**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

# **FORM 10-QSB/A**

**(Mark One)**

| **ý** |   | **QUARTERLY  REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                   |
|------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |   | **For the quarterly period ended June 30, 2002**                                                                                                                                                                                                                                                                          |
|       |   |                                                                                                                                                                                                                                                                                                                      |
| **o**      |   | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT**                                                                                                                                                                                                                                                      |
|       |   | **For the transition period from                          to                     ** |

 

**Commission File No. 000-32827**

** **

**COAST BANCORP**

(Exactname of Registration as Specified in its Charter)

 

| **California**                                                                      |   | **77-0567091**                     |
|-------------------------------------------------------------------------------------|--------|------------------------------------|
| (State  or other jurisdiction of incorporation or organization)                     |   | (IRS  Employer Identification No.) |
|                                                                                |   |                               |
| **553B Higuera Street, San Luis Obispo, CA 93401**                                  |
| (Address  of principal executive offices)                                           |
|                                                                                |
| **(805) 541-0400**                                                                  |
| (Registrant’s  telephone number, including area code)                          |
|                                                                                |
| **Not applicable**                                                                  |
| (Former  name, former address and former fiscal year, if changed since last report) |

 

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during the past12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes ýNo o

**APPLICABLEONLY TO CORPORATE ISSUERS**

State the number of sharesoutstanding of each of the issuer’s classes of common equity, as of the latestpracticable date:

Common Stock — As of July 15,2002, there were 632,400 shares of the issuer’s common stock outstanding.

Transitional Small Business Disclosure Format

(Check one)

yes: o  no: ý

 

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PART I — FINANCIAL INFORMATION

ITEMI — FINANCIAL STATEMENTS

 

Statementof Financial Condition (unaudited)

 
| **(in thousands)**                                                                                                         |   | **June  30,  2002** | ** ** | **December  31,  2001** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|---------------------|------------|-------------------------|--------|
| ASSETS                                                                                                                     |   |                |       |                    |   |
| Cash and due from banks                                                                                                    |   | $                   | 5,250      |                    | $      | 3,899 |   |
| Federal funds sold                                                                                                         |   | 6,005               |       | 8,650                   |   |
| TOTAL CASH AND CASH  EQUIVALENTS                                                                                           |   | 11,255              |       | 12,549                  |   |
| Interest-bearing deposits                                                                                                  |   | —              |       | —                  |   |
|                                                                                                                       |   |                |       |                    |   |
| Investment securities:                                                                                                     |   |                |       |                    |   |
| Securities held to maturity                                                                                                |   | —              |       | —                  |   |
| Securities available for sale                                                                                              |   | 8,179               |       | 11,264                  |   |
| TOTAL INVESTMENT SECURITIES                                                                                                |   | 8,179               |       | 11,264                  |   |
| Loans:                                                                                                                     |   |                |       |                    |   |
| Commercial                                                                                                                 |   | 14,246              |       | 15,061                  |   |
| Real estate — construction                                                                                            |   | 5,471               |       | 5,738                   |   |
| Real estate — other                                                                                                   |   | 33,821              |       | 31,064                  |   |
| Consumer                                                                                                                   |   | 25,835              |       | 25,055                  |   |
| TOTAL LOANS                                                                                                                |   | 79,373              |       | 76,918                  |   |
| Net deferred loan fees                                                                                                     |   | (293                | )          | (274                    | )      |
| Allowance for credit losses                                                                                                |   | (940                | )          | (850                    | )      |
| NET LOANS                                                                                                                  |   | 78,140              |       | 75,794                  |   |
| Premises and equipment                                                                                                     |   | 5,113               |       | 3,894                   |   |
| Deferred taxes                                                                                                             |   | 192                 |       | 213                     |   |
| Federal reserve bank stock, at cost                                                                                        |   | 202                 |       | 189                     |   |
| Other assets                                                                                                               |   | 786                 |       | 724                     |   |
| TOTAL ASSETS                                                                                                               |   | $                   | 103,867    |                    | $      | 104,627 |   |
|                                                                                                                       |   |                |       |                    |   |
| LIABILITIES AND STOCKHOLDERS’  EQUITY                                                                                 |   |                |       |                    |   |
| Deposits:                                                                                                                  |   |                |       |                    |   |
| Noninterest-bearing demand                                                                                                 |   | $                   | 26,774     |                    | $      | 24,831 |   |
| Money market and NOW                                                                                                       |   | 26,494              |       | 29,958                  |   |
| Savings                                                                                                                    |   | 5,145               |       | 4,610                   |   |
| Time deposits of $100,000 or more                                                                                          |   | 20,704              |       | 20,932                  |   |
| Other time deposits                                                                                                        |   | 16,342              |       | 16,195                  |   |
| TOTAL DEPOSITS                                                                                                             |   | 95,459              |       | 96,526                  |   |
| Notes payable                                                                                                              |   | 730                 |       | 735                     |   |
| Other liabilities                                                                                                          |   | 161                 |       | 210                     |   |
| TOTAL LIABILITIES                                                                                                          |   | 96,350              |       | 97,471                  |   |
|                                                                                                                       |   |                |       |                    |   |
| Stockholders’ equity                                                                                                  |   |                |       |                    |   |
| Preferred stock — 10,000,000 authorized, none outstanding                                                             |   |                |       |                    |   |
| Common stock no par value; 10,000,000 shares authorized; issued and outstanding: 632,400  in 2002 and 632,400 in 2001 |   | 6,324               |       | 6,324                   |   |
| Retained earnings                                                                                                          |   | 1,102               |       | 732                     |   |
| Accumulated other comprehensive income — net unrealized (losses) gains  on available-for-sale securities         |   | 91                  |       | 100                     |   |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                            |   | 7,517               |       | 7,156                   |   |
| TOTAL LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                           |   | $                   | 103,867    |                    | $      | 104,627 |   |

 

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#### **Item 2.  Management’s Discussionand Analysis of Financial Condition and Results of Operations**

 

Theunaudited financial statements have been prepared in accordance with theinstructions to form 10-QSB and contain statements relating to future resultsof the Company that are considered to be “forward looking statements” withinthe meaning of the Private Securities Litigation Reform Act of 1995.  These statements relate to, among otherthings, credit loss reserve adequacy, and simulation of changes in interestrates and litigation results.  Actualresults may differ materially from those expressed or implied as a result ofcertain risks and uncertainties, including, but not limited to, changes inpolitical and economic conditions, interest rate fluctuations, competitiveproduct and pricing pressures within the Company’s markets, equity and fixedincome market fluctuations, personal and corporate customers’ bankruptcies,inflation, acquisitions and integrations of acquired businesses, technologicalchange, changes in law, changes in fiscal, monetary, regulatory and taxpolicies, monetary fluctuations, the California energy crisis, success ingaining regulatory approvals when required as well as other risks anduncertainties detailed elsewhere in this quarterly report or from time to timein the filings of the Company with the Securities and Exchange Commission.  Such forward-looking statements speak onlyas of the date on which such statements are made, and the corporationundertakes no obligation to update any forward-looking statement to reflect eventsor circumstances after the date on which such statement is made or to reflectthe occurrence of unanticipated events. The accompanying financial information should be read in conjunctionwith the Bank’s Annual Report on Form 10-KSB for the year ended December 31,2001.

 

OnJune 1, 2001 Coast Bancorp acquired all of the outstanding shares of CoastNational Bank’s common stock in a non-cash transaction.  Coast Bancorp has no material businessactivity other than the involvement in Coast National Bank.  Financial information presented herein forJune 30, 2002 and comparative information for December 31, 2001 and  June 30, 2001.

 

Coast National Bank commencedoperations June 16, 1997 with two offices and $6,250,000.00 in capital.  All shares sold and issued were of oneclass.  In June 1998 the Morro Baybranch was opened, expanding our customer base and service area.  In June 1999 the Los Osos branch was alsoopened to further serve the needs of the residents of the North Coast.  Coast National Bank anticipates being ableto satisfy its cash requirements, near term, with continuing deposit growth.

 

##### **Overview**

 

For the three months endedJune 30, 2002 the company reported net income of $234,000 or $0.36 dilutedearnings per share compared to net income of $141,000 and $0.21 dilutedearnings per share for the same period during 2001.  For the six month ended June 30, 2002 the company reported netincome of $370,000 or $0.56 diluted earnings per share compared to net incomeof $286,000 and $0.44 diluted earnings per share for the same period during 2001.

 

##### **Net Interest Income**

 

Netinterest income is the amount by which the interest and amortization of feesgenerated from loans and other earning assets exceed the cost of funding thoseassets, usually deposit account interest expense.  Net interest income depends on the difference (the “interest ratespread’) between gross interest and fees earned on the loans and investmentportfolios and the interest rates paid on deposits and borrowings.   Net interest income was $2,336,000 for the six month ended June 30, 2002,compared to $2,072,000 for the quarter ended June 30, 2001 an increase of12.7%.

 

Thefollowing table sets forth the components of net interest income, averageearning assets and net interest margin (in thousands): Net interest margin iscalculated by using net interest income divided by average earning assets.

 
|                   |   | **Three Months Ended  June 30** |   | **Six Months Ended  June 30,** |   | **Year Ended December 31,** |   |
|------------------------|--------|---------------------------------|--------|--------------------------------|--------|-----------------------------|--------|
|                   |   | **2002**                        |   | **2001**                       |   | **2002**                    |   | **2001** |   | **2001** |   |
|                   |   |                            |   |                           |   |                        |   |   |   |   |   |
| Interest Income        |   | $                               | 1,578  |                           | $      | 1,801                       |   | $ | 3,122 |   | $ | 3,657 |   | $ | 7,084 |   |
| Interest Expense       |   | 382                             |   | 767                            |   | 786                         |   | 1,585 |   | 2,773 |   |
|                   |   |                            |   |                           |   |                        |   |   |   |   |   |
| Net  Interest Income   |   | $                               | 1,196  |                           | $      | 1,034                       |   | $ | 2,336 |   | $ | 2,072 |   | $ | 4,331 |   |
|                   |   |                            |   |                           |   |                        |   |   |   |   |   |
| Average Earning Assets |   | $                               | 95,190 |                           | $      | 94,284                      |   | $ | 96,592 |   | $ | 91,260 |   | $ | 93,823 |   |
| Net Interest Margin    |   | 5.03                            | %      | 4.39                           | %      | 4.84                        | %      | 4.54 | % | 4.59 | % |

 

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The 12.7%increase in net interest income for the first six months of 2002 as compared tothe first six months of 2001 was primarily the result of the significant dropin interest expense.  The Company hasexperienced an increase in the net interest margin due to the decline in highinterest rate deposits.

 

##### **Provision for Loan Losses**

 

Management of the Company believes that the allowancefor loan losses is adequate.  TheCompany has established a monitoring system for loans in order to identifyimpaired loans and potential problem loans and to permit periodic evaluation ofimpairment and adequacy of the allowance for loan losses in a timelymanner.  The monitoring system andallowance for loan losses methodology have evolved over a period of years, andloan classifications have been incorporated into the determination of theallowance for loan losses.  This monitoringsystem and allowance methodology includes a loan-by-loan analysis for allclassified loans as well as loss factors for the balance of the unclassifiedportfolio.  Classified loans arereviewed individually to estimate the amount of probable losses that needs tobe included in the allowance.  Thesereviews include analysis of financial information as well as evaluation ofcollateral securing the credit.  Lossfactors on the unclassified portion of the portfolio are based on such factorsas historical loss experience, current portfolio delinquency and trends, andother inherent risk factors such as economic conditions, concentrations in theportfolio, risk levels of particular loan categories, internal loan review andmanagement oversight.

The Company made a $80,000 contribution to the allowance for loan lossesfor the six months ended June 30, 2002 compared to $63,000 for the same periodin 2001.  Management believes that theallowance, which equals 1.14% of total loans at June 30, 2002, is adequate to coverfuture losses.  The allowance for loanlosses at December 31, 2001 was 1.1% of total loans.

 

Changes in the allowance for loan losses for the three months ended andthe six months ended June 30, 2002 and 2001 are as follows (dollar amounts inthousands):

 
|                                       |   | **Three Months Ended  June 30,** |   | **Six Months Ended  June 30,** |   |
|--------------------------------------------|--------|----------------------------------|--------|--------------------------------|--------|
|                                       |   | **2002**                         |   | **2001**                       |   | **2002** |   | **2001** |   |
|                                       |   |                             |   |                           |   |   |   |   |   |
| Allowance, Beginning of Period             |   | $                                | 875    |                           | $      | 725 |   | $ | 850 |   | $ | 700 |   |
| Provision for Loan Losses                  |   | 60                               |   | 38                             |   | 80 |   | 63 |   |
| Loans Charged Off — net of Recoveries |   | 5                                |   | (13                            | )      | 10 |   | (13 | ) |
|                                       |   |                             |   |                           |   |   |   |   |   |
| Allowance, End of Period                   |   | $                                | 940    |                           | $      | 750 |   | $ | 940 |   | $ | 750 |   |

 

 

 

 

##### **Noninterest Income**

 

Noninterest income represents deposit account service charges and othertypes of non-loan related fee income. Noninterest income for the three months ended June 30, 2002 totaled$348,000 compared to $146,000 for the same period in 2001 a 138.36% increase.Noninterest income for the six months ended June 30, 2002 totaled $459,000compared to $266,000 for the same period in 2001 a 72.5% increase. Thisincrease is primarily due to the realized gains on the sale of investmentsecurities and realized gains on the sale of the guaranteed portion of SBAloans.

 

 

##### **Noninterest Expense**

 

Noninterest expense represents salaries,occupancy expenses, professional expenses, outside services and othermiscellaneous expenses necessary to conduct business.  Noninterest expense for the three months ended June 30, 2002totaled $1,052,000 compared to $898,000 for the same period in 2001 a 17.1%increase. Noninterest expense for the six months ended June 30, 2002 totaled$2,044,000 compared to $1,782,000 for the same period in 2001 a 14.7% increase.This increase is primarily due to the opening of a government guaranteedlending department specializing in Small Business Administration lendingprograms during the latter part of 2000 and the overall expansion of thecustomer base.

 

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**Income Taxes**

 

The Company recorded a $198,000 tax provision for the three months endedJune 30, 2002 compared to $103,000 during the same period in 2001.  The six months ended tax provision was$301,000 compared to $207,000 or the same period in 2001.  The Company is fully taxable on its earningsin 2001.

 

##### **Financial Condition**

 

Total assets as of June 30, 2002 decreased .66% to $103.9 million incomparison to total assets of $104.6 million as of December 31, 2001.  Total assets increased by 0.7 million or0.7% to 103.9 million as of June 30, 2002, compared to  $103.2 million at June 30, 2001.  Management has restricted growth of thecompany to maintain well-capitalized capital ratios.

 

 

##### **Asset Quality**

 

Asset quality has remained excellent at the Company.  As of December 31, 2001 the Company had$55,000 on nonaccrual.  This amountrepresents the guaranteed portion of a U.S. Small Business administration loanawaiting buy back. As of June 30, 2001 and June 30, 2002 the Company had noloans on nonaccrual or loans 90 day past due and still accruing.  The Bank has had no OREO during 2000 or2001.

 

##### **Capital**

 

The objective of theCompany’s asset/liability strategy is to manage liquidity and interest raterisk is to ensure the safety and soundness of the Bank and it’s capital base,while maintaining adequate net interest margins and spreads to provide anappropriate return to the shareholders.

Shareholders equity at June30, 2002 was $7.5 million, an increase of $.4 million over $ 7.1 million at December 31, 2001.  Shareholders equity increased primarily fromnet income of  $370,000.

 

The Company is required tomeet certain minimum risk-based capital guidelines and leverage ratios set bythe banks regulatory authorities. The risk-based capital standards establishcapital requirements that are more sensitive to risk differences betweenvarious assets, consider off balance sheet activities in assessing capitaladequacy, and minimize the disincentives to holding liquid, low riskassets.  The leverage ratio consists oftangible Tier I capital divided by average total assets.

 

Coast Bancorp maintains capital ratios abovethe Federal regulatory guidelines for “well-capitalized” bank holdingcompanies.  The ratios are as follows:

 

|                            |   | **Minimum Requirements** |   | **WellCapitalized** |   | **Six  Months EndedJune 30, 2002** |   | **December 31, 2001** |   |
|---------------------------------|--------|--------------------------|--------|---------------------|--------|------------------------------------|--------|-----------------------|--------|
| Total risk-based capital ratio  |   | 8.00                     | %      | 10.00               | %      | 10.51                              | %      | 10.48                 | %      |
| Tier 1 risk-based capital ratio |   | 4.00                     | %      | 6.00                | %      | 9.39                               | %      | 9.41                  | %      |
| Tier 1 leverage capital ratio   |   | 4.00                     | %      | 5.00                | %      | 7.53                               | %      | 7.15                  | %      |

 

 

 

##### **Liquidity**

 

Management is not aware of any future capitalexpenditures or other significant demands on commitments, which would severelyimpair liquidity.  For the six monthsended June 30, 2002 the bank has a loan to deposit ratio of 81.9% and totalinvestments to assets of 14.72%.

 

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PART II — OTHER INFORMATION

 

ITEM 1 — LEGAL PROCEEDINGS

                Notapplicable.

 

ITEM 2 — CHANGES INSECURITIES

                Notapplicable.

 

ITEM 3 — DEFAULTS UPONSENIOR SECURITIES

                Notapplicable.

 

ITEM 4 — SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS

 

(a)           CoastBancorp’s  2002 Annual Meeting ofShareholders was held on May 22, 2002 (the “Meeting”).  The Meeting involved the following proposals:

 

1.     To elect eleven (11) persons to the Board of Directors to serveuntil the next Annual Meeting of Shareholders and until their successors areelected and have qualified.

2.     To approve the appointment of Vavrinek, Trine, Day & Co. LLPas independent public accountants for the Company’s 2002 fiscal year; and

**(**b)           Proxiesfor the meeting were solicited pursuant to Regulation 14A under the SecuritiesExchange Act of 1934, as amended. There were no solicitations in oppositionmanagement’s nominees as listed in the proxy statement, and all such nomineeswere elected.

On Proposal No. 2 to approvethe appointment of Vavrinek, Trine, Day & Co. LLP as independent publicaccountants for the Company’s 2002 fiscal year, 490,140 shares voted in favorof approval, 0 shares voted against approval, 5,550 shares abstained, and therewere 0 broker non-votes.  Accordingly,Proposal No. 2 was passed by the shareholders.

 

(c)           There was no settlement between the Company and any otherperson terminating any solicitation subject to Rule 14a-11.

 

.

 

ITEM 5 — OTHER INFORMATION

 

On  May 29, 2002, the Company filed Registration Statement No.333-89342 on Form SB-2 with the Securities and Exchange Commission. The RegistrationStatement related to new shares of the Company’s common stock issuable to thepublic for an aggregate consideration of up to $3,000,000. By letter datedAugust 12, 2002, the registration statement was withdrawn before being declaredeffective. No securities were sold in connection with the offering.

 

ITEM 6 — EXHIBITS ANDREPORTS OF FORM 8-K

 

 

A)          Exhibits

 

6

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EXHIBIT 99.1 — CERTIFICATIONOF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350

 

EXHIBIT 99.2 - —CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350

 

7

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###### **Signatures**

 

Inaccordance with the requirements of the Exchange Act of 1934, the registranthas caused this amendment to be signed on its behalf by the undersigned,thereunto duly authorized.

 

 

 

COASTBANCORP

 

 
| Date:  | August 14, 2002 | /s/ Jack Wauchope              |
|--------|-----------------|--------------------------------|
|   |            | Jack Wauchope                  |
|   |            | Chief Executive Officer        |
|   |            | [Principal Executive  Officer] |

 

 

 
| Date:  | August 14, 2002 | /s/ Thomas Sherman             |
|--------|-----------------|--------------------------------|
|   |            | Thomas Sherman                 |
|   |            | Chief Financial Officer        |
|   |            | [Principal Financial  Officer] |

 

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