UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Under Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1996
[ ] 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: 0-24526
COASTAL BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Texas 76-0428727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 Greenway Plaza, Suite 1500
Houston, Texas 77046
(Address of principal executive office)
(713) 623-2600
(Registrant's telephone number)
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
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
COMMON STOCK ISSUED AND OUTSTANDING: 4,963,859 AS OF SEPTEMBER 30, 1996
<PAGE>
COASTAL BANCORP, INC.
Table of Contents
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1 Financial Statements
Consolidated Statements of Financial Condition at September 30, 1996 (unaudited) and
December 31, 1995 1
Consolidated Statements of Income for the Nine-Month Periods Ended September 30,
1996 and 1995 (unaudited) 2
Consolidated Statements of Income for the Three-Month Periods Ended September 30,
1996 and 1995 (unaudited) 3
Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30,
1996 and 1995 (unaudited) 4
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial Condition and Results of
Operations 14
</TABLE>
PART II. OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1 Legal Proceedings 20
Item 2 Changes in Securities 20
Item 3 Default upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Securities Holders 20
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 20
</TABLE>
SIGNATURES
5
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COASTAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
September 30, December 31,
1996 1995
--------------- -------------
ASSETS (Unaudited)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 23,016 $ 9,870
Certificates and time deposits -- 174
--------------- -------------
Cash and cash equivalents 23,016 10,044
Loans receivable (note 4) 1,210,054 1,098,555
Mortgage-backed securities held-to-maturity (note 3) 1,354,523 1,395,753
Mortgage-backed securities available-for-sale, at market value 179,771 186,414
U.S. Treasury security available-for-sale, at market value 11 3,997
Mortgage loans held for sale 1,168 731
Accrued interest receivable 14,772 15,538
Property and equipment 14,114 13,439
Stock in the Federal Home Loan Bank of Dallas (FHLB) 25,594 21,759
Goodwill 15,968 17,972
Purchased loan servicing rights 6,987 8,140
Capitalized excess servicing fees 144 183
Prepaid expenses and other assets 13,326 14,003
--------------- -------------
$ 2,859,448 $ 2,786,528
=============== =============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Savings deposits (note 5) $1,308,518 $1,287,084
Advances from the FHLB (note 6) 466,911 312,186
Securities sold under agreements to repurchase (note 6) 879,115 993,832
Senior notes payable (note 7) 50,000 50,000
Advances from borrowers for taxes and insurance 12,556 6,510
Other liabilities and accrued expenses 22,971 16,487
Total liabilities 2,740,071 2,666,099
----------- -----------
9.0% noncumulative preferred stock of Coastal Banc ssb 28,750 28,750
Commitments and contingencies (notes 4 and 8)
Stockholders' equity (notes 2 and 10):
Preferred stock, no par value; authorized shares 5,000,000;
no shares issued -- --
Common stock, $.01 par value; authorized shares 30,000,000;
4,963,859 and 4,957,870 shares issued and outstanding in
1996 and 1995 50 50
Additional paid-in capital 32,563 32,492
Retained earnings 61,870 59,631
Unrealized gain (loss) on securities available-for-sale (3,856) (494)
Total stockholders' equity 90,627 91,679
----------- -----------
$2,859,448 $2,786,528
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
COASTAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1996 1995
------------------- --------
(Unaudited)
<S> <C> <C>
Interest income:
Mortgage-backed securities $ 71,826 $ 76,708
Loans receivable 70,721 44,810
Investment securities, certificates, time deposits and other investments 1,111 1,167
------------------- --------
143,658 122,685
------------------- --------
Interest expense:
Savings deposits 44,687 41,512
Other borrowed money 38,157 32,801
Senior notes payable 3,750 1,250
Advances from the FHLB:
Short-term 4,979 877
Long-term 11,264 16,158
------------------- --------
102,837 92,598
------------------- --------
Net interest income 40,821 30,087
Provision for loan losses (note 4) 1,475 967
Net interest income after provision for loan losses 39,346 29,120
------------------- --------
Noninterest income:
Loan fees and service charges 3,864 2,416
Loan servicing income 2,313 2,669
Gain on sale of branch office (note 11) 521 --
Gain(loss) on sales of mortgage-backed securities available-for-sale, net (4) --
Other 321 323
------------------- --------
7,015 5,408
------------------- --------
Noninterest expense:
Compensation, payroll taxes and other benefits 12,183 8,580
Office occupancy 4,360 3,228
Insurance premiums 2,105 2,379
Amortization of purchased loan servicing rights 1,153 1,121
Data processing 1,788 1,277
Amortization of goodwill 1,340 871
Real estate owned 665 290
Other 6,189 4,629
SAIF insurance special assessment (note 13) 7,455 --
------------------- --------
37,238 22,375
------------------- --------
Income before provision for Federal income taxes 9,123 12,153
Provision for Federal income taxes 3,454 4,506
------------------- --------
Net income before preferred stock dividends 5,669 7,647
Preferred stock dividends of Coastal Banc ssb 1,941 1,941
------------------- --------
Net income after preferred stock dividends $ 3,728 $ 5,706
=================== ========
Net earnings per share (note 9) $ 0.74 $ 1.14
=================== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
COASTAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------
1996 1995
--------------------
(Unaudited)
<S> <C> <C>
Interest income:
Mortgage-backed securities $ 23,516 $26,023
Loans receivable 23,856 16,882
Investment securities, certificates, time deposits and other investments 405 391
-------------------- -------
47,777 43,296
-------------------- -------
Interest expense:
Savings deposits 14,920 14,496
Other borrowed money 11,440 11,529
Senior notes payable 1,250 1,250
Advances from the FHLB:
Short-term 2,034 355
Long-term 4,584 5,229
-------------------- -------
34,228 32,859
-------------------- -------
Net interest income 13,549 10,437
Provision for loan losses (note 4) 450 237
Net interest income after provision for loan losses 13,099 10,200
-------------------- -------
Noninterest income:
Loan fees and service charges 1,401 832
Loan servicing income 747 856
Other 75 128
-------------------- ------
2,223 1,816
-------------------- ------
Noninterest expense:
Compensation, payroll taxes and other benefits 4,077 2,882
Office occupancy 1,524 1,108
Insurance premiums 628 825
Amortization of purchased loan servicing rights 339 430
Data processing 494 416
Amortization of goodwill 443 293
Real estate owned 279 110
Other 2,148 1,736
SAIF insurance special assessment (note 13) 7,455 --
-------------------- -------
17,387 7,800
------------------- --------
Income (loss) before provision for Federal income taxes (2,065) 4,216
Provision (benefit) for Federal income taxes (636) 1,521
-------------------- --------
Net income (loss) before preferred stock dividends (1,429) 2,695
Preferred stock dividends of Coastal Banc ssb 647 647
-------------------- -------
Net income (loss) after preferred stock dividends $ (2,076) $ 2,048
======== ======
Net earnings (loss) per share (note 9) $ (0.42) $ 0.41
======== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
<PAGE>
COASTAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1996 1995
------------------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred stock dividends $ 5,669 $ 7,647
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and equipment,
purchased loans servicing rights, capitalized excess servicing fees
and prepaid expenses and other assets 4,490 3,632
Net premium amortization (discount accretion) 788 (435)
Provision for loan losses 1,475 967
Amortization of goodwill 1,340 871
Originations and purchases of mortgage loans held for sale (17,094) (8,616)
Sales of mortgage loans held for sale 16,642 7,935
Loss on sales of mortgage-backed securities available-for-sale 4 --
Gain on sale of branch office (521) --
Decrease (increase) in:
Accrued interest receivable 771 (2,933)
Other, net 11,022 8,028
Stock dividends from the FHLB (911) (970)
------------------- ----------
Net cash provided by operating activities 23,675 16,126
------------------- ----------
Cash flows from investing activities:
Purchases of mortgage-backed securities -- (1,598)
Purchase of U.S. Treasury security available-for-sale (11) --
Principal repayments on mortgage-backed securities 40,731 24,023
Principal repayments on mortgage-backed securities
available-for-sale 562 --
Proceeds from maturity of U.S. Treasury security available-for-sale 4,000 --
Proceeds from sales of mortgage-backed securities available-for-sale 860 --
Purchases of loans receivable (160,362) (211,191)
Net (increase) decrease in loans receivable 44,601 (7,113)
Net purchases of property and equipment (2,807) (2,170)
Purchase of FHLB stock 5,000 (2,984)
Proceeds from sales of FHLB stock (7,924) 3,245
Net cash and cash equivalents received in branch office
sales/acquisitions 11,745 --
------------------- ----------
--
Net cash used by investing activities (63,605) (197,788)
------------------- ----------
</TABLE>
<PAGE>
COASTAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1996 1995
------------------- ------------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net increase in savings deposits $ 10,206 $ 18,326
Advances from the FHLB 2,709,932 286,924
Principal payments on advances from the FHLB (2,555,207) (274,414)
Securities sold under agreements to repurchase 6,885,085 6,793,888
Purchases of securities sold under agreements to repurchase (6,999,802) (6,692,971)
Proceeds from issuance of senior notes payable, net -- 47,635
Exercise of stock options for purchase of common stock, net 71 56
Net increase in advances from borrowers for taxes and insurance 6,046 6,476
Dividends paid (3,429) (3,130)
------------------- ------------
Net cash provided by financing activities 52,902 182,790
------------------- ------------
Net increase in cash and cash equivalents 12,972 1,128
Cash and cash equivalents at beginning of period 10,044 6,388
------------------- ------------
Cash and cash equivalents at end of period $ 23,016 $ 7,516
=================== ============
Supplemental schedule of cash flows--interest paid $ 105,311 $ 91,221
=================== ============
Supplemental schedule of noncash investing and financing activities:
Foreclosures of loans receivable $ 3,614 $ 2,304
=================== ============
In connection with the sale of a branch office in 1996, Coastal
recorded the following reductions of assets and liabilities:
Savings deposits sold $ 14,850 $ --
Accrued interest payable sold 65 --
Loans receivable sold 155 --
Property and equipment sold 438 --
Reduction of goodwill 179 --
=================== ============
In connection with the branch swap in 1996, Coastal recorded the
following net assets and liabilities:
Net savings deposits acquired $ 25,992 --
Net loans receivable acquired 1,173 --
Net accrued interest payable acquired 426 --
Net property and equipment sold 124 --
Net accrued interest receivable acquired 2 --
=================== ============
</TABLE>
COASTAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6
(1) BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements were
prepared in accordance with the instructions for Form 10-Q and, therefore, do
not include all disclosures necessary for a complete presentation of financial
condition, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments which are, in the opinion of
management, of a normal recurring nature and are necessary for a fair
presentation of the interim financial statements, have been included. The
results of operations for the period ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the entire
fiscal year or any other interim period.
(2) PRINCIPLES OF CONSOLIDATION
The accompanying unaudited Consolidated Financial Statements include the
accounts of Coastal Bancorp, Inc. and its wholly-owned subsidiary, Coastal
Banc ssb and subsidiaries (collectively, Coastal). Coastal Banc ssb's
subsidiaries include CoastalBanc Financial Corp., CoastalBanc Investment
Corporation, CBS Builders, Inc., CBS Mortgage Corp., and CBS Asset Corp.
(collectively with Coastal Banc ssb, the Bank). All significant intercompany
balances and transactions have been eliminated in consolidation.
(3) MORTGAGE-BACKED SECURITIES HELD-TO-MATURITY
Mortgage-backed securities held-to-maturity at September 30, 1996
(unaudited) are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REMICS - Agency $ 936,290 $ 4,444 $ (36,867) $ 903,867
REMICS - Non-agency 281,154 792 (12,947) 268,999
FNMA certificates 81,204 28 (1,668) 79,564
GNMA certificates 35,205 33 (37) 35,201
Non-agency securities 20,627 247 (112) 20,762
Interest-only securities 43 -- (8) 35
---------
$ 1,354,523 $ 5,544 $ (51,639) $ 1,308,428
========= ========== =========== =========
</TABLE>
Mortgage-backed securities held-to-maturity at December 31, 1995 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REMICS - Agency $ 948,027 $ 4,298 $ (13,430) $ 938,895
REMICS - Non-agency 291,124 1,039 (6,641) 285,522
FNMA certificates 92,977 44 (232) 92,789
GNMA certificates 39,520 618 -- 40,138
Non-agency securities 24,049 300 (93) 24,256
Interest-only securities 56 -- (6) 50
---------
$ 1,395,753 $ 6,299 $ (20,402) $ 1,381,650
========= ========== =========== =========
</TABLE>
12
(continued)
(4) LOANS RECEIVABLE
Loans receivable at September 30, 1996 and December 31, 1995 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------- ------------------
(Unaudited)
<S> <C> <C> <C> <C>
Real estate mortgage loans:
First-lien mortgage, primarily residential $ 793,434 $ 742,880
Multifamily 122,530 95,297
Residential construction 80,952 33,935
Acquisition and development 31,677 15,517
Commercial 112,451 122,622
Commercial construction 6,778 --
Commercial loans, secured by residential mortgage loans held for sale 47,352 48,822
Commercial loans, secured by purchased loan servicing rights 24,895 21,548
Commercial, financial and industrial 21,424 19,860
Loans secured by savings deposits 8,437 8,292
Consumer and other loans 14,096 10,316
--------------- ----------
1,264,026 1,119,089
Loans in process (45,498) (11,526)
Allowance for loan losses (6,625) (5,703)
Unearned loan fees (2,235) (1,939)
Premium (discount) to record purchased loans, net 386 (1,366)
----------- --------
$ 1,210,054 $ 1,098,555
============= =========
Weighted average yield 8.27% 8.52%
============= =========
</TABLE>
At September 30, 1996, Coastal had outstanding commitments to originate
or purchase $59.0 million of real estate mortgage and other loans and had
commitments under lines of credit to originate construction and other
commercial loans of approximately $90.7 million. In addition, at September
30, 1996, Coastal had letters of credit of $1.3 million outstanding.
Management anticipates the funding of these commitments through normal
operations.
At September 30, 1996, the carrying value of loans that are considered to
be impaired totaled approximately $603,000 (all of which are on nonaccrual)
and the related allowance for loan losses on those impaired loans totaled
$372,000. The average recorded investment in impaired loans during the nine
months ended September 30, 1996 was $856,000. There were no loans considered
impaired during the nine months ended September 30, 1995.
<PAGE>
An analysis of activity in the allowance for loan losses for the nine
months ended September 30, 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1996 1995
--------------------------------- -------
(Unaudited)
<S> <C> <C>
Balance, beginning of period $ 5,703 $2,158
Provision for loan losses 1,475 967
Charge-offs, net of recoveries (553) (321)
Acquisition allowance adjustment -- 1,043
--------------------------------- -------
Balance, end of period $ 6,625 $3,847
================================= =======
</TABLE>
Coastal services for others loans receivable which are not included in
the Consolidated Financial Statements. The total amounts of such loans were
$802.3 million and $900.7 million at September 30, 1996 and December 31,
1995, respectively.
Coastal adopted the Financial Accounting Standards Board's Statement 122,
"Accounting for Mortgage Servicing Rights -- an amendment of FASB Statement
No. 65" (Statement 122) effective January 1, 1996. Statement 122 eliminates
the accounting distinction between rights to service mortgage loans for others
that are acquired through loan origination activities and those acquired
through purchase transactions. Under Statement 122, if Coastal sells or
securitizes loans and retains the mortgage servicing rights, Coastal is
required to allocate a portion of the cost of the mortgage loans to the
mortgage servicing rights and recognize the cost allocated as a separate
asset. The adoption of Statement 122 had no material impact on Coastal's
consolidated financial statements for the nine months ended September 30,
1996.
<PAGE>
(5) SAVINGS DEPOSITS
Savings deposits, their stated rates and the related weighted average
interest rates at September 30, 1996 and December 31, 1995 are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Stated Rate September 30, 1996 December 31, 1995
---------------- ------------------- ------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Noninterest-bearing checking 0.00% $ 91,985 $ 81,207
NOW accounts 1.50 - 2.00 51,867 47,476
Savings accounts 2.28 - 2.75 25,773 22,374
Money market demand accounts 2.90 - 4.65 154,179 165,214
------------------- ------------------
323,804 316,271
------------------- ------------------
Certificate accounts 2.00 - 2.99 14,949 10,915
3.00 - 3.99 1,985 3,472
4.00 - 4.99 71,532 108,845
5.00 - 5.99 757,889 613,098
6.00 - 6.99 116,858 214,534
7.00 - 7.99 16,288 8,776
8.00 - 8.99 3,759 4,893
9.00 - 9.99 1,399 1,620
10.00 - 10.99 262 1,297
11.00 - 11.99 16 3,718
984,937 971,168
------------------- ------------------
Discount to record savings deposits
at fair value, net (223) (355)
------------------- ------------------
$ 1,308,518 $ 1,287,084
=================== ==================
Weighted average rate 4.60% 4.82%
=================== ==================
</TABLE>
The scheduled maturities of certificate accounts outstanding at September
30, 1996 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1996
-------------------
(Unaudited)
<S> <C> <C>
0 to 12 months $ 746,128
12 to 24 months 170,176
24 to 36 months 40,380
36 to 48 months 21,209
48 to 60 months 6,840
Over 60 months 204
-------------------
$ 984,937
===================
</TABLE>
<PAGE>
(6) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND FHLB ADVANCES
(a) The weighted average interest rates on securities sold under
agreements to repurchase at September 30, 1996 and December 31, 1995 were
5.39% and 5.78%, respectively. The stated interest rates on securities sold
under agreements to repurchase ranged from 5.13% to 5.46% at September 30,
1996.
(b) The weighted average interest rate on advances from the FHLB at
September 30, 1996 and December 31, 1995 were 5.54% and 5.88%, respectively.
Advances and related interest rates and maturities at September 30, 1996 and
December 31, 1995 are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
Maturity Interest rates September 30, 1996 December 31, 1995
- -------- --------------- ------------------ -----------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
1996 4.23 - 8.06% $ 212,561 $ 225,445
1997 4.93 - 8.31 34,021 24,293
1998 5.25 - 6.96 19,712 16,221
1999 4.95 - 8.11 170,981 19,916
2000 5.57 - 7.76 8,395 8,614
2001 6.03 - 6.46 8,901 9,025
2004 6.52 3,284 3,526
2006 6.91 3,180 --
2007 6.80 - 7.94 492 270
2009 8.25 4,731 4,876
2011 7.24 653 --
------------------ -----------------
$ 466,911 $ 312,186
================== =================
</TABLE>
FHLB advances are secured by certain first-lien mortgage loans and
mortgage-backed securities.
(7) SENIOR NOTES PAYABLE
On June 30, 1995, Coastal issued $50.0 million of 10.0% Senior Notes due
June 30, 2002. The Senior Notes are redeemable at Coastal's option, in whole
or in part, on or after June 30, 2000, at par, plus accrued interest to the
redemption date. Interest on the Senior Notes is payable quarterly.
(8) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Coastal is a party to financial instruments with off-balance sheet risk
in the normal course of business to reduce its own exposure to fluctuations in
interest rates. These financial instruments include interest rate swap
agreements and interest rate cap agreements.
Coastal is a party to interest rate swap and interest rate cap agreements
in order to reduce its exposure to floating interest rates by altering the
interest rate sensitivity of a portion of its variable-rate assets and
borrowings. At September 30, 1996, Coastal had interest rate swap and cap
agreements totaling $75.6 million and $422.0 million, respectively.
<PAGE>
The terms of the interest rate swap agreements outstanding at September
30, 1996 (unaudited) and December 31, 1995 are summarized as follows (dollars
in thousands):
<TABLE>
<CAPTION>
Floating Rate Fair Value at
Notional LIBOR Fixed at End of Period
Maturity Amount Index Rate End of Period gain (loss)
- ---------------------- -------- ----------- ------ -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
At September 30, 1996:
1996 $ 7,300 Three-month 6.130% 5.500% $ (2)
2,750 Six-month 5.630 5.711 2
1997 5,000 One-month 4.990 5.500 35
6,000 Three-month 6.493 5.500 (29)
1998 4,400 Three-month 6.709 5.500 (35)
1999 14,600 Three-month 6.926 5.500 (177)
2000 4,800 Three-month 6.170 5.563 71
2,695 Three-month 6.000 5.508 49
2005 28,077 Three-month 6.500 5.563 958
--------
$ 75,622 $ 872
======== ===============
At December 31, 1995:
1996 $ 7,300 Three-month 6.130% 5.875% $ (46)
2,750 Six-month 5.630 5.676 (7)
1997 5,000 One-month 4.990 5.938 26
6,000 Three-month 6.493 5.875 (124)
1998 4,400 Three-month 6.709 5.875 (150)
1999 14,600 Three-month 6.926 5.875 (696)
2000 4,800 Three-month 6.170 5.813 (104)
2,800 Three-month 6.000 5.938 (40)
2005 28,077 Three-month 6.500 5.938 (1,106)
-------- ---------------
$ 75,727 $ (2,247)
======== ===============
</TABLE>
The agreements provide for Coastal to make weighted average fixed
interest payments and receive payments based on a floating LIBOR index, as
defined in each agreement. The weighted average receive rate on all of the
interest rate swap agreements was approximately 5.51% and the weighted average
interest payment rate on all of the interest rate swap agreements was
approximately 6.30% for the nine months ended September 30, 1996. Payments on
the interest rate swap agreements are based on the notional principal amount
of the agreements; no funds were actually borrowed or are to be repaid. The
interest rate swap agreements are used to alter the interest rate sensitivity
of a portion of Coastal's variable-rate borrowings. As such, Coastal records
net interest expense or income related to these agreements on a monthly basis
in "interest expense" in the accompanying consolidated statements of
operations. The net interest expense related to these agreements was
approximately $452,000 for the nine months ended September 30, 1996 and the
net interest income was approximately $23,000 for the nine months ended
September 30, 1995. Coastal had pledged approximately $6.2 million of
mortgage-backed securities to secure interest rate swap agreements at
September 30, 1996.
Coastal has interest rate cap agreements with various counterparties.
The agreements provide for the counterparties to make payments to Coastal
whenever a defined floating rate exceeds rates ranging from 4.5% to 12.5%,
depending on the agreement. Payments on the interest rate cap agreements are
based on the notional principal amount of the agreements; no funds were
actually borrowed or are to be repaid. The
<PAGE>
purchase prices of the interest rate cap agreements are capitalized and
included in "prepaid expenses and other assets" in the accompanying
consolidated statements of financial condition and are amortized over the life
of the agreements using the straight-line method. The unamortized portion of
the purchase price of the interest rate cap agreements was approximately $1.4
million and $2.5 million at September 30, 1996 and December 31, 1995,
respectively, with the estimated fair value of the agreements being $1.6
million and $1.6 million at September 30, 1996 and December 31, 1995,
respectively. The interest rate cap agreements are used to alter the interest
rate sensitivity of a portion of Coastal's mortgage-backed securities, loans
receivable and their related funding sources. As such, the amortization of the
purchase price and interest income from the interest rate cap agreements are
recorded in "interest income on mortgage-backed securities or loans
receivable," as appropriate, in the accompanying consolidated statements of
operations. The net decrease in interest income related to the interest rate
cap agreements was approximately $379,000 for the nine months ended September
30, 1996 and the net increase in interest income was approximately $645,000
for the nine months ended September 30, 1995.
Interest rate cap agreements outstanding at September 30, 1996 expire as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Year of Strike rate Notional
expiration range amount
- ---------- -------------- ---------
<S> <C> <C>
1996 4.5% $ 48,000
1997 5.0 - 9.0 195,650
1998 5.0 - 12.5 152,800
1999 7.25 - 11.0 22,542
2000 9.5 3,000
---------
$ 421,992
=========
</TABLE>
Market risk, or the risk of loss due to movement in market prices or
rates, is quantified by Coastal through a risk monitoring process of marking
to market the portfolio to expected market level changes in an instantaneous
shock of plus and minus 200 basis points on a monthly basis and 300 basis
points on a quarterly basis. This process discloses the effects on market
values of the assets and liabilities, unrealized gains and losses, including
off-balance sheet items, as well as potential changes in net interest income.
The fluctuation in the market value, however, has no effect on the level
of earnings of Coastal because the securities are categorized as
"held-to-maturity" or "available-for-sale".
Coastal is exposed to credit loss in the event of nonperformance by the
counterparty to the swap or cap and controls this risk through credit
monitoring procedures. The notional principal amount does not represent
Coastal's exposure to credit loss.
(9) NET EARNINGS PER SHARE
Net earnings per share is calculated by dividing net income after
preferred stock dividends by the weighted average number of common shares and
common stock equivalents. Stock options outstanding are regarded as common
stock equivalents and are, therefore, considered in earnings per share
calculations if dilutive. Common stock equivalents are computed using the
treasury stock method. The weighted average number of shares used in the
computation of earnings per share are 5,025,955 and 4,995,012 for the three
months ended September 30, 1996 and 1995, respectively (unaudited) and
5,019,399 and 4,988,206 for the nine months ended September 30, 1996 and 1995,
respectively (unaudited).
13
(10) STATUTORY CAPITAL REQUIREMENTS
The applicable regulations require federally insured institutions, which
are not the highest rated, to have a minimum regulatory tier 1 (core) capital
to total assets ratio equal to a minimum of 4.0%, a tier 1 risk-based capital
to risk-weighted assets ratio of 4.0% and total risk-based capital to
risk-weighted assets ratio of 8.0%.
At September 30, 1996, the Bank's regulatory capital (unaudited) in
relation to its current existing regulatory capital requirements are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Actual Requirement Excess
-------- ----------- ------
Capital Requirement Dollar Percent Dollar Percent Dollar Percent
- -------------------- -------- -------- ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tier 1 (Core) $150,137 5.28% $ 113,719 4.00% $ 36,418 1.28%
Tier 1 risk-based 150,137 11.87 50,597 4.00 99,540 7.87
Total risk-based 156,762 12.39 101,193 8.00 55,569 4.39
</TABLE>
At September 30, 1996, the Bank, according to certain capital
requirements outlined by the FDIC was categorized as "well capitalized".
(11) SALE OF SAN ANGELO BRANCH
On May 24, 1996, Coastal consummated the sale of its San Angelo location,
which had approximately $14.9 million in deposits, to First State Bank, N.A.,
a subsidiary of Independent Bankshares, Inc., headquartered in Abilene, Texas.
As a result of this sale, Coastal recorded a $521,000 gain before applicable
income taxes. Coastal acquired this location in the 1994 acquisition of Texas
Trust Savings Bank, FSB.
(12) BRANCH SWAP
On September 5, 1996, Coastal consummated the exchange of certain branch
locations with Compass Bank. Coastal sold its three San Antonio branches
having deposits of approximately $53.8 million to Compass Bank and purchased
the Compass Bay City Branch having deposits of approximately $79.8 million.
(13) SAVINGS ASSOCIATION INSURANCE FUND (SAIF) SPECIAL ASSESSMENT
On September 30, 1996, Coastal recorded the one-time SAIF deposit
insurance special assessment (the special assessment) of $7.5 million as a
result of the Deposit Insurance Funds Act of 1996 (the Act) being signed into
law. The special assessment pursuant to the Act was 65.7 basis points on the
SAIF deposit assessment base as of March 31, 1995. Other provisions of the
Act provide for a future reduction of the SAIF deposit insurance premium rate
from the current rate of 23 basis points to approximately 6.4 basis points
beginning in 1997.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Total assets increased 2.6% or $72.9 million from December 31, 1995 to
September 30, 1996. The net increase resulted primarily from the increase in
loans receivable of $111.5 million and an increase in amounts due from
depository institutions of $13.0 million, offset by a decrease in
mortgage-backed securities held-to-maturity of $41.2 million due to principal
repayments received. The increase in loans receivable from December 31, 1995
to September 30, 1996 consisted primarily of increases of $50.6 million, $27.2
million and $18.2 million in first-lien residential mortgage loans,
multifamily mortgage loans and residential construction loans (net of loans in
process), respectively. The net increase in first-lien residential mortgage
loans was due to loan purchases of $157.8 million offset by principal
reductions and payoffs. At September 30, 1996, loans receivable as a
percentage of total assets increased to 42.3% as compared to 39.4% at December
31, 1995 as part of management's plan to increase the loans receivable
portfolio to approximately 50% of total assets.
Savings deposits increased slightly by 1.7% or $21.4 million from
December 31, 1995 to September 30, 1996, primarily due to increased deposits
of $26.0 million as a result of the branch swap with Compass Bank consummated
on September 5, 1996, offset by decreased deposits of approximately $14.9
million due to the sale of the San Angelo branch on May 24, 1996, in
addition to other increases in net deposits of $10.3 million. Advances from
the FHLB increased by $154.7 million or 50.0% and securities sold under
agreements to repurchase decreased 11.5% or $114.7 million from December 31,
1995 to September 30, 1996. The reallocation of borrowings during such period
was directly attributable to Coastal's change in funding sources to take
advantage of more favorable interest rates. The net increase in advances from
the FHLB together with securities sold under agreements to repurchase was used
to fund the increase in the loans receivable portfolio. Stockholders' equity
decreased 1.2% or $1.1 million from December 31, 1995 to September 30, 1996 as
a result of net income, which included the $4.8 million after-tax effect of
the one-time Savings Association Insurance Fund (SAIF) deposit insurance
special assessment (the special assessment), offset by dividends declared and
a $3.4 million increase in the unrealized loss on securities
available-for-sale.
Results of Operations for the Nine Months Ended September 30, 1996 and 1995
General
For the nine months ended September 30, 1996, net income before preferred
stock dividends and before the after-tax effect of the special assessment of
$4.8 million increased 37.5% to $10.5 million from $7.6 million for the nine
months ended September 30, 1995. Net income before preferred stock dividends
(and after the effect of the special assessment) decreased 25.9% or $2.0
million for the nine months ended September 30, 1996 from the nine months
ended September 30, 1995. Net interest income increased $10.7 million for the
nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995 as a result of increased interest income of $21.0 million
which was partially offset by increased interest expense of $10.2 million.
Noninterest income increased during such period by $1.6 million primarily as a
result of increased loan fees and service charges of $1.4 million and the
$521,000 gain on the sale of a branch office, partially offset by a decrease
in loan servicing income of $356,000. Noninterest expense before the $7.5
million special assessment increased by $7.4 million primarily due to
increased operating expenses as a result of the Texas Capital Bancshares, Inc.
(Texas Capital) acquisition on November 1, 1995. The increased noninterest
expense was also due to the May 1996 data processing conversion, the June 1996
conversion of the five former Texas Capital locations to the new data
processing system and to overall expenses related to the expansion of the loan
product base being offered by Coastal to its customers, primarily the
continuing development of commercial business lending programs. Coastal
engaged in the data processing system conversion to a PC based client server
technology throughout its branch network to enable the branch offices to offer
a more expanded product base (including loan and deposit products) to its
customers and to automate and upgrade the work flow in the customer contact
areas, allowing branch office employees a better opportunity to serve their
customers. The cost during the period related to the data processing
conversion was approximately $300,000. The increased noninterest expense
related to the expansion of the loan product base and the continuing
development of the commercial business lending programs has primarily been
staffing related and such levels will continue to increase into 1997, as
management's goal is to expand its commercial business lending into select
markets and to increase commercial business loans to 15% of total assets
within three to five years.
Interest Income
Interest income for the nine months ended September 30, 1996 increased
$21.0 million or 17.1% from the nine months ended September 30, 1995. The
increase was primarily due to an increase of $25.9 million in interest earned
on loans receivable over the prior comparable period. The increase in
interest income on loans receivable was due primarily to a $416.6 million
increase in the average balance of loans receivable, which was somewhat offset
by a decrease in the weighted average yield on loans receivable of 3 basis
points during the period. This increase was offset by a $4.9 million decrease
in interest income on mortgage-backed securities primarily due to the lower
average balance and a $56,000 decrease in interest earned on investment
securities, certificates and time deposits and other investments. Total
interest-earning assets for the nine months ended September 30, 1996 averaged
$2.7 billion as compared to $2.4 billion for the nine months ended September
30, 1995.
Interest Expense
Interest expense on interest-bearing liabilities was $102.8 million for
the nine months ended September 30, 1996, as compared to $92.6 million for the
same period in 1995. The increase in interest expense was due to a $327.2
million increase in interest-bearing liabilities during such period offset by
a decrease in the average rate paid on interest-bearing liabilities from 5.53%
for the nine months ended September 30, 1995 to 5.38% for the nine months
ended September 30, 1996. The average balance of interest-bearing liabilities
increased to $2.5 billion for the nine months ended September 30, 1996 from
$2.2 billion for the nine months ended September 30, 1995, primarily to fund
the increase in the loans receivable portfolio.
Net Interest Income
Net interest income was $40.8 million for the nine months ended September
30, 1996 as compared to $30.1 million for the same period in 1995. The
increase in net interest income was due to improved net interest spread and
net interest margin percentages. Net interest rate spread (Spread), defined
to exclude noninterest-bearing deposits, increased from 1.37% for the nine
months ended September 30, 1995 to 1.66% for the nine months ended September
30, 1996. Management also calculates an alternative net interest spread which
includes noninterest-bearing deposits. Under this calculation, the net
interest spread for the nine months ended September 30, 1996 and September 30,
1995 were 1.83% and 1.50%, respectively. Spread is affected by the changes in
the amount and composition of interest-earning assets and interest-bearing
liabilities. The increase in the Spread was primarily due to the increase in
the average yield on interest-earning assets from 6.90% for the nine months
ended September 30, 1995 to 7.04% for the same period in 1996 and a decrease
in the average interest rates on interest-bearing liabilities from 5.53% for
the nine months ended September 30, 1995 to 5.38% for the same period in 1996,
in addition to the increase in average net interest-earning assets of $24.8
million from the nine months ended September 30, 1995 to the nine months ended
September 30, 1996. Net interest margin for the nine months ended September
30, 1996 increased to 2.00% from 1.69% for the nine months ended September 30,
1995.
The improvement in the net interest spread and margin levels is
consistent with management's goal of achieving a more desirable
asset/liability composition which is less vulnerable to market interest rate
fluctuations, primarily through the addition of loans. To continue the
improvement in the net interest spread and
margin levels, management's goal is to increase commercial business loans to
15% of total assets and commercial business deposits to 10% of total deposits
within three to five years.
Provision for Loan Losses
Provision for loan losses was $1.5 million for the nine months ended
September 30, 1996 as compared to $967,000 for the nine months ended September
30, 1995. The increase in the provision for loan losses was due to the change
in the composition of the loans receivable portfolio and the increased loans
receivable balance to $1.2 billion at September 30, 1996 as compared to $803.3
million at September 30, 1995. Commercial loans (including real estate
related and business type loans) increased $119.2 million to $212.9 million
from September 30, 1995 to September 30, 1996. The allowance for loan losses
as a percentage of total loans was 0.55% at September 30, 1996 as compared to
0.48% at September 30, 1995. Although no assurance can be given, management
believes that the present allowance for loan losses is adequate considering
loss experience, delinquency trends and current economic conditions.
Management will continue to review its loan loss allowance policy as Coastal's
loan portfolio grows and diversifies to determine if changes to the policy are
necessary.
Noninterest Income
For the nine months ended September 30, 1996, noninterest income
increased $1.6 million or 29.7% to $7.0 million, compared to $5.4 million for
the nine months ended September 30, 1995. The increase in noninterest income
was primarily due to an increase of $1.4 million in loan fees and service
charges and the $521,000 gain recorded as a result of the branch office sale
in May 1996 offset by a decrease of $356,000 in loan servicing income in 1996
from the corresponding period in 1995. The increase in loan fees and service
charges consisted of a $724,000 increase in loan fees recorded as a result of
the increased origination activity of primarily residential construction,
commercial loans secured by residential mortgage loans held for sale,
multifamily and commercial real estate loans and a $724,000 increase in
service charges on noninterest-bearing demand deposit accounts primarily due
to the Texas Capital acquisition.
Noninterest Expense
For the nine months ended September 30, 1996, noninterest expense,
excluding the $7.5 million special assessment, increased $7.4 million or 33.1%
to $29.8 million compared to $22.4 million for the nine months ended September
30, 1995. Compensation, payroll taxes and other benefits and office occupancy
increased $3.6 million and $1.1 million, respectively, from the nine months
ended September 30, 1995 to the nine months ended September 30, 1996,
primarily due to the operation of the five offices acquired from Texas Capital
on November 1, 1995 and staffing increases related to the data processing
conversion and the expansion of the loan product base available to customers
and continuing development of the commercial business lending programs. The
amortization of goodwill and expenses related to real estate owned increased
by $469,000 and $375,000, respectively, also due primarily to the Texas
Capital acquisition. Data processing expenses increased $511,000 due to the
Texas Capital acquisition, the May 1996 data processing conversion and the
conversion in June 1996 of the five former Texas Capital locations acquired in
1995 to the new data processing system. Other expenses, including
advertising, increased $1.6 million for the nine months ended September 30,
1996 over the prior comparable period and insurance premiums decreased
slightly by $274,000.
<PAGE>
Provision for Federal Income Taxes
For the nine months ended September 30, 1996, the provision for Federal
income taxes decreased to $3.5 million compared to $4.5 million for the nine
months ended September 30, 1995 due to the decrease in income before provision
for Federal income taxes.
Results of Operations for the Three Months Ended September 30, 1996 and 1995
General
For the three months ended September 30, 1996, net income before
preferred stock dividends and before the after-tax effect of the special
assessment of $4.8 million increased 26.8% to $3.4 million from $2.7 million
for the three months ended September 30, 1995. Net loss before preferred
stock dividends (and after the effect of the special assessment) was $1.4
million for the three months ended September 30, 1996 as compared to net
income of $2.7 million for the three months ended September 30, 1995. Net
interest income increased $3.1 million for the three months ended September
30, 1996 as compared to the three months ended September 30, 1995 as a result
of increased interest income of $4.5 million which was partially offset
by increased interest expense of $1.4 million. Noninterest income
increased during such period by $407,000. Noninterest expense before the $7.5
million special assessment increased by $2.1 million primarily due to
increased operating expenses as a result of the Texas Capital acquisition on
November 1, 1995. The increased noninterest expense was also due to the
ongoing expenses related to the May 1996 data processing conversion, the June
1996 conversion of the five former Texas Capital locations to the new data
processing system and to overall expenses related to the expansion of the loan
product base being offered by Coastal to its customers, including the
continuing development of commercial business lending programs. Coastal
engaged in the data processing system conversion to a PC based client server
technology throughout its branch network to enable the branch offices to offer
a more expanded product base (including loan and deposit products) to its
customers and to automate and upgrade the work flow in the customer contact
areas, allowing branch office employees a better opportunity to serve their
customers. The approximate cost during the period related to the data
processing conversion was $73,000. The increased noninterest expense related
to the expansion of the loan product base and the continuing development of
the commercial business lending programs has primarily been staffing related
and should continue into 1997, as management's goal is to expand its
commercial business lending into select markets and to increase commercial
business loans to 15% of total assets within three to five years.
Interest Income
Interest income for the three months ended September 30, 1996 increased
$4.5 million or 10.4% from the three months ended September 30, 1995. The
increase was primarily due to an increase of $7.0 million in interest earned
on loans receivable over the prior comparable quarter. The increase in
interest income on loans receivable was due to a $341.1 million increase in
the average balance of loans receivable offset by a slight decrease in the
average yield from 8.39% for the three months ended September 30, 1995 to
8.33% for the three months ended September 30, 1996. This increase was offset
by a $2.5 million decrease in interest income on mortgage-backed securities
primarily due to the lower average balance. Total interest-earning assets for
the three months ended September 30, 1996 averaged $2.7 billion as compared to
$2.5 billion for the three months ended September 30, 1995.
Interest Expense
Interest expense on interest-bearing liabilities was $34.2 million for
the three months ended September 30, 1996, as compared to $32.9 million for
the same period in 1995. The increase in interest expense was due to a $250.9
million increase in the average balance of interest-bearing liabilities during
such period offset by a decrease in the average rate paid on interest-bearing
liabilities from 5.65% for the three months ended September 30, 1995 to 5.38%
for the three months ended September 30, 1996. The increase in average
interest-bearing liabilities consisted of a $67.6 million increase in
securities sold under agreements to repurchase, a $92.3 million increase in
interest-bearing savings deposits and a $90.9 million increase in FHLB
advances. The average balance of interest-bearing liabilities increased to
$2.5 billion for the three months ended September 30, 1996 from $2.3 billion
for the three months ended September 30, 1995, primarily to fund the increase
in the loans receivable portfolio.
Net Interest Income
Net interest income was $13.5 million for the three months ended
September 30, 1996 as compared to $10.4 million for the same period in 1995.
The increase in net interest income was due to the improved Spread and net
interest margin percentages. Spread, defined to exclude noninterest-bearing
deposits, increased from 1.41% for the three months ended September 30, 1995
to 1.64% for the three months ended September 30, 1996. Management also
calculates an alternative net interest spread which includes
noninterest-bearing deposits. Under this calculation, the net interest spread
for the three months ended September 30, 1996 and September 30, 1995 were
1.82% and 1.57%, respectively. Spread is affected by the changes in the
amount and composition of interest-earning assets and interest-bearing
liabilities. The increase in the Spread was primarily due to the decrease in
the average interest rates on interest-bearing liabilities from 5.65% for the
three months ended September 30, 1995 to 5.38% for the same period in 1996,
offset by a slight decrease in the average yield on interest-earning assets
from 7.06% for the three months ended September 30, 1995 to 7.02% for the same
period in 1996, in addition to the increase in average net interest-earning
assets of $18.9 million from the three months ended September 30, 1995 to the
three months ended September 30, 1996. Net interest margin for the three
months ended September 30, 1996 increased to 1.99% from 1.70% for the three
months ended September 30, 1995.
The improvement in the net interest spread and margin levels is
consistent with management's goal of achieving a more desirable
asset/liability composition which is less vulnerable to market interest rate
fluctuations, primarily through the addition of loans. To continue the
improvement in the net interest spread and
margin levels, management's goal is to increase commercial business loans to
15% of total assets and a commercial business deposits to 10% of total
deposits within three to five years.
Provision for Loan Losses
Provision for loan losses was $450,000 for the three months ended
September 30, 1996 as compared to $237,000 for the three months ended
September 30, 1995. The increase in the provision for loan losses was due to
the change in the composition of the loans receivable portfolio and the
increased loans receivable balance to $1.2 billion at September 30, 1996 as
compared to $803.3 million at September 30, 1995. Commercial loans (including
real estate related and business loans) increased $119.2 million to
$212.9 million from September 30, 1995 to September 30, 1996. The allowance
for loan losses as a percentage of total loans was 0.55% at September 30, 1996
as compared to 0.48% at September 30, 1995. Although no assurance can be
given, management believes that the present allowance for loan losses is
adequate considering loss experience, delinquency trends and current economic
conditions. Management will continue to review its loan loss allowance policy
as Coastal's loan portfolio grows and diversifies to determine if changes to
the policy are necessary.
Noninterest Income
For the three months ended September 30, 1996, noninterest income
increased $407,000 or 22.4% to $2.2 million, compared to $1.8 million for the
three months ended September 30, 1995. The increase in noninterest income was
primarily due to an increase of $569,000 in loan fees and service charges
offset by a decrease of $109,000 in loan servicing income. The increase in
loan fees and service charges consisted of a $295,000 increase in loan fees
recorded as a result of the increased origination activity of primarily
residential construction, commercial loans secured by residential mortgage
loans held for sale, multifamily and commercial real estate loans and a
$274,000 increase in service charges on noninterest-bearing demand deposit
accounts primarily due to the Texas Capital acquisition.
Noninterest Expense
For the three months ended September 30, 1996, noninterest expense,
excluding the $7.5 million special assessment, increased $2.1 million or 27.3%
to $9.9 million compared to $7.8 million for the three months ended September
30, 1995. Compensation, payroll taxes and other benefits and office occupancy
increased $1.2 million and $416,000, respectively, from the three months ended
September 30, 1995 to the three months ended September 30, 1996, primarily due
to the operation of the five offices acquired from Texas Capital on November
1, 1995 and staffing increases related to the data processing conversion and
the expansion of the loan product base available to customers and continuing
development of the commercial business lending programs. In addition, the
amortization of goodwill and expenses related to real estate owned increased
by $150,000 and $169,000, respectively, primarily due to the Texas Capital
acquisition. Data processing expenses increased $78,000 due to the Texas
Capital acquisition, the May 1996 data processing conversion of Coastal and
the conversion in June 1996 of the five former Texas Capital locations
acquired in 1995 to the new data processing system. The expense associated
with the amortization of purchased loan servicing rights and insurance premium
expense decreased by $91,000 and $197,000, respectively, while other expenses,
including advertising, increased $412,000 for the three months ended September
30, 1996 over the prior comparable quarter.
Provision for Federal Income Taxes
For the three months ended September 30, 1996, the benefit for Federal
income taxes was $636,000 compared to the $1.5 million provision for the three
months ended September 30, 1995 due to the net loss before provision for
Federal income taxes.
Liquidity and Capital Resources
Coastal's primary sources of funds consist of savings deposits bearing
market rates of interest, securities sold under agreements to repurchase,
advances from the FHLB and principal payments on loans receivable and
mortgage-backed securities. Coastal uses its funding resources principally to
meet its ongoing commitments to fund maturing deposits and deposit
withdrawals, repay borrowings, purchase loans receivable and mortgage-backed
securities, fund existing and continuing loan commitments, maintain its
liquidity, meet operating expenses and fund acquisitions of other banks and
thrifts, as well as one or more branches of both. At September 30, 1996,
Coastal had binding commitments to originate or purchase loans totaling
approximately $59.0 million and had $45.5 million of undisbursed loans in
process. Scheduled maturities of certificates of deposit during the 12 months
following September 30, 1996 totaled $746.1 million at September 30, 1996.
Management believes that Coastal has adequate resources to fund all of its
commitments.
As of September 30, 1996, Coastal operates 37 branch offices in Texas
cities, including Houston, Austin, Corpus Christi and small cities in central
and south Texas. Management's five year goal is to have over $5 billion in
assets, over $3 billion in deposits, $2.5 billion in loans and 80 branches in
cities throughout central and southeast Texas, although there can be no
assurance that this goal can be accomplished through growth or acquisitions.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Coastal is engaged from time to time in various legal actions incident to
its business. The current legal activities are not believed to be material to
the financial condition of Coastal and its subsidiaries.
Item 2. Changes in Securities
a) Not applicable.
b) Not applicable.
Item 3. Default 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) Not applicable.
b) Not applicable.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: 10/25/96 By/s/ Manuel J. Mehos
Manuel J. Mehos
Chairman of the Board
Chief Executive Officer
Dated: 10/25/96 By/s/ Catherine N. Wylie
Catherine N. Wylie
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of financial condition and consolidated statement of
income found on pages 1 and 2 of the Company's Form 10-Q for the year-to-date
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000919805
<NAME> COASTAL BANCORP, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 23,016
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 179,782
<INVESTMENTS-CARRYING> 1,380,117
<INVESTMENTS-MARKET> 1,334,022
<LOANS> 1,210,054
<ALLOWANCE> 6,625
<TOTAL-ASSETS> 2,859,448
<DEPOSITS> 1,308,518
<SHORT-TERM> 879,115
<LIABILITIES-OTHER> 35,527
<LONG-TERM> 50,000
0
0
<COMMON> 50
<OTHER-SE> 90,577
<TOTAL-LIABILITIES-AND-EQUITY> 2,859,448
<INTEREST-LOAN> 70,721
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<INTEREST-TOTAL> 143,658
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<EXPENSE-OTHER> 37,238
<INCOME-PRETAX> 9,123
<INCOME-PRE-EXTRAORDINARY> 9,123
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,669
<EPS-PRIMARY> 0.74
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<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,703
<CHARGE-OFFS> 648
<RECOVERIES> 95
<ALLOWANCE-CLOSE> 6,625
<ALLOWANCE-DOMESTIC> 6,625
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
