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CST: 22/09/2019 11:27:43   

Coastal Financial Corporation Announces First Quarter 2019 Results

149 Days ago

Quarter One 2019 Highlights:

  • Net income totaled $2.8 million for the quarter ended March 31, 2019, or $0.23 per diluted common share, up from $1.8 million, or $0.20 per diluted common share, for the quarter ended March 31, 2018. 
  • Total loans receivable grew at an annualized rate of 12.1% for the quarter ended March 31, 2019 and increased 16.6% from March 31, 2018.
  • Total core deposits grew at an annualized rate of 11.8% for the quarter ended March 31, 2019 and increased 12.4% since March 31, 2018. 

EVERETT, Wash., April 26, 2019 (GLOBE NEWSWIRE) -- Coastal Financial Corporation (NASDAQ: CCB) (the “Company”), the holding company for Coastal Community Bank (the “Bank”), today reported unaudited financial results for the quarter ended March 31, 2019.  Net income for the first quarter of 2019 was $2.8 million, or $0.23 per diluted common share, compared with net income of $ 3.1 million, or $0.25 per diluted common share, for the fourth quarter of 2018. 

Eric Sprink, President and CEO, commented, “We got off to a good start in first quarter with earnings of $2.8 million, loan growth of $23.2 million, and core deposit growth of $20.6 million. The continued organic growth in core deposits and loans puts us in a good position for further growth in earnings. Overall, the first quarter 2019 was a solid quarter with good organic growth from our core community bank.”

In October 2018, the Bank agreed to retain deposits from a wholesale banking services client on a temporary basis.  These deposits come through a wholesale banking relationship and not from the end customer so they are classified as brokered deposits in accordance with regulatory guidance.  Throughout the remainder of this earnings release, these deposits are referred to as Wholesale-Brokered Deposits.

At March 31, 2019, Wholesale-Brokered Deposits totaled $164.6 million compared to $10.5 million at December 31, 2018.  The Bank invested the cash from Wholesale-Brokered Deposits into overnight funds.  Cash and cash equivalents at March 31, 2019 totaled $257.6 million compared to $125.8 million at December 31, 2018.  On April 9, 2019, the wholesale banking customer transferred $157.1 million in temporary Wholesale-Brokered Deposits from the Bank to their deposit provider, which brought the remaining balance to below $6 million. This temporary increase in Wholesale-Brokered Deposits was atypical, the result of an accommodation for a wholesale banking services customer, and is not expected to occur again.

The increase of Wholesale-Brokered Deposits during the quarter ended March 31, 2019 most significantly affected the following balance sheet items: cash and cash equivalents, total assets, deposits, and total liabilities.  Cost of deposits, cost of funds, net interest margin, and net income were the most significantly impacted income statement items due to the temporary increase in Wholesale-Brokered Deposits.  We will explain the impact of the temporary increase in Wholesale-Brokered Deposits throughout this earning release so users of this financial information can compare first quarter’s results with prior quarter’s results, with and without the impact of retaining these temporary balances.

The Bank’s definition of core deposits excludes all brokered and time deposits.  The Bank remains focused on growing core deposits through its branches and lending relationships with customers. 

Results of Operations

Net interest income was $9.8 million for the quarter ended March 31, 2019, a slight decrease from $9.9 million or 1.2% compared to the quarter ended December 31, 2018, and an increase of 25.6% from $7.8 million for the first quarter of 2018.  The decrease compared to prior quarter is primarily related to the number of days outstanding during the periods. The increase from the prior year’s first quarter is a result of higher yielding and increased interest earning asset balances.

Net interest margin for the quarter ended March 31, 2019 decreased 30 basis points to 4.13% from 4.43% for the quarter ended December 31, 2018, and was one basis point higher than the first quarter of 2018 margin. The impact of holding the Wholesale-Brokered Deposits during the quarter significantly increased lower yielding assets and costs of deposits. The net interest margin would have been 4.48% for the quarter ended March 31, 2019, excluding the impact of temporary Wholesale-Brokered Deposits, a five basis point increase over the prior quarter, as loan yields outpaced deposit costs. Adjusted net interest margin of 4.48% for the quarter ended March 31, 2019 was a 36 basis point increase over same quarter one year ago. The increase in net interest margin over the prior year is a result of loan growth and loan pricing increasing at a rate greater than core deposits costs.  

During the quarter ended March 31, 2019, the average balance of total loans receivable increased by $23.3 million, compared to the quarter ended December 31, 2018, and increased by $127.8 million, compared to the same quarter one year ago. Total loan yields for the quarter ended March 31, 2019 were 5.40%, an increase of one basis point from 5.39% for the quarter ended December 31, 2018, and a 33 basis point increase from 5.07% for the quarter ended March 31, 2018. Yields for the quarter ended December 31, 2018 included significant prepayment penalties and early recognition of deferred fees.

Contractual loan yields approximated 5.22% for the three months ended March 31, 2019, 5.15% for the three months ended December 31, 2018, and 4.88% for the three months ended March 31, 2018. The increase in contractual loan yields, as compared to prior periods, was from pricing new loans at higher rates and variable loans repricing with the increase in the prime rate and changes in the composition of the loan portfolio.

Deposit costs for the quarter ended March 31, 2019 were 0.68%, an increase of 21 basis points from 0.47% for the quarter ended December 31, 2018, and 31 basis point increase from the quarter ended March 31, 2018.  Wholesale-Brokered Deposits averaged $74.1 million for the quarter ended March 31, 2019 compared to $698,000 for the quarter ended December 31, 2018.  This temporary increase resulted in an atypical increase in interest expense.  Without the increase in Wholesale-Brokered Deposits, cost of deposits would have approximated 0.52% for the quarter ended March 31, 2019.  These deposit balances decreased significantly on April 9, 2019, therefore we expect the overall costs of deposits incurred in the first quarter 2019 to decrease on a going forward basis.  Market conditions in 2019 may result in continued pressure to increase rates on deposit accounts, which will increase the cost of deposits in the future.

The following table shows the Company’s key performance ratios for the periods indicated.  The table also includes ratios that were adjusted by removing the impact of the Wholesale-Brokered Deposits so current quarter’s results could more easily be compared to prior quarters.  These adjusted ratios are non-GAAP measures.  For more information about non-GAAP financial measures, see page 12.

     Three months ended
 
    March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018

  March 31,
2018

 
                       
Return on average assets (1)   1.14 % 1.33 % 1.18 % 1.09 % 0.93 %
Return on average assets, as adjusted (1,2)   1.20 % 1.33 % 1.18 % 1.09 % 0.93 %
Return on average equity (1)   10.25 % 11.31 % 10.59 % 12.90 % 11.09 %
Yield on earnings assets (1)   4.82 % 4.93 % 4.62 % 4.73 % 4.56 %
Yield on loans receivable (1)   5.40 % 5.39 % 5.12 % 5.11 % 5.07 %
Loan yield excluding fees (1)   5.22 % 5.15 % 5.02 % 4.92 % 4.88 %
Cost of funds (1)   0.76 % 0.56 % 0.53 % 0.50 % 0.46 %
Cost of funds, as adjusted (1,3)   0.61 % 0.56 % 0.53 % 0.50 % 0.46 %
Cost of deposits (1)   0.68 % 0.47 % 0.44 % 0.40 % 0.37 %
Cost of deposits, as adjusted (1,4)   0.52 % 0.47 % 0.44 % 0.40 % 0.37 %
Net interest margin (1)   4.13 % 4.43 % 4.13 % 4.26 % 4.12 %
Net interest margin, as adjusted (1,5)   4.48 % 4.43 % 4.13 % 4.26 % 4.12 %
Noninterest expense to average assets (1)   3.12 % 3.12 % 2.99 % 3.15 % 3.07 %
Noninterest expense to average assets, as adjusted (1,6)   3.37 % 3.12 % 2.99 % 3.15 % 3.07 %
Efficiency ratio   65.20 % 62.54 % 63.59 % 66.77 % 68.28 %
Loans receivable to deposits   81.01 % 95.56 % 96.08 % 94.12 % 93.30 %
Loans receivable to deposits, as adjusted (7)   97.44 % 95.56 % 96.08 % 94.12 % 93.30 %
                       
(1) Annualized calculations shown for quarterly periods presented.
(2) Adjusted return on average assets is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is return on average assets.
(3) Adjusted cost of funds is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is cost of funds.
(4) Adjusted cost of deposits is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is cost of deposits.
(5) Adjusted net interest margin is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is net interest margin.
(6) Adjusted noninterest expense to average assets is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is noninterest expense to average assets.
(7) Adjusted loans receivable to deposits is a non-GAAP measure that excludes wholesale-brokered deposits on balance sheet. The most directly comparable GAAP measure is loans receivable to deposits.
 

Noninterest income was $2.0 million for the first quarter of 2019, an increase of $383,000 from $1.6 million for the fourth quarter of 2018, and an increase of $877,000 from $1.1 million for the comparable period one year ago. The increase compared to the prior quarter was primarily the result of $468,000 more in loan referral fees and $107,000 in increased wholesale banking service fees; these increases were partially offset by a decline in the income on sale of loans of $133,000 and a $59,000 decrease in other categories.  The $877,000 increase over the quarter ended March 31, 2018 was largely due to an increase of $503,000 in loan referral fees and fees earned from wholesale banking services that provided an additional $446,000 of income, offset by a $72,000 decrease in other categories.

Total noninterest expense for the current quarter increased 6.6% to $7.7 million from $7.2 million for the preceding quarter and increased 26.3% from $6.1 million from the comparable period one year ago. The increased expenses for the current quarter compared to the prior quarter and the previous quarter one year ago were primarily due to increases in salary expenses. Full time equivalent employees at March 31, 2019 was 179, which was down 2% from the prior quarter and increased 13% from the quarter ended March 31, 2018. Staffing increases compared to the prior year are due to continued organic growth initiatives, and include increases in sales staff, including hiring new banking teams, staff for the Edmonds location opened in October 2018, and additional back office staffing to support the incremental increases in banking teams, wholesale banking activities and for operation as a public company.  Legal and professional fees increased by $84,000 and $329,000 over the fourth quarter of 2018 and the first quarter of 2018, respectively, as a result of growth initiatives, credit actions, and operating as a public company.  Occupancy expense increased $105,000 over the fourth quarter of 2018 as a result of increases in rent expense, depreciation on fixed assets placed in service during the quarter and higher maintenance and repair costs. Occupancy expense increased $171,000 over the first quarter of 2018 largely as a result of expenses related to the Edmonds branch as well as the aforementioned increases in rent, depreciation and maintenance and repair. A change in the Director compensation plan contributed to the increase in director and staff expenses over the quarter ended March 31, 2018.

The provision for income taxes was $83,000 less this quarter compared to the fourth quarter of 2018 as a result of decreased taxable income, and was $267,000 more than the first quarter of 2018 as a result of increased taxable income.  The Company uses a federal statutory tax rate of 21% as a basis for calculating provision for income taxes.

Balance Sheet

The Company’s total assets increased $164.0 million, or 17.2%, to $1.1 billion at March 31, 2019 from $952.1 million at December 31, 2018.  The primary cause of the increase was the $154.1 million increase in Wholesale-Brokered Deposits, which increased interest earning deposits with other banks.  The $285.1 million, or 34.3% increase in total assets from $831.0 million at March 31, 2018 was due to the $155.5 million increase in interest earning deposits with other banks from the Wholesale-Brokered Deposit increase of $164.6 million and organic growth initiatives, which included the opening of the Edmonds branch in the fourth quarter of 2018, and the increase in cash from the successful initial public offering.  Additionally, the Company implemented the new lease accounting standard, which brought operating leases onto the balance sheet on January 1, 2019, and increased assets and liabilities $9.3 million and $9.5 million, respectively, as of March 31, 2019. 

Total loans receivable, net of allowance for loan losses, increased $22.7 million, or 3.0%, to $781.2 million at March 31, 2019 from $758.5 million at December 31, 2018 and $111.1 or 16.6% from $670.1 million at March 31, 2018.  The growth in loans receivable was due primarily to increases in commercial real estate loans of $19.9 million over the quarter ended December 31, 2018 and an increase of $82.0 million in commercial real estate and $20.7 million in construction, land and land development loans over the quarter ended March 31, 2018.  

The following table summarizes the loan portfolio at the periods indicated.

    As of  
    March 31, 2019     December 31, 2018     March 31, 2018  
(Dollars in thousands)   Balance   % to
Total
    Balance   % to
Total
    Balance   % to
Total
 
                                           
Commercial and industrial loans   $ 92,248     11.6 %   $ 90,390     11.8 %   $ 86,719     12.8 %
Real estate:                                          
Construction, land and                                          
land development     65,686     8.3       64,045     8.3       44,970     6.6 %
Residential     94,743     12.0       94,745     12.3       90,624     13.4 %
Commercial real estate     535,896     67.6       515,959     67.1       453,927     66.9 %
Consumer and other     3,583     0.5       3,584     0.5       2,558     0.3 %
Gross loans receivable     792,156     100.0 %     768,723     100.0 %     678,798     100.0 %
Net deferred origination fees     (1,084 )           (824 )           (283 )      
Loans receivable   $ 791,072           $ 767,899           $ 678,515        

Total deposits increased $172.9 million, or 21.5%, to $976.5 million at March 31, 2019 from $803.6 million at December 31, 2018.  The increase is largely due to the temporary increase in Wholesale-Brokered Deposits.  These deposits are included in the NOW and money market category and totaled $164.6 million at quarter end.  As planned, these deposits decreased on April 9, 2019, with $157.1 million in temporary Wholesale-Brokered Deposits transferred out of the Bank.  Noninterest bearing deposits increased $2.7 million during the quarter ended March 31, 2019. Total deposits increased $249.2 million since the quarter ended March 31, 2018.  In addition to the temporary increase of $164.6 million in Wholesale-Brokered Deposits, noninterest bearing deposit accounts increased $42.2 million or 16.6%, savings deposits increased $4.3 million or 9.0% and time deposits increased $5.8 million or 6.5% since March 31, 2018. 

The following table summarizes the deposit portfolio at the periods indicated and breaks out Wholesale-Brokered Deposits.

    As of  
    March 31, 2019     December 31, 2018     March 31, 2018  
(Dollars in thousands)   Balance   % to
Total
    Balance   % to
Total
    Balance   % to
Total
 
                                           
Demand, noninterest bearing   $ 296,247     30.3 %   $ 293,525     36.5 %   $ 254,000     34.9 %
NOW and money market     368,130     37.7       349,952     43.6       335,823     46.2 %
Savings     52,246     5.4       52,572     6.5       47,945     6.6 %
Total core deposits     716,623             696,049             637,768        
Wholesale brokered deposits     164,604     16.9       10,521     1.3       -     0.0 %
Time deposits less than $250,000     60,728     6.2       62,272     7.8       59,946     8.2 %
Time deposits $250,000 and over     34,541     3.5       34,772     4.3       29,554     4.1 %
Total deposits   $ 976,496     100.0 %   $ 803,614     100.0 %   $ 727,268     100.0 %

Total shareholders’ equity increased $45.4 million or 67.9% since March 31, 2018.  The Company’s successful initial public offering in July of 2018 increased capital by $33.2 million. The remaining increase in shareholders’ equity was primarily due to net earnings in the last twelve months. The Company contributed $15.0 million of the $33.2 million raised in its initial public offering to the Bank during 2018.

Capital Ratios

The Company and the Bank remain well capitalized at March 31, 2019, as summarized in the following table.

Capital Ratios: Coastal
Community
Bank
    Coastal
Financial
Corporation
    Financial
Institution
Basel III
Regulatory
Guidelines
 
                 
Tier 1 leverage capital 10.70 %   11.57 %   5.00 %
Tier 1 risk-based capital 12.62 %   13.66 %   8.00 %
Common Equity Tier 1 risk-based capital 12.62 %   13.24 %   6.50 %
Total risk-based capital 13.84 %   16.06 %   10.00 %

Asset Quality

The allowance for loan losses was 1.25% of loans receivable at March 31, 2019.  Provision for loan losses totaled $540,000 for the current quarter, $425,000 for the preceding quarter, and $501,000 for the same quarter in the prior year. Net charge-offs totaled $32,000 for the quarter ended March 31, 2019 compared to $129,000 for the quarter ended December 31, 2018 and $95,000 for the quarter ended March 31, 2018.

At March 31, 2019 our nonperforming assets were $1.3 million, or 0.12% of total assets, compared to $1.8 million or 0.19% of total assets at December 31, 2018, and $1.7 million, or 0.20% of total assets at March 31, 2018.  There were no repossessed assets or other real estate owned at March 31, 2019.

Nonperforming loans to loans receivable ratio was 0.17% at March 31, 2019, compared to 0.24% at December 31, 2018. 

The following table details the Company’s nonperforming assets for the periods indicated.

     As of  
    March 31,     December 31,       March 31,  
(Dollars in thousands)   2019     2018       2018  
                           
Nonaccrual loans:                          
Commercial and industrial loans   $ 493     $ 493       $ 396  
Real estate:                          
Construction, land and land development     -       -         -  
Residential     71       72         -  
Commercial real estate     -       -         -  
Commercial real estate - troubled debt restructure     -       1,261         1,303  
Consumer and other loans     2       -         -  
Total nonaccrual loans     566       1,826         1,699  
Total accruing loans past due 90 days or more     748       -         -  
Total nonperforming loans     1,314       1,826         1,699  
Other real estate owned     -       -         -  
Repossessed assets     -       -         -  
Total nonperforming assets   $ 1,314     $ 1,826       $ 1,699  
Troubled debt restructurings, accruing     -       -         -  
Total nonperforming loans to loans receivable     0.17 %     0.24 %       0.25 %
Total nonperforming assets to total assets     0.12 %     0.19 %       0.20 %
                           

About Coastal Financial

Coastal Financial Corporation is an Everett-based Washington State bank holding company with Coastal Community Bank (the “Bank”), a full-service commercial bank, as its sole wholly-owned banking subsidiary.  The Bank operates through its 14 branches in Snohomish, Island, and King Counties, the Internet and its mobile banking application.  More information about the Bank can be found on its website at www.coastalbank.com and its investor relations page.

Contact

Eric Sprink, President & Chief Executive Officer, (425) 357-3659
Joel Edwards, Executive Vice President & Chief Financial Officer, (425) 357-3687

Forward-Looking Statements

This earnings release contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Any or all of the forward-looking statements in this earnings release may turn out to be inaccurate. The inclusion of forward-looking information in this earnings release should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements.

Accordingly, we caution you that any such forward-looking statements are not a guarantee of future performance and that actual results may prove to be materially different from the results expressed or implied by the forward-looking statements due to a number of factors. Such factors include, without limitation, those listed from time to time in reports that the Company files with the Securities and Exchange Commission.  These forward-looking statements are made as of the date of this communication, and the Company does not intend, and assumes no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by law.


COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands; unaudited)

ASSETS  
    March 31,     December 31,     March 31,  
    2019     2018     2018  
Cash and due from banks   $ 21,176     $ 16,315     $ 13,589  
Interest earning deposits with other banks     236,483       109,467       80,980  
Investment securities, available for sale, at fair value     36,970       36,660       36,015  
Investment securities, held to maturity, at amortized cost     1,247       1,262       1,323  
Other investments     3,600       3,766       3,766  
Loans receivable     791,072       767,899       678,515  
Allowance for loan losses     (9,915 )     (9,407 )     (8,423 )
Total loans receivable, net     781,157       758,492       670,092  
Premises and equipment, net     13,017       13,167       13,000  
Operating lease right-of-use assets     9,305       -       -  
Accrued interest receivable     2,505       2,526       1,968  
Bank-owned life insurance, net     6,735       6,688       6,546  
Deferred tax asset, net     2,496       2,518       2,277  
Other assets     1,399       1,249       1,406  
Total assets   $ 1,116,090     $ 952,110     $ 830,962  
                         
LIABILITIES AND SHAREHOLDERS EQUITY  
LIABILITIES                        
Deposits   $ 976,496     $ 803,614     $ 727,268  
Federal Home Loan Bank (FHLB) advances     -       20,000       20,000  
Subordinated debt, net     9,968       9,965       9,954  
Junior subordinated debentures, net     3,581       3,581       3,580  
Deferred compensation     1,052       1,078       1,151  
Accrued interest payable     343       279       229  
Operating lease liabilities     9,471       -       -  
Other liabilities     2,814       4,437       1,853  
Total liabilities     1,003,725       842,954       764,035  
                         
SHAREHOLDERS’ EQUITY                        
Common stock     86,579       86,431       52,592  
Retained earnings     26,829       24,021       16,163  
Accumulated other comprehensive loss, net of tax     (1,043 )     (1,296 )     (1,828 )
Total shareholders’ equity     112,365       109,156       66,927  
Total liabilities and shareholders’ equity   $ 1,116,090     $ 952,110     $ 830,962  
                         


COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)

   Three months ended  
  March 31,
2019
  December 31,
2018
  March 31,
2018
 
INTEREST AND DIVIDEND INCOME                  
Interest and fees on loans $ 10,419   $ 10,308   $ 8,189  
Interest on interest earning deposits with other banks   808     483     255  
Interest on investment securities   153     155     152  
Dividends on other investments   14     65     11  
Total interest and dividend income   11,394     11,011     8,607  
INTEREST EXPENSE                  
Interest on deposits   1,436     932     646  
Interest on borrowed funds   191     191     183  
Total interest expense   1,627     1,123     829  
Net interest income   9,767     9,888     7,778  
PROVISION FOR LOAN LOSSES   540     425     501  
Net interest income after provision for loan losses   9,227     9,463     7,277  
NONINTEREST INCOME                  
Deposit service charges and fees   726     803     687  
Wholesale banking service fees   446     339     -  
Loan referral fees   633     165     130  
Mortgage broker fees   85     57     37  
Sublease and lease income   10     10     57  
(Loss) gain on sale of loans   (11 )   122     64  
Other   95     105     132  
Total noninterest income   1,984     1,601     1,107  
NONINTEREST EXPENSE                  
Salaries and employee benefits   4,558     4,354     3,735  
Occupancy   994     889     823  
Data processing   529     499     479  
Director and staff expenses   240     208     144  
Excise taxes   165     155     124  
Marketing   94     120     57  
Legal and professional fees   409     325     80  
Federal Deposit Insurance Corporation (FDIC) assessments   75     48     85  
Business development   102     85     88  
Other   496     502     452  
Total noninterest expense   7,662     7,185     6,067  
Income before provision for income taxes   3,549     3,879     2,317  
PROVISION FOR INCOME TAXES   741     824     474  
NET INCOME $ 2,808   $ 3,055   $ 1,843  
                   
Basic earnings per share $ 0.24   $ 0.26   $ 0.20  
Diluted earnings per share $ 0.23   $ 0.25   $ 0.20  
Weighted average number of common shares outstanding:                  
Basic   11,884,107     11,877,261     9,242,839  
Diluted   12,183,234     12,166,250     9,248,428  
                   


COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – QUARTERLY
(Dollars in thousands; unaudited)

  For the Three Months Ended
  March 31, 2019     December 31, 2018     March 31, 2018  
  Average
Balance
  Interest &
Dividends
  Yield /
Cost (4) 
  Average
Balance
  Interest &
Dividends
  Yield /
Cost (4)
  Average
Balance
  Interest &
Dividends
  Yield /
Cost (4)
Assets                                                  
Interest earning assets:                                                  
Interest earning deposits $ 133,458   $ 808   2.46 %   $ 83,751   $ 483   2.29 %   $ 68,160   $ 255   1.52 %
Investment securities (1)   39,552     153   1.57       39,590   155   1.55       39,717     152   1.55  
Other Investments   3,150     14   1.80       2,974   65   8.67       2,912     11   1.53  
Loans receivable (2)   782,387     10,419   5.40       759,084   10,308   5.39       654,570     8,189   5.07  
Total interest earning assets $ 958,547   $ 11,394   4.82     $ 885,399   $ 11,011   4.93     $ 765,359   $ 8,607   4.56  
Noninterest earning assets:                                                  
Allowance for loan losses   (9,623 )               (9,191 )             (8,121 )          
Other noninterest earning assets   48,145                 37,155               36,077            
Total assets $ 997,069               $ 913,363             $ 793,315            
                                                   
Liabilities and Shareholders Equity                                                  
Interest bearing liabilities:                                                  
Interest bearing deposits $ 571,086   $ 1,436   1.02 %   $ 495,931   $ 932   0.75 %   $ 464,219   $ 646   0.56 %
Subordinated debt   9,966     145   5.90       9,962   148   5.89       9,952     144   5.87  
Junior subordinated debentures   3,581     44   4.98       3,581   42   4.65       3,579     35   3.97  
FHLB advances and other borrowings   297     2   2.73       295   1   1.34       793     4   2.05  
Total interest bearing liabilities $ 584,930   $ 1,627   1.13     $ 509,769   $ 1,123   0.87     $ 478,543   $ 829   0.70  
Noninterest bearing deposits   288,049                 292,866               245,273            
Other liabilities   13,029                 3,529               2,845            
Total shareholders' equity   111,061                 107,199               66,654            
Total liabilities and shareholders' equity $ 997,069               $ 913,363             $ 793,315            
Net interest income       $ 9,767               $ 9,888               $ 7,778      
Interest rate spread             3.69 %             4.06 %               3.86 %
Net interest margin (3)             4.13 %             4.43 %               4.12 %
                                                   
(1) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.  
(2) Includes nonaccrual loans.   
(3) Net interest margin represents net interest income divided by the average total interest earning assets.   
(4) Yields and costs are annualized.   
                 


COASTAL FINANCIAL CORPORATION
QUARTERLY STATISTICS
(Dollars in thousands, except share and per share data; unaudited)

  Three Months Ended  
  March 31,   December 31,   September 30,   June 30,   March 31,  
  2019   2018   2018   2018   2018  
Income Statement Data:                              
Interest and dividend income $ 11,394   $ 11,011   $ 9,894   $ 9,231   $ 8,607  
Interest expense   1,627     1,123     1,046     928     829  
Net interest income   9,767     9,888     8,848     8,303     7,778  
Provision for loan losses   540     425     508     392     501  
Net interest income after provision for loan losses   9,227     9,463     8,340     7,911     7,277  
Noninterest income   1,984     1,601     1,546     1,213     1,107  
Noninterest expense   7,662     7,185     6,610     6,354     6,067  
Net income - pre-tax, pre-provision   4,089     4,304     3,784     3,162     2,818  
Provision for income tax   741     824     674     569     474  
Net income   2,808     3,055     2,602     2,201     1,843  
                               
  As of Period End or for the Three Month Period  
  March 31,   December 31,   September 30,   June 30,   March 31,  
  2019   2018   2018   2018   2018  
Balance Sheet Data:                              
Cash and cash equivalents $ 257,659   $ 125,782   $ 115,508   $ 91,449   $ 94,569  
Investment securities   38,217     37,922     37,039     37,317     37,338  
Loans receivable   791,072     767,899     744,320     700,692     678,515  
Allowance for loan losses   (9,915 )   (9,407 )   (9,111 )   (8,540 )   (8,423 )
Total assets   1,116,090     952,110     917,029     850,922     830,962  
Interest bearing deposits   515,645     510,089     488,743     485,019     473,268  
Noninterest bearing deposits   296,247     293,525     285,979     259,449     254,000  
Core deposits (1)   552,019     696,049     676,339     644,624     637,768  
Total deposits   811,892     803,614     774,722     744,468     727,268  
Total borrowings   13,549     33,546     33,542     33,537     33,534  
Total shareholders’ equity   112,365     109,156     105,276     69,490     66,927  
                               
Share and Per Share Data (2)(3):                              
Earnings per share – basic $ 0.24   $ 0.26   $ 0.23   $ 0.24   $ 0.20  
Earnings per share – diluted $ 0.23   $ 0.25   $ 0.22   $ 0.24   $ 0.20  
Dividends per share   -     -     -     -     -  
Book value per share (4) $ 9.44   $ 9.18   $ 8.86   $ 7.47   $ 7.23  
Tangible book value per share (5) $ 9.44   $ 9.18   $ 8.86   $ 7.47   $ 7.23  
Weighted avg outstanding shares – basic   11,884,107     11,877,261     11,338,320     9,265,153     9,241,620  
Weighted avg outstanding shares – diluted   12,183,234     12,166,250     11,609,978     9,284,947     9,247,209  
Shares outstanding at end of period   11,902,715     11,893,203     11,886,473     9,298,553     9,253,303  
Stock options outstanding at end of period   804,117     688,312     682,190     707,460     768,850  
                               
Credit Quality Data:                              
Nonperforming assets to total assets   0.12 %   0.19 %   0.27 %   0.24 %   0.20 %
Nonperforming assets to loans receivable and OREO   0.17 %   0.24 %   0.34 %   0.30 %   0.25 %
Nonperforming loans to total loans receivable   0.17 %   0.24 %   0.34 %   0.30 %   0.25 %
Allowance for loan losses to nonperforming loans   754.6 %   515.2 %   361.40 %   412.96 %   495.76 %
Allowance for loan losses to total loans receivable   1.25 %   1.23 %   1.22 %   1.22 %   1.24 %
Gross charge-offs $ 34   $ 134   $ 6   $ 281   $ 98  
Gross recoveries $ 2   $ 5   $ 69   $ 6   $ 3  
Net charge-offs (recoveries) to average loans (6)   0.02 %   0.07 %   (0.03 %)   0.16 %   0.06 %
                               
Capital Ratios:                              
Tier 1 leverage capital   11.57 %   12.46 %   12.60 %   9.21 %   9.07 %
Tier 1 risk-based capital   13.66 %   14.13 %   14.17 %   10.24 %   10.25 %
Common equity Tier 1 risk-based capital   13.24 %   13.70 %   13.72 %   9.76 %   9.75 %
Total risk-based capital   16.06 %   16.58 %   16.65 %   12.82 %   12.90 %
                               
(1) Core deposits are defined as all deposits excluding wholesale-brokered and time deposits.  
(2) Share and per share amounts are based on total common shares outstanding, which includes common stock and nonvoting common stock.  
(3) Share and per share information has been adjusted to give effect to a one-for-five reverse stock split of our common shares completed effective May 4, 2018.  
(4) We calculate book value per share as total shareholders’ equity at the end of the relevant period divided by the outstanding number of our common shares, which includes common stock and nonvoting common stock, at the end of each period.  
(5) Tangible book value per share is a non-GAAP financial measure. We calculate tangible book value per share as total shareholders’ equity at the end of the relevant period, less goodwill and other intangible assets, divided by the outstanding number of our common shares, which includes common stock and nonvoting common stock, at the end of each period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets as of any of the dates indicated. As a result, tangible book value per share is the same as book value per share as of each of the dates indicated.  
(6) Annualized calculations.   


Non-GAAP Financial Measures

This earnings release contains certain non-GAAP financial measures in addition to results presented in accordance with GAAP. These measures include the following:

“Adjusted return on average assets” is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is return on average assets.

“Adjusted cost of funds” is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is cost of funds.

“Adjusted cost of deposits” is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is cost of deposits.

“Adjusted net interest margin” is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is net interest margin.

“Adjusted noninterest expense to average assets” is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is noninterest expense to average assets.

“Adjusted loans receivable to deposits” is a non-GAAP measure that excludes Wholesale-Brokered Deposits on balance sheet. The most directly comparable GAAP measure is loans receivable to deposits.

The Company also presented comparable earnings information using GAAP financial measures. Reconciliations of the GAAP and non-GAAP measures are presented below.  

(Dollars in thousands)   As of and for the
Three Months Ended
March 31, 2019
 
Adjusted return on average assets:        
Total average assets   $ 997,069  
Less: average wholesale-brokered deposits     74,116  
Adjusted total average deposits and borrowings   $ 922,953  
Total net income   $ 2,808  
Less: fees earned on servicing wholesale-brokered deposits     78  
Adjusted net income   $ 2,730  
Adjusted return on average assets:     1.20 %
Adjusted cost of funds:        
Total average deposits and borrowings   $ 872,979  
Less: average wholesale-brokered deposits     74,116  
Adjusted total average deposits and borrowings   $ 798,863  
Total interest expense   $ 1,627  
Less: interest expense on wholesale-brokered deposits     435  
Adjusted interest expense   $ 1,192  
Adjusted cost of funds:     0.61 %
Adjusted cost on deposits:        
Total average deposits   $ 859,135  
Less: average wholesale-brokered deposits     74,116  
Adjusted total average deposits   $ 785,019  
Interest expense on deposits   $ 1,436  
Less: interest expense on wholesale-brokered deposits     435  
Adjusted interest expense on interest bearing deposits   $ 1,001  
Adjusted cost of deposits:     0.52 %
Adjusted net interest margin:        
Total average interest earning assets   $ 958,547  
Less: average wholesale-brokered deposits held in cash     74,116  
Adjusted total average interest bearing deposits   $ 884,431  
Total net interest income   $ 9,767  
Less: interest income earned wholesale-brokered deposits held in cash (rate 2.38%)     435  
Plus: interest expense on wholesale-brokered deposits (rate 2.38%)     435  
Adjusted net interest income     9,767  
Adjusted net interest margin:     4.48 %
Adjusted noninterest expense to average assets:        
Total average assets   $ 997,069  
Less: average wholesale-brokered deposits     74,116  
Adjusted total average assets   $ 922,953  
Total noninterest expense   $ 7,662  
Adjusted noninterest expense to average assets:     3.37 %
Adjusted loans receivable to deposits:        
Total loans receivable   $ 791,072  
Total deposits     976,496  
Less: wholesale-brokered deposits     164,604  
Total deposits, less wholesale-brokered deposits   $ 811,892  
Adjusted loans receivable to deposits:     97.44 %

 

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