Quarter Three 2019 Highlights:

  • Net income totaled $3.5 million for the quarter ended September 30, 2019, or $0.29 per diluted common share, up from $2.6 million, or $0.22 per diluted common share, for the quarter ended September 30, 2018. 
  • Total assets were $1.1 billion at September 30, 2019, up 14.5% from $952.1 million at December 31, 2018.
  • Total loans receivable grew at an annualized rate of 18.4% for the nine months ended September 30, 2019 and increased 13.8% from December 31, 2018.
  • Total core deposits grew at an annualized rate of 23.3% for the nine months ended September 30, 2019 and increased 17.5% since December 31, 2018. 

EVERETT, Wash., Oct. 28, 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 September 30, 2019.  Net income for the third quarter of 2019 was $3.5 million, or $0.29 per diluted common share, compared with net income of $3.3 million, or $0.27 per diluted common share, for the second quarter of 2019. 

The Company had net income of $9.6 million for the nine months ended September 30, 2019, or $0.79 per diluted common share, compared to $6.6 million, or $0.66 per diluted common share for the nine months ended September 30, 2018.

Eric Sprink, President and CEO, commented, “We had a strong quarter with earnings of $3.5 million, and loan growth of $28.9 million funded by $62.8 million in core deposit growth. We were extremely pleased to find that we moved into 4th place in deposit market share in Snohomish County at June 30, 2019, up from 5th place as compared to one year ago. Additionally, Sandler O’Neill + Partners recognized the Company as a Sm-All Star Class of 2019. Those that make the list have superior performance metrics in growth, profitability, credit quality, and capital strength.  After going public last year, this recognizes the hard work and dedication of our board and staff at all levels.”

Results of Operations

Net interest income was $10.7 million for the quarter ended September 30, 2019, an increase of 5.3% from $10.2 million for the quarter ended June 30, 2019 and an increase of 21.2% from $8.8 million from the quarter ended September 30, 2018.   The increase compared to prior quarter and prior year’s third quarter is related to increased interest income resulting from our continued loan growth and higher loan balances.

Net interest income for the nine months ended September 30, 2019 totaled $30.7 million, an increase of 23.1% compared to $24.9 million for the same period last year. The $5.8 million increase in net interest income over the same period last year was primarily related to loan growth. During the nine months ended September 30, 2019, the average balance of total loans receivable increased by $129.8 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 $86.9 million and an increase in the cost of deposits of 26 basis points, compared to the same period last year.

Net interest margin for the quarter ended September 30, 2019 increased five basis points to 4.29% as compared to 4.24% for the quarter ended June 30, 2019 and was 4.13% for the quarter ended September 30, 2018. The increase over the prior quarter was due to growth in interest earning assets.  The increase in net interest margin compared to the prior year is primarily a result of an increase in loans receivable and higher yielding loan balances.  

Net interest margin for the nine months ended September 30, 2019 was 4.22% compared to 4.17% for the comparable period last year.  Higher loans receivable, increased average loan yields and increased interest earning deposits in the period ended September 30, 2019 were partially offset by an increase in balances and costs, resulting in a five basis point net increase over the nine-month period ended September 30, 2018. 

During the quarter ended September 30, 2019 the average balance of total loans receivable increased by $53.0 million, compared to the quarter ended June 30, 2019, and increased by $148.4 million, compared to the same quarter one year ago. Total loan yield for the quarter ended September 30, 2019 was 5.36%, a decrease of three basis points from 5.39% for the quarter ended June 30, 2019, and a 24 basis point increase from 5.12% for the quarter ended September 30, 2018.

Contractual loan yields approximated 5.24% for the three months ended September 30, 2019, compared to 5.23% for the three months ended June 30, 2019, and 5.02% for the three months ended September 30, 2018. The increase in contractual loan yields, as compared to last year, was from pricing new loans at higher rates.

Deposit costs for the quarter ended September 30, 2019 were 0.64%, a decrease of two basis points from 0.66% for the quarter ended June 30, 2019, and a 20 basis point increase from the quarter ended September 30, 2018.  Market conditions on deposit rates have changed since the Federal Reserve Open Market Committee lowered rates twice in third quarter. 

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 wholesale-brokered deposits for the quarters ended June 30, 2019 and March 31, 2019.  The wholesale-brokered deposits normalized in the third quarter, therefore no adjustments were made to the performance ratios for the quarter or nine months ended September 30, 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  Nine months ended 
 September 30,
2019
 June 30,
2019
 March 31,
2019
 December 31,
2018
 September 30,
2018
  September 30,
2019
 September 30,
2018
 
                      
Return on average assets (1) 1.35% 1.31% 1.14% 1.33% 1.18% 1.27% 1.07%
Return on average assets, as adjusted (1,2)N/A  1.34% 1.20%N/A N/A  N/A N/A 
Return on average equity (1) 11.72% 11.45% 10.25% 11.31% 10.59% 11.16% 11.37%
Pre-tax, pre-provision return on average assets (1,3) 1.95% 1.87% 1.66% 1.87% 1.71% 1.83% 1.58%
Yield on earnings assets (1) 4.94% 4.92% 4.82% 4.93% 4.62% 4.89% 4.64%
Yield on loans receivable (1) 5.36% 5.39% 5.40% 5.39% 5.12% 5.38% 5.10%
Loan yield excluding fees (1) 5.24% 5.23% 5.22% 5.15% 5.02% 4.94%   
Cost of funds (1) 0.72% 0.74% 0.76% 0.56% 0.53% 0.74% 0.50%
Cost of funds, as adjusted (1,4)N/A  0.71% 0.61%N/A N/A  N/A N/A 
Cost of deposits (1) 0.64% 0.66% 0.68% 0.47% 0.44% 0.66% 0.40%
Cost of deposits, as adjusted (1,5)N/A  0.63% 0.52%N/A N/A  N/A N/A 
Net interest margin (1) 4.29% 4.24% 4.13% 4.43% 4.13% 4.22% 4.17%
Net interest margin, as adjusted (1,6)N/A  4.38% 4.48%N/A N/A  N/A N/A 
Noninterest expense to average assets (1) 2.98% 3.06% 3.12% 3.12% 2.99% 3.05% 3.07%
Noninterest expense to average assets, as adjusted (1,7)N/A  3.12% 3.37%N/A N/A  N/A N/A 
Efficiency ratio 60.46% 62.05% 65.20% 62.54% 63.59% 62.50% 66.09%
Loans receivable to deposits 94.78% 97.39% 81.01% 95.56% 96.08% 94.78% 96.08%
Loans receivable to deposits, as adjusted (8)N/A N/A  97.44%N/A 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 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) 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 wholesale deposits on balance sheet. The most directly comparable GAAP measure is cost of funds. 
(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 wholesale deposits on balance sheet. The most directly comparable GAAP measure is cost of deposits. 
(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 wholesale deposits on balance sheet. The most directly comparable GAAP measure is net interest margin. 
(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 wholesale deposits on balance sheet. The most directly comparable GAAP measure is noninterest expense to average assets. 
(8) For quarter ended March 31, 2019, 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 third quarter of 2019, a decrease of $44,000 from the second quarter of 2019, and an increase of $542,000 from $1.5 million for the comparable period one year ago.  A $237,000 increase in gain on sale of loans and a realized net gain on sale of securities of $171,000 were offset by $473,000 less in loan referral fees for the quarter ended September 30, 2019 when compared to the quarter ended June 30, 2019, resulting in a $44,000 decrease in noninterest income.  The $542,000 increase over the quarter ended September 30, 2018 was largely due to a $369,000 increase on gain on sale of loans, a $171,000 net gain on sale of securities, a $128,000 increase in fees earned from wholesale banking services and a decrease of $209,000 in loan referral fees.

Noninterest income was $6.2 million for the nine months ended September 30, 2019, compared to $3.9 million for the nine months ended September 30, 2018. The increase is primarily related to increased wholesale banking service fees of $1.0 million and loan referral fee income, which totaled $1.1 million for the nine months ended September 30, 2019, an increase of $653,000 from the same period last year, and is earned when a borrower enters into an interest rate swap agreement with a third party.  Gain on sale of loans also contributed to the increase with $348,000 more in income for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

Total noninterest expense for the current quarter was $7.7 million compared to $7.6 million for the preceding quarter and increased 17.2% from $6.6 million from the comparable period one year ago. Noninterest expense variances for the quarter ended September 30, 2019 as compared to the quarter ended June 30, 2019 include a $442,000 increase in salaries and employee benefits in the current quarter as a result of increases in staffing to support our growth and build our wholesale banking pipeline.  Offsetting this increase was a decrease of $138,000 in Federal Deposit Insurance Corporation (FDIC) assessments, as the FDIC issued a credit to qualifying banks beginning in September 2019 as a result of the FDIC fund ratio being in excess of the required ratio. Legal and professional fees were $123,000 lower than the quarter ended June 30, 2019 largely due to expenses from additional reporting and annual meeting expenses that were incurred in the quarter ended June 30, 2019.  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 September 30, 2019 totaled 192, which was up 2.7% from the prior quarter and increased 9.1% from the quarter ended September 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.  Occupancy expense increased $86,000 over the third quarter of 2019.  Occupancy expense for the quarter ended September 30, 2019 was higher than the quarter ended September 30, 2018 largely as a result of expenses related to the opening of the Edmonds branch as well as increases in rent, implementation of the new lease accounting standard, and increases in depreciation from improvements.

Total noninterest expense for the nine months ended September 30, 2019 was $23.1 million, an increase of $4.0 million or 21.1% compared to the same period last year.  The increase is primarily attributable to $2.4 million in increased salary expense, as discussed above, an increase of $520,000 in legal and professional fees, largely due to expenses related to being a public company, and our wholesale banking activities, and an increase of $383,000 in occupancy expenses related to the addition of our Edmonds branch in October 2018, higher rent expense, implementation of the new lease accounting standard and increases in depreciation.

The provision for income taxes was $65,000 more this quarter compared to the second quarter of 2019, and $245,000 more than the third quarter of 2018, as a result of increased taxable income.  The provision for income taxes was $797,000 more for the nine months ended September 30, 2019 compared to the nine months ended September 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 $138.0 million, or 14.5%, to $1.1 billion at September 30, 2019 from $952.1 million at December 31, 2018.  The primary cause of the increase was a $104.7 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 $9.2 million and $9.4 million, respectively, as of September 30, 2019.  Total assets increased 5.7% or $59.0 million from June 30, 2019 due to a $28.2 million increase in loans receivable and $36.6 million increase in interest earning deposits.     

Total loans receivable, net of allowance for loan losses, increased $104.7 million, or 13.8%, to $863.2 million at September 30, 2019, from $758.5 million at December 31, 2018 and $128.0 million or 17.4% from $735.2 million at September 30, 2018.  The growth in net loans receivable was due primarily to increases in commercial real estate loans of $62.6 million and $22.9 million in construction, land and land development loans over the quarter ended December 31, 2018 and an increase of $75.8 million in commercial real estate loans, $24.7 million in construction, land and land development loans and $20.1 million in commercial and industrial loans over the quarter ended September 30, 2018.  

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

 As of 
 September 30, 2019  December 31, 2018  September 30, 2018 
(Dollars in thousands)Balance % to
Total
  Balance % to
Total
  Balance % to
Total
 
                     
Commercial and industrial loans$105,634  12.1% $90,390  11.8% $85,554  11.5%
Real estate:                    
  Construction, land and                    
  land development 86,919  9.9   64,045  8.3   62,222  8.4 
  Residential 100,818  11.5   94,745  12.3   91,995  12.3 
  Commercial real estate 578,607  66.1   515,959  67.1   502,782  67.5 
Consumer and other 3,720  0.4   3,584  0.5   2,583  0.3 
  Gross loans receivable 875,698  100.0%  768,723  100.0%  745,136  100.0%
Net deferred origination fees (1,586)     (824)     (816)   
  Loans receivable$874,112     $767,899     $744,320    

Total deposits increased $118.6 million, or 14.8%, to $922.2 million at September 30, 2019 from $803.6 million at December 31, 2018.  The increase is largely due to a $121.5 million increase in core deposits.  Included in this increase is approximately $16.0 million in temporary deposits that were brought into the Bank primarily during the third quarter which we believe will exit the Bank during the fourth quarter of 2019.  During the nine months ended September 30, 2019 noninterest bearing deposits increased $55.6 million, NOW and money market accounts increased $66.4 million, savings accounts were static, wholesale-brokered deposits increased $2.8 million and time deposits decreased $5.7 million.  Total deposits increased $147.5 million or 19.0% compared to September 30, 2018. 

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

 As of 
 September 30, 2019  December 31, 2018  September 30, 2018 
(Dollars in thousands)Balance % to
Total
  Balance % to
Total
  Balance % to
Total
 
                     
Demand, noninterest bearing$349,087  37.9% $293,525  36.5% $285,979  36.9%
NOW and money market 416,315  45.1   349,952  43.6   340,930  44.0 
Savings 52,191  5.7   52,572  6.5   49,430  6.4 
  Total core deposits 817,593  88.7   696,049  86.6   676,339  87.3 
Wholesale brokered deposits 13,340  1.4   10,521  1.3   -  0.0 
Time deposits less than $250,000 58,369  6.3   62,272  7.8   63,715  8.2 
Time deposits $250,000 and over 32,947  3.6   34,772  4.3   34,668  4.5 
  Total deposits$922,249  100.0% $803,614  100.0% $774,722  100.0%

Total shareholders’ equity increased $11.3 million since December 31, 2018.  The increase in shareholders’ equity was primarily due to $9.6 million in net earnings in the last nine months and a $1.2 million increase in additional other comprehensive income as a result of an increase in the value of our available for sale investment portfolio.  During the third quarter of 2019, we sold $30.0 million of longer-term Treasuries (6-year average life) and replaced them with shorter-term Treasuries (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 significantly decreased.

Capital Ratios

The Company and the Bank remain well capitalized at September 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 11.54%  12.00%  5.00%
Tier 1 risk-based capital 12.89%  13.40%  8.00%
Common Equity Tier 1 risk-based capital 12.89%  13.02%  6.50%
Total risk-based capital 14.11%  15.70%  10.00%

Asset Quality

The allowance for loan losses was 1.25% of loans receivable at September 30, 2019 compared to 1.23% at December 31, 2018.  Provision for loan losses totaled $637,000 for the current quarter, $547,000 for the preceding quarter, and $508,000 for the same quarter in the prior year. Net charge-offs totaled $192,000 for the quarter ended September 30, 2019, compared to net charge-offs of $19,000 for the quarter ended June 30, 2019 and $63,000 net recoveries for the quarter ended September 30, 2018.  Net charge-offs totaled $243,000 for the nine months ended September 30, 2019, compared to $307,000 in net charge-offs for the nine months ended September 30, 2018.

At September 30, 2019 our nonperforming assets were $1.3 million, or 0.12% of total assets, compared to $1.8 million or 0.19% of total assets at December 31, 2018, and $2.5 million, or 0.27% of total assets at September 30, 2018.  There were no repossessed assets or other real estate owned at September 30, 2019.

Our nonperforming loans to loans receivable ratio was 0.15% at September 30, 2019, compared to 0.24% at December 31, 2018.  Commercial and industrial nonaccrual loans totaled $1.2 million at quarter end, and consisted of five lending relationships.  During the third quarter charge-offs totaling $110,000 were recorded on these relationships.  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.

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

 As of 
 September 30, December 31,  September 30, 
(Dollars in thousands)2019 2018  2018 
           
Nonaccrual loans:          
Commercial and industrial loans$1,233 $493  $1,170 
Real estate:          
Construction, land and land development -  -   - 
Residential 67  72   74 
Commercial real estate -  -   - 
Commercial real estate - troubled debt restructure -  1,261   1,277 
Consumer and other loans -  -   - 
Total nonaccrual loans 1,300  1,826   2,521 
Total accruing loans past due 90 days or more -  -   - 
Total nonperforming loans 1,300  1,826   2,521 
Other real estate owned -  -   - 
Repossessed assets -  -   - 
Total nonperforming assets$1,300 $1,826  $2,521 
Troubled debt restructurings, accruing -  -   - 
Total nonperforming loans to loans receivable 0.15% 0.24%  0.34%
Total nonperforming assets to total assets 0.12% 0.19%  0.27%

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

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 
 September 30,  June 30,  December 31, 
 2019  2019  2018 
Cash and due from banks$22,060  $18,735  $16,315 
Interest earning deposits with other banks 131,287   94,735   109,467 
Investment securities, available for sale, at fair value 28,319   37,978   36,660 
Investment securities, held to maturity, at amortized cost 4,377   4,403   1,262 
Other investments 4,405   4,400   3,766 
Loans receivable 874,112   845,443   767,899 
Allowance for loan losses (10,888)  (10,443)  (9,407)
Total loans receivable, net 863,224   835,000   758,492 
Premises and equipment, net 13,167   12,933   13,167 
Operating lease right-of-use assets 9,205   8,922   - 
Accrued interest receivable 2,629   2,884   2,526 
Bank-owned life insurance, net 6,832   6,783   6,688 
Deferred tax asset, net 2,206   2,255   2,518 
Other assets 2,349   1,996   1,249 
Total assets$1,090,060  $1,031,024  $952,110 
            
LIABILITIES AND SHAREHOLDERS EQUITY 
LIABILITIES           
Deposits$922,249  $868,144  $803,614 
Federal Home Loan Bank (FHLB) advances 20,000   20,000   20,000 
Subordinated debt, net 9,975   9,972   9,965 
Junior subordinated debentures, net 3,582   3,582   3,581 
Deferred compensation 1,000   1,026   1,078 
Accrued interest payable 303   298   279 
Operating lease liabilities 9,386   9,098   - 
Other liabilities 3,143   2,313   4,437 
Total liabilities 969,638   914,433   842,954 
            
SHAREHOLDERS’ EQUITY           
Common stock 86,866   86,730   86,431 
Retained earnings 33,614   30,103   24,021 
Accumulated other comprehensive loss, net of tax (58)  (242)  (1,296)
Total shareholders’ equity 120,422   116,591   109,156 
Total liabilities and shareholders’ equity$1,090,060  $1,031,024  $952,110 
            

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

   
 Three months ended 
 September 30, June 30, September 30, 
 2019 2019 2018 
INTEREST AND DIVIDEND INCOME         
Interest and fees on loans$11,691 $10,917 $9,262 
Interest on interest earning deposits with other banks 486  652  458 
Interest on investment securities 168  160  156 
Dividends on other investments 10  75  18 
Total interest and dividend income 12,355  11,804  9,894 
INTEREST EXPENSE         
Interest on deposits 1,435  1,420  851 
Interest on borrowed funds 193  198  195 
Total interest expense 1,628  1,618  1,046 
Net interest income 10,727  10,186  8,848 
PROVISION FOR LOAN LOSSES 637  547  508 
Net interest income after provision for loan losses 10,090  9,639  8,340 
NONINTEREST INCOME         
Deposit service charges and fees 795  781  800 
Wholesale banking service fees 456  502  328 
Loan referral fees -  473  209 
Mortgage broker fees 140  111  52 
Sublease and lease income 16  10  10 
Gain on sales of loans, net 369  132  - 
Gain on sales of securities, net 171  -  - 
Other 141  123  147 
Total noninterest income 2,088  2,132  1,546 
NONINTEREST EXPENSE         
Salaries and employee benefits 4,971  4,529  4,027 
Occupancy 884  930  798 
Data processing 509  499  501 
Director and staff expenses 241  217  213 
Excise taxes 184  180  146 
Marketing 98  108  110 
Legal and professional fees 170  293  142 
Federal Deposit Insurance Corporation (FDIC) assessments (4) 134  83 
Business development 122  96  81 
Other 573  657  509 
Total noninterest expense 7,748  7,643  6,610 
Income before provision for income taxes 4,430  4,128  3,276 
PROVISION FOR INCOME TAXES 919  854  674 
NET INCOME$3,511 $3,274 $2,602 
          
Basic earnings per share$0.30 $0.28 $0.23 
Diluted earnings per share$0.29 $0.27 $0.22 
Weighted average number of common shares outstanding:         
Basic 11,901,873  11,895,026  11,338,320 
Diluted 12,188,507  12,202,197  11,609,978 
          

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

       
 Nine months ended 
 September 30, September 30, 
 2019 2018 
INTEREST AND DIVIDEND INCOME      
Interest and fees on loans$33,027 $26,229 
Interest on interest earning deposits with other banks 1,946  949 
Interest on investment securities 481  463 
Dividends on other investments 99  91 
Total interest and dividend income 35,553  27,732 
INTEREST EXPENSE      
Interest on deposits 4,291  2,209 
Interest on borrowed funds 582  594 
Total interest expense 4,873  2,803 
Net interest income 30,680  24,929 
PROVISION FOR LOAN LOSSES 1,724  1,401 
Net interest income after provision for loan losses 28,956  23,528 
NONINTEREST INCOME      
Deposit service charges and fees 2,302  2,258 
Wholesale banking service fees 1,404  370 
Loan referral fees 1,106  453 
Mortgage broker fees 336  158 
Sublease and lease income 36  71 
Gain on sales of loans, net 490  142 
Gain on sales of securities, net 171  - 
Other 359  414 
Total noninterest income 6,204  3,866 
NONINTEREST EXPENSE      
Salaries and employee benefits 14,058  11,672 
Occupancy 2,808  2,425 
Data processing 1,537  1,472 
Director and staff expenses 698  493 
Excise taxes 529  404 
Marketing 300  253 
Legal and professional fees 872  352 
Federal Deposit Insurance Corporation (FDIC) assessments 205  247 
Business development 320  241 
Other 1,726  1,472 
Total noninterest expense 23,053  19,031 
Income before provision for income taxes 12,107  8,363 
PROVISION FOR INCOME TAXES 2,514  1,717 
NET INCOME$9,593 $6,646 
       
Basic earnings per share$0.81 $0.67 
Diluted earnings per share$0.79 $0.66 
Weighted average number of common shares outstanding:      
Basic 11,893,734  9,956,449 
Diluted 12,193,071  10,051,415 
       

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

   
 For the Three Months Ended 
 September 30, 2019  June 30, 2019  September 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$85,406 $486  2.26% $106,353 $652  2.46% $90,301 $458  2.01%
Investment securities (1) 36,974  168  1.80   40,151  160  1.60   39,613  156  1.56 
Other Investments 3,621  10  1.10   3,659  75  8.22   3,000  18  2.38 
Loans receivable (2) 865,674  11,691  5.36   812,704  10,917  5.39   717,260  9,262  5.12 
Total interest earning assets 991,675  12,355  4.94   962,867  11,804  4.92   850,174  9,894  4.62 
Noninterest earning assets:                             
Allowance for loan losses (10,548)        (10,025)        (8,782)      
Other noninterest earning assets 50,842         49,594         37,000       
Total assets$1,031,969        $1,002,436        $878,392       
                              
Liabilities and Shareholders Equity 
Interest bearing liabilities:                             
Interest bearing deposits$555,665 $1,435  1.02% $550,777 $1,420  1.03% $488,183 $851  0.69%
Subordinated debt, net 9,973  148  5.89   9,970  146  5.87   9,959  148  5.90 
Junior subordinated debentures, net 3,582  42  4.65   3,582  43  4.81   3,580  41  4.54 
FHLB advances and other borrowings 539  3  2.21   1,542  9  2.34   964  6  2.47 
Total interest bearing liabilities 569,759  1,628  1.13   565,871  1,618  1.15   502,686  1,046  0.83 
Noninterest bearing deposits 330,553         308,739         274,549       
Other liabilities 12,756         13,132         3,650       
Total shareholders' equity 118,901         114,694         97,507       
Total liabilities and                             
shareholders' equity$1,031,969        $1,002,436        $878,392       
Net interest income   $10,727        $10,186        $8,848    
Interest rate spread       3.81%        3.77%        3.79%
Net interest margin (3)       4.29%        4.24%        4.13%
                              
(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 Nine Months Ended 
 September 30, 2019  September 30, 2018 
 Average Interest & Yield /  Average Interest & Yield / 
 Balance Dividends Cost (4)  Balance Dividends Cost (4) 
Assets                   
Interest earning assets:                   
Interest earning deposits$108,230 $1,946  2.40% $69,818 $949  1.82%
Investment securities (1) 38,883  481  1.65   39,657  463  1.56 
Other Investments 3,479  99  3.80   3,038  91  4.00 
Loans receivable (2) 820,560  33,027  5.38   687,165  26,229  5.10 
Total interest earning assets 971,152  35,553  4.89   799,678  27,732  4.64 
Noninterest earning assets:                   
Allowance for loan losses (10,068)        (8,478)      
Other noninterest earning assets 49,536         36,960       
Total assets$1,010,620        $828,160       
                    
Liabilities and Shareholders Equity                   
Interest bearing liabilities:                   
Interest bearing deposits$559,119 $4,291  1.03% $472,266 $2,209  0.63%
Subordinated debt, net 9,970  439  5.89   9,955  439  5.90 
Junior subordinated debentures, net 3,582  129  4.81   3,580  116  4.33 
FHLB advances and other borrowings 794  14  2.36   2,577  39  2.02 
Total interest bearing liabilities 573,465  4,873  1.14   488,378  2,803  0.77 
Noninterest bearing deposits 309,270         258,586       
Other liabilities 12,971         3,038       
Total shareholders' equity 114,914         78,158       
Total liabilities and                   
shareholders' equity$1,010,620        $828,160       
Net interest income   $30,680        $24,929    
Interest rate spread       3.76%        3.87%
Net interest margin (3)       4.22%        4.17%
                    
(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 
 September 30, June 30, March 31, December 31, September 30, 
 2019 2019 2019 2018 2018 
Income Statement Data:               
Interest and dividend income$12,355 $11,804 $11,394 $11,011 $9,894 
Interest expense 1,628  1,618  1,627  1,123  1,046 
Net interest income 10,727  10,186  9,767  9,888  8,848 
Provision for loan losses 637  547  540  425  508 
Net interest income after               
provision for loan losses 10,090  9,639  9,227  9,463  8,340 
Noninterest income 2,088  2,132  1,984  1,601  1,546 
Noninterest expense 7,748  7,643  7,662  7,185  6,610 
Net income - pre-tax, pre-provision 5,067  4,675  4,089  4,304  3,784 
Provision for income tax 919  854  741  824  674 
Net income 3,511  3,274  2,808  3,055  2,602 
                
 As of Period End or for the Three Month Period 
 September 30, June 30, March 31, December 31, September 30, 
 2019 2019 2019 2018 2018 
Balance Sheet Data:               
Cash and cash equivalents$153,347 $113,470 $257,659 $125,782 $115,508 
Investment securities 32,696  42,381  38,217  37,922  37,039 
Loans receivable 874,112  845,443  791,072  767,899  744,320 
Allowance for loan losses (10,888) (10,443) (9,915) (9,407) (9,111)
Total assets 1,090,060  1,031,024  1,116,090  952,110  917,029 
Interest bearing deposits 573,162  552,254  680,249  510,089  488,743 
Noninterest bearing deposits 349,087  315,890  296,247  293,525  285,979 
Core deposits (1) 817,593  754,768  716,623  696,049  676,339 
Total deposits 922,249  868,144  976,496  803,614  774,722 
Total borrowings 33,557  33,554  13,549  33,546  33,542 
Total shareholders’ equity 120,422  116,592  112,365  109,156  105,276 
                
Share and Per Share Data (2):               
Earnings per share – basic$0.30 $0.28 $0.24 $0.26 $0.23 
Earnings per share – diluted$0.29 $0.27 $0.23 $0.25 $0.22 
Dividends per share -  -  -  -  - 
Book value per share (3)$10.11 $9.79 $9.44 $9.18 $8.86 
Tangible book value per share (4)$10.11 $9.79 $9.44 $9.18 $8.86 
Weighted avg outstanding shares – basic 11,901,873  11,895,026  11,884,107  11,877,261  11,338,320 
Weighted avg outstanding shares – diluted 12,188,507  12,202,197  12,183,234  12,166,250  11,609,978 
Shares outstanding at end of period 11,912,115  11,908,185  11,902,715  11,893,203  11,886,473 
Stock options outstanding at end of period 786,257  791,267  804,117  688,312  682,190 
                
 As of Period End or for the Three Month Period 
 September 30, June 30, March 31, December 31, September 30, 
 2019 2019 2019 2018 2018 
Credit Quality Data:               
Nonperforming assets to total assets 0.12% 0.16% 0.12% 0.19% 0.27%
Nonperforming assets to loans receivable and OREO 0.15% 0.19% 0.17% 0.24% 0.34%
Nonperforming loans to total loans receivable 0.15% 0.19% 0.17% 0.24% 0.34%
Allowance for loan losses to nonperforming loans 837.5% 633.7% 754.6% 515.2% 361.40%
Allowance for loan losses to total loans receivable 1.25% 1.24% 1.25% 1.23% 1.22%
Gross charge-offs$196 $22 $34 $134 $6 
Gross recoveries$4 $3 $2 $5 $69 
Net charge-offs (recoveries) to average loans (5) 0.09% 0.01% 0.02% 0.07% (0.03%)
                
Capital Ratios (6):               
Tier 1 leverage capital 12.00% 11.99% 11.57% 12.46% 12.60%
Tier 1 risk-based capital 13.40% 12.99% 13.66% 14.13% 14.17%
Common equity Tier 1 risk-based capital 13.02% 13.37% 13.24% 13.70% 13.72%
Total risk-based capital 15.70% 15.70% 16.06% 16.58% 16.65%
                
(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.  

(Dollars in thousands) June 30, 2019  March 31, 2019 
Adjusted return on average assets:        
Total average assets $1,002,436  $997,069 
Less: average wholesale-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 wholesale-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 wholesale-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 wholesale-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 wholesale-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 wholesale-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 wholesale-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 wholesale-brokered deposits held in cash  116   435 
Plus: interest expense on wholesale-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 wholesale-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%