U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(MARK ONE) FORM 10-QSB
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
---- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
----- THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _________TO_________
Commission File Number 333-86371
COASTAL BANKING COMPANY, INC.
(Exact name of registrant as specified in its charter)
United States 57-1076099
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
36 SEA ISLAND PARKWAY
BEAUFORT, SC 29902
(Address of principal executive
offices, including zip code)
(843) 522-1228
(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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the date of this filing.
948,281 SHARES OF COMMON STOCK, $.01 PAR VALUE
PAGE 1 OF 13
EXHIBIT INDEX ON PAGE 2
<PAGE>
COASTAL BANKING COMPANY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
- ------------------------------
<S> <C>
Item 1 Financial Statements (Unaudited)
Balance Sheets - March 31, 2000 and December 31, 1999.................................................................3
Statement of Income - Three months ended March 31, 2000 and For the Period
September 29, 1998 (Inception) to March 31, 2000......................................................................4
Statement of Shareholders' Equity and Comprehensive Income - Three months ended March 31, 2000........................5
Statement of Cash Flows - Three months ended March 31, 2000...........................................................6
Notes to Financial Statements.........................................................................................7
Item 2. Management's Discussion and Analysis of Financial Condition or Plan of Operation...................................8-10
PART II. OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K..................................................................................11-13
(a) Exhibits.........................................................................................................13
(b) Reports on Form 8-K..............................................................................................11
</TABLE>
2
<PAGE>
COASTAL BANKING COMPANY, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 179,417 $ 989,172
Securities available-for-sale 6,707,303 6,527,012
Accrued interest receivable 25,236
Premises and equipment 1,573,316 972,042
Other assets 20,155 14,121
------------------- -------------------
Total assets $ 8,480,191 $ 8,527,583
=================== ===================
LIABILITIES
Other liabilities - 100
------------------- -------------------
Total liabilities - 100
------------------- -------------------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; 10,000,000 shares
authorized and unissued - -
Common stock, $.01 par value; 10,000,000 shares
authorized, 948,281 shares issued and outstanding 9,483 9,483
Capital surplus 8,724,366 8,778,690
Deficit accumulated in the development stage (230,205) (233,280)
Accumulated other comprehensive income (loss) (23,453) (27,410)
------------------- -------------------
Total shareholders' equity 8,480,191 8,527,483
------------------- -------------------
Total liabilities and shareholders' equity $ 8,480,191 $ 8,527,583
=================== ===================
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
COASTAL BANKING COMPANY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
Three Months September 29, 1998
Ended (Inception) to
March 31, 2000 March 31, 2000
-------------- --------------
<S> <C> <C>
INCOME:
Interest on investment securities, taxable $ 89,446 138,689
Interest on federal funds sold 20,657 33,284
------------------- -------------------
Total income 110,103 171,973
------------------- -------------------
EXPENSE:
Interest 102 10,792
Salaries and employee benefits 72,387 188,937
Occupancy expense 1,300 6,950
Other operating expenses 33,239 195,499
------------------- -------------------
Total expenses 107,028 402,178
------------------- -------------------
NET INCOME (LOSS) $ 3,075 $ (230,205)
=================== ===================
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
COASTAL BANKING COMPANY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated
Common Stock in the Other
------------ Capital Development Comprehensive
Shares Amount Surplus Stage Income Total
------ ------ ------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1999 948,281 $ 9,483 $ 8,778,690 $ (233,280) $ (27,410) $ 8,527,483
Cost associated with
the issuance of stock (54,324) (54,324)
Net income
for the period 3,075 3,075
Other comprehensive income,
net of tax of $2,041 3,957 3,957
------------
Comprehensive income 7,032
------------ ------------ ------------- ------------ ----------- ------------
BALANCE,
MARCH 31, 2000 948,281 $ 9,483 $ 8,724,366 $ (230,205) $ (23,453) $ 8,480,191
============ ============ ============= ============ =========== ============
</TABLE>
See notes to condensed financial statements.
5
<PAGE>
COASTAL BANKING COMPANY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months
Ended
March 31, 2000
--------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,075
Adjustments to reconcile net income to
net cash provided by operating activities:
Accretion and premium amortization (77,799)
Decrease in interest receivable 25,236
Increase in other assets (8,075)
Decrease in other liabilities (100)
---------------
Net cash used by operating activities (57,663)
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities available-for-sale (7,704,494)
Maturities of securities available-for-sale 7,608,000
Purchases of premises and equipment (601,274)
---------------
Net cash used by investing activities (697,768)
---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Costs of common stock issuance (54,324)
---------------
Net cash used by financing activities (54,324)
---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (809,755)
CASH AND CASH EQUIVALENTS, BEGINNING 989,172
---------------
CASH AND CASH EQUIVALENTS, ENDING $ 179,417
===============
Cash paid during the period for:
Interest $ 102
See notes to condensed financial statements.
6
<PAGE>
COASTAL BANKING COMPANY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
- -----------------------------------------------
Coastal Banking Company, Inc. was organized in September 1998 to organize and
own all of the common stock of Lowcountry National Bank. The Company issued
stock through an initial public stock offering that closed on December 2, 1999.
Since that time, the Company has devoted its time and resources to completing
the organization of the Bank. The Bank opened for business on May 10, 2000.
As of March 31, 2000, Coastal Banking Company, Inc. had a net operating loss
carryforward of $230,205. There was no provision (benefit) for income taxes for
the three months ended March 31, 2000 or for the period September 29, 1998
(inception) to March 31, 2000 since a 100% valuation reserve is being maintained
for the net operating loss carryforward.
The accompanying financial statements have been prepared in accordance with the
requirements for interim financial statements and, accordingly, they are
condensed and omit disclosures which would substantially duplicate those
contained in the most recent annual report to shareholders on Form 10K. The
financial statements as of March 31, 2000 and for the interim period ended March
31, 2000 are unaudited and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation. The financial information as of December 31, 1999 has been
derived from the audited financial statements as of that date. For further
information, refer to the financial statements and the notes included in Coastal
Banking Company, Inc.'s 1999 Form 10K. As noted throughout this Form 10-QSB, the
Company is considered a development stage company at March 31, 2000.
NOTE 2 - COMPREHENSIVE INCOME
- -----------------------------
Comprehensive income includes net income and other comprehensive income which is
defined as non-owner related transactions in equity. The following table sets
forth the amounts of other comprehensive income included inequity along with the
related tax effect for the three-month period ended March 31, 2000.
<TABLE>
<CAPTION>
Pre-tax (Expense) Net of tax
FOR THE THREE MONTHS ENDED MARCH 31, 2000: Amount Benefit Amount
------------------- ------------------- ---------------
<S> <C> <C> <C>
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during the period $ 5,998 $ (2,041) $ 3,957
Plus: reclassification adjustment for gains (losses)
realized in net income - - -
----------- ----------- ----------
Net unrealized gains (losses) on securities 5,998 (2,041) 3,957
----------- ----------- ----------
Other comprehensive income $ 5,998 $ (2,041) $ 3,957
=========== =========== ==========
</TABLE>
7
<PAGE>
COASTAL BANKING COMPANY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
This report contains statements which constitute forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and the
Securities Exchange Act of 1934. These statements are based on many assumptions
and estimates and are not guarantees of future performance. Our actual results
may differ materially form those projected in any forward-looking statements, as
they will depend on many factors about which we are unsure, including many
factors which are beyond our control. The words "may," "would," "could," "will,"
"expect," "anticipate," "believe," "intend," "plan," and "estimate," as well as
similar expressions, are meant to identify such forward-looking statements.
Potential risks and uncertainties include, but are not limited to:
o significant increases in competitive pressure in the banking and financial
services industries;
o changes in the interest rate environment which could reduce anticipated or
actual margins;
o changes in political conditions or the legislative or regulatory
environment;
o general economic conditions, either nationally or regionally and especially
in primary service area, becoming less favorable than expected resulting
in, among other things, a deterioration in credit quality;
o changes occurring in business conditions and inflation;
o changes in technology;
o changes in monetary and tax policies;
o changes in the securities markets; and
o other risks and uncertainties detailed from time to time in our filings
with the Securities and Exchange Commission.
The Company's principal activities to date have related to its organization, the
conducting of its initial public offering, the pursuit of approvals from the OCC
for its application to charter the Bank, and the pursuit of approvals from the
FDIC for its application for insurance of the deposits of the Bank. On September
29, 1999, the Company received preliminary approval from the OCC to charter the
Bank. On November 2, 1999, the FDIC granted preliminary approval of deposit
insurance application for the Bank. We expect the Bank to open for business
during the second quarter of 2000. We completed our initial public stock
offering on December 2, 1999. The offering resulted in the issuance of 948,281
shares of the Company's common stock. Proceeds from the offering were
$9,482,810, less expenses associated with the offering totaling $748,961 through
March 31, 2000.
At March 31, 2000, the Company had total assets of $8,480,191, consisting of
securities available-for-sale of $6,707,303, cash of $179,417, property and
equipment of $1,573,316, and other assets of $20,155.
The Company had no liabilities at March 31, 2000. The Company had shareholders'
equity of $8,480,191 at March 31, 2000.
8
<PAGE>
COASTAL BANKING COMPANY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Continued
---------------------------------------------------------
The Company had a net loss of $230,205 for the period September 29, 1998
(inception) to March 31, 2000. These losses resulted from expenses incurred in
connection with activities related to the organization of the Company and the
Bank. These activities included (without limitation) the preparation and filing
of an application with the OCC to charter the Bank, the preparation and filing
of an application with the FDIC to obtain insurance of the deposits of the Bank,
responding to questions and providing additional information to the OCC and the
FDIC in connection with the application process, the selling of the Company's
common stock in the offering, meetings and discussions among various organizers
regarding application information, target markets, and capitalization issues,
and planning and organizing for the opening of the Bank. Because the Company is
in the organizational stage, it has had no operations from which to generate
revenues. However, funds from the stock sale were invested in federal funds sold
and investment securities.
Since the inception of the Company, all activities have consisted of organizing
the Company and Bank, obtaining all required regulatory approvals, and selling
stock subscriptions. All operations have been funded through the initial stock
purchases by the organizers and subsequently from the stock offering.
The Company opened the Bank for business on May 10, 2000 from its location at 36
Sea Island Parkway, Beaufort, South Carolina.
The Company, through the Bank, will offer a full range of commercial banking
services to individuals, and small business customers in its primary service
area. These services will include personal and business loans, checking
accounts, savings, and time certificates of deposit. The loans, transaction
accounts, and time certificates will be at rates competitive with those offered
in the Bank's primary service area. Customer deposits with the Bank will be
insured to the maximum extent provided by law through the FDIC. The Bank intends
to offer night depository and bank-by-mail services and to sell travelers checks
(issued by an independent entity) and cashiers checks. The Bank does not
anticipate offering trust and fiduciary services initially and will rely on
trust and fiduciary services offered by correspondent banks until the Bank
determines that it is profitable to offer such services directly.
Initially, the Bank anticipates deriving its income principally from interest
charged on loans and, to a lesser extent, from interest earned on investments,
from fees received in connection with the origination of loans, and from other
services. The Bank's principal expenses are anticipated to be interest expense
on deposits and operating expenses.
As a result of the offering, management believes the Company and the Bank can
satisfy future cash requirements indefinitely, and will not have to raise
additional capital during the first twelve months of operations. The Bank
intends to accept deposits and make loans and investments in accordance with an
asset and liability management framework that emphasizes appropriate levels of
liquidity and interest rate risk.
9
<PAGE>
COASTAL BANKING COMPANY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION - Continued
---------------------------------------------------------
RESULTS OF OPERATIONS
The Company had net income for the three months ended March 31, 2000 of $3,075.
Interest income on investment securities totaled $89,446 for the three months
and interest earned on federal funds totaled $20,657 for the same period. This
income was partially offset by salaries and employee benefits totaling $72,387
for the three months ended March 31, 2000. In addition, the Company incurred
$33,239 in other operating expenses for the three months ended March 31, 2000.
The net loss for the period September 29, 1998 (inception) to March 31, 2000 was
$230,205. Total interest income for the period totaled $171,973. The primary
component of this income was from interest on securities available-for-sale
which totaled $138,689. Interest on federal funds totaled $33,284 for the
period. This income was offset by expenses totaling $402,178. This was comprised
primarily of salaries and employee benefits of $188,937 and other expenses of
$195,499. Other expenses included the expenses associated with forming the
Company and Bank such as consulting, application and filing fees.
ASSETS
The Company closed its initial public stock offering on December 2, 1999. Funds
from the offering were primarily invested in investment securities. At March 31,
2000, investment securities totaled $6,707,303. Premises and equipment totaled
$1,573,316 at March 31, 2000. This includes the cost of the land and building in
which the Company's corporate headquarters will be located.
CAPITAL
The Company, through an underwriter, offered and sold to the general public
870,000 shares of $.01 par value common stock at an offering price of $10.00 per
share. The underwriter also exercised its over-allotment option and purchased an
additional 78,281 shares of common stock at $10.00 per share, less its discount
of $.70 per share. The total aggregate amount raised from the public stock
offering was $9,482,810. Expenses associated with the stock offering totaled
$748,961 through March 31, 2000 and have been netted against paid in capital.
The net loss for the period September 29, 1998 (Inception) to March 31, 2000 of
$230,205 is a reduction of capital. In addition, capital is negatively affected
by the unrealized loss on investment securities of $23,453 at March 31, 2000.
10
<PAGE>
COASTAL BANKING COMPANY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits
Exhibit
Number Description
- ------ -----------
1.1 Form of Underwriting agreement between the company and Edgar M.
Norris & Co., Inc. (incorporated by reference to Exhibit 1.1 of
the Registration Statement on Form SB-2, File No. 333-86371)
3.1. Articles of Incorporation (incorporated by reference to Exhibit
3.1 of the Registration Statement on Form SB-2, File No.
333-86371).
3.2 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 of the Registration Statement on Form
SB-2, File No. 333-86371).
3.3. Bylaws (incorporated by reference to Exhibit 3.3 of the
Registration Statement on Form SB-2, File No. 333-86371).
4.1. See Exhibits 3.1, 3.2, and 3.3 for provisions in the company's
Articles of Incorporation and Bylaws defining the rights of
holders' of the common stock (incorporated by reference to
Exhibits 3.1 and 3.2 of the Registration Statement on Form
SB-2, File No. 333-86371).
4.2. Form of certificate of common stock (incorporated by reference to
Exhibit 4.2 of the Registration Statement on Form SB-2, File No.
333-86371).
5.1. Opinion Regarding Legality (incorporated by reference to Exhibit
5.1 of the Registration Statement on Form SB-2, File No.
333-86371).
10.1 Employment Agreement dated August 12, 1999 between the company and
Randolph Kohn (incorporated by reference to Exhibit 10.1 of the
Registration Statement on Form SB-2, File No. 333-86371).
10.2 Purchase and Sale dated February 2, 1999, between Lowcountry
National Bank and Sterling Graydon and Helene Dowling
(incorporated by reference to Exhibit 10.2 of the Registration
Statement on Form SB-2, File No. 333-86371).
10.3 Line of Credit Agreement with The Banker's Bank dated April 1,
1999 (incorporated by reference to Exhibit 10.3 of the
Registration Statement on Form SB-2, File No. 333-86371).
10.5 Form of Stock Warrant Agreement (incorporated by reference to
Exhibit 10.8 of the Registration Statement on Form SB-2, File No.
333-86371).
27.1 *Financial Data Schedule (for electronic filing purposes)
*Filed herewith
Reports on Form 8-K
- -------------------
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended March 31, 2000.
Items 1, 2, 3, 4 and 5 are not applicable.
11
<PAGE>
COASTAL BANKING COMPANY, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
SIGNATURE
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.
By: /s/ RANDOLPH C. KOHN
--------------------
Randolph C. Kohn
President & Chief Executive Officer
Date: May 11, 2000 By: /s/ CHARLIE T. LOVERING, JR.
----------------------------
Charlie T. Lovering, Jr.
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 179,417
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 6,707,303
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 0
<ALLOWANCE> 0
<TOTAL-ASSETS> 8,480,191
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 0
<LONG-TERM> 0
0
0
<COMMON> 9,483
<OTHER-SE> 8,470,708
<TOTAL-LIABILITIES-AND-EQUITY> 8,480,191
<INTEREST-LOAN> 0
<INTEREST-INVEST> 89,446
<INTEREST-OTHER> 20,657
<INTEREST-TOTAL> 110,103
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 102
<INTEREST-INCOME-NET> 110,001
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 33,239
<INCOME-PRETAX> 3,075
<INCOME-PRE-EXTRAORDINARY> 3,075
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,075
<EPS-BASIC> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
