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CST: 14/12/2019 16:32:08   

Coastal Financial Corporation Announces Second Quarter 2019 Results

141 Days ago

Quarter Two 2019 Highlights:

  • Net income totaled $3.3 million for the quarter ended June 30, 2019, or $0.27 per diluted common share, up from $2.2 million, or $0.24 per diluted common share, for the quarter ended June 30, 2018. 
  • Total assets were $1.0 billion at June 30, 2019, up 8.3% from $952.1 million at December 31, 2018.
  • Total loans receivable grew at an annualized rate of 20.2% for the six months ended June 30, 2019 and increased 10.1% from December 31, 2018.
  • Total core deposits grew at an annualized rate of 16.9% for the six months ended June 30, 2019 and increased 8.4% since December 31, 2018. 

EVERETT, Wash., July 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 June 30, 2019.  Net income for the second quarter of 2019 was $3.3 million, or $0.27 per diluted common share, compared with net income of $2.8 million, or $0.23 per diluted common share, for the first quarter of 2019. 

The Company had net income of $6.1 million for the six months ended June 30, 2019, or $0.50 per diluted common share, compared to $4.0 million, or $0.44 per diluted common share for the six months ended June 30, 2018.

Eric Sprink, President and CEO, commented, “We got off to a solid start in first quarter and in the second quarter we backed that up with earnings of $3.3 million, loan growth of $54.4 million, and core deposit growth of $38.1 million.  Overall, I am pleased with the strong organic loan and core deposit growth plus the solid earnings from our community bank.”

The Company’s first and second quarter 2019 results were impacted by a temporary, atypically large balance held in a deposit account by a wholesale banking services client, which is not expected to occur again.  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.

The large amount of wholesale-brokered deposits, which were primarily held during the quarter ended March 31, 2019 and through April 9, 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.  Although the bulk of the atypical wholesale-brokered deposits were transferred out on April 9, 2019, the impact of these atypical balances will continue to be seen in the year to date results of the Company for the remainder of 2019. 

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 $10.2 million for the quarter ended June 30, 2019, an increase of 4.3% from $9.8 million for the quarter ended March 31, 2019 and an increase of 22.7% from $8.3 million from the quarter ended June 30, 2018.   The increase compared to prior quarter is related to increased interest income resulting from our strong loan growth and higher loan balances and a decrease in interest expense on interest bearing accounts which is a result of the wholesale-brokered deposits normalizing early in the second quarter. The increase from the prior year’s second quarter is a result of higher yielding and increased interest earning asset balances.

Net interest income for the six months ended June 30, 2019 totaled $20.0 million, an increase of 24.1% compared to $16.1 million for the same period last year. The $3.9 million increase in net interest income over the same period last year was primarily related to growth in higher yielding loan balances. During the six months ended June 30, 2019, the average balance of total loans receivable increased by $125.8 million, compared to the same period last year. Increased interest income was partially offset by increased deposit costs from the growth in the balance of our interest bearing deposits of $96.7 million and an increase in the cost of deposits of 29 basis points, compared to the same period last year. Without the impact of holding the temporary wholesale-brokered deposits, the cost of deposits would have been 57 basis points for the six months ended June 30, 2019, an increase of 19 basis points over the six-month period ended June 30, 2018.

Net interest margin for the quarter ended June 30, 2019 increased 11 basis points to 4.24% as compared to 4.13% for the quarter ended March 31, 2019 and 4.26% for the quarter ended June 30, 2018. The increase over the prior quarter was due to growth in interest earning assets.  Interest earning deposits decreased as a result of the atypical wholesale-brokered deposits being transferred out in April 2019, however higher yielding loans receivable increased during the second quarter.  The decrease in net interest margin compared to the prior year is primarily a result of increased deposit costs.  

Net interest margin for the six months ended June 30, 2019 was 4.19% and equaled the comparable period last year. Higher loans receivable and increased average loan yields in the period ended June 30, 2019 were offset by an increase in deposit costs, therefore the net interest margin was unchanged from the six months ended June 30, 2018. 

During the quarter ended June 30, 2019 the average balance of total loans receivable increased $30.3 million, compared to the quarter ended March 31, 2019, and increased by $123.7 million, compared to the same quarter one year ago. Total loan yield for the quarter ended June 30, 2019 was 5.39%, a decrease of one basis point from 5.40% for the quarter ended March 31, 2019, and a 28 basis point increase from 5.11% for the quarter ended June 30, 2018.

Contractual loan yields approximated 5.23% for the three months ended June 30, 2019, compared to 5.22% for the three months ended March 31, 2019, and 4.92% for the three months ended June 30, 2018. The increase in contractual loan yields, as compared to last year, was from pricing new loans at higher rates and variable loans repricing with the increase in the prime rate and to a lesser extent changes in the composition of the loan portfolio.

Deposit costs for the quarter ended June 30, 2019 were 0.66%, a decrease of two basis points from 0.68% for the quarter ended March 31, 2019, and a 26 basis point increase from the quarter ended June 30, 2018.  Wholesale-brokered deposits averaged $20.3 million for the quarter ended June 30, 2019 compared to $74.1 million for the quarter ended March 31, 2019.  This temporary increase resulted in an atypical increase in interest expense.  Without the increase in wholesale-brokered deposits, cost of deposits would have approximated 0.63% and 0.52% for the quarters ended June 30, 2019 and March 31, 2019, respectively.  Despite the significant decrease in wholesale-brokered deposit balances, market conditions and pressure to increase rates has increased the overall cost of deposits. 

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 atypical wholesale-brokered deposits for the quarters ended June 30, 2019 and March 31, 2019 and the six months ended June 30, 2019, so each period could more easily be compared. These adjusted ratios are non-GAAP measures. For more information about non-GAAP financial measures, see the end of this earnings release.

    Three months ended     Six months ended  
    June 30,
2019
  March 31, 2019   December   31, 2018   September   30, 2018   June 30,
2018
    June 30, 2019   June 30, 2018  
                                               
Return on average assets (1)     1.31 %   1.14 %   1.33 %   1.18 %   1.09 %     1.23 %   1.02 %
Return on average assets, as adjusted (1,2)     1.34 %   1.20 %   1.33 %   1.18 %   1.09 %     1.26 %   1.02 %
Return on average equity (1)     11.45 %   10.25 %   11.31 %   10.59 %   12.90 %     10.86 %   12.07 %
Pre-tax, pre-provision return on average assets (1,3)     1.87 %   1.66 %   1.87 %   1.71 %   1.57 %     1.77 %   1.50 %
Yield on earnings assets (1)     4.92 %   4.82 %   4.93 %   4.62 %   4.73 %     4.87 %   4.65 %
Yield on loans receivable (1)     5.39 %   5.40 %   5.39 %   5.12 %   5.11 %     5.39 %   5.09 %
Loan yield excluding fees (1)     5.23 %   5.22 %   5.15 %   5.02 %   4.92 %     5.23 %   4.90 %
Cost of funds (1)     0.74 %   0.76 %   0.56 %   0.53 %   0.50 %     0.75 %   0.48 %
Cost of funds, as adjusted (1,4)     0.71 %   0.61 %   0.56 %   0.53 %   0.50 %     0.66 %   0.48 %
Cost of deposits (1)     0.66 %   0.68 %   0.47 %   0.44 %   0.40 %     0.67 %   0.38 %
Cost of deposits, as adjusted (1,5)     0.63 %   0.52 %   0.47 %   0.44 %   0.40 %     0.57 %   0.38 %
Net interest margin (1)     4.24 %   4.13 %   4.43 %   4.13 %   4.26 %     4.19 %   4.19 %
Net interest margin, as adjusted (1,6)     4.38 %   4.48 %   4.43 %   4.13 %   4.26 %     4.40 %   4.19 %
Noninterest expense to average assets (1)     3.06 %   3.12 %   3.12 %   2.99 %   3.15 %     3.09 %   3.12 %
Noninterest expense to average assets, as adjusted (1,7)     3.12 %   3.37 %   3.12 %   2.99 %   3.15 %     3.24 %   3.12 %
Efficiency ratio     62.05 %   65.20 %   62.54 %   63.59 %   66.77 %     63.59 %   67.50 %
Loans receivable to deposits     97.39 %   81.01 %   95.56 %   96.08 %   94.12 %     97.39 %   94.12 %
Loans receivable to deposits, as adjusted (8)     97.39 %   97.44 %   95.56 %   96.08 %   94.12 %     97.39 %   94.12 %
                                               
(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) Pre-tax, pre-provision return on average assets is a non-GAAP measure that excludes the impact provision and income tax expense from return on average assets.  The most directly comparable GAAP measure is return on average assets.  
(4) 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.  
(5) 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.  
(6) 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.  
(7) 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.  
(8) 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 $2.1 million for the second quarter of 2019, an increase of $148,000 from $2.0 million for the first quarter of 2019, and an increase of $919,000 from $1.2 million for the comparable period one year ago. The increase compared to the prior quarter was primarily the result of $143,000 more in the income on sale of loans, $56,000 in additional wholesale banking service fees, and $55,000 more in deposit service charges and fees; these increases were partially offset by a decline in loan referral fees of $160,000.  The $919,000 increase over the quarter ended June 30, 2018 was largely due to fees earned from wholesale banking services that provided an additional $460,000 of income and an increase of $359,000 in loan referral fees.

Noninterest income was $4.1 million for the six months ended June 30, 2019, compared to $2.3 million for the six months ended June 30, 2018. The increase is primarily related to increased wholesale banking service fees of $906,000 and loan referral fee income, which is earned when a borrower enters into an interest rate swap agreement with a third party, totaled $1.1 million for the six months ended June 30, 2019, an increase of $862,000 from the same period last year.

Total noninterest expense for the current quarter decreased to $7.6 million from $7.7 million for the preceding quarter and increased 20.3% from $6.4 million from the comparable period one year ago. The decrease in expense from the quarter ended March 31, 2019 was largely due to a $116,000 reduction in legal and accounting fees.  Expenses from operating as a public company are higher in the first quarter as a result of the increased reporting that is done for year-end.  Other noninterest expense in the current quarter was $161,000 higher than the preceding quarter due to an $19,000 increase in service charges from the Federal Reserve Bank, which is related to the temporary increase in wholesale brokered deposits at the end of the first quarter of 2019, and therefore is not expected to continue at that level.  Other accounts that contributed to the increase in other noninterest expense during the quarter ended June 30, 2019 include subscription costs, bank examination expense, and operational losses, combined with some nonrecurring filing fees.  The increased expenses for the current quarter compared to the comparable quarter one year ago were largely due to increases in salary expenses. Full time equivalent employees at June 30, 2019 was 187, which was up 4.5% from the prior quarter and increased 10.0% from the quarter ended June 30, 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 $163,000 over the second quarter of 2018, as a result of growth initiatives, credit actions, and operating as a public company.  Occupancy expense decreased $64,000 over the first quarter of 2019 and increased $126,000 over the second quarter of 2018.  Occupancy expense for the first quarter of 2019 was higher than the current quarter due to higher maintenance and repair costs.  Occupancy expense for the quarter ended June 30, 2019 was higher than the quarter ended June 30, 2018 largely as a result of expenses related to the opening of the Edmonds branch as well as the aforementioned increases in rent, implementation of the new lease accounting standard, and increases in depreciation and maintenance and repair. An increase in fees paid to directors and overall cost of increased staffing contributed to the $81,000 increase in director and staff expenses over the quarter ended June 30, 2018.

Total noninterest expense for the six months ended June 30, 2019 was $15.3 million, an increase of $2.9 million or 23.2% compared to the same period last year.  The increase is primarily attributable to $1.4 million in increased salary expense, as discussed above, an increase of $492,000 in legal and professional fees, largely due to expenses related to being a public company, and our wholesale banking activities, and an increase of $297,000 in occupancy expenses related to the addition of our Edmonds branch in October 2018.

The provision for income taxes was $113,000 more this quarter compared to the first quarter of 2019, and $285,000 more than the second quarter of 2018, as a result of increased taxable income.  The provision for income taxes was $552,000 more for the six months ended June 30, 2019 compared to the six months ended June 30, 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 $78.9 million, or 8.3%, to $1.0 billion at June 30, 2019 from $952.1 million at December 31, 2018.  The primary cause of the increase was the $77.5 million in increased loans receivable. 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 $8.9 million and $9.1 million, respectively, as of June 30, 2019.  Total assets decreased 7.6% or $85.1 million from March 31, 2019 due to the $150.4 million decrease in wholesale-brokered deposits, which also decreased interest earning deposits with other banks.   As planned, these temporary funds were transferred out early in the second quarter.  This decrease was partially offset by a $54.4 million increase in loans receivable.     

Total loans receivable, net of allowance for loan losses, increased $76.5 million, or 10.1%, to $835.0 million at June 30, 2019, from $758.5 million at December 31, 2018 and $142.8 million or 20.6% from $692.2 million at June 30, 2018.  The growth in loans receivable was due primarily to increases in commercial real estate loans of $41.7 million and $20.6 million in construction, land and land development loans over the quarter ended December 31, 2018 and an increase of $83.4 million in commercial real estate loans and $38.3 million in construction, land and land development loans over the quarter ended June 30, 2018.  

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

    As of  
    June 30, 2019     December 31, 2018     June 30, 2018  
(Dollars in thousands)   Balance   % to Total     Balance   % to Total     Balance   % to Total  
                                           
Commercial and industrial loans   $ 101,110     11.9 %   $ 90,390     11.8 %   $ 89,284     12.7 %
Real estate:                                          
Construction, land and                                          
land development     84,666     10.0       64,045     8.3       46,356     6.6  
Residential     100,446     11.9       94,745     12.3       88,422     12.6  
Commercial real estate     557,692     65.8       515,959     67.1       474,330     67.7  
Consumer and other     2,893     0.4       3,584     0.5       2,670     0.4  
Gross loans receivable     846,807     100.0 %     768,723     100.0 %     701,062     100.0 %
Net deferred origination fees     (1,364 )           (824 )           (370 )      
Loans receivable   $ 845,443           $ 767,899           $ 700,692        

Total deposits increased $64.5 million, or 8.0%, to $868.1 million at June 30, 2019 from $803.6 million at December 31, 2018.  The increase is largely due to a $58.7 million increase in core deposits.  During the six months ended June 30, 2019 noninterest bearing deposits increased $22.4 million, NOW and money market accounts increased $37.8 million, savings accounts decreased $1.5 million, wholesale-brokered deposits increased $3.6 million and time deposits increased $2.2 million.  Total deposits increased $123.7 million or 16.6% compared to June 30, 2018. 

At June 30, 2019, wholesale-brokered deposits totaled $14.2 million compared to $164.6 million at March 31, 2019.  The Bank invested the cash from wholesale-brokered deposits into overnight funds.  Cash and cash equivalents at June 30, 2019 totaled $113.5 million compared to $257.7 million at March 31, 2019.  On April 9, 2019, the wholesale banking customer transferred $157.1 million in temporary wholesale-brokered deposits from the Bank to their deposit provider. 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.  Going forward, we expect wholesale-brokered deposits to average 1.0% - 3.0% of total deposits, based on current balance requirements and activity.

The following table summarizes the deposit portfolio at the periods indicated and breaks out wholesale-brokered deposits.

    As of  
    June 30, 2019     December 31, 2018     June 30, 2018  
(Dollars in thousands)   Balance   % to Total     Balance   % to Total     Balance   % to Total  
                                           
Demand, noninterest bearing   $ 315,890     36.4 %   $ 293,525     36.5 %   $ 259,449     34.9 %
NOW and money market     387,758     44.7       349,952     43.6       336,666     45.2  
Savings     51,120     5.9       52,572     6.5       48,509     6.5  
Total core deposits     754,768     87.0       696,049     86.6       644,624     86.6  
Wholesale brokered deposits     14,166     1.6       10,521     1.3           0.0  
Time deposits less than $250,000     62,303     7.2       62,272     7.8       65,393     8.8  
Time deposits $250,000 and over     36,907     4.2       34,772     4.3       34,451     4.6  
Total deposits   $ 868,144     100.0 %   $ 803,614     100.0 %   $ 744,468     100.0 %

Total shareholders’ equity increased $7.4 million since December 31, 2018.  The increase in shareholders’ equity was primarily due to $6.1 million net earnings in the last six months and a $1.1 million increase in additional other comprehensive income as a result of an increase in the value of our available for sale investment portfolio.

Capital Ratios

The Company and the Bank remain well capitalized at June 30, 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   11.00 %     11.99 %     5.00 %
Tier 1 risk-based capital   12.27 %     12.99 %     8.00 %
Common Equity Tier 1 risk-based capital   12.27 %     13.37 %     6.50 %
Total risk-based capital   13.48 %     15.70 %     10.00 %

Asset Quality

The allowance for loan losses was 1.24% of loans receivable at June 30, 2019 compared to 1.23% at December 31, 2018.  Provision for loan losses totaled $547,000 for the current quarter, $540,000 for the preceding quarter, and $392,000 for the same quarter in the prior year. Net charge-offs totaled $19,000 for the quarter ended June 30, 2019, compared to $32,000 for the quarter ended March 31, 2019 and $275,000 for the quarter ended June 30, 2018.

At June 30, 2019 our nonperforming assets were $1.6 million, or 0.16% of total assets, compared to $1.8 million or 0.19% of total assets at December 31, 2018, and $2.1 million, or 0.24% of total assets at June 30, 2018.  There were no repossessed assets or other real estate owned at June 30, 2019.

Nonperforming loans to loans receivable ratio was 0.19% at June 30, 2019, compared to 0.24% at December 31, 2018.  Commercial and industrial nonaccrual loans total $1.6 million at quarter end, and consist of five lending relationships.  A $1.3 million nonaccrual commercial real estate loan, also categorized as a troubled debt restructuring, was paid off during the second quarter of 2019, resulting in an overall decrease of nonperforming loans and nonperforming assets to total assets compared to December 31, 2018.

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

    As of  
    June 30,     December 31,     June 30,  
(Dollars in thousands)   2019     2018     2018  
                         
Nonaccrual loans:                        
Commercial and industrial loans   $ 1,579     $ 493     $ 703  
Real estate:                        
Construction, land and land development     -       -       -  
Residential     69       72       75  
Commercial real estate     -       -       -  
Commercial real estate - troubled debt restructure     -       1,261       1,290  
Consumer and other loans     -       -       -  
Total nonaccrual loans     1,648       1,826       2,068  
Total accruing loans past due 90 days or more     -       -       -  
Total nonperforming loans     1,648       1,826       2,068  
Other real estate owned     -       -       -  
Repossessed assets     -       -       -  
Total nonperforming assets   $ 1,648     $ 1,826     $ 2,068  
Troubled debt restructurings, accruing     -       -       -  
Total nonperforming loans to loans receivable     0.19 %     0.24 %     0.30 %
Total nonperforming assets to total assets     0.16 %     0.19 %     0.24 %

About Coastal Financial

Coastal Financial Corporation (NASDAQ: CCB) (the “Company”), is an Everett, Washington based 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.  To learn more about Coastal Community Bank visit www.coastalbank.com.

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  
    June 30,     March 31,     December 31,  
    2019     2019     2018  
Cash and due from banks   $ 18,735     $ 21,176     $ 16,315  
Interest earning deposits with other banks     94,735       236,483       109,467  
Investment securities, available for sale, at fair value     37,978       36,970       36,660  
Investment securities, held to maturity, at amortized cost     4,403       1,247       1,262  
Other investments     4,400       3,600       3,766  
Loans receivable     845,443       791,072       767,899  
Allowance for loan losses     (10,443 )     (9,915 )     (9,407 )
Total loans receivable, net     835,000       781,157       758,492  
Premises and equipment, net     12,933       13,017       13,167  
Operating lease right-of-use assets     8,922       9,305       -  
Accrued interest receivable     2,884       2,505       2,526  
Bank-owned life insurance, net     6,783       6,735       6,688  
Deferred tax asset, net     2,255       2,496       2,518  
Other assets     1,996       1,399       1,249  
Total assets   $ 1,031,024     $ 1,116,090     $ 952,110  
                         
LIABILITIES AND SHAREHOLDERS EQUITY  
LIABILITIES                        
Deposits   $ 868,144     $ 976,496     $ 803,614  
Federal Home Loan Bank (FHLB) advances     20,000       -       20,000  
Subordinated debt, net     9,972       9,968       9,965  
Junior subordinated debentures, net     3,582       3,581       3,581  
Deferred compensation     1,026       1,052       1,078  
Accrued interest payable     298       343       279  
Operating lease liabilities     9,098       9,471       -  
Other liabilities     2,312       2,814       4,437  
Total liabilities     914,432       1,003,725       842,954  
                         
SHAREHOLDERS’ EQUITY                        
Common stock     86,730       86,579       86,431  
Retained earnings     30,104       26,829       24,021  
Accumulated other comprehensive loss, net of tax     (242 )     (1,043 )     (1,296 )
Total shareholders’ equity     116,592       112,365       109,156  
Total liabilities and shareholders’ equity   $ 1,031,024     $ 1,116,090     $ 952,110  
 


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

  Three months ended  
  June 30, 2019   March 31, 2019   June 30, 2018  
INTEREST AND DIVIDEND INCOME                  
Interest and fees on loans $ 10,917   $ 10,419   $ 8,778  
Interest on interest earning deposits with other banks   652     808     236  
Interest on investment securities   160     153     155  
Dividends on other investments   75     14     62  
Total interest and dividend income   11,804     11,394     9,231  
INTEREST EXPENSE                  
Interest on deposits   1,420     1,436     712  
Interest on borrowed funds   198     191     216  
Total interest expense   1,618     1,627     928  
Net interest income   10,186     9,767     8,303  
PROVISION FOR LOAN LOSSES   547     540     392  
Net interest income after provision for loan losses   9,639     9,227     7,911  
NONINTEREST INCOME                  
Deposit service charges and fees   781     726     771  
Wholesale banking service fees   502     446     42  
Loan referral fees   473     633     114  
Mortgage broker fees   111     85     69  
Sublease and lease income   10     10     4  
Gain (loss) on sale of loans   132     (11 )   78  
Other   123     95     135  
Total noninterest income   2,132     1,984     1,213  
NONINTEREST EXPENSE                  
Salaries and employee benefits   4,529     4,558     3,910  
Occupancy   930     994     804  
Data processing   499     529     492  
Director and staff expenses   217     240     136  
Excise taxes   180     165     134  
Marketing   108     94     86  
Legal and professional fees   293     409     130  
Federal Deposit Insurance Corporation (FDIC) assessments   134     75     79  
Business development   96     102     72  
Other   657     496     511  
Total noninterest expense   7,643     7,662     6,354  
Income before provision for income taxes   4,128     3,549     2,770  
PROVISION FOR INCOME TAXES   854     741     569  
NET INCOME $ 3,274   $ 2,808   $ 2,201  
                   
Basic earnings per share $ 0.28   $ 0.24   $ 0.24  
Diluted earnings per share $ 0.27   $ 0.23   $ 0.24  
Weighted average number of common shares outstanding:                  
Basic   11,895,026     11,884,107     9,265,153  
Diluted   12,202,197     12,183,234     9,284,947  
                   


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

             
  Six months ended  
  June 30, 2019   June 30, 2018  
INTEREST AND DIVIDEND INCOME            
Interest and fees on loans $ 21,336   $ 16,967  
Interest on interest earning deposits with other banks   1,460     491  
Interest on investment securities   313     307  
Dividends on other investments   89     73  
Total interest and dividend income   23,198     17,838  
INTEREST EXPENSE            
Interest on deposits   2,856     1,358  
Interest on borrowed funds   389     399  
Total interest expense   3,245     1,757  
Net interest income   19,953     16,081  
PROVISION FOR LOAN LOSSES   1,087     893  
Net interest income after provision for loan losses   18,866     15,188  
NONINTEREST INCOME            
Deposit service charges and fees   1,507     1,458  
Wholesale banking service fees   948     42  
Loan referral fees   1,106     244  
Mortgage broker fees   196     106  
Sublease and lease income   20     61  
Gain on sale of loans   121     142  
Other   218     267  
Total noninterest income   4,116     2,320  
NONINTEREST EXPENSE            
Salaries and employee benefits   9,087     7,645  
Occupancy   1,924     1,627  
Data processing   1,028     971  
Director and staff expenses   457     280  
Excise taxes   345     258  
Marketing   202     143  
Legal and professional fees   702     210  
Federal Deposit Insurance Corporation (FDIC) assessments   209     164  
Business development   198     160  
Other   1,153     963  
Total noninterest expense   15,305     12,421  
Income before provision for income taxes   7,677     5,087  
PROVISION FOR INCOME TAXES   1,595     1,043  
NET INCOME $ 6,082   $ 4,044  
             
Basic earnings per share $ 0.51   $ 0.44  
Diluted earnings per share $ 0.50   $ 0.44  
Weighted average number of common shares outstanding:            
Basic   11,889,597     9,254,061  
Diluted   12,192,647     9,266,613  
             


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

  For the Three Months Ended  
  June 30, 2019     March 31, 2019     June 30, 2018  
  Average   Interest   &   Yield /     Average   Interest   &   Yield /     Average   Interest   &   Yield /  
  Balance   Dividends   Cost (4)     Balance   Dividends   Cost (4)     Balance   Dividends   Cost (4)  
Assets                                                          
Interest earning assets:                                                          
Interest earning deposits $ 106,353   $ 652     2.46 %   $ 133,458   $ 808     2.46 %   $ 50,750   $ 236     1.87 %
Investment securities (1)   40,151     160     1.60       39,552     153     1.57       39,642     155     1.57  
Other Investments   3,659     75     8.22       3,150     14     1.80       3,200     62     7.77  
Loans receivable (2)   812,704     10,917     5.39       782,387     10,419     5.40       688,975     8,778     5.11  
Total interest earning assets $ 962,867   $ 11,804     4.92     $ 958,547   $ 11,394     4.82     $ 782,567   $ 9,231     4.73  
Noninterest earning assets:                                                          
Allowance for loan losses   (10,025 )                 (9,623 )                 (8,522 )            
Other noninterest earning assets   49,594                   48,145                   36,277              
Total assets $ 1,002,436                 $ 997,069                 $ 810,322              
                                                           
Liabilities and Shareholders Equity                  
Interest bearing liabilities:                                                          
Interest bearing deposits $ 550,777   $ 1,420     1.03 %   $ 571,086   $ 1,436     1.02 %   $ 464,133   $ 712     0.62 %
Subordinated debt, net   9,970     146     5.87       9,966     145     5.90       9,955     147     5.92  
Junior subordinated debentures, net   3,582     43     4.81       3,581     44     4.98       3,580     39     4.37  
FHLB advances and other borrowings   1,542     9     2.34       297     2     2.73       5,972     30     2.01  
Total interest bearing liabilities $ 565,871   $ 1,618     1.15     $ 584,930   $ 1,627     1.13     $ 483,640   $ 928     0.77  
Noninterest bearing deposits   308,739                   288,049                   255,615              
Other liabilities   13,132                   13,029                   2,610              
Total shareholders' equity   114,694                   111,061                   68,457              
Total liabilities and                                                          
   shareholders' equity $ 1,002,436                 $ 997,069                 $ 810,322              
Net interest income       $ 10,186                 $ 9,767                 $ 8,303        
Interest rate spread               3.77 %                 3.69 %                 3.96 %
Net interest margin (3)               4.24 %                 4.13 %                 4.26 %
                                                           
(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
AVERAGE BALANCES, YIELDS, AND RATES – YEAR-TO-DATE
(Dollars in thousands; unaudited)

  For the Six Months Ended  
  June 30, 2019     June 30, 2018  
  Average   Interest &   Yield /     Average   Interest &   Yield /  
  Balance   Dividends   Cost (4)     Balance   Dividends   Cost (4)  
Assets                                      
Interest earning assets:                                      
Interest earning deposits $ 119,830   $ 1,460     2.46 %   $ 59,407   $ 491     1.67 %
Investment securities (1)   39,853     313     1.58       39,679     307     1.56  
Other Investments   3,406     89     5.27       3,057     73     4.82  
Loans receivable (2)   797,629     21,336     5.39       671,867     16,967     5.09  
Total interest earning assets $ 960,718   $ 23,198     4.87     $ 774,010   $ 17,838     4.65  
Noninterest earning assets:                                      
Allowance for loan losses   (9,825 )                 (8,323 )            
Other noninterest earning assets   48,873                   36,178              
Total assets $ 999,766                 $ 801,865              
                                       
Liabilities and Shareholders Equity                                      
Interest bearing liabilities:                                      
Interest bearing deposits $ 560,875   $ 2,856     1.03 %   $ 464,176   $ 1,358     0.59 %
Subordinated debt, net   9,968     291     5.89       9,954     291     5.90  
Junior subordinated debentures, net   3,581     87     4.90       3,580     74     4.17  
FHLB advances and other borrowings   923     11     2.40       3,397     34     2.02  
Total interest bearing liabilities $ 575,347   $ 3,245     1.14     $ 481,107   $ 1,757     0.74  
Noninterest bearing deposits   298,451                   250,473              
Other liabilities   13,080                   2,724              
Total shareholders' equity   112,888                   67,561              
Total liabilities and                                      
   shareholders' equity $ 999,766                 $ 801,865              
Net interest income       $ 19,953                 $ 16,081        
Interest rate spread               3.73 %                 3.91 %
Net interest margin (3)               4.19 %                 4.19 %
                                       
(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  
  June 30,   March 31,   December 31,   September 30,   June 30,  
  2019   2019   2018   2018   2018  
Income Statement Data:                              
Interest and dividend income $ 11,804   $ 11,394   $ 11,011   $ 9,894   $ 9,231  
Interest expense   1,618     1,627     1,123     1,046     928  
Net interest income   10,186     9,767     9,888     8,848     8,303  
Provision for loan losses   547     540     425     508     392  
Net interest income after                              
provision for loan losses   9,639     9,227     9,463     8,340     7,911  
Noninterest income   2,132     1,984     1,601     1,546     1,213  
Noninterest expense   7,643     7,662     7,185     6,610     6,354  
Net income - pre-tax, pre-provision   4,675     4,089     4,304     3,784     3,162  
Provision for income tax   854     741     824     674     569  
Net income   3,274     2,808     3,055     2,602     2,201  
                               
  As of Period End or for the Three Month Period  
  June 30,   March 31,   December 31,   September 30,   June 30,  
  2019   2019   2018   2018   2018  
Balance Sheet Data:                              
Cash and cash equivalents $ 113,470   $ 257,659   $ 125,782   $ 115,508   $ 91,449  
Investment securities   42,381     38,217     37,922     37,039     37,317  
Loans receivable   845,443     791,072     767,899     744,320     700,692  
Allowance for loan losses   (10,443 )   (9,915 )   (9,407 )   (9,111 )   (8,540 )
Total assets   1,031,024     1,116,090     952,110     917,029     850,922  
Interest bearing deposits   552,254     680,249     510,089     488,743     485,019  
Noninterest bearing deposits   315,890     296,247     293,525     285,979     259,449  
Core deposits (1)   754,768     716,623     696,049     676,339     644,624  
Total deposits   868,144     976,496     803,614     774,722     744,468  
Total borrowings   33,554     13,549     33,546     33,542     33,537  
Total shareholders’ equity   116,592     112,365     109,156     105,276     69,490  
                               
Share and Per Share Data (2):                              
Earnings per share – basic $ 0.28   $ 0.24   $ 0.26   $ 0.23   $ 0.24  
Earnings per share – diluted $ 0.27   $ 0.23   $ 0.25   $ 0.22   $ 0.24  
Dividends per share   -     -     -     -     -  
Book value per share (3) $ 9.79   $ 9.44   $ 9.18   $ 8.86   $ 7.47  
Tangible book value per share (4) $ 9.79   $ 9.44   $ 9.18   $ 8.86   $ 7.47  
Weighted avg outstanding shares – basic   11,895,026     11,884,107     11,877,261     11,338,320     9,265,153  
Weighted avg outstanding shares – diluted   12,202,197     12,183,234     12,166,250     11,609,978     9,284,947  
Shares outstanding at end of period   11,908,185     11,902,715     11,893,203     11,886,473     9,298,553  
Stock options outstanding at end of period   791,267     804,117     688,312     682,190     707,460  
                               
  As of Period End or for the Three Month Period  
  June 30,   March 31,   December 31,   September 30,   June 30,  
  2019   2019   2018   2018   2018  
Credit Quality Data:                              
Nonperforming assets to total assets   0.16 %   0.12 %   0.19 %   0.27 %   0.24 %
Nonperforming assets to loans receivable and OREO   0.19 %   0.17 %   0.24 %   0.34 %   0.30 %
Nonperforming loans to total loans receivable   0.19 %   0.17 %   0.24 %   0.34 %   0.30 %
Allowance for loan losses to nonperforming loans   633.7 %   754.6 %   515.2 %   361.40 %   412.96 %
Allowance for loan losses to total loans receivable   1.24 %   1.25 %   1.23 %   1.22 %   1.22 %
Gross charge-offs $ 22   $ 34   $ 134   $ 6   $ 281  
Gross recoveries $ 3   $ 2   $ 5   $ 69   $ 6  
Net charge-offs (recoveries) to average loans (5)   0.01 %   0.02 %   0.07 %   (0.03 %)   0.16 %
                               
Capital Ratios (6):                              
Tier 1 leverage capital   11.99 %   11.57 %   12.46 %   12.60 %   9.21 %
Tier 1 risk-based capital   12.99 %   13.66 %   14.13 %   14.17 %   10.24 %
Common equity Tier 1 risk-based capital   13.37 %   13.24 %   13.70 %   13.72 %   9.76 %
Total risk-based capital   15.70 %   16.06 %   16.58 %   16.65 %   12.82 %
                               
(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) 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.  
(4) 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.  
(5) Annualized calculations.                              
(6) Capital ratios are for the Company, Coastal Financial Corporation.  


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.  

    As of and for the Three Months Ended     As of and for the Six Months Ended  
(Dollars in thousands)   June 30, 2019     March 31, 2019     June 30, 2019  
Adjusted return on average assets:                        
Total average assets   $ 1,002,436     $ 997,069     $ 999,766  
Less: average wholesale-brokered deposits     20,252       74,116       47,035  
Adjusted total average deposits and borrowings   $ 982,184     $ 922,953     $ 952,731  
Total net income   $ 3,274     $ 2,808     $ 6,082  
Less: fees earned on servicing wholesale-brokered deposits     36       78       114  
Adjusted net income   $ 3,238     $ 2,730     $ 5,968  
Adjusted return on average assets:     1.34 %     1.20 %     1.26 %
Adjusted cost of funds:                        
Total average deposits and borrowings   $ 874,610     $ 872,979     $ 873,798  
Less: average wholesale-brokered deposits     20,252       74,116       47,035  
Adjusted total average deposits and borrowings   $ 854,358     $ 798,863     $ 826,763  
Total interest expense   $ 1,618     $ 1,627     $ 3,245  
Less: interest expense on wholesale-brokered deposits     116       435       551  
Adjusted interest expense   $ 1,502     $ 1,192     $ 2,694  
Adjusted cost of funds:     0.71 %     0.61 %     0.66 %
Adjusted cost on deposits:                        
Total average deposits   $ 859,516     $ 859,135     $ 859,326  
Less: average wholesale-brokered deposits     20,252       74,116       47,035  
Adjusted total average deposits   $ 839,264     $ 785,019     $ 812,291  
Interest expense on deposits   $ 1,420     $ 1,436     $ 2,856  
Less: interest expense on wholesale-brokered deposits     116       435       551  
Adjusted interest expense on interest bearing deposits   $ 1,304     $ 1,001     $ 2,305  
Adjusted cost of deposits:     0.63 %     0.52 %     0.57 %
Adjusted net interest margin:                        
Total average interest earning assets   $ 962,867     $ 958,547     $ 960,718  
Less: average wholesale-brokered deposits held in cash     20,252       74,116       47,035  
Adjusted total average interest earning assets   $ 942,615     $ 884,431     $ 913,683  
Total net interest income   $ 10,186     $ 9,767     $ 19,953  
Less: interest income earned wholesale-brokered deposits held in cash     116       435       551  
Plus: interest expense on wholesale-brokered deposits     116       435       551  
Adjusted net interest income     10,186       9,767       19,953  
Adjusted net interest margin:     4.38 %     4.48 %     4.40 %
Adjusted noninterest expense to average assets:                        
Total average assets   $ 1,002,436     $ 997,069     $ 999,766  
Less: average wholesale-brokered deposits     20,252       74,116       47,035  
Adjusted total average assets   $ 982,184     $ 922,953     $ 952,731  
Total noninterest expense   $ 7,643     $ 7,662     $ 15,305  
Adjusted noninterest expense to average assets:     3.12 %     3.37 %     3.24 %
                         
    As of and for the Three Months Ended     As of and for the Six Months Ended  
(Dollars in thousands)   June 30, 2019     March 31, 2019     June 30, 2019  
Adjusted loans receivable to deposits (1):                        
Total loans receivable   n/a     $ 791,072     n/a  
Total deposits   n/a       976,496     n/a  
Less: wholesale-brokered deposits   n/a       164,604     n/a  
Total deposits, less wholesale-brokered deposits   n/a     $ 811,892     n/a  
Adjusted loans receivable to deposits:   n/a       97.44 %   n/a  
                         
(1) Adjusted loans receivable to deposits is only presented for periods that include atypically large wholesale-brokered deposits as of the end of the period presented.  

 

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