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, 1997
[ ] 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.)
5718 Westheimer, Suite 600
Houston, Texas 77057
(Address of principal executive office)
(713) 435-5000
(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: 4,992,203 AS OF SEPTEMBER 30, 1997
<PAGE>
COASTAL BANCORP, INC. AND SUBSIDIARIES
Table of Contents
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
Item 1 Financial Statements
Consolidated Statements of Financial Condition at September 30, 1997
(unaudited) and December 31, 1996 1
Consolidated Statements of Income for the Nine-Month Periods Ended
September 30, 1997 and 1996 (unaudited) 2
Consolidated Statements of Income for the Three-Month Periods
Ended September 30, 1997 and 1996 (unaudited) 3
Consolidated Statements of Cash Flows for the Nine-Month Periods
Ended September 30, 1997 and 1996 (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,
1997 1996
--------------- -------------
ASSETS (Unaudited)
- ----------------------------------------------------------
<S> <C> <C>
Cash and amounts due from depository institutions $ 38,886 $ 27,735
Federal funds sold 5,000 --
Loans receivable (note 4) 1,298,795 1,229,748
Mortgage-backed securities held-to-maturity (note 3) 1,325,681 1,344,587
Mortgage-backed securities available-for-sale, at market
value 168,976 180,656
U.S. Treasury security available-for-sale, at market value -- 11
Mortgage loans held for sale -- 298
Accrued interest receivable 15,388 14,690
Property and equipment 22,597 14,987
Stock in the Federal Home Loan Bank of Dallas (FHLB) 20,478 25,971
Goodwill 16,191 15,596
Mortgage servicing rights 5,879 6,810
Prepaid expenses and other assets 11,689 14,818
--------------- -------------
$ 2,929,560 $ 2,875,907
=============== =============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Liabilities:
Savings deposits (note 5) $1,392,234 $1,310,835
Advances from the FHLB (note 6) 383,002 409,720
Securities sold under agreements to repurchase (note 6) 943,493 966,987
Senior notes payable (note 7) 50,000 50,000
Advances from borrowers for taxes and insurance 12,317 4,676
Other liabilities and accrued expenses 18,108 10,791
Total liabilities 2,799,154 2,753,009
----------- -----------
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;
4,992,203 and 4,966,941 shares issued and outstanding in
1997 and 1996 50 50
Additional paid-in capital 32,977 32,604
Retained earnings 71,680 64,597
Unrealized gain (loss) on securities available-for-sale (3,051) (3,103)
Total stockholders' equity 101,656 94,148
----------- -----------
$2,929,560 $2,875,907
=========== ===========
</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,
-------------------
1997 1996
------------------- ---------
(Unaudited)
<S> <C> <C>
Interest income:
Mortgage-backed securities $ 69,395 $ 71,826
Loans receivable 80,249 72,059
Federal funds sold, certificates of deposit and other
investments 1,109 1,111
150,753 144,996
------------------- ---------
Interest expense:
Savings deposits 46,659 44,687
Other borrowed money 41,985 38,609
Senior notes payable 3,750 3,750
Advances from the FHLB:
Short-term 5,798 4,527
Long-term 9,450 11,264
------------------- ---------
107,642 102,837
------------------- ---------
Net interest income 43,111 42,159
Provision for loan losses 1,350 1,475
Net interest income after provision for loan losses 41,761 40,684
------------------- ---------
Noninterest income:
Loan fees and service charges on deposit accounts 2,913 2,526
Loan servicing income, net 1,097 1,160
Gain on sale of branch office -- 521
Gain on sales of mortgage-backed securities
available-for-sale, net 237 (4)
Other 515 321
4,762 4,524
------------------- ---------
Noninterest expense:
Compensation, payroll taxes and other benefits 14,024 12,183
Office occupancy 5,288 4,360
Insurance premiums 819 2,105
Data processing 1,676 1,788
Amortization of goodwill 1,361 1,340
Real estate owned 628 665
Other 5,830 6,189
SAIF insurance special assessment -- 7,455
------------------- ---------
29,626 36,085
------------------- ---------
Income before provision for Federal income taxes 16,897 9,123
Provision for Federal income taxes 6,182 3,454
------------------- ---------
Net income before preferred stock dividends 10,715 5,669
Preferred stock dividends of Coastal Banc ssb (Series A) 1,941 1,941
------------------- ---------
Net income after preferred stock dividends $ 8,774 $ 3,728
=================== =========
Net earnings per share (note 9) $ 1.71 $ 0.74
=================== =========
</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,
--------------------
1997 1996
-------------------- --------
(Unaudited)
<S> <C> <C>
Interest income:
Mortgage-backed securities $ 22,994 $23,516
Loans receivable 27,819 24,321
Federal funds sold, certificates of deposit and other
investments 438 405
51,251 48,242
-------------------- --------
Interest expense:
Savings deposits 16,114 14,920
Other borrowed money 14,209 11,583
Senior notes payable 1,250 1,250
Advances from the FHLB:
Short-term 2,086 1,891
Long-term 3,393 4,584
-------------------- --------
37,052 34,228
-------------------- --------
Net interest income 14,199 14,014
Provision for loan losses 450 450
Net interest income after provision for loan losses 13,749 13,564
-------------------- --------
Noninterest income:
Loan fees and service charges on deposit accounts 1,038 936
Loan servicing income, net 333 408
Gain on sale of mortgage-backed securities available-for-sale 237 --
Other 135 75
1,743 1,419
-------------------- --------
Noninterest expense:
Compensation, payroll taxes and other benefits 4,706 4,077
Office occupancy 2,024 1,524
Insurance premiums 274 628
Data processing 566 494
Amortization of goodwill 479 443
Real estate owned 146 279
Other 1,980 2,148
SAIF insurance special assessment -- 7,455
-------------------- --------
10,175 17,048
-------------------- --------
Income before provision for Federal income taxes 5,317 (2,065)
Provision for Federal income taxes 1,953 (636)
-------------------- --------
Net income before preferred stock dividends 3,364 (1,429)
Preferred stock dividends of Coastal Banc ssb (Series A) 647 647
-------------------- --------
Net income after preferred stock dividends $ 2,717 $(2,076)
==================== ========
Net earnings per share (note 9) $ 0.52 $ (0.42)
==================== ========
</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,
-------------------
1997 1996
------------------- ------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income before preferred stock dividends $ 10,715 $ 5,669
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property and equipment,
purchased loan servicing rights, capitalized excess
servicing fees and prepaid expenses and other assets 5,334 4,490
Net premium amortization 1,458 788
Provision for loan losses 1,350 1,475
Amortization of goodwill 1,361 1,340
Originations and purchases of mortgage loans held for sale (8,063) (17,094)
Sales of mortgage loans held for sale 8,361 16,642
(Gain) loss on sales of mortgage-backed securities
available-for-sale (237) 4
Gain on sale of branch office -- (521)
Decrease (increase) in:
Accrued interest receivable (698) 771
Other, net 7,133 11,022
Stock dividends from the FHLB (951) (911)
------------------- ------------
Net cash provided by operating activities 25,763 23,675
------------------- ------------
Cash flows from investing activities:
Net increase in federal funds sold (5,000) --
Purchases of mortgage-backed securities held-to-maturity (20,257) --
Purchase of U.S. Treasury security available-for-sale -- (11)
Principal repayments on mortgage-backed securities 39,140 40,731
Principal repayments on mortgage-backed securities
available-for-sale 452 562
Proceeds from maturity of U.S. Treasury security
available-for-sale 11 4,000
Proceeds from sales of mortgage-backed securities
available-for-sale 11,545 860
Purchases of loans receivable (120,024) (160,362)
Net decrease in loans receivable 44,400 44,601
Net purchases of property and equipment (9,224) (2,807)
Purchase of FHLB stock (2,556) (7,924)
Proceeds from sales of FHLB stock 9,000 5,000
Cash and cash equivalents received (paid) in business
combination transaction, net of disposition transaction 52,098 11,745
------------------- ------------
Net cash used by investing activities (415) (63,605)
------------------- ------------
(continued)
</TABLE>
<PAGE>
COASTAL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------------
1997 1996
------------------- ------------
(Unaudited)
<S> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in savings deposits $ 26,744 $ 10,206
Advances from the FHLB 2,539,800 2,709,932
Principal payments on advances from the FHLB (2,566,518) (2,555,207)
Securities sold under agreements to repurchase 7,722,507 6,885,085
Purchases of securities sold under agreements to repurchase (7,741,112) (6,999,802)
Exercise of stock options for purchase of common stock, net 373 71
Net increase in advances from borrowers for taxes and insurance 7,641 6,046
Dividends paid (3,632) (3,429)
------------------- ------------
Net cash provided by financing activities (14,197) 52,902
------------------- ------------
Net increase in cash and cash equivalents 11,151 12,972
Cash and cash equivalents at beginning of period 27,735 10,044
------------------- ------------
Cash and cash equivalents at end of period $ 38,886 $ 23,016
=================== ============
Supplemental schedule of cash flows-interest paid $ 105,216 $ 105,311
=================== ============
Supplemental schedule of noncash investing and financing activities:
Foreclosures of loans receivable $ 3,883 $ 3,614
=================== ============
In connection with the purchase of a branch office in 1997, Coastal
recorded the following assets and liabilities:
Savings deposits acquired $ 54,563 $ --
Goodwill 1,956 --
Accrued interest payable and other liabilities acquired 184 --
Property and equipment acquired 693 --
=================== ============
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>
See accompanying Notes to Consolidated Financial Statements
COASTAL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 periods ended September 30, 1997 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 Holding Company, Inc. and its wholly-owned subsidiaries, Coastal Banc ssb
and subsidiaries (collectively, Coastal) and Coastal Banc Capital Corp.
Coastal Banc ssb's subsidiaries include CoastalBanc Financial Corp., 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.
Certain amounts within the accompanying consolidated financial statements
and the related notes have been reclassified to conform to the current year
presentation. Such reclassifications had no effect on net income or total
stockholders' equity.
(3) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities at September 30, 1997 (unaudited) were 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> <C> <C> <C>
Held-to-Maturity:
REMICS - Agency $ 939,640 $ 4,982 $ (28,521) $ 916,101
REMICS - Non-agency 266,084 716 (7,715) 259,085
FNMA certificates 74,728 147 (952) 73,923
GNMA certificates 30,128 684 -- 30,812
Non-agency securities 15,077 351 (240) 15,188
Interest-only securities 24 -- -- 24
--------- ----- ------- ---------
$ 1,325,681 $ 6,880 $ (37,428) $ 1,295,133
========= ===== ======== =========
Available-for-sale:
REMICS - Agency $ 171,165 $ 552 $ (5,208) $ 166,509
REMICS - Non-agency 2,506 -- (39) 2,467
--------- ----- -------- ---------
$ 173,671 $ 552 $ (5,247) $ 168,976
========= ===== ======== =========
</TABLE>
Proceeds from sales of mortgage-backed securities available-for-sale for the
nine months ended September 30, 1997 were approximately $11.5 million. Gross
gains of approximately $237,000 were realized on these sales.
Mortgage-backed securities at December 31, 1996 were 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>
Held-to-maturity:
REMICS - Agency $ 932,488 $ 4,730 $ (31,142) $ 906,076
REMICS - Non-agency 278,612 834 (9,958) 269,488
FNMA certificates 79,628 72 (1,072) 78,628
GNMA certificates 34,031 282 -- 34,313
Non-agency securities 19,790 363 (95) 20,058
Interest-only securities 38 -- (3) 35
--------- ---------- ----------- ---------
$ 1,344,587 $ 6,281 $ (42,270) $ 1,308,598
========= ========== =========== =========
Available-for-sale:
REMICS - Agency $ 182,467 $ 1,207 $ (5,946) $ 177,728
REMICS - Non-agency 2,962 -- (34) 2,928
--------- ---------- ----------- ---------
$ 185,429 $ 1,207 $ (5,980) $ 180,656
========= ========== =========== =========
</TABLE>
(4) LOANS RECEIVABLE
Loans receivable at September 30, 1997 and December 31, 1996 were as
follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------- ------------------
(Unaudited)
<S> <C> <C> <C>
Real estate mortgage loans:
First-lien mortgage, primarily residential $ 760,640 $ 791,337
Commercial 174,858 119,004
Multifamily 134,208 139,486
Residential construction 83,695 77,146
Acquisition and development 25,633 26,132
Commercial construction 15,429 3,963
Commercial loans, secured by residential mortgage
loans held for sale 84,452 53,573
Commercial loans, secured by mortgage servicing rights 32,639 21,380
Commercial, financial and industrial 22,617 21,965
Loans secured by savings deposits 8,431 8,849
Consumer and other loans 13,885 14,400
-------------- ------------
1,356,487 1,277,235
Loans in process (50,716) (38,742)
Allowance for loan losses (7,082) (6,880)
Unearned loan fees (2,705) (2,344)
Premium to record purchased loans, net 2,811 479
--------------- -----------
$ 1,298,795 $ 1,229,748
================ ===========
Weighted average yield 8.36% 8.37%
================ ===========
</TABLE>
At September 30, 1997, Coastal had outstanding commitments to originate
or purchase $52.0 million of real estate mortgage and other loans and had
commitments under lines of credit to originate primary construction and other
loans of approximately $109.5 million. In addition, at September 30, 1997,
Coastal had $2.0 million of outstanding letters of credit. Management
anticipates the funding of these commitments through normal operations.
At September 30, 1997 and December 31, 1996, the carrying value of loans
that were considered to be impaired totaled approximately $912,000 and
$725,000, respectively, (all of which are on nonaccrual) and the related
allowance for loan losses on those impaired loans totaled $676,000 and
$524,000, respectively. The average recorded investment in impaired loans
during the nine months ended September 30, 1997 and 1996 was $770,000 and
$856,000, respectively.
An analysis of activity in the allowance for loan losses for the nine
months ended September 30, 1997 and 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------
1997 1996
---------------------------
(Unaudited)
<S> <C> <C>
Balance, beginning of period $ 6,880 $5,703
Provision for loan losses 1,350 1,475
Charge-offs, net of recoveries (1,148) (553)
--------- -------
Balance, end of period $ 7,082 $6,625
========= =======
</TABLE>
Coastal services for others loans receivable which are not included in
the Consolidated Financial Statements. The total amounts of such loans were
$696.0 million and $776.7 million at September 30, 1997 and December 31,
1996, respectively.
<PAGE>
(5) SAVINGS DEPOSITS
Savings deposits, their stated rates and the related weighted average
interest rates at September 30, 1997 and December 31, 1996 are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Stated Rate September 30, 1997 December 31, 1996
---------------- -------------------- ------------------
(Unaudited)
<S> <C> <C> <C> <C>
Noninterest-bearing checking 0.00% $ 110,480 $ 85,259
NOW accounts 1.74 - 2.00 63,975 56,862
Savings accounts 2.28 - 2.75 25,246 22,135
Money market demand accounts 3.15 - 4.51 166,033 151,046
------------ ------------
365,734 315,302
------------ ------------
Certificate accounts 2.00 - 2.99 4,971 12,930
3.00 - 3.99 1,516 1,905
4.00 - 4.99 72,893 95,087
5.00 - 5.99 841,459 776,765
6.00 - 6.99 94,008 91,128
7.00 - 7.99 7,676 12,964
8.00 - 8.99 2,863 3,515
9.00 - 9.99 975 1,171
10.00 - 10.99 245 249
11.00 - 11.99 -- 17
1,026,606 995,731
------------ ------------
Discount to record savings deposits
at fair value, net (106) (198)
------------ ------------
$ 1,392,234 $ 1,310,835
============ ============
Weighted average rate 4.65% 4.67%
============ ============
</TABLE>
The scheduled maturities of certificate accounts outstanding at September
30, 1997 were as follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, 1997
-------------------
(Unaudited)
<S> <C> <C>
0 to 12 months $ 758,902
12 to 24 months 219,231
24 to 36 months 33,788
36 to 48 months 8,907
48 to 60 months 5,694
Over 60 months 84
-------------------
$ 1,026,606
===================
</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, 1997 and December 31, 1996 were
5.59% and 5.55%, respectively. The stated interest rates on securities sold
under agreements to repurchase ranged from 5.56% to 5.73% at September 30,
1997.
(b) The weighted average interest rate on advances from the FHLB at
September 30, 1997 and December 31, 1996 were 5.76% and 5.61%, respectively.
FHLB advances and related interest rates and maturities at September 30, 1997
and December 31, 1996 are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
Maturity Interest rates September 30, 1997 December 31, 1996
- -------- --------------- ------------------ -----------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
1997 4.93 - 8.31% $ 166,151 $ 189,127
1998 5.25 - 6.96 19,558 19,674
1999 4.95 - 8.11 120,530 170,871
2000 5.57 - 7.76 8,089 8,320
2001 6.03 - 6.46 8,706 8,854
2002 5.57 47,600 --
2004 6.52 2,943 3,201
2006 6.91 3,129 3,167
2007 6.80 - 7.94 477 488
2009 8.25 4,523 4,681
2011 6.35 - 7.24 1,296 1,337
------------------ -----------------
$ 383,002 $ 409,720
================== =================
</TABLE>
FHLB advances are secured by certain first-lien mortgage loans and
mortgage-backed securities owned by Coastal.
(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, 1997, Coastal had interest rate swap and cap
agreements having notional principal amounts totaling $55.8 million and $267.5
million, respectively.
<PAGE>
The terms of the interest rate swap agreements outstanding at September
30, 1997 (unaudited) and December 31, 1996 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, 1997:
1997 $ 6,000 Three-month 6.493% 5.738% $ (5)
1998 4,400 Three-month 6.709 5.738 (33)
1999 14,600 Three-month 6.926 5.738 (232)
2000 4,800 Three-month 6.170 5.719 (2)
2,555 Three-month 6.000 5.719 15
2005 23,442 Three-month 6.500 5.719 (481)
--------
$ 55,797 $ (738)
======== ===============
At December 31, 1996:
1997 $ 5,000 One-month 4.990% 5.633% $ 6
6,000 Three-month 6.493 5.500 (65)
1998 4,400 Three-month 6.709 5.500 (111)
1999 14,600 Three-month 6.926 5.500 (619)
2000 4,800 Three-month 6.170 5.543 (64)
2,660 Three-month 6.000 5.617 24
2005 23,442 Three-month 6.500 5.500 (15)
-------- ---------------
$ 60,902 $ (844)
======== ===============
</TABLE>
The interest rate swap 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 interest received
rate on all of the interest rate swap agreements was approximately 5.65% and
the weighted average interest payment rate on all of the interest rate swap
agreements was approximately 6.40% for the nine months ended September 30,
1997. 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 income. The net interest expense related to these
agreements was approximately $338,000 for the nine months ended September 30,
1997 and approximately $452,000 for the nine months ended September 30, 1996.
Coastal had pledged approximately $6.5 million of mortgage-backed securities
to secure interest rate swap agreements at September 30, 1997.
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 5.0% 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
$427,000 and $1.1 million at September 30, 1997 and December 31, 1996,
respectively, with the estimated fair value of the agreements being $458,000
and $639,000 at September 30, 1997 and December 31, 1996, 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 income. The
net decrease in interest income related to the interest rate cap agreements
was approximately $202,000 and $379,000 for the nine months ended September
30, 1997 and 1996 respectively.
Interest rate cap agreements outstanding at September 30, 1997 (unaudited)
expire as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year of Strike rate Notional
expiration range amount
- ---------- -------------- ---------
<S> <C> <C>
1997 5.0% $ 43,000
1998 5.0 - 12.5 156,400
1999 7.25 - 11.0 56,789
2000 8.5 - 9.5 8,000
2001 7.5 3,265
---------
$ 267,454
=========
</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 mortgage-backed securities portfolio to expected market level
changes in an instantaneous shock of plus and minus 200 basis points on a
monthly 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.
<PAGE>
(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 is 5,166,732 and 5,025,955 for the three
months ended September 30, 1997 and 1996, respectively (unaudited) and
5,129,312 and 5,019,399 for the nine months ended September 30, 1997 and 1996,
respectively (unaudited).
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(Statement 128). Statement 128 supersedes APB Opinion No. 15, "Earnings Per
Share" and specifies the computation, presentation and disclosure requirements
for earnings per share (EPS) for entities with publicly held common stock.
Statement 128 replaces the presentation of primary and fully diluted EPS with
basic EPS and diluted EPS, respectively. Statement 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997. After adoption, all prior-period EPS data presented will be
restated to conform with Statement 128. The adoption of Statement 128 is not
expected to have a material impact on Coastal's consolidated financial
statements.
(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, 1997, the Bank's regulatory capital (unaudited) in
relation to its current existing regulatory capital requirements were 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) $158,450 5.38% $ 117,756 4.00% $ 40,694 1.38%
Tier 1 risk-based 158,450 11.37 55,720 4.00 102,730 7.37
Total risk-based 165,532 11.88 111,441 8.00 54,091 3.88
</TABLE>
At September 30, 1997, the Bank, according to certain capital
requirements outlined by the FDIC, was categorized as "well capitalized".
(11) BRANCH ACQUISITION
On June 21, 1997, Coastal announced the completion of the acquisition of
the Wells Fargo Bank (Texas) branch located at 441 Austin Avenue in Port
Arthur, Texas. At the date of acquisition, the Port Arthur location had
approximately $54.6 million in deposits which were assumed. In addition,
approximately $693,000 of operating assets were purchased by Coastal in the
transaction.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition
Total assets increased 1.9% or $53.7 million from December 31, 1996 to
September 30, 1997. The net increase resulted primarily from an increase in
loans receivable of $69.0 million, an increase in Federal funds sold of $5.0
million, an increase in property and equipment of $7.6 million, offset by
decreases of $18.9 million, $11.7 million and $5.5 million in mortgage-backed
securities held-to-maturity, mortgage-backed securities available-for-sale and
stock in the Federal Home Loan Bank of Dallas, respectively. The increase in
loans receivable was primarily due to a bulk loan purchase of residential
mortgage loans totalling $97.5 million in June of 1997 (resulting from the
investment of the cash received from the branch acquisition that closed on
June 21, 1997) and the increase in Federal funds sold was due to Coastal's use
of this overnight investment alternative for excess funds beginning in the
second quarter of 1997. The increase in property and equipment was due
primarily to the acquisition of assets related to the relocation of Coastal's
corporate headquarters. The relocation, which was finalized during the third
quarter of 1997, consolidated Coastal's administrative, primary lending and
mortgage servicing offices. The decrease in mortgage-backed securities
held-to-maturity was due to principal payments received. The decrease in
mortgage-backed securities available-for-sale was primarily due to the sale of
$11.3 million of securities in this category and approximately $452,000 in
principal payments received.
Savings deposits increased by 6.2% or $81.4 million from December 31,
1996 to September 30, 1997. This increase was primarily due to the branch
acquisition of $54.6 million in deposits completed on June 21, 1997 and an
increase in existing deposits. Securities sold under agreements to repurchase
decreased 2.4% or $23.5 million and advances from the FHLB decreased by $26.7
million or 6.5% from December 31, 1996 to September 30, 1997. Stockholders'
equity increased 8.0% or $7.5 million from December 31, 1996 to September 30,
1997 as a result primarily of net income and a $52,000 decrease in the
unrealized loss on securities available-for-sale offset by dividends declared.
Results of Operations for the Nine Months Ended September 30, 1997 and 1996
General
For the nine months ended September 30, 1997, net income before preferred
stock dividends increased 1.9% to $10.7 million from $10.5 million for the
nine months ended September 30, 1996, calculated before the $4.8 million
after-tax effect of the one-time Savings Association Insurance Fund (SAIF)
deposit insurance special assessment (the "1996 special assessment"). Net
income before preferred stock dividends (and after the effect of the 1996
special assessment) increased 89.0% or $5.0 million for the nine months ended
September 30, 1997 from the nine months ended September 30, 1996. Net
interest income increased by $952,000 for the nine months ended September 30,
1997 as compared to the nine months ended September 30, 1996. Noninterest
income increased during such period by $238,000 and noninterest expense
(before the $7.5 million 1996 special assessment) increased by $996,000.
Interest Income
Interest income for the nine months ended September 30, 1997 increased
$5.8 million or 4.0% from the nine months ended September 30, 1996. The
increase was primarily due to an increase of $8.2 million in interest earned
on loans receivable over the prior comparable period. The increase in
interest income on loans receivable was due to a $100.9 million increase in
the average balance of loans receivable and an increase in the average yield
from 8.49% for the nine months ended September 30, 1996 to 8.68% for the nine
months ended September 30, 1997. This increase was somewhat offset by a $2.4
million decrease in interest income on mortgage-backed securities primarily
due to a lower average balance and a slight decrease in the average yield on
mortgage-backed securities from 6.12% for the nine months ended September 30,
1996 to 6.10% for the nine months ended September 30, 1997 and a $2,000
decrease in interest income on Federal funds sold, certificates of deposit and
other investments. Total interest-earning assets for the nine months ended
September 30, 1997 averaged $2.8 billion as compared to $2.7 billion for the
nine months ended September 30, 1996.
Interest Expense
Interest expense on interest-bearing liabilities was $107.6 million for
the nine months ended September 30, 1997, as compared to $102.8 million for
the same period in 1996. The increase in interest expense was due to a $99.6
million increase in the average balance of interest-bearing liabilities during
such period and an increase in the average rate paid from 5.38% for the nine
month period ended September 30, 1996 to 5.42% for the nine months ended
September 30, 1997. The increase in average interest-bearing liabilities
consisted of a $54.6 million increase in interest-bearing savings deposits, a
$65.3 million increase in securities sold under agreements to repurchase and a
$216,000 increase in Federal funds purchased offset by a $20.5 million
decrease in FHLB advances.
Net Interest Income
Net interest income was $43.1 million for the nine months ended September
30, 1997 as compared to $42.1 million for the same period in 1996. The
increase in net interest income was due to the slightly improved net interest
rate spread (Spread) percentage. Spread, defined to exclude
noninterest-bearing deposits, increased from 1.72% for the nine months ended
September 30, 1996 to 1.83% for the nine months ended September 30, 1997.
Management also calculates an alternative Spread which includes
noninterest-bearing deposits. Under this calculation, the alternative Spreads
for the nine months ended September 30, 1997 and 1996 were 2.00% and 1.89%,
respectively. Net interest margin (Margin) was 2.07% for the nine month period
ended September 30, 1997 compared to 2.06% for the nine months ended September
30, 1996. Margin represents net interest income as a percentage of average
interest-earning assets. Margin and Spread are 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 a slight
increase in the average yield on interest-earning assets from 7.10% for the
nine months ended September 30, 1996 to 7.25% for the same period in 1997,
offset by a decrease of $47.9 million in average net interest-earning assets
from the nine months ended September 30, 1996 to the nine months ended
September 30, 1997.
The slight improvement in the Spread level 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 tied to variable rates such as the London
Interbank Offered Rate (LIBOR) and local and regional prime rates. To
continue the improvement in both the Margin and Spread levels, efforts are
being made to replace LIBOR based borrowings with lower cost deposits, and, in
addition, management intends to gradually increase commercial business loans
to approximately 15% of total assets and commercial business
(noninterest-bearing) deposits to approximately 10% of total deposits within
three to five years.
Provision for Loan Losses
Provision for loan losses was $1.4 million for the nine months ended
September 30, 1997 as compared to $1.5 million for the nine months ended
September 30, 1996. The slight decrease in the provision for loan losses was
due to management's satisfaction with the current allowance for loan losses
established based on Coastal's loan loss policy. The allowance for loan
losses as a percentage of total loans was 0.55% at September 30, 1997 and
0.57% at September 30, 1996. Although no assurance can be given, management
believes that the present allowance for loan losses is adequate considering
historical 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 and resulting allowance for loan losses are necessary.
Noninterest Income
For the nine months ended September 30, 1997, noninterest income
increased $238,000 or 5.3% to $4.8 million, compared to $4.5 million for the
nine months ended September 30, 1996. The increase in noninterest income was
due to a $387,000 increase in loan fees and service charges, a $241,000
increase in the gain on sales of mortgage-backed securities available-for-sale
and a $194,000 increase in other noninterest income, offset by the $521,000
gain on the sale of a branch office recorded during the nine months ended
September 30, 1996 and a decrease of $63,000 in loan servicing income. The
increase in loan fees and service charges was due primarily to an increase of
$374,000 in service charges on deposit accounts.
Noninterest Expense
For the nine months ended September 30, 1997, noninterest expense
increased $996,000 or 3.5% to $29.6 million compared to $28.6 million for the
nine months ended September 30, 1996, calculated before the $7.5 million 1996
special assessment. Compensation, payroll taxes and other benefits as well as
office occupancy expense increased $1.8 million and $928,000, respectively,
from the nine months ended September 30, 1996 to the nine months ended
September 30, 1997, primarily due to the staffing increases related to the
expansion of the loan product base and the continuing development of
commercial business lending programs. In addition, occupancy expenses also
increased due to the acquisition of assets and other expenses related to the
relocation of Coastal's corporate headquarters in the third quarter of 1997.
This increase in occupancy expenses included approximately $128,000 of
nonrecurring expenses incurred due to the relocation. In addition, the
amortization of goodwill increased by $21,000. These increases were somewhat
offset by a $1.3 million decrease in insurance premiums. This decrease was
due primarily to the decreased deposit insurance premiums as a result of the
lower assessment rates applicable to Coastal in 1997 pursuant to the passage
of the Deposit Insurance Funds Act of 1996. Other decreases included a
$112,000 decrease in data processing expenses (due in part to the 1996 data
processing conversion expenses incurred), a $37,000 decrease in the real
estate owned expenses and a $359,000 decrease in other noninterest expenses.
The 1996 special assessment of $7.5 million was included in noninterest
expense for the nine months ended September 30, 1996
Provision for Federal Income Taxes
For the nine months ended September 30, 1997, the provision for Federal
income taxes was $6.2 million compared to $3.5 million for the nine months
ended September 30, 1996 at an average effective rate of approximately 36.6%
and 37.9%, respectively.
Results of Operations for the Three Months Ended September 30, 1997 and 1996
General
For the three months ended September 30, 1997, net income before
preferred stock dividends was $3.4 million as was net income before preferred
stock dividends and before the after-tax effect of the 1996 special assessment
for the three months ended September 30, 1996. Net loss before preferred
stock dividends (and after the effect of the 1996 special assessment) was $1.4
million for the three months ended September 30, 1996. Net interest income
increased $185,000 for the three months ended September 30, 1997 as compared
to the three months ended September 30, 1996. Noninterest income increased
during such period by $324,000 primarily due to the $237,000 nonrecurring gain
on the sale of mortgage-backed securities that was recorded during the three
months ended September 30, 1997. Noninterest expense (before the $7.5 million
1996 special assessment) increased by $582,000 and the provision for federal
income taxes increased by $2.6 million from the 1996 to the 1997 three
month period.
Interest Income
Interest income for the three months ended September 30, 1997 increased
$3.0 million or 6.2% from the three months ended September 30, 1996. The
increase was primarily due to an increase of $3.5 million in interest earned
on loans receivable over the prior comparable quarter. The increase in
interest income on loans receivable was due to a $198.3 million increase in
the average balance of loans receivable offset by a decrease in the average
yield from 8.49% for the three months ended September 30, 1996 to 8.28% for
the three months ended September 30, 1997. Of the decrease in the average
yield on loans receivable, 0.13% was attributable to approximately $439,000 of
additional amortization of purchased mortgage loan premium during the three
months ended September 30, 1997. This amortization was attributable primarily
to prepayments related to an adjustable rate whole loan package purchased in
the second quarter of 1997. Management believes the prepayments on this loan
package could continue through the end of the year. This increase in interest
income on loans receivable was somewhat offset by a $522,000 decrease in
interest income on mortgage-backed securities primarily due to a lower average
balance. In addition, interest income on Federal funds sold, certificates of
deposit and other investments increased $33,000. Total interest-earning
assets for the three months ended September 30, 1997 averaged $2.9 billion as
compared to $2.7 billion for the three months ended September 30, 1996.
Interest Expense
Interest expense on interest-bearing liabilities was $37.1 million for
the three months ended September 30, 1997, as compared to $34.2 million for
the same period in 1996. The increase in interest expense was due to a $142.5
million increase in the average balance of interest-bearing liabilities during
such period and an increase in the average rate paid on interest-bearing
liabilities from 5.38% for the three months ended September 30, 1996 to 5.47%
for the three months ended September 30, 1997. The increase in average
interest-bearing liabilities consisted of a $151.9 million increase in
securities sold under agreements to repurchase and a $78.8 million increase in
interest-bearing savings deposits, offset by a $88.2 million decrease in FHLB
advances.
Net Interest Income
Net interest income was $14.2 million for the three months ended
September 30, 1997 and $14.0 million for the same period in 1996. Margin
decreased from 2.06% for the three months ended September 30, 1996 to 1.98%
for the three months ended September 30, 1997. Margin represents net
interest income as a percentage of average interest-earning assets. Spread,
defined to exclude noninterest-bearing deposits, decreased from 1.70% for the
three months ended September 30, 1996 to 1.66% for the three months ended
September 30, 1997. Management also calculates an alternative Spread which
includes noninterest-bearing deposits. Under this calculation, the
alternative Spreads for the three months ended September 30, 1997 and 1996
were 1.86% and 1.88%, respectively. Margin and Spread are affected by the
changes in the amount and composition of interest-earning assets and
interest-bearing liabilities. The decrease in the Margin and Spread were
due to the tightening in net interest income experienced by Coastal due
to higher borrowing costs and the anomaly that the spread between LIBOR and
Treasury rates (the "TED Spread") has been much wider than usual. The TED
Spread historically (6 year average) has been 39 basis points, but for the
third quarter 1997 was 56 basis points. The TED Spread effect on Coastal was
substantial for the quarter ended September 30, 1997 with liabilities affected
by the change in LIBOR totalling approximately $1.6 billion. The historical
difference of 17 basis points would have equated to an additional 8 cents
per share for the quarter had the TED Spread been consistent with past
history. The average interest rates paid on interest-bearing liabilities
increased from 5.38% for the three months ended September 30, 1996 to 5.47%
for the same period in 1997. This increase was slightly offset by an increase
in the average yield on interest-earning assets from 7.08% for the three
months ended September 30, 1996 to 7.13% for the same period in 1997. In
addition, average net interest-earning assets increased $9.2 million from the
three months ended September 30, 1996 to the three months ended September 30,
1997. While management believes that the higher borrowing costs are
temporary, efforts are being made to replace borrowings with lower cost
deposits.
Management's goal is to achieve a more desirable asset/liability
composition which is less vulnerable to market interest rate fluctuations,
primarily through the addition of loans tied to variable rates such as LIBOR
and local and regional prime rates and through the efforts to replace LIBOR
based borrowings with lower cost deposits. In addition, management intends
to gradually increase commercial business loans to approximately 15% of total
assets and commercial business (noninterest-bearing) deposits to approximately
10% of total deposits within three to five years.
Provision for Loan Losses
The provision for loan losses was $450,000 for the three months ended
September 30, 1997 and 1996. The allowance for loan losses as a percentage of
total loans was 0.55% at September 30, 1997 and 0.57% at September 30, 1996.
Although no assurance can be given, management believes that the present
allowance for loan losses is adequate considering historical 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 and resulting allowance for
loan losses are necessary.
Noninterest Income
For the three months ended September 30, 1997, noninterest income
increased $324,000 or 22.8% to $1.7 million, compared to $1.4 million for the
three months ended September 30, 1996. The increase in noninterest income was
primarily due to the $237,000 nonrecurring gain on the sale of mortgage-backed
securities recorded during the three months ended September 30, 1997, in
addition to an increase of $102,000 in loan fees and service charges and a
$60,000 increase in other noninterest income. These increases were somewhat
offset by a $75,000 decrease in loan servicing income.
Noninterest Expense
For the three months ended September 30, 1997, noninterest expense
increased $582,000 from the three months ended September 30, 1996 excluding
the effect of the 1996 special assessment. Compensation, payroll taxes and
other benefits as well as office occupancy expense increased $629,000 and
$500,000, respectively, from the three months ended September 30, 1996 to the
three months ended September 30, 1997, primarily due to the staffing increases
related to the expansion of the loan product base and the continuing
development of commercial business lending programs. In addition, occupancy
expenses also increased due to the acquisition of assets and other expenses
related to the relocation of Coastal's corporate headquarters in the third
quarter of 1997. Of the $500,000 increase in occupancy expenses,
approximately $128,000 were nonrecurring expenses due to the relocation. In
addition, data processing expenses and the amortization of goodwill increased
$72,000 and $36,000, respectively. These increases were somewhat offset by a
$354,000 decrease in insurance premiums. This decrease from the prior related
quarter was due primarily to the decreased deposit insurance premiums as a
result of the lower assessment rates applicable to Coastal in 1997 pursuant to
the passage of the Deposit Insurance Funds Act of 1996. Other decreases
included a $133,000 decrease in real estate owned expenses and a $168,000
decrease in other noninterest expense. The 1996 special assessment of $7.5
million was included in noninterest expense for the three months ended
September 30, 1996.
<PAGE>
Provision for Federal Income Taxes
For the three months ended September 30, 1997, the provision for Federal
income taxes was $2.0 million compared to an income tax benefit of $636,000
for the three months ended September 30, 1996 (resulting from the effect of
the 1996 special assessment) at an average effective rate of approximately
36.7% and 30.8%, respectively.
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, Federal funds purchased 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, either on a branch office or whole bank acquisition basis.
At September 30, 1997, Coastal had binding commitments to originate or
purchase loans totaling approximately $52.0 million and had $50.7 million of
undisbursed loans in process. Scheduled maturities of certificates of deposit
during the 12 months following September 30, 1997 totaled $758.9 million at
September 30, 1997. Management believes that Coastal has adequate resources to
fund all of its commitments.
As of September 30, 1997, Coastal operated 37 retail banking offices in
Texas cities, including Houston, Austin, Corpus Christi and small cities in
the southeast quadrant of 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 south Texas, although there can
be no assurance that this goal can be accomplished through growth or
acquisitions.
Forward-Looking Information
The above discussion should be read in conjunction with the information
contained in the Consolidated Financial Statements and the Notes thereto. The
above information contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), and
are subject to the safe harbor created by that Reform Act. The words
"estimate," "project," "anticipate," "expect," "intend," "believe," "plans,"
and similar expressions are intended to identify forward-looking statements.
Because such forward-looking statements involve risks and uncertainties, there
are important factors that could cause actual results to differ materially
from those expressed or implied by such forward-looking statements. Factors,
all of which are difficult to predict and many of which are beyond the control
of Coastal, that could cause actual results to differ materially include, but
are not limited to: risks related to Coastal's acquisition strategy,
including risks of adversely changing results of operations and factors
affecting Coastal's ability to consummate further acquisitions; changes in
general economic and business conditions; changes in market rates of interest;
changes in the laws and regulations applicable to Coastal; the risks
associated with the Bank's Non-Traditional lending (loans other than
single-family residential mortgage loans such as multifamily, real estate
acquisition and development, commercial, warehouse and mortgage servicing
rights loans); and changes in business strategies and other factors as
discussed in Coastal's Annual Report on Form 10-K for the year ended December
31, 1996, as filed with the Securities and Exchange Commission (SEC) on
March 26, 1997 and in Coastal's Quarterly Report on Form 10-Q for the six
months ended June 30, 1997, as filed with the SEC on August 8, 1997.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Coastal is involved in routine legal proceedings occurring in the
ordinary course of business which, in the aggregate, are believed by
management to be immaterial.
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
The following exhibits are filed as part of this report:
Exhibit 27 - Financial Data Schedule (filed via EDGAR)
Exhibit 99 - Forward-Looking Information
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: 11/12/97 By/s/ Manuel J. Mehos
Manuel J. Mehos
Chairman of the Board
Chief Executive Officer
Dated: 11/12/97 By/s/ Catherine N. Wylie
Catherine N. Wylie
Chief Financial Officer
Exhibit 27
Financial Data Schedule
(filed via EDGAR)
Exhibit 99
Forward-Looking Information
Forward-Looking Information
The information included in Item 2 (Management's Discussion and Analysis
of Financial Condition and Results of Operations) should be read in
conjunction with the information contained in the Consolidated Financial
Statements and the Notes thereto. The information contains "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Reform Act"), and is subject to the safe harbor created by that
Reform Act. The words "estimate," "project," "anticipate," "expect,"
"intend," "believe," "plans," and similar expressions are intended to identify
forward-looking statements. Because such forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by such
forward-looking statements. Factors, all of which are difficult to predict
and many of which are beyond the control of Coastal, that could cause actual
results to differ materially include, but are not limited to: risks related
to Coastal's acquisition strategy, including risks of adversely changing
results of operations and factors affecting Coastal's ability to consummate
further acquisitions; changes in general economic and business conditions;
changes in market rates of interest; changes in the laws and regulations
applicable to Coastal; the risks associated with the Bank's Non-Traditional
lending (loans other than single-family residential mortgage loans such as
multifamily, real estate acquisition and development, commercial, warehouse
and mortgage servicing rights loans); and changes in business strategies and
other factors as discussed in Coastal's Annual Report on Form 10-K for the
year ended December 31, 1996, as filed with the Securities and Exchange
Commission (SEC) on March 26, 1997 and in Coastal's Quarterly Report on
Form 10-Q for the six months ended June 30, 1997, as filed with the SEC on
August 8, 1997.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statement of financial condition and the consolidated statement of
operations and notes thereto found on pages 1 through 13 of the Comapny's Form
10-Q for year-to-date and is qualified in its entirety by reference to such
financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 38,886
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 168,976
<INVESTMENTS-CARRYING> 1,325,681
<INVESTMENTS-MARKET> 1,295,133
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0
0
<COMMON> 50
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<INTEREST-DEPOSIT> 46,659
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<EXPENSE-OTHER> 31,567
<INCOME-PRETAX> 14,956
<INCOME-PRE-EXTRAORDINARY> 8,774
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<NET-INCOME> 8,774
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
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<ALLOWANCE-CLOSE> 7,082
<ALLOWANCE-DOMESTIC> 7,082
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
