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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 JUNE 30, 2000
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 Identification No.)
incorporation or organization
1200 CONGRESS STREET, PORTLAND, MAINE 04102
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(Address of principal executive offices) (Zip Code)
(207) 774-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
36 THOMAS DRIVE, WESTBROOK, MAINE
----------------------------------------------
(Former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(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 August 7, 2000: 1,246,794
1
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INDEX
FIRST COASTAL CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
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<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) as of June 3
30, 2000 and December 31, 1999
Condensed Consolidated Statements of Operations (Unaudited) 4
for the three and six months ended June 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows (Unaudited) 6
for the six months ended June 30, 2000 and 1999
Condensed Consolidated Statements of Comprehensive Income 7
(Unaudited) for the three and six months ended June 30, 2000
and 1999
Notes to Condensed Consolidated Financial Statements 8
(Unaudited), June 30, 2000
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 20
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 21
Item 2. Changes in Securities and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
2
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited)
First Coastal Corporation and Subsidiary June 30, December 31
------------ --------------
(in thousands) 2000 1999
--------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Noninterest earning deposits and cash $ 7,168 $ 6,631
Interest earning deposits 11,305 5,793
--------- ---------
Cash and cash equivalents 18,473 12,424
Investment securities:
Available for sale (at market value; amortized cost:
2000 $58,127; 1999 $53,781) 56,934 51,823
Federal Home Loan Bank stock (at cost) 1,717 1,391
Loans held for sale (at lower of cost or market) 785 83
Loans 123,680 120,533
Deferred loan fees, net 7 (16)
Allowance for loan losses (2,949) (2,882)
--------- ---------
Loans, net 120,738 117,635
Premises and equipment 3,129 2,559
Accrued interest receivable 1,361 1,251
Real estate owned and repossessions -- --
Deferred tax asset 2,402 2,950
Other assets 288 466
--------- ---------
TOTAL ASSETS $ 205,827 $ 190,582
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 132,927 $ 140,137
Federal Home Loan Bank borrowings 34,331 27,748
Savings Bank Notes 2,064 2,268
Secured borrowings 18,672 2,980
Accrued expenses and other liabilities 424 535
--------- ---------
TOTAL LIABILITIES 188,418 173,668
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 par value; Authorized
1,000,000 shares, none outstanding -- --
Common Stock, $1.00 par value; Authorized
6,700,000 shares, issued as of June 30, 2000
and December 31, 1999 - 1,360,527 shares 1,361 1,361
Paid-in-capital 31,751 31,751
Retained earnings (deficit) (13,981) (14,579)
Accumulated other comprehensive loss (780) (1,292)
Treasury stock (At June 30, 2000 and December 31, 1999
equaled 105,033 and 34,534 shares, respectively) (942) (327)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 17,409 16,914
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 205,827 $ 190,582
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary Three Months Ended June 30,
---------------------------
(in thousands, except share and per share amounts) 2000 1999
------------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 2,782 $ 2,455
Interest and dividends on investment securities 953 891
Other interest income 102 156
----------- ----------
TOTAL INTEREST AND DIVIDEND INCOME 3,837 3,502
INTEREST EXPENSE
Deposits 1,209 1,307
Borrowings:
Federal Home Loan Bank 462 291
Savings Bank Notes 33 75
Secured borrowings 171 18
----------- ----------
Total Interest Expense 1,875 1,691
----------- ----------
Net Interest Income Before Provision for Loan Losses 1,962 1,811
Provision for loan losses -- --
Net Interest Income After Provision for Loan Losses 1,962 1,811
NONINTEREST INCOME
Service charges on deposit accounts 152 121
Gain on investment securities transactions 8 41
Gain on sales of mortgage loans 33 50
Gain on sale of branch -- 1,110
Other 10 25
----------- ----------
203 1,347
----------- ----------
OPERATING EXPENSES
Salaries and employee benefits 842 703
Occupancy 174 145
Net cost of operations of real estate owned and repossessions (1) 3
Other 722 648
----------- ----------
1,737 1,499
----------- ----------
INCOME BEFORE INCOME TAXES 428 1,659
Income Taxes 149 588
----------- ----------
NET INCOME $ 279 $ 1,071
=========== ==========
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,278,145 1,360,527
Net income per share $ 0.22 $ 0.79
=========== ==========
Diluted earnings per share:
Weighted average shares outstanding 1,288,168 1,374,426
Net income per share $ 0.22 $ 0.78
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements
4
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary Six Months Ended June 30,
---------------------------
(in thousands, except share and per share amounts) 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 5,474 $ 4,795
Interest and dividends on investment securities 1,911 1,664
Other interest income 173 381
----------- ----------
TOTAL INTEREST AND DIVIDEND INCOME 7,558 6,840
INTEREST EXPENSE
Deposits 2,479 2,701
Borrowings:
Federal Home Loan Bank 884 590
Savings Bank Notes 81 149
Secured borrowings 212 32
----------- ----------
Total Interest Expense 3,656 3,472
----------- ----------
Net Interest Income Before Provision for Loan Losses 3,902 3,368
Provision for loan losses -- --
Net Interest Income After Provision for Loan Losses 3,902 3,368
NONINTEREST INCOME
Service charges on deposit accounts 269 235
Gain on investment securities transactions 8 22
Gain on sales of mortgage loans and servicing rights 54 517
Gain on sale of branch -- 1,110
Other 32 45
----------- ----------
363 1,929
----------- ----------
OPERATING EXPENSES
Salaries and employee benefits 1,617 1,383
Occupancy 352 309
Net cost of operations of real estate
owned and repossessions (1) 4
Other 1,373 1,255
----------- ----------
3,341 2,951
----------- ----------
INCOME BEFORE INCOME TAXES 924 2,346
Income Taxes 326 820
----------- ----------
NET INCOME $ 598 $ 1,526
=========== ==========
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,292,376 1,360,527
Net income per share $ 0.46 $ 1.12
=========== ==========
Diluted earnings per share:
Weighted average shares outstanding 1,303,366 1,374,641
Net income per share $ 0.46 $ 1.11
=========== ==========
</TABLE>
See notes to condensed consolidated financial statements
5
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
First Coastal Corporation and Subsidiary Six Months Ended June 30,
-----------------------------
(in thousands) 2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 598 $ 1,526
Adjustments to reconcile net income to
net cash provided by operating activities:
Writedowns of REO -- 5
Depreciation and amortization 252 219
Amortization (accretion) of investment
securities premiums/discounts (328) 90
Realized investment securities gains (8) (22)
Realized gains on assets held for sale (54) (517)
Loans originated for sale (2,888) (2,963)
Sales of loans originated and acquired for sale 2,240 2,682
Increase in interest receivable (110) (93)
Increase in interest payable 24 12
Net change in other assets 726 1,276
Net change in other liabilities (135) (232)
-------- --------
Net cash provided by operating activities 317 1,983
-------- --------
INVESTING ACTIVITIES
Sales and maturities of securities available for sale 4,569 9,490
Purchases of investment securities available for sale (9,158) (17,411)
Net change in loans (3,103) (7,562)
Net purchases of premises and equipment (822) (97)
-------- --------
Net cash used by investing activities (8,514) (15,580)
-------- --------
FINANCING ACTIVITIES
Net change in deposits (7,210) (10,474)
Proceeds from borrowings 18,000 --
Payments on borrowings (11,621) (1,593)
Net change in secured borrowings 15,692 1,167
Repurchase of common stock (615) --
-------- --------
Net cash provided (used) by financing activities 14,246 (10,900)
-------- --------
Increase (decrease) in cash and cash equivalents 6,049 (24,497)
Cash and cash equivalents at beginning of period 12,424 32,627
-------- --------
Cash and cash equivalents at end of period $ 18,473 $ 8,130
======== ========
NONCASH INVESTING ACTIVITIES
Transfer of loans to real estate owned and repossessions $ -- --
</TABLE>
See notes to condensed consolidated financial statements.
6
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<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
First Coastal Corporation and Subsidiary Three Months Ended June 30,
----------------------------
(dollars in thousands) 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $279 $1,071
Other comprehensive income:
Unrealized holding gains (losses) arising during
the period (net of income taxes): 2000 - $81; 1999 - $(214) 163 (416)
Reclassification adjustment for realized (gains)
losses included in net income, net of income taxes
(taxes equaled: 2000 - $(3); 1999 - $(13)) (5) (28)
------ ------
158 (444)
------ ------
Comprehensive income $437 $ 627
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
First Coastal Corporation and Subsidiary Six Months Ended June 30,
--------------------------
(dollars in thousands) 2000 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $ 598 $1,526
Other comprehensive income:
Unrealized holding gains (losses) arising
during the period (net of income taxes): 2000 - $250; 1999 - $(278) 517 (540)
Reclassification adjustment for realized (gains)
losses included in net income, net of income taxes
(taxes equaled: 2000 - $(3); 1999 - $(7)) (5) (15)
------ ------
512 (555)
------ ------
Comprehensive income $1,110 $ 971
====== ======
</TABLE>
See notes to condensed consolidated financial statements.
7
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FIRST COASTAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2000
NOTE 1 BASIS OF PRESENTATION
---------------------
The accompanying unaudited condensed consolidated financial statements of First
Coastal Corporation (the "Company") and its subsidiary, Coastal Bank, have been
prepared in conformity with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results and
other data for the three and six months ended June 30, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1999 and other documents filed by the Company with
the Securities and Exchange Commission.
STOCK REPURCHASE PROGRAM
In February 2000, the Company's Board of Directors authorized an extension of
the Company's stock repurchase program, with the intent to repurchase up to an
additional 68,000 shares, or a total of 136,000 shares (10% of the outstanding
common stock as of the June 1999 commencement date of the repurchase program).
As of June 30, 2000, the total amount of common stock repurchased by the Company
under the repurchase program totaled 105,033 shares, or 7.7% of its outstanding
common stock as of the original June 1999 commencement date of the program. The
stock repurchase program is expected to be in effect for up to an additional six
months, until approximately February 2001. Under the program, no shares
knowingly will be purchased from officers or directors of the Company or from
persons who hold in excess of five percent of the Company's outstanding shares
of common stock. The Company continues to believe that its stock is
undervalued, and that the purchase of the stock represents an effective
utilization of capital and will result in increased earnings per share.
COMPUTATION OF EARNINGS PER SHARE
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standard ("SFAS") No. 128, Earnings Per Share, provides reporting standards for
basic and diluted earnings per share. Basic earnings per share is computed by
dividing income available to common stockholders by the weighted-average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. There is no adjustment made to income used to calculate basic and
diluted earnings per share.
8
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The following table sets forth the approximate number of shares used to
calculate basic and diluted earnings per share ("EPS") for the three and six
months ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ----------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
--------- --------- --------- ---------
Weighted average shares outstanding for basic EPS 1,278,145 1,360,527 1,292,376 1,360,527
Effect of dilutive stock options /(1)/ 10,023 13,899 10,990 14,114
--------- --------- --------- ---------
Weighted average shares outstanding for diluted EPS 1,288,168 1,374,426 1,303,366 1,374,641
========= ========= ========= =========
</TABLE>
(1) Shares considered anti-dilutive and therefore excluded from the calculation
of the Company's weighted average shares outstanding for diluted EPS
equaled 86,000 and 39,500 for the three months ended June 30, 2000 and
1999, respectively. Shares considered anti-dilutive and therefore excluded
from the calculation of the Company's weighted shares outstanding for
diluted EPS equaled 86,000 and 39,000 for the six months ended June 30,
2000 and 1999, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS
First Coastal Corporation (the "Company"), a Delaware corporation, is a bank
holding company whose sole operating subsidiary is Coastal Bank ("Coastal Bank"
or the "Bank"), a Maine chartered bank currently headquartered in Portland,
Maine. The Bank was formed in 1981 through the consolidation of Brunswick
Savings Institution and York County Savings Bank, which were organized in 1858
and 1860, respectively. The Company has no separate operations and its business
consists of the business of the Bank. The Bank is engaged in customary banking
activities, including attracting deposits and various lending activities, and
conducts its business from seven branches in the counties of Cumberland,
Sagadahoc and York. The Bank's deposits are insured by the Federal Deposit
Insurance Corporation up to the limits provided by law.
This Quarterly Report on Form 10-Q, including statements made in this
Management's Discussion and Analysis of Financial Condition and Results of
Operations, contains certain "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Certain, but not
necessarily all, of such forward-looking statements can be identified by the use
of forward-looking terminology, such as "believes," "expects," "may," "will,"
"should," "estimates," or "anticipates" or the negative thereof or other
variations thereof or comparable terminology. All forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual transactions, results, performance or achievements of the Company to
be materially different from those expressed or implied by such forward-looking
statements. Although the Company has made such statements based on assumptions
which it believes to be reasonable, there can be no assurance that the actual
transactions, results, performance or achievements will not differ materially
from the Company's expectations. For example, there are a number of important
factors with respect to such forward-looking statements that could materially
and adversely affect the future results associated with forward-looking
statements, such as (i) the impact of changes in market rates of interest,
economic conditions, or competitive factors on the Company's deposit products
and loan demand; (ii) the possibility that certain transactions, such as the
opening of new branches, the introduction of new banking products or other
planned or contemplated events, may not occur or be successful; (iii) the
possibility that operating expenses may be higher than anticipated; (iv) the
effect of
9
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changes in the general economic and competitive conditions in markets in which
the Company operates; (v) the Company's ability to continue to control its
provision for loan losses, noninterest expense and to maintain its margin; (vi)
the level of demand for new and existing products; and (vii) legislative and
regulatory changes, changes in tax policies, rates and regulations and changes
in accounting principles, policies or guidelines. Should one or more of these
risks or other uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described in the
forward-looking statements. The Company does not intend to update forward-
looking statements. Investors are also directed to other information related to
the Company in documents filed by the Company with the Securities and Exchange
Commission.
MAINE CASH ACCESS, LLC
As part of the Bank's continued focus on retail banking, in May 2000, Coastal
Bank, in conjunction with another community bank, introduced a statewide,
surcharge free ATM alliance as a means of extending the geographic reach of the
Bank's branch and ATM networks. Maine Cash Access currently involves a total
of 17 Maine banks and approximately 140 ATMs.
NEW PORTLAND MAIN OFFICE
In June, the Company and the Bank relocated their main offices to 1200 Congress
Street, Portland, Maine. The Bank leases and occupies the first two floors of a
newly constructed three story building. The facility includes a branch and
three-lane drive-through, ATM, commercial and retail banking offices, and space
which supports the Bank's loan, deposit and computer operations. The new
facility is expected to improve customer accessibility, provide increased market
awareness of Coastal Bank, result in enhanced overall service for existing and
prospective customers, and provide space for growth.
NEW BRANCH
In July, the Bank executed a lease agreement to establish a new retail branch in
Falmouth, Maine, which is currently under construction. The branch is expected
to open during the fourth quarter of 2000, providing Coastal Bank customers with
a third Greater Portland banking office.
RESULTS OF OPERATIONS
OVERVIEW
The Company reported net income of $279,000 and $598,000 for the three and six
months ended June 30, 2000, compared to net income of $1,071,000 and $1,526,000
for the same respective periods in 1999. Net income for the three months ended
June 30, 1999 included an after-tax gain of approximately $733,000 resulting
from the sale of the Bank's Kennebunk branch. Additionally, net income for the
six months ended June 30, 1999 included an after-tax gain of approximately
$300,000 resulting from the sale of the Bank's residential mortgage servicing
portfolio. In addition, the Company estimates that it incurred approximately
$42,000 in special, pre-tax expenses during the three months ended June 30, 2000
as a result of the relocation of its main office from Westbrook to 1200 Congress
Street, Portland.
NET INTEREST INCOME
Net interest income increased by $151,000 and $534,000 for the three and six
months ended June 30, 2000 as compared to the same periods in 1999. The
increase in net interest income for the three and six months
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ended June 30, 2000 was primarily the result of a shift of lower earning cash
balances to higher yielding loans and securities investments, a decline in
deposit interest expense as a result of lower average balances and an increase
in the amount of average interest earning assets as compared to average interest
bearing liabilities, partially offset by increased interest expense resulting
from higher average balances of Federal Home Loan Bank ("FHLB") and secured
borrowings.
The following table sets forth, for the periods indicated, information regarding
the Company's ratios of net interest rate spread and net interest rate margin:
For the Three Months Ended
-------------------------------------------------
6/30/00 3/31/00 12/31/99 9/30/99 6/30/99
------- ------- -------- ------- -------
Net Interest Rate Spread 3.68% 3.78% 3.86% 3.59% 3.67%
Net Interest Rate Margin 4.16% 4.27% 4.32% 4.06% 4.11%
The primary reasons for the decline in the Company's net interest rate spread
and margin for the quarter ended June 30, 2000 as compared to the quarters ended
March 31, 2000 and December 31, 1999 was the reduction in the interest recorded
from the Company's Treasury Inflation Indexed Bonds, resulting from changes in
the assumptions used in the seasonally adjusted consumer price index, and the
tightening of the net interest rate spread and margin due to the overall
interest rate environment.
Changes in net interest income are caused by changes in the amount and
composition of interest earning assets and interest bearing liabilities,
interest rate movements and the repricing of assets and liabilities as a result
of these movements, changes in the level of noninterest earning assets and
noninterest bearing liabilities and income recognition and income reversals
related to interest earning assets which become noninterest earning assets.
11
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The following table sets forth, for the periods indicated, information regarding
(i) the total dollar amount of interest income from interest-earning assets and
the resultant average yields, (ii) the total dollar amount of interest expense
on interest-bearing liabilities and the resultant average cost, (iii) net
interest income, (iv) interest rate spread, and (v) net interest margin.
<TABLE>
<CAPTION>
For the six months Ended June 30, 2000
-------------------------------------------------------------------------
2000 1999
---------------------------------- ------------------------------------
Average Average
Balance Interest Yield(1) Balance Interest Yield(1)
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<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning cash $ 5,868 $ 173 5.82% $ 15,731 $ 381 4.81%
Investments 56,444 1,911 6.79 53,100 1,664 6.32
Loans(2)(3)
Residential real estate mortgages 29,596 1,184 8.00 32,830 1,309 7.98
Commercial real estate mortgages 68,618 3,137 9.16 57,258 2,589 9.12
Commercial and industrial loans 11,311 528 9.37 6,531 293 9.04
Consumer loans 13,780 625 9.10 13,330 604 9.14
-------- ------- -------- -------
Total loan 123,305 5,474 8.90 109,949 4,795 8.80
Total interest earning assets 185,617 7,558 8.17 178,780 6,840 7.72
Noninterest earning assets 9,198 9,509
-------- --------
Total assets $194,815 $188,289
======== ========
LIABILITIES:
Deposits
Savings $ 55,782 1,025 3.69% $ 64,513 1,193 3.73%
NOW and money market accounts 18,494 204 2.21 19,251 221 2.31
Certificates of deposit 47,618 1,250 5.26 50,991 1,287 5.09
-------- ------- -------- -------
Total interest bearing deposits 121,894 2,479 4.08 134,755 2,701 4.04
Borrowings 32,694 965 5.92 24,175 739 6.17
Secured borrowings 10,635 212 3.99 1,558 32 4.17
-------- ------- -------- -------
Total interest bearing liabilities 165,223 3,656 4.44 160,488 3,472 4.36
Noninterest bearing deposits 11,681 9,311
Noninterest bearing liabilities 145 381
Stockholders' equity 17,766 18,109
------- ---------
Total liabilities and stockholders' equity $194,815 $188,289
======== ========
Net interest income $ 3,902 $ 3,368
======= =======
Net interest rate spread(4) 3.73% 3.36%
Net interest rate margin(5) 4.22% 3.80%
</TABLE>
(1) Annualized.
(2) For purposes of these computations, loans held for sale and nonaccrual
loans are included in the average loan amounts outstanding.
(3) Fees from loans are included in interest income from loans.
(4) Return on interest earning assets less cost of interest bearing
liabilities.
(5) Net interest income divided by average interest earning assets.
12
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INTEREST INCOME
Interest income increased $335,000 and $718,000 for the three and six months
ended June 30, 2000 as compared to the same periods in 1999. The increase for
the six months ended June 30, 2000 is primarily attributable to a $13.4 million
increase in average loan balances and a $3.3 million increase in average
securities balances. Additionally, the yield on investment securities and loans
increased 0.47% and 0.10%, respectively, for the six months ended June 30, 2000
as compared to the same period in 1999. The increase in loan balances is
primarily the result of the reallocation of approximately $9.9 million in lower
yielding cash balances to higher yielding loan balances. This shift in the
allocation of interest earning assets and the higher yield received on loans and
investment securities and cash contributed to the 0.45% increase in the yield on
total interest earning assets, to 8.17% for the six months ended June 30, 2000
as compared to 7.72% for the six months ended June 30, 1999.
INTEREST EXPENSE
Interest expense increased $184,000 for the three and six month period ended
June 30, 2000 as compared to the same periods in 1999. The increase in interest
expense was primarily attributable to a $4.7 million increase in interest
bearing liabilities and a 0.08% increase in the cost of funds for the six months
ended June 30, 2000 as compared to the six months ended June 30, 1999. Interest
expense on deposits declined $222,000 for the six months ended June 30, 2000 as
compared to the same period in 1999, resulting from a $12.9 million decline in
average deposit balances, primarily as a result of the sale of the Bank's
Kennebunk branch in May 1999, which included $12.5 million in deposits at the
time of the sale. Offsetting this decrease was a $406,000 increase in interest
expense related to borrowings for the six months ended June 30, 2000 as compared
to the same period in 1999. This increase was the result of an increase in
average balances on FHLB borrowings and secured borrowings of $8.5 million and
$9.1 million, respectively, for the six months ended June 30, 2000 as compared
to the same period in 1999. Secured borrowings have no maturity and may be
withdrawn at any time. In the event of a substantial withdrawal, it may be
necessary to replace these funds with borrowings from an alternative source
which may result in increased interest expense to the Company.
As competitive pressures continue, the cost of funds to financial institutions
may rise relative to market interest rates, thereby narrowing the spread on
interest earning assets as compared to interest bearing liabilities.
PROVISION FOR LOAN LOSSES
There was no provision for loan losses expense for the three and six months
ended June 30, 2000 and 1999. The absence of a provision for loan losses in 2000
and 1999 is primarily attributable to the continued low level of nonperforming
loans and potential problem loans (as compared to historical levels), and the
result of management's review of the portfolio and determination of the adequacy
of the allowance for loan losses at June 30, 2000.
NONINTEREST INCOME
Noninterest income decreased $1.1 million and $1.6 million for the three and six
months ended June 30, 2000 as compared to the same period in 1999. This decrease
is attributable to gains which occurred in 1999 consisting of a $0.5 million
pre-tax gain received on the sale of the Bank's residential mortgage servicing
portfolio in the first quarter of 1999 and a $1.1 million pre-tax gain received
on the sale of the Bank's Kennebunk branch in the second quarter of 1999.
13
<PAGE>
OPERATING EXPENSES
Operating expense increased $238,000 and $390,000 for the three and six months
ended June 30, 2000 as compared to the same periods in 1999. The increase in
salaries and benefits was primarily attributable to changes in staffing levels
(including additional staff in connection with the Bank's new main office in
Portland) and annual salary increases. In addition, the Company estimates that
it incurred approximately $42,000 in special pre-tax expenses during the three
months ended June 30, 2000 as a result of the relocation of its main office from
Westbrook to 1200 Congress Street, Portland. Management anticipates operating
expenses for the balance of 2000 and 2001 to further increase as a result of
several additional business initiatives that are currently contemplated or
underway, including (i) the lease expense and related occupancy costs associated
with its new main office, including related furniture, fixtures and equipment
expenses, which is estimated to increase the Company's occupancy expense
approximately $300,000 annually, (ii) the opening of additional branches over
the next several years in the Greater Portland market, including a branch in
Falmouth, which is anticipated to open during the fourth quarter of 2000, (iii)
the introduction of a number of new retail banking products, and (iv) the Bank's
continued expansion of its overall banking activities.
FINANCIAL CONDITION
TOTAL ASSETS
At June 30, 2000, total assets equaled $205.8 million, representing an increase
of $15.2 million (or 8%), as compared to total assets of $190.6 million at
December 31, 1999. This increase was primarily the result of a $6.0 million
increase in cash and cash equivalents, a $5.1 million increase in investment
securities and a $3.1 million increase in loan balances. Deposit balances
declined $7.2 million during the six months ended June 30, 2000 as a result of
the transfer of one class of commercial deposits totaling $10.1 million (at the
time of transfer in March 2000) to secured borrowings which increased $15.7
million during this period. Additionally, FHLB borrowings increased $6.6
million.
INVESTMENTS
The Company's investment portfolio is comprised primarily of U.S. government and
agency obligations. Total investment securities at June 30, 2000 were $56.9
million compared to $51.8 million at December 31, 1999, an increase of $5.1
million. This increase is primarily attributable to the purchase of $5.9 million
in mortgage-backed securities, $2.1 million in government obligations (TIPs),
$0.9 million in government agency notes and a $1.2 million decline in the
unrealized loss on available for sale securities, partially offset by the sale
and/or maturity of $2.4 million in government obligations, and $2.6 million in
prepayments and amortization on mortgage-backed securities and amortization of
premiums on investment securities.
14
<PAGE>
The following table sets forth the amortized cost and fair value of investment
securities for each major security type at June 30, 2000.
<TABLE>
<CAPTION>
June 30, 2000
--------------------------------------------------
Gross Gross Fair
Amortized Unrealized Unrealized Market
(in thousands) Cost Gains (Losses) Value
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $19,993 $ 6 $ (333) $19,666
U.S. government agency notes 1,933 - (86) 1,847
Mortgage backed securities 35,728 114 (894) 34,948
Equity securities 473 - - 473
------- ---- ------- -------
$58,127 $120 $(1,313) $56,934
======= ==== ======= =======
</TABLE>
The after-tax unrealized loss on investment securities classified as available
for sale was $780,000 and $1,292,000, at June 30, 2000 and December 31, 1999,
respectively.
The following table represents the contractual maturities for investments in
debt securities for each major security type at June 30, 2000.
<TABLE>
<CAPTION>
June 30, 2000
------------------------------------------------
Maturing
------------------------------------------------
After One
Within But within After
(in thousands) One Year Five Years Five Years Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $ 248 - $ 19,418 $ 19,666
U.S. government agency - - 1,847 1,847
Mortgage backed securities - - 34,948 34,948
-------- --------- -------- --------
$ 248 $ - $ 56,213 $ 56,461
======== ========= ======== ========
</TABLE>
LOANS HELD FOR SALE
Loans held for sale equaled $785,000 at June 30, 2000 as compared to $83,000 at
December 31, 1999, an increase of $702,000. The outstanding dollar amount of
loans held for sale can vary greatly from period to period, affected by such
factors as mortgage origination levels, the timing and delivery of loan sales,
changes in market interest rates and asset liability management strategies.
15
<PAGE>
LOANS
Loans consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
-----------------------------
(in thousands) 2000 1999
----------------------------------------------------------
<S> <C> <C>
Real estate mortgage loans:
Residential $ 28,951 $ 28,460
Commercial 65,655 66,833
Real estate construction 1,733 2,832
Commercial and industrial 12,993 9,446
Consumer and other 14,348 12,962
------------- ---------------
Total $ 123,680 $ 120,533
============= ===============
</TABLE>
Loans increased $3.1 million (or 2.6%) at June 30, 2000 as compared to December
31, 1999. The increase is attributable to a $3.5 million increase in commercial
and industrial loans and a $1.4 million increase in consumer loans.
ALLOWANCE FOR LOAN LOSSES ("ALLOWANCE")
The Company's Allowance was $2.9 million at June 30, 2000 and December 31, 1999.
For the six months ended June 30, 2000, loan recoveries equaled $126,000 and
exceeded charged-off loans of $59,000. There was no provision for loan losses
during the six months ended June 30, 2000. The Allowance represented 2.4% of
total loans at June 30, 2000 and December 31, 1999, respectively. Management
believes that in accordance with the Bank's Allowance for Loan Loss Policy, the
Allowance is adequate at June 30, 2000. However, future additions to the
Allowance may be necessary based on changes in the financial condition of
various borrowers, new information that becomes available relative to various
borrowers and loan collateral, growth in the size or changes in the mix or
concentration risk of the loan portfolio, as well as changes in local, regional
or national economic conditions. In addition, various regulatory authorities,
as an integral part of their examination process, periodically review the Bank's
Allowance. Such authorities may require the Bank to increase the Allowance
based upon information available to them and their judgments at the time of
their examination.
NONPERFORMING ASSETS
Information with respect to nonperforming assets is set forth below:
<TABLE>
<CAPTION>
June 30, December 31,
---------------------------
<S> <C> <C>
(in thousands) 2000 1999
--------------------------------------------------------------------
Nonaccrual loans $ 448 $ 373
Accruing loans past due 90 days or more 158 167
Restructured loans - -
Real estate owned and repossessions - -
--------- ---------------
Total $ 606 $ 540
========= ===============
</TABLE>
Nonperforming assets increased $66,000 at June 30, 2000 as compared to December
31, 1999. While the current level of nonperforming assets remains low compared
to historical levels, deterioration in the local economy or real estate market,
or upward movements in interest rates could adversely impact the performance
and/or value of the underlying collateral for these loans and could have an
adverse impact on
16
<PAGE>
the Bank's loan portfolio, and in particular, currently performing commercial
real estate loans. In addition, deterioration in the local economy or adverse
changes in the financial condition of various borrowers could have an impact on
the Bank's entire loan portfolio (including commercial real estate). These
factors could result in an increased incidence of loan defaults and, as a
result, an increased level of nonperforming loans and assets. In addition, while
the current level of nonperforming assets is encouraging, this level is
considered by management to be so low that it is unlikely to be sustained.
IMPAIRED LOANS
At June 30, 2000, the recorded investment in loans for which impairment has been
recognized in accordance with SFAS No. 114 totaled $448,000, as compared to
$373,000 at December 31, 1999. At June 30, 2000, the corresponding allocated
reserves totaled $63,000 (relating to one impaired loan with a balance of
$155,000). All impaired loans were classified as nonaccrual at June 30, 2000
and December 31, 1999. The income recorded on a cash basis relating to impaired
loans equaled $13,000 and $3,000 at June 30, 2000 and 1999, respectively. The
average balance of outstanding impaired loans was $454,000 and $330,000 at June
30, 2000 and December 31, 1999, respectively. All of the impaired loans were
collateralized by real estate at June 30, 2000 and December 31, 1999.
REAL ESTATE OWNED ("REO")
REO consists of properties acquired through mortgage loan foreclosure
proceedings, repossessions or in full or partial satisfaction of outstanding
loan obligations. At June 30, 2000 and December 31, 1999 the Bank had no REO
properties.
LIQUIDITY - BANK
Deposits totaled $132.9 million at June 30, 2000, a decrease of $7.2 million (or
5.1%) from the level of $140.1 million at December 31, 1999.
Deposit balances were as follows:
<TABLE>
<CAPTION>
June 30, December 31,
-----------------------------
(in thousands) 2000 1999
------------------------------------------------------------------
<S> <C> <C>
Noninterest bearing demand deposits $ 12,549 $ 11,962
Interest bearing demand deposits 15,457 22,280
Savings and escrow deposits 53,546 58,775
Time deposits 51,375 47,120
-----------------------------
Total $ 132,927 $ 140,137
=============================
</TABLE>
The $7.2 million decline in deposit balances was primarily attributable to the
transfer of a portion of the commercial deposit portfolio (totaling $10.1
million at the time of transfer in March 2000) to secured borrowings. These
funds have no maturity and may be withdrawn at any time. In the event of a
substantial withdrawal, it may be necessary to replace these funds with
borrowings from an alternative source which may result in increased interest
expense to the Bank.
17
<PAGE>
LIQUIDITY - COMPANY
On a parent company only basis ("parent"), the Company conducts no separate
operations. Its business consists of the operations of its banking subsidiary.
In addition to debt service relating to the promissory notes issued by the
Company to a group of three Maine savings banks (the "Savings Banks") in the
aggregate principal amount of $2.1 million at June 30, 2000, the Company's
expenses consist primarily of Delaware franchise taxes associated with the
Company's authorized capital stock and various other expenses. These expenses,
including legal, certain audit and other professional fees, insurance and other
expenses, are allocated between the Bank and the Company based upon the relative
benefits derived. At June 30, 2000, the parent's cash and cash equivalents
totaled $99,000.
In February 2000, the Company's Board of Directors authorized an extension of
the Company's stock repurchase program, with the intent to repurchase up to an
additional 68,000 shares, or a total of 136,000 shares (10% of the outstanding
common stock as of the June 1999 commencement date of the repurchase program).
As of June 30, 2000, the Company had repurchased 105,033 shares of its common
stock under the program. The stock repurchase program is expected to be in
effect until approximately February 2001.
Payment of dividends by the Company on its stock is subject to various
restrictions. Among these restrictions is a requirement under Delaware
corporate law that dividends may be paid by the Company only out of its surplus
or, in the event there is no surplus, out of its net profits for the fiscal year
in which the dividend is declared and/or the preceding fiscal year.
The principal source of cash for the Company would normally be a dividend from
the Bank; however, certain restrictions also exist regarding the ability of the
Bank to transfer funds to the Company in the form of cash dividends, loans or
advances. Maine corporate law generally provides that dividends may only be
paid out of unreserved and unrestricted earned surplus or unreserved and
unrestricted net earnings of the current fiscal year and the next preceding
fiscal year taken as a single period. Maine banking law also imposes certain
restrictions, including the requirement that the Bank establish and maintain
adequate levels of capital as set forth in rules adopted by the Maine Bureau of
Banking.
The Loan Agreement dated August 4, 1999, between the Company and the Savings
Banks contains certain terms, restrictions and covenants, such as restrictions
regarding the conditions under which cash dividends may be paid by the Company
(including a prohibition on the payment of cash dividends to its stockholders as
long as the Company's debt-to-equity ratio on a parent-only basis exceeds 50%),
and a requirement that the Company and the Bank maintain certain minimum capital
ratios. At June 30, 2000, the Company's debt-to-equity ratio and regulatory
capital ratios would have permitted the payment of a dividend by the Company
under the terms of the Loan Agreement.
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.
18
<PAGE>
CAPITAL - BANK
The table below sets forth the regulatory capital requirements and capital
ratios for the Bank at June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
(dollars in thousands) June 30, 2000 December 31, 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ ratio
Qualifying capital $ 17,955 $ 17,244
Actual % 9.14% 9.22%
Minimum requirements for capital adequacy % 4.00% 4.00%
Average quarterly assets $196,394 $187,070
Tier 1 capital to risk-weighted assets
Qualifying capital $ 17,955 $ 17,244
Actual % 15.60% 15.90%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 19,413 $ 18,618
Actual % 16.86% 17.17%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $115,117 $108,419
</TABLE>
/(1)/ Calculated on an average quarterly basis less disallowed portion of the
deferred tax asset.
CAPITAL - COMPANY
The table below sets forth the regulatory capital requirements and capital
ratios for the Company at June 30, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
(dollars in thousands) June 30, 2000 December 31, 1999
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets /(1)/ ratio
Qualifying capital $ 16,287 $ 15,756
Actual % 8.29% 8.37%
Minimum requirements for capital adequacy % 4.00-5.00% 4.00-5.00%
Average quarterly assets $ 196,407 $ 188,154
Tier 1 capital to risk-weighted assets
Qualifying capital $ 16,287 $ 15,756
Actual % 14.13% 14.56%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 17,746 $ 17,128
Actual % 15.40% 15.82%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $ 115,242 $ 108,243
</TABLE>
/(1)/ Calculated on an average quarterly basis less disallowed portion of the
deferred tax asset.
19
<PAGE>
YEAR 2000 ISSUE
In accordance with guidelines provided by the Federal Financial Institutions
Examination Council, the Company established a Year 2000 Action Committee to
address the risks related to potential computer problems associated with the
Year 2000 date change, including the development and implementation of a
strategy to minimize the impact of Year 2000 risk relating to the Bank's
information technology systems and non-information technology systems. During
the turn of the millennium, Bank staff was on hand to validate all systems,
including computer, telephone and ATMs, as well as testing for data integrity.
The Company did not experience any significant problems or interruptions in
service resulting from the Year 2000 date change or adverse implications to the
Bank's borrowers or depositors. The Company will continue to monitor its
computerized and other electronic systems throughout 2000 for any potential
problems that may arise. However, management does not anticipate any
disruptions in its operations resulting from Year 2000 systems problems.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
-------------------------------------------------------------------
Not applicable.
20
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-------------------------
As of June 30, 2000, 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 and Use of Proceeds
--------------------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities
---------------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
-----------------------------------------------------------
(a) The 2000 Annual Meeting of Stockholders of the Company was held on May 16,
2000.
(b) Nominees MaryEllen FitzGerald, Normand E. Simard and Edward K. Simensky
were elected to serve as directors for three-year terms to expire in 2003.
The continuing directors are Dennis D. Byrd, Gregory T. Caswell, David B.
Hawkes, Sr., Roger E. Klein and Charles A. Stewart III.
(c) The results of the voting at the 2000 Annual Meeting of Stockholders
(pursuant to a record date of April 14, 2000) were as follows:
(i) Election of Directors: 1,052,269 shares were voted to elect nominee
MaryEllen FitzGerald, as a director of the Company for a three-year
term and 110,097 were voted to withhold authority; 1,052,267 shares
were voted to elect nominee Normand E. Simard as a director of the
Company for a three-year term and 110,109 were voted to withhold
authority; and 1,052,327 shares were voted to elect nominee Edward K.
Simensky as a director of the Company for a three-year terms and
110,019 were voted to withhold authority.
(ii) Ratification of PricewaterhouseCoopers LLP as Independent Public
Accountants for the year ending December 31, 2000. For: 1,157,264;
Against: 2,745; Abstain: 2,367.
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 are set forth below:
27.1 Financial Data Schedule.
(b) The Company filed a Current Report on Form 8-K on May 23, 2000, announcing
that the Company and ChaseMellon Shareholder Services, L.L.C. entered into
Amendment No. 2 to Rights Agreement as of April 7, 2000.
21
<PAGE>
FIRST COASTAL CORPORATION
SIGNATURES
Pursuant to the requirements 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: August 11, 2000 By: /s/ Gregory T. Caswell
-------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: August 11, 2000 By: /s/ Gregory T. Caswell
--------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 11, 2000 By: /s/ Dennis D. Byrd
--------------------------------------
Dennis D. Byrd
Vice President and Treasurer
(Principal Financial and Accounting
Officer)
22
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
27.1 Financial Data Schedule (filed herewith).
23
