<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 MARCH 31, 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 incorporation (IRS Employer Identification No.)
or organization
36 THOMAS DRIVE, WESTBROOK, MAINE 04092
(Address of principal executive offices) (Zip Code)
(207) 774-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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 May 10, 2000: 1,291,908
<PAGE>
INDEX
FIRST COASTAL CORPORATION AND SUBSIDIARY
PART I FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) as 3
of March 31, 2000 and December 31, 1999
Condensed Consolidated Statements of Operations (Unaudited) 4
for the three months ended March 31, 2000 and 1999
Condensed Consolidated Statements of Cash Flows (Unaudited) 5
for the three months ended March 31, 2000 and 1999
Condensed Consolidated Statements of Comprehensive Income 6
(Unaudited) for the three months ended March 31, 2000
and 1999
Notes to Condensed Consolidated Financial Statements 7
(Unaudited), March 31, 2000
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
- -----------------------------
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
First Coastal Corporation and Subsidiary March 31, December 31,
------------ ------------
(in thousands) 2000 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Noninterest earning deposits and cash $ 4,908 $ 6,631
Interest earning deposits 9,321 5,793
------------ -----------
Cash and cash equivalents 14,229 12,424
Investment securities:
Available for sale (at market value; amortized cost: 2000 $56,350; 1999 $53,781) 54,915 51,823
Federal Home Loan Bank stock (at cost) 1,484 1,391
Loans held for sale (at lower of cost or market) 541 83
Loans 123,751 120,533
Less: Deferred loan fees, net (3) (16)
Allowance for loan losses (2,934) (2,882)
------------ -----------
120,814 117,635
Premises and equipment 2,698 2,559
Accrued interest receivable 1,235 1,251
Real estate owned and repossessions 41 -
Deferred tax asset 2,700 2,950
Other assets 333 466
------------ -----------
TOTAL ASSETS $ 198,990 $ 190,582
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits $ 130,989 $ 140,137
Federal Home Loan Bank borrowings 32,541 27,748
Savings Bank Notes 2,167 2,268
Secured borrowings 15,407 2,980
Accrued expenses and other liabilities 596 535
------------ -----------
TOTAL LIABILITIES 181,700 173,668
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 March 31,
2000 and December 31, 1999 - 1,360,527 shares 1,361 1,361
Paid-in-capital 31,751 31,751
Retained earnings (deficit) (14,260) (14,579)
Accumulated other comprehensive income (loss) (938) (1,292)
Treasury stock (At March 31, 2000 and December 31, 1999 equaled 68,619 and
34,534 shares, respectively) (624) (327)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 17,290 16,914
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 198,990 $ 190,582
============ ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Coastal Corporation and Subsidiary Three Months Ended March 31,
----------------------------
(in thousands, except share and per share amounts) 2000 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME
Interest and fees on loans $ 2,692 $ 2,340
Interest and dividends on investment securities 958 773
Other interest income 71 225
------------ ------------
TOTAL INTEREST AND DIVIDEND INCOME 3,721 3,338
INTEREST EXPENSE
Deposits 1,270 1,394
Borrowings:
Federal Home Loan Bank 422 299
Savings Bank Notes 48 74
Secured borrowings 41 14
------------ ------------
Total Interest Expense 1,781 1,781
------------ ------------
Net Interest Income Before Provision for Loan Losses 1,940 1,557
Provision for loan losses - -
------------ ------------
Net Interest Income After Provision for Loan Losses 1,940 1,557
NONINTEREST INCOME
Services charges on deposit accounts 117 114
Loss on investment securities transactions - (19)
Gain on sales of mortgage loans and servicing rights 21 467
Other 22 20
------------ ------------
160 582
------------ ------------
OPERATING EXPENSES
Salaries and employee benefits 775 680
Occupancy 178 164
Net cost of operations of real estate owned and repossessions - 1
Other 651 607
------------ ------------
1,604 1,452
------------ ------------
INCOME BEFORE INCOME TAXES 496 687
Income Taxes 177 232
------------ ------------
NET INCOME $ 319 $ 455
============ ============
PER SHARE AMOUNTS
Basic earnings per share:
Weighted average shares outstanding 1,306,607 1,360,527
Net income per share $ 0.24 $ 0.33
============ ============
Diluted earnings per share:
Weighted average shares outstanding 1,318,949 1,374,838
Net income per share $ 0.24 $ 0.33
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
First Coastal Corporation and Subsidiary Three Months Ended March 31,
-------------------------------
(in thousands) 2000 1999
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 319 $ 455
Adjustments to reconcile net income to net cash provided by operating activities:
Writedowns of REO - 2
Depreciation and amortization 117 99
Amortization (accretion) of investment securities premiums/discounts (287) 55
Realized investment securities losses - 19
Realized gains on assets held for sale (21) (467)
Loans originated for sale (1,183) (796)
Sales of loans originated for sale 746 -
Decrease in interest receivable 16 79
Increase in interest payable 3 12
Net change in other assets 342 538
Net change in other liabilities 58 (198)
------------- -------------
Net cash provided (used) by operating activities 110 (202)
------------- -------------
INVESTING ACTIVITIES
Sales and maturities of securities available for sale 1,411 4,616
Purchases of investment securities available for sale (3,955) (7,134)
Net change in loans (3,179) (4,897)
Net purchases of premises and equipment (256) (36)
------------- -------------
Net cash used by investing activities (5,979) (7,451)
------------- -------------
FINANCING ACTIVITIES
Net change in deposits (9,148) (2,087)
Proceeds from borrowings 8,000 -
Payments on borrowings (3,308) (1,196)
Net change in secured borrowings 12,427 536
Repurchase of common stock (297) -
------------- -------------
Net cash provided (used) by financing activities 7,674 (2,747)
------------- -------------
Increase (decrease) in cash and cash equivalents 1,805 (10,400)
Cash and cash equivalents at beginning of period 12,424 32,627
------------- -------------
Cash and cash equivalents at end of period $ 14,229 $ 22,227
============= =============
NONCASH INVESTING ACTIVITIES
Transfer of loans to real estate owned and repossessions $ 41 -
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
First Coastal Corporation and Subsidiary Three Months Ended March 31,
----------------------------
(dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $ 319 $ 455
Other comprehensive income:
Unrealized holding gains (losses) arising during the period (net of income
taxes): 2000 - $188; 1999 - $(64) 354 (124)
Reclassification adjustment for realized gains (losses) included in net income,
net of income taxes (taxes equaled: 1999 - $6) - 13
------------ ------------
354 (111)
------------ ------------
Comprehensive income $ 673 $ 344
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
FIRST COASTAL CORPORATION AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 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 months ended March 31, 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 March 31, 2000, the total amount of common stock repurchased by the
Company under the repurchase program totaled 68,619 shares, or 5.0% 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 nine 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.
7
<PAGE>
The following table sets forth the approximate number of shares used to
calculate basic and diluted earnings per share ("EPS") for the three months
ended March 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
<S> <C> <C>
2000 1999
------------ ------------
Weighted average shares outstanding for basic EPS 1,306,607 1,360,527
Effect of dilutive stock options (1) 12,342 14,311
------------ ------------
Weighted average shares outstanding for diluted
EPS 1,318,949 1,374,838
============ ============
</TABLE>
(1) Shares considered anti-dilutive and therefore excluded from the calculation
of the Company's weighted average shares outstanding for diluted EPS
equaled 55,500 and 37,000 for the three months ended March 31, 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 Westbrook,
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 such 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 successful relocation and transition to the
new main office, the opening of new branches, the introduction of new banking
products or other planned or contemplated events, may not occur; (iii) the
possibility that operating expenses may be higher than anticipated; (iv) the
effect of 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,
8
<PAGE>
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 (SM)
As part of the Bank's renewed focus on retail banking, Coastal Bank, in
partnership with another community bank, has developed 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(SM), involving approximately 16 Maine
banks and 130 ATM machines, is anticipated to be operational during the second
quarter 2000.
NEW PORTLAND MAIN OFFICE
The Bank has leased a new facility at 1200 Congress Street, Portland that is
currently under construction and is expected to be available for occupancy
during the second quarter of this year to serve as the Bank's new main office.
The Bank will occupy the first two floors, totaling approximately 19,000 square
feet of the modern three story building. The facility will include a branch and
three-lane drive-through, ATM, commercial and retail banking offices, and space
to support 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.
RESULTS OF OPERATIONS
OVERVIEW
The Company reported net income of $319,000 for the three months ended March 31,
2000, compared to net income of $455,000 for the same period in 1999. Net
income for the three months ended March 31, 1999 included an after-tax gain of
approximately $300,000 resulting from the sale of the Bank's residential
mortgage servicing portfolio.
NET INTEREST INCOME
Net interest income increased by $383,000 for the three months ended March 31,
2000 as compared to the same period in 1999. The increase in net interest
income was the result of a $383,000 increase in interest income, while interest
expense remained unchanged as compared to the first quarter of 1999. The
increase in interest income is attributable to an increase in interest and fees
on loans of $352,000, primarily resulting from increased average balances of
$15.1 million, and an increase in the yield on investment securities, which
increased from 5.70% to 7.00%.
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:
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------------------------------------
3/31/00 12/31/99 9/30/99 6/30/99 3/31/99 12/31/98
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Rate
Spread 3.78% 3.86% 3.59% 3.67% 3.06% 3.40%
Net Interest Rate
Margin 4.27% 4.32% 4.06% 4.11% 3.50% 3.86%
</TABLE>
9
<PAGE>
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.
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 Three Months Ended March 31,
---------------------------------------------------------------------------
2000 1999
----------------------------------- -----------------------------------
Average Average
Balance Interest Yield (1) Balance Interest Yield (1)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest earning cash $ 5,202 $ 71 5.39% $ 18,638 $ 225 4.83%
Investments 54,878 958 7.00 55,011 773 5.70
Loans (2) (3)
Residential real estate mortgages 29,685 589 7.94 33,551 670 7.99
Commercial real estate mortgages 68,566 1,564 9.15 54,042 1,232 9.24
Commercial and industrial loans 10,507 241 9.21 5,982 134 9.12
Consumer loans 13,332 298 8.96 13,414 304 9.19
-------- ------ -------- ------
Total loans 122,090 2,692 8.84 106,989 2,340 8.87
Total interest earnings assets 182,170 3,721 8.19 180,638 3,338 7.50
Noninterest earning assets 8,940 8,726
-------- --------
Total assets $191,110 $189,364
======== ========
LIABILITIES:
Deposits
Savings $ 57,533 532 3.71 $ 65,356 617 3.83
NOW and money market accounts 21,427 131 2.46 18,986 109 2.33
Certificates of deposit 47,105 607 5.17 52,413 668 5.17
-------- ------ -------- ------
Total interest bearing deposits 126,065 1,270 4.04 136,755 1,394 4.14
Borrowings 31,693 470 5.95 24,536 373 6.16
Secured borrowings 4,129 41 3.97 1,334 14 4.19
-------- ------ -------- ------
Total interest bearing liabilities 161,887 1,781 4.41 162,625 1,781 4.44
Noninterest bearing deposits 11,160 8,820
Noninterest bearing liabilities 345 370
Stockholders' equity 17,718 17,549
-------- --------
Total liabilities and stockholders'
equity $191,110 $189,364
======== ========
Net interest income $1,940 $1,557
====== ======
Net interest rate spread (4) 3.78% 3.06%
Net interest rate margin (5) 4.27% 3.50%
</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.
10
<PAGE>
INTEREST INCOME
Interest income increased $383,000 for the three months ended March 31, 2000 as
compared to the same period in 1999. This increase is primarily attributable to
a $15.1 million increase in average loan balances and an increase in the yield
on investment securities of 1.30% for the three months ended March 31, 2000 as
compared to the three months ended March 31, 1999. The increase in loan balances
is primarily the result of the reallocation of approximately $13.4 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
investment securities and cash contributed to the 0.69% increase in the yield on
total interest earning assets, to 8.19% for the three months ended March 31,
2000 as compared to 7.50% for the three months ended March 31, 1999. The yield
on average loan balances declined 0.03% for the three months ended March 31,
2000 as compared to the same period in 1999.
INTEREST EXPENSE
Interest expense was unchanged for the three months ended March 31, 2000 as
compared to the same period in 1999. Interest expense on deposits declined
$124,000 for the three months ended March 31, 2000 as compared to the same
period in 1999. Offsetting this decrease was an increase in interest expense of
$123,000 related to borrowings for the three months ended March 31, 2000 as
compared to the same period in 1999. Average deposit balances declined $10.7
million at March 31, 2000 as compared to the three months ended March 31, 1999,
mainly as a result of the sale of the Bank's Kennebunk branch in May of 1999,
which included $12.5 million in deposits. Additionally, average balances on
Federal Home Loan Bank ("FHLB") borrowings and secured borrowings increased $7.2
million and $2.8 million, respectively, for the three months ended March 31,
2000 as compared to the same period in 1999. The Company's overall cost of funds
declined 0.03%, primarily as a result of the decline in rates paid on savings
accounts.
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 months ended March
31, 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 March 31, 2000.
NONINTEREST INCOME
Noninterest income decreased $422,000 for the three months ended March 31, 2000
as compared to the same period in 1999. This decrease is attributable to a
$460,000 pre-tax gain received on the sale of the Bank's residential mortgage
servicing portfolio in the first quarter of 1999.
OPERATING EXPENSES
Operating expense increased $152,000 for the three months ended March 31, 2000
as compared to the same period 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 expected to open during the
second quarter of 2000) and annual salary increases. 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
11
<PAGE>
contemplated or underway, including (i) the Bank's lease of a new main office
and 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, (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 March 31, 2000, total assets equaled $199.0 million, representing an increase
of $8.4 million (or 4.4%) from total assets of $190.6 million at December 31,
1999. This increase was the result of a $1.8 million increase in cash and cash
equivalents, a $3.1 million increase in investment securities and a $3.2 million
increase in loan balances. Deposit balances declined $9.1 million during the
three months ended March 31, 2000 as a result of the transfer of one class of
commercial deposits totaling $10.1 million to secured borrowings, which
increased $12.4 million during this period. Additionally, FHLB borrowings
increased $4.8 million.
INVESTMENTS
The Company's investment portfolio is comprised primarily of U.S. government and
agency obligations. Total investment securities at March 31, 2000 were $54.9
million compared to $51.8 million at December 31, 1999, an increase of $3.1
million. This increase is primarily attributable to the purchase of $4.0 million
in mortgage-backed securities and a $0.5 million decline in the unrealized loss
on available for sale securities, partially offset by $0.3 million in U.S.
government obligations which matured, and $1.0 million in prepayments and
amortization on mortgage-backed securities and amortization of premiums or
discounts on investment securities.
The following table sets forth the amortized cost and fair value of investment
securities for each major security type at March 31, 2000.
<TABLE>
<CAPTION>
March 31, 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 $ 19,922 $ 3 $ (419) $ 19,506
U.S. government agency notes 1,000 - (84) 916
Mortgage backed securities 34,955 40 (975) 34,020
Equity securities 473 - - 473
--------- --------- --------- ---------
$ 56,350 $ 43 $ (1,478) $ 54,915
========= ========= ========= =========
</TABLE>
The after-tax unrealized loss on investment securities classified as available
for sale was $938,000 and $1,292,000, at March 31, 2000 and December 31, 1999,
respectively.
12
<PAGE>
The following table represents the contractual maturities for investments in
debt securities for each major security type at March 31, 2000.
<TABLE>
<CAPTION>
March 31, 2000
------------------------------------------
Maturing
------------------------------------------
After One
Within But within After
(in thousands) One Year Five Five Years Total
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. government obligations $ 248 $ 2,100 $ 17,158 $ 19,506
U.S. government agency - - 916 916
Mortgage backed securities - - 34,020 34,020
-------- -------- -------- --------
$ 248 $ 2,100 $ 52,094 $ 54,442
======== ======== ======== ========
</TABLE>
LOANS HELD FOR SALE
Loans held for sale equaled $541,000 at March 31, 2000 as compared to $83,000 at
December 31, 1999, an increase of $458,000. 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.
LOANS
Loans consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
-----------------------------
(in thousands) 2000 1999
- ----------------------------------------------------------
<S> <C> <C>
Real estate mortgage loans:
Residential $ 28,288 $ 28,460
Commercial 66,930 66,833
Real estate construction 3,012 2,832
Commercial and industrial 11,757 9,446
Consumer and other 13,764 12,962
---------- ----------
Total $ 123,751 $ 120,533
========== ==========
</TABLE>
Loans increased $3.2 million (or 2.7%) at March 31, 2000 as compared to December
31, 1999. The increase is attributable to a $2.3 million increase in commercial
and industrial loans and a $0.8 million increase in consumer loans.
ALLOWANCE FOR LOAN LOSSES ("ALLOWANCE")
The Company's Allowance was $2.9 million at March 31, 2000 and December 31,
1999. For the three months ended March 31, 2000, loan recoveries equaled $97,000
and exceeded charged-off loans of $46,000. There was no provision for loan
losses during the three months ended March 31, 2000. The Allowance represented
2.4% of total loans at March 31, 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 March 31, 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
13
<PAGE>
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>
March 31, December 31,
----------------------------
(in thousands) 2000 1999
- ---------------------------------------------------------------------
<S> <C> <C>
Nonaccrual loans $ 304 $ 373
Accruing loans past due 90 days or more 262 167
Restructured loans 155 -
Real estate owned and repossessions 41 -
--------- -----------
Total $ 762 $ 540
========= ===========
</TABLE>
Nonperforming assets increased $222,000 at March 31, 2000 as compared to
December 31, 1999. While the current level of nonperforming assets remains low
compared to historical levels, the Bank continues to hold a large concentration
of commercial real estate loans. The collateral coverage for these loans, should
they become nonperforming, may not be adequate to protect the Bank from
potential losses. 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 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 March 31, 2000, the recorded investment in loans for which impairment has
been recognized in accordance with SFAS No. 114 totaled $459,000, as compared to
$373,000 at December 31, 1999. At March 31, 2000, the corresponding allocated
reserves totaled $37,000 (relating to two impaired loans with balances totaling
$163,000). All impaired loans were classified as nonaccrual or troubled debt
restructures at March 31, 2000 and December 31, 1999. The income recorded on a
cash basis relating to impaired loans equaled $8,000 and $2,000 at March 31,
2000 and 1999, respectively. The average balance of outstanding impaired loans
was $459,000 and $330,000 at March 31, 2000 and December 31, 1999, respectively.
All of the impaired loans were collateralized by real estate at March 31, 2000.
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 March 31, 2000, REO totaled $41,000, consisting of one
commercial real estate property which was subsequently sold in the second
quarter of 2000. At December 31, 1999 the Bank had no REO properties.
14
<PAGE>
LIQUIDITY - BANK
Deposits totaled $131.0 million at March 31, 2000, a decrease of $9.1 million
(or 6.5%) from the level of $140.1 million at December 31, 1999.
Deposit balances were as follows:
<TABLE>
<CAPTION>
March 31, December 31,
-----------------------------
(in thousands) 2000 1999
- ------------------------------------------------------------------
<S> <C> <C>
Noninterest bearing demand deposits $ 12,257 $ 11,962
Interest bearing demand deposits 16,322 22,280
Savings and escrow deposits 55,015 58,775
Time deposits 47,395 47,120
---------- -----------
Total $ 130,989 $ 140,137
========== ===========
</TABLE>
The $9.1 million decline in deposit balances was primarily attributable to the
transfer of one class of commercial deposits totaling $10.1 million 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.
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 to a group
of three Maine savings banks (the "Savings Banks") in the aggregate principal
amount of $2.2 million at March 31, 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 March 31, 2000, the parent's cash and cash equivalents totaled
$275,000.
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 March 31, 2000, the Company had repurchased 68,619 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.
15
<PAGE>
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 March 31, 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.
CAPITAL - BANK
The table below sets forth the regulatory capital requirements and capital
ratios for the Bank at March 31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
(dollars in thousands) March 31, 2000 December 31, 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets (1) ratio
Qualifying capital $ 17,615 $ 17,244
Actual % 9.33% 9.22%
Minimum requirements for capital adequacy % 4.00% 4.00%
Average quarterly assets $188,856 $187,070
Tier 1 capital to risk-weighted assets
Qualifying capital $ 17,615 $ 17,244
Actual % 15.22% 15.90%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 19,080 $ 18,618
Actual % 16.49% 17.17%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $115,732 $108,419
</TABLE>
(1) Calculated on an average quarterly basis less disallowed portion of the
deferred tax asset.
16
<PAGE>
CAPITAL - COMPANY
The table below sets forth the regulatory capital requirements and capital
ratios for the Company at March 31, 2000 and December 31, 1999:
<TABLE>
<CAPTION>
(dollars in thousands) March 31, 2000 December 31, 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Tier 1 capital (Leverage) to total assets (1) ratio
Qualifying capital $ 16,028 $ 15,756
Actual % 8.47% 8.37%
Minimum requirements for capital adequacy % 4.00-5.00% 4.00-5.00%
Average quarterly assets $ 189,260 $ 188,154
Tier 1 capital to risk-weighted assets
Qualifying capital $ 16,028 $ 15,756
Actual % 13.84% 14.56%
Minimum requirements for capital adequacy % 4.00% 4.00%
Total capital to risk-weighted assets (Tier 1 and Tier 2)
Qualifying capital $ 17,494 $ 17,128
Actual % 15.11% 15.82%
Minimum requirement for capital adequacy % 8.00% 8.00%
Risk-weighted assets $ 115,781 $ 108,243
</TABLE>
(1) Calculated on an average quarterly basis less disallowed portion of the
deferred tax asset.
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.
As a result, 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.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
As of March 31, 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
- -----------------------------------------------------------
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 are set forth below:
27.1 Financial Data Schedule.
(b) The Company filed a Current Report on Form 8-K on February 16, 2000,
announcing that its Board of Directors authorized an extension of the
Company's stock repurchase program.
18
<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: May 12, 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: May 12, 2000 By: /s/ Gregory T. Caswell
------------------------------------
Gregory T. Caswell
President and Chief Executive Officer
(Principal Executive Officer)
Date: May 12, 2000 By: /s/ Dennis D. Byrd
------------------------------------
Dennis D. Byrd
Vice President and Treasurer
(Principal Financial and Accounting Officer)
19
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
27.1 Financial Data Schedule (filed herewith).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,908
<INT-BEARING-DEPOSITS> 9,321
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,399
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 123,748
<ALLOWANCE> 2,934
<TOTAL-ASSETS> 198,990
<DEPOSITS> 130,989
<SHORT-TERM> 15,407
<LIABILITIES-OTHER> 596
<LONG-TERM> 34,708
0
0
<COMMON> 1,361
<OTHER-SE> 15,929
<TOTAL-LIABILITIES-AND-EQUITY> 198,990
<INTEREST-LOAN> 2,692
<INTEREST-INVEST> 958
<INTEREST-OTHER> 71
<INTEREST-TOTAL> 3,271
<INTEREST-DEPOSIT> 1,270
<INTEREST-EXPENSE> 511
<INTEREST-INCOME-NET> 1,940
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,604
<INCOME-PRETAX> 496
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 319
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 8.19
<LOANS-NON> 304
<LOANS-PAST> 262
<LOANS-TROUBLED> 155
<LOANS-PROBLEM> 1,028
<ALLOWANCE-OPEN> 2,882
<CHARGE-OFFS> 46
<RECOVERIES> 98
<ALLOWANCE-CLOSE> 2,934
<ALLOWANCE-DOMESTIC> 2,934
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
