Coastal Financial Corporation Announces Second Quarter 2018 Results

2018 Second Quarter Highlights:

• Net income totaled $2.2 million for the second quarter of 2018, or $0.24 per diluted common share, up 22.2% from $1.8 million for the first quarter of 2018.
• Total assets were $850.9 million at June 30, 2018, up 2.4% from $831.0 million at March 31, 2018.
• Total loans receivable, net increased 3.3% from March 31, 2018 and 6.7% from December 31, 2017.
• Total deposits increased 2.4% from March 31, 2018 and increased 5.9% from December 31, 2017.
• Noninterest bearing deposits at June 30, 2018 were 34.9% of total deposits.
• Cost of deposits were 0.40% for the second quarter of 2018, up only 0.03% from the first quarter of 2018.
• Initial public offering of 2,577,500 shares of common stock completed, subsequent to quarter end, on July 18, 2018, for net proceeds of $33.2 million.

EVERETT, Wash., Aug. 21, 2018 (GLOBE NEWSWIRE) -- Coastal Financial Corporation (NASDAQ: CCB) (the “Company”) today reported unaudited financial results for the second quarter 2018.  Net income for the second quarter of 2018 was $2.2 million, or $0.24 per diluted common share, compared with net income of $1.8 million, or $0.20 per diluted share, for the first quarter of 2018.

On July 18, 2018, the Company closed its initial public offering of 2,577,500 shares of common stock, including the exercise of the over-allotment of 427,500 shares, for net proceeds of $33.2 million after deducting underwriting discounts, commissions, and estimated offering expenses.

Eric Sprink, President and CEO, commented, “We are pleased with our second quarter financial performance, especially our deposit and loan growth.  Historically, the second quarter has been a tougher quarter to grow deposits due to customers withdrawing funds to pay taxes.  However, for the three months ended June 30, 2018 deposit growth on an annualized basis was 9.5% and loan growth was 13.1%.  We believe that the loan and deposit growth, combined with the increase in net interest margin, positions us well for continued growth in earnings.”

In addition, our initial public offering, which was completed on July 20, 2018, was priced at $14.50 a share (which was near the top of the offering range), and net proceeds were $33.2 million after expenses.  We intend to use the net proceeds from this offering to support our growth, organically or through mergers and acquisitions, and for general corporate purposes.”

The Company had net income of $4.0 million for the six months ended June 30, 2018, or $0.44 per diluted common share, compared to $3.2 million, or $0.35 per diluted common share for the six months ended June 30, 2017.

Results of Operations

Net interest income was $8.3 million for the three months ended June 30, 2018, an increase of 6.4% from $7.8 million for the first quarter of 2018, and an increase of 15.3% from $7.2 million for the second quarter of 2017. Increases over the prior quarter and prior year were the result of growth in interest earning assets, primarily loans, and improvements in net interest margin.

Net interest income for the six months ended June 30, 2018 totaled $16.1 million, an increase of 14.2% compared to the same period last year. The $2.0 million increase in net interest income over the same period last year was primarily related to growth in loan balances. During the six months ended June 30, 2018, the average balance of total loans receivable increased by $69.2 million, compared to the same period last year. This increase was partially offset by increased deposit costs from the growth in the balance of our deposits of $40.7 million and an increase in the cost of deposit funds of 12 basis points, compared to the same period last year.

Net interest margin for the quarter ended June 30, 2018 increased 14 basis points to 4.26% from 4.12% for the first quarter of 2018 and from 4.12% for the second quarter of 2017. The increase in net interest over the comparable period in the prior year was primarily due to increases in loan volume as a percent of earning assets and higher prepayment penalties and deferred fees recognized on loans paid off, and to a lesser extent, increases in average loan yields. The average loan receivable balance for the three months ended June 30, 2018 was $689.0 million, an increase of 5.3% compared to the prior quarter of 2018 and an increase of 13.5% from the same quarter one year ago.

Net interest margin for the six months ended June 30, 2018 increased 12 basis points to 4.19% from 4.07% for the comparable period last year. The increase in net interest over the comparable period in the prior year was primarily due to increases in loan volume as a percent of earning assets and higher prepayment penalties and deferred fees recognized on loans paid off in the first two quarters of 2018, and to a lesser extent, increases in average loan yields.

Loan yields for the quarter ended June 30, 2018 were 5.11%, an increase of four basis points from 5.07% for the quarter ended March 31, 2018, and a 12 basis point increase from 4.99% for the quarter ended June 30, 2017. Loan yields for the six months ended June 30, 2018 were 5.09%, an increase of 13 basis points from 4.96% for the six months ended June 30, 2017. Prepayment penalties and deferred fees recognized on loans paid off in both the current quarter and previous quarter were each 0.09% higher than the quarter ended June 30, 2017. Contractual loan yields approximated 4.92% for the three months ended June 30, 2018, 4.88% for the three months ended March 31, 2018, and 4.89% for the three months ended June 30, 2017.

The following table shows the Company’s key performance ratios for the periods indicated.

Noninterest income was $1.2 million for the second quarter of 2018, an increase of $106,000 from $1.1 million for the first quarter of 2018 and an increase of $193,000 from $1.0 million for the comparable period one year ago. The increase compared to the prior quarter was primarily due to newly assessed point of sale/ATM fees and increased activity in merchant services, which resulted in an additional $84,000 of income during the quarter. The increase in noninterest income compared to the same quarter one year ago was primarily related to increases in existing deposit fees and the introduction of new deposit fees to bring those fees in line with the industry. Sublease and lease income decreased in the second quarter 2018, as compared to both first quarter 2018 and second quarter 2017, as a result of a long-term tenant electing to not renew their lease.

Noninterest income was $2.3 million for the six months ended June 30, 2018, compared to $1.9 million for the six months ended June 30, 2017. The increase is primarily related to newly assessed deposit fees, as discussed above. Loan referral fee income, which is earned when a borrower enters into an interest rate swap agreement with a third party, totaled $244,000 for the six months ended June 30, 2018, an increase of $202,000 from the same period last year.

Total noninterest expense for the current quarter increased 4.9% to $6.4 million from $6.1 million for the preceding quarter and increased 16.4% from $5.5 million from the comparable period one year ago. The increased expenses for the current quarter compared to the prior quarter and previous quarter one year ago were primarily due to increases in salary expenses. Full time equivalent employees increased 7% during the current quarter and increased 14% from the same quarter one year ago. Staffing increases are due to the continued organic growth initiatives, and includes increases in sales staff, including hiring new banking teams, and additional back office staffing to support the incremental increases in banking teams and for operation as a public company.

Total noninterest expense for the six months ended June 30, 2018 totaled $12.4 million, an increase of 14.8% compared to the same period last year. The increase is primarily attributable to increased salary expense, as discussed above and the addition of our Woodinville branch in October 2017.

The provision for income taxes decreased 33.3% for the current quarter and the six months ended June 30, 2018, compared to the same periods last year, primarily due to the Tax Cuts and Jobs Act legislation which was signed into law on December 22, 2017. The Company began using the lower tax rate of 21.0% for the current fiscal year.

Balance Sheet

The Company’s total assets increased $45.1 million, or 5.6%, to $850.9 million at June 30, 2018 from $805.8 million at December 31, 2017 due to the Company’s organic growth initiatives.

Total loans receivable, net of allowance for loan losses, increased $43.4 million, or 6.7%, to $692.2 million at June 30, 2018 from $648.8 million at December 31, 2017.  The growth in loans receivable was due primarily to increases in commercial real estate loans of $36.6 million.

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

Total deposits increased $41.2 million, or 5.9%, to $744.5 million at June 30, 2018 from $703.3 million at December 31, 2017.  The increase in deposits included increases in non-interest bearing deposit accounts of $17.1 million, or 7.1%, and total time deposits of $9.2 million, or 10.1%.

The following table shows the Company’s deposit composition for the periods indicated.

Total shareholders’ equity increased $3.8 million, or 5.8%, to $69.5 million at June 30, 2018 from $65.7 million at December 31, 2017.  The increase in shareholders’ equity was primarily due to net income earned during the year.

Capital Ratios

The Company and the Bank remain well capitalized at June 30, 2018, as summarized in the following table.

Asset Quality

The allowance for loan losses was 1.22% of loans receivable at June 30, 2018, compared to 1.22% at December 31, 2017. Provision for loan losses totaled $392,000 for the current quarter, $501,000 for the preceding quarter, and there was no provision for the same quarter in the prior year. Net charge-offs totaled $370,000 for the six months ended June 30, 2018 compared to net charge-offs of $94,000 for six months ended June 30, 2017.

Non-performing assets were $2.1 million, or 0.24% of total assets, at June 30, 2018, compared to $2.1 million, or 0.26% of total assets at December 31, 2017.  There were no repossessed assets or other real estate owned at June 30, 2018.

Non-performing loans to loans receivable ratio was 0.30% at June 30, 2018, compared to 0.32% at December 31, 2017.  Classified loans were $8.6 million at June 30, 2018, an increase of $700,000, as compared to $7.9 million at December 31, 2017.

The following table details the Company’s non-performing assets for the periods indicated.

About Coastal Financial

Coastal Financial Corporation is an Everett-based Washington State bank holding company with Coastal Community Bank (the “Bank”), a full-service commercial bank, as its sole wholly-owned banking subsidiary.  The Bank operates through its 13 branches in Snohomish, Island, and King Counties, the Internet and its mobile banking application.  More information about the Bank can be found on its website at www.coastalbank.com and its investor relations page.

Contact

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

Forward-Looking Statements

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

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

Non-GAAP Financial Measures

This earnings release contains certain non-GAAP (“Generally Accepted Accounting Principles”) financial measures in addition to results presented in accordance with GAAP. These measures include the following:

“Adjusted net income” is a non-GAAP measure defined as net income increased by the additional income tax expense that resulted from the revaluation of deferred tax assets as a result of the reduction in the corporate income tax rate under the recently enacted Tax Cuts and Jobs Act. The most directly comparable GAAP measure is net income.

“Adjusted earnings per share” is a non-GAAP measure defined as net income, plus additional income tax expense, divided by weighted average outstanding shares (diluted). The most directly comparable GAAP measure is earnings per share.

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