabilities.
7
<PAGE>
<TABLE>
<CAPTION>
Nine months ended Nine months ended
Sept. 30, 2000 Sept. 30, 1999
-------------- --------------
Average Income/ Yield/ Average Income/ Yield/
Balance expense rate balance expense rate
------- ------- ---- ------- ------- ----
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold ................ $ 1,871,087 $ 90,824 6.47% $ 2,973,461 $ 107,318 4.81%
Investments ....................... 4,868,540 239,740 6.57 4,215,322 192,624 6.09
----------- ---------- ----------- ---------- -----
Total investments and
federal funds sold ............. 6,739,627 330,564 6.54 7,188,783 299,942 5.56
Loans ............................. 55,821,113 4,205,871 10.05 22,949,769 1,791,833 10.41
----------- ---------- ----------- ----------
Total earning assets .............. 62,560,740 4,536,435 9.67 30,138,552 2,091,775 9.25
---------- ---------- -----
Other assets ...................... 7,272,203 3,327,468
----------- -----------
Total assets ...................... $69,832,943 $33,466,020
=========== ===========
LIABILITIES
Interest bearing deposits ......... $43,806,806 $1,939,268 5.90 $18,450,878 $ 680,869 4.92
FHLB advances ..................... 9,119,391 450,274 6.58 2,233,810 87,260 5.21
----------- ---------- ----------- ----------
Total interest bearing liabilities 52,926,197 2,389,542 6.02 20,684,688 768,129 4.95
Non-interest bearing liabilities .. 7,222,433 2,863,374
----------- -----------
Total liabilities ................. 60,148,630 2,389,542 5.30 23,548,062 768,129 4.35
Equity ............................ 9,684,313 ---------- 9,917,958 ---------
----------- -----------
Total liabilities and equity ...... $69,832,943 $33,466,020
=========== ===========
Net interest income/margin ........ $2,146,893 4.58 $1,323,646 5.86
========== ==========
Net interest spread ............... 3.65 4.30
</TABLE>
As reflected above, for the nine months ended September 30, 2000, the average
yield on earning assets was 9.67 percent, while the average cost of
interest-bearing liabilities was 6.02 percent. For the nine months ended
September 30, 1999 the average yield on earning assets was 9.25 percent and the
average cost of interest-bearing liabilities was 4.95 percent. The increase in
the yield on earning assets is attributable to the increased volume of loans,
which gives the Company a greater return than the other types of earning assets.
The decrease in the yield on loans from 10.41% at September 30, 1999 to 10.05%
at September 30, 2000 is attributable to the change in the mix of higher earning
loans as a percent of the total loans. The net interest margin is computed by
subtracting interest expense from interest income and dividing the resulting
figure by average interest-earning assets. The net interest margin for the nine
months ended September 30, 2000 was 4.58 percent compared to 5.86 percent for
the nine months ended September 30, 1999. The decrease in the net interest
margin is attributable to the increase in interest bearing liabilities, which
resulted in an increase in the cost of total liabilities to support earning
assets. The cost of total liabilities was 5.30 percent for the nine months ended
September 30, 2000 compared to 4.35 percent for the nine months ended September
30, 1999.
8
<PAGE>
<TABLE>
<CAPTION>
Three months ended Three months ended
Sept. 30, 2000 Sept. 30, 1999
-------------- --------------
Average Income/ Yield/ Average Income/ Yield/
Balance expense rate balance expense rate
------- ------- ---- ------- ------- ----
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Federal funds sold $ 3,280,237 $ 55,007 6.71% $ 1,839,262 $ 22,855 4.97%
Investments 6,108,437 100,467 6.58 4,646,234 80,146 6.90
----------- ---------- ----------- --------- ----
Total investments and
federal funds sold 9,388,674 155,474 6.62 6,485,496 103,001 6.35
Loans 64,551,209 1,617,565 10.02 31,968,913 816,752 10.22
----------- ---------- ----------- ---------
Total earning assets 73,939,883 1,773,039 9.59 38,454,409 919,753 9.57
---------- --------- ----
Other assets 7,803,415 4,533,611
----------- -----------
Total assets $81,743,298 $42,988,020
=========== ===========
LIABILITIES
Interest bearing deposits $53,339,395 $ 828,525 6.21 $24,962,825 $323,747 5.03
FHLB advances 11,062,220 194,951 7.05 4,388,849 56,962 5.19
----------- ---------- ----------- --------
Total interest bearing liabilities 64,401,615 1,023,476 6.36 29,351,674 370,709 5.05
Non-interest bearing liabilities 8,015,788 3,846,897
----------- -----------
Total liabilities 72,417,403 1,023,476 5.65 33,198,571 370,709 4.47
Equity 9,325,895 ---------- 9,789,499 --------
----------- -----------
Total liabilities and equity $81,743,298 $42,988,020
=========== ===========
Net interest income/margin $ 749,563 4.05 $549,044 5.71
========== ========
Net interest spread 3.23 4.52
</TABLE>
As reflected above, for the three months ended September 30, 2000, the average
yield on earning assets was 9.59 percent, while the average cost of
interest-bearing liabilities was 6.36 percent. For the three months ended
September 30, 1999 the average yield on earning assets was 9.57 percent and the
average cost of interest-bearing liabilities was 5.05 percent. The increase in
the yield on earning assets is attributable to the increased volume of loans,
which gives the Company a greater return than the other types of earning assets.
The decrease in the yield on loans from 10.22% at September 30, 1999 to 10.02%
at September 30, 2000 is attributable to the change in the mix of higher earning
loans as a percent of the total loans. The net interest margin for the three
months ended September 30, 2000 was 4.05 percent compared to 5.71 percent for
the three months ended September 30, 1999. The decrease in the net interest
margin is attributable to the increase in interest bearing liabilities, which
resulted in an increase in the cost of total liabilities to support earning
assets. The cost of total liabilities was 5.65 percent for the three months
ended September 30, 2000 compared to 4.47 percent for the nine months ended
September 30, 1999.
9
<PAGE>
The following table represents changes in the Company's net interest income
which are primarily a result of changes in the volume and rates of its
interest-earning assets and interest-bearing liabilities.
Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
For the nine months ended Sept. 30, 2000
versus nine months ended Sept. 30, 1999
---------------------------------------
Volume Rate Net change
------ ---- ----------
<S> <C> <C> <C>
Federal funds sold ............................................ $ (39,768) $ 23,274 $ (16,494)
Investments ................................................... 29,836 17,280 47,116
Total investments and federal funds sold ...................... (9,932) 40,554 30,622
Total loans ................................................... 2,566,430 (152,392) 2,414,038
Total earning assets .......................................... 2,556,498 (111,838) 2,444,660
Total interest-bearing liabilities ............................ 1,204,688 416,725 1,621,413
Net interest income ........................................... $ 1,351,810 $ (528,563) $ 823,247
</TABLE>
Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
For the three months ended Sept. 30, 2000
versus nine months ended Sept. 30, 1999
---------------------------------------
Volume Rate Net change
------ ---- ----------
<S> <C> <C> <C>
Federal funds sold ................................................. $ 17,904 $ 14,248 $ 32,152
Investments ........................................................ 25,223 (4,902) 20,321
--------- --------- ---------
Total investments and federal funds sold ........................... 43,127 9,346 52,473
Total loans ........................................................ 832,478 (31,665) 800,813
--------- --------- ---------
Total earning assets ............................................... 875,605 (22,319) 853,286
Total interest-bearing liabilities ................................. 443,422 209,345 652,767
--------- --------- ---------
Net interest income ................................................ $ 432,183 $(231,664) $ 200,519
</TABLE>
10
<PAGE>
RESULTS OF OPERATIONS
The Company's net income for the nine months ended September 30, 2000 was
$152,066 or $.15 per share, compared to a loss of $282,875 or $.27 per share,
for the nine months ended September 30,1999. The amount of the Company's
provision for loan losses for the nine months ended September 30, 2000 was
$90,000, which was substantially less than the $480,000 provided in the same
period of 1999. Since opening the bank in July 1998, management has sought to
have an allowance for loan losses adequate to cover the level of loss management
believed to be inherent in the portfolio as a whole, taking into account the
relative size of the allowance and the size of the Company's largest loans. In
the third quarter of 1999, management concluded that the allowance for loan
losses was large enough to allow for the risk of loss of one or two of the
Company's largest loans, while maintaining a reserve allowance for the loan
portfolio as a whole. Consequently, the Company started in the third quarter of
1999 making quarterly provisions that were less than in prior quarters. As of
September 30, 2000, the reserve for loan losses as a percent of total loans was
1.34%.
Non-interest income for the nine months ended September 30, 2000 was $423,358,
compared to $165,976 for the nine months ended September 30, 1999. Fees
generated from the increase in deposit accounts and fees on loans sold were the
main reason for the increase in non-interest income.
Non-interest expenses for the nine months ended September 30, 2000 were
$2,251,367, compared to $1,439,795 for the nine months ended September 30,1999.
The increase of $811,572 is mainly attributable to increases in salaries and
benefits, occupancy cost and furniture and equipment expenses. These increases
primarily relate to expenses associated with the preparation of and opening of
the bank's first two branches and increase in administrative staff to support
the growth. The West Ashley branch opened in September 1999 and the Moncks
Corner branch opened in May 2000.
The Company's net income for the quarter ending September 30, 2000 was $61,762
or $ .06 per share, compared to $ 14,323 or $ .01 per share, for the three
months ending September 30, 1999. The provision for loan losses recorded in the
quarter ending September 30, 2000, was $30,000, which was the same as recorded
for the quarter ending September 30, 1999.
Non-interest income for the three months ended September 30, 2000 was $209,101
compared to $55,904 for the three months ended September 30, 1999. Increased
deposit accounts, resulting in increased fees on deposits and increased fees on
loans sold, account for the major portion of the increase.
Non-interest expenses for the three months ended September 30, 2000, were
$834,180, compared to $ 553,353 for the three months ended September 30, 1999.
The increase of $280,827 is mainly attributable to increases in salaries and
benefits, occupancy cost and furniture and equipment expenses. These increases
primarily relate to the opening of the two new branches and the related cost to
support the bank's growth.
LIQUIDITY
Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing assets or the acquisition of liabilities.
The Company manages both assets and liabilities to achieve appropriate levels of
liquidity. Cash and short-term investments are the Company's primary sources of
asset liquidity. These funds provide a cushion against short-term fluctuations
in cash flow from both deposits and loans. The investment portfolio is the
Company's principal source of secondary asset liquidity. However, the
availability of this source of funds is influenced by market conditions.
Individual and commercial deposits and borrowings from the Federal Home Loan
Bank are the Company's primary source of funds for credit activities. The
Company also has a $3 million line of credit with the Bankers Bank of Atlanta.
11
<PAGE>
Management believes that the Company's liquidity sources are adequate to meet
its operating needs.
LOANS
Commercial financial and agricultural loans made up 34 percent of the total loan
portfolio as of September 30, 2000, totaling $23.3 million. Loans secured by
real estate for construction and land development totaled $1.0 million, or 2
percent of the total loan portfolio while all other loans secured by real estate
totaled $40.7 million, or 60 percent of the total loan portfolio as of September
30, 2000. Installment loans and other consumer loans to individuals comprised
$3.0 million, or 4 percent of the total loan portfolio. The allowance for loan
losses was 1.34 percent of loans as of September 30, 2000 compared to 1.90
percent as of December 31, 1999. In management's opinion, the allowance for loan
losses is adequate. At September 30, 2000, the Company had no loans that were 90
days or more past due or non-accruing.
CAPITAL RESOURCES
The capital base for the Company decreased by $377,527 for the nine months
ending September 30, 2000, due to the $569,234 paid out for the repurchase of
70,446 shares of stock, offset by the operating income and unrealized gains on
available for sale securities. On March 17, 2000, the Company announced plans to
repurchase up to 100,000 shares of its common stock. Any repurchase will have
the effect of reducing the Company's equity capital by the amount paid. The
Company's equity to asset ratio was 10.8 percent as of September 30, 2000
compared to 17.6 percent as of December 31, 1999.
The Federal Deposit Insurance Corporation has established risk-based capital
requirements for banks. As of September 30, 2000, the Company's subsidiary bank
exceeds the capital requirement levels that are to be maintained.
Capital Ratios
<TABLE>
<CAPTION>
Well Capitalized Adequately Capitalized
Actual Requirement Requirement
------ ----------- -----------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total capital to risk weighted assets .............. $10,695 18.72% $ 5,713 10.00% $ 4,570 8.00%
Tier 1 capital to risk weighted assets ............ 9,978 17.46 3,428 6.00 2,285 4.00
Tier 1 capital to average assets ................... 9,978 12.21 4,087 5.00 3,269 4.00
</TABLE>
IMPACT OF INFLATION
Unlike most industrial companies, the assets and liabilities of financial
institutions such as the Company are primarily monetary in nature. Therefore,
interest rates have a more significant impact on the Company's performance than
do the effects of changes in the general rate of inflation and changes in
prices. In addition, interest rates do not necessarily move in the same
magnitude as the prices of goods and services. Management seeks to manage the
relationships between interest sensitive assets and liabilities in order to
protect against wide rate fluctuations, including those resulting from
inflation.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K.
-------
a) Exhibits
Exhibit No.
From Item 601 of
Regulation S-B Description
-------------- -----------
27 Financial Data Schedule
b) Reports on form 8-K. None.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Southcoast Financial Corporation
Registrant
/s/L. Wayne Pearson
Date: November 14, 2000 By:------------------------------------
L. Wayne Pearson
President and Chief Executive
Officer
/s/Robert M. Scott
Date: November 14, 2000 By:------------------------------------
Robert M. Scott
Executive Vice President and Chief
Financial Officer
