SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934.
For the Quarter ended: December 31, 1997 Commission File No. 0-18096
MID-COAST BANCORP, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 01-0454232
- -------------------------------------------------------------------------------
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification No.)
1768 Atlantic Highway, PO Box 589
Waldoboro, Maine 04572
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 832-7521
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 December 31, 1997, is 236,988.
Page 1 of 17.
MID-COAST BANCORP, INC.
Index
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
----
<S> <C>
Item 1: Consolidated Balance Sheets of Mid-Coast Bancorp, Inc. (Unaudited)
at December 31, 1997 and March 31, 1997 3
Consolidated Statements of Income of Mid-Coast Bancorp, Inc.
(Unaudited), Three Months and Nine Months Ended December 31, 1997
and 1996 5
Consolidated Statement of Changes in Stockholders' Equity of
Mid-Coast Bancorp, Inc. (Unaudited) for the period April 1, 1996
to December 31, 1997 6
Consolidated Statements of Cash Flows of Mid-Coast Bancorp, Inc.
(Unaudited), for the Nine Months Ended December 31, 1997 and 1996 7
Notes to the Consolidated Financial Statements (Unaudited) 8
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II OTHER INFORMATION 16
SIGNATURES 17
</TABLE>
MID-COAST BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1997
----------------- --------------
<S> <C> <C>
Cash and due from banks $ 2,062,910 $ 1,156,227
Interest bearing deposits 186,127 104,683
Federal funds sold 3,365,000 1,875,000
------------------------------
Cash and cash equivalents 5,614,037 3,135,910
Time deposits 1,882,000 1,089,000
Investments available for sale, at market 2,765,652 2,440,662
Held to maturity investment securities
(Market value $942,369 and $911,125) 949,531 949,109
Loans held for sale 317,700 65,000
Loans 49,391,647 49,394,455
Less: Allowance for loan losses 329,652 295,457
Deferred loan fees 82,536 119,966
------------------------------
48,979,459 48,979,032
Bank premises and equipment, net 1,513,270 1,580,290
Other Assets:
Accrued interest receivable:
Loans 235,197 244,474
Time deposits/InvestmentS 56,667 59,430
Deferred income taxes 100,711 98,000
Prepaid expenses and other assets 144,618 192,638
Real estate owned 73,511 91,823
------------------------------
Total other assets 610,704 686,365
------------------------------
Total assets $62,632,353 $58,925,368
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand deposits $ 2,867,841 $ 2,346,730
NOW accounts 4,365,461 3,460,858
Savings 6,169,002 5,693,545
Money market deposit accounts 4,934,252 5,119,733
Certificates of deposit 28,281,073 25,559,832
------------------------------
Total deposits 46,617,629 42,180,698
Advances from the Federal Home
Loan Bank 10,190,000 11,440,000
Accrued expenses and other liabilities 603,673 229,125
------------------------------
Total liabilities 57,411,302 53,849,823
Stockholders' equity:
Preferred stock, $1 par value, 500,000
shares authorized; none issued or outstanding 0 0
Common stock, $1 par value, 1,500,000
shares authorized; 236,988 shares
issued and outstanding (231,439 at March 31) 236,988 231,439
Paid-in capital 1,517,997 1,469,769
Unrealized gains on available for
sale securities, net of taxes 5,837 0
Retained earnings 3,620,935 3,374,337
Unearned compensation (160,706) 0
------------------------------
Total stockholders' equity 5,221,051 5,075,545
------------------------------
Total liabilities and stockholders' equity $62,632,353 $58,925,368
==============================
</TABLE>
See accompanying notes
MID-COAST BANCORP, INC
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $1,129,002 $1,050,035 $3,342,602 $3,089,153
Interest on investment securities 51,163 67,700 154,021 188,105
Interest on mortgage backed sec. 0 18,547 0 38,876
Other 77,840 29,155 163,609 110,802
----------------------------------------------------
Total interest income 1,258,005 1,165,437 3,660,232 3,426,936
Interest expense:
Interest on deposits 515,520 473,855 1,469,526 1,450,791
Interest on borrowed money 153,160 138,028 485,284 360,513
----------------------------------------------------
Total interest expense 668,680 611,883 1,954,810 1,811,304
----------------------------------------------------
Net interest income 589,325 553,554 1,705,422 1,615,632
Provision for losses on loans 18,000 21,000 50,000 72,000
----------------------------------------------------
Net interest income after
provision for loan losses 571,325 532,554 1,655,422 1,543,632
Non interest income:
Loan service and other loan fees 10,773 8,344 33,815 30,259
Gain on loans sold 19,740 13,639 37,222 30,465
Gain on sale of Real Estate Owned 0 1,010 0 1,639
Other 48,339 39,135 151,648 115,935
----------------------------------------------------
Total other income 78,852 62,128 222,685 178,298
Other expenses:
Compensation of directors, officers, and staff 190,222 164,339 553,819 486,867
Building occupancy 9,930 10,062 30,681 29,613
Repairs and maintenance 14,888 6,086 33,187 23,880
Depreciation, amortization, and software expense 51,583 15,617 142,982 46,729
Advertising 8,488 4,461 29,279 23,736
Insurance and bonds 18,109 35,159 55,330 346,839
Legal, audit and examinations 22,399 18,654 55,712 48,037
Taxes (other than income) 11,582 10,234 37,073 35,037
Employee benefits 15,368 14,408 65,438 59,339
Data processing 11,506 41,194 38,753 110,275
Other 91,813 91,285 270,708 248,506
Real Estate Owned 5,822 1,934 8,598 10,975
----------------------------------------------------
Total other expenses 451,710 413,433 1,321,560 1,469,833
Income before income taxes 198,467 181,249 556,547 252,097
Income taxes 68,946 59,850 188,153 96,933
----------------------------------------------------
Net income $ 129,521 $ 121,399 $ 368,394 $ 155,164
====================================================
Earnings per share:
Basic $ 0.55 $ 0.53 $ 1.58 $ 0.68
Diluted $ 0.55 $ 0.52 $ 1.57 $ 0.66
====================================================
</TABLE>
See accompanying notes
MID-COAST BANCORP, INC
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
For the Period April 1, 1996 to December 31, 1997
<TABLE>
<CAPTION>
Unrealized
gains/losses
on available for Total
Common Paid-in sale securities, Retained Unearned Stockholders'
Stock Capital net of taxes Earnings Compensation Equity
------ ------- ---------------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 1, 1996 $229,031 $1,448,282 $ 0 $3,248,764 $ 0 $4,926,077
Issuance of 1,140 shares
of common stock upon
exercise of options 1,140 9,812 0 0 0 10,952
Net income 0 0 0 155,164 0 155,164
Net change in market value of
investments available for sale,
net of taxes 0 0 0 0 0 0
Cash Dividends declared
($.51 per share) 0 0 0 (117,202) 0 (117,202)
---------------------------------------------------------------------------------------
Balance, December 31, 1996 230,171 1,458,094 0 3,286,726 0 4,974,991
Issuance of 1,268 shares
of common stock upon
exercise of options 1,268 11,675 0 0 0 12,943
Net income 0 0 0 87,611 0 87,611
---------------------------------------------------------------------------------------
Balance, March 31, 1997 231,439 1,469,769 0 3,374,337 0 5,075,545
Unearned compensation 0 0 0 0 (177,925) (177,925)
Compensation earned 0 0 0 0 17,219 17,219
Issuance of 5,549 shares
of common stock upon
exercise of options 5,549 48,228 0 0 0 53,777
Net income 0 0 0 368,394 0 368,394
Net change in market value of
investments available for sale,
net of taxes 0 0 5,837 0 0 5,837
Cash dividends declared
($.52 per share) 0 0 0 (121,796) 0 (121,796)
---------------------------------------------------------------------------------------
Balance, December 31, 1997 $236,988 $1,517,997 $5,837 $3,620,935 $(160,706) $5,221,051
=======================================================================================
</TABLE>
See accompanying notes.
MID-COAST BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 368,394 $ 155,164
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation, amortization, and accretion 73,488 7,722
Provision for losses on loans 50,000 72,000
Gain on sale of loans (37,222) (30,465)
Deferred fees (737) 9,613
(Gain)\Loss on sale of Real Estate Owned 2,151 (1,639)
Loans originated for sale (2,757,303) (982,624)
Proceeds from sales of loans 2,541,825 1,380,195
Decrease in other assets 54,206 12,000
Change in income taxes
receivable\payable 60,023 41,760
Increase other liabilities 314,525 79,478
--------------------------
Net cash provided by operating activities 669,350 743,204
Cash flows from investing activities:
Loan originations and repayments, net (86,508) (5,444,520)
Net increase in time deposits (793,000) 493,000
Investment and mortgage-backed securities:
Purchases (826,117) (2,579,060)
Proceeds from sales, maturities and repayments 510,000 3,107,558
Purchases of property and equipment (26,257) (207,079)
Proceeds from sale of real estate owned 89,672 134,792
--------------------------
Net cash used by investing activities (1,132,210) (4,495,309)
Cash flows from financing activities:
Net increase\(decrease) in certificates
of deposits 1,715,690 (1,278,361)
Net increase in demand, NOW, savings
and money market deposit accounts 2,721,241 1,901,647
FHLB Advances 4,500,000 8,300,000
FHLB Advances paid (5,750,000) (5,575,000)
Dividends paid in cash (121,796) (117,202)
Sale of common stock 53,777 10,952
Acquisition of treasury stock (177,925) 0
--------------------------
Net cash provided by financing activities 2,940,987 3,242,036
--------------------------
Net increase\(decrease) in cash and cash equivalents 2,478,127 (510,069)
Cash and cash equivalents, at beginning of period 3,135,910 2,728,051
--------------------------
Cash and cash equivalents, at end of period $ 5,614,037 $ 2,217,982
==========================
</TABLE>
See accompanying notes
MID-COAST BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 1997
1. Financial Statements
--------------------
The accompanying consolidated financial statements include the
accounts of Mid-Coast Bancorp, Inc. (the "Company") and its wholly-
owned subsidiary, The Waldoboro Bank, F.S.B. (the "Bank"). The
accounts of the Bank include its wholly-owned subsidiary, The First
Waldoboro Corporation. Such consolidated financial statements are
unaudited. However, in the opinion of management, all adjustments
necessary for a fair presentation of the consolidated financial
statements have been included, and all such adjustments are of a
normal and recurring nature.
Amounts presented in the consolidated financial statements as of March
31, 1997 were derived from audited consolidated financial statements.
2. Insurance Fund Resolution
-------------------------
The disparity between the Savings Association Insurance Fund (SAIF)
and Bank Insurance Fund (BIF) was resolved by Congress, by requiring,
Banks insured by the SAIF to pay a one time assessment to recapitalize
SAIF, effective September 30, 1996. Accordingly a one-time charge of
$241,299 is reflected in the statement of income for the period ended
December 31,1996.
3. Dividends Paid
--------------
The Board of Directors of Mid-Coast Bancorp, Inc. declared a cash
dividend of $.26 for each share of common stock, which was payable on
December 31, 1997 to shareholders of record on December 1, 1997.
4. Investments Available For Sale
------------------------------
If significant, unrealized gains and losses, net of tax, on securities
available for sale are reported as a net amount in a separate
component of stockholders' equity until realized. If a decline in
market value is considered other than temporary, the loss is charged
to net securities gains (losses).
5. Stock Award Plan
----------------
During the third quarter, the Company acquired 6,200 shares of common
stock as treasury stock and then awarded these shares to officers and
directors in accordance with the terms of the Company's Recognition
and Retention Plan. The cost of this stock is recorded in unearned
compensation as a component of stockholders' equity. The stock
awarded vests over five years and the unearned compensation is
amortized as compensation expense during the vesting period.
6. Earnings Per Share
------------------
The Company has implemented Statement of Financial Accounting
standards (FAS) 128, Earnings per Share, which is effective for fiscal
periods ending after December 15,1997, including interim periods, and
requires restatement of all prior-period earnings per share (EPS) data
presented. This standard requires presentation of both basic and
diluted EPS on the face of the consolidated statements of income.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS 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. EPS as previously reported for the three and
nine months ended December 31, 1996 was the same as basic EPS
calculated in accordance with FAS 128 for those periods; no diluted
EPS was required to be presented.
EPS was computed based on the following:
<TABLE>
<CAPTION>
Three months ended Nine months ended
12/31/97 12/31/96 12/31/97 12/31/96
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income available to common
stockholders $129,521 $121,399 $368,394 $155,164
============================================
Weighted average number of
common shares outstanding, used
for basic EPS 235,375 230,129 233,330 229,783
Dilutive effect of unexercised
stock options 2,022 5,429 1,548 5,371
--------------------------------------------
Weighted average number of
common and dilutive shares
outstanding, used for diluted EPS 237,398 235,558 234,878 235,154
============================================
</TABLE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
The financial condition and results of operations of Mid-Coast
Bancorp, Inc. (the "Holding Company") essentially reflect the operation of
its subsidiary The Waldoboro Bank, F.S.B. (the "Bank" or "Waldoboro"). The
Holding Company's results of operations in recent years reflect the Bank's
efforts to restructure its balance sheet in response to the fundamental
changes that have occurred in the regulatory, economic and competitive
environment in which savings institutions operate. Like most savings
institutions, Waldoboro's earnings are primarily dependent upon its net
interest income, which is determined by (i) the difference (known as the
interest rate spread) between yields on interest-earning assets and rates
paid on interest-bearing liabilities and (ii) the relative amounts of
interest-earning assets and interest-bearing liabilities outstanding.
The Bank and the entire savings institution industry are significantly
affected by prevailing economic conditions as well as government policies
and regulations concerning, among other things, monetary and fiscal affairs,
housing and financial institutions. Deposit flows are influenced by a
number of factors including interest rates on money market funds and other
competing investments, account maturities and levels of personal income and
savings. Lending activities are influenced by, among other things, the
demand for and supply of housing, conditions in the construction industry
and the availability and cost of funds, and loan refinancing in response to
declining interest rates. Sources of funds for lending activities include
deposits, loan payments, proceeds from sales of loans and investments,
investment returns and borrowings.
Due to the relative interest rate sensitivity of the Bank's assets and
liabilities, the cost of funds to the Bank (principally interest on deposits
and borrowings) does not reprice as fast as the yield on its assets
(principally interest received on loans and investments). Accordingly,
sharp increases or decreases in the general level of interest rates will
have a significant impact on the Bank's interest rate spreads in the short
term.
Financial Condition
Total assets increased from $58,925,368 at March 31, 1997 to
$62,632,353 at December 31, 1997. Of this amount cash and cash equivalents
increased $2,478,127 or 79.02%, time deposits increased $793,000 or 72.81%,
investment securities increased $325,412 or 9.59% and loans decreased by
$2,808 or less than 1%. The increase in cash and cash equivalents is
primarily the result of continued deposit increases coupled with minimal
loan demand. The increases in time deposits and investment securities are
an attempt to increase yield during this period of minimal loan growth.
Total liabilities increased $3,561,479 or 6.61% between March 31, 1997
and December 31, 1997. Increases in Demand deposits of $521,111 or 22.20%,
NOW accounts of $904,603 or 26.14%, Savings deposits of $475,457 or 8.35%
and Certificates of deposit of $2,721,241 or 10.65% were slightly offset by
a decrease in Money market accounts of $185,481 or 3.62%. These increases
are directly related to management's pricing strategy focused on increasing
transaction accounts and Certificates of Deposit while maintaining or
reducing the Bank's cost of funds. Advances from the Federal Home Loan Bank
decreased $1,250,000, or 10.93%.
The allowance for losses on loans amounted to $295,457 at March 31,
1997 compared to $329,652 at December 31, 1997. The increase in allowance
for loan losses is primarily due to the current periodic provision for loan
losses. At December 31, 1997 the Bank's allowance for loan losses as a
percentage of total loans was 0.67%, compared to 0.60% at March 31, 1997.
At March 31, 1997 and December 31, 1997 loans contractually past due
90 days or more amounted to $145,466 or 0.29% of loans and $461,644 or 0.93%
of loans respectively. Non accrual of interest on these loans totaled
$9,852 at March 31, 1997 as compared to $21,084 at December 31, 1997. This
total at December 31, 1997 is represented by six loans and management does
not believe these loans materially affect the overall quality of the Bank's
loan portfolio.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1997 and 1996
Net Income
Mid-Coast recorded net income for the three months ended December 31,
1997 of $129,521 or $0.55 cents per share, compared to $121,399 or $0.53
cents per share in the previous fiscal year. The increase of $8,122 or
6.69% represents modest growth and continues to reflect management's
strategy of improving net interest income, and increasing other income while
controlling expenses.
Interest Income
Interest income increased $92,568 or 7.94% for three months ended
December 31, 1997, primarily due to increases in the average balance of
commercial loans of $1,800,278 or 24.21% and an increase in miscellaneous
other interest income of $48,685 or 166%. The increase in commercial loans
is primarily related to the Bank's continued efforts to increase its
commercial presence in Mid-Coast Maine. Miscellaneous other interest income
increased primarily as a result of an increase in the volume of Federal
funds sold and an increase of $593,000 or 46% in Time Deposits. The
increase in Time Deposits is directly related to the Bank's efforts to
increase yield on its assets, as compared to investing in Federal funds
sold. These increases were partially offset by decreases in investment and
mortgage backed securities of $35,084 or 40.68% and a decrease in mortgage
and consumer loan volume of $230,046 or 0.65% and $86,559 or 1.65%
respectively. Since December 31, 1997 the bank has instituted a loan
promotion aimed at increasing volume without significantly effecting yield.
Interest Expense
Total interest expense for the three month period ended December 31,
1997 increased $56,797 or 9.28% compared to the same period in the previous
fiscal year. The increase in interest on deposits is primarily related to a
$4,306,815 or 10.27% increase in total deposits. This increase was
generated as part of the Bank's strategy to attract transaction account
deposits and Certificates of Deposit, while focusing on reducing the average
cost of funds. The average cost of funds on deposits decreased 4 basis
points for the current period compared to the period ended December 31,
1996. Interest on borrowed money increased $15,132 or 10.96% primarily as a
result of an increase in average balances.
Net Interest Income
Net interest income, before provision for loan losses increased
$35,771 or 6.46% for the quarter ended December 31, 1997, as compared to the
same quarter in the previous year. The increase is primarily the result of
an average balance increase in commercial loans and an increase in the
volume of Fed Funds sold and Time Deposits, which was partially offset by
the increased expense related to deposit growth.
Provisions for Losses on Loans
The allowance for loan losses is established through a provision for
loan losses based on management's evaluation of the risk inherent in its
loan portfolio and the general economy. Such evaluation considers numerous
factors including general economic conditions, loan portfolio compositions,
prior loss experience, the estimated fair value of the underlying collateral
and other factors that warrant recognition in providing for an adequate loan
loss allowance. The decrease in the Bank's provision for losses on loans is
based upon management's belief that the total provision for losses on loans
provides an adequate allowance commensurate with the moderate risks
associated with the loan portfolio.
Non Interest Income
Total non-interest income for the three month period ended December
31, 1997 increased $16,724 or 26.92% as a result of fees and charges related
to NOW accounts, overdraft fees and the sale of loans to the secondary
market. The increase in fees and charges is primarily related to increases
in deposit volume, not rate increases.
Other Expenses
Total other expenses for the three month period ended December 31,
1997 increased $38,277 or 9.26% compared to the previous fiscal year. The
increase in other expenses resulted from increases in compensation levels
(due in part to the Recognition and Retention Plan), advertising, real
estate owned, the addition of an employee, depreciation and amortization and
software licenses related to the Bank's computer conversion and modest
increases in miscellaneous other expenses consisting of shareholder
services, utilities, postage, and office supplies, which were partially
offset by decreases in data processing and insurance and bonds.
Nine Months Ended December 31, 1997 and 1996
Net Income
Mid-Coast reported net income of $368,394 or $1.58 per share for the
nine months ended December 31, 1997 compared to $155,164 or $0.68 per share
for the nine months ended December 31, 1996. During the period, net
interest income increased $89,790 or 5.56%. Miscellaneous other income
increased $44,387 or 24.89% and total other expenses decreased $148,273 or
10.09%, compared to the previous fiscal year. The decrease in total other
expenses is directly related to the one-time assessment of $241,299 paid to
recapitalize the Savings Association Insurance Fund (SAIF). Total other
expenses would have increased $93,026 or 7.57% compared to the period ended
December 31, 1996, without the SAIF Assessment.
Interest Income
Total interest income for the nine months ended December 31, 1997
increased $233,296 or 6.81% compared to the same period in the previous
fiscal year. Interest on loans increased $253,449 or 8.20% primarily due to
increases in the average balance on total loans and an increase in the
aggregate yield on consumer, commercial and mortgage loans. Interest on
investment securities decreased $34,084 or 18.12%. The increase in interest
on loans was generated by a redistribution of total loans to include more
commercial loans compared to the comparable prior year period.
Interest Expense
Total interest expense for the nine months ended December 31, 1997
increased $143,506 or 7.92% compared to the same period in the previous
fiscal year. Interest expense on deposits increased $18,735 or 1.29% and
interest on borrowings increased $124,771 or 34.61%. Interest on borrowed
money increased primarily due to higher average balance of borrowings during
the period. The Bank has continued to focus its liability strategy on
attracting low cost deposits and borrowing at rates more favorable than are
available in the marketplace. This strategy has reduced the cost of funds
on deposits by 4 basis points while cost of funds on borrowings remains
unchanged; compared to the same period in the previous fiscal year.
Net Interest Income
Total net interest income for the nine months ended December 31,
1997, increased $89,790 or 5.56% compared to the same period in the previous
fiscal year. This increase primarily results from increases in the average
balances of consumer, commercial and mortgage loans and the commensurate
yield on total loans coupled with increases in miscellaneous income. These
increases are partially offset by increased interest expense, attributable
to growth in the average balance of deposits and increases in borrowings
from the Federal Home Loan Bank.
Provisions for Losses on Loans
The Bank's provision for losses on loans for the nine month period
ended December 31, 1997 decreased to $50,000 as compared to $72,000 in the
previous fiscal year. The provision is deemed appropriate, based on
management's belief that the current allowance for loan losses is adequate
given the current loan portfolio and the associated risk.
Non-Interest Income
Non-interest income for the nine months ended December 31, 1997
increased $44,387 or 24.89% as compared to the same period in the previous
fiscal year. Increases occurred in all areas except gain on sale of real
estate owned. The gain in miscellaneous income of $35,713 or 30.80% as a
result of fees and charges related to NOW accounts and overdraft fees and
the sale of loans to the secondary market. The NOW account and overdraft
fee increase is primarily related to an increase of $1,251,127 or 30.80% in
the volume of transaction account deposits as compared to the previous
fiscal year.
Other Expenses
Other expenses of the nine month period ended December 31, 1997
decreased $148,273 or 10.09% from the previous fiscal year. The decrease in
other expenses is primarily related to the payment of the SAIF assessment.
Other expenses increased $93,026 or 7.57% without the SAIF assessment as
compared to the previous fiscal year. This increase in other expenses
resulted from increases in compensation levels (due in part to the
Recognition and Retention Plan), the addition of an employee, depreciation
and amortization and software licenses related to the computer conversion
and increases in miscellaneous expenses consisting of shareholder services,
utilities, postage and office supplies, which are partially offset by
decreases in data processing, and other insurance expenses.
Insurance of Deposits
The Bank's deposits are insured up to applicable limits under the SAIF
as administered by the FDIC under the Federal Deposit Insurance Act
("FDIA"). The assessments paid by depository institutions for the insurance
of deposits are determined on a risk-based assessment system pursuant to
which each institution is assigned to one of nine categories. For the first
three quarters of 1996, SAIF-insured institutions paid deposit insurance
assessments at annual rates that ranged from 0.23% of deposits for the least
risky institutions to 0.315% of deposits for the most risky institutions.
In contrast, the least risky institutions insured under the Bank Insurance
Fund ("BIF") paid deposit insurance assessments at the annual minimum of
$2,000, and the other BIF-insured institutions paid assessments at rates
that ranged from 0.03% to 0.27% of deposits.
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the
"Funds Act") was enacted into law to address, among other things, the
disparity in the deposit insurance assessment rates imposed on BIF-insured
and on SAIF-insured institutions. The Funds Act amended the FDIA in several
ways to recapitalize the SAIF and to reduce the disparity to the assessment
rates for the BIF and the SAIF. To recapitalize the SAIF, the Funds Act
authorized the FDIC to impose a special assessment on all institutions with
SAIF-assessable deposits in the amount necessary to recapitalize the SAIF.
As implemented by the FDIC, the special assessment was fixed at 0.657% of an
institution's SAIF-assessable deposits, and the special assessment was paid
on November 27, 1996. The special assessment was based on the amount of
SAIF-assessable deposits held at March 31, 1995, as adjusted under the Funds
Act. For the Bank, the special assessment on the deposits held on March 31,
1995, was $241,299 (before giving effect to any tax benefits), and was
charged to expense in the quarter ended September 30, 1996.
The Funds Act also provides that the FDIC cannot assess regular
insurance assessments for an insurance fund unless required to maintain or
to achieve the designated reserve ratio of 1.25%, except on those of its
member institutions that are not classified as "well capitalized" or that
have been found to have "moderately severe" or "unsatisfactory" financial,
operation or compliance weaknesses. The Bank has not been so classified by
the FDIC or the OTS. In view of the recapitalization of the SAIF, the FDIC
reduced the annual assessment rates for SAIF-assessable deposits for periods
beginning on October 1, 1996. For the last quarter of 1996, the reduced
annual assessment rates ranged from 0.18% to 0.27% of deposits. Beginning
with January 1, 1997, the annual assessment rates are the same for both BIF-
insured and SAIF-insured institutions, with the annual assessment rates
ranging from 0.0% to 0.27% of deposits.
In addition, the Funds Act expanded the assessment base for the
payments on the bonds ("FICO bonds") issued in the late 1980s by the
Financing Corporation to recapitalize the now defunct Federal Savings and
Loan Insurance Corporation. Beginning January 1, 1997, the deposits of both
BIF-and SAIF-insured institutions will be assessed for the payments on the
FICO bonds. Until December 31, 1999, or such earlier date on which the last
savings association ceases to exist, the rate of assessment for BIF-
assessable deposits will be one-fifth of the rate imposed on SAIF-assessable
deposits. The FDIC has reported that, for the semiannual period beginning
on January 1, 1997, the rate of assessments for the payments on the FICO
bonds will be 0.013% for BIF-assessable deposits and 0.0648% for SAIF-
assessable deposits.
The Funds Act also provides for the merger of the BIF and SAIF on
January 1, 1999, with such merger being conditioned upon the prior
elimination of the thrift charter. The Funds Act required the Secretary of
the Treasury to conduct a study of relevant factors with respect to the
development of a common charter for all insured depository institutions and
the abolition of separate charters for banks and thrifts and to report the
Secretary's conclusions and the findings to the Congress. The Secretary of
the Treasury has recommended that the separate charter for thrifts be
eliminated only if other legislation is adopted that permits bank holding
companies to engage in certain non-financial activities. Absent legislation
permitting such non-financial activity, the Secretary of the Treasury
recommended retention of the thrift charter. The Secretary of the Treasury
also recommended the merger of the BIF and SAIF irrespective of whether the
thrift charter is eliminated. Other proposed legislation has been
introduced in Congress that would require thrift institutions to convert to
bank charters.
An insured institution is subject to periodic examination, and
regulators may revalue the assets of an institution, based upon appraisals,
and require establishment of specific reserves in amounts equal to the
difference between such revaluation and the book value of the assets. SAIF
insurance of deposits may be terminated by the FDIC, after notice and
hearing, upon a finding by the FDIC that a savings institution has engaged
in an unsafe or unsound practice, or is in unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule,
order or condition imposed by the OTS or the FDIC. Management of the Bank
is not aware of any practice, condition or violation that might lead to
termination of its deposit insurance.
Liquidity and Capital Resources
On December 31, 1997, the Holding Company's stockholders' equity was
$5,221,051 or 8.34% of total assets compared to $5,075,545 or 8.61% at March
31, 1997.
The Office of Thrift Supervision ("OTS") requires savings institutions
such as Waldoboro to maintain a specified ratio of cash and short-term
investment securities to new withdrawal deposits and borrowings with
maturities of one year or less. This minimum OTS required liquidity ratio
is, currently 4%. This rate may vary from time to time, depending upon
general economic conditions and deposit flows. As a part of its
asset/liability management program, Waldoboro has historically maintained
liquidity in excess of regulatory requirements to better match its short-
term liabilities. At December 31, 1997, Waldoboro's liquidity ratio was
approximately 12.95% compared to 14.55% at December 31, 1996.
The minimum capital standards set by the OTS have three components:
(1) tangible capital; (2) leverage ratio or "core" capital; and (3) risk-
based capital. The tangible capital requirement is 1.5% and the leverage
ratio or "core" capital requirement is 3% of an institution's adjusted total
assets. The risk-based capital requirement is 8% of risk-weighted assets.
The amount of an institution's risk-weighted assets is determined by
assigning a "risk-weighted" value to each of the institution's assets.
Under the regulations, the "risk-weighting" of a particular type of assets
depends upon the degree of credit risk which is deemed to be associated with
that type of asset.
At December 31, 1997, Waldoboro had tangible capital of $ 5,008,000 or
8.01% of adjusted total assets, which exceeds the minimum required tangible
capital and leverage ratio or "core" capital requirements. Waldoboro had
risk-based capital of $5,338,000 or 14.92% of risk-weighted assets at
December 31, 1997.
Year 2000
The Company has conducted a review of its computer systems to identify
the systems that could be affected by the "Year 2000" issue and is
developing a plan to resolve the issue. The Year 2000 issue is the result
of computer programs being written using two digits rather than four to
define the applicable year. Any of the Company's programs that have time-
sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure or
miscalculations.
The Company presently believes that because of the conversion to new
software in fiscal 1997, the Year 2000 problem will not pose significant
operational problems for the Company's and the Bank's computer systems or
material costs to be incurred. The Company has plans to complete testing of
its software and hardware on-site by December 31, 1998. Also, the Bank's
loan portfolio is not significantly concentrated with any single borrower
(the largest commercial loan relationship is $595,000) and consists largely
of loans secured by real estate, even considering the commercial loan
portfolio. These factors help mitigate year 2000 risks pertaining to the
valuation of the loan portfolio. The Bank is currently contacting its
significant loan customers regarding their Year 2000 status and plans. The
Company does not anticipate any material concerns regarding other customers
or vendors. It should also be noted that the Bank's regulatory agency, the
Office of Thrift Supervision, has been monitoring, and plans to continue
such monitoring, the Bank's progress in addressing year 2000 matters.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
------------------
There was no material litigation pending to which the Registrant was a
party or to which the property of the Registrant was subject during the
quarter ended December 31, 1997.
Item 2. Changes in Securities.
----------------------
None.
Item 3. Defaults Upon Senior Securities.
--------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None.
Item 5. Other Information.
------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits required by Item 601 of Regulation S-B.
(27) Financial Data Schedule*
*Submitted only with filing in electronic format.
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of The Exchange Act, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MID-COAST BANCORP, INC.
Date February 13, 1998 /s/ Wesley E. Richardson
----------------- ----------------------------------------
(Signature)
Wesley E. Richardson
President and Treasurer
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