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Coastal Financial Corporation Announces Second Quarter 2019 Results

Company Release - 7/26/2019 8:59 AM ET

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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Source: Coastal Financial Corporation
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