Coastal Banking Company Reports Strong Third Quarter 2017 Earnings

BEAUFORT, SC / ACCESSWIRE / October 30, 2017 / Coastal Banking Company Inc. (OTCQX: CBCO) (the “Company”), the holding company of CBC National Bank, which operates branches in Beaufort and Port Royal, S.C., and in Fernandina Beach, Ocala, and The Villages, Fla., today reported net income of $1.71 million, or $0.45 diluted earnings per common share, for the three months ended Sept. 30, 2017.

This compares to $1.99 million, or $0.54 in diluted earnings per common share, for the third quarter of 2016, a decrease of $280,000. On a linked-quarter basis, the $1.71 million of net income in the third quarter of 2017 decreased from second quarter 2017 net income of $2.11 million, or $0.55 diluted earnings per common share. The third quarter of 2016 and the second quarter of 2017 represented two of the three highest net income quarters in the Company’s history.

For the first nine months ending Sept. 30, 2017, the Company reported net income of $5.27 million, or $1.38 diluted earnings per common share, an increase of $520,000 over the net income for the first nine months of 2016 of $4.75 million, or $1.45 diluted earnings per common share. The increase in 2017 year-to-date earnings over 2016, and the slight decline in diluted earnings per share, reflect the effects of the Company’s April 2016 acquisition of First Avenue National Bank in Ocala, Florida.

Key performance highlights for the third quarter of 2017 include:

Continued shareholder value creation. Driven by strong earnings each quarter since early 2015, book value per share has risen to $15.61 at Sept. 30, 2017, up from $14.18 at Dec. 31, 2016, and $13.66 at Sept. 30, 2016. The CBCO closing market price on Sept. 30, 2017, was $19.00, up from $15.01 at Dec. 31, 2016.
Continued strong profitability. Despite a year-over-year decrease in quarterly net income, third quarter 2017 results continued to feature more balanced net income and solid contributions from all three of the Company’s operating segments as compared to the third quarter of 2016: Community Banking earned $886,000 in 2017’s third quarter, up from $690,000 in third quarter 2016. SBA Lending earned $554,000 in the third quarter of 2017, down from $657,000 earned in the same period in 2016. And Mortgage Banking earned $830,000 in the third quarter of 2017, down from the robust earnings of $1,176,000 in the third quarter of 2016. Community Banking and SBA Lending have outperformed the Company’s 2017 budget for both the third quarter and year-to-date.
Continued strong mortgage banking income. For the third quarter of 2017, $461.5 million in residential mortgage loans were sold, generating $3.80 million in total mortgage banking income, compared to the very robust third quarter of 2016, which had $568.0 million in volume and $4.51 million in mortgage banking income. Additionally, mortgage banking has generated increased yields on sold loans throughout 2017, compared to 2016, as a result of strategic changes in its loan origination mix. Mortgage banking income is down only $618,000, or 5.0 percent for the first nine months of 2017 compared to the same period in 2016, despite sales volume being down $357 million, or 22.8 percent, from the same period last year.
Strong SBA originations and loan sales. SBA loan sale income in the third quarter of 2017 was $1,047,000, compared to $1,050,000 for the same period in 2016. For the third quarter of 2017, SBA Lending originated $7.1 million in loans and sold $8.3 million into the secondary market, compared to third quarter 2016 originations of $11.7 million and sales of $9.1 million into the secondary market. The balance of SBA loans available for sale at Sept. 30, 2017, was $29.1 million, up from the $28.9 million balance at Sept. 30, 2016.
Solid year-over-year growth in the balance sheet. The balance sheet grew $37.8 million, or 6.2 percent, from Sept. 30, 2016, to Sept. 30, 2017, with total assets of $650.8 million at Sept. 30, 2017. The asset growth was driven by $12.2 million of increased portfolio loan balances and $30.2 million in increased investment securities. The Company’s balance sheet is well positioned for stable or increasing interest rates.
Strong year-over-year core deposit growth. Deposits have grown from $420.0 million at Sept. 30, 2016, to $426.3 million at Sept. 30, 2017, an increase of $6.3 million, or 1.5 percent. However, core deposits have grown $25.2 million year over year as declines have only occurred in non-core deposits.
Steady to improving credit quality. The ratio of non-performing assets to assets decreased from 1.86 percent at Sept. 30, 2016, to 1.33 percent at Sept. 30, 2017. The ratio was 1.98 percent at Dec. 31, 2016. The allowance for loan losses was 1.32 percent of loans outstanding at Sept. 30, 2017, up slightly from 1.23 percent at the end of September 2016 but down from 1.47 percent at Dec. 31, 2016. Other real estate owned (OREO) declined to $4.8 million at Sept. 30, 2017, from $5.5 million at Sept. 30, 2016, and $5.1 million at Dec. 31, 2016. Net charge-offs were $226,000 for the third quarter of 2017, compared to net recoveries of $56,000 for the third quarter of 2016. Net charge-offs for the first nine months of 2017 were $1,076,000, compared to $783,000 for the same period last year.
Strong capital ratios. Capital ratios for CBC National Bank remained strong, with a total risk-based capital ratio of 22.76 percent and a Tier 1 risk-based capital ratio of 21.50 percent at Sept. 30, 2017, up from 20.92 percent and 19.66 percent, respectively, at Sept. 30, 2016.
Continued stability in efficiency ratio. The Company’s efficiency ratio for the third quarter of 2017 was 74.2 percent, compared to 65.1 percent for third quarter 2016. The increase in the ratio was due to the higher volume of mortgage revenue in the third quarter of 2016 compared to the third quarter of 2017. Overall, the Company’s efficiency ratio for the nine months ended Sept. 30, 2017, was 71.8 percent, down slightly from 72.0 percent for the same period in 2016.

“In the third quarter, we continued to see a steady increase in shareholder value growth, driven by continued strong earnings,” said Michael G. Sanchez, chairman and chief executive officer. “Shareholders’ equity has increased $8.4 million from Sept. 30, 2016, to Sept. 30, 2017, as book value per share has risen to $15.61, up 14.3 percent from $13.66 at Sept. 30, 2016. Driving shareholder value creation has been the strong, steady earnings we’ve booked each of the last 11 consecutive quarters, averaging $1.64 million in quarterly net income during that time. Our consistently strong earnings and increase in equity have contributed to our market price increasing from $13.45 at Sept. 30, 2016, to $19.00 at Sept. 30, 2017, recognition by the market of our steady performance. Our managed growth is built on a foundation of solid fundamentals, as our balance sheet and capital ratios continue to strengthen through retained earnings, our credit quality remains well-managed, and we continue to see healthy deposit growth. The balance sheet has grown $37.8 million, or 6.2 percent, from Sept. 30, 2016, to Sept. 30, 2017, driven by increased portfolio loan balances and increased investment securities. Non-performing assets decreased to 1.33 percent at Sept. 30, 2017, from 1.86 percent Sept. 30, 2016, driven primarily by a decrease in non-accrual loans. Our loan-loss reserve of 1.32 percent of loans outstanding at Sept. 30, 2017, remains satisfactory and is consistent with the decrease in non-performing assets. We are likewise pleased that our capital ratios continue to strengthen. Our Tier 1 risk-based capital ratio and our total risk-based capital ratio both increased more than 8 percent year over year.”

For the three months ended Sept. 30, 2017, net interest income before the provision for loan losses was $5.40 million, an increase of 2.7 percent, from the $5.26 million for the quarter ended Sept. 30, 2016. Net interest income increased from $14.36 million for the nine months ended Sept. 30, 2016, to $15.80 million for the nine months ended Sept. 30, 2017. This increase was due to the acquisition of FANB in April 2016, increased yields and growth in portfolio loans. The Company’s net interest margin increased from 3.76 percent for the three months ended Sept. 30, 2016, to 3.85 percent for the same period in 2017. The net interest margin increased from 4.00 percent for the nine months ended Sept. 30, 2016, to 4.04 percent for the nine months ended Sept. 30, 2017.

Noninterest income was $5.20 million for the third quarter of 2017, down from $5.81 million for the third quarter of 2016. Income on SBA loan sales and service charges on deposits for the third quarter of 2017 were flat compared to last year’s third quarter, while income from mortgage loan sales declined. Increases occurred in gain on sale of securities and other income. For the nine months ended Sept. 30, 2017, noninterest income was $15.77 million, compared to $15.35 million for the nine months ended Sept. 30, 2016. The increase is primarily due to increased SBA loan sales income and the gain on sale of securities mentioned above, partially offset by a decline in mortgage loan sales income and the bargain purchase gain recorded in April 2016 related to the FANB acquisition.

For the third quarter of 2017 noninterest expense was $7.86 million, an increase of 9.1 percent from the $7.21 million for the third quarter of 2016. This increase is primarily due to an increase in salaries and employee benefits, and occupancy and equipment. For the nine months ended Sept. 30, 2017, noninterest expense was $22.65 million, an increase of 5.9 percent over the $21.39 million in noninterest expense for the first nine months of 2016. The increase is due primarily to the year-to-date 2017 effect of the additional salaries, benefits and occupancy expenses from the FANB branches added in the second quarter of 2016, partially offset by the non-recurring acquisition expenses incurred in 2016.

Beginning in the fourth quarter of 2016, the Company changed its financial statement presentation to reclassify the direct lending costs incurred by its Mortgage segment’s National Retail Group against that group’s origination income. This change only affects noninterest income and noninterest expense as reflected above and provides for a better reflection of the Company’s efficiency ratio. The Company’s financials for 2016 were restated for the change for comparability purposes. This change had no effect on the Company’s reported net income for 2017 or 2016.

“Our strategic initiatives aimed at achieving ongoing, balanced earnings contributions from all three of our Company’s divisions continue to drive strong, steady earnings and shareholder value growth,” said Sanchez. “We continue to make product mix, operational and balance sheet adjustments to adapt to changing business and economic conditions to enable our Company to achieve our future growth targets. And as we remain vigilant on expense control, asset and loan quality, we maintain the utmost confidence in our talented management and staff to continue to successfully execute our operating strategy, and to continue to deliver strong shareholder value growth.”

About Coastal Banking Company Inc.

Coastal Banking Company Inc. is the $650.8 million-asset bank holding company of CBC National Bank, headquartered in Fernandina Beach, Fla., which provides a full range of consumer and business banking services through full-service banking offices in Fernandina Beach, Ocala, and The Villages, Fla., and Beaufort and Port Royal, S.C. The company’s residential mortgage banking division, headquartered in Atlanta, includes both traditional retail and wholesale lending groups, which together have lending offices in Florida, Georgia, Maryland, South Carolina, North Carolina, Illinois, Ohio, and Tennessee. The company’s SBA lending division operates under SBA’s delegated authority, originating SBA, USDA and FSA loans throughout the southeastern United States. Headquartered in Fernandina Beach, its offices are located in Jacksonville, Ft. Myers, Tampa and Vero Beach, Fla., Greensboro, NC, Atlanta and Tifton, Ga., and Beaufort.

The company’s common stock is publicly traded on the OTCQX Best Market under the symbol CBCO. The company was named to the OTCQX® Best 50 in both 2015 and 2016, an annual ranking of the top 50 U.S. and international companies traded on the OTCQX Best Market, based on equal weighting of one-year return and average daily dollar volume growth.

A current CBCO stock price quote and recent stock trading activity is available at http://www.otcmarkets.com/stock/CBCO/quote.

For complete 2016 audited annual financial results [click here].

For more information, please visit the company’s website, www.coastalbanking.com.

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK FACTORS

This release contains forward-looking statements including statements relating to present or future trends or factors generally affecting the banking industry and specifically affecting Coastal’s operations, markets, and products. Without limiting the foregoing, the words “believes,” “anticipates,” “intends,” “expects,” or similar expressions are intended to identify forward-looking statements. These forward-looking statements involve risks and uncertainties. Actual results could differ materially from those projected for many reasons, including, without limitation, changing events and trends that have influenced Coastal’s assumptions, but that are beyond Coastal’s control. These trends and events include (i) changes in the interest rate environment which may reduce margins, (ii) not achieving expected growth, (iii) less favorable than anticipated changes in the national and local business environments and securities markets, (iv) adverse changes in the regulatory requirements affecting Coastal, (v) greater competitive pressures among financial institutions in Coastal’s markets, (vi) greater loan losses than historic levels, and (vii) difficulties in expanding our banking operations into a new geographic market. All written or oral forward-looking statements are expressly qualified in their entirety by these cautionary statements. Coastal Banking Company Inc. undertakes no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date on which such statements were made.

Coastal Banking Company
Consolidated Balance Sheet
September 30, 2017

9/30/2017 YTD

9/30/2016 YTD

12/31/2016

Consolidated

Assets

Cash and due from banks

$
11,617,011

$
11,577,913

$
7,956,004

Federal funds sold

345,853

394,946

387,123

Investment securities

57,680,189

27,448,189

24,760,056

Loans held for sale

141,666,670

143,917,964

92,009,241

Loans, gross

410,869,238

398,685,772

408,743,325

Less allowance for loan losses

(5,431,786
)

(4,919,725
)

(5,990,733
)

Loans, net

405,437,452

393,766,047

402,752,592

Premises and equipment, net

13,367,935

13,719,383

13,604,166

Other real estate owned

4,770,949

5,525,575

5,061,661

Cash Surrender Value of Life Insurance

2,422,984

2,342,870

2,362,805

SBA Servicing Rights

1,600,628

1,521,446

1,403,431

Other assets

11,877,538

12,768,319

11,091,647

Total assets

$
650,787,209

$
612,982,652

$
561,388,726

Liabilities

DDA – non interest bearing

$
82,368,199

$
74,899,737

$
77,603,027

DDA – interest bearing

177,292,331

173,412,990

174,112,178

Savings

17,621,754

15,200,599

15,618,336

Time

149,028,143

156,495,719

149,983,376

Total deposits

426,310,427

420,009,045

417,316,917

FHLB Advances & other borrowings

136,600,000

109,785,003

63,060,005

Senior Note Payable

8,166,667

9,166,667

8,916,667

Junior subordinated debentures

7,217,000

Other liabilities

14,782,465

17,521,263

13,162,845

Total liabilities

593,076,559

563,698,978

509,673,434

Stockholders’ equity

Common stock

36,813

36,086

36,475

Additional paid-in-capital

54,114,729

52,861,862

53,354,382

Retained earnings

3,403,209

(4,075,567
)

(1,870,203
)

Net unrealized gain (loss) – securities AFS

155,899

461,293

194,638

Total stockholders’ equity

57,710,650

49,283,674

51,715,292

Total liabilities and stockholders’ equity

$
650,787,209

$
612,982,652

$
561,388,726

Coastal Banking Company
Consolidated Income Statement
September 30, 2017

9/30/2017 QTD

9/30/2016 QTD

9/30/2017 YTD

9/30/2016 YTD

12/31/2016 YTD

Consolidated

Interest Income:

Loans

$
6,349,207

$
6,145,961

$
18,218,487

$
16,599,091

$
22,709,121

Investment Securities

224,646

195,977

651,196

596,869

805,347

Deposits with Banks

857

4,317

2,493

13,985

14,771

Federal funds sold

21,880

1,385

78,635

5,517

12,764

Total interest income

6,596,590

6,347,640

18,950,811

17,215,462

23,542,003

Interest Expense:

Deposits

721,780

695,188

2,092,179

1,724,297

2,422,894

FHLB Advances & other borrowings

411,191

345,504

888,761

982,837

1,144,973

Junior subordinated debentures

62,798

50,294

173,072

148,663

480,556

Total interest expense

1,195,769

1,090,986

3,154,012

2,855,797

4,048,423

Net interest income before provision for loan losses

5,400,821

5,256,654

15,796,799

14,359,665

19,493,580

Provision for loan losses

148,255

55,772

517,455

448,705

1,450,061

Net interest income after provision for loan losses

5,252,566

5,200,882

15,279,344

13,910,960

18,043,519

Operating income:

Service charges on deposits

226,018

224,626

714,166

623,599

860,338

Mortgage banking income

3,799,285

4,505,109

11,735,555

12,353,008

18,225,244

SBA loan income

1,047,141

1,049,912

2,942,974

1,784,033

1,962,023

Gain on sale of securities

54,704

–

97,467

–

18,373

Increase in cash surrender value of life insurance

20,337

21,675

60,357

63,594

83,584

Other income

48,352

9,539

217,611

526,708

1,536,287

Total operating income

5,195,837

5,810,861

15,768,130

15,350,942

22,685,849

Operating expenses:

Salaries and employee benefits

4,854,038

4,079,183

14,131,948

12,512,579

17,373,369

Net occupancy and equipment expense

922,587

834,509

2,593,056

2,262,530

3,147,188

Mortgage loan expense

185,908

198,116

466,573

470,653

703,285

Other real estate expense

88,431

104,782

245,217

211,744

616,676

Data processing/ATM expense

486,758

466,910

1,394,751

1,397,860

1,969,355

Audit Fees

150,945

255,482

479,057

475,346

769,158

Legal & professional fees

177,015

287,487

789,415

788,547

1,023,046

Director fees

87,725

127,150

310,650

306,150

403,550

Advertising

144,813

178,814

415,089

468,783

653,609

FDIC Insurance expense

46,946

81,000

146,603

243,000

239,506

OCC Examination fees

38,772

43,500

116,316

123,613

162,385

Other operating expense

679,029

549,295

1,566,276

2,126,299

2,681,879

7,862,967

7,206,228

22,654,951

21,387,104

29,743,005

Income before provision for income taxes

2,585,436

3,805,515

8,392,523

7,874,798

10,986,363

Provision for income taxes

873,808

1,819,177

3,119,111

3,124,376

4,030,577

Net income

$
1,711,628

$
1,986,338

$
5,273,412

$
4,750,422

$
6,955,786

Coastal Banking Company
Consolidated Financial Highlights
September 30, 2017

9/30/2017 QTD

9/30/2016 QTD

9/30/2017 YTD

9/30/2016 YTD

12/31/2016 YTD

Consolidated

$ Earnings

Net interest income

$
5,400,821

$
5,256,654

$
15,796,799

$
14,359,665

$
19,493,580

Provision for loan loss

148,255

55,772

517,455

448,705

1,450,061

Other income

5,195,837

5,810,861

15,768,130

15,350,942

22,685,849

Other expense

7,862,967

7,206,228

22,654,951

21,387,104

29,743,005

Pre-tax income

2,585,436

3,805,515

8,392,523

7,874,798

10,986,363

Taxes

873,808

1,819,177

3,119,111

3,124,376

4,030,577

Net income

$
1,711,628

$
1,986,338

$
5,273,412

$
4,750,422

$
6,955,786

Earnings per share (basic)

$
0.47

$
0.55

$
1.44

$
1.48

$
2.10

Earnings per share (diluted)

$
0.45

$
0.54

$
1.38

$
1.45

$
2.05

Performance Ratios

ROAA

1.15
%

1.33
%

1.25
%

1.20
%

1.29
%

ROAE

11.96
%

16.99
%

12.89
%

15.43
%

16.07
%

Net Interest Margin

3.85
%

3.76
%

4.04
%

4.00
%

3.85
%

Efficiency Ratio

74.20
%

65.11
%

71.77
%

71.98
%

70.52
%

Capital

Tier 1 leverage capital ratio (Bank)

11.81
%

10.70
%

11.81
%

10.70
%

10.01
%

Common equity risk-based capital ratio (Bank)

21.50
%

19.66
%

21.50
%

19.66
%

18.47
%

Tier 1 risk-based capital ratio (Bank)

21.50
%

19.66
%

21.50
%

19.66
%

18.47
%

Total risk-based capital ratio (Bank)

22.76
%

20.92
%

22.76
%

20.92
%

19.74
%

Book value per share

$
15.61

$
13.66

$
15.61

$
13.66

$
14.18

Tangible book value per share

$
15.02

$
12.98

$
15.02

$
12.98

$
13.57

Asset Quality

Nonaccrual Loans

$
3,903,633

$
5,867,154

$
3,903,633

$
5,867,154

$
6,070,027

Other real estate owned

$
4,770,949

$
5,525,575

$
4,770,949

$
5,525,575

$
5,061,661

Net Charge-offs (recoveries)

$
225,733

$
(55,560
)

$
1,076,402

$
783,388

$
713,736

Net Charge-offs to average loans

0.05
%

-0.01
%

0.26
%

0.22
%

0.20
%

Allowance to total loans, net of LHFS

1.32
%

1.23
%

1.32
%

1.23
%

1.47
%

Nonperforming assets to total assets

1.33
%

1.86
%

1.33
%

1.86
%

1.98
%

End of Period Balances

Assets

$
650,787,209

$
612,982,652

$
650,787,209

$
612,982,652

$
561,388,726

Portfolio Loans

$
410,869,238

$
398,685,772

$
410,869,238

$
398,685,772

$
408,743,325

Loans Held for Sale

$
141,666,670

$
143,917,964

$
141,666,670

$
143,917,964

$
92,009,241

Deposits

$
426,310,427

$
420,009,045

$
426,310,427

$
420,009,045

$
417,316,917

Borrowings

$
136,600,000

$
109,785,003

$
136,600,000

$
109,785,003

$
63,060,005

Shareholders’ Equity

$
57,710,650

$
49,283,674

$
57,710,650

$
49,283,674

$
51,715,292

Average Balances

Assets

$
592,221,593

$
592,075,310

$
563,414,370

$
529,250,543

$
540,525,290

Portfolio Loans

$
415,337,566

$
392,996,546

$
410,178,472

$
352,321,219

$
364,242,751

Loans Held for Sale

$
93,419,390

$
130,668,362

$
77,733,632

$
113,011,398

$
111,509,816

Deposits

$
425,406,126

$
416,916,380

$
426,163,223

$
373,360,999

$
385,102,055

Borrowings

$
82,861,967

$
99,227,373

$
55,176,567

$
86,591,353

$
83,230,853

Shareholders’ Equity

$
56,782,145

$
46,395,640

$
54,698,165

$
41,159,830

$
43,270,921

Average Shares

3,678,789

3,602,984

3,670,943

3,203,194

3,307,965

Stock Valuation

Closing Market Price (OTCQX)

19.00

13.45

$
19.00

$
13.45

$
15.01

For More Information, Contact:

Thomas J. Flournoy
EVP & Chief Financial Officer
Coastal Banking Company Inc.
904-321-2917

Michael G. Sanchez
Chairman & Chief Executive Officer
Coastal Banking Company Inc.
904-321-0400

SOURCE: Coastal Banking Company Inc.

ReleaseID: 479619

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