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, 1999 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, 1999, is 753,463.
Transitional Small Business Disclosure Format: Yes No X
----- -----
MID-COAST BANCORP, INC.,
Index
PART I FINANCIAL INFORMATION Page
Item 1: Consolidated Balance Sheets of Mid-Coast
Bancorp, Inc. (Unaudited) at
December 31, 1999 and March 31, 1999 3
Consolidated Statements of Income of Mid-Coast
Bancorp, Inc. (Unaudited), Three Months Ended and
Nine Months Ended December 31, 1999 and 1998 5
Consolidated Statement of Changes in Stockholders'
Equity of Mid-Coast Bancorp, Inc. (Unaudited) for
the period April 1, 1998 to December 31, 1999 6
Consolidated Statements of Cash Flows of Mid-Coast
Bancorp, Inc. (Unaudited), for the Nine Months
Ended December 31, 1999 and 1998 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 18
SIGNATURES 19
MID-COAST BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
------------------------
1999 1999
------------------------
<S> <C> <C>
Cash and due from banks $ 1,883,697 $ 1,583,693
Interest bearing deposits 84,470 93,095
Federal funds sold 1,375,000 2,120,000
---------------------------
Cash and cash equivalents 3,343,167 3,796,788
Time deposits 2,179,000 2,079,000
Investment securities available for sale 6,906,522 5,216,681
Held to maturity investment securities
(market value of $185,405 at December 31,
1999 and $186,415 at March 31, 1999) 200,000 200,000
Investment in Federal Home Loan Bank stock 748,300 734,500
Loans held for sale 148,500 179,000
Loans 60,923,678 56,429,522
Less: Allowance for loan losses 463,794 404,385
Deferred loan fees 85,517 60,589
---------------------------
60,374,367 55,964,548
Bank premises and equipment, net 1,620,356 1,734,619
Other assets:
Accrued interest receivable- loans 295,718 288,413
Accrued interest receivable- time deposits 17,078 18,328
Accrued interest receivable- investment
and mortgage-backed securities 76,525 70,213
Deferred income taxes 159,889 113,137
Prepaid expenses and other assets 359,523 375,636
Real estate owned\other repo assets 0 0
---------------------------
Total other assets 908,743 865,727
---------------------------
Total assets $76,428,955 $70,770,863
===========================
</TABLE>
See accompanying notes.
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
------------------------
1999 1999
------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Liabilities:
Deposits:
Demand deposits $ 4,282,710 $ 3,106,977
NOW Accounts 6,588,457 5,309,433
Savings 8,559,240 6,582,120
Money Market deposit accounts 5,256,247 4,711,304
Certificates of deposit 33,127,464 32,705,039
---------------------------
Total deposits 57,814,118 52,414,873
Advances from the Federal Home Loan Bank 12,715,000 12,715,000
Accrued expenses and other liabilities 350,684 267,370
---------------------------
Total liabilities 70,879,802 65,397,243
---------------------------
Stockholders' equity
Common stock, $1 par value, 1,500,000
shares authorized; 753,463 shares
issued and outstanding ( 715,457
shares at March 31) 753,463 715,457
Paid-in capital 1,754,706 1,535,412
Retained earnings 3,344,339 3,371,524
Accumulated other comprehensive income (113,415) (25,500)
Unearned compensation (189,940) (223,273)
---------------------------
Total stockholders' equity 5,549,153 5,373,620
---------------------------
Total liabilities and stockholders'
equity $76,428,955 $70,770,863
===========================
</TABLE>
See accompanying notes.
MID-COAST BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
December 31, December 31,
1999 1998 1999 1998
----------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Interest on loans $3,670,241 $3,446,739 $1,254,615 $1,167,118
Interest on investment securities 216,221 195,765 79,975 54,061
Interest on mortgage-backed securities 80,179 10,332 33,183 10,332
Interest on overnight funds and other deposits 205,334 276 ,010 70,550 103,453
----------------------------------------------------
Total interest income 4,171,975 3,928,846 1,438,323 1,334,964
Interest expense:
Interest on deposits 1,597,676 1,578,219 542,407 539,478
Interest on borrowings 522,230 544,283 179,320 167,235
----------------------------------------------------
Total interest expense 2,119,906 2,122,502 721,727 706,713
Net interest income 2,052,069 1,806,344 716,596 628,251
Provision for loan losses 55,000 49,000 18,000 19,000
----------------------------------------------------
Net interest income after
provision for loan losses 1,997,069 1,757,344 698,596 609,251
Other income:
Loan servicing and other loan fees 49,329 38,523 16,393 13,295
Gain on sale of loans 104,158 114,739 35,169 44,948
Deposit account fees 183,076 133,543 65,215 43,216
Miscellaneous 21,356 31,248 5,581 10,130
----------------------------------------------------
357,919 318,053 122,358 111,589
Other expenses:
Compensation & benefits 831,235 765,191 275,110 269,607
Building occupancy 77,499 72,102 27,855 23,644
Repairs and maintenance 46,502 76,104 16,055 28,303
Depreciation, amortization and software expense 213,549 184,100 70,986 61,798
Advertising 33,609 84,016 12,791 28,716
Insurance expense 61,877 57,273 21,004 19,262
Professional fees & shareholder services 179,365 169,486 77,552 53,332
Real estate owned 156 8,844 0 1,333
Other 349,208 353,923 121,982 121,449
----------------------------------------------------
1,793,000 1,771,039 623,335 607,444
----------------------------------------------------
Income before income taxes 561,988 304,358 197,619 113,396
Income tax expense 191,983 111,751 69,848 39,718
----------------------------------------------------
Net income $ 370,005 $ 192,607 $ 127,771 $ 73,678
====================================================
Earnings per share - basic $ 0.50 $ 0.26 $ 0.17 $ 0.10
====================================================
Earnings per share - diluted $ 0.50 $ 0.26 $ 0.17 $ 0.10
====================================================
</TABLE>
See accompanying notes.
MID-COAST BANCORP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
For the Period April 1, 1998 to September 30, 1999
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive Total
Common Paid-In Retained Income Unearned Stockholders'
Stock Capital Earnings (Loss) Compensation Equity
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance March 31, 1998 $711,960 $1,521,041 $3,253,517 $ 0 $(145,783) $5,340,735
Net income 0 0 192,607 0 0 192,607
Net change in market value of
investments available for sale,
net of taxes 0 0 0 1,702 0 1,702
----------
Total comprehensive income 194,309
Acquisition of shares for stock award plan 0 0 0 0 (109,630) (109,630)
Amortization of unearned compensation 0 0 0 0 24,105 24,105
Issuance of 3,297 shares
of common stock upon
exercise of options 3,297 8,947 0 0 0 12,244
Cash dividends declared ($.20 per share) 0 0 (142,665) 0 0 (142,665)
------------------------------------------------------------------------------
Balance December 31, 1998 715,257 1,529,988 3,303,459 1,702 (231,308) 5,319,098
Net income 65,179 65,179
Net change in market value of
Investments available for sale,
net of taxes 0 0 0 (27,202) 0 (27,202)
----------
Total comprehensive income 37,977
Amortization of unearned compensation 0 0 0 0 8,035 8,035
Issuance of 200 shares
of common stock upon
exercise of options 200 5,424 0 0 0 5,624
Cash dividends declared ($.10 per share) 0 0 2,886 0 0 (2,886)
------------------------------------------------------------------------------
Balance March 31, 1999 715,457 1,535,412 3,371,524 (25,500) (223,273) 5,373,620
Net income 0 0 370,005 0 0 370,005
Net change in market value
Investments available for sale,
net of taxes 0 0 0 (87,915) 0 (87,915)
----------
Total comprehensive income 282,090
Issuance of 2,277 shares
of common stock upon
exercise of options 2,277 5,258 0 0 0 7,535
Cash dividends declared ($.20 per share) 0 0 (141,441) 0 0 (141,441)
5% stock dividend 35,729 218,850 (255,749) 0 0 (1,170)
Amortization of unearned compensation 0 0 0 0 28,696 28,696
Other activity related to Recognition and
Retention Plan 0 (4,814) 0 0 4,637 (177)
------------------------------------------------------------------------------
Balance December 31, 1999 $753,463 $1,754,706 $3,344,339 $(113,415) $(189,940) $5,549,153
==============================================================================
</TABLE>
MID-COAST BANCORP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
December 31, December 31,
1999 1998
-------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 370,005 $ 192,607
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation, amortization, and accretion 163,139 81,734
Provision for losses on loans 55,000 49,000
Gain on sale of loans (104,158) (114,739)
Net change in deferred loan fees 24,928 19,100
Loss on sale of Real Estate Owned 0 4,285
Loans originated for sale (2,615,950) (5,535,930)
Proceeds from sales of loans 2,750,608 5,373,317
(Increase) decrease in other assets 4,740 (77,868)
Increase (decrease) in other liabilities 83,314 (53,049)
----------------------------
Net cash provided (used) by operating activities 731,626 (61,543)
Cash flows from investing activities:
Loan originations and repayments, net (4,489,746) (5,024,067)
Net increase used by time deposits (100,000) (197,000)
Investment and mortgage-backed securities:
Purchases (2,011,767) (6,016,214)
Proceeds from sales, maturities and repayments 170,764 4,324,124
Purchases of property and equipment (18,666) (386,608)
Proceeds from sale of real estate owned 0 51,780
----------------------------
Net cash used by investing activities (6,449,415) (7,247,985)
Cash flows from financing activities:
Net increase in certificates of deposits 422,424 3,058,610
Net increase in demand, NOW, savings
and money market deposit accounts 4,976,820 4,937,139
FHLB Advances 1,000,000 5,500,000
FHLB Advances paid (1,000,000) (5,500,000)
Dividends paid in cash (142,611) (142,665)
Sale of common stock 7,535 12,244
Acquisition of shares for stock award plan 0 (109,630)
----------------------------
Net cash provided by financing activities 5,264,168 7,755,698
Net increase (decrease) in cash and cash equivalents (453,621) 446,170
Cash and cash equivalents, at beginning of period 3,796,788 3,968,030
----------------------------
Cash and cash equivalents, at end of period $ 3,343,167 $ 4,414,200
============================
</TABLE>
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 1999
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, 1999 were derived from audited consolidated financial statements.
2. Dividends Paid
- --------------------
The Board of Directors of the Company declared a cash dividend of $.10
for each share of common stock, which was payable on December 31, 1999
to shareholders of record on December 1,1999 and a 5% stock dividend,
which was issued on December 31, 1999 to stockholders of record on
December 1, 1999.
Earnings per share for the three and nine months ended December 31,
1998 have been restated to reflect the additional shares issued for
the stock dividend.
3. Investments Available for Sale
- ------------------------------------
Unrealized gains and losses, net of tax, on securities available for
sale are reported as a component of accumulated other comprehensive
income until realized. If a decline in market value is considered other
than temporary, the loss is charged to net securities gains (losses).
4. Stock Award Plan
- ----------------------
The Company maintains a Recognition and Retention Plan for officers and
directors. The cost of this stock is recorded in unearned compensation
as a component of stockholders' equity. Once awarded, the unearned
compensation is amortized as compensation expense during the vesting
period.
Forward Looking Statements
Certain statements contained herein are not based on historical facts
and are "forward-looking statements" within the meaning of Section 21A of the
Securities Exchange Act of 1934. Forward-looking statements which are based
on various assumptions (some of which are beyond the Company's control), may
be identified by reference to a future period or periods, or by the use of
forward-looking terminology, such as "may," "will," "believe," "expect,"
"estimate," "anticipate," "continue," or similar terms or variations on those
terms, or the negative of these terms. Actual results could differ
materially from those set forth in forward looking statements due to a
variety of factors, including, but not limited to, those related to the
economic environment, particularly in the market areas in which the company
operates, competitive products and pricing, fiscal and monetary policies of
the U.S. Government, changes in government regulations affecting financial
institutions, including regulatory fees and capital requirements, changes in
prevailing interest rates, acquisitions and the integration of acquired
businesses, credit risk management, asset-liability management, the financial
and securities markets and the availability of and costs associated with
sources of liquidity.
The Company does not undertake, and specifically disclaims any
obligation, to publicly release the result of any revisions that may be made
to any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Mid-Coast Bancorp, Inc. (the "Company" or "Bancorp") was incorporated
for the purpose of becoming the holding company for The Waldoboro Bank,
F.S.B. (the "Bank") a federally-chartered savings association. The results
of the Company essentially represent the operations of the Bank. The Bank
converted to stock form in 1989, and issued 237,500 shares of common stock at
$8.00 per share. On March 31, 1998 the Bank completed a three-for-one stock
split and on December 31, 1999 the Bank paid a 5% stock dividend. As of
December 31,1999 the Bank had 753,463 shares outstanding.
The Bank had total assets of $76.4 million as of December 31, 1999.
The Bank conducts its business through an office located in Waldoboro, Maine,
where it was originally founded in 1891 as a Maine building and loan
association, and three branches located in Belfast, Jefferson and Rockland,
Maine. The Bank received its federal charter on August 9, 1983 and its
deposits are currently insured up to applicable limits by the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation.
The Bank considers its primary market area to be located in Waldoboro,
Rockland, Belfast and Jefferson including the surrounding communities in
Waldo, Knox and Lincoln counties, Maine.
The Bank's business strategy is to operate as a well-capitalized and
profitable community bank dedicated to financing loans secured by residential
and commercial real estate, enabling borrowers to refinance, construct or
improve property. The Bank has implemented this strategy by: (i) closely
monitoring the needs of customers and providing quality service; (ii)
originating residential mortgage loans, construction loans, commercial real
estate loans, consumer loans, and by offering checking accounts and other
financial services and products; (iii) focusing on expanding the volume of
the Bank's commercial real estate and commercial lending activities to serve
the needs of the small business community; and (iv) focusing on expanding the
volume of the Bank's mortgage loan servicing portfolio.
The Company's results of operations reflects the Bank's efforts to
structure its balance sheet to expand its commercial loans, commercial real
estate loans and commercial transactional deposit relationships. From this
strategy, the Bank anticipates that the growth in net interest income and non
interest income will positively impact the results of operations. Waldoboro's
earnings are primarily dependent upon its net interest income, which is
determined by (i) the difference between yields on interest-earning assets
and rates paid on interest-bearing liabilities (known as the interest rate
spread) and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities outstanding.
The Bank and the entire financial services 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.
Mid-Coast Bancorp, Inc. is headquartered at 1768 Atlantic Highway in
Waldoboro, Maine, (207) 832-7521. The Company's stock trades on the Nasdaq
SmallCap Market under the symbol "MCBN."
Comparison of Financial Condition at December 31,1999 and March 31,1999
Total assets increased $5.7 million or 8.0% to $76.4 million at
December 31, 1999 from $70.8 million at March 31, 1999. The growth in assets
is primarily due to an increase in deposits, which were used to fund the
purchase of investments and originate loans.
Total loans, including loans held for sale, increased $4.5 million, or
7.9%, from $56.6 million to $61.1 million at December 31, 1999.
The following table shows loans held for sale and loans at December 31,
1999 and March 31, 1999, the net change and the percentage of change:
<TABLE>
<CAPTION>
December 31, 1999 March 31, 1999 Change % change
------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans held for sale $ 148,500 $ 179,000 (30,500) (17.0)%
Real estate mortgages-residential 38,504,970 35,973,168 2,531,802 6.8
Real estate mortgages-commercial 9,448,878 9,699,298 (250,420) (2.0)
Construction, net of undisbursed 3,196,554 2,824,413 372,141 13.2
Other commercial 3,612,447 2,618 523 993,924 38.0
Home equity 1,672,530 1,467,125 205,405 14.0
Installment, passbook, and other 4,488,299 3,846,995 641,304 16.7
-------------------------------------------------------
Total $61,072,178 $56,608,522 $4,463,656 7.9%
-------------------------------------------------------
</TABLE>
Loans held for sale consist of fixed rate residential mortgage loans to be
sold in the secondary market. The growth in other commercial loans and
consumer loans has been primarily a result of the Bank's branch expansion
during 1998, a positive economic climate in the Bank's market area and active
solicitation of the business by the Bank's lending team.
Investments, including Time Deposits, increased $1.8 million to $9.3
million at December 31, 1999. Time Deposits increased $100,000 or 4.8% and
investments available for sale increased $1.7 million or 32.4%. The increase
in the investment portfolio reflects management's decision to maximize the
yield relating to deposit growth which was not currently used to fund loan
growth.
At December 31, 1999, total liabilities increased $5.5 million to $70.9
million. Demand deposits (non-interest bearing deposits) increased $1.2
million or 37.8%, NOW, Savings and Money Market accounts increased $3.8
million or 22.9%, and Certificates of Deposit increased $422,425 or 1.3%. The
$5.4 million growth in deposits for the nine month period and $386,205 growth
for the three month period ended December 31, 1999 reflect the results from
the Bank's branch expansion during 1998 and the favorable economic climate of
the Bank's market area. The increase in transaction accounts (non
Certificates of Deposit) reflects the Bank's successful strategy to expand
it's marketing efforts to attract such deposits.
Total Stockholders' Equity increased $175,533 to $5.5 million at
December 31, 1999. The increase in equity is attributable to net income of
$370,005, for the nine months ended December 31,1999 which is partially
offset by the payment of cash dividends of $142,611 and the decline in
accumulated other comprehensive income of $87,915, due to a decline in market
value of investments available for sale.
Asset Quality and Allowance for Loan Losses
At March 31, 1999 and December 31, 1999 total loans contractually past
due 90 days or more amounted to $143,131 or 0.25% of loans and $153,566 or
0.25%, respectively. Non-accrual of interest on these loans totaled $7,253
at March 31, 1999 and $2,100 at December 31, 1999. At March 31, 1999, the
Bank had $69,580 of accruing loans, which were 90 days or more delinquent as
compared to $101,710 at December 31, 1999.
The accrual of interest income is discontinued when a loan becomes
delinquent and in management's opinion is deemed uncollectible in whole or in
part as to principal and/or interest. In these cases, interest on such loans
is recognized only when received. It is the policy of the Bank to generally
place all loans that are 90 days or more past due on nonaccrual status,
unless in management's judgment the loan is well secured and in the process
of collection. Management determined that the $101,710 of loans which were 90
days delinquent at December 31, 1999 are well secured and did not deemed it
necessary to place the loans on nonaccrual status.
Total non-performing assets totaled $143,131 or 0.20% of total assets
at March 31, 1999 compared to $153,566 or 0.20% at December 31, 1999.
The allowance for loan losses amounted to $463,794 at December 31, 1999
compared to $404,385 at March 31, 1999. The increase in allowance for loan
losses is primarily due to the current periodic provision for loan losses of
$55,000 and net recoveries of $4,409. The Bank's allowance for loan losses as
a percentage of total loans was 0.76% at December 31, 1999.
RESULTS OF OPERATIONS
Three and Nine Months Ended December 31, 1999 and 1998
Net Income
Mid-Coast recorded net income of $127,771 or $0.17 per share (fully
diluted) for the three months ended December 31, 1999 and $370,005 or $0.50
per share (fully diluted) for the nine months ended December 31, 1999. Net
income for the three month period increased $54,093 or 73.4% and for the nine
month period increased $177,398 or 92.1% when compared to the same periods in
1998.
The increase in net income has resulted from increases to total
interest income, relatively level total interest expense, and increases in
fee income, net of increases in the provision for loan losses, non-interest
expense and applicable income taxes. Discussion of all of these components
follows.
These results are attributed to a number of factors including, the
Bank's 1998 branch expansion to Belfast and Jefferson, increased and
consistent marketing efforts and a positive economic climate in Mid- Coast
Maine.
Interest Income
Total interest income amounted to $1,438,323 and $4,171,975 for the
three and nine months ended December 31, 1999, respectively. These amounts
represent increases of $103,359 or 7.7% for the three month period and
$243,129 or 6.2% for the nine month period when compared to the same periods
in 1998. The increases in total interest income are attributable to the
growth in interest earning assets.
The following table shows total interest earning assets, and the
percentage of total interest earning assets to total assets at the dates
indicated:
<TABLE>
<CAPTION>
Total interest % of
earning assets total assets
------------------------------
<S> <C> <C>
At:
December 31, 1999 $72,565,470 94.9%
September 30, 1999 72,186,155 95.3
June 30, 1999 68,216,254 94.5
March 31, 1999 67,051,798 94.7
December 31, 1998 66,358,855 93.5
</TABLE>
The yield on average interest earning assets amounted to 7.88% and 7.85% for
the three and nine months ended December 31, 1999, respectively.
Interest Expense
Total interest expense amounted to $721,727 and $2,119,906 for the
three and nine months ended December 31, 1999, respectively These amounts
represent an increase of $15,014 or 2.1% for the three month period and a
decrease of $2,596 or 0.1% for the nine month period.
The changes in interest expense have been negatively impacted by an
increasing trend on rates paid on deposits and Advances from the Federal Home
Loan Bank and positively impacted by the Bank's emphasis on increasing lower
costing transaction accounts.
The cost of funds (total annualized interest expense as a percentage of
average funding) was 4.08% and 4.15% for the three months and nine months
ended December 31, 1999, respectively.
The following table shows balances of Certificates of deposit,
Transaction deposit accounts (Demand deposits, NOW accounts, savings
accounts, and money market accounts) and Advances from the Federal Home Loan
Bank and their respective percentage to total funding at the dates indicated:
<TABLE>
<CAPTION>
December 31,1999 September30,1999 March 31, 1999 December 31, 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Certificates of deposit $33,127,164 $33,658,752 $32,705,039 $31,093,444
% of total funding 47.0% 48.2% 50.2% 47.5%
Transaction accounts 24,686,954 23,769,161 19,709,834 22,073,721
% of total funding 35.0% 34.0% 30.3% 33.8%
Total deposits 57,814,118 57,427,913 52,414,873 53,167,165
% of total funding 82.0% 82.2% 80.5% 81.3%
FHLB advances 12,715,000 12,465,000 12,715,000 12,190,000
% of total funding 18.0% 17.8% 19.5% 18.7%
Total funding $70,529,118 $69,892,913 $65,129,873 $65,357,165
% of total funding 100.00% 100.00% 100.00% 100.00%
</TABLE>
Net Interest Income
As a result of increases in total interest income and relatively level
total interest expense, net interest income increased $88,345 or 14.1% for
the three month period and increased $245,725 or 13.6% for the nine month
period ended December 31, 1999, respectively, when compared to the same
periods in 1998.Net interest margin (annualized net interest income as a
percentage of average earning assets) was 3.93% and 3.86% for the three
months and nine months ended December 31, 1999.
When compared to the prior quarter, net interest income increased
$31,586 or 4.6%. This increase is primarily due to an increase in total
interest income created by the increase in volume of interest earning assets
and increases in interest rates used as indices for the Bank's adjustable
rate portfolio.
Changes in net interest income occur from volume changes in interest
earning assets and interest bearing liabilities, the mix of these components,
and changes in interest rates. Loans, the primary component of interest
earning assets, are comprised of products having fixed rates of interest over
the life of the loan and variable rates of interest that change periodically
as changes in the prime lending rate and other indices change. As of December
31, 1999, approximately $40.8 million or 67.0% of total loans had adjustable
rates of interest.
As of December 31, 1999 the weighted average interest rate of the
Bank's adjustable rate loan portfolio was 8.45% and the fixed rate loan
portfolio was 8.24%.
Provisions for Loan Losses
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 Bank's provision for loan losses amounted to $18,000 and
$55,000 for the three-month and nine month periods ended December 31, 1999,
respectively, compared to $18,000 and $49,000 for the same periods in 1998.
Non Interest Income
Total non-interest income increased $10,769 or 9.7% for the three month
period and increased $39,866 or 12.5% for the nine month period ended
December 31, 1999, when compared to the same periods in 1998. These increases
are primarily attributable to the growth in transaction deposit account fees
and the growth in loan servicing fees offset by decreases in gain on sale of
loans due to reduced volume of origination and sale of loans held for sale.
When compared to the prior quarter, non-interest income decreased $537
as the increase in transaction deposit account fees was offset by a decrease
in miscellaneous income.
As of December 31, 1999, loans serviced for others amounted to $12.5
million, compared to $11.7 million at March 31, 1999 and $10.7 million at
December 31, 1998.
Non Interest Expenses
Total non-interest expenses increased $15,891 or 2.6% for the three
month period and increased $21,961 or 1.2% for the nine month period ended
December 31, 1999, respectively, when compared to the same periods in 1998.
These increases are the net effect of increases in compensation related
expenses (including benefits) associated with the increase in staff related
to the 1998 branch expansion and the growth in lending personnel to implement
the Bank's strategy to increase its commercial loan and deposit business,
decreases in marketing and other promotional expenses related to the branch
expansion and increases in other expenses related to the overall growth in
business.
When compared to the prior quarter, total non-interest expenses
increased $13,596 or 2.2% primarily due to a $40,000 increase in Professional
fees & stockholder services associated with corporate planning.
Asset/Liability Management
Like many other financial institutions, the Bank's most significant
form of market risk is interest rate risk. The Bank is subject to interest
rate risk to the degree that the Bank's interest-bearing liabilities,
primarily deposits with short and medium-term maturities, mature or reprice
at different rates than the Bank's interest-earning assets. The Bank
believes it is critical to manage the relationship between interest rates and
the effect on the Bank's net portfolio value ("NPV"). This approach
calculates the difference between the present value of expected cash flows
from assets and the present value of expected cash flows from liabilities, as
well as cash flows from off-balance sheet contracts. The Bank manages assets
and liabilities within the context of the marketplace, regulatory limitations
and within limits established by the Bank's Board of Directors on the amount
of change in NPV which is acceptable given certain interest rate changes.
An asset or liability is interest rate sensitive within a specific time
period if it will mature or reprice within that time period. If the Bank's
assets mature or reprice more quickly or to a greater extent than the Bank's
liabilities, the Bank's net portfolio value and net interest income would
tend to increase during periods of rising interest rates but decrease during
periods of falling interest rates. Conversely, if the Bank's assets mature
or reprice more slowly or to a lessor extent than the Bank's liabilities, the
Bank's net portfolio value and net interest income would tend to decrease
during periods of rising interest rates but increase during periods of
falling interest rates. The Bank's policy has been to mitigate the interest
rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits by pursuing certain
strategies designed to decrease the vulnerability of the Bank's earnings to
material and prolonged changes in interest rates. In this regard, the Bank's
attempts to minimize interest rate risk by, among other things, emphasizing
the origination and retention of adjustable-rate loans and loans with shorter
maturities and the sale of long-term one-to-four family fixed-rate loans in
the secondary market.
Liquidity and Capital Resources
On December 31, 1999, the Holding Company's stockholders' equity was
$5,549,153 or 7.26% of total assets compared to $5,373,620 or 7.59% at March
31, 1999.
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, 1999, Waldoboro's liquid assets amounted to $8,148,967,
resulting in a liquidity ratio of 14.31%, compared to 15.57% at December 31,
1998. Historically, the Bank maintains a liquidity ratio of approximately
15%.
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
institution is also subject to the capital requirements outlined under the
FDIC Improvement Act that requires Tier 1 (Core) Capital of 4.0%. 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 asset depends upon the degree of
credit risk that is deemed to be associated with that type of asset.
At December 31, 1999, Waldoboro had tangible capital of $5,519,000 or
7.18% of adjusted total assets, which exceeds the minimum required tangible
capital and leverage ratio or "core" capital requirements. Waldoboro had
risk-based capital of $5,983,000 or 13.08% of risk-weighted assets at
December 31, 1999.
Year 2000
The Holding Company has conducted a review of its computer systems to
identify the systems that could be affected by the "Year 2000" issue and has
developed 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 Holding 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 Holding 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 Holding Company's and the Bank's
computer systems. Also, the Bank's loan portfolio is not significantly
concentrated with any single borrower (at December 31, 1999, the largest
commercial loan relationship approximated $709,000) and consists largely of
loans secured by real estate. These factors help mitigate year 2000 risks
pertaining to the valuation of the loan portfolio. The Bank has contacted
its significant loan customers regarding their Year 2000 efforts and
believes, based on the information provided, that its significant loan
customers are compliant. To date the Bank has spent approximately $27,000 on
the Year 2000 issue primarily due to the purchase of computer hardware,
related installation cost and overtime for key employees.
To date the Company has not experienced any problems related to the
change over to the year 2000, nor have any problems been identified with
customers, vendors or suppliers.
Financial Services Modernization Bill
Landmark financial services legislation, titled the Gramm-Leach-Bliley
Act was signed into law by President Clinton on November 12, 1999. The
legislation modernizes the financial services industry by establishing a
comprehensive framework to permit affiliations among commercial banks,
insurance companies and other financial service providers. Generally, the
legislation (i) repeals the historical restrictions and eliminate many
federal and state law barriers to affiliations among banks and securities
firms, insurance companies and other financial service providers, (ii)
provides a uniform framework for the activities of banks, savings
institutions and their holding companies, (iii) broadens the activities that
may be conducted by national banks, banking subsidiaries of bank holding
companies and their financial subsidiaries, (iv) provides an enhanced
framework for protecting the privacy of consumers' information, (v) adopts a
number of provisions related to the capitalization, membership, corporate
governance and other measures designed to modernize the Federal Home Loan
Bank system, (vi) modifies the laws governing the implementation of the
Community Reinvestment Act and (vii) addresses a variety of other legal and
regulatory issues affecting both day-to-day operations and long-term
activities of financial institutions, including the functional regulation of
securities and insurance activities conducted in a financial holding
company.
In particular, the legislation restricts certain of the powers that
unitary savings and loan holding companies currently have. Unitary savings
and loan holding companies that are "grandfathered," i.e., became a unitary
savings and loan holding company pursuant to an application filed with the
OTS before May 4, 1999, (such as the Company) retain their authority under
current law. All other savings and loan holding companies are limited to
financially related activities permissible for bank holding companies, as
defined under the new law. The legislation also prohibits non-financial
companies from acquiring savings and loan holding companies.
Bank holding companies are permitted to engage in a wider variety of
financial activities, particularly with respect to insurance and securities
activities. In addition, in a change from current law, bank holding
companies may be owned, controlled or acquired by any company engaged in
financially related activities.
We do not believe that the legislation will have a material adverse
effect on our operations in the near term. However, to the extent the
legislation permits banks, securities firms and insurance companies to
affiliate, the financial services industry may experience further
consolidation. This could result in a growing number of larger financial
institutions that offer a wider variety of financial services than we
currently offer and that can aggressively compete in the markets we
currently serve.
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, 1999.
Item 2. Changes in Securities and Use of Proceeds.
------------------------------------------
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 11, 2000 /s/ Wesley E. Richardson
----------------- ------------------------
(Signature)
Wesley E. Richardson
President and Treasurer
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<PERIOD-END> DEC-31-1999
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