-----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, ImYUCyIE6xSGeMNU+ji3Ly7LcvchFRDZjp1EkI/4O+14Mg7HqSg2/gFFOtXlRfFy nA6kn3S4quWWtD+PYFhzLw== 0000919805-97-000021.txt : 19971114 0000919805-97-000021.hdr.sgml : 19971114 ACCESSION NUMBER: 0000919805-97-000021 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COASTAL BANCORP INC CENTRAL INDEX KEY: 0000919805 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED [6036] IRS NUMBER: 760428727 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24526 FILM NUMBER: 97714926 BUSINESS ADDRESS: STREET 1: 5718 WESTHEIMER STREET 2: SUITE 600 CITY: HOUSTON STATE: TX ZIP: 77057 BUSINESS PHONE: (713) 435-5327 MAIL ADDRESS: STREET 1: 5718 WESTHEIMER STREET 2: SUITE 600 CITY: HOUSTON STATE: TX ZIP: 77057 FORMER COMPANY: FORMER CONFORMED NAME: COASTAL BANC SAVINGS ASSOCIATION DATE OF NAME CHANGE: 19970110 FORMER COMPANY: FORMER CONFORMED NAME: COASTAL BANCORP INC/TX/ DATE OF NAME CHANGE: 19940718 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended SEPTEMBER 30, 1997 [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the Transition Period from ______ to ______ Commission File Number: 0-24526 COASTAL BANCORP, INC. (Exact name of Registrant as specified in its charter) Texas 76-0428727 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5718 Westheimer, Suite 600 Houston, Texas 77057 (Address of principal executive office) (713) 435-5000 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. COMMON STOCK ISSUED AND OUTSTANDING: 4,992,203 AS OF SEPTEMBER 30, 1997 COASTAL BANCORP, INC. AND SUBSIDIARIES Table of Contents PART I. FINANCIAL INFORMATION
Item 1 Financial Statements Consolidated Statements of Financial Condition at September 30, 1997 (unaudited) and December 31, 1996 1 Consolidated Statements of Income for the Nine-Month Periods Ended September 30, 1997 and 1996 (unaudited) 2 Consolidated Statements of Income for the Three-Month Periods Ended September 30, 1997 and 1996 (unaudited) 3 Consolidated Statements of Cash Flows for the Nine-Month Periods Ended September 30, 1997 and 1996 (unaudited) 4 Notes to Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 20 Item 2 Changes in Securities 20 Item 3 Default upon Senior Securities 20 Item 4 Submission of Matters to a Vote of Securities Holders 20 Item 5 Other Information 20 Item 6 Exhibits and Reports on Form 8-K 20
SIGNATURES 5 ITEM 1. FINANCIAL STATEMENTS
COASTAL BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS, EXCEPT SHARE DATA) September 30, December 31, 1997 1996 --------------- ------------- ASSETS (Unaudited) - ---------------------------------------------------------- Cash and amounts due from depository institutions $ 38,886 $ 27,735 Federal funds sold 5,000 -- Loans receivable (note 4) 1,298,795 1,229,748 Mortgage-backed securities held-to-maturity (note 3) 1,325,681 1,344,587 Mortgage-backed securities available-for-sale, at market value 168,976 180,656 U.S. Treasury security available-for-sale, at market value -- 11 Mortgage loans held for sale -- 298 Accrued interest receivable 15,388 14,690 Property and equipment 22,597 14,987 Stock in the Federal Home Loan Bank of Dallas (FHLB) 20,478 25,971 Goodwill 16,191 15,596 Mortgage servicing rights 5,879 6,810 Prepaid expenses and other assets 11,689 14,818 --------------- ------------- $ 2,929,560 $ 2,875,907 =============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Savings deposits (note 5) $1,392,234 $1,310,835 Advances from the FHLB (note 6) 383,002 409,720 Securities sold under agreements to repurchase (note 6) 943,493 966,987 Senior notes payable (note 7) 50,000 50,000 Advances from borrowers for taxes and insurance 12,317 4,676 Other liabilities and accrued expenses 18,108 10,791 Total liabilities 2,799,154 2,753,009 ----------- ----------- 9.0% noncumulative preferred stock of Coastal Banc ssb 28,750 28,750 Commitments and contingencies (notes 4 and 8) Stockholders' equity (notes 2 and 10): Preferred stock, no par value; authorized shares 5,000,000; no shares issued -- -- Common stock, $.01 par value; authorized shares 30,000,000; 4,992,203 and 4,966,941 shares issued and outstanding in 1997 and 1996 50 50 Additional paid-in capital 32,977 32,604 Retained earnings 71,680 64,597 Unrealized gain (loss) on securities available-for-sale (3,051) (3,103) Total stockholders' equity 101,656 94,148 ----------- ----------- $2,929,560 $2,875,907 =========== ===========
See accompanying Notes to Consolidated Financial Statements COASTAL BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
Nine Months Ended September 30, ------------------- 1997 1996 ------------------- --------- (Unaudited) Interest income: Mortgage-backed securities $ 69,395 $ 71,826 Loans receivable 80,249 72,059 Federal funds sold, certificates of deposit and other investments 1,109 1,111 150,753 144,996 ------------------- --------- Interest expense: Savings deposits 46,659 44,687 Other borrowed money 41,985 38,609 Senior notes payable 3,750 3,750 Advances from the FHLB: Short-term 5,798 4,527 Long-term 9,450 11,264 ------------------- --------- 107,642 102,837 ------------------- --------- Net interest income 43,111 42,159 Provision for loan losses 1,350 1,475 Net interest income after provision for loan losses 41,761 40,684 ------------------- --------- Noninterest income: Loan fees and service charges on deposit accounts 2,913 2,526 Loan servicing income, net 1,097 1,160 Gain on sale of branch office -- 521 Gain on sales of mortgage-backed securities available-for-sale, net 237 (4) Other 515 321 4,762 4,524 ------------------- --------- Noninterest expense: Compensation, payroll taxes and other benefits 14,024 12,183 Office occupancy 5,288 4,360 Insurance premiums 819 2,105 Data processing 1,676 1,788 Amortization of goodwill 1,361 1,340 Real estate owned 628 665 Other 5,830 6,189 SAIF insurance special assessment -- 7,455 ------------------- --------- 29,626 36,085 ------------------- --------- Income before provision for Federal income taxes 16,897 9,123 Provision for Federal income taxes 6,182 3,454 ------------------- --------- Net income before preferred stock dividends 10,715 5,669 Preferred stock dividends of Coastal Banc ssb (Series A) 1,941 1,941 ------------------- --------- Net income after preferred stock dividends $ 8,774 $ 3,728 =================== ========= Net earnings per share (note 9) $ 1.71 $ 0.74 =================== =========
See accompanying Notes to Consolidated Financial Statements COASTAL BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended September 30, -------------------- 1997 1996 -------------------- -------- (Unaudited) Interest income: Mortgage-backed securities $ 22,994 $23,516 Loans receivable 27,819 24,321 Federal funds sold, certificates of deposit and other investments 438 405 51,251 48,242 -------------------- -------- Interest expense: Savings deposits 16,114 14,920 Other borrowed money 14,209 11,583 Senior notes payable 1,250 1,250 Advances from the FHLB: Short-term 2,086 1,891 Long-term 3,393 4,584 -------------------- -------- 37,052 34,228 -------------------- -------- Net interest income 14,199 14,014 Provision for loan losses 450 450 Net interest income after provision for loan losses 13,749 13,564 -------------------- -------- Noninterest income: Loan fees and service charges on deposit accounts 1,038 936 Loan servicing income, net 333 408 Gain on sale of mortgage-backed securities available-for-sale 237 -- Other 135 75 1,743 1,419 -------------------- -------- Noninterest expense: Compensation, payroll taxes and other benefits 4,706 4,077 Office occupancy 2,024 1,524 Insurance premiums 274 628 Data processing 566 494 Amortization of goodwill 479 443 Real estate owned 146 279 Other 1,980 2,148 SAIF insurance special assessment -- 7,455 -------------------- -------- 10,175 17,048 -------------------- -------- Income before provision for Federal income taxes 5,317 (2,065) Provision for Federal income taxes 1,953 (636) -------------------- -------- Net income before preferred stock dividends 3,364 (1,429) Preferred stock dividends of Coastal Banc ssb (Series A) 647 647 -------------------- -------- Net income after preferred stock dividends $ 2,717 $(2,076) ==================== ======== Net earnings per share (note 9) $ 0.52 $ (0.42) ==================== ========
See accompanying Notes to Consolidated Financial Statements COASTAL BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Nine Months Ended September 30, ------------------- 1997 1996 ------------------- ------------ (Unaudited) Cash flows from operating activities: Net income before preferred stock dividends $ 10,715 $ 5,669 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of property and equipment, purchased loan servicing rights, capitalized excess servicing fees and prepaid expenses and other assets 5,334 4,490 Net premium amortization 1,458 788 Provision for loan losses 1,350 1,475 Amortization of goodwill 1,361 1,340 Originations and purchases of mortgage loans held for sale (8,063) (17,094) Sales of mortgage loans held for sale 8,361 16,642 (Gain) loss on sales of mortgage-backed securities available-for-sale (237) 4 Gain on sale of branch office -- (521) Decrease (increase) in: Accrued interest receivable (698) 771 Other, net 7,133 11,022 Stock dividends from the FHLB (951) (911) ------------------- ------------ Net cash provided by operating activities 25,763 23,675 ------------------- ------------ Cash flows from investing activities: Net increase in federal funds sold (5,000) -- Purchases of mortgage-backed securities held-to-maturity (20,257) -- Purchase of U.S. Treasury security available-for-sale -- (11) Principal repayments on mortgage-backed securities 39,140 40,731 Principal repayments on mortgage-backed securities available-for-sale 452 562 Proceeds from maturity of U.S. Treasury security available-for-sale 11 4,000 Proceeds from sales of mortgage-backed securities available-for-sale 11,545 860 Purchases of loans receivable (120,024) (160,362) Net decrease in loans receivable 44,400 44,601 Net purchases of property and equipment (9,224) (2,807) Purchase of FHLB stock (2,556) (7,924) Proceeds from sales of FHLB stock 9,000 5,000 Cash and cash equivalents received (paid) in business combination transaction, net of disposition transaction 52,098 11,745 ------------------- ------------ Net cash used by investing activities (415) (63,605) ------------------- ------------ (continued)
COASTAL BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (IN THOUSANDS)
Nine Months Ended September 30, ------------------- 1997 1996 ------------------- ------------ (Unaudited) Cash flows from financing activities: Net increase (decrease) in savings deposits $ 26,744 $ 10,206 Advances from the FHLB 2,539,800 2,709,932 Principal payments on advances from the FHLB (2,566,518) (2,555,207) Securities sold under agreements to repurchase 7,722,507 6,885,085 Purchases of securities sold under agreements to repurchase (7,741,112) (6,999,802) Exercise of stock options for purchase of common stock, net 373 71 Net increase in advances from borrowers for taxes and insurance 7,641 6,046 Dividends paid (3,632) (3,429) ------------------- ------------ Net cash provided by financing activities (14,197) 52,902 ------------------- ------------ Net increase in cash and cash equivalents 11,151 12,972 Cash and cash equivalents at beginning of period 27,735 10,044 ------------------- ------------ Cash and cash equivalents at end of period $ 38,886 $ 23,016 =================== ============ Supplemental schedule of cash flows-interest paid $ 105,216 $ 105,311 =================== ============ Supplemental schedule of noncash investing and financing activities: Foreclosures of loans receivable $ 3,883 $ 3,614 =================== ============ In connection with the purchase of a branch office in 1997, Coastal recorded the following assets and liabilities: Savings deposits acquired $ 54,563 $ -- Goodwill 1,956 -- Accrued interest payable and other liabilities acquired 184 -- Property and equipment acquired 693 -- =================== ============ In connection with the sale of a branch office in 1996, Coastal recorded the following reductions of assets and liabilities: Savings deposits sold $ -- $ 14,850 Accrued interest payable sold -- 65 Loans receivable sold -- 155 Property and equipment sold -- 438 Reduction of goodwill -- 179 =================== ============ In connection with the branch swap in 1996, Coastal recorded the following net assets and liabilities: Net savings deposits acquired $ -- $ 25,992 Net loans receivable acquired -- 1,173 Net accrued interest payable acquired -- 426 Net property and equipment sold -- 124 Net accrued interest receivable acquired -- 2 =================== ============
See accompanying Notes to Consolidated Financial Statements COASTAL BANCORP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The accompanying unaudited Consolidated Financial Statements were prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial condition, results of operations, and cash flows in conformity with generally accepted accounting principles. All adjustments which are, in the opinion of management, of a normal recurring nature and are necessary for a fair presentation of the interim financial statements, have been included. The results of operations for the periods ended September 30, 1997 are not necessarily indicative of the results that may be expected for the entire fiscal year or any other interim period. (2) PRINCIPLES OF CONSOLIDATION The accompanying unaudited Consolidated Financial Statements include the accounts of Coastal Bancorp, Inc. and its wholly-owned subsidiary, Coastal Banc Holding Company, Inc. and its wholly-owned subsidiaries, Coastal Banc ssb and subsidiaries (collectively, Coastal) and Coastal Banc Capital Corp. Coastal Banc ssb's subsidiaries include CoastalBanc Financial Corp., CBS Mortgage Corp., and CBS Asset Corp. (collectively with Coastal Banc ssb, the Bank). All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts within the accompanying consolidated financial statements and the related notes have been reclassified to conform to the current year presentation. Such reclassifications had no effect on net income or total stockholders' equity. (3) MORTGAGE-BACKED SECURITIES Mortgage-backed securities at September 30, 1997 (unaudited) were as follows (dollars in thousands):
Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value ---------- --------- ---------- ------ Held-to-Maturity: REMICS - Agency $ 939,640 $ 4,982 $ (28,521) $ 916,101 REMICS - Non-agency 266,084 716 (7,715) 259,085 FNMA certificates 74,728 147 (952) 73,923 GNMA certificates 30,128 684 -- 30,812 Non-agency securities 15,077 351 (240) 15,188 Interest-only securities 24 -- -- 24 --------- ----- ------- --------- $ 1,325,681 $ 6,880 $ (37,428) $ 1,295,133 ========= ===== ======== ========= Available-for-sale: REMICS - Agency $ 171,165 $ 552 $ (5,208) $ 166,509 REMICS - Non-agency 2,506 -- (39) 2,467 --------- ----- -------- --------- $ 173,671 $ 552 $ (5,247) $ 168,976 ========= ===== ======== =========
Proceeds from sales of mortgage-backed securities available-for-sale for the nine months ended September 30, 1997 were approximately $11.5 million. Gross gains of approximately $237,000 were realized on these sales. Mortgage-backed securities at December 31, 1996 were as follows (dollars in thousands):
Gross Gross Amortized Unrealized Unrealized Market Cost Gains Losses Value --------- ---------- ----------- --------- Held-to-maturity: REMICS - Agency $ 932,488 $ 4,730 $ (31,142) $ 906,076 REMICS - Non-agency 278,612 834 (9,958) 269,488 FNMA certificates 79,628 72 (1,072) 78,628 GNMA certificates 34,031 282 -- 34,313 Non-agency securities 19,790 363 (95) 20,058 Interest-only securities 38 -- (3) 35 --------- ---------- ----------- --------- $ 1,344,587 $ 6,281 $ (42,270) $ 1,308,598 ========= ========== =========== ========= Available-for-sale: REMICS - Agency $ 182,467 $ 1,207 $ (5,946) $ 177,728 REMICS - Non-agency 2,962 -- (34) 2,928 --------- ---------- ----------- --------- $ 185,429 $ 1,207 $ (5,980) $ 180,656 ========= ========== =========== =========
(4) LOANS RECEIVABLE Loans receivable at September 30, 1997 and December 31, 1996 were as follows (dollars in thousands):
September 30, 1997 December 31, 1996 ------------------- ------------------ (Unaudited) Real estate mortgage loans: First-lien mortgage, primarily residential $ 760,640 $ 791,337 Commercial 174,858 119,004 Multifamily 134,208 139,486 Residential construction 83,695 77,146 Acquisition and development 25,633 26,132 Commercial construction 15,429 3,963 Commercial loans, secured by residential mortgage loans held for sale 84,452 53,573 Commercial loans, secured by mortgage servicing rights 32,639 21,380 Commercial, financial and industrial 22,617 21,965 Loans secured by savings deposits 8,431 8,849 Consumer and other loans 13,885 14,400 -------------- ------------ 1,356,487 1,277,235 Loans in process (50,716) (38,742) Allowance for loan losses (7,082) (6,880) Unearned loan fees (2,705) (2,344) Premium to record purchased loans, net 2,811 479 --------------- ----------- $ 1,298,795 $ 1,229,748 ================ =========== Weighted average yield 8.36% 8.37% ================ ===========
At September 30, 1997, Coastal had outstanding commitments to originate or purchase $52.0 million of real estate mortgage and other loans and had commitments under lines of credit to originate primary construction and other loans of approximately $109.5 million. In addition, at September 30, 1997, Coastal had $2.0 million of outstanding letters of credit. Management anticipates the funding of these commitments through normal operations. At September 30, 1997 and December 31, 1996, the carrying value of loans that were considered to be impaired totaled approximately $912,000 and $725,000, respectively, (all of which are on nonaccrual) and the related allowance for loan losses on those impaired loans totaled $676,000 and $524,000, respectively. The average recorded investment in impaired loans during the nine months ended September 30, 1997 and 1996 was $770,000 and $856,000, respectively. An analysis of activity in the allowance for loan losses for the nine months ended September 30, 1997 and 1996 is as follows (in thousands):
Nine months ended September 30, --------------------------- 1997 1996 --------------------------- (Unaudited) Balance, beginning of period $ 6,880 $5,703 Provision for loan losses 1,350 1,475 Charge-offs, net of recoveries (1,148) (553) --------- ------- Balance, end of period $ 7,082 $6,625 ========= =======
Coastal services for others loans receivable which are not included in the Consolidated Financial Statements. The total amounts of such loans were $696.0 million and $776.7 million at September 30, 1997 and December 31, 1996, respectively. (5) SAVINGS DEPOSITS Savings deposits, their stated rates and the related weighted average interest rates at September 30, 1997 and December 31, 1996 are summarized as follows (dollars in thousands):
Stated Rate September 30, 1997 December 31, 1996 ---------------- -------------------- ------------------ (Unaudited) Noninterest-bearing checking 0.00% $ 110,480 $ 85,259 NOW accounts 1.74 - 2.00 63,975 56,862 Savings accounts 2.28 - 2.75 25,246 22,135 Money market demand accounts 3.15 - 4.51 166,033 151,046 ------------ ------------ 365,734 315,302 ------------ ------------ Certificate accounts 2.00 - 2.99 4,971 12,930 3.00 - 3.99 1,516 1,905 4.00 - 4.99 72,893 95,087 5.00 - 5.99 841,459 776,765 6.00 - 6.99 94,008 91,128 7.00 - 7.99 7,676 12,964 8.00 - 8.99 2,863 3,515 9.00 - 9.99 975 1,171 10.00 - 10.99 245 249 11.00 - 11.99 -- 17 1,026,606 995,731 ------------ ------------ Discount to record savings deposits at fair value, net (106) (198) ------------ ------------ $ 1,392,234 $ 1,310,835 ============ ============ Weighted average rate 4.65% 4.67% ============ ============
The scheduled maturities of certificate accounts outstanding at September 30, 1997 were as follows (dollars in thousands):
September 30, 1997 ------------------- (Unaudited) 0 to 12 months $ 758,902 12 to 24 months 219,231 24 to 36 months 33,788 36 to 48 months 8,907 48 to 60 months 5,694 Over 60 months 84 ------------------- $ 1,026,606 ===================
(6) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND FHLB ADVANCES (a) The weighted average interest rates on securities sold under agreements to repurchase at September 30, 1997 and December 31, 1996 were 5.59% and 5.55%, respectively. The stated interest rates on securities sold under agreements to repurchase ranged from 5.56% to 5.73% at September 30, 1997. (b) The weighted average interest rate on advances from the FHLB at September 30, 1997 and December 31, 1996 were 5.76% and 5.61%, respectively. FHLB advances and related interest rates and maturities at September 30, 1997 and December 31, 1996 are summarized as follows (dollars in thousands):
Maturity Interest rates September 30, 1997 December 31, 1996 - -------- --------------- ------------------ ----------------- (Unaudited) 1997 4.93 - 8.31% $ 166,151 $ 189,127 1998 5.25 - 6.96 19,558 19,674 1999 4.95 - 8.11 120,530 170,871 2000 5.57 - 7.76 8,089 8,320 2001 6.03 - 6.46 8,706 8,854 2002 5.57 47,600 -- 2004 6.52 2,943 3,201 2006 6.91 3,129 3,167 2007 6.80 - 7.94 477 488 2009 8.25 4,523 4,681 2011 6.35 - 7.24 1,296 1,337 ------------------ ----------------- $ 383,002 $ 409,720 ================== =================
FHLB advances are secured by certain first-lien mortgage loans and mortgage-backed securities owned by Coastal. (7) SENIOR NOTES PAYABLE On June 30, 1995, Coastal issued $50.0 million of 10.0% Senior Notes due June 30, 2002. The Senior Notes are redeemable at Coastal's option, in whole or in part, on or after June 30, 2000, at par, plus accrued interest to the redemption date. Interest on the Senior Notes is payable quarterly. (8) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK Coastal is a party to financial instruments with off-balance sheet risk in the normal course of business to reduce its own exposure to fluctuations in interest rates. These financial instruments include interest rate swap agreements and interest rate cap agreements. Coastal is a party to interest rate swap and interest rate cap agreements in order to reduce its exposure to floating interest rates by altering the interest rate sensitivity of a portion of its variable-rate assets and borrowings. At September 30, 1997, Coastal had interest rate swap and cap agreements having notional principal amounts totaling $55.8 million and $267.5 million, respectively. The terms of the interest rate swap agreements outstanding at September 30, 1997 (unaudited) and December 31, 1996 are summarized as follows (dollars in thousands):
Floating Rate Fair Value at Notional LIBOR Fixed at End of Period --------------- Maturity Amount Index Rate End of Period gain (loss) - ---------------------- -------- ----------- ------ -------------- At September 30, 1997: 1997 $ 6,000 Three-month 6.493% 5.738% $ (5) 1998 4,400 Three-month 6.709 5.738 (33) 1999 14,600 Three-month 6.926 5.738 (232) 2000 4,800 Three-month 6.170 5.719 (2) 2,555 Three-month 6.000 5.719 15 2005 23,442 Three-month 6.500 5.719 (481) -------- $ 55,797 $ (738) ======== =============== At December 31, 1996: 1997 $ 5,000 One-month 4.990% 5.633% $ 6 6,000 Three-month 6.493 5.500 (65) 1998 4,400 Three-month 6.709 5.500 (111) 1999 14,600 Three-month 6.926 5.500 (619) 2000 4,800 Three-month 6.170 5.543 (64) 2,660 Three-month 6.000 5.617 24 2005 23,442 Three-month 6.500 5.500 (15) -------- --------------- $ 60,902 $ (844) ======== ===============
The interest rate swap agreements provide for Coastal to make weighted average fixed interest payments and receive payments based on a floating LIBOR index, as defined in each agreement. The weighted average interest received rate on all of the interest rate swap agreements was approximately 5.65% and the weighted average interest payment rate on all of the interest rate swap agreements was approximately 6.40% for the nine months ended September 30, 1997. Payments on the interest rate swap agreements are based on the notional principal amount of the agreements; no funds were actually borrowed or are to be repaid. The interest rate swap agreements are used to alter the interest rate sensitivity of a portion of Coastal's variable-rate borrowings As such, Coastal records net interest expense or income related to these agreements on a monthly basis in "interest expense" in the accompanying consolidated statements of income. The net interest expense related to these agreements was approximately $338,000 for the nine months ended September 30, 1997 and approximately $452,000 for the nine months ended September 30, 1996. Coastal had pledged approximately $6.5 million of mortgage-backed securities to secure interest rate swap agreements at September 30, 1997. Coastal has interest rate cap agreements with various counterparties. The agreements provide for the counterparties to make payments to Coastal whenever a defined floating rate exceeds rates ranging from 5.0% to 12.5%, depending on the agreement. Payments on the interest rate cap agreements are based on the notional principal amount of the agreements; no funds were actually borrowed or are to be repaid. The purchase prices of the interest rate cap agreements are capitalized and included in "prepaid expenses and other assets" in the accompanying consolidated statements of financial condition and are amortized over the life of the agreements using the straight-line method. The unamortized portion of the purchase price of the interest rate cap agreements was approximately $427,000 and $1.1 million at September 30, 1997 and December 31, 1996, respectively, with the estimated fair value of the agreements being $458,000 and $639,000 at September 30, 1997 and December 31, 1996, respectively. The interest rate cap agreements are used to alter the interest rate sensitivity of a portion of Coastal's mortgage-backed securities, loans receivable and their related funding sources. As such, the amortization of the purchase price and interest income from the interest rate cap agreements are recorded in "interest income on mortgage-backed securities or loans receivable," as appropriate, in the accompanying consolidated statements of income. The net decrease in interest income related to the interest rate cap agreements was approximately $202,000 and $379,000 for the nine months ended September 30, 1997 and 1996 respectively. Interest rate cap agreements outstanding at September 30, 1997 (unaudited) expire as follows (dollars in thousands):
Year of Strike rate Notional expiration range amount - ---------- -------------- --------- 1997 5.0% $ 43,000 1998 5.0 - 12.5 156,400 1999 7.25 - 11.0 56,789 2000 8.5 - 9.5 8,000 2001 7.5 3,265 --------- $ 267,454 =========
Market risk, or the risk of loss due to movement in market prices or rates, is quantified by Coastal through a risk monitoring process of marking to market the mortgage-backed securities portfolio to expected market level changes in an instantaneous shock of plus and minus 200 basis points on a monthly basis. This process discloses the effects on market values of the assets and liabilities, unrealized gains and losses, including off-balance sheet items, as well as potential changes in net interest income. The fluctuation in the market value, however, has no effect on the level of earnings of Coastal because the securities are categorized as "held-to-maturity" or "available-for-sale". Coastal is exposed to credit loss in the event of nonperformance by the counterparty to the swap or cap and controls this risk through credit monitoring procedures. The notional principal amount does not represent Coastal's exposure to credit loss. (9) NET EARNINGS PER SHARE Net earnings per share is calculated by dividing net income after preferred stock dividends by the weighted average number of common shares and common stock equivalents. Stock options outstanding are regarded as common stock equivalents and are, therefore, considered in earnings per share calculations if dilutive. Common stock equivalents are computed using the treasury stock method. The weighted average number of shares used in the computation of earnings per share is 5,166,732 and 5,025,955 for the three months ended September 30, 1997 and 1996, respectively (unaudited) and 5,129,312 and 5,019,399 for the nine months ended September 30, 1997 and 1996, respectively (unaudited). In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (Statement 128). Statement 128 supersedes APB Opinion No. 15, "Earnings Per Share" and specifies the computation, presentation and disclosure requirements for earnings per share (EPS) for entities with publicly held common stock. Statement 128 replaces the presentation of primary and fully diluted EPS with basic EPS and diluted EPS, respectively. Statement 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. After adoption, all prior-period EPS data presented will be restated to conform with Statement 128. The adoption of Statement 128 is not expected to have a material impact on Coastal's consolidated financial statements. (10) STATUTORY CAPITAL REQUIREMENTS The applicable regulations require federally insured institutions, which are not the highest rated, to have a minimum regulatory tier 1 (core) capital to total assets ratio equal to a minimum of 4.0%, a tier 1 risk-based capital to risk-weighted assets ratio of 4.0% and total risk-based capital to risk-weighted assets ratio of 8.0%. At September 30, 1997, the Bank's regulatory capital (unaudited) in relation to its current existing regulatory capital requirements were as follows (dollars in thousands):
Actual Requirement Excess -------- ----------- ------- Capital Requirement Dollar Percent Dollar Percent Dollar Percent - -------------------- -------- -------- ----------- -------- ------- -------- Tier 1 (core) $158,450 5.38% $ 117,756 4.00% $ 40,694 1.38% Tier 1 risk-based 158,450 11.37 55,720 4.00 102,730 7.37 Total risk-based 165,532 11.88 111,441 8.00 54,091 3.88
At September 30, 1997, the Bank, according to certain capital requirements outlined by the FDIC, was categorized as "well capitalized". (11) BRANCH ACQUISITION On June 21, 1997, Coastal announced the completion of the acquisition of the Wells Fargo Bank (Texas) branch located at 441 Austin Avenue in Port Arthur, Texas. At the date of acquisition, the Port Arthur location had approximately $54.6 million in deposits which were assumed. In addition, approximately $693,000 of operating assets were purchased by Coastal in the transaction. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Condition Total assets increased 1.9% or $53.7 million from December 31, 1996 to September 30, 1997. The net increase resulted primarily from an increase in loans receivable of $69.0 million, an increase in Federal funds sold of $5.0 million, an increase in property and equipment of $7.6 million, offset by decreases of $18.9 million, $11.7 million and $5.5 million in mortgage-backed securities held-to-maturity, mortgage-backed securities available-for-sale and stock in the Federal Home Loan Bank of Dallas, respectively. The increase in loans receivable was primarily due to a bulk loan purchase of residential mortgage loans totalling $97.5 million in June of 1997 (resulting from the investment of the cash received from the branch acquisition that closed on June 21, 1997) and the increase in Federal funds sold was due to Coastal's use of this overnight investment alternative for excess funds beginning in the second quarter of 1997. The increase in property and equipment was due primarily to the acquisition of assets related to the relocation of Coastal's corporate headquarters. The relocation, which was finalized during the third quarter of 1997, consolidated Coastal's administrative, primary lending and mortgage servicing offices. The decrease in mortgage-backed securities held-to-maturity was due to principal payments received. The decrease in mortgage-backed securities available-for-sale was primarily due to the sale of $11.3 million of securities in this category and approximately $452,000 in principal payments received. Savings deposits increased by 6.2% or $81.4 million from December 31, 1996 to September 30, 1997. This increase was primarily due to the branch acquisition of $54.6 million in deposits completed on June 21, 1997 and an increase in existing deposits. Securities sold under agreements to repurchase decreased 2.4% or $23.5 million and advances from the FHLB decreased by $26.7 million or 6.5% from December 31, 1996 to September 30, 1997. Stockholders' equity increased 8.0% or $7.5 million from December 31, 1996 to September 30, 1997 as a result primarily of net income and a $52,000 decrease in the unrealized loss on securities available-for-sale offset by dividends declared. Results of Operations for the Nine Months Ended September 30, 1997 and 1996 General For the nine months ended September 30, 1997, net income before preferred stock dividends increased 1.9% to $10.7 million from $10.5 million for the nine months ended September 30, 1996, calculated before the $4.8 million after-tax effect of the one-time Savings Association Insurance Fund (SAIF) deposit insurance special assessment (the "1996 special assessment"). Net income before preferred stock dividends (and after the effect of the 1996 special assessment) increased 89.0% or $5.0 million for the nine months ended September 30, 1997 from the nine months ended September 30, 1996. Net interest income increased by $952,000 for the nine months ended September 30, 1997 as compared to the nine months ended September 30, 1996. Noninterest income increased during such period by $238,000 and noninterest expense (before the $7.5 million 1996 special assessment) increased by $996,000. Interest Income Interest income for the nine months ended September 30, 1997 increased $5.8 million or 4.0% from the nine months ended September 30, 1996. The increase was primarily due to an increase of $8.2 million in interest earned on loans receivable over the prior comparable period. The increase in interest income on loans receivable was due to a $100.9 million increase in the average balance of loans receivable and an increase in the average yield from 8.49% for the nine months ended September 30, 1996 to 8.68% for the nine months ended September 30, 1997. This increase was somewhat offset by a $2.4 million decrease in interest income on mortgage-backed securities primarily due to a lower average balance and a slight decrease in the average yield on mortgage-backed securities from 6.12% for the nine months ended September 30, 1996 to 6.10% for the nine months ended September 30, 1997 and a $2,000 decrease in interest income on Federal funds sold, certificates of deposit and other investments. Total interest-earning assets for the nine months ended September 30, 1997 averaged $2.8 billion as compared to $2.7 billion for the nine months ended September 30, 1996. Interest Expense Interest expense on interest-bearing liabilities was $107.6 million for the nine months ended September 30, 1997, as compared to $102.8 million for the same period in 1996. The increase in interest expense was due to a $99.6 million increase in the average balance of interest-bearing liabilities during such period and an increase in the average rate paid from 5.38% for the nine month period ended September 30, 1996 to 5.42% for the nine months ended September 30, 1997. The increase in average interest-bearing liabilities consisted of a $54.6 million increase in interest-bearing savings deposits, a $65.3 million increase in securities sold under agreements to repurchase and a $216,000 increase in Federal funds purchased offset by a $20.5 million decrease in FHLB advances. Net Interest Income Net interest income was $43.1 million for the nine months ended September 30, 1997 as compared to $42.1 million for the same period in 1996. The increase in net interest income was due to the slightly improved net interest rate spread (Spread) percentage. Spread, defined to exclude noninterest-bearing deposits, increased from 1.72% for the nine months ended September 30, 1996 to 1.83% for the nine months ended September 30, 1997. Management also calculates an alternative Spread which includes noninterest-bearing deposits. Under this calculation, the alternative Spreads for the nine months ended September 30, 1997 and 1996 were 2.00% and 1.89%, respectively. Net interest margin (Margin) was 2.07% for the nine month period ended September 30, 1997 compared to 2.06% for the nine months ended September 30, 1996. Margin represents net interest income as a percentage of average interest-earning assets. Margin and Spread are affected by the changes in the amount and composition of interest-earning assets and interest-bearing liabilities. The increase in the Spread was primarily due to a slight increase in the average yield on interest-earning assets from 7.10% for the nine months ended September 30, 1996 to 7.25% for the same period in 1997, offset by a decrease of $47.9 million in average net interest-earning assets from the nine months ended September 30, 1996 to the nine months ended September 30, 1997. The slight improvement in the Spread level is consistent with management's goal of achieving a more desirable asset/liability composition which is less vulnerable to market interest rate fluctuations, primarily through the addition of loans tied to variable rates such as the London Interbank Offered Rate (LIBOR) and local and regional prime rates. To continue the improvement in both the Margin and Spread levels, efforts are being made to replace LIBOR based borrowings with lower cost deposits, and, in addition, management intends to gradually increase commercial business loans to approximately 15% of total assets and commercial business (noninterest-bearing) deposits to approximately 10% of total deposits within three to five years. Provision for Loan Losses Provision for loan losses was $1.4 million for the nine months ended September 30, 1997 as compared to $1.5 million for the nine months ended September 30, 1996. The slight decrease in the provision for loan losses was due to management's satisfaction with the current allowance for loan losses established based on Coastal's loan loss policy. The allowance for loan losses as a percentage of total loans was 0.55% at September 30, 1997 and 0.57% at September 30, 1996. Although no assurance can be given, management believes that the present allowance for loan losses is adequate considering historical loss experience, delinquency trends and current economic conditions. Management will continue to review its loan loss allowance policy as Coastal's loan portfolio grows and diversifies to determine if changes to the policy and resulting allowance for loan losses are necessary. Noninterest Income For the nine months ended September 30, 1997, noninterest income increased $238,000 or 5.3% to $4.8 million, compared to $4.5 million for the nine months ended September 30, 1996. The increase in noninterest income was due to a $387,000 increase in loan fees and service charges, a $241,000 increase in the gain on sales of mortgage-backed securities available-for-sale and a $194,000 increase in other noninterest income, offset by the $521,000 gain on the sale of a branch office recorded during the nine months ended September 30, 1996 and a decrease of $63,000 in loan servicing income. The increase in loan fees and service charges was due primarily to an increase of $374,000 in service charges on deposit accounts. Noninterest Expense For the nine months ended September 30, 1997, noninterest expense increased $996,000 or 3.5% to $29.6 million compared to $28.6 million for the nine months ended September 30, 1996, calculated before the $7.5 million 1996 special assessment. Compensation, payroll taxes and other benefits as well as office occupancy expense increased $1.8 million and $928,000, respectively, from the nine months ended September 30, 1996 to the nine months ended September 30, 1997, primarily due to the staffing increases related to the expansion of the loan product base and the continuing development of commercial business lending programs. In addition, occupancy expenses also increased due to the acquisition of assets and other expenses related to the relocation of Coastal's corporate headquarters in the third quarter of 1997. This increase in occupancy expenses included approximately $128,000 of nonrecurring expenses incurred due to the relocation. In addition, the amortization of goodwill increased by $21,000. These increases were somewhat offset by a $1.3 million decrease in insurance premiums. This decrease was due primarily to the decreased deposit insurance premiums as a result of the lower assessment rates applicable to Coastal in 1997 pursuant to the passage of the Deposit Insurance Funds Act of 1996. Other decreases included a $112,000 decrease in data processing expenses (due in part to the 1996 data processing conversion expenses incurred), a $37,000 decrease in the real estate owned expenses and a $359,000 decrease in other noninterest expenses. The 1996 special assessment of $7.5 million was included in noninterest expense for the nine months ended September 30, 1996 Provision for Federal Income Taxes For the nine months ended September 30, 1997, the provision for Federal income taxes was $6.2 million compared to $3.5 million for the nine months ended September 30, 1996 at an average effective rate of approximately 36.6% and 37.9%, respectively. Results of Operations for the Three Months Ended September 30, 1997 and 1996 General For the three months ended September 30, 1997, net income before preferred stock dividends was $3.4 million as was net income before preferred stock dividends and before the after-tax effect of the 1996 special assessment for the three months ended September 30, 1996. Net loss before preferred stock dividends (and after the effect of the 1996 special assessment) was $1.4 million for the three months ended September 30, 1996. Net interest income increased $185,000 for the three months ended September 30, 1997 as compared to the three months ended September 30, 1996. Noninterest income increased during such period by $324,000 primarily due to the $237,000 nonrecurring gain on the sale of mortgage-backed securities that was recorded during the three months ended September 30, 1997. Noninterest expense (before the $7.5 million 1996 special assessment) increased by $582,000 and the provision for federal income taxes increased by $2.6 million from the 1996 to the 1997 three month period. Interest Income Interest income for the three months ended September 30, 1997 increased $3.0 million or 6.2% from the three months ended September 30, 1996. The increase was primarily due to an increase of $3.5 million in interest earned on loans receivable over the prior comparable quarter. The increase in interest income on loans receivable was due to a $198.3 million increase in the average balance of loans receivable offset by a decrease in the average yield from 8.49% for the three months ended September 30, 1996 to 8.28% for the three months ended September 30, 1997. Of the decrease in the average yield on loans receivable, 0.13% was attributable to approximately $439,000 of additional amortization of purchased mortgage loan premium during the three months ended September 30, 1997. This amortization was attributable primarily to prepayments related to an adjustable rate whole loan package purchased in the second quarter of 1997. Management believes the prepayments on this loan package could continue through the end of the year. This increase in interest income on loans receivable was somewhat offset by a $522,000 decrease in interest income on mortgage-backed securities primarily due to a lower average balance. In addition, interest income on Federal funds sold, certificates of deposit and other investments increased $33,000. Total interest-earning assets for the three months ended September 30, 1997 averaged $2.9 billion as compared to $2.7 billion for the three months ended September 30, 1996. Interest Expense Interest expense on interest-bearing liabilities was $37.1 million for the three months ended September 30, 1997, as compared to $34.2 million for the same period in 1996. The increase in interest expense was due to a $142.5 million increase in the average balance of interest-bearing liabilities during such period and an increase in the average rate paid on interest-bearing liabilities from 5.38% for the three months ended September 30, 1996 to 5.47% for the three months ended September 30, 1997. The increase in average interest-bearing liabilities consisted of a $151.9 million increase in securities sold under agreements to repurchase and a $78.8 million increase in interest-bearing savings deposits, offset by a $88.2 million decrease in FHLB advances. Net Interest Income Net interest income was $14.2 million for the three months ended September 30, 1997 and $14.0 million for the same period in 1996. Margin decreased from 2.06% for the three months ended September 30, 1996 to 1.98% for the three months ended September 30, 1997. Margin represents net interest income as a percentage of average interest-earning assets. Spread, defined to exclude noninterest-bearing deposits, decreased from 1.70% for the three months ended September 30, 1996 to 1.66% for the three months ended September 30, 1997. Management also calculates an alternative Spread which includes noninterest-bearing deposits. Under this calculation, the alternative Spreads for the three months ended September 30, 1997 and 1996 were 1.86% and 1.88%, respectively. Margin and Spread are affected by the changes in the amount and composition of interest-earning assets and interest-bearing liabilities. The decrease in the Margin and Spread were due to the tightening in net interest income experienced by Coastal due to higher borrowing costs and the anomaly that the spread between LIBOR and Treasury rates (the "TED Spread") has been much wider than usual. The TED Spread historically (6 year average) has been 39 basis points, but for the third quarter 1997 was 56 basis points. The TED Spread effect on Coastal was substantial for the quarter ended September 30, 1997 with liabilities affected by the change in LIBOR totalling approximately $1.6 billion. The historical difference of 17 basis points would have equated to an additional 8 cents per share for the quarter had the TED Spread been consistent with past history. The average interest rates paid on interest-bearing liabilities increased from 5.38% for the three months ended September 30, 1996 to 5.47% for the same period in 1997. This increase was slightly offset by an increase in the average yield on interest-earning assets from 7.08% for the three months ended September 30, 1996 to 7.13% for the same period in 1997. In addition, average net interest-earning assets increased $9.2 million from the three months ended September 30, 1996 to the three months ended September 30, 1997. While management believes that the higher borrowing costs are temporary, efforts are being made to replace borrowings with lower cost deposits. Management's goal is to achieve a more desirable asset/liability composition which is less vulnerable to market interest rate fluctuations, primarily through the addition of loans tied to variable rates such as LIBOR and local and regional prime rates and through the efforts to replace LIBOR based borrowings with lower cost deposits. In addition, management intends to gradually increase commercial business loans to approximately 15% of total assets and commercial business (noninterest-bearing) deposits to approximately 10% of total deposits within three to five years. Provision for Loan Losses The provision for loan losses was $450,000 for the three months ended September 30, 1997 and 1996. The allowance for loan losses as a percentage of total loans was 0.55% at September 30, 1997 and 0.57% at September 30, 1996. Although no assurance can be given, management believes that the present allowance for loan losses is adequate considering historical loss experience, delinquency trends and current economic conditions. Management will continue to review its loan loss allowance policy as Coastal's loan portfolio grows and diversifies to determine if changes to the policy and resulting allowance for loan losses are necessary. Noninterest Income For the three months ended September 30, 1997, noninterest income increased $324,000 or 22.8% to $1.7 million, compared to $1.4 million for the three months ended September 30, 1996. The increase in noninterest income was primarily due to the $237,000 nonrecurring gain on the sale of mortgage-backed securities recorded during the three months ended September 30, 1997, in addition to an increase of $102,000 in loan fees and service charges and a $60,000 increase in other noninterest income. These increases were somewhat offset by a $75,000 decrease in loan servicing income. Noninterest Expense For the three months ended September 30, 1997, noninterest expense increased $582,000 from the three months ended September 30, 1996 excluding the effect of the 1996 special assessment. Compensation, payroll taxes and other benefits as well as office occupancy expense increased $629,000 and $500,000, respectively, from the three months ended September 30, 1996 to the three months ended September 30, 1997, primarily due to the staffing increases related to the expansion of the loan product base and the continuing development of commercial business lending programs. In addition, occupancy expenses also increased due to the acquisition of assets and other expenses related to the relocation of Coastal's corporate headquarters in the third quarter of 1997. Of the $500,000 increase in occupancy expenses, approximately $128,000 were nonrecurring expenses due to the relocation. In addition, data processing expenses and the amortization of goodwill increased $72,000 and $36,000, respectively. These increases were somewhat offset by a $354,000 decrease in insurance premiums. This decrease from the prior related quarter was due primarily to the decreased deposit insurance premiums as a result of the lower assessment rates applicable to Coastal in 1997 pursuant to the passage of the Deposit Insurance Funds Act of 1996. Other decreases included a $133,000 decrease in real estate owned expenses and a $168,000 decrease in other noninterest expense. The 1996 special assessment of $7.5 million was included in noninterest expense for the three months ended September 30, 1996. Provision for Federal Income Taxes For the three months ended September 30, 1997, the provision for Federal income taxes was $2.0 million compared to an income tax benefit of $636,000 for the three months ended September 30, 1996 (resulting from the effect of the 1996 special assessment) at an average effective rate of approximately 36.7% and 30.8%, respectively. Liquidity and Capital Resources Coastal's primary sources of funds consist of savings deposits bearing market rates of interest, securities sold under agreements to repurchase, advances from the FHLB, Federal funds purchased and principal payments on loans receivable and mortgage-backed securities. Coastal uses its funding resources principally to meet its ongoing commitments to fund maturing deposits and deposit withdrawals, repay borrowings, purchase loans receivable and mortgage-backed securities, fund existing and continuing loan commitments, maintain its liquidity, meet operating expenses and fund acquisitions of other banks and thrifts, either on a branch office or whole bank acquisition basis. At September 30, 1997, Coastal had binding commitments to originate or purchase loans totaling approximately $52.0 million and had $50.7 million of undisbursed loans in process. Scheduled maturities of certificates of deposit during the 12 months following September 30, 1997 totaled $758.9 million at September 30, 1997. Management believes that Coastal has adequate resources to fund all of its commitments. As of September 30, 1997, Coastal operated 37 retail banking offices in Texas cities, including Houston, Austin, Corpus Christi and small cities in the southeast quadrant of Texas. Management's five year goal is to have over $5 billion in assets, over $3 billion in deposits, $2.5 billion in loans and 80 branches in cities throughout central and south Texas, although there can be no assurance that this goal can be accomplished through growth or acquisitions. Forward-Looking Information The above discussion should be read in conjunction with the information contained in the Consolidated Financial Statements and the Notes thereto. The above information contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), and are subject to the safe harbor created by that Reform Act. The words "estimate," "project," "anticipate," "expect," "intend," "believe," "plans," and similar expressions are intended to identify forward-looking statements. Because such forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors, all of which are difficult to predict and many of which are beyond the control of Coastal, that could cause actual results to differ materially include, but are not limited to: risks related to Coastal's acquisition strategy, including risks of adversely changing results of operations and factors affecting Coastal's ability to consummate further acquisitions; changes in general economic and business conditions; changes in market rates of interest; changes in the laws and regulations applicable to Coastal; the risks associated with the Bank's Non-Traditional lending (loans other than single-family residential mortgage loans such as multifamily, real estate acquisition and development, commercial, warehouse and mortgage servicing rights loans); and changes in business strategies and other factors as discussed in Coastal's Annual Report on Form 10-K for the year ended December 31, 1996, as filed with the Securities and Exchange Commission (SEC) on March 26, 1997 and in Coastal's Quarterly Report on Form 10-Q for the six months ended June 30, 1997, as filed with the SEC on August 8, 1997. PART II - OTHER INFORMATION Item 1. Legal Proceedings Coastal is involved in routine legal proceedings occurring in the ordinary course of business which, in the aggregate, are believed by management to be immaterial. Item 2. Changes in Securities a) Not applicable. b) Not applicable. Item 3. Default Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K The following exhibits are filed as part of this report: Exhibit 27 - Financial Data Schedule (filed via EDGAR) Exhibit 99 - Forward-Looking Information SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: 11/12/97 By/s/ Manuel J. Mehos Manuel J. Mehos Chairman of the Board Chief Executive Officer Dated: 11/12/97 By/s/ Catherine N. Wylie Catherine N. Wylie Chief Financial Officer Exhibit 27 Financial Data Schedule (filed via EDGAR) Exhibit 99 Forward-Looking Information Forward-Looking Information The information included in Item 2 (Management's Discussion and Analysis of Financial Condition and Results of Operations) should be read in conjunction with the information contained in the Consolidated Financial Statements and the Notes thereto. The information contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"), and is subject to the safe harbor created by that Reform Act. The words "estimate," "project," "anticipate," "expect," "intend," "believe," "plans," and similar expressions are intended to identify forward-looking statements. Because such forward-looking statements involve risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. Factors, all of which are difficult to predict and many of which are beyond the control of Coastal, that could cause actual results to differ materially include, but are not limited to: risks related to Coastal's acquisition strategy, including risks of adversely changing results of operations and factors affecting Coastal's ability to consummate further acquisitions; changes in general economic and business conditions; changes in market rates of interest; changes in the laws and regulations applicable to Coastal; the risks associated with the Bank's Non-Traditional lending (loans other than single-family residential mortgage loans such as multifamily, real estate acquisition and development, commercial, warehouse and mortgage servicing rights loans); and changes in business strategies and other factors as discussed in Coastal's Annual Report on Form 10-K for the year ended December 31, 1996, as filed with the Securities and Exchange Commission (SEC) on March 26, 1997 and in Coastal's Quarterly Report on Form 10-Q for the six months ended June 30, 1997, as filed with the SEC on August 8, 1997. EX-27 2
9 This schedule contains summary financial information extracted from the consolidated statement of financial condition and the consolidated statement of operations and notes thereto found on pages 1 through 13 of the Comapny's Form 10-Q for year-to-date and is qualified in its entirety by reference to such financial statements 9-MOS DEC-31-1997 SEP-30-1997 38,886 0 5,000 0 168,976 1,325,681 1,295,133 1,298,795 7,082 2,929,560 1,392,234 984,491 59,175 392,004 0 0 50 101,606 2,929,560 80,249 69,395 1,109 150,753 46,659 107,642 43,111 1,350 237 31,567 14,956 8,774 0 0 8,774 1.71 1.71 0 0 0 0 0 6,880 1,259 111 7,082 7,082 0 0
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