<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one): [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 0-14087
FIRST COASTAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 06-1177661
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
36 THOMAS DRIVE, WESTBROOK, MAINE 04092
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 774-5000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date, is:
Class: COMMON STOCK, PAR VALUE $1.00 PER SHARE
Outstanding at November 12, 1996: 1,357,861 shares
<PAGE>
INDEX
FIRST COASTAL CORPORATION AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) as of
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations (Unaudited)
for the three and nine months ended September 30, 1996 and
1995 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended September 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements
(Unaudited), September 30, 1996 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 23
2
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) SEPTEMBER 30, 1996 DECEMBER 31,1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Noninterest earning deposits and cash $3,534 $4,466
Interest earning deposits 5,535 4,375
-------- --------
Cash and cash equivalents 9,069 8,841
Federal funds sold -- 10,000
Investment securities:
Held-to-maturity 11,803 11,786
11,373 7,926
-------- --------
Available-for-sale (at market value) 23,176 19,712
Federal Home Loan Bank stock-at cost 1,315 1,315
Loans held for sale 1,430 281
Loans 97,501 100,550
Less:Deferred loan fees, net (29) (22)
Allowance for loan losses (2,735) (2,659)
-------- --------
94,737 97,869
Premises and equipment 3,212 3,073
Real estate owned and repossessions 1,039 1,973
Other assets 2,451 2,389
-------- --------
TOTAL ASSETS $136,429 $145,453
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $118,036 $125,665
Advances from Federal Home Loan Bank 6,000 6,000
Note Payable 4,000 9,000
Accrued interest on Note Payable -- 419
Accrued expenses and other liabilities 188 372
-------- --------
TOTAL LIABILITIES 128,224 141,456
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 and
outstanding as of September 30, 1996 and December 31, 1995 - 1,357,861 and 600,361 1,358 600
Paid-in Capital 31,795 29,375
Retained earnings deficit (24,816) (26,016)
Unrealized gain (loss) on available for sale securities (132) 38
-------- --------
TOTAL STOCKHOLDERS' EQUITY 8,205 3,997
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $136,429 $145,453
======== ========
</TABLE>
See Notes to condensed consolidated financial statements.
3
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $2,248 $2,413
Interest and dividends on investment securities 423 259
Other interest income 82 270
---------- --------
TOTAL INTEREST AND DIVIDEND INCOME 2,753 2,942
---------- --------
INTEREST EXPENSE
Deposits 1,151 1,285
Borrowings
Advances from Federal Home Loan Bank 89 91
Note Payable 120 116
---------- --------
Total Interest Expense 1,360 1,492
---------- --------
Net Interest Income Before Provision for Loan Losses 1,393 1,450
Provision for Loan Losses -- 75
---------- --------
Net Interest Income After Provision for Loan Losses 1,393 1,375
OTHER INCOME
Service charges on deposit accounts 90 60
Gain on investment securities transactions 14 1
Gain on sales of mortgage loans 5 2
Other 54 65
---------- --------
163 128
---------- --------
OTHER EXPENSES
Salaries and employee benefits 531 513
Occupancy 101 120
Net cost of operation of real estate owned and repossessions (8) 1
Other 674 576
---------- --------
1,298 1,210
---------- --------
Income Before Income Taxes 258 293
Income Tax Benefit (48) --
---------- --------
NET INCOME $306 $293
========== ========
PER SHARE AMOUNTS
Weighted Average Shares Outstanding 1,160,252 600,361
Income Per Share $ .26 $ .49
========== ========
</TABLE>
See Notes to condensed consolidated financial statements.
4
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NINE MONTHS ENDED SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------
1996 1995
---- ----
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $6,930 $7,311
Interest and dividends on investment securities 1,181 768
Other interest income 437 715
---------- --------
TOTAL INTEREST AND DIVIDEND INCOME 8,548 8,794
---------- --------
INTEREST EXPENSE
Deposits 3,596 3,682
Borrowings
Advances from Federal Home Loan Bank 264 365
Note Payable 416 302
---------- --------
Total Interest Expense 4,276 4,349
---------- --------
Net Interest Income Before Provision for Loan Losses 4,272 4,445
---------- --------
Provision for Loan Losses -- 250
---------- --------
Net Interest Income After Provision for Loan Losses 4,272 4,195
OTHER INCOME
Service charges on deposit accounts 245 191
Gain (loss) on investment securities transactions 38 (11)
Gain (loss) on sales of mortgage loans (5) 16
Other 529 240
---------- --------
807 436
---------- --------
OTHER EXPENSES
Salaries and employee benefits 1,567 1,569
Occupancy 328 341
Net cost of operation of real estate owned and repossessions 61 53
Other 1,972 1,936
---------- --------
3,928 3,899
---------- --------
Income Before Income Taxes 1,151 732
Income Tax Benefit (48) --
---------- --------
NET INCOME $1,199 $732
========== ========
PER SHARE AMOUNTS
Weighted Average Shares Outstanding 788,354 600,361
Income Per Share $ 1.52 $ 1.22
========== ========
</TABLE>
See Notes to condensed consolidated financial statements.
5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
First Coastal Corporation and Subsidiary
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $1,199 $732
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses -- 250
Writedowns of REO 5 36
Provision for depreciation and amortization 201 212
Amortization of investment security (discounts) (25) (223)
Realized investment securities (gains) losses (38) 11
(Gains) from assets held in trading accounts -- (33)
Realized (gains) losses on assets held for sale 5 (16)
Decrease in trading account securities -- 948
Loans originated and acquired for resale (4,799) (1,862)
Sales of loans originated and acquired for sale 3,645 1,690
(Increase) decrease in interest receivable 69 (99)
Increase (decrease) in interest payable (508) 296
Net change in other assets 294 1,293
Net change in other liabilities (95) (117)
---------- --------
Net cash provided (used) by operating activities (47) 3,118
---------- --------
INVESTING ACTIVITIES
Decrease in federal funds sold 10,000 --
Proceeds from sales and maturities of investment securities available for sale 6,371 2,193
Maturities of securities held to maturity 5,000 7,080
Purchases of investment securities available for sale (9,939) -
Purchases of investment securities held to maturity (5,003) (8,921)
Net change in loans 3,637 8,259
Net purchases of premises and equipment (340) (348)
---------- --------
Net cash provided by investing activities 9,726 8,263
---------- --------
FINANCING ACTIVITIES
Net change in deposits (7,629) (3,707)
Proceeds from borrowings 4,000
Payments on borrowings (9,000) (6,612)
Proceeds from sale of Common Stock 3,178 --
---------- --------
Net cash used by financing activities (9,451) (10,319)
---------- --------
Increase in cash and cash equivalents 228 1,062
Cash and cash equivalents at beginning of period 8,841 11,337
---------- --------
Cash and cash equivalents (interest and noninterest bearing) at end of period $ 9,069 $12,399
========== ========
NONCASH INVESTING ACTIVITIES
Change in unrealized holding losses on investment securities available for $ 170 $ 298
Securities available for sale collateralized by portfolio mortgage loans -- --
Transfer of loans to real estate owned and repossessions 505 715
</TABLE>
See Notes to consolidated financial statements.
6
<PAGE>
FIRST COASTAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE A - CERTAIN REGULATORY MATTERS
RECEIVERSHIP OF SUFFIELD BANK
On September 6, 1991, First Coastal Corporation (the "Company") announced that
Suffield Bank was placed into receivership by the Connecticut Banking Department
and the Federal Deposit Insurance Corporation ("FDIC") was appointed as the
receiver. Following the receivership of Suffield Bank, management's efforts
were focused for an extended period of time on resolving the cross guaranty
claim, as described below, and improving operations of the Company's subsidiary,
Coastal Savings Bank ("Coastal" or the "Bank").
SETTLEMENT OF FDIC CROSS GUARANTY CLAIM
On January 31, 1995, the Company and the Bank consummated a settlement with the
FDIC in accordance with the terms and conditions of the Amended and Restated
Settlement Agreement, dated as of November 23, 1994 (the "Amended and Restated
Settlement Agreement"), pursuant to which the FDIC waived and released its cross
guaranty claim against the Bank. The cross guaranty claim was the result of the
September 1991 failure of Suffield Bank. As part of the settlement, the Company
issued to the FDIC a non-recourse promissory note in the principal amount of
$9.0 million (the "FDIC Note"), secured by the Company's pledge of the
outstanding stock of the Bank. In 1994, the Company incurred an extraordinary
charge to earnings resulting from the issuance of the FDIC Note. Principal and
interest under the FDIC Note were deferred until its maturity date, January 31,
1997.
The Company announced on January 31, 1996 that it intended to pursue a
recapitalization of the Company as the means to facilitate the satisfaction of
the FDIC Note. On July 24, 1996, the Company completed its recapitalization
plan, whereby the Company repaid in full its obligation to the FDIC in the
amount of $9.75 million ($9.0 million loan principal amount plus accrued
interest). The funds utilized to repay the obligation came from (i) the sale of
750,000 shares of the Company's common stock at $5.00 per share by means of a
registered public offering; (ii) a dividend of $3.2 million from the Bank to the
Company; and (iii) the borrowing of $4.0 million from a group of four Maine
savings banks, secured by the pledge by the Company of 100% of the outstanding
common stock of the Bank.
MEMORANDUM OF UNDERSTANDING
On September 16, 1996 and September 9, 1996, the Company was notified by the
Regional Director of the Boston Regional Office of the FDIC and the
Superintendent of the Maine Bureau of Banking, respectively, that the Memorandum
of Understanding previously entered into between the FDIC, the Maine Bureau of
Banking and the Bank on November 22, 1994, was terminated.
REGULATORY CAPITAL REQUIREMENTS
Under applicable federal regulations, the Company and Coastal are each
required to maintain minimum levels of regulatory capital. The Federal
Reserve has adopted a leverage-based capital requirement for bank holding
companies with a composite rating of 1 under the bank holding company rating
system of a minimum level of tier 1 capital to total assets of 3.0%. All
other bank holding companies or bank subsidiaries of bank holding companies
are required to maintain a minimum ratio of tier 1 capital to total assets of
4.0% to 5.0%. Under the
7
<PAGE>
Federal Reserve's risk-based capital guidelines, bank holding companies or
banks also are required to maintain a minimum ratio of qualifying total
capital to risk-weighted assets of 8.0%. The guidelines apply on a
consolidated basis to bank holding companies with consolidated assets of $150
million or more. For bank holding companies which have less than $150 million
in consolidated assets, as did the Company for each of the quarters ended
September 30, 1995, December 31, 1995, March 31, 1996, June 30, 1996 and
September 30, 1996, the guidelines are applied on a bank-only basis (as
opposed to a consolidated basis) unless (i) the parent bank holding company
is engaged in nonbank activity involving significant leverage or (ii) the
parent company has a significant amount of debt that is held by the general
public. The Federal Reserve capital adequacy guidelines provide that "debt
held by the general public" is debt held by parties other than financial
institutions, officers, directors, and controlling stockholders of the
banking organization or their related interests. As a result, applied on a
bank-only basis, the Company's ratios of tier 1 capital to total assets, tier
1 capital to risk-weighted assets, qualifying total capital to risk-weighted
assets of 8.59%, 13.32%, and 14.59%, respectively, at September 30, 1996 were
in compliance with such guidelines.
The FDIC has also adopted minimum capital requirements as regulations for state
non-member banks such as the Bank. Under the minimum leverage capital
requirement, insured state non-member banks must maintain a Tier 1 capital to
total assets ratio of at least 3% to 5% depending on the CAMEL rating of the
bank. At September 30, 1996, the Bank had a Tier 1 capital to total assets
ratio of 8.59%.
In addition, under such regulations insured non-member banks must maintain a
minimum ratio of qualifying total capital to risk-weighted assets of 8.0%,
including a minimum ratio of Tier 1 capital to risk-weighted assets of 4.0%. At
September 30, 1996, the Bank had a ratio of Tier 1 capital to risk-weighted
assets of 13.32% and a ratio of qualifying total capital to risk-weighted assets
of 14.59%.
NOTE B - ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the
Company 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. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles ("GAAP") for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for the
nine months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. For further
information, refer to the consolidated financial statements and footnotes
thereto included in Amendment No. 3 to the Company's Annual Report on Form
10-K/A for the year ended December 31, 1995.
Most of the Company's commercial real estate loans as of September 30, 1996 are
collateralized by real estate in Maine which has experienced a significant
decline in value since the market peak in the late 1980's. In addition, all of
the real estate owned ("REO") are located in this same market. Accordingly, the
ultimate collectibility of a substantial portion of the Company's loan portfolio
and the recovery of a substantial portion of the carrying amount of REO have
been impacted by this real estate market decline and are particularly
susceptible to changes in market conditions in Maine.
While management uses available information to recognize losses on loans and
REO, future additions to the allowance for loan losses ("Allowance") or
writedowns may be necessary based on changes in economic conditions. In
addition, various regulatory authorities, as an integral part of their
examination process,
8
<PAGE>
periodically review the Company's Allowance and the carrying value of REO.
Such authorities may require the Company to recognize additions to the
Allowance and/or write down the carrying value of REO based on their
judgments of information available to them at the time of their examination.
NEW ACCOUNTING STANDARDS
In May 1995, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard (SFAS) No. 122, MORTGAGE SERVICING RIGHTS,
which amends FASB Statement No. 65, ACCOUNTING FOR CERTAIN MORTGAGE BANKING
ACTIVITIES. This standard eliminates the distinction between purchased and
originated mortgage servicing rights and establishes the use of a valuation
allowance to recognize any impairment in the fair value of mortgage servicing
rights. There was no effect to the Company's financial statements or results of
operations on January 1 and September 30, 1996 as a result of implementing FASB
Statement No. 122.
In addition, during October 1995, FASB issued SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION, which establishes fair-value based accounting to
recognize compensation expense related to stock-based transactions. For
employers, the fair-value based recognition provisions are not mandatory;
however, certain disclosure requirements are provided. The Company intends to
comply with the disclosure requirements when required in 1996.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
INVESTMENT SECURITIES
Effective January 1, 1994 with the implementation of FASB Statement No. 115,
investment securities classified as available for sale are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders' equity. Investment securities held to
maturity are stated at cost adjusted for amortization of bond premiums and
accretion of bond discounts. There was no effect to the Company's financial
statements or results of operations on January 1, 1994 as a result of
implementing FASB Statement No. 115. At September 30, 1996, investment
securities classified as available for sale reflected an unrealized loss of
$132,000.
As of September 30, 1996, the Company's investment accounting policy states that
all securities purchased with an original maturity of over one year, other than
mortgage backed securities originated by the Bank with current loan production,
will be classified as available for sale. Securities purchased with an original
maturity of one year or less, or callable U.S. government agency notes, will be
considered held-to-maturity. Mortgage backed securities originated by the Bank
with current loan productions, will be classified as trading securities.
ASSETS HELD FOR SALE STATED AT MARKET VALUE
Assets held for sale, consisting primarily of residential mortgages originated
for the purpose of potential sale, are valued at the lower of cost or market.
9
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LOANS
Interest on loans is accrued and credited to operations based on the principal
amount outstanding. The accrual of interest income is discontinued when a loan
becomes delinquent and, in management's opinion, borrowers may be unable to meet
contractual obligations. Such accrual is discontinued where interest or
principal is 90 days or more past due, unless the loans are deemed to be
adequately secured and in the process of collection. In these instances,
interest is recognized only when received. When interest accruals are
discontinued, unpaid interest credited to income in the current year is reversed
and interest accrued in prior years is charged to the Allowance.
Loan origination fees and certain direct loan origination costs are deferred and
the new amount amortized as an adjustment to the related loan yield over the
estimated contractual life of the loan.
ALLOWANCE FOR LOAN LOSSES
The Allowance is maintained at a level believed adequate by management to absorb
potential losses inherent in the current loan portfolio. Management's
determination of the adequacy of the Allowance is based on an evaluation of the
portfolio, past and expected loan loss experience, current economic conditions,
trends in loan outstandings and diversification of the loan portfolio, the
results of the most recent regulatory examinations, the results of loan
portfolio reviews completed by outside consultants, the nature and level of
nonperforming assets, impaired loans and loans that have been identified as
potential problems, the adequacy of loan collateral and other relevant factors.
The Allowance is increased by provisions for loan losses charged against income
and recoveries on loans previously charged off.
The Company adopted FASB Statement No. 114, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN, on January 1, 1995. Under such standard, a loan is
considered impaired, based on current information and events, if it is highly
probable that the Company will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Management identifies impaired loans on a loan-by-loan basis.
Though the measurement of impaired loans is generally based on the present value
of expected future cash flows discounted at the historical effective interest
rate, most of the Company's loans are collateral-dependent loans, which are
measured for impairment based on the fair value of the collateral. The adoption
of FASB Statement No. 114 resulted in no additional provision for loan losses as
determined at January 1, 1995 and September 30, 1996.
REAL ESTATE OWNED ("REO")
REO, other than bank premises, consists of properties acquired through mortgage
loan foreclosure proceedings or in satisfaction of loans. REO is initially
recorded at the lower of cost or fair value (minus estimated costs to sell) at
the date the property is acquired and any difference is charged to the Allowance
at the time of reclassification. Subsequently, the values of such properties
are reviewed by management and writedowns, if any, are charged to expense.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated provisions for
depreciation and amortization, computed using the straight-line method over
estimated useful lives.
10
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REVERSE STOCK SPLIT
On May 31, 1995, the Company effected a one-for-ten reverse stock split with
respect to the issued and outstanding shares of the Company's common stock,
which was approved by the Company's stockholders on January 31, 1995. As a
result of the reverse stock split, the number of outstanding shares of common
stock of the Company was reduced from 6,006,745 shares (determined at the close
of business on May 31, 1995) to 600,361 shares. As a result, $5,407,000 was
transferred from the Company's common stock account to paid-in capital. All
applicable share and per share data appearing in the consolidated financial
statements and notes thereto have been retroactively adjusted for the reverse
stock split.
RECAPITALIZATION AND ISSUANCE OF NEW COMMON STOCK
On July 24, 1996, the Company completed its recapitalization plan, whereby the
Company repaid in full its obligation to the FDIC in the amount of $9.75 million
($9.0 million loan principal amount plus accrued interest). The funds utilized
to repay the obligation came from (i) the sale of 750,000 shares of the
Company's common stock at $5.00 per share by means of a registered public
offering; (ii) a dividend of $3.2 million from the Bank to the Company; and
(iii) the borrowing of $4.0 million from a group of four Maine savings banks,
secured by the pledge by the Company of 100% of the outstanding common stock of
the Bank. The public offering resulted in an increase in common stock
outstanding from 600,361 shares to 1,357,861 shares, as of July 24, 1996.
INCOME TAXES
The Company adopted FASB Statement No. 109, ACCOUNTING FOR INCOME TAXES, in 1993
which requires a change from the deferred method of accounting for income taxes
of APB Opinion 11 to the asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. At December 31,
1995, the Company estimated that its deferred tax asset was $6.9 million, $1.2
million of which will be expiring at December 31, 1996, resulting from the
expiration of $3.5 million in net operating loss carryforwards (NOL). At
December 31, 1995 and September 30, 1996, such deferred tax asset was fully
offset by a valuation allowance. For further information, refer to the
Consolidated Financial Statements and footnotes thereto included in the
Company's Amendment No. 3 to Form 10-K on Form 10-K/A for the year ended
December 31, 1995.
At the June 11, 1996 annual meeting of stockholders, the stockholders approved
an amendment to the Restated Certificate of Incorporation of the Company which
generally provides that no person shall become or make an offer to become the
beneficial owner of five percent or more of the Company's voting stock for a
three year period, which expires June 11, 1999. This amendment helps to reduce
the likelihood that there will be an "ownership change" as defined in Section
382 of the Internal Revenue Code, which could result in a reduction in the
amount of NOLs for tax purposes.
11
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PART I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL CONDITION
TOTAL ASSETS
At September 30, 1996, total assets were $136.4 million, representing a decrease
of $9.0 million (or 6.2%) from total assets of $145.5 million at December 31,
1995. This decrease was primarily attributable to the sale of the Bank's Kezar
Falls branch to Maine Bank & Trust Company on April 26, 1996 and which resulted
in a decrease in deposits and overall total assets of approximately $9.9
million. See "Financial Condition - Liquidity - Coastal" for more information
concerning the branch sale.
INVESTMENTS
The Company's investment portfolio is comprised primarily of U.S. government and
agency obligations and also contains miscellaneous equity securities. Total
investment securities at September 30, 1996 were $23.2 million compared to $19.7
million at December 31, 1995. This increase is attributable to the purchase of
$5.0 million in U.S. government agency callable notes, $4.0 million in GNMA
mortgage-backed securities and $6.0 million in U.S. treasury securities,
partially offset by maturities of U.S. treasury securities totaling $4.0
million, sales of U.S. Treasury securities of $2.0 million, sales of mutual
funds of $1.0 million and $4.0 million of U.S. government agency callable notes
which were called during the first quarter of 1996. Investment securities
classified as available for sale are reported at fair value, with unrealized
gains and losses excluded from earnings and reported in a separate component of
stockholders' equity. Investment securities held to maturity are stated at
cost, adjusted for amortization of bond premiums and accretion of bond
discounts.
The following table sets forth the amortized cost and fair value of investment
securities for each major security type at September 30, 1996.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
------------------------------------------------
FAIR GROSS GROSS
AMORTIZED MARKET UNREALIZED UNREALIZED
COST VALUE GAIN LOSSES
--------- ------ ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $5,942 $5,909 $ 3 $ 36
Mortgage backed securities 4,467 4,372 -- 95
Equity/mutual fund 997 993 -- 4
Other 99 99 -- --
------- ------- ---- ----
$11,505 $11,373 $ 3 $135
------- ------- ---- ----
------- ------- ---- ----
Held to maturity:
U.S. government callable notes 11,803 11,613 1 191
------- ------- ---- ----
$11,803 $11,613 $ 1 $ 191
------- ------- ---- ----
------- ------- ---- ----
</TABLE>
The net unrealized loss on investment securities classified as available for
sale was $132,000 at September 30, 1996, versus a net unrealized gain of
$38,000 at December 31, 1995. The net unrealized loss on securities
available for sale is attributable to an increase in interest rates during
the first six months of 1996. The Company will continue to give
consideration to further investments in U.S. government agency, U.S.
government
12
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obligations and mortgage backed securities, after giving consideration to the
potential impact on the fair value of these securities that may result from
interest rate fluctuations in comparison to alternative investment securities.
The following table represents the contractual maturities for investments in
debt securities for each major security type at September 30, 1996.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------
MATURING
--------------------------------------------
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
--------- ---------- ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $2,000 $3,909 -- $5,909
Mortgage backed securities -- -- 4,372 4,372
------ ------ ----- -----
$2,000 $3,909 $4,372 $10,281
------ ------ ----- -----
------ ------ ----- -----
Held to maturity:
U.S. government agency callable
notes (final maturity) -- 9,000 2,803 11,803
------ ------ ----- -----
$ -- $9,000 $2,803 $11,803
------ ------ ----- -----
------ ------ ----- -----
</TABLE>
LOANS
Loans consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1996 1996 1996 1995
------------ ------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Residential $30,352 $29,355 $28,724 $30,966
Commercial 48,788 48,966 49,258 50,797
Commercial and industrial loans 2,860 2,170 2,264 2,524
Consumer and other loans 15,501 15,475 15,778 16,263
-------- ------- ------ ------
$97,501 $95,966 $96,024 $100,550
-------- ------- ------ ------
-------- ------- ------ ------
</TABLE>
Loans decreased $3.0 million (or 3.0%) at September 30, 1996 as compared to
December 31, 1995. The most significant reason for the decrease was the
prepayment of loans in advance of their scheduled maturity dates during the
first quarter of 1996.
ALLOWANCE FOR LOAN LOSSES (ALLOWANCE)
The Company's Allowance was $2.7 million at September 30, 1996 and December
31, 1995. The Allowance represented 2.81% and 2.65% of total loans, and
122.65% and 47.96% of nonperforming loans, at September 30, 1996 and December
31, 1995, respectively.
Although the balance of the Allowance remained relatively unchanged at
September 30, 1996 as compared to December 31, 1995, there is some likelihood
that the level of the Allowance will trend moderately downward over
13
<PAGE>
the next one or two years. This is anticipated to occur as previously
identified loan loss exposure is quantified and recognized (charged-off),
either through negotiations and work out efforts, or through the commencement
and completion of collateral liquidations.
In determining reserve adequacy, management places a high reliance upon the
review of individual commercial loan assets to determine whether or not loss
exposure exists. All such loans classified substandard or worse are assigned
individual allocated loan loss reserves, where appropriate. Consistent with
current guidelines, a five percent reserve is also established against loans
graded special mention and various reserve percentages are established against
the non-classified balance of the commercial portfolio, as well as residential
loans, construction loans and consumer loans. This methodology relies upon a
combination of current and anticipated trends, along with historical trends, in
establishing the appropriate reserve percentages for the different portfolios.
While the current level of the Allowance is believed to be adequate, the Company
continues to hold a large concentration of commercial real estate loans, a
significant portion of which remain vulnerable to loan default. Deterioration
in the local economy or real estate market, or upward movements in interest
rates, could have an adverse effect on the performance of the loan portfolio
that could result in the need for an increased allowance for loan losses.
Conversely, further improvement in overall asset quality, favorable local
economic conditions or a favorable local real estate market, could positively
affect the Allowance.
NONPERFORMING ASSETS
Information with respect to nonperforming assets is set forth below:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1996 1996 1996 1995
------------ -------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Nonaccrual loans $2,015 $1,633 $ 736 $1,948
Accruing loans past
due 90 days or more 215 137 89 169
Restructured loans -- -- 625 3,427
Real estate owned and
repossessions 1,039 1,231 2,164 1,973
------ ----- ----- -----
Total $3,269 $3,001 $3,614 $7,517
------ ----- ----- -----
------ ----- ----- -----
</TABLE>
The level of nonperforming assets declined 56.51% from December 31, 1995 to
September 30, 1996, from $7.5 million to $3.3 million, respectively. This was
primarily attributable to a decline in restructured loans, as these loans were
reclassified to performing status in 1996. The modest increase in nonaccrual
loans was offset by a $.9 million decline in REO during 1996, which was
primarily attributable to the sale of two large commercial real estate
properties. Following a decline to $.7 million at March 31, 1996, nonaccrual
loans increased $1.3 million over the past two quarters ended September 30,
1996. $1.1 million of this increase involves two loan relationships, one of
which ($625,000) was moved from the restructured loan category to nonaccrual
during the quarter ended June 30, 1996.
The current level of nonperforming assets represents an 87.9% decline from
the level established at December 31, 1991 of $27.3 million. While the
downward trend in nonperforming assets that has developed since 1991 is
significant, the Company continues to hold a large concentration of
commercial real estate loans, a significant portion of which remain
vulnerable to default. Many of these loans were made at or near the peak in
the commercial real estate market in the late 1980's and the collateral
coverage for many loans may not be adequate to protect the Bank from
potential losses in the event such loans become nonperforming. Deterioration
in the local economy or real estate market, or upward movements in interest
rates, could have an adverse impact on
14
<PAGE>
currently performing commercial real estate loans. These factors could
result in an increased incidence of loan defaults and, as a result, an
increased level of nonperforming loans.
IMPAIRED LOANS
Management reviews loans on a case by case basis to determine which loans should
be classified as impaired. If management believes there is a high probability
of a loss of principal or interest, then such loans are determined to be
impaired. At September 30, 1996, the recorded investment in loans for which
impairment has been recognized in accordance with FASB Statement No. 114 totaled
$1,437,000 compared to $3,728,000 at December 31, 1995. The corresponding
allocated reserves for these loans was $299,000 for the period ended September
30, 1996. All of the impaired loans were classified as nonaccrual and secured
by real estate at September 30, 1996, and accounted for by the lower of the fair
value of the collateral (net of the $299,000 allocated reserves) or amortized
loan value.
Impaired loans consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
1996 1996 1996 1995
------------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate mortgage loans:
Residential $ 50 $ 70 $ 70 $ 301
Commercial 1,319 1,345 1,181 3,427
Real estate construction loans -- -- -- --
Commercial and industrial loans -- -- -- --
Consumer and other loans 68 99 -- --
------ ------ ----- ------
$1,437 $1,514 $1,251 $3,728
------ ------ ----- ------
------ ------ ----- ------
</TABLE>
REAL ESTATE OWNED ("REO")
At September 30, 1996, REO consisted of 10 commercial and residential real
estate properties equaling $943,000 and 5 repossessed assets equaling $96,000.
REO is initially recorded at the lower of cost or fair value (minus estimated
costs to sell) at the date the Bank acquires title to the property and any
difference is charged to the Allowance at the time the property is classified as
REO. Subsequently, the values of such properties are reviewed by management and
writedowns, if any, are charged to expense. Costs relating to the development
and improvement of properties are capitalized; holding costs are charged to
expense.
LIQUIDITY - COASTAL
Deposits totaled $118.0 million at September 30, 1996, a decrease of $7.6
million (or 6.07%) from the level of $125.7 million at December 31, 1995.
On April 26, 1996, the Bank consummated the sale of its Kezar Falls branch to
Maine Bank & Trust Company. Included in the sale were all of the branch
deposits totaling $9.9 million and certain of the furniture, fixtures and
equipment of the branch. The Bank recognized a premium paid on the deposits of
$403,000, which was offset by expenses relating to the sale of $37,000.
15
<PAGE>
On April 20, 1996, the Bank implemented a new deposit program featuring seven
new checking account products. The new program will entail increased
expenditures in marketing and a new mix of deposit products, which the Bank
believes will help to facilitate its efforts to increase its market share and
its non-interest income and to decrease its cost of funds.
On October 24, 1996, the Federal Home Loan Bank ("FHLB") of Boston notified the
Bank that all previously imposed borrowing restrictions resulting from the
uncertainty of the cross guaranty claim had been lifted. Coastal is also
approved by the Federal Reserve Bank of Boston to obtain liquidity from its
"Discount Window" provided that assets are pledged to the Federal Reserve Bank's
satisfaction.
LIQUIDITY - PARENT
On a parent company only ("parent") basis, the Company conducts no separate
operations. Its business consists of the business of its banking subsidiary.
In addition to debt service relating to the Note in the principal amount of $4.0
million issued by the Company to a group of four Maine savings banks on July 24,
1996 as part of the Company's recapitalization plan, the Company's expenses
consist primarily of Delaware franchise taxes associated with the Company's
authorized capital stock, and certain legal and various other expenses.
Expenses, including certain audit and professional fees, insurance and other
expenses, are allocated between Coastal and the Company based upon the relative
benefits derived. At September 30, 1996 the parent's assets (other than its
investment in its subsidiary) consisted of $410,000 in cash.
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 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, as a condition to the approval by the Maine Bureau of Banking of
the payment of the dividend in the amount of $3.2 million which was paid on July
24, 1996 by the Bank to the Company, the Maine Bureau of Banking required that
the Company commit to the Maine Bureau of Banking that it would not pay cash
dividends to its stockholders as long as the Company's debt to equity ratio is
above 25% (on a parent company only basis) without the prior approval of the
Maine Bureau of Banking. The Company's debt to equity ratio (on a parent
company only basis) at September 30, 1996 equaled 48.75%.
The principal source of cash for the parent company would normally be a dividend
from Coastal; however, certain restrictions also exist regarding the ability of
Coastal 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 $4.0 million loan agreement closed at the time of the recapitalization
contains certain terms, restrictions and covenants, including covenants
restricting the amount of borrowings that may be incurred by the Company and the
Bank, restrictions regarding the conditions under which cash dividends may be
paid by the Company (including a prohibition of the payment of cash dividends to
its stockholders as long as the Company's debt-to-equity ratio on a parent-only
basis exceeds 30%), and a requirement that the Company and the Bank maintain
certain minimum capital ratios.
16
<PAGE>
On July 24, 1996, May 3, 1996, November 13, 1995 and November 30, 1994,
following the receipt of appropriate regulatory approvals, Coastal paid the
Company cash dividends of $3.2 million, $200,000, $200,000 and $175,000,
respectively.
CAPITAL - COASTAL
The table below sets forth the regulatory capital requirements and capital
ratios for Coastal at September 30, 1996:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C>
TIER 1 CAPITAL (LEVERAGE) TO TOTAL
ASSETS RATIO (1)
Qualifying capital $11,717
Actual % 8.59%
Minimum requirement % 6.00%
Average assets for third quarter $136,382
TIER 1 CAPITAL TO RISK-WEIGHTED ASSETS
Qualifying capital $11,717
Actual % 13.32%
Minimum requirement % 4.00%
TOTAL CAPITAL TO RISK-WEIGHTED ASSETS
(TIER 1 AND TIER 2)
Qualifying capital $12,837
Actual % 14.59%
Minimum requirement % 8.00%
Gross risk-weighted assets $87,972
</TABLE>
- ------------------
(1) Calculated on an average quarterly basis
CAPITAL - COMPANY
The Federal Reserve capital adequacy guidelines apply on a consolidated basis to
bank holding companies with consolidated assets of $150 million or more (See
"Note A"). For bank holding companies which have less than $150 million in
consolidated assets, as did the Company for each of the quarters ended September
30, 1995, December 31, 1995, March 31, 1996, June 30, 1996 and September 30,
1996, the guidelines are applied on a bank-only basis (as opposed to a
consolidated basis) unless (i) the parent bank holding company is engaged in
nonbank activity involving significant leverage or (ii) the parent company has a
significant amount of debt that is held by the general public. The Federal
Reserve capital adequacy guidelines provide that "debt held by the general
public" is debt held by parties other than financial institutions, officers,
directors, and controlling stockholders of the banking organization or their
related interests. As a result, applied on a bank-only basis, the Company's
ratios of tier 1 capital to total assets, tier 1 capital to risk-weighted
assets, and qualifying total capital to risk-weighted assets of 8.59%, 13.32%,
and 14.59%, respectively, at September 30, 1996 were in compliance with such
guidelines. If the Company were required to calculate its ratios of tier 1
capital to total assets, tier 1 capital to risk-weighted assets, and qualifying
total capital to risk-weighted assets on a consolidated basis, such ratios would
be 5.95%, 9.4% and 10.67%, respectively, at September 30, 1996.
17
<PAGE>
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. See "Liquidity - Parent" for restrictions on dividends.
RESULTS OF OPERATIONS
NET INCOME(LOSS)
The net income for the three and nine months ended September 30, 1996 was
$306,000 and $1,199,000, respectively, compared with net income of $293,000 and
$732,000 for the same respective periods last year. The improvement in earnings
for 1996 is primarily attributable to the consummation of the sale of the
Company's Kezar Falls branch to Maine Bank & Trust Company, resulting in a net
gain of $366,000, calculated by deducting $37,000 in expenses associated with
the closing from the gross deposit premium received of $403,000. In addition,
earnings were positively impacted by no provision for loan loss expense for the
nine months ended September 30, 1996, as compared to $250,000 of provision
expense for the same period last year and a $48,000 tax benefit relating to
interest earned against a 1992 tax refund. Earnings for the nine months ended
September 30, 1996 were further reduced by a decline in net interest income as
compared to the nine months ended September 30, 1995.
NET INTEREST INCOME
Net interest income for the three and nine months ended September 30, 1996 was
$1.4 million and $4.3 million, respectively, compared to $1.5 million and $4.4
million, respectively for the nine months ended September 30, 1995. An increase
in interest expense related to the Note Payable, of $0.1 million for the nine
months ended September 30, 1996, compared to the same respective period last
year, represented a significant portion of the decrease in net interest income.
The Company's net interest margin increased from 4.58% at September 30, 1995 to
4.69% at September 30, 1996.
PROVISION FOR LOAN LOSSES
There was no provision for loan loss expense for the nine months ended September
30, 1996, as compared to provision expense of $250,000 for the nine months ended
September 30, 1995. This is attributable to several factors, including the
essentially unchanged level of the Allowance, both in dollars ($2.7 million at
September 30, 1996 and December 31, 1995) and as a percentage of total loans
(2.81% at September 30, 1996 versus 2.65% at December 31, 1995), the decline in
nonperforming loans during the nine month period, and management's review of the
portfolio and its determination of the adequacy of the Allowance as of September
30, 1996.
The Company's policy is to fund the Allowance by charging operations in the form
of provision for loan loss expense based on periodic evaluations of the loan
portfolio and current economic trends (see "Note B Accounting Policies --
Allowance for Loan Losses" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Allowance for Loan Losses" ).
The Company continues to hold a large concentration of commercial real estate
loans. The ultimate collectibility of the Company's commercial real estate loan
portfolio is particularly susceptible to changes in local real estate market
conditions. Deterioration in the local economy or real estate market, or upward
movement in interest rates, could have an adverse impact on the loan portfolio
that could result in the need for increased provision for loan loss expense.
18
<PAGE>
Management believes that the Allowance is adequate at September 30, 1996.
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 real estate collateral, 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 Company's Allowance. Such authorities may
require the Company to recognize additional provision for loan loss expense
based upon information available to them and their judgments at the time of
their examination.
OTHER OPERATING INCOME
Other operating income for the three and nine months ended September 30, 1996
was $163,000 and $807,000, respectively, as compared to $128,000 and $436,000
for the same respective periods in 1995. In the second quarter of 1996 the
Company realized a net gain of $366,000 from the sale of its Kezar Falls
branch. For the three months ended September 30, 1996 deposit fee income
increased by $30,000 primarily attributable to the new deposit program the
Bank implemented in April of 1996.
OTHER OPERATING EXPENSES
Other operating expenses for the three and nine months ended September 30, 1996
was $1.3 million and $3.9 million, respectively, as compared to $1.2 million and
$3.9 million for the same respective periods in 1995. Although other operating
expenses remained relatively unchanged for the three and nine months ended
September 30, 1996 compared to the same respective periods last year, the
Company incurred approximately $181,000 for the nine months ended September 30,
1996 in marketing expenses associated with its new deposit program which was
implemented in April, 1996. Management believes that this new deposit program
will continue to result in an increase in the other operating expense category
(primarily marketing related expenses) as a result of the Bank's efforts to
increase its market share of consumer checking account deposits. Additionally,
the Company expects overall expenses to decline by approximately $274,000 on an
annualized basis resulting from two items: (i) the sale of the Kezar Falls
branch in April of 1996 is expected to reduce occupancy and other expenses by
approximately $74,000 annualized, and (ii) the computer conversion which was
completed in August, 1996 is expected to result in expense reductions of
approximately $200,000 annually. Additionally, for the quarter ended September
30, 1996, the Company's net cost of operation of real estate owned and
repossessions reflects a $43,000 recovery of certain previously expensed legal
expenses.
19
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As of September 30, 1996, there were various claims and lawsuits pending
against the Company incidental to the ordinary course of business. In the
opinion of management, after consultation with legal counsel, resolution of
these matters is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES.
On June 11, 1996 the Company filed an amendment to its Restated Certificate
of Incorporation to provide for a three-year restriction on certain
acquisitions and offers to acquire 5% or more of the voting stock of the
Company in order to reduce the likelihood that there will be a reduction in
the amount of the Company's net operating loss carryforward for federal tax
purposes by reason of an "ownership change" (as defined in Section 382 of
the Internal Revenue Code of 1986, as amended). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity - Parent" for information relating to restrictions on the payment
of dividends by the Company, which information is incorporated herein by
reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits that are filed with this Form 10-Q, or that are incorporated
herein by reference, are set forth below:
3.1(i)(a) Restated Certificate of Incorporation (filed as Exhibit 3.1(i) to
Annual Report on Form 10-K for the year ended December 31, 1995, File No.
0-14087 ("1995 Form 10-K"), and incorporated herein by reference).
3.1(i)(b) Certificate of Amendment of Restated Certificate of Incorporation
(filed as Exhibit 3.1(i)(b) to Amendment No. 3 to Form 10-K for the year
ended December 31, 1995, File No. 0-14087 ("1995 Form 10-K/A"), and
incorporated herein by reference).
3.1(ii) Amended and Restated Bylaws (filed as Exhibit 3.1(ii) to 1995
Form 10-K, and incorporated herein by reference).
20
<PAGE>
10.1 First Coastal Corporation Director's Deferred Compensation Plan (filed
as Exhibit 10.13 to Annual Report on Form 10-K for the year ended December
31, 1993, File No. 0-14087, and incorporated herein by reference).
10.2 Agreement for Data Processing Services, dated February 28, 1996,
between Coastal Savings Bank and Data Dimensions Inc. (filed as Exhibit
10.12 to 1995 Form 10-K, and incorporated herein by reference).
10.3 First Coastal Corporation 1996 Stock Option and Equity Incentive Plan
(filed as Exhibit 10.13 to 1995 Form 10-K/A, and incorporated herein by
reference).
10.4 Loan Agreement, dated as of July 24, 1996, among First Coastal
Corporation and Androscoggin Savings Bank, Bangor Savings Bank, Machias
Savings Bank and Norway Savings Bank (collectively, the "Lenders") and
Machias Savings Bank, as agent (filed as Exhibit 10.9 to Quarterly Report
on Form 10-Q for the Quarter Ended June 30, 1996 ("June 1996 Form 10-Q"),
and incorporated herein by reference).
10.5 Stock Pledge Agreement, dated as of July 24, 1996, between First
Coastal Corporation and Machias Savings Bank, for itself and as agent for
the Lenders (filed as Exhibit 10.10 to June 1996 Form 10-Q, and
incorporated herein by reference).
10.6 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Androscoggin Savings Bank (filed as Exhibit 10.11 to June
1996 Form 10-Q, and incorporated herein by reference).
10.7 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Bangor Savings Bank (filed as Exhibit 10.12 to June 1996
Form 10-Q, and incorporated herein by reference).
10.8 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Machias Savings Bank (filed as Exhibit 10.13 to June 1996
Form 10-Q, and incorporated herein by reference).
10.9 Promissory Note, dated July 24, 1996, by First Coastal Corporation for
the benefit of Norway Savings Bank (filed as Exhibit 10.14 to June 1996
Form 10-Q, and incorporated herein by reference).
10.10 Employment Agreement, dated as of July 31, 1996, among Coastal
Savings Bank, First Coastal Corporation and Dennis D. Byrd (filed as
Exhibit 10.15 to June 1996 Form 10-Q, and incorporated herein by
reference).
10.11 Employment Agreement, dated as of July 31, 1996, among Coastal
Savings Bank, First Coastal Corporation and Gregory T. Caswell (filed as
Exhibit 10.16 to June 1996 Form 10-Q, and incorporated herein by
reference).
27 Financial Data Schedule
21
<PAGE>
(b) Reports on Form 8-K
(i) The Company filed a Report on Form 8-K on August 1, 1996, stating that
its recapitalization plan was completed effective July 24, 1996,
whereby the Company repaid in full its obligation to the Federal
Deposit Insurance Corporation in the amount of $9.75 million ($9.0
million principal plus accrued interest). The funds utilized to repay
the obligation came from (i) the sale of 750,000 shares of the
Company's common stock at $5.00 per share by means of a registered
public offering, (ii) the dividend of $3.2 million from the Bank to
the Company, and (ii) the borrowing of $4.0 million from a group of
four Maine savings banks, secured by the pledge by the Company of 100%
of the outstanding common stock of the Bank.
The stock offering resulted in the increase in the number of
outstanding shares to 1,357,861. The Company's common stock commenced
trading on July 25, 1996 on The Nasdaq SmallCap Market under the
symbol "FCME".
22
<PAGE>
FIRST COASTAL CORPORATION
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
FIRST COASTAL CORPORATION
Date: November 14, 1996 By: /s/ Gregory T. Caswell
-------------------------
Gregory T. Caswell
President and Chief
Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: November 14, 1996 By: /s/ Gregory T. Caswell
------------------------------
Gregory T. Caswell
President and Chief
Executive Officer
(Principal Executive Officer)
Date: November 14, 1996 By: /s/ Dennis D. Byrd
-------------------------------
Dennis D. Byrd
Treasurer
(Principal Financial and Accounting
Officer)
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000802763
<NAME> FIRST COASTAL CORP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1.0000
<CASH> 3,534
<INT-BEARING-DEPOSITS> 5,535
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,803
<INVESTMENTS-CARRYING> 11,613
<INVESTMENTS-MARKET> 11,373
<LOANS> 97,472
<ALLOWANCE> 2,735
<TOTAL-ASSETS> 136,429
<DEPOSITS> 118,036
<SHORT-TERM> 0
<LIABILITIES-OTHER> 188
<LONG-TERM> 10,000
0
0
<COMMON> 1,358
<OTHER-SE> 8,205
<TOTAL-LIABILITIES-AND-EQUITY> 136,429
<INTEREST-LOAN> 6,930
<INTEREST-INVEST> 1,181
<INTEREST-OTHER> 437
<INTEREST-TOTAL> 8,548
<INTEREST-DEPOSIT> 3,596
<INTEREST-EXPENSE> 680
<INTEREST-INCOME-NET> 4,276
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 38
<EXPENSE-OTHER> 3,928
<INCOME-PRETAX> 1,151
<INCOME-PRE-EXTRAORDINARY> 1,151
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,199
<EPS-PRIMARY> 1,520
<EPS-DILUTED> 1,520
<YIELD-ACTUAL> 8,560
<LOANS-NON> 2,015
<LOANS-PAST> 215
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,437
<ALLOWANCE-OPEN> 2,659
<CHARGE-OFFS> 194
<RECOVERIES> 270
<ALLOWANCE-CLOSE> 2,735
<ALLOWANCE-DOMESTIC> 2,735
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
