UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 2000
( ) 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: 0-19684
COASTAL FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
State of Delaware 57-0925911
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2619 N. OAK STREET, MYRTLE BEACH, S. C. 29577
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (843) 448-5151
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 March 31, 2000.
Common Stock $.01 Par Value Per Share 7,379,556 Shares
- --------------------------------------------------------------------------------
(Class) (Outstanding)
<PAGE>
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS PAGE
- ----------------- ----
PART I- Consolidated Financial Information
Item
1.Consolidated Financial Statements (unaudited):
Consolidated Statements of Financial Condition
as of September 30, 1999 and March 31, 2000 3
Consolidated Statements of Operations for the three
months ended March 31, 1999 and 2000 4
Consolidated Statements of Operations for the six months 5
ended March 31, 1999 and 2000.
Consolidated Statements of Cash Flows for the six 6-7
months ended March 31, 1999 and 2000
Consolidated Statements of Stockholders' Equity
and Comprehensive Income as of March 31, 1999 and 2000 8
Notes to Consolidated Financial Statements
9-11
2.Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-20
3.Quantitative and Qualitative Disclosures about 21
Market Risk
Part II - Other Information
Item
1.Legal Proceedings 22
2.Changes in Securities and Use of Proceeds 22
3.Defaults Upon Senior Securities 22
4.Submission of Matters to a Vote of Securities Holders 22
5.Other information 22
6.Exhibits and Reports on Form 8-K 23-24
Signatures 25
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, March 31,
1999 2000
------------ ----------
(Unaudited)
(In thousands)
<S> <C> <C>
ASSETS:
Cash and amounts due from banks ............... $ 21,988 $ 14,724
Short-term interest-bearing deposits .......... 2,245 2,225
Investment securities available for sale ...... 6,063 8,112
Mortgage-backed securities available for sale . 182,115 184,052
Loans receivable (net of allowance for
loan losses of $6,430 at September 30,
1999 and $6,675 at March 31, 2000) ......... 455,351 479,678
Loans receivable held for sale ................ 16,636 19,310
Real estate acquired through foreclosure ...... 96 89
Office property and equipment, net ............ 11,236 11,525
Federal Home Loan Bank stock, at cost ......... 8,201 9,509
Accrued interest receivable on loans .......... 2,861 2,866
Accrued interest receivable on investments .... 1,333 1,470
Other assets and deferred charges ............. 4,888 3,323
--------- ---------
$ 713,013 $ 736,883
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
LIABILITIES:
Deposits ...................................... $ 399,673 $ 398,965
Securities sold under agreements to
repurchase ................................. 96,948 104,799
Advances from Federal Home Loan Bank .......... 164,024 179,182
Other borrowings .............................. 1,569 2,069
Drafts outstanding ............................ 1,383 1,677
Advances by borrowers for property taxes
and insurance ............................... 1,346 716
Accrued interest payable ...................... 1,156 1,786
Other liabilities ............................. 5,677 4,674
--------- ---------
Total liabilities ........................... 671,776 693,868
--------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
STOCKHOLDERS' EQUITY:
Serial preferred stock, 1,000,000 shares
authorized and unissued .................... -- --
Common stock, $.01 par value, 15,000,000
shares authorized; 7,426,528 shares at
September 30, 1999 and 7,379,556 shares
at March 31, 2000 issued and outstanding ... 67 74
Additional paid-in capital .................... 9,320 17,236
Retained earnings ............................. 34,288 29,504
Treasury stock, at cost (23,100 and 68,535
shares, respectively) ...................... (356) (797)
Accumulated other comprehensive
loss, net of tax ............................ (2,082) (3,002)
--------- ---------
Total stockholders' equity .................. 41,237 43,015
--------- ---------
$ 713,013 $ 736,883
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000
1999 2000
----------- -----------
(Unaudited)
(Dollars in thousands,
except per share data)
<S> <C> <C>
Interest income:
Loans receivable ................... $ 9,800 $ 10,742
Investment securities .............. 398 602
Mortgage-backed securities ........ 2,177 2,644
Other ............................. 77 110
----------- -----------
Total interest income ............. 12,452 14,098
----------- -----------
Interest expense:
Deposits ............................ 3,631 3,695
Securities sold under agreements to
repurchase ........................ 896 1,790
Advances from Federal Home Loan Bank 2,165 2,481
----------- -----------
Total interest expense ............ 6,692 7,966
----------- -----------
Net interest income ................. 5,760 6,132
Provision for loan losses .............. 225 225
----------- -----------
Net interest income after provision
for loan losses ................... 5,535 5,907
----------- -----------
Other income:
Fees and service charges ............ 594 517
Income (loss) from real estate owned 3 (15)
Gain on sale of loans receivable, net 216 157
Gain (loss) on sale of securities
available for sale ................ 43 (1,774)
Gain on sale of deposits ............ -- 1,746
Other income ........................ 659 838
----------- -----------
1,515 1,469
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
General and administrative expenses:
Salaries and employee benefits ...... 2,131 2,400
Net occupancy, furniture and fixtures
and data processing expense ....... 909 964
FDIC insurance premium .............. 54 21
Other expenses ...................... 900 748
----------- -----------
3,994 4,133
----------- -----------
Earnings before income taxes ........... 3,056 3,243
Income taxes ........................... 1,117 1,153
----------- -----------
Net income ............................. $ 1,939 $ 2,090
=========== ===========
Earnings per common share
Basic ................................ $ .26 $ .28
=========== ===========
Diluted .............................. $ .26 $ .28
=========== ===========
Weighted average common shares
outstanding - basic .................. 7,367,000 7,384,000
=========== ===========
Weighted average common shares
outstanding - diluted ................ 7,557,000 7,471,000
=========== ===========
Dividends per share .................... $ .061 $ .065
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
1999 2000
----------- -----------
(Unaudited)
(Dollars in thousands,
except per share data)
<S> <C> <C>
Interest income:
Loans receivable ......................... $ 19,139 $ 21,014
Investment securities .................... 566 1,127
Mortgage-backed securities .............. 4,499 5,228
Other ................................... 180 372
----------- -----------
Total interest income ................... 24,384 27,741
----------- -----------
Interest expense:
Deposits .................................. 7,484 7,452
Securities sold under agreements to
repurchase .............................. 1,651 3,359
Advances from Federal Home Loan Bank ...... 4,386 4,773
----------- -----------
Total interest expense .................. 13,521 15,584
----------- -----------
Net interest income ....................... 10,863 12,157
Provision for loan losses .................... 410 470
----------- -----------
Net interest income after provision
for loan losses ......................... 10,453 11,687
----------- -----------
Other income:
Fees and service charges .................. 1,064 1,084
Loss from real estate owned ............... (14) (35)
Gain on sale of loans receivable, net ..... 577 348
Gain (loss) on sale of securities
available for sale ..................... 225 (1,763)
Gain on sale of deposits .................. -- 1,746
Other income .............................. 1,145 1,552
----------- -----------
2,997 2,932
----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
General and administrative expenses:
Salaries and employee benefits ............ 4,160 4,698
Net occupancy, furniture and fixtures
and data processing expense ............. 1,801 1,943
FDIC insurance premium .................... 106 79
Other expenses ............................ 1,531 1,522
----------- -----------
7,598 8,242
----------- -----------
Earnings before income taxes ................. 5,852 6,377
Income taxes ................................. 2,123 2,281
----------- -----------
Net income ................................... $ 3,729 $ 4,096
=========== ===========
Earnings per common share
Basic ...................................... $ .51 $ .55
=========== ===========
Diluted .................................... $ .49 $ .55
=========== ===========
Weighted average common shares
outstanding - basic ........................ 7,302,000 7,400,000
=========== ===========
Weighted average common shares
outstanding - diluted ...................... 7,592,000 7,504,000
=========== ===========
Dividends per share .......................... $ .12 $ .13
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
1999 2000
--------- ---------
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings ................................... $ 3,729 $ 4,096
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation .............................. 565 691
Provision for loan losses ................. 410 470
(Gain) loss on sale of mortgage-backed
securities available for sale ............. (43) 1,774
Origination of loans receivable
held for sale ........................... (41,337) (11,552)
Proceeds from sales of loans receivable
held for sale ........................... 27,006 8,878
(Increase) decrease in:
Other assets and deferred charges .......... (258) 1,565
Accrued interest receivable ................ 49 (142)
Increase (decrease) in:
Accrued interest payable ................... (100) 630
Other liabilities ........................... 1,189 (1,003)
--------- ---------
Net cash provided by (used in)
operating activities ................ (8,790) 5,407
--------- ---------
Cash flows from investing activities:
Purchases of investment securities
available for sale ........................ (4,718) (6,154)
Proceeds from sales of investment
securities available for sale ............. 5,200 4,000
Proceeds from maturities of investment
securities available for sale .............. 4,895 --
Purchases of mortgage-backed securities
available for sale ........................ (104,047) (95,897)
Proceeds from sales of mortgage-backed
securities available for sale ............. 59,147 78,699
Origination of loans receivable, net ........... (98,111) (77,986)
Purchase of loans receivable ................... (1,710) (4,027)
Principal collected on loans receivable, net ... 105,252 46,230
Principal collected on mortgage backed
securities, net ........................... 30,056 12,087
Disposition of Florence office
assets and liabilities, net ............... -- (13,619)
Proceeds from sale of real estate
acquired through foreclosure, net ......... -- 96
Purchases of office properties and
equipment .................................. (1,431) (1,317)
Purchases of FHLB stock, net ................... (1,335) (1,308)
--------- ---------
Net cash used in
investing activities ................ (6,802) (59,196)
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 (CONTINUED)
1999 2000
--------- ---------
(Unaudited)
(In thousands)
<S> <C> <C>
Cash flows from financing activities:
Increase (decrease) in deposits, net ......... $ (924) $ 24,145
Increase in securities sold
under agreement to repurchase, net .......... 13,178 7,851
Proceeds from FHLB advances .................. 105,150 249,606
Repayment of FHLB advances ................... (88,046) (234,448)
Proceeds(repayments)from other
borrowings, net ............................ (3,868) 500
Decrease in advance payments by borrowers
for property taxes and insurance, net ..... (485) (630)
Increase in drafts outstanding, net .......... (101) 294
Repurchase of treasury stock, at cost ........ -- (973)
Dividends to stockholders .................... (894) (949)
Exercise of stock options .................... 242 524
Other financing activities, net .............. 497 585
--------- ---------
Net cash provided by financing activities..... 24,749 46,505
--------- ---------
Net increase(decrease) in cash and cash equivalents . 9,157 (7,284)
--------- ---------
Cash and cash equivalents at beginning
of the period ................................ 15,666 24,233
--------- ---------
Cash and cash equivalents at end
of the period ................................ $ 24,823 $ 16,949
========= =========
Supplemental information:
Interest paid ................................ $ 13,621 $ 14,954
========= =========
Income taxes paid ............................ $ 1,076 $ 2,069
========= =========
Supplemental schedule of non-cash investing
and financing transactions:
Transfer of mortgage loans to real estate
acquired through foreclosure .............. $ -- $ 89
========= =========
Securitization of mortgage loans into
mortgage-backed securities ................ $ 4,498 $ 9,669
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Accumulated
Other
Additional Compre- Total
Common Paid-In Treasury Retained hensive Stockholders'
Stock Capital Stock Earnings Income (Loss) Equity
----- ------- ----- -------- ------------- ------
(Unaudited)
In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at September
30, 1998 ................... $ 63 $ 8,983 $ 0 $ 28,369 $ 436 $ 37,851
Net income ................... -- -- -- 3,729 -- 3,729
Other comprehensive
income, net of tax:
Unrealized gains arising
during period, net of
taxes of $18,400 ............ -- -- -- -- 46 --
Less: reclassification
adjustment for gains
included in net income,
net of taxes of $90,000 ..... -- -- -- -- (135) --
-------- --------
Other comprehensive loss ..... -- -- -- -- (89) (89)
-------- --------
Comprehensive income ......... -- -- -- -- -- 3,640
--------
Exercise of stock
options .................... 1 241 -- -- -- 242
Cash dividends ............... -- -- -- (894) -- (894)
-------- -------- -------- --------- ------ --------
Balance at March
31, 1999 ................... $ 64 $ 9,224 $ 0 $ 31,204 $ 347 $ 40,839
======== ======== ======== ======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Balance at September
30, 1999 ................... $ 67 $ 9,320 $ (356) $ 34,288 $ (2,082) $ 41,237
Net income ................... -- -- -- 4,096 -- 4,096
Other comprehensive
income, net of tax:
Unrealized losses arising
during period, net of
taxes of $837,000 ........... -- -- -- -- (2,206) --
Less: reclassification
adjustment for losses
included in net income,
net of taxes of $488,000 .... -- -- -- -- 1,286 --
-------- --------
Other comprehensive loss ..... -- -- -- -- (920) (920)
-------- --------
Comprehensive income ......... -- -- -- -- -- 3,176
--------
Treasury stock repurchases - - -- -- (973) -- -- (973)
Exercise of stock
options .................... -- 300 532 (308) -- 524
Cash dividends ............... -- -- -- (949) -- (949)
Common stock dividends ....... 7 7,616 -- (7,623) -- --
-------- -------- -------- --------- ------ --------
Balance at March
31, 2000 ................... $ 74 $ 17,236 $ (797) $ 29,504 (3,002) $ 43,015
======== ======== ======== ======== ======== ========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures necessary for a complete presentation of financial condition,
results of operations, cash flows and changes in stockholders' equity in
conformity with generally accepted accounting principles. All adjustments,
consisting only of normal recurring accruals, which in the opinion of management
are necessary for fair presentation of the interim financial statements, have
been included. The results of operations for the three and six month periods
ended March 31, 2000 are not necessarily indicative of the results which may be
expected for the entire fiscal year. These unaudited consolidated financial
statements should be read in conjunction with the Company's audited consolidated
financial statements and related notes for the year ended September 30, 1999,
included in the Company's 1999 Annual Report to Stockholders. The principal
business of the Company is conducted by its wholly-owned subsidiary, Coastal
Federal Savings Bank (the "Bank"). The information presented hereon, therefore,
relates primarily to the Bank.
(2) LOANS RECEIVABLE, NET
Loans receivable, net consists of the following:
<TABLE>
<CAPTION>
September 30, March 31,
1999 2000
--------- ---------
(Unaudited)
(In thousands)
<S> <C> <C>
First mortgage loans:
Single family to 4 family units ............. $ 248,433 $ 257,116
Other, primarily commercial
real estate ................................ 114,931 123,519
Construction loans .......................... 46,766 47,636
Consumer and commercial loans:
Installment consumer loans .................. 20,026 17,895
Mobile home loans ........................... 1,166 1,337
Deposit account loans ....................... 1,521 1,104
Equity lines of credit ...................... 21,081 21,645
Commercial and other loans .................. 22,818 28,783
--------- ---------
476,742 499,035
Less:
Allowance for loan losses ................... 6,430 6,675
Deferred loan costs , net ................... (354) (497)
Undisbursed portion of loans in process ..... 15,315 13,179
--------- ---------
$ 455,351 $ 479,678
========= =========
</TABLE>
9
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The changes in the allowance for loan losses consist of the following for the
six months ended:
<TABLE>
<CAPTION>
Six Months Ended March 31,
1999 2000
------- -------
(Dollars in thousands)
<S> <C> <C>
Allowance at beginning of
period ..................................... $ 5,668 $ 6,430
Allowance recorded on
acquired loans ............................. 21 50
Disposition of Florence office .............. -- (75)
Provision for loan losses ................... 410 470
------- -------
Recoveries:
Residential real estate .................... -- 10
Commercial real estate ..................... 137 --
Consumer ................................... 44 35
------- -------
Total recoveries ......................... 181 45
------- -------
Charge-offs:
Residential real estate .................... -- 28
Commercial real estate ..................... -- --
Consumer ................................... 120 217
------- -------
Total charge-offs ........................ 120 245
------- -------
Net charge-offs (recoveries).............. (61) 200
------- -------
Allowance at end of period ................. $ 6,160 $ 6,675
======= =======
Ratio of allowance to net
loans outstanding at the
end of the period .......................... 1.36% 1.34%
======= =======
Ratio of net charge-offs (recoveries)........
to average loans outstanding
during the period (annualized) ............. (.03%) .07%
======= =======
</TABLE>
<PAGE>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
At March 31, 2000
Percent of Loans in each
Balance at end of period applicable to: Amount category to total loans
------ -----------------------
<S> <C> <C>
Residential Real Estate.................... $1,911 70.27%
Commercial Real Estate..................... 4,467 27.18
Consumer................................... 297 2.55
------ ------
$6,675 100.00%
====== ======
</TABLE>
Non-accrual loans, which were over ninety days delinquent, totaled approximately
$2.6 million at March 31, 2000. For the six months ended March 31, 2000,
interest income, which would have been recorded, would have been approximately
$101,000 had non-accruing loans been current in accordance with their original
terms.
10
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(3) DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
September 30, 1999 March 31, 2000
------------------ ------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
(Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
Transaction accounts ....... $226,218 2.85% $213,441 3.04%
Passbook accounts .......... 39,212 2.65 35,852 2.51
Certificate accounts ....... 134,243 4.94 149,672 5.32
-------- ---- -------- ----
$399,673 3.54% $398,965 3.85%
======== ==== ======== ====
</TABLE>
At September 30, 1999 and March 31, 2000, respectively, included in certificate
accounts there were $5.3 million and $36.1 million of certificate accounts
originated by brokers. These accounts generally mature within 90 days of
origination.
(4) ADVANCES FROM FEDERAL HOME LOAN BANK
Advances from Federal Home Loan Bank ("FHLB") consist of the following:
<TABLE>
<CAPTION>
September 30, 1999 March 31, 2000
------------------ ------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
Maturing within: (Unaudited)
(In thousands)
<S> <C> <C> <C> <C>
1 year $ 15,461 5.85% $ 119,343 6.55%
2 years 38,946 5.56 34,190 6.12
3 years 4,761 6.82 9,049 6.45
4 years 37,357 5.28 1,600 6.39
5 years and thereafter 67,499 5.00 15,000 5.51
-------- ----- --------- ----
$164,024 5.33% $ 179,182 6.38%
======== ===== ========= =====
</TABLE>
<PAGE>
At September 30, 1999, and March 31, 2000, the Bank had pledged first mortgage
loans with unpaid balances of approximately $212.1 million and $259.4 million,
respectively, as collateral for FHLB advances. At September 30, 1999 and March
31, 2000, included in the four and five years and thereafter maturities were
$101.5 million and $16.5 million subject to call provisions. Call provisions are
more likely to be exercised by the FHLB when rates rise. For the six months
ended March 31, 2000, the FHLB called advances of $85 million.
(5) EARNINGS PER SHARE
Basic earnings per share for the three and six month periods ended March 31,
1999 and 2000, are computed by dividing net income by the weighted average
common shares outstanding during the respective periods. Diluted earnings per
share for the three and six month periods ended March 31, 1999 and 2000, are
computed by dividing net earnings by the weighted average dilutive shares
outstanding during the respective periods. All share and per share data have
been retroactively restated for all common stock splits and dividends.
(6) COMMON STOCK DIVIDENDS
On May 6, 1998, the Company declared a four-for-three stock split, aggregating
approximately 1,562,000 shares. On November 10, 1999, the Company declared a 5%
stock dividend aggregating approximately 321,000 shares. On March 14, 2000, the
Company declared a 10% stock dividend aggregating approximately 671,000 shares.
11
<PAGE>
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS
- --------------------------
This report may contain certain "forward-looking statements" within the meaning
of Section 27A of the Securities Exchange Act of 1934, as amended, that
represent the Company's expectations or beliefs concerning future events. Such
forward-looking statements are about matters that are inherently subject to
risks and uncertainties. Factors that could influence the matters discussed in
certain forward-looking statements include the timing and amount of revenues
that may be recognized by the Company, continuation of current revenue and
expense trends (including trends affecting charge-offs), absence of unforeseen
changes in the Company's markets, legal and regulatory changes, and general
changes in the economy (particularly in the markets served by the Company). The
Company disclaims any obligation to update such forward looking statements.
DISCUSSION OF FINANCIAL CONDITION CHANGES FROM SEPTEMBER 30, 1999 TO
MARCH 31, 2000
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
In accordance with Office of Thrift Supervision (OTS) regulations, the Bank is
required to maintain specific levels of cash and "liquid" investments in
qualifying types of United States Treasury, Federal Agency Securities,
mortgage-backed securities, and certain other investments. The required level of
such investments is calculated on a "liquidity base" consisting of net
withdrawable accounts and short-term borrowings, and is currently equal to 4% of
such amount. At March 31, 2000, the Bank's regulatory liquidity level was
approximately 10%.
Historically, the Bank has maintained its liquidity at levels believed by
management to be adequate to meet the requirements of normal operations,
potential deposit out-flows and strong loan demand and still allow for optimal
investment of funds and return on assets.
12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES - CONTINUED
- -------------------------------------------
The principal sources of funds for the Company are cash flows from operations,
consisting mainly of mortgage, consumer and commercial loan payments, retail
customer deposits, advances from the FHLB, and loan sales. The principal use of
cash flows is the origination of loans receivable and purchase of securities.
The Company originated loans receivable of $139.4 million for the six months
ended March 31, 1999, compared to $89.5 million for the six months ended March
31, 2000. A portion of these loan originations were financed through loan and
mortgage-backed securities principal repayments, which amounted to $135.3
million and $58.3 million for the six month periods ended March 31, 1999 and
2000, respectively. In addition, the Company sells certain loans in the
secondary market to finance future loan originations. Generally, these loans
have consisted only of mortgage loans, which have been originated in the current
period. For the six month period ended March 31, 1999, the Company sold $27.0
million in mortgage loans held for sale compared to $8.9 million sold for the
six month period ended March 31, 2000.
For the six month period ended March 31, 1999, the Company purchased $108.8
million in investment and mortgage-backed securities. For the six month period
ended March 31, 2000, the Company purchased $102.1 million in investment and
mortgage-backed securities. These purchases were funded primarily by repayments
of $12.1 million within the securities portfolio, sales of mortgage-backed
securities of $80.5 million, securities sold under agreements to repurchase and
FHLB advances.
Overall the Bank experienced a decrease of $708,000 in deposits for the six
month period ended March 31, 2000. For the six month period ended March 31,
2000, transaction accounts decreased $12.8 million and passbook accounts
decreased $3.4 million. This was offset by an increase in certificate accounts
of $15.4 million. The increase in certificate accounts is primarily due to a
$30.8 million growth in brokered deposits.
In the second fiscal quarter, the Bank sold its Florence, South Carolina office
to First Federal Savings Association of Cheraw ("First Federal"). The office had
deposits of $24.9 million. The Bank received a premium for the deposits from
First Federal and recorded a gain, net of selling expenses, of $1.7 million. The
Bank funded the sale of the deposits through the sale of loans, associated with
this office, of $10.9 million and increased borrowings, primarily through
brokered deposits. The Bank recorded a gain on sale of loans of $60,000 related
to this sale. In conjunction with the sale of the Florence office, the Bank has
agreed not to compete in the Florence market for a period of four years.
Also in the second quarter, the Bank restructured a portion of its investment
security portfolio. The Bank sold approximately $52.7 million in securities and
recorded a net loss of $1.8 million. The proceeds from this sale were reinvested
in securities which generally had a slightly reduced duration than that of the
securities which were sold. As a result of this sale the Bank's yield on its
security portfolio was increased by approximately 28 basis points.
At March 31, 2000, the Company had commitments to originate $8.2 million in
mortgage loans, and $35.2 million in undisbursed lines of credit, which the
Company expects to fund from normal operations.
<PAGE>
At March 31, 2000, the Company had $133.5 million of certificates of deposits,
which were due to mature within one year. Based upon previous experience, the
Company believes that a substantial portion of these certificates will be
renewed. Additionally, at March 31, 2000, the Company had repurchase agreement
lines of credit and available collateral consisting of investment securities and
mortgage-backed securities of $89.4 million as well as federal funds available
of $10.0 million.
13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCE - CONTINUED
- ------------------------------------------
As a result of $4.1 million in net earnings, less the cash dividends paid to
stockholders of approximately $949,000, treasury stock repurchases of
approximately $973,000 and the net change in unrealized loss on securities
available for sale, net of income tax of $920,000, stockholders' equity
increased from $41.2 million at September 30, 1999 to $43.0 million at March 31,
2000. During the six months ended March 31, 2000, the Company has repurchased
85,185 shares at $11.39 per share, adjusted for stock dividends.
OTS regulations require that the Bank calculate and maintain a minimum
regulatory capital requirement on a quarterly basis and satisfy such requirement
as of the calculation date and throughout the quarter. The Bank's capital, as
calculated under OTS regulations, is approximately $48.1 million at March 31,
2000, exceeding the core capital requirement by $18.5 million. At March 31,
2000, the Bank's risk-based capital of approximately $53.1 million exceeded its
current risk-based capital requirement by $20.0 million. (For further
information see Regulatory Capital Matters)
14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATION
COMPARISONS OF THE THREE MONTHS ENDED MARCH 31, 1999 AND 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE THREE MONTHS ENDED
- -----------------------------------------------------------------------------
MARCH 31, 1999 AND 2000
- -----------------------
GENERAL
- -------
Net income increased from $1.9 million for the three months ended March 31,
1999, to $2.1 million for three months ended March 31, 2000, or 7.8%. Net
interest income increased $372,000 primarily as a result of an increase of $1.6
million in interest income offset by a $1.3 million increase in interest
expense. Provision for loan losses were $225,000 for three months ended March
31, 1999 and 2000. Other income decreased $46,000. General and administrative
expense increased from $4.0 million for the quarter ended March 31, 1999, to
$4.1 million for the quarter ended March 31, 2000.
During the quarter ended March 31, 2000, the Bank sold its Florence office to
First Federal. The office had deposits of $24.9 million and loans of $10.9
million. (For further information see Other Income.)
INTEREST INCOME
- ---------------
Interest income for the three months ended March 31, 2000, increased to
$14.1 million as compared to $12.5 million for the three months ended March
31, 1999. The earning asset yield for the three months ended March 31, 2000,
was 8.09% compared to a yield of 7.86% for the three months ended March 31,
1999. The average yield on loans receivable for the three months ended March
31, 2000,was 8.56% compared to 8.66% for the three months ended March 31,
1999. The yield on investments increased to 6.84% for the three months ended
March 31, 2000, from 5.83% for the three months ended March 31, 1999. Total
average interest-earning assets were $705.2 million for the quarter ended
March 31, 2000 as compared to $641.7 million for the quarter ended March 31,
1999. The increase in average interest-earning assets is due to an increase
in average loans receivable of approximately $49.2 million and securities of
approximately $13.1 million.
INTEREST EXPENSE
- ----------------
Interest expense on interest-bearing liabilities was $8.0 million for the
three months ended March 31, 2000, as compared to $6.7 million for March 31,
1999. Due to increased average transaction deposits balances, the average
cost of deposits for the three months ended March 31, 2000, was 3.65%
compared to 3.77% for the three months ended March 31, 1999. The cost of
interest-bearing liabilities was 4.61% for the three months ended March 31,
2000, as compared to 4.33% for the three months ended March 31, 1999. The
cost of FHLB advances and reverse repurchase agreements was 5.92% and 6.10%,
respectively, for the three months ended March 31, 2000. For the three months
ended March 31, 1999, the cost of FHLB advances and reverse repurchase
agreements was 5.19% and 5.46%, respectively. Total average interest-bearing
liabilities increased from $619.0 million at March 31, 1999 to $691.5 million
at March 31, 2000. The increase in average interest-bearing liabilities is
due to an increase in average deposits of approximately $20.2 million and
reverse repurchase agreements of $52.0 million.
15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1999 AND 2000
NET INTEREST INCOME
- -------------------
Net interest income was $6.1 million for the three months ended March 31,
2000, as compared to $5.8 million for the three months ended March 31, 1999.
The net interest margin was 3.48% for the three months ended March 31, 2000,
compared to 3.54% for the three months ended March 31, 1999.
During calendar year 2000, interest rates have increased significantly. It
is generally believed that the Federal Reserve may increase the Federal Funds
target rate by fifty basis points in its May meeting. Should interest rates
continue to increase, certain of the Bank's adjustable rate loans may reach
their lifetime interest rate change cap. In addition, a high percentage of
the Company's assets are adjustable rate mortgage loans which reprice
annually; whereas, many of the Company's liabilities reprice in 90 to 180
days. The Company expects that as a result of this rapidly rising interest
rate environment, its net interest margin will decrease in the second half of
fiscal 2000. Should interest rates continue to increase, the Company would
most likely continue to experience a further decrease in its interest rate
spread.
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses was $225,000 for the three months ended March 31,
1999 and 2000. For the three months ended March 31, 2000, net charge-offs were
$91,000 compared to net recoveries of $119,000 for the three months ended March
31, 1999. The allowance for loan losses as a percentage of total loans was 1.34%
at March 31, 2000, compared to 1.36% at September 30, 1999. Loans delinquent 90
days or more were .52% of total loans at March 31, 2000, compared to .30% at
September 30, 1999. The allowance for loan losses was 261% of loans delinquent
more than 90 days at March 31, 2000, as compared to 449% at September 30, 1999.
Management believes that the current level of allowance is adequate considering
the Company's current loss experience and delinquency trends, among other
criteria.
OTHER INCOME
- ------------
For the three months ended March 31, 2000 and 1999, other income was $1.5
million. Fees and service charges were $517,000 for the three months ended March
31, 2000, compared to $594,000 for the three months ended March 31, 1999. Gain
on sale of loans was $157,000 for the quarter ended March 31, 2000, compared to
$216,000 for the quarter ended March 31, 1999. Should interest rates continue to
increase, gain on sale of loans may decline further. Loss on sales of securities
was $1.8 million for the quarter ended March 31, 2000, compared to gains of
$43,000 for the quarter ended March 31, 1999. This is a result of the Bank
restructuring a portion of its available for sale investment portfolio in the
second quarter of fiscal 2000. The losses were offset by a gain on the sale of
the Florence office deposits of $1.7 million. Other income was $838,000 for the
three months ended March 31, 2000, as compared to $659,000 for the three months
ended March 31, 1999. The increase is primarily due to increased commissions
from the sale of non-depository products and rental income.
16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE SIX MONTHS ENDED
MARCH 31, 1999 AND 2000
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses increased from $4.0 million for the three
months ended March 31, 1999, to $4.1 million for the three months ended March
31, 2000. Salaries and employee benefits increased from $2.1 million for the
three months ended March 31, 1999, to $2.4 million for the three months ended
March 31, 2000 primarily due to staffing for two new full service offices in
Horry County, South Carolina and a loan production office in Wilmington, North
Carolina. Also, primarily as a result of the three office additions, net
occupancy, furniture and fixtures and data processing expenses increased $55,000
when comparing the two periods. Other expenses were $748,000 for the quarter
ended March 31, 2000, compared to $900,000 for the quarter ended March 31, 1999.
INCOME TAXES
- ------------
Income taxes increased slightly from $1.1 million for the three months ended
March 31, 1999, to $1.2 million for the three months ended March 31, 2000, as a
result of increased income before taxes.
GENERAL
- -------
Net income increased from $3.7 million for the six months ended March 31, 1999,
to $4.1 million for six months ended March 31, 2000, or 9.8%. Diluted earnings
per share increased 12.2% as a result of earnings and reduced shares
outstanding. Net interest income increased $1.3 million primarily as a result of
an increase in interest income of $3.4 million offset by an increase of $2.1
million in interest expense. Provision for loan losses increased slightly from
$410,000 for the six months ended March 31, 1999, to $470,000 for the six months
ended March 31, 2000. Other income decreased $65,000. General and administrative
expenses increased $644,000. During the six months ended March 31, 2000, the
Bank sold its Florence office to First Federal. The office had deposits of $24.9
million and loans of $10.9 million. (For further information, see Other Income).
INTEREST INCOME
- ---------------
Interest income for the six months ended March 31, 2000, increased to $27.7
million as compared to $24.4 million for the six months ended March 31, 1999.
The earning asset yield for the six months ended March 31, 2000, was 8.01%
compared to a yield of 7.79% for the six months ended March 31, 1999. The
average yield on loans receivable for the six months ended March 31, 2000, was
8.53% compared to 8.65% for the six months ended March 31, 1999. The yield on
investments increased to 6.73% for the six months ended March 31, 2000, from
5.68% for the six months ended March 31, 1999. Total average earning assets were
$701.0 million for the six month period ended March 31, 2000, as compared to
$634.0 million for the six month period ended March 31, 1999.
16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE SIX MONTHS ENDED
MARCH 31, 1999 AND 2000
INTEREST EXPENSE
- ----------------
Interest expense on interest-bearing liabilities was $15.6 million for the six
months ended March 31, 2000, as compared to $13.5 million for the six months
ended March 31, 1999. The average cost of deposits for the six months ended
March 31, 2000, was 3.67% compared to 3.85% for the six months ended March 31,
1999. The cost of interest-bearing liabilities was 4.52% for the six months
ended March 31, 2000, as compared to 4.40% for the six months ended March 31,
1999. Total average interest-bearing liabilities increased from $614.0 million
at March 31, 1999 to $686.9 million at March 31, 2000.
NET INTEREST INCOME
- -------------------
Net interest income was $12.2 million for the six months ended March 31, 2000,
as compared to $10.9 million for the six months ended March 31, 1999. The net
interest margin increased to 3.49% for the six months ended March 31, 2000, from
3.39% for the six months ended March 31, 1999.
During calendar year 2000, interest rates have increased significantly. It is
generally believed that the Federal Reserve may increase the Federal Funds
target rate by fifty basis points in its May meeting. Should interest rates
continue to increase, certain of the Bank's adjustable rate loans may reach
their lifetime interest rate change cap. In addition, a high percentage of the
Company's assets are adjustable rate mortgage loans which reprice annually;
whereas, many of the Company's liabilities reprice in 90 to 180 days. The
Company expects that as a result of this rapidly rising interest rate
environment, its net interest margin will decrease in the second half of fiscal
2000. Should interest rates continue to increase, the Company would most likely
continue to experience a further decrease in its interest rate spread.
PROVISION FOR LOAN LOSSES
- -------------------------
The provision for loan losses increased slightly from $410,000 for the period
ended March 31, 1999, to $470,000 for the six months ended March 31, 2000. For
the six months ended March 31, 2000, net charge-offs were $200,000 compared to
net recoveries of $ 61,000 for the six months ended March 31, 1999. The
allowance for loan losses as a percentage of total loans was 1.34% at March 31,
2000, compared to 1.36% at September 30, 1999. Management believes that the
current level of allowance is adequate considering the Company's current loss
experience and delinquency trends, among other criteria.
17
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS FOR THE SIX MONTHS ENDED
MARCH 31, 1999 AND 2000
OTHER INCOME
- ------------
For the six months ended March 31, 2000, other income decreased $65,000 to $2.9
million compared to $3.0 million for the six months ended March 31, 1999. Fees
and service charges for the six months ended March 31, 2000 and 1999 were $1.1
million. Gain on sale of loans was $577,000 for the six months ended March 31,
1999, compared to $348,000 for the six months ended March 31, 2000. The Company
experienced lower gains on sales as a result of rising interest rates during the
period and reduced sales. With interest rates continuing to increase, the Bank
expects that this trend may continue. Loss on sale of securities was $1.8
million for the six months ended March 31, 2000, compared to gains of $225,000
for the six months ended March 31, 1999. This is the result of the Bank
restructuring a portion of its available for sale investment portfolio. The
losses were offset by a gain on the sale of the Florence office deposits of $1.7
million which is included in other income for the six months ended March 31,
2000. Other income was $1.6 million for the six months ended March 31, 2000,
compared to $1.1 million for the six months ended March 31, 1999. This is
primarily due to increased commissions on the sale of non-depository products
and rental income.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses increased from $7.6 million for the six
months ended March 31, 1999, to $8.2 million for the six months ended March 31,
2000. Salaries and employee benefits increased $538,000, or 12.9% primarily due
to staffing for two new Sales Centers and a loan production office in
Wilmington, NC. Also as a result of the three office additions, net occupancy,
furniture and fixtures and data processing expense increased $142,000. Other
expense was $1.5 million for the six months ended March 31, 1999 and 2000.
INCOME TAXES
- ------------
Income taxes increased from $2.1 million for the six months ended March 31,
1999, to $2.3 million for the six months ended March 31, 2000, as a result of
increased income before taxes.
18
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
REGULATORY CAPITAL MATTERS
- --------------------------
To be categorized as "Well Capitalized" under the prompt corrective action
regulations adopted by the Federal Banking Agencies, the Bank must maintain a
total risk-based capital ratio as set forth in the following table and not be
subject to a capital directive order.
<TABLE>
<CAPTION>
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provision
------ ----------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 2000:
Total Capital: $53,109 12.83% $33,114 8.00% $41,394 10.00%
(To Risk Weighted Assets)
Tier 1 Capital: $48,094 11.62% $N/A N/A% $24,837 6.00%
(To Risk Weighted Assets)
Tier 1 Capital: $48,094 6.50% $29,596 4.00% $36,995 5.00%
(To Total Assets)
Tangible Capital: $48,094 6.50% $11,099 1.50%
(To Total Assets)
</TABLE>
19
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 changes the previous accounting
definition of a derivative and discusses the appropriateness of hedge accounting
for various forms of hedging activities. Under this standard, all derivatives
are measured at fair value and recognized in the statement of financial position
as assets or liabilities. As amended by SFAS 137, SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000, with earlier
adoption permitted. Management does not expect that this standard will have a
significant effect on the Company.
EFFECT ON INFLATION AND CHANGING PRICES
- ---------------------------------------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles which require the
measurement of financial position and results of operations in terms of
historical dollars, without consideration of change in the relative purchasing
power over time due to inflation. Unlike most industrial companies, virtually
all of the assets and liabilities of a financial institution are monetary in
nature. As a result, interest rates have a more significant impact on a
financial institution's performance than the effects of inflation. Interest
rates do not necessarily change in the same magnitude as the price of goods and
services.
20
<PAGE>
PART I. FINANCIAL INFORMATION
Item 3. COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
MANAGEMENT DISCUSSION AND ANALYSIS OF OPERATION- CONTINUED
COMPARISONS OF THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
At March 31, 2000, no material changes have occurred in market risk disclosures
included in the Company's Annual Report to Stockholders for the year ended
September 30, 1999.
21
<PAGE>
PART II. OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Item 1. Legal Proceedings
-----------------
Not Applicable.
Item 2. Changes In Securities and Use of Proceeds
-----------------------------------------
Not Applicable.
Item 3. Defaults Upon Senior Securities
-------------------------------
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Company's annual stockholders meeting held on January 24, 2000, the
following items were ratified:
(a) The election as directors of all nominees: G. David Bishop, James T.
Clemmons and Frank A. Thompson, II.
At the meeting, a total of 6,433,193 votes were entitled to be cast. Votes for
Bishop were 5,036,900 with 126,520 withheld; votes for James T. Clemmons were
5,032,900 with 131,330 withheld; and votes for Frank A. Thompson II were
5,033,630 with 129,790 withheld.
James C. Benton, James P. Creel, James H. Dusenbury and Michael C. Gerald are
directors whose terms continued after the meeting.
(b) Ratification of the Coastal Financial Corporation 2000 Stock Option
Plan.
At the meeting, a total of 6,433,193 votes were entitled to be cast.
(Percentages are based on the 5,163,420 shares that were voted at the meeting.)
For: 3,329,530 64.5% Against: 212,822 4.1% Abstain: 12,545 0.02%
Non-Vote 1,608,522 31.2%
Accordingly, the Coastal Financial Corporation 2000 Stock Option Plan was
adopted as presented.
Item 5. Other Information
-----------------
Not Applicable.
22
<PAGE>
PART II. OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
3 (a) Certificate of Incorporation of Coastal Financial
Corporation (1)
3 (b) Certificate of Amendment to Certificate of
Incorporation of Coastal Financial Corporation (6)
(c) Bylaws of Coastal Financial Corporation (1)
10 (a) Employment Agreement with Michael C. Gerald (2)
(b) Employment Agreement with Jerry L. Rexroad (2)
(c) Employment Agreement with Phillip G. Stalvey (4)
(d) Employment Agreement with Allen W. Griffin (2)
(e) Employment Agreement with Jimmy R. Graham (2)
(f) Employment Agreement with Steven J. Sherry (7)
(g) 1990 Stock Option Plan (2)
(h) Directors Performance Plan (3)
(i) Loan Agreement with Bankers Bank (5)
(j) Coastal Financial Corporation 2000 Stock Option Plan (8)
27 Financial Data Schedule
(b) The Company filed a Form 8-K on March 13, 2000 to report the completion
of the sale of its Florence, South Carolina branch office to First
Federal Savings and Loan Association of Cheraw. A copy of the press
release announcing the sale is filed as an exhibit to the Form 8-K.
- ----------------
(1) Incorporated by reference to Registration Statement on Form S-4 filed
with the Securities and Exchange Commission on November 26, 1990.
(2) Incorporated by reference to 1995 Form 10-K filed with the Securities
and Exchange Commission on December 29, 1995.
(3) Incorporated by reference to the definitive proxy statement for the
1996 Annual Meeting of Stockholders.
(4) Incorporated by reference to 1997 Form 10-K filed with the Securities
and Exchange Commission on January 2, 1998.
(5) Incorporated by reference to December 31, 1997 Form 10-Q filed with
Securities and Exchange Commission on February 13, 1998.
23
<PAGE>
PART II. OTHER INFORMATION
COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES
(6) Incorporated by reference to March 31, 1998 Form 10-Q filed with
Securities and Exchange Commission on May 15, 1998.
(7) Incorporated by reference to 1998 Form 10-K filed with Securities and
Exchange Commission on December 29, 1998.
(8) Incorporated by reference to the definitive proxy statement for the
2000 Annual Meeting of Stockholders filed December 22, 1999.
24
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COASTAL FINANCIAL CORPORATION
May 15, 2000 /s/ Michael C. Gerald
- ------------ ----------------------
Date Michael C. Gerald
President and Chief Executive Officer
May 15, 2000 /s/ Jerry L. Rexroad
- ------------ ---------------------
Date Jerry L. Rexroad
Executive Vice President and
Chief Financial Officer
25
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 14,724
<INT-BEARING-DEPOSITS> 2,225
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 192,164
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 498,988
<ALLOWANCE> 6,675
<TOTAL-ASSETS> 736,883
<DEPOSITS> 398,965
<SHORT-TERM> 257,537
<LIABILITIES-OTHER> 8,853
<LONG-TERM> 28,513
0
0
<COMMON> 74
<OTHER-SE> 42,941
<TOTAL-LIABILITIES-AND-EQUITY> 736,883
<INTEREST-LOAN> 21,014
<INTEREST-INVEST> 6,355
<INTEREST-OTHER> 372
<INTEREST-TOTAL> 27,741
<INTEREST-DEPOSIT> 7,452
<INTEREST-EXPENSE> 15,584
<INTEREST-INCOME-NET> 12,157
<LOAN-LOSSES> (348)
<SECURITIES-GAINS> (1,763)
<EXPENSE-OTHER> 8,242
<INCOME-PRETAX> 6,377
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,096
<EPS-BASIC> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 8.01
<LOANS-NON> 2,559
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6,675
<CHARGE-OFFS> 245
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 6,675
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
