-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KUphAD3IAOP4IjU1TLg/fRccO85WFjRC/N3rRyEs46Ap8j8sbImAMaHB+dKI7MXf qLJVR0ZQMT6ASVY7zmAoEQ== 0000912057-00-020411.txt : 20000501 0000912057-00-020411.hdr.sgml : 20000501 ACCESSION NUMBER: 0000912057-00-020411 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COAST BANCORP CENTRAL INDEX KEY: 0001021006 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 770401327 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12253 FILM NUMBER: 613249 BUSINESS ADDRESS: STREET 1: 740 FRONT ST STREET 2: SUITE 240 CITY: SANTA CRUZ STATE: CA ZIP: 95066 BUSINESS PHONE: 4084584500 MAIL ADDRESS: STREET 1: 740 FRONT ST STREET 2: SUITE 240 CITY: SANTA CRUZ STATE: CA ZIP: 95066 10-Q 1 FORM 10-Q 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 quarterly period ended March 31, 2000 ------------------------------------------------ or [ ] 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: 0-28938 -------------------------------------------------------- Coast Bancorp ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 77-0401327 ------------------------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 740 Front Street, Santa Cruz, California 95060 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (831) 458-4500 ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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. /X/ Yes / / No No. of shares of Common Stock outstanding on March 31, 2000: 4,826,938 ------------------------------------------------------------------------------- COAST BANCORP FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 TABLE OF CONTENTS
- ---------------- -------------------------------------------------------------------------------------- ------------ PART I PAGE - ---------------- -------------------------------------------------------------------------------------- ------------ Item 1. Financial Statements 1 - ---------------- -------------------------------------------------------------------------------------- ------------ Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 - ---------------- -------------------------------------------------------------------------------------- ------------ - ---------------- -------------------------------------------------------------------------------------- ------------ - ---------------- -------------------------------------------------------------------------------------- ------------ PART II - ---------------- -------------------------------------------------------------------------------------- ------------ Item 1. Legal Proceedings 14 - ---------------- -------------------------------------------------------------------------------------- ------------ Item 2. Changes in Securities 14 - ---------------- -------------------------------------------------------------------------------------- ------------ Item 3. Defaults Upon Senior Securities 14 - ---------------- -------------------------------------------------------------------------------------- ------------ Item 4. Submission of Matters to a Vote of Security Holders 14 - ---------------- -------------------------------------------------------------------------------------- ------------ Item 5. Other Information 14 - ---------------- -------------------------------------------------------------------------------------- ------------ Item 6. Exhibits and Reports on Form 8-K 14 - ---------------- -------------------------------------------------------------------------------------- ------------ - ---------------- -------------------------------------------------------------------------------------- ------------ - ---------------- -------------------------------------------------------------------------------------- ------------ - ---------------- -------------------------------------------------------------------------------------- ------------
PART I ITEM 1. FINANCIAL STATEMENTS COAST BANCORP CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31, --------- ------------ 2000 1999 ---- ---- ASSETS (unaudited) Cash and due from banks $ 15,364,000 $ 18,295,000 Federal funds sold 24,400,000 15,000,000 -------------------------------------- Total cash and equivalents 39,764,000 33,295,000 Securities: Available for sale, at fair value 140,367,000 112,764,000 Loans: Commercial 39,015,000 35,023,000 Real estate-term 138,502,000 130,438,000 Real estate-construction 33,831,000 42,023,000 Installment and other 5,611,000 4,592,000 -------------------------------------- Total loans 216,959,000 212,076,000 Unearned income (3,934,000) (3,764,000) Allowance for credit losses (3,830,000) (3,726,000) -------------------------------------- Net loans 209,195,000 204,586,000 Bank premises and equipment-net 1,842,000 1,994,000 Other real estate owned - - Accrued interest receivable and other assets 18,427,000 17,369,000 -------------------------------------- TOTAL ASSETS $409,595,000 $370,008,000 ====================================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits: Noninterest-bearing demand $ 77,370,000 $ 83,946,000 Interest-bearing demand 103,853,000 95,871,000 Savings 73,485,000 68,739,000 Time 58,926,000 52,057,000 -------------------------------------- Total deposits 313,634,000 300,613,000 Other borrowings 56,024,000 31,500,000 Accrued expenses and other liabilities 5,472,000 4,856,000 -------------------------------------- Total liabilities 375,130,000 336,969,000 Commitments and contingencies STOCKHOLDERS' EQUITY: Preferred stock-no par value; 10,000,000 shares authorized; _ _ no shares issued Common stock-no par value; 20,000,000 shares authorized; 21,494,000 21,462,000 shares outstanding: 4,826,938 in 2000 and 4,820,778 in 1999 Accumulated other comprehensive loss (3,226,000) (3,019,000) Retained earnings 16,197,000 14,596,000 -------------------------------------- Total stockholders' equity 34,465,000 33,039,000 -------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $409,595,000 $370,008,000 ======================================
See notes to unaudited consolidated financial statements -1- COAST BANCORP CONSOLIDATED INCOME STATEMENTS (unaudited)
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ---- ---- Interest income: Loans, including fees $5,701,000 $4,133,000 Securities: Taxable 2,059,000 1,338,000 Nontaxable 246,000 192,000 Federal funds sold 217,000 374,000 ----------------------------------- Total interest income 8,223,000 6,037,000 Interest expense: Deposits 1,983,000 1,512,000 Other borrowings 702,000 139,000 ----------------------------------- Total interest expense 2,685,000 1,651,000 ----------------------------------- Net interest income 5,538,000 4,386,000 Provision for credit losses 87,000 - ----------------------------------- Net interest income after provision for credit losses 5,451,000 4,386,000 Noninterest income: Customer service fees 684,000 632,000 Gain from sale of loans 344,000 511,000 Loan servicing fees 185,000 224,000 Gains from sale of securities - 61,000 Other 104,000 44,000 ----------------------------------- Total noninterest income 1,317,000 1,472,000 Noninterest expenses: Salaries and benefits 1,856,000 1,807,000 Occupancy 329,000 295,000 Equipment 290,000 288,000 Customer services 202,000 170,000 Advertising and promotion 122,000 105,000 Stationery and postage 108,000 91,000 Professional services 114,000 79,000 Data processing 87,000 85,000 Insurance 64,000 61,000 Other 245,000 222,000 ----------------------------------- Total noninterest expenses 3,417,000 3,203,000 ----------------------------------- Income before income taxes 3,351,000 2,655,000 Income taxes 1,316,000 1,099,000 ----------------------------------- NET INCOME $2,035,000 $1,556,000 =================================== EARNINGS PER SHARE: BASIC $ .42 $ .33 =================================== DILUTED $ .41 $ .32 ===================================
See notes to unaudited consolidated financial statements -2- COAST BANCORP CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 2,035,000 $ 1,556,000 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 87,000 - Depreciation and amortization (258,000) (54,000) (Gains) on securities transactions - (61,000) Deferred income taxes (46,000) 42,000 Proceeds from loan sales 20,205,000 25,602,000 Origination of loans held for sale (16,459,000) (22,148,000) Accrued interest receivable and other assets (849,000) (522,000) Accrued expenses and other liabilities 616,000 422,000 Increase in unearned income 573,000 626,000 Other operating activities - 135,000 -------------------------------------- Net cash provided by operating activities 5,904,000 5,598,000 -------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of securities available for sale 194,000 12,145,000 Proceeds from maturities of securities 1,978,000 5,590,000 Purchases of securities available for sale (30,110,000) (22,442,000) Net increase in loans (8,612,000) (6,363,000) Purchases of bank premises and equipment (28,000) (73,000) -------------------------------------- Net cash used in investing activities (36,578,000) (11,143,000) -------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase (decrease) in deposits 13,021,000 (6,796,000) Net proceeds from other borrowings 24,524,000 5,296,000 Payment of cash dividends (434,000) (382,000) Exercise of stock options 32,000 82,000 -------------------------------------- Net cash provided by (used in) financing activities 37,143,000 (1,800,000) -------------------------------------- Net increase (decrease) in cash and equivalents 6,469,000 (7,345,000) Cash and equivalents, beginning of period 33,295,000 52,084,000 -------------------------------------- Cash and equivalents, end of period $39,764,000 $44,739,000 ====================================== SUPPLEMENTAL CASH FLOW INFORMATION CASH PAID DURING THE PERIOD FOR: Interest $ 2,313,000 $ 1,761,000 Income taxes 362,000 - NON-CASH INVESTING AND FINANCING TRANSACTIONS: Additions to other real estate owned $ - $ -
See notes to unaudited consolidated financial statements -3- COAST BANCORP NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2000 AND 1999 - ------------------------------------------------------------------------------- (1) BASIS OF PRESENTATION - These financial statements reflect, in management's opinion, all adjustments, consisting of adjustments of a normal recurring nature, which are necessary for a fair presentation of Coast Bancorp's financial position and results of operations and cash flows for the periods presented. The results of interim periods are not necessarily indicative of results of operations expected for the full year. These financial statements should be read in conjunction with the audited consolidated financial statements for 2000 included in the Company's Annual Report on Form 10-K/A. (2) EARNINGS PER SHARE - Basic earnings per share is computed by dividing net income by the number of weighted average common shares outstanding. Diluted earnings per share reflects potential dilution from outstanding stock options, using the treasury stock method. The number of weighted average shares used in computing basic and diluted earnings per share are as follows:
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ---- ---- Basic shares 4,823,099 4,773,483 Dilutive effect of stock options 140,876 102,770 -------------- ------------------ Diluted shares 4,963,975 4,876,253 ============== ==================
(3) COMPREHENSIVE INCOME - The Company's source of other comprehensive income is unrealized gains and losses on securities available for sale. Total comprehensive income was as follows:
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ---- ---- Net income $2,035,000 $1,556,000 Other comprehensive loss (207,000) (200,000) -------------- ------------------ Total comprehensive income $1,828,000 $1,356,000 ============== ==================
-4- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Net income for the three months ended March 31, 2000 increased $479,000 or 31% to $2,035,000 from $1,556,000 for the three months ended March 31, 1999. During the first quarter of 2000 an increase in net interest income was partially offset by an increase in the provision for credit losses, increases in noninterest expenses and income tax expense and a decrease in noninterest income. On December 14, 1999 the Company and Greater Bay Bancorp signed a definitive agreement for a merger of the two companies. The agreement provides for the Company's shareholders to receive shares of Greater Bay Bancorp stock, based on the average price of Greater Bay's stock during a 20 trading day period preceding the effective date of the merger, in a tax-free exchange to be accounted for as a pooling of interests. Assuming the price of Greater Bay's stock as of December 31, 1999 equaled the average price of Greater Bay's stock during a 20 trading day period preceding the effective date of the merger, Coast Bancorp's shareholders would receive approximately 3,072,000 shares of Greater Bay Bancorp stock. The transaction is expected to be completed in the second quarter of 2000 subject to approval of the transaction by the Company's and Greater Bay's shareholders and receipt of regulatory approvals. EARNINGS SUMMARY NET INTEREST INCOME Net interest income refers to the difference between interest and fees earned on loans and investments and the interest paid on deposits and other borrowed funds. It is the largest component of the net earnings of a financial institution. The primary factors to consider in analyzing net interest income are the composition and volume of earning assets and interest-bearing liabilities, the amount of noninterest bearing liabilities and nonaccrual loans, and changes in market interest rates. Table I sets forth average balance sheet information, interest income and expense, average yields and rates, and net interest income and net interest margin for the three months ended March 31, 2000 and 1999. -5- TABLE I COMPONENTS OF NET INTEREST INCOME
THREE MONTHS ENDED MARCH 31, ---------------------------------------------------------------------------------------- 2000 1999 ---------------------------------------------------------------------------------------- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE INTEREST RATE (4) BALANCE INTEREST RATE (4) ------- -------- -------- ------- -------- -------- (DOLLARS IN THOUSANDS) Assets: Loans (1)(2) $223,005 $5,701 10.2% $162,669 $4,133 10.2% Securities: Taxable 114,507 2,059 7.2% 83,758 1,338 6.4% Nontaxable (3) 19,020 373 7.8% 15,178 291 7.7% Federal funds sold 15,405 217 5.6% 32,029 374 4.7% ---------------------------- ------------------------------- Total earning assets 371,937 8,350 9.0% 293,634 6,136 8.4% Cash and due from banks 16,494 15,950 Allowance for credit losses (3,767) (3,901) Unearned income (3,793) (3,284) Bank premises and equipment, net 1,947 2,377 Other assets 17,689 9,238 -------------- --------------- Total assets $400,507 $314,014 ============== =============== Interest-bearing liabilities: Deposits: Demand $99,277 444 1.8% $93,381 408 1.8% Savings 74,766 790 4.2% 57,681 522 3.6% Time 57,814 749 5.2% 50,773 582 4.6% ---------------------------- ------------------------------- Total deposits 231,857 1,983 3.4% 201,835 1,512 3.0% Borrowed funds 49,137 702 5.7% 11,264 139 4.9% ---------------------------- ------------------------------- Total interest-bearing liabilities 280,994 2,685 3.8% 213,099 1,651 3.1% Demand deposits 75,647 66,804 Other liabilities 4,534 3,312 Stockholders' equity 39,332 30,799 -------------- --------------- Total liabilities and stockholders' equity $400,507 $314,014 ============== =============== Net interest income and margin $5,665 6.1% $4,485 6.1% ============== ================
(1) Average nonaccrual loans totaling $1,055,000 and $1,033,000 are included in average loans for the three months ended March 31, 2000 and 1999. (2) Loan fees totaling $319,000 and $326,000 are included in loan interest income for the three months ended March 31, 2000 and 1999. (3) Tax exempt income includes $127,000 and $99,000 in 2000 and 1999, to adjust to a fully taxable equivalent basis using the federal statutory rate of 34%. (4) Annualized -6- For the three months ended March 31, 2000, net interest income, on a fully taxable-equivalent basis, was $5,665,000 or 6.1% of average earning assets, an increase of 26% over $4,485,000 or 6.1% of average earning assets in the comparable period in 1998. The 2000 increase in net interest income reflects that the increase in earning assets exceeded the increase in interest bearing liabilities. Interest income, on a fully taxable-equivalent basis, was $8,350,000 and $6,136,000 for the three months ended March 31, 2000 and 1999. The increase in 2000 resulted from the growth in average earning assets. Loan yields averaged 10.2% for each of the three months ended March 31, 2000 and 1999. Approximately 85% of the Bank's loans have variable interest rates indexed to the prime rate. The Bank's average prime rate was 8.69% and 7.75% for each of the three month periods ended March 31, 2000 and 1999. Despite the increase in the Bank's average prime rate in the first quarter of 2000 compared to 1999, the average yield on loans was the same for both periods as a result of a compression in the spread over prime the Bank charged borrowers. The compression has been heavily influenced by growing competition among lenders resulting declines in loan pricing compared to previous years. Average earning assets were $371,937,000 and $293,634,000 for the three months ended March 31, 2000 and 1999. The growth in average earning assets resulted from increased levels of deposits and borrowings that were invested primarily in loans and securities. The increase in interest income during 2000 on a fully taxable-equivalent basis, was partially offset by an increase in interest expense. The average rate paid on interest bearing liabilities was 3.8% and 3.1% for the three month periods ended March 31, 2000 and 1999. NONINTEREST INCOME Table 2 summarizes the sources of noninterest income for the periods indicated: TABLE 2 - NONINTEREST INCOME (In thousands)
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ---- ---- Customer service fees $ 684 $ 632 Gain on sale of loans 344 511 Loan servicing fees 185 224 Gains from sale of securities - 61 Other 104 44 ---------------------- Total noninterest income $1,317 $1,472 ======================
Gains on sale of loans decreased as a result of a lower volume of Small Business Administration (SBA) loans sold in 2000 compared to 1999. The Company sells SBA loans and FHLMC conforming mortgage loans with SBA loan sales providing the primary source of gains on sale. -7- NONINTEREST EXPENSES The major components of noninterest expenses stated in dollars and as a percentage of average earning assets are set forth in Table 3 for the periods indicated.
TABLE 3 - NONINTEREST EXPENSES (Dollars in thousands) THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 --------------------------- --------------------- Salaries and benefits $1,856 2.00% $1,807 2.46% Occupancy 329 .35% 295 .40% Equipment 290 .31% 288 .39% Customer services 202 .22% 170 .23% Advertising and promotion 122 .13% 105 .14% Stationery and postage 108 .12% 91 .12% Data processing 87 .09% 85 .12% Professional services 114 .12% 79 .11% Insurance 64 .07% 61 .08% Other 245 .26% 222 .30% ------------------------------------------------------- Total noninterest expenses $3,417 3.67% $3,203 4.58% =======================================================
The increases in 2000 were primarily related to higher staff and occupancy costs and the costs related to the growth in total loans, deposits and assets. The decrease in noninterest expense as a percentage of average earning assets is the result of the rate of growth in average earning assets in 2000 exceeding the rate of increase in noninterest expenses. INCOME TAXES The Company's effective tax rate was 39.3% for the three months ended March 31, 2000 compared to 41.4% for the same period in 1999. Changes in the effective tax rate for the Company are primarily due to fluctuations in the proportion of tax exempt income generated from investment securities to pre-tax income. BALANCE SHEET ANALYSIS Total assets were $409.6 million at March 31, 2000, an 11% increase from the end of 1999. Based on average balances, first quarter 2000 average total assets of $400.5 million represent an increase of 28% over the first quarter of 1999. EARNING ASSETS LOANS Total gross loans at March 31, 2000 were $217.0 million, a 2% increase from $212.1 million at December 31, 1999. Average loans in the first three months of 2000 were $223.0 million representing an increase of 37% over the same period in 1999. The 2000 increases primarily reflected growth in average real estate term loans which in the opinion of the Company is due to improved local economic conditions. Risk Elements Lending money involves an inherent risk of nonpayment. Through the administration of loan policies and monitoring of the portfolio, management seeks to reduce such risks. The allowance for credit losses is an estimate to provide for losses, both identified and unidentified, in the loan portfolio. -8- Nonaccrual Loans, Loans Past Due and OREO The accrual of interest is discontinued and any accrued and unpaid interest is reversed when the payment of principal or interest is 90 days past due unless the amount is well secured and in the process of collection. Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable. At March 31, 2000 nonaccrual loans totaled $1,033,000 or .48% of total loans compared to $1,098,000 or .52% of total loans at December 31, 1999. Table 4 presents the composition of nonperforming assets at March 31, 2000.
TABLE 4 NONPERFORMING ASSETS (In thousands) MARCH 31, --------- 2000 ---- Nonperforming Assets: Loans Past Due 90 Days or More and Accruing Interest $ - Nonaccrual Loans 1,033 ----------- Total Nonperforming Loans 1,033 OREO - ----------- Total Nonperforming Assets $1,033 =========== Nonperforming Loans as a Percent of Total Loans 0.48% OREO as a Percent of Total Assets - Nonperforming Assets as a Percent of Total Assets 0.25% Allowance for Credit Losses $3,830 As a Percent of Total Loans 1.77% As a Percent of Nonaccrual Loans 371% As a Percent of Nonperforming Loans 371%
PROVISION AND ALLOWANCE FOR CREDIT LOSSES Management has established an evaluation process designed to determine the adequacy of the allowance for credit losses. This process attempts to assess the risk of loss inherent in the portfolio by segregating the allowance for credit losses into three components: "historical losses;" "specific;" and "margin for imprecision." The "historical losses" component is calculated as a function of the prior four years loss experience for commercial, real estate and consumer loan types. The four years are assigned weightings of 35%, 30%, 20% and 15% beginning with the most recent year. The "specific" component is established by allocating a portion of the allowance to individual classified credits on the basis of specific circumstances and assessments. The "margin for imprecision" component is an unallocated portion that supplements the first two components as a conservative margin to guard against unforeseen factors. The "historical losses" and "specific" components include management's judgment of the effect of current and forecasted economic conditions on the ability of the Company's borrowers' to repay; an evaluation of the allowance for credit losses in relation to the size of the overall loan portfolio; an evaluation of the composition of, and growth trends within, the loan portfolio; consideration of the relationship of the allowance for credit losses to nonperforming loans; net charge-off trends; and other factors. While this evaluation process utilizes historical and other objective information, the classification of loans and the establishment of the allowance for credit losses, relies, to a great extent, on the judgment and experience of management. We evaluate the adequacy of our allowance for credit losses quarterly. -9- It is the policy of management to maintain the allowance for credit losses at a level adequate for known and inherent risks in the loan portfolio. Based on information currently available to analyze loan loss potential, including economic factors, overall credit quality, historical delinquency and a history of actual charge-offs, management believes that the loan loss provision and allowance are adequate; however, no assurance of the ultimate level of credit losses can be given with any certainty. Loans are charged against the allowance when management believes that the collectibility of the principal is unlikely. An analysis of activity in the allowance for credit losses is presented in Table 5.
TABLE 5 ALLOWANCE FOR CREDIT LOSSES (Dollars in thousands) THREE MONTHS ENDED ------------------ MARCH 31, 2000 -------------- Total Loans Outstanding $216,959 Average Total Loans 223,005 Allowance for credit losses: Balance, January 1 $3,726 Charge-offs by Loan Category: Commercial 8 Installment and other - Real Estate construction - Real Estate-term - ------------- Total Charge-Offs 8 Recoveries by Loan Category: Commercial 25 Installment and other - Real Estate construction - Real Estate-term - ------------- Total Recoveries 25 Net Recoveries (17) Provision Charged to Expense 87 ------------- Balance, March 31 $3,830 ============= Ratios: Net Charge-offs to Average Loans (0.01)% Reserve to Total Loans 1.77%
OTHER INTEREST-EARNING ASSETS For the three months ended March 31, 2000, the average balance of investment securities and federal funds sold totaled $148,932,000, up from $130,965,000 for the same period in 1999. The 2000 increase resulted from investing additional liquidity in federal funds sold and investment securities. Additional liquidity was generated by the excess of the increase in average deposits and average borrowings over the increase in average loans. Management uses borrowed funds to increase earning assets and enhance the Company's interest rate risk profile. -10- FUNDING Deposits represent the Company's principal source of funds for investment. Deposits are primarily core deposits in that they are demand, savings, and time deposits under $100,000 generated from local businesses and individuals. These sources represent relatively stable, long term deposit relationships which minimize fluctuations in overall deposit balances. Beginning in 1998, we accepted time deposits from the State of California, which total $25 million at March 31, 2000, in part to replace borrowed funds and to increase earning assets. The State of California time deposits are renewable approximately every three months at a rate similar to the three month U.S. Treasury bill. The Bank has never used brokered deposits. Deposits increased $13,021,000 from year-end or 4% to $313,634,000 as of March 31, 2000. Average total deposits in the three months of 2000 of $307,504,000 increased from $268,639,000 in the same period in 1999. Another source of funding for the Company is borrowed funds. Management uses borrowed funds to increase earning assets, prudently leverage capital and minimize interest rate risk. Typically, these funds result from the use of advances from the FHLB and agreements to sell investment securities with a repurchase at a designated future date, also known as repurchase agreements. Repurchase agreements are conducted with major banks and investment brokerage firms. The maturity of these arrangements for the Bank is typically 30 to 90 days. Advances from the FHLB may vary in maturity from 1 to 10 years. Advances from the FHLB at March 31, 2000 totaled $10,000,000, payable at maturity in 2002. The advances are callable by the FHLB beginning in November 2000 and bear interest at a weighted average rate of 5.8%. The average balance of borrowed funds was $49,137,000 and $11,264,000 during the first quarter of 2000 and 1999. The increase in average borrowed funds reflects the additional funds acquired to increase earning assets. LIQUIDITY AND INTEREST RATE SENSITIVITY Liquidity management refers to the Company's ability to provide funds on an ongoing basis to meet fluctuations in deposit levels as well as the credit needs and requirements of its clients. Both assets and liabilities contribute to the Bank's liquidity position. Federal funds lines, short-term investments and securities, and loan repayments contribute to liquidity, along with deposit increases, while loan funding and deposit withdrawals decrease liquidity. The Company assesses the likelihood of projected funding requirements by reviewing historical funding patterns, current and forecasted economic conditions and individual client funding needs. The Bank maintains informal lines of credit with its correspondent banks for short-term liquidity needs. These informal lines of credit are not committed facilities by the correspondent banks and no fees are paid by the Bank to maintain them. The Bank manages its liquidity by maintaining a majority of its investment portfolio in liquid investments in addition to its federal funds sold. Liquidity is measured by various ratios, including the liquidity ratio of net liquid assets compared to total assets. As of March 31, 2000, this ratio was 14.8%. Other key liquidity ratios are the ratios of loans to deposits and federal funds sold to deposits, which were 69.2% and 7.8%, as of March 31, 2000. INTEREST RATE SENSITIVITY Interest rate sensitivity is a measure of the exposure of the Company's future earnings due to changes in interest rates. If assets and liabilities do not reprice simultaneously and in equal volumes, the potential for such exposure exists. It is management's objective to achieve a near-matched to modestly asset-sensitive cumulative position at one year, such that the net interest margin of the Company increases as market interest rates rise and decreases when short-term interest rates decline. -11- One quantitative measure of the "mismatch" between asset and liability repricing is the interest rate sensitivity "gap" analysis. All interest-earning assets and funding sources are classified as to their expected repricing or maturity date, whichever is sooner. Within each time period, the difference between asset and liability balances, or "gap," is calculated. Positive cumulative gaps in early time periods suggest that earnings will increase if interest rates rise. Negative gaps suggest that earnings will decline when interest rates rise. Table 6 presents the gap analysis for the Company at March 31, 1999. Mortgage backed securities are reported in the period of their expected repricing based upon estimated prepayments developed from recent experience. TABLE 6 INTEREST RATE SENSITIVITY (In thousands)
NEXT DAY OVER THREE -------- ---------- AND WITHIN MONTHS AND OVER ONE ---------- ---------- -------- THREE WITHIN ONE AND WITHIN OVER FIVE ----- ---------- ---------- --------- IMMEDIATELY MONTHS YEAR FIVE YEARS YEARS TOTAL ----------- ------ ---- ---------- ----- ----- As of March 31, 2000 Rate Sensitive Assets: Federal Funds Sold $ 24,400 $- $- $- $- $ 24,400 Investment Securities: Treasury and Agency - - - 1,209 34 1,243 Obligations Mortgage-Backed Securities - 3,043 8,163 30,967 61,915 104,088 Municipal Securities - 460 540 1,612 16,245 18,857 Corporate Securities - - - - 13,179 13,179 Other - - - - 3,000 3,000 ----------------------------------------------------------------------------------------------- Total Investment - 3,503 8,703 33,788 94,373 140,367 Securities Loans Excluding Nonaccrual Loans 181,820 2,373 2,211 11,281 18,241 215,926 ----------------------------------------------------------------------------------------------- Total Rate Sensitive Assets $ 206,220 $ 5,876 $ 10,914 $ 45,069 $ 112,614 $380,693 ----------------------------------------------------------------------------------------------- Rate Sensitive Liabilities: Deposits: Demand and Savings $ 177,338 $- $ - $ - $- $177,338 Time - 45,020 12,980 926 - 58,926 ----------------------------------------------------------------------------------------------- Total Interest-bearing Deposits 177,338 45,020 12,980 926 - 236,264 Other Borrowings - 46,024 - 10,000 - 56,024 ----------------------------------------------------------------------------------------------- Total Rate Sensitive Liabilities $ 177,338 $ 91,044 $ 12,980 $ 10,926 $- $292,288 ----------------------------------------------------------------------------------------------- Gap $ 28,882 $(85,168) $ (2,066) $ 34,143 $ 112,614 $ 88,405 Cumulative Gap $ 28,882 $(56,286) $ (58,352) $ (24,209) $ 88,405
-12- The Company's positive cumulative total gap results from the exclusion from the above table of noninterest-bearing demand deposits, which represent a significant portion of the Company's funding sources. The Company maintains a negative cumulative gap in the next day and within three months, the over three months and within one year and over one year and within five year time periods and a positive cumulative gap in all other time periods. The Company's experience indicates money market deposit rates tend to lag changes in the prime rate which immediately impact the prime-based loan portfolio. Even in the Company's negative gap time periods, rising rates result in an increase in net interest income. Should interest rates stabilize or decline in future periods, it is reasonable to assume that the Company's net interest margin, as well as net interest income, may decline correspondingly. CAPITAL RESOURCES Management seeks to maintain adequate capital to support anticipated asset growth and credit risks, and to ensure that the Company and the Bank are in compliance with all regulatory capital guidelines. The primary source of new capital for the Company has been the retention of earnings. The Company does not have any material commitments for capital expenditures as of March 31, 2000. The Company pays a quarterly cash dividend on its common stock as part of efforts to enhance shareholder value. The Company's goal is to maintain a strong capital position that will permit payment of a consistent cash dividend which may grow commensurately with earnings growth. During 1997, the Board of Directors approved a stock repurchase program authorizing open market purchases of up to 3% of the shares outstanding, or approximately 145,837 shares, in order to enhance long term shareholder value. As of March 31, 2000, 145,500 shares had been purchased under the program. No shares were repurchased during 1999 and 2000. The Company and the Bank are subject to capital adequacy guidelines issued by the federal bank regulatory authorities. Under these guidelines, the minimum total risk-based capital requirement is 10.0% of risk-weighted assets and certain off-balance sheet items for a "well capitalized" depository institution. At least 6.0% of the 10.0% total risk-based capital ratio must consist of Tier 1 capital, defined as tangible common equity, and the remainder may consist of subordinated debt, cumulative preferred stock and a limited amount of the allowance for credit losses. The federal regulatory authorities have established minimum capital leverage ratio guidelines for bank holding companies and state member banks. The ratio is determined using Tier 1 capital divided by quarterly average total assets. The guidelines require a minimum of 5.0% for a "well capitalized" depository institution. The Bank's risk-based capital ratios were in excess of regulatory guidelines for a "well capitalized" depository institution as of March 31, 2000, and December 31, 1999. Capital ratios for the Company and the Bank are set forth in Table 7: TABLE 7 CAPITAL RATIOS
Consolidated: MARCH 31, 2000 DECEMBER 31,1999 -------------- ---------------- Total risk-based capital ratio 14.4% 14.4% Tier 1 risk-based capital ratio 13.1% 13.2% Tier 1 leverage ratio 9.4% 9.8% Coast Commercial Bank: MARCH 31, 2000 DECEMBER 31,1999 -------------- ---------------- Total risk-based capital ratio 13.7% 13.8% Tier 1 risk-based capital ratio 12.5% 12.5% Tier 1 leverage ratio 8.9% 9.4%
-13- YEAR 2000 Coast Bancorp previously recognized the material nature of the business issues surrounding computer processing of dates into and beyond the Year 2000 and began taking corrective action as required pursuant to the interagency statements issued by the Federal Financial Institutions Examination Council. Management believes Coast Bancorp and Coast Commercial Bank have completed all of the activities within their control to ensure that Coast Bancorp's and Coast Commercial Bank's systems are Year 2000 compliant. Coast Bancorp's Year 2000 readiness costs were approximately $400,000. Coast Bancorp does not currently expect to apply any further funds to address Year 2000 issues. Neither Coast Bancorp nor Coast Commercial Bank have experienced any material disruptions of their internal computer systems or software applications due to the start of the Year 2000 nor have they experienced any problems with the computer systems or software applications of their third party vendors, suppliers or service providers. Coast Bancorp will continue to monitor these third parties to determine the impact, if any, on the business of Coast Bancorp and Coast Commercial Bank and the actions either must take, if any, in the event of non-compliance by any of these third parties. Based upon Coast Bancorp's assessment of compliance by third parties, there does not appear to be any material business risk posed by any such non-compliance. Although Coast Bancorp's Year 2000 rollover did not present any material business disruption, there are some remaining Year 2000 related risks. Management believes that appropriate actions have been taken to address these remaining Year 2000 issues and contingency plans are in place to minimize the financial impact to Coast Bancorp and Coast Commercial Bank. Management, however, cannot be certain that Year 2000 issues affecting customers, suppliers or service providers of Coast Bancorp and Coast Commercial Bank will not have a material adverse impact on Coast Bancorp or Coast Commercial Bank. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION On April 12, 2000, the Coast Bancorp Board of Directors declared a cash dividend of nine cents ($0.09) per share, payable May 9, 2000, to shareholders of record on April 24, 2000. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. EXHIBITS Exhibit Number 27 Financial Data Schedule b. REPORTS ON FORM 8-K Not applicable. -14- SIGNATURES Pursuant to the requirements 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. COAST BANCORP --------------------------------------- (REGISTRANT) Date: April 28, 2000 /s/ HARVEY J. NICKELSON --------------------------------------- Harvey J. Nickelson President and Chief Executive Officer /s/ BRUCE H. KENDALL --------------------------------------- Bruce H. Kendall Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) -15- EX-27 2 EX-27
9 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 15,364 0 24,400 0 140,367 0 140,367 216,959 3,830 409,595 313,634 56,024 5,472 0 0 0 21,494 12,971 409,595 5,701 2,305 217 8,223 1,983 2,685 5,538 87 0 3,417 3,351 3,351 0 0 2,035 0.42 0.41 .060 1,033 0 0 0 3,726 8 25 3,830 3,830 0 0
-----END PRIVACY-ENHANCED MESSAGE-----