Coastal Financial Corporation Announces Fourth Quarter and Year End 2019 Results

1/27, 3:25 PM (Source: GlobeNewswire)

2019 Highlights:

  • Net income totaled $13.2 million for the year ended December 31, 2019, or $1.08 per diluted common share, up 36.1% from $9.7 million or $0.91 per diluted common share for year ended December 31, 2018. 
  • Total assets were $1.13 billion at December 31, 2019, up 18.5% from $952.1 million at December 31, 2018.
  • Total loans receivable grew at a rate of 22.3% during the year ended December 31, 2019.
  • Total deposits increased 20.5% during the year ended December 31, 2019 to $968.0 million, compared to $803.6 million at December 31, 2018.
  • Total core deposits increased 23.9% during the year ended December 31, 2019, and were 89.1% of total deposits, compared to 86.6% at December 31, 2018. 

EVERETT, Wash., Jan. 27, 2020 (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 and year ended December 31, 2019. Net income for the fourth quarter of 2019 was $3.6 million, or $0.30 per diluted common share, compared with net income of $3.5 million, or $0.29 per diluted common share, for the third quarter of 2019. 

The Company had net income of $13.2 million for the year ended December 31, 2019, or $1.08 per diluted common share, compared to $9.7 million, or $0.91 per diluted common share for the year ended December 31, 2018.

“We are pleased to announce that we finished 2019 strong with a 36.1% increase in net income, a 22.3% increase in total loans receivable and a 20.5% increase in deposits, as compared to the year ended December 31, 2018. The Company’s return on average equity was 11.66% for the fourth quarter of 2019,” stated Eric Sprink, the President and CEO of the Bank and the Company. 

“We remain focused on growing and managing the Bank, while investing, growing, and innovating our way to an enhanced future that combines our strong Bank with additional sources of fee income and a path to stronger and more viable digital Bank in the future.

Today, we are formally introducing our CCBX Division which provides Banking as a Service (“BaaS”) enabling broker dealers and digital financial service providers to offer their clients banking services. The “X” is indicative of the technology services that our partners provide.

As we build out CCBX, we will do our best to cover related costs with new revenues from CCBX customers. Currently, we are in the process of working with five fintech partners, and maintaining a robust pipeline as we look forward. CCBX will be supported by staff we hired late in 2019 to build the infrastructure, and additional hires in 2020 as we expect to add new partners and execute new contracts.

Just like any complex banking product, BaaS does not come without risks. We recently announced the hiring of a dedicated Chief Risk Officer and a Data Scientist Architect with a PhD in Artificial Intelligence to further enhance the program. These hires are investments in our future and necessary to perform the services safely and soundly and to manage the risks associated with this line of business. We also recently announced that we are building an integrated compliance and reporting system to monitor and address these risks in partnership with Neocova.

Although we carefully underwrite and complete extensive due diligence of each partner, we know that all of partners may not be successful, and like any new business some might fail. Through ongoing monitoring of each relationship, we believe that we will be able to minimize any impact, but recognize that income streams may diminish should a partner fail. In addition, we are very cognizant of both our compliance responsibility and the True Lender Doctrine, and should any of our partners offer lending products, the Bank will be the True Lender and engage with the relationships accordingly.

“The investments we are making today are not for immediate returns but for longer-term returns that we believe will build value for shareholders while benefiting our customers, employees, and communities we serve,” continued Sprink. “We are pleased to provide this update and look forward to sharing more news about our CCBX division as it grows.”

Beginning with the fourth quarter 2019, we have changed references made to “wholesale” and "wholesale banking services" to "BaaS" and “BaaS fees” in our earnings release, financial statements and other information we make publicly available (other than our regulatory reports). We have revised prior period financial statements to make this conforming change.

Results of Operations

Net interest income was $11.3 million for the quarter ended December 31, 2019, an increase of 5.6% from $10.7 million for the quarter ended September 30, 2019 and an increase of 14.6% from $9.9 million for the quarter ended December 31, 2018. The increase compared to the prior quarter and prior year’s fourth quarter is related to increased interest income resulting from our loan growth.

Net interest income for the year ended December 31, 2019 totaled $42.0 million, an increase of 20.7% compared to $34.8 million for the fiscal year 2018. The $7.2 million increase in net interest income over the same period last year was primarily related to loan growth. During the year ended December 31, 2019, the average balance of total loans receivable increased by $138.2 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 $86.6 million and an increase in the cost of deposits of 23 basis points, compared to the fiscal year 2018.

Net interest margin for the quarter ended December 31, 2019 decreased three basis points to 4.26% as compared to 4.29% for the quarter ended September 30, 2019 and was 4.43% for the quarter ended December 31, 2018. The decrease over the prior quarter was due to lower interest rates on interest earning deposits invested in other financial institutions. The decrease in net interest margin compared to the fourth quarter in the prior year is primarily due to an increase in cost of deposits, which increased 16 basis points to 0.63% for the quarter ended December 31, 2019, compared to 0.47% for the quarter ended December 31, 2018, and 0.64% for the quarter ended September 30, 2019.

Net interest margin for the year ended December 31, 2019 was 4.23% compared to 4.24% for the comparable period last year. Higher loans receivable, increased average loan yields and increased average interest earning deposits during the year ended December 31, 2019 helped to offset the 23 basis point increase in cost of deposits, resulting in a just a one basis point net decrease in net interest margin over the year ended December 31, 2018. 

During the quarter ended December 31, 2019 the average balance of total loans receivable increased by $45.7 million, compared to the quarter ended September 30, 2019, and increased by $152.3 million, compared to the same quarter one year ago. Total loan yield for the quarter ended December 31, 2019 was 5.36%, which was the same as the quarter ended September 30, 2019, and compares to 5.39% for the quarter ended December 31, 2018.

Contractual loan yields approximated 5.15% for the quarter ended December 31, 2019, compared to 5.24% for the quarter ended September 30, 2019, and 5.15% for the quarter ended December 31, 2018. The Federal Open Market Committee (FOMC) lowered rates twice in the third quarter of 2019, resulting in lower rates on new and renewing loans in the fourth quarter of 2019. Although we have rate floors in place for certain existing loans, the rate reductions by FOMC and any future rate adjustments will have a corresponding impact on loan yields and subsequently the net interest margin in future periods.

Deposit costs for the quarter ended December 31, 2019 were 0.63%, a decrease of one basis point from 0.64% for the quarter ended September 30, 2019, and a 16 basis point increase from the quarter ended December 31, 2018. Market conditions for deposits continue to be competitive, and deposit costs have not declined meaningfully along with the rate reductions by the FOMC, as of yet. Historically, there tends to be a lag in customer deposit rates being adjusted up or down in response to rate changes by the FOMC.      

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 previously disclosed atypical BaaS-brokered deposits for the quarters ended June 30, 2019 and March 31, 2019. The BaaS-brokered deposits normalized in the third quarter of 2019, therefore no adjustments were made to the performance ratios for the quarter or year ended December 31, 2019. The adjusted ratios are non-GAAP measures. For more information about non-GAAP financial measures, see the end of this earnings release.

  Three months ended  Year ended 
  December 31,
2019
 September 30,
2019
 June 30,
2019
 March 31,
2019
 December 31,
2018
  December 31,
2019
 December 31,
2018
 
                        
Return on average assets (1)  1.31% 1.35% 1.31% 1.14% 1.33%  1.28% 1.14%
Return on average assets, as adjusted (1,2) N/A N/A  1.34% 1.20%N/A  N/A N/A 
Return on average equity (1)  11.66% 11.72% 11.45% 10.25% 11.31%  11.29% 11.40%
Pre-tax, pre-provision return on average assets (1,3)  1.95% 1.95% 1.87% 1.66% 1.87%  1.86% 1.66%
Yield on earnings assets (1)  4.90% 4.94% 4.92% 4.82% 4.93%  4.90% 4.72%
Yield on loans receivable (1)  5.36% 5.36% 5.39% 5.40% 5.39%  5.38% 5.18%
Loan yield excluding fees (1)  5.15% 5.24% 5.23% 5.22% 5.15%  5.21% 5.00%
Cost of funds (1)  0.70% 0.72% 0.74% 0.76% 0.56%  0.73% 0.52%
Cost of funds, as adjusted (1,4) N/A N/A  0.71% 0.61%N/A  N/A N/A 
Cost of deposits (1)  0.63% 0.64% 0.66% 0.68% 0.47%  0.65% 0.42%
Cost of deposits, as adjusted (1,5) N/A N/A  0.63% 0.52%N/A  N/A N/A 
Net interest margin (1)  4.26% 4.29% 4.24% 4.13% 4.43%  4.23% 4.24%
Net interest margin, as adjusted (1,6) N/A N/A  4.38% 4.48%N/A  N/A N/A 
Noninterest expense to average assets (1)  2.90% 2.98% 3.06% 3.12% 3.12%  3.01% 3.09%
Noninterest expense to average assets, as adjusted (1,7) N/A N/A  3.12% 3.37%N/A  N/A N/A 
Efficiency ratio  59.86% 60.46% 62.05% 65.20% 62.54%  61.79% 65.08%
Loans receivable to deposits  97.02% 94.78% 97.39% 81.01% 95.56%  97.02% 95.56%
Loans receivable to deposits, as adjusted (8) N/A N/A N/A  97.44%N/A  N/A N/A 
                        
(1) Annualized calculations shown for quarterly periods presented.        
(2) For quarters ended June 30, 2019 and March 31, 2019, adjusted return on average assets is a non-GAAP measure that excludes the temporary impact of holding high rate BaaS deposits on balance sheet. The most directly comparable GAAP measure is return on average assets.  See page 16 for more information.  Immaterial impact for years ended December 31, 2019 and 2018. 
(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) For quarters ended June 30, 2019 and March 31, 2019, adjusted cost of funds is a non-GAAP measure that excludes the temporary impact of holding high rate BaaS deposits on balance sheet. The most directly comparable GAAP measure is cost of funds.  See page 16 for more information.  Immaterial impact for years ended December 31, 2019 and 2018. 
(5) For quarters ended June 30, 2019 and March 31, 2019, adjusted cost of deposits is a non-GAAP measure that excludes the temporary impact of holding high rate BaaS deposits on balance sheet. The most directly comparable GAAP measure is cost of deposits.  See page 16 for more information.  Immaterial impact for years ended December 31, 2019 and 2018. 
(6) For quarters ended June 30, 2019 and March 31, 2019, adjusted net interest margin is a non-GAAP measure that excludes the temporary impact of holding high rate BaaS deposits on balance sheet. The most directly comparable GAAP measure is net interest margin.  See page 16 for more information.  Immaterial impact for years ended December 31, 2019 and 2018. 
(7) For quarters ended June 30, 2019 and March 31, 2019, adjusted noninterest expense to average assets is a non-GAAP measure that excludes the temporary impact of holding high rate BaaS deposits on balance sheet. The most directly comparable GAAP measure is noninterest expense to average assets.  See page 16 for more information.  Immaterial impact for years ended December 31, 2019 and 2018. 
(8) For quarter ended March 31, 2019, adjusted loans receivable to deposits is a non-GAAP measure that excludes BaaS-brokered deposits on balance sheet. The most directly comparable GAAP measure is loans receivable to deposits.  See page 16 for more information.  Immaterial impact for years ended December 31, 2019 and 2018. 

Noninterest income was $2.1 million for the fourth quarter of 2019, a decrease of $29,000 from the third quarter of 2019, and an increase of $458,000 from $1.6 million for the comparable period one year ago. A $332,000 increase in loan referral fees and $200,000 increase in BaaS fees was partially offset by $369,000 lower gain on sale of loans and $171,000 less on realized net gain on sale of securities when compared to the quarter ended September 30, 2019. The $458,000 increase over the quarter ended December 31, 2018 was largely due to a $317,000 increase in fees earned from BaaS fees, a $167,000 increase in loan referral fees and $122,000 lower gain on sale of loans.  

Noninterest income was $8.3 million for the year ended December 31, 2019, compared to $5.5 million for the year ended December 31, 2018. The increase is primarily related to an increase in BaaS fees of $1.4 million and an additional $820,000 in loan referral fee income, which is earned when we originate a variable rate loan and arrange for the borrower to enter into an interest rate swap agreement with a third party to fix the interest rate for an extended period. Increases in mortgage broker income of $232,000, gain on sales of loans of $226,000 and a realized net gain on sale of securities of $171,000 also contributed to the increase. 

Total noninterest expense for the current quarter was $8.0 million compared to $7.7 million for the preceding quarter and increased 11.6% from $7.2 million from the comparable period one year ago. Noninterest expense variances for the quarter ended December 31, 2019 as compared to the quarter ended September 30, 2019 include a $88,000 increase in occupancy expense related to higher depreciation expense, maintenance and repairs, and utilities. Other expenses increased by $119,000 largely due to a $62,000 increase in software license expense and $87,000 more in bank examination 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 December 31, 2019 totaled 201, which was up 4.7% from the prior quarter and increased 9.8% from the quarter ended December 31, 2018. Staffing increases compared to the prior year are due to organic growth initiatives, and include increases in sales staff, hiring new banking teams, and staff for the Edmonds location opened in October 2018, plus additional back office staffing to support the incremental increases in banking teams, and to grow our BaaS CCBX division. Other expenses increased $190,000 as a result of $77,000 more in subscription and software license expense and $105,000 more in bank examination fees.    

Total noninterest expense for the year ended December 31, 2019 was $31.1 million, an increase of $4.8 million or 18.5% compared to the same period last year. The increase is primarily attributable to $2.9 million in increased salary expense, as discussed above, an increase of $461,000 in occupancy expenses from our Edmonds branch opened in October 2018, higher rent expense for other locations, and increases in depreciation. In addition, we had an increase of $426,000 in legal and professional fees, largely due to expenses related to being a public company, and our BaaS activities through CCBX operations.

The provision for income taxes was $28,000 more this quarter compared to the third quarter of 2019, and $123,000 more than the fourth quarter of 2018, as a result of increased taxable income. The provision for income taxes was $920,000 more for the year ended December 31, 2019 compared to the year ended December 31, 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 $176.4 million, or 18.5% to $1.13 billion at December 31, 2019 from $952.1 million at December 31, 2018. The primary cause of the increase was a $169.1 million in increased net 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 $8.5 million and $8.7 million, respectively, as of December 31, 2019. In the quarter ended December 31, 2019 total assets increased $38.5 million, or 3.5% to $1.13 billion at December 31, 2019 from $1.09 billion at September 30, 2019. The increase was attributed to an increase in net loans receivable of $64.4 million partially offset by a decrease of $20.0 million in interest earning deposits with other banks.    

Total loans receivable, net of allowance for loan losses, increased $169.1 million, or 22.3%, to $927.6 million at December 31, 2019, from $758.5 million at December 31, 2018 and $64.4 million or 7.5% from $863.2 million at September 30, 2019. The growth in net loans receivable over the previous year end was due primarily to increases in commercial real estate loans of $97.4 million, $33.0 million in construction, land and land development loans, $21.0 million in commercial and industrial loans and $20.3 million in residential real estate loans. As a percent of total loans, all categories remained consistent with December 31, 2018, and we have been able to maintain this allocation by growing all areas of our portfolio. The increase over the quarter ended September 30, 2019 was due to increases in commercial real estate of $34.8 million, $14.2 million in residential real estate and $10.1 million in construction, land and land development loans

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

  As of 
  December 31, 2019  September 30, 2019  December 31, 2018 
(Dollars in thousands) Balance % to
Total
  Balance % to
Total
  Balance % to
Total
 
                      
Commercial and industrial loans $111,401  11.8% $105,634  12.1% $90,390  11.8%
Real estate:                     
Construction, land and land development  97,034  10.3   86,919  9.9   64,045  8.3 
Residential  115,011  12.2   100,818  11.5   94,745  12.3 
Commercial real estate  613,398  65.2   578,607  66.1   515,959  67.1 
Consumer and other  4,214  0.5   3,720  0.4   3,584  0.5 
Gross loans receivable  941,058  100.0%  875,698  100.0%  768,723  100.0%
Net deferred origination fees  (1,955)     (1,586)     (824)   
Loans receivable $939,103     $874,112     $767,899    

Total deposits increased $164.3 million, or 20.5%, to $968.0 million at December 31, 2019 from $803.6 million at December 31, 2018. The increase is largely due to a $166.5 million increase in core deposits. During the year ended December 31, 2019 noninterest bearing deposits increased $77.7 million, or 26.5%, to $371.2 million from $293.5 million at December 31, 2018. NOW and money market accounts increased $88.0 million, savings accounts were static, BaaS-brokered deposits increased $13.1 million and time deposits decreased $15.2 million. Total deposits increased $45.7 million or 5.0% compared to September 30, 2019. This increase was largely due to an increase in noninterest bearing deposits of $22.2 million and $21.6 million increase in NOW and money market accounts. Our efforts to grow noninterest bearing and other core deposits is evidenced by the steady increase in these categories when compared to total deposits. 

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

  As of
  December 31, 2019  September 30, 2019  December 31, 2018 
(Dollars in thousands) Balance % to
Total
  Balance % to
Total
  Balance % to
Total
 
                      
Demand, noninterest bearing $371,243  38.4% $349,087  37.9% $293,525  36.5%
NOW and money market  437,908  45.2   416,315  45.1   349,952  43.6 
Savings  53,365  5.5   52,191  5.7   52,572  6.5 
Total core deposits  862,516  89.1   817,593  88.7   696,049  86.6 
BaaS brokered deposits  23,586  2.4   13,340  1.4   10,521  1.3 
Time deposits less than $250,000  51,644  5.4   58,369  6.3   62,272  7.8 
Time deposits $250,000 and over  30,213  3.1   32,947  3.6   34,772  4.3 
Total deposits $967,959  100.0% $922,249  100.0% $803,614  100.0%

Total shareholders’ equity increased $15.0 million since December 31, 2018. The increase in shareholders’ equity was primarily due to $13.2 million in net earnings during the year and a $1.3 million increase in additional other comprehensive income. During the third quarter of 2019, we sold $30.0 million of longer-term Treasury bonds (6-year average life) and replaced them with shorter-term Treasury bonds (less than 1-year average life) and certificates of deposit with one year maturities. As a result, our exposure to declines in the value of our available for sale investment portfolio has decreased.

Capital Ratios

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

Capital Ratios:Coastal
Community
Bank
  Coastal
Financial
Corporation
  Financial
Institution Basel
III Regulatory
Guidelines
 
            
Tier 1 leverage capital 11.22%  11.64%  5.00%
Tier 1 risk-based capital 12.44%  12.74%  8.00%
Common Equity Tier 1 risk-based capital 12.44%  13.10%  6.50%
Total risk-based capital 13.64%  15.35%  10.00%

Asset Quality

The allowance for loan losses was 1.22% of loans receivable at December 31, 2019 compared to 1.25% at September 30, 2019 and 1.23% at December 31, 2018. Provision for loan losses totaled $820,000 for the current quarter, $637,000 for the preceding quarter, and $425,000 for the same quarter in the prior year. Net charge-offs totaled $238,000 for the quarter ended December 31, 2019, compared to net charge-offs of $192,000 for the quarter ended September 30, 2019 and $129,000 net charge-offs for the quarter ended December 31, 2018. Net charge-offs totaled $481,000 for the year ended December 31, 2019, compared to $436,000 in net charge-offs for the year ended December 31, 2018.

At December 31, 2019 our nonperforming assets were $1.0 million, or 0.09% of total assets, compared to $1.3 million or 0.12% of total assets at September 30, 2019, and $1.8 million, or 0.19% of total assets at December 31, 2018. There were no repossessed assets or other real estate owned at December 31, 2019.

Our nonperforming loans to loans receivable ratio was 0.11% at December 31, 2019, compared to 0.24% at December 31, 2018. Commercial and industrial nonaccrual loans totaled $965,000 at quarter end, and consisted of six lending relationships. During the fourth quarter charge-offs totaled $230,000 on nonperforming loans. Principal reductions along with the aforementioned charge-offs resulted in an overall decrease in our ratios of nonperforming loans and nonperforming assets to total assets compared to December 31, 2018. No additional loans were moved to nonperforming status in the fourth quarter.

Credit quality has remained stable throughout 2019 as demonstrated by the low level of charge-offs and declining nonperforming loan balance.

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

  As of
  December 31, September 30, December 31, 
(Dollars in thousands) 2019 2019 2018 
           
Nonaccrual loans:          
Commercial and industrial loans $965 $1,233 $493 
Real estate:          
Residential  65  67  72 
Commercial real estate - troubled debt restructure  -  -  1,261 
Total nonaccrual loans  1,030  1,300  1,826 
Total accruing loans past due 90 days or more  -  -  - 
Total nonperforming loans  1,030  1,300  1,826 
Other real estate owned  -  -  - 
Repossessed assets  -  -  - 
Total nonperforming assets $1,030 $1,300 $1,826 
Troubled debt restructurings, accruing  -  -  - 
Total nonperforming loans to loans receivable  0.11% 0.15% 0.24%
Total nonperforming assets to total assets  0.09% 0.12% 0.19%

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 $1 billion community bank that the Bank operates provides service through 14 branches in Snohomish, Island, and King Counties, the Internet and its mobile banking application. The Bank provides select partners with BaaS through its CCBX Division. To learn more about Coastal 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 within the meaning of the Private Securities Litigation Reform Act of 1995. 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 or reference to 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 as a result of risks, uncertainties and assumptions that are difficult to predict. Factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, the risks and uncertainties discussed under “Risk Factors” in our Annual Report on Form 10-K for the most recent period filed, and in any of our subsequent filings with the Securities and Exchange Commission.

If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. You are cautioned not to place undue reliance on forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise 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, except as required by law.


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

ASSETS 
  December 31  September 30,  December 31, 
  2019  2019  2018 
Cash and due from banks $16,555  $22,060  $16,315 
Interest earning deposits with other banks  111,259   131,287   109,467 
Investment securities, available for sale, at fair value  28,360   28,319   36,660 
Investment securities, held to maturity, at amortized cost  4,350   4,377   1,262 
Other investments  4,505   4,405   3,766 
Loans receivable  939,103   874,112   767,899 
Allowance for loan losses  (11,470)  (10,888)  (9,407)
Total loans receivable, net  927,633   863,224   758,492 
Premises and equipment, net  13,108   13,167   13,167 
Operating lease right-of-use assets  8,493   9,205   - 
Accrued interest receivable  2,980   2,629   2,526 
Bank-owned life insurance, net  6,882   6,832   6,688 
Deferred tax asset, net  2,743   2,206   2,518 
Other assets  1,658   2,349   1,249 
Total assets $1,128,526  $1,090,060  $952,110 
             
LIABILITIES AND SHAREHOLDERS EQUITY 
LIABILITIES            
Deposits $967,959  $922,249  $803,614 
Federal Home Loan Bank (FHLB) advances  10,000   20,000   20,000 
Subordinated debt, net  9,979   9,975   9,965 
Junior subordinated debentures, net  3,583   3,582   3,581 
Deferred compensation  974   1,000   1,078 
Accrued interest payable  308   303   279 
Operating lease liabilities  8,679   9,386   - 
Other liabilities  2,871   3,143   4,437 
Total liabilities  1,004,353   969,638   842,954 
             
SHAREHOLDERS’ EQUITY            
Common stock  86,983   86,866   86,431 
Retained earnings  37,222   33,614   24,021 
Accumulated other comprehensive loss, net of tax  (32)  (58)  (1,296)
Total shareholders’ equity  124,173   120,422   109,156 
Total liabilities and shareholders’ equity $1,128,526  $1,090,060  $952,110 


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

  Three months ended 
 December 31, September 30, December 31, 
 2019 2019 2018 
INTEREST AND DIVIDEND INCOME         
Interest and fees on loans$12,323 $11,691 $10,308 
Interest on interest earning deposits with other banks 477  486  483 
Interest on investment securities 154  168  155 
Dividends on other investments 80  10  65 
Total interest and dividend income 13,034  12,355  11,011 
INTEREST EXPENSE         
Interest on deposits 1,511  1,435  932 
Interest on borrowed funds 192  193  191 
Total interest expense 1,703  1,628  1,123 
Net interest income 11,331  10,727  9,888 
PROVISION FOR LOAN LOSSES 820  637  425 
Net interest income after provision for loan losses 10,511  10,090  9,463 
NONINTEREST INCOME         
Deposit service charges and fees 805  795  803 
BaaS fees 656  456  339 
Loan referral fees 332  -  165 
Mortgage broker fees 111  140  57 
Sublease and lease income 27  16  10 
Gain on sales of loans, net -  369  122 
Gain on sales of securities, net -  171  - 
Other 128  141  105 
Total noninterest income 2,059  2,088  1,601 
NONINTEREST EXPENSE         
Salaries and employee benefits 4,901  4,971  4,354 
Occupancy 972  884  889 
Data processing 544  509  499 
Director and staff expenses 302  241  208 
Excise taxes 190  184  155 
Marketing 93  98  120 
Legal and professional fees 231  170  325 
Federal Deposit Insurance Corporation (FDIC) assessments (21) (4) 48 
Business development 111  122  85 
Other 692  573  502 
Total noninterest expense 8,015  7,748  7,185 
Income before provision for income taxes 4,555  4,430  3,879 
PROVISION FOR INCOME TAXES 947  919  824 
NET INCOME$3,608 $3,511 $3,055 
          
Basic earnings per common share$0.30 $0.30 $0.26 
Diluted earnings per common share$0.30 $0.29 $0.25 
Weighted average number of common shares outstanding:         
Basic 11,903,750  11,901,873  11,877,261 
Diluted 12,213,512  12,188,507  12,166,250 


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

       
 Year ended 
 December 31, December 31, 
 2019 2018 
INTEREST AND DIVIDEND INCOME      
 Interest and fees on loans$45,350 $36,537 
 Interest on interest earning deposits with other banks 2,423  1,432 
 Interest on investment securities 635  618 
 Dividends on other investments 179  156 
Total interest and dividend income 48,587  38,743 
 INTEREST EXPENSE      
 Interest on deposits 5,802  3,141 
 Interest on borrowed funds 774  785 
 Total interest expense 6,576  3,926 
 Net interest income 42,011  34,817 
 PROVISION FOR LOAN LOSSES 2,544  1,826 
 Net interest income after provision for loan losses 39,467  32,991 
 NONINTEREST INCOME      
 Deposit service charges and fees 3,107  3,061 
 BaaS fees 2,060  709 
 Loan referral fees 1,438  618 
 Mortgage broker fees 447  215 
 Sublease and lease income 58  81 
 Gain on sales of loans, net 490  264 
 Gain on sales of securities, net 171  - 
 Other 487  519 
 Total noninterest income 8,258  5,467 
 NONINTEREST EXPENSE      
 Salaries and employee benefits 18,959  16,026 
 Occupancy 3,775  3,314 
 Data processing 2,081  1,971 
 Director and staff expenses 1,000  701 
 Excise taxes 719  559 
 Marketing 393  373 
 Legal and professional fees 1,103  677 
 Federal Deposit Insurance Corporation (FDIC) assessments 184  295 
 Business development 431  326 
 Other 2,418  1,974 
 Total noninterest expense 31,063  26,216 
 Income before provision for income taxes 16,662  12,242 
PROVISION FOR INCOME TAXES 3,461  2,541 
NET INCOME$13,201 $9,701 
       
Basic earnings per common share$1.11 $0.93 
Diluted earnings per common share$1.08 $0.91 
Weighted average number of common shares outstanding:      
Basic 11,896,258  10,440,740 
Diluted 12,196,120  10,608,764 


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

 For the Three Months Ended 
 December 31, 2019  September 30, 2019  December 31, 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$106,985 $477  1.77% $85,406 $486  2.26% $83,751 $483  2.29%
Investment securities (1) 32,871  154  1.86   36,974  168  1.80   39,590  155  1.55 
Other Investments 3,743  80  8.48   3,621  10  1.10   2,974  65  8.67 
Loans receivable (2) 911,373  12,323  5.36   865,674  11,691  5.36   759,084  10,308  5.39 
Total interest earning assets 1,054,972  13,034  4.90   991,675  12,355  4.94  $885,399 $11,011  4.93 
Noninterest earning assets:                             
Allowance for loan losses (11,002)        (10,548)        (9,191)      
Other noninterest earning assets 51,373         50,842         37,155       
Total assets$1,095,343        $1,031,969        $913,363       
                              
Liabilities and Shareholders Equity 
Interest bearing liabilities:                             
Interest bearing deposits$585,277 $1,511  1.02% $555,665 $1,435  1.02% $495,931 $932  0.75%
Subordinated debt, net 9,977  148  5.89   9,973  148  5.89   9,962  148  5.89 
Junior subordinated debentures, net 3,583  39  4.32   3,582  42  4.65   3,581  42  4.65 
FHLB advances and other borrowings 893  5  2.22   539  3  2.21   295  1  1.34 
Total interest bearing liabilities 599,730  1,703  1.13   569,759  1,628  1.13  $509,769 $1,123  0.87 
Noninterest bearing deposits 360,030         330,553         292,866       
Other liabilities 12,869         12,756         3,529       
Total shareholders' equity 122,714         118,901         107,199       
Total liabilities and shareholders' equity$1,095,343        $1,031,969        $913,363       
Net interest income   $11,331        $10,727        $9,888    
Interest rate spread       3.77%        3.81%        4.06%
Net interest margin (3)       4.26%        4.29%        4.43%
                              
(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 Year Ended 
 December 31, 2019  December 31, 2018 
 Average Interest & Yield /  Average Interest & Yield / 
 Balance Dividends Cost  Balance Dividends Cost 
Assets                   
Interest earning assets:                   
Interest earning deposits$107,916 $2,423  2.25% $73,330 $1,432  1.95%
Investment securities (1) 37,368  635  1.70   39,640  618  1.56 
Other Investments 3,545  179  5.05   3,022  156  5.16 
Loans receivable (2) 843,450  45,350  5.38   705,292  36,537  5.18 
Total interest earning assets$992,279 $48,587  4.90  $821,284 $38,743  4.72 
Noninterest earning assets:                   
Allowance for loan losses (10,304)        (8,657)      
Other noninterest earning assets 49,998         36,631       
Total assets$1,031,973        $849,258       
                    
Liabilities and Shareholders Equity                   
Interest bearing liabilities:                   
Interest bearing deposits$565,713 $5,802  1.03% $478,231 $3,141  0.66%
Subordinated debt, net 9,971  587  5.89   9,957  587  5.90 
Junior subordinated debentures, net 3,582  168  4.69   3,580  157  4.39 
FHLB advances and other borrowings 819  19  2.32   2,010  41  2.04 
Total interest bearing liabilities$580,085 $6,576  1.13  $493,778 $3,926  0.80 
Noninterest bearing deposits 322,064         267,227       
Other liabilities 12,944         3,154       
Total shareholders' equity 116,880         85,099       
Total liabilities and shareholders' equity$1,031,973        $849,258       
Net interest income   $42,011        $34,817    
Interest rate spread       3.76%        3.92%
Net interest margin (3)       4.23%        4.24%
                    
(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. 


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

 Three Months Ended 
 December 31, September 30, June 30, March 31, December 31, 
 2019 2019 2019 2019 2018 
Income Statement Data:               
Interest and dividend income$13,034 $12,355 $11,804 $11,394 $11,011 
Interest expense 1,703  1,628  1,618  1,627  1,123 
Net interest income 11,331  10,727  10,186  9,767  9,888 
Provision for loan losses 820  637  547  540  425 
Net interest income after provision for loan losses 10,511  10,090  9,639  9,227  9,463 
Noninterest income 2,059  2,088  2,132  1,984  1,601 
Noninterest expense 8,015  7,748  7,643  7,662  7,185 
Net income - pre-tax, pre-provision 5,375  5,067  4,675  4,089  4,304 
Provision for income tax 947  919  854  741  824 
Net income 3,608  3,511  3,274  2,808  3,055 
                
   As of Period End or for the Three Month Period
 
 December 31, September 30, June 30, March 31, December 31, 
 2019 2019 2019 2019 2018 
Balance Sheet Data:               
Cash and cash equivalents$127,814 $153,347 $113,470 $257,659 $125,782 
Investment securities 32,710  32,696  42,381  38,217  37,922 
Loans receivable 939,103  874,112  845,443  791,072  767,899 
Allowance for loan losses (11,470) (10,888) (10,443) (9,915) (9,407)
Total assets 1,128,526  1,090,060  1,031,024  1,116,090  952,110 
Interest bearing deposits 596,716  573,162  552,254  680,249  510,089 
Noninterest bearing deposits 371,243  349,087  315,890  296,247  293,525 
Core deposits (1) 862,516  817,593  754,768  716,623  696,049 
Total deposits 967,959  922,249  868,144  976,496  803,614 
Total borrowings 23,562  33,557  33,554  13,549  33,546 
Total shareholders’ equity 124,173  120,422  116,591  112,365  109,156 
                
Share and Per Share Data (2):               
Earnings per share – basic$0.30 $0.30 $0.28 $0.24 $0.26 
Earnings per share – diluted$0.30 $0.29 $0.27 $0.23 $0.25 
Dividends per share -  -  -  -  - 
Book value per share (3)$10.42 $10.11 $9.79 $9.44 $9.18 
Tangible book value per share (4)$10.42 $10.11 $9.79 $9.44 $9.18 
Weighted avg outstanding shares – basic 11,903,750  11,901,873  11,895,026  11,884,107  11,877,261 
Weighted avg outstanding shares – diluted 12,213,512  12,188,507  12,202,197  12,183,234  12,166,250 
Shares outstanding at end of period 11,913,885  11,912,115  11,908,185  11,902,715  11,893,203 
Stock options outstanding at end of period 784,217  786,257  791,267  804,117  688,312 
                
  As of Period End or for the Three Month Period 
 December 31, September 30, June 30, March 31, December 31, 
 2019 2019 2019 2019 2018 
Credit Quality Data:               
Nonperforming assets to total assets 0.09% 0.12% 0.16% 0.12% 0.19%
Nonperforming assets to loans receivable and OREO 0.11% 0.15% 0.19% 0.17% 0.24%
Nonperforming loans to total loans receivable 0.11% 0.15% 0.19% 0.17% 0.24%
Allowance for loan losses to nonperforming loans 1113.6% 837.5% 633.7% 754.6% 515.2%
Allowance for loan losses to total loans receivable 1.22% 1.25% 1.24% 1.25% 1.23%
Gross charge-offs$242 $196 $22 $34 $134 
Gross recoveries$4 $4 $3 $2 $5 
Net charge-offs to average loans (5) 0.10% 0.09% 0.01% 0.02% 0.07%
                
Capital Ratios (6):               
Tier 1 leverage capital 11.64% 12.00% 11.99% 11.57% 12.46%
Tier 1 risk-based capital 12.74% 13.40% 12.99% 13.66% 14.13%
Common equity Tier 1 risk-based capital 13.10% 13.02% 13.37% 13.24% 13.70%
Total risk-based capital 15.35% 15.70% 15.70% 16.06% 16.58%
                
(1) Core deposits are defined as all deposits excluding BaaS-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 non-GAAP financial measures are presented to illustrate the impact of temporary high rate BaaS deposits on the balance sheet.  By removing these temporary deposits to show what the results would have been without them we are providing the investors with the information to better compare results with periods that did not have these temporary deposits.  These measures include the following:

“Adjusted return on average assets” is a non-GAAP measure that excludes the temporary impact of holding high rate BaaS 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 BaaS 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 BaaS 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 BaaS 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 BaaS 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 BaaS-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 
(Dollars in thousands) June 30, 2019  March 31, 2019 
Adjusted return on average assets:        
Total average assets $1,002,436  $997,069 
Less: average BaaS-brokered deposits  20,252   74,116 
Adjusted total average deposits and borrowings $982,184  $922,953 
Total net income $3,274  $2,808 
Less: fees earned on servicing BaaS-brokered deposits  36   78 
Adjusted net income $3,238  $2,730 
Adjusted return on average assets:  1.34%  1.20%
Adjusted cost of funds:        
Total average deposits and borrowings $874,610  $872,979 
Less: average BaaS-brokered deposits  20,252   74,116 
Adjusted total average deposits and borrowings $854,358  $798,863 
Total interest expense $1,618  $1,627 
Less: interest expense on BaaS-brokered deposits  116   435 
Adjusted interest expense $1,502  $1,192 
Adjusted cost of funds:  0.71%  0.61%
Adjusted cost on deposits:        
Total average deposits $859,516  $859,135 
Less: average BaaS-brokered deposits  20,252   74,116 
Adjusted total average deposits $839,264  $785,019 
Interest expense on deposits $1,420  $1,436 
Less: interest expense on BaaS-brokered deposits  116   435 
Adjusted interest expense on interest bearing deposits $1,304  $1,001 
Adjusted cost of deposits:  0.63%  0.52%
Adjusted net interest margin:        
Total average interest earning assets $962,867  $958,547 
Less: average BaaS-brokered deposits held in cash  20,252   74,116 
Adjusted total average interest earning assets $942,615  $884,431 
Total net interest income $10,186  $9,767 
Less: interest income earned BaaS-brokered deposits held in cash  116   435 
Plus: interest expense on BaaS-brokered deposits  116   435 
Adjusted net interest income  10,186   9,767 
Adjusted net interest margin:  4.38%  4.48%
Adjusted noninterest expense to average assets:        
Total average assets $1,002,436  $997,069 
Less: average BaaS-brokered deposits  20,252   74,116 
Adjusted total average assets $982,184  $922,953 
Total noninterest expense $7,643  $7,662 
Adjusted noninterest expense to average assets:  3.12%  3.37%
  As of and for the Three Months Ended 
(Dollars in thousands) June 30, 2019  March 31, 2019 
Adjusted loans receivable to deposits (1):        
Total loans receivable n/a  $791,072 
Total deposits n/a   976,496 
Less: BaaS-brokered deposits n/a   164,604 
Total deposits, less BaaS-brokered deposits n/a  $811,892 
Adjusted loans receivable to deposits: n/a   97.44%
         
(1) Adjusted loans receivable to deposits is only presented for periods that include atypically large BaaS-brokered deposits as of the end of the period presented. 

 

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