Coastal Banking Company Reports Strong Second Quarter 2017 Earnings

BEAUFORT, SC / ACCESSWIRE / July 31, 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 $2.11 million, or $0.55 diluted earnings per common share, for the three months ended June 30, 2017. This compares to $1.54 million, or $0.46 in diluted earnings per common share, for the second quarter of 2016, an increase of $570,000. The diluted earnings per common share for both quarters reflect the acquisition of First Avenue National Bank (“FANB”) in Ocala, Florida, in early April 2016.

On a linked-quarter basis, the $2.11 million of net income in the second quarter of 2017 increased significantly from first quarter 2017 net income of $1.45 million, or $0.38 diluted earnings per common share.

For the first six months ending June 30, 2017, the Company reported net income of $3.56 million, or $0.94 diluted earnings per common share, an increase of $790,000 over the net income for the first six months of 2016 of $2.77 million, or $0.90 diluted earnings per common share.

Key performance highlights for the second quarter of 2017 include:

Continued shareholder value creation. Driven by strong earnings over the last four quarters, book value per share has risen to $15.20 at June 30, 2017, from $14.18 at Dec. 31, 2016, and $13.12 at June 30, 2016. The CBCO closing market price on June 30, 2017, was $17.55, up from $15.01 at Dec. 31, 2016.
Continued strong profitability. Second quarter 2017 net income increased by 36.7 percent over the second quarter of 2016, and 45.9 percent over the first quarter of 2017. Second quarter 2017 results featured more balanced net income for all three of the Company’s operating segments as compared to the second quarter of 2016: Community Banking earned $953,000 in 2017’s second quarter, up from $418,000 in 2016’s second quarter, SBA Lending earned $475,000 in the second quarter of 2017, up from $5,000 earned in the same period in 2016, and Mortgage Banking earned $1,242,000 in the second quarter of 2017, down from the robust earnings of $1,579,000 in the second quarter of 2016. Both Community Banking and SBA Lending outperformed the Company’s 2017 budget for both the second quarter and year to date.
Continued strong mortgage banking income. For the second quarter of 2017, $404.6 million in residential mortgage loans were sold, generating $4.52 million in total mortgage banking income, down from the robust second quarter of 2016, which had $521.9 million in volume and $4.92 million in mortgage banking income. However, sales volume and mortgage income were up strongly over first quarter 2017’s $346.6 million and $3.41 million, respectively. 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 up $88,000 for the first six months of 2017 compared to the same period in 2016 despite sales volume being down $150 million from the same period last year.
Strong SBA originations and loan sales. SBA loan sale income in the second quarter of 2017 was $871,000, compared to $154,000 for the same period in 2016. For the second quarter of 2017, SBA Lending originated $7.7 million in loans and sold $8.0 million into the secondary market. In the second quarter of 2016, SBA Lending originated $5.2 million in loans and sold $1.5 million into the secondary market. The balance of SBA loans available for sale at June 30, 2017, was $35 million, slightly down from the end of the first quarter of 2017, but up over the $28 million balance at June 30, 2016.
Year-over-year growth in the balance sheet. The balance sheet grew $20.1 million, or 3.3 percent, from June 30, 2016, to June 30, 2017, with total assets of $635.8 million at June 30, 2017. The asset growth was driven by $21.7 million of increased portfolio loan balances. Since June 30, 2016, Mortgage portfolio loans grew $15.1 million, Community Banking portfolio loans grew $5.4 million and SBA portfolio loans grew $1.2 million. The Company’s balance sheet is well positioned for stable or increasing interest rates.
Strong 2017 and year-over-year deposit growth. Deposits have grown from $413.0 million at June 30, 2016, to $432.1 million at June 30, 2017, an increase of $19.1 million, or 4.6 percent. This year-over-year growth represents all organic growth, as the acquisition of FANB occurred in April 2016. The $19.1 million in growth has largely been composed of core retail DDA growth.
Steady to improving credit quality. The ratio of non-performing assets to assets decreased from 1.56 percent at June 30, 2016, to 1.48 percent at June 30, 2017. The ratio was 1.98 percent at Dec. 31, 2016. The allowance for loan losses was 1.33 percent of loans outstanding at June 30, 2017, up from 1.22 percent of loans outstanding at the end of June 2016. The allowance for loan losses was 1.47 percent at Dec. 31, 2016. Other real estate owned (OREO) declined to $5.0 million at June 30, 2017, from $5.1 million at both June 30, 2016, and Dec. 31, 2016. Net charge-offs were $183,000 for the second quarter of 2017, compared to net recoveries of $30,000 for the second quarter of 2016. Net charge-offs for the first six months of 2017 were $850,000, compared to $839,000 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 21.46 percent and a Tier 1 risk-based capital ratio of 20.20 percent at June 30, 2017, up from 19.96 percent and 18.70 percent, respectively, at June 30, 2016.
Continued improvement in efficiency ratio. The Company’s efficiency ratio for the second quarter of 2017 was 68.2 percent, compared to 77.3 percent for second quarter 2016. The Company’s efficiency ratio for the six months ended June 30, 2017, was 70.5 percent, compared to 76.1 percent for the same period in 2016.

“In the second quarter, we saw the continuation of a number of our strategic initiatives help drive shareholder value through the more diversified, robust and steady earnings they are combining to provide,” said Michael G. Sanchez, Chairman and Chief Executive Officer. “Book value per share was $15.20 at June 30, 2017, a 15.9 percent increase from $13.12 at June 30, 2016, and up 7.2 percent from $14.18 at Dec. 31, 2016. All three of our Company’s divisions are contributing strongly to our balanced core earnings, with both Community Banking and SBA Lending outperforming the Company’s 2017 budget for the second quarter and year to date. Community Banking earned $953,000 in the second quarter, more than double its earnings in the same period a year ago, fueled by the FANB acquisition. SBA Lending earned $475,000 in the second quarter of 2017 on strong originations and loan sales. We have adjusted our Mortgage Banking model to generate additional government loan production while relying less on brokered out loans, which has improved our already outstanding execution. The result is that Mortgage Banking income rose for the first six months of 2017, compared to the same period last year, despite a decrease in volume. Mortgage Banking earned $1,242,000 in the second quarter of 2017. We have also seen strong year-over-year deposit and balance sheet growth. Deposits have grown by $19.1 million from June 30, 2016, to the end of this year’s second quarter, largely owing to organic growth in core retail demand deposit accounts, which in turn decreases our reliance on higher cost deposits and improves our net interest margin. The balance sheet grew $20.1 million year over year on increased portfolio loan balances among all three divisions. Our balance sheet is well-managed and well-positioned to enable our Company to continue to perform strongly through a stable or rising interest rate environment.”

For the three months ended June 30, 2017, net interest income before the provision for loan losses was $5.29 million, an increase of 2.5 percent, from the $5.16 million for the quarter ended June 30, 2016. Net interest income increased from $9.10 million for the six months ended June 30, 2016, to $10.40 million for the six months ended June 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 3.95 percent for the three months ended June 30, 2016, to 4.09 percent for the same period in 2017. The net interest margin increased from 3.92 percent for the six months ended June 30, 2016, to 4.14 percent for the six months ended June 30, 2017.

Noninterest income was $5.80 million for the second quarter of 2017, comparable to the $5.84 million for the second quarter of 2016. Income on SBA loan sales and service charges on deposits for the second quarter of 2017 increased over last year’s second quarter, while income from mortgage loan sales and other income declined. The additional income on service charges on deposit accounts is due to the addition of FANB in April 2016, while the decline in other income is due to a bargain purchase gain recorded in April 2016 related to the FANB acquisition. For the six months ended June 30, 2017, noninterest income was $10.57 million, compared to $9.54 million for the six months ended June 30, 2016. The increase is primarily due to increased SBA and mortgage loan sales income and additional service charges on deposit accounts, partially offset by the recording of the bargain purchase gain mentioned above.

For the second quarter of 2017 noninterest expense was $7.57 million, a decrease of 10.9 percent from the $8.50 million for the second quarter of 2016. This decrease is primarily due to non-recurring FANB acquisition expenses incurred in the second quarter of 2016. For the six months ended June 30, 2017, noninterest expense was $14.79 million, an increase of 4.3 percent over the $14.18 million in noninterest expense for the first six 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, mentioned above.

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.

“We continue to fine-tune the operations of each of our Company’s three divisions, and all three continue to contribute strongly to our ongoing robust and balanced core earnings,” said Sanchez. “Those strong earnings, in turn, continue to translate into strong shareholder value creation. It is gratifying to see initiatives including our FANB acquisition combine with organic deposit growth and strategic product-mix moves to contribute to our Company’s robust performance. Our capable, talented staff and management are executing our operating strategy at a high level, and we maintain the utmost confidence in their ability to continue to create strong shareholder value growth in successive quarters.”

About Coastal Banking Company Inc.

Coastal Banking Company Inc. is the $635.8 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, N.C., Atlanta 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.

For More Information Contact:

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

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

Coastal Banking Company

Consolidated Balance Sheet

June 30, 2017

6/30/2017
YTD

6/30/2016
YTD

12/31/2016

Consolidated

Assets

Cash and due from banks

$
11,105,535

$
7,163,423

$
7,956,004

Federal funds sold

224,000

103,894

387,123

Investment securities

40,537,393

29,013,435

24,760,056

Loans held for sale

141,664,093

154,328,774

92,009,241

Loans, gross

414,869,550

393,145,710

408,743,325

Less allowance

(5,509,635
)

(4,808,392
)

(5,990,733
)

Loans, net

409,359,915

388,337,318

402,752,592

Premises and equipment, net

13,468,510

13,741,240

13,604,166

Other real estate owned

5,017,505

5,146,302

5,061,661

Cash Surrender Value of Life Insurance

2,402,709

2,598,458

2,362,805

SBA Servicing Rights

1,514,559

1,457,880

1,403,431

Other assets

10,459,206

13,716,285

11,091,647

Total assets

$
635,753,425

$
615,607,009

$
561,388,726

Liabilities

DDA – non interest bearing

$
82,611,180

$
71,417,215

$
77,603,027

Interest bearing dda

177,350,869

176,221,999

174,112,178

Savings

17,331,118

14,406,114

15,618,336

Time

154,808,391

150,991,728

149,983,376

Total deposits

432,101,558

413,037,056

417,316,917

FHLB Advances & other borrowings

118,500,000

121,976,003

63,060,005

Senior Note Payable

8,416,667

9,416,667

8,916,667

Junior subordinated debentures

7,217,000

Other liabilities

13,664,560

16,769,958

13,162,845

Total liabilities

579,899,785

568,416,684

509,673,434

Stockholders’ equity

Common stock

36,735

35,957

36,475

Additional paid-in-capital

53,862,614

52,683,135

53,354,382

Retained earnings

1,691,581

(6,061,904
)

(1,870,203
)

Net unrealized gain (loss) – securities AFS

262,710

533,137

194,638

Total stockholders’ equity

55,853,640

47,190,325

51,715,292

Total liabilities and stockholders’ equity

$
635,753,425

$
615,607,009

$
561,388,726

CBC Bank Only

Consolidated Income Statement

June 30, 2017

6/30/2017
QTD

6/30/2016
QTD

6/30/2017
YTD

6/30/2016
YTD

12/31/2016 YTD

Consolidated

Interest Income:

Loans

6,054,389

5,944,222

11,869,280

10,453,130

$
22,709,121

Securities

220,373

207,191

426,550

400,892

805,347

Interest on Deposits

569

5,224

1,636

9,667

14,771

Federal funds sold

12,319

3,787

56,755

4,132

12,764

Total interest income

6,287,650

6,160,424

12,354,221

10,867,821

23,542,003

Interest Expense:

Deposits

693,383

617,191

1,370,399

1,029,110

2,422,894

Trust Preferred

55,674

48,812

110,274

98,369

480,556

Other

250,539

331,707

477,570

637,332

1,144,973

Total interest expense

999,596

997,710

1,958,243

1,764,811

4,048,423

Net interest income before provision for loan losses

5,288,054

5,162,714

10,395,978

9,103,010

19,493,580

Provision for loan losses

74,364

359,523

369,200

392,932

1,450,061

Net interest income after provision for loan losses

5,213,690

4,803,191

10,026,778

8,710,078

18,043,519

Operating income:

Service charges on deposits

145,095

65,242

386,964

140,529

860,338

Mortgage banking income

4,528,492

4,918,870

7,936,270

7,847,928

18,225,244

SBA loan income

870,790

153,975

1,895,833

734,120

1,962,023

Gain on sale of securities

42,763

–

42,763

–

18,373

Increase in cash surrender value of life insurance

20,142

20,252

40,020

41,918

83,584

Other income

193,857

685,271

270,443

775,552

1,536,287

Total operating income

5,801,139

5,843,610

10,572,293

9,540,047

22,685,849

Operating expenses:

Salaries and benefits

4,660,141

4,834,156

9,277,910

8,433,396

17,373,369

Net occupancy and equipment expense

888,561

848,778

1,670,469

1,428,020

3,147,188

Mortgage loan expense

187,276

145,321

280,665

272,536

703,285

Other real estate expense

171,735

88,971

156,786

106,961

616,676

Data processing/ATM expense

459,700

554,452

907,993

930,948

1,969,355

Audit Fees

197,848

117,293

328,112

211,670

769,158

Legal & professional fees

330,432

347,069

612,400

501,057

1,023,046

Director fees

117,675

104,900

222,925

179,000

403,550

Advertising

133,958

156,616

270,276

289,969

653,609

FDIC Insurance expense

55,588

81,000

99,657

162,000

239,506

OCC Examination fees

38,772

42,523

77,544

80,113

162,385

Other operating expense

324,167

1,182,352

887,247

1,585,173

2,681,879

7,565,853

8,503,431

14,791,984

14,180,843

29,743,005

Income before provision for income taxes

3,448,976

2,143,370

5,807,087

4,069,282

10,986,363

Provision for income taxes

1,335,627

597,230

2,245,303

1,305,198

4,030,577

Net income

$
2,113,349

$
1,546,140

$
3,561,784

$
2,764,084

$
6,955,786

Coastal Banking Company

Consolidated Financial Highlights

June 30, 2017

6/30/2017
QTD

6/30/2016
QTD

6/30/2017
YTD

6/30/2016
YTD

12/31/2016
YTD

Consolidated

$ Earnings

Net interest income

$
5,288,054

$
5,162,714

$
10,395,978

$
9,103,010

$
19,493,580

Provision for loan loss

$
74,364

$
359,523

$
369,200

$
392,932

$
1,450,061

Other income

$
5,801,139

$
5,843,610

$
10,572,293

$
9,540,047

$
22,685,849

Other expense

$
7,565,853

$
8,503,431

$
14,791,984

$
14,180,843

$
29,743,005

Pre-tax income

$
3,448,976

$
2,143,370

$
5,807,087

$
4,069,282

$
10,986,363

Taxes

$
1,335,627

$
597,230

$
2,245,303

$
1,305,198

$
4,030,577

Net income

$
2,113,349

$
1,546,140

$
3,561,784

$
2,764,084

$
6,955,786

Earnings per share (basic)

$
0.58

$
0.47

$
0.97

$
0.92

$
2.10

Earnings per share (diluted)

$
0.55

$
0.46

$
0.94

$
0.90

$
2.05

Performance Ratios

ROAA

1.53
%

1.10
%

1.31
%

1.12
%

1.29
%

ROAE

15.79
%

13.82
%

13.38
%

14.50
%

16.07
%

Net Interest Margin

4.09
%

3.95
%

4.14
%

3.92
%

3.85
%

Efficiency Ratio

68.23
%

77.26
%

70.54
%

76.07
%

70.52
%

Capital

Tier 1 leverage capital ratio

11.07
%

9.14
%

11.07
%

9.14
%

10.01
%

Common equity risk-based capital ratio

18.27
%

16.06
%

18.27
%

16.06
%

18.47
%

Tier 1 risk-based capital ratio

18.27
%

16.06
%

18.27
%

16.06
%

18.47
%

Total risk-based capital ratio

19.53
%

17.32
%

19.53
%

17.32
%

19.74
%

Book value per share

$
15.20

$
13.12

$
15.20

$
13.12

$
14.18

Tangible book value per share

$
14.61

$
12.44

$
14.61

$
12.44

$
13.57

Asset Quality

Other real estate owned

$
5,017,505

$
5,146,302

$
5,017,505

$
5,146,302

$
5,061,661

Net Charge-offs (recoveries)

$
182,800

$
(29,877
)

$
850,298

$
838,948

$
713,736

Net Charge-offs to average loans

0.04
%

-0.01
%

0.21
%

0.25
%

0.20
%

Allowance to total loans, net of LHFS

1.33
%

1.22
%

1.33
%

1.22
%

1.47
%

Nonaccrual Loans

$
4,365,335

$
4,477,476

$
4,365,335

$
4,477,476

$
6,070,027

Nonperforming assets to total assets

1.48
%

1.56
%

1.48
%

1.56
%

1.98
%

End of Period Balances

Assets

635,753,425

615,607,009

$
635,753,425

$
615,607,009

$
561,388,726

Portfolio Loans

414,869,550

393,145,710

$
414,869,550

$
393,145,710

$
408,743,325

Loans Held for Sale

141,664,093

154,328,774

$
141,664,093

$
154,328,774

$
92,009,241

Deposits

432,101,558

413,037,056

$
432,101,558

$
413,037,056

$
417,316,917

Borrowings

118,500,000

121,976,003

$
118,500,000

$
121,976,003

$
63,060,005

Shareholders’ Equity

55,853,640

47,190,325

$
55,853,640

$
47,190,325

$
51,715,292

Average Balances

Assets

$
554,626,142

$
565,666,017

$
549,417,364

$
497,529,296

$
540,525,290

Portfolio Loans

$
410,245,995

$
376,720,582

$
407,556,175

$
331,772,764

$
364,242,751

Loans Held for Sale

$
76,275,217

$
116,985,042

$
69,760,761

$
104,073,200

$
111,509,816

Deposits

$
431,559,425

$
408,115,210

$
426,412,789

$
351,353,485

$
385,102,055

Borrowings

$
40,815,179

$
84,625,387

$
41,066,038

$
80,203,915

$
83,230,853

Shareholders’ Equity

$
53,694,002

$
44,859,161

$
53,694,002

$
38,451,882

$
43,270,921

Average Shares

3,672,462

3,308,403

3,666,954

3,001,103

3,307,965

Stock Valuation

Closing Market Price (OTCQX)

17.55

12.99

$
17.55

$
12.99

$
15.01

SOURCE: Coastal Banking Company Inc.

ReleaseID: 470003

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