Coastal Financial Corporation Announces Second Quarter 2021 Results
Second Quarter 2021 Highlights:
- Net income totaled $7.0 million for the quarter ended June 30, 2021, or $0.56 per diluted common share, an increase of 16.5% from $6.0 million, or $0.49 per diluted common share, for the quarter ended March 31, 2021.
- Basic earnings per share increased 18.0%, and diluted earnings per share increased 15.9%, for the quarter ended June 30, 2021, compared to the quarter ended March 31, 2021.
- Total deposits increased $130.0 million, or 7.8%, to $1.8 billion for the quarter ended June 30, 2021, compared to $1.67 billion at March 31, 2021.
- Loan growth of $35.7 million, or 2.9%, excluding Paycheck Protection Program (“PPP”) loans during the quarter ended June 30, 2021.
- CCBX relationships increased to 24 at June 30, 2021, compared to 21 at March 31, 2021.
EVERETT, Wash., July 27, 2021 (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 June 30, 2021. Net income for the second quarter of 2021 was $7.0 million, or $0.56 per diluted common share, compared with net income of $6.0 million, or $0.49 per diluted common share, for the first quarter of 2021, and $3.7 million, or $0.30 per diluted common share, for the quarter ended June 30, 2020.
“The second quarter of 2021 ended with total assets of $2.01 billion, down just $22.2 million from March 31, 2021 despite $173.2 million in PPP loan forgiveness, pay-offs and principal paydowns during the quarter, and the payoff of $158.5 million in Paycheck Protection Program Liquidity Facility (“PPPLF”) borrowings that were obtained to help fund PPP loans. Deposit growth was strong, increasing $130.0 million during the three months ended June 30, 2021. Core deposits increased $133.3 million and represented 95.7% of total deposits as of June 30, 2021. And to top it off, we were thrilled at the announcement that Coastal was again named one of the “Top 200 Community Banks” by American Banker for 2021, making this the third year in a row we have received this recognition.
“As a preferred Small Business Administration (“SBA”) lender, we worked with the SBA to provide financial assistance via PPP loans to existing and new small business customers as provided through the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). We diligently accepted and processed applications from the start of the first round of the program back in March of 2020 and until the latest round of PPP loans closed for applications on May 31, 2021. We are proud to report that we funded a grand total of $763.9 million in PPP loans for small businesses in our communities during that time.
“We remain focused on our three-prong strategy for success and growth. Our community bank, CCBX division, which provides Banking as a Service (“BaaS”) and CCDB division, our digital banking division, each play an integral role in the future success of our Company. Our CCBX division has a total of 24 relationships as of June 30, 2021, an increase of 14 relationships compared to June 30, 2020. CCBX generates additional fee and interest income for the Company by providing BaaS to broker dealers and digital financial service providers who offer their clients these banking services. During the quarter ended June 30, 2021, we were pleased with the growth in CCBX loans and deposits. CCDB is our digital banking division, and we are excited to introduce our digital bank accounts later this year or early next year in collaboration with Google,” stated Eric Sprink, the President and CEO of the Company and the Bank.
Results of Operations
Net interest income was $18.6 million for the quarter ended June 30, 2021, an increase of $1.3 million, or 7.5%, from $17.3 million for the quarter ended March 31, 2021, and an increase of $4.6 million, or 33.0%, from $14.0 million for the quarter ended June 30, 2020. The increase compared to the prior quarters ended March 31, 2021 and June 30, 2020 was largely related to increased interest income resulting from loan growth. Average loans receivable for the three months ended June 30, 2021, was $1.75 billion, compared to $1.64 billion for the three months ended March 31, 2021, and $1.33 billion for the three months ended June 30, 2020.
Interest and fees on loans totaled $19.4 million for the three months ended June 30, 2021, compared to $18.2 million for the three months ended March 31, 2021 and $15.2 million for the three months ended June 30, 2020. The increase in interest and fees on loans for the quarter ended June 30, 2021, compared to the quarters ended March 31, 2021 and June 30, 2020, was largely due to $692,000 and $2.1 million in increased interest income as a result of loan volume, compared to March 31, 2021 and June 30, 2020, respectively. Also contributing to the increase was the recognition of interest and deferred fees on PPP loans which totaled $4.8 million for the three months ended June 30, 2021, compared to $4.4 million for the three months ended March 31, 2021, and $2.8 million for the three months ended June 30, 2020.
As of June 30, 2021, there were $398.0 million in PPP loans, compared to $543.8 million as of March 31, 2021, and $438.1 million as of June 30, 2020. In the three months ended June 30, 2021, a total of $27.0 million in new PPP loans were generated and $173.2 million in PPP loans were forgiven or repaid. Net deferred fees recognized on PPP loans contributed $3.6 million for the three months ended June 30, 2021, compared to $3.2 million for the three months ended March 31, 2021, and $1.9 million for the three months ended June 30, 2020.
As of June 30, 2021, $12.4 million in net deferred fees on PPP loans remains to be recognized in interest income along with interest on loans. Net deferred fees on PPP loans are earned over the life of the loan, as a yield adjustment in interest income. Forgiveness of principal, early paydowns and payoffs on PPP loans will increase interest income earned in those periods from the recognition of PPP deferred fees. PPP loans in round one and two were originated in 2020, and were predominately two year loans. PPP loans in round three were originated in 2021 and are all five year loans. The fees recognized on PPP loans originated in 2021 will be recognized over the term of the loan until forgiven or paid off.
Interest income from interest earning deposits with other banks was $74,000 at June 30, 2021, an increase of $4,000 due to higher balances compared to March 31, 2021, and a decrease of $56,000, as a result of lower interest rates, compared to June 30, 2020.
Interest expense was $959,000 for the quarter ended June 30, 2021, a $84,000 decrease from the quarter ended March 31, 2021 and a $474,000 decrease from the quarter ended June 30, 2020. Interest expense on interest bearing deposits decreased despite an increase of $45.0 million and $192.4 million in average interest bearing deposits for the quarter ended June 30, 2021 over the quarters ended March 31, 2021 and June 30, 2020, respectively, as a result of lower interest rates. This contributed to our improved cost of deposits which decreased 17.5% and 59.5% for the three months ended June 30, 2021 when compared to the three months ended March 31, 2021 and June 30, 2020, respectively. Interest expense on borrowed funds was $331,000 for the quarter ended June 30, 2021, compared to $383,000 and $337,000 for the quarters ended March 31, 2021 and June 30, 2020, respectively. The decrease in interest expense on borrowed funds from the quarters ended March 31, 2021 and June 30, 2020 is the result of a decrease in average PPPLF borrowings, which were paid off in full as of June 30, 2021. PPPLF borrowings were obtained to provide liquidity to fund the three rounds of PPP loans.
Net interest margin decreased for the three months ended June 30, 2021 to 3.70%, compared to 3.76% and 3.78% for the three months ended March 31, 2021 and June 30, 2020, respectively. The net interest margin will likely fluctuate over the near term as PPP loans originated in 2020 and 2021 are forgiven and paid off. The decrease in net interest margin compared to the quarters ended March 31, 2021 and June 30, 2020 was largely a result of the low interest rate on PPP loans and lower interest rates on all other loans, especially variable rate loans. Gross PPP loans averaged $509.3 million in for the quarter ended June 30, 2021, and have a contractual interest rate of 1.0%, and a yield of approximately 3.80% after considering the amortization of deferred PPP loan fees, for the quarter ended June 30, 2021.
Cost of funds decreased four basis points in the quarter ended June 30, 2021 to 0.20%, compared to the quarter ended March 31, 2021 and decreased 21 basis points from the quarter ended June 30, 2020. Cost of deposits for the quarter ended June 30, 2021 was 0.14%, a decrease of three basis points, or a 17.5% decrease, from 0.17% for the quarter ended March 31, 2021, and a 21 basis point decrease, or a 59.5% decrease, from 0.35% for the quarter ended June 30, 2020, largely due to the decrease in interest expense. Deposit growth, primarily from CCBX, in noninterest bearing and low interest bearing accounts contributed to the reduced cost of funds in conjunction with rate reductions on deposits. Noninterest bearing deposits increased $119.2 million, or 15.5%, and $324.1 million, or 57.5%, compared to the quarters ended March 31, 2021, and June 30, 2020, respectively. Market conditions for deposits continued to be competitive during the quarter ended June 30, 2021; however, we have been able to keep cost of deposit down by increasing low interest bearing and noninterest bearing deposits and permitting high cost deposits to run-off when appropriate, such as when we are able to replace them with lower cost core deposits.
During the quarter ended June 30, 2021, total loans receivable decreased by $108.6 million, to $1.66 billion, compared to $1.77 billion for the quarter ended March 31, 2021. Non-PPP loans increased $35.7 million, or 2.9%, for the quarter ended June 30, 2021, compared to the quarter ended March 31, 2021. PPP loans decreased $145.8 million and totaled $398.0 million as of June 30, 2021 compared to March 31, 2021. In the three months ended June 30, 2021, a total of $27.0 million in new PPP loans were generated and $173.2 million in PPP loans were forgiven or repaid during that same period.
Total yield on loans receivable for the quarter ended June 30, 2021 was 4.44%, compared to 4.51% for the quarter ended March 31, 2021, and 4.57% for the quarter ended June 30, 2020. The decrease in yield on loans receivable compared to the quarters ended March 31, 2021 and June 30, 2020 is attributed to the lower 1.0% rate that PPP loans earn and the downward repricing of our variable rate loans in the low interest rate environment established by the Federal Reserve Open Market Committee, which decreased the Fed funds rate in the first quarter of 2020. Although we have rate floors in place for $429.8 million, or 25.7%, in existing loans, the lowered rates may have a corresponding impact on yield on loans receivables and the net interest margin in future periods. PPP loans reduced the yield on loans receivable* by 26 basis points for the quarter ended June 30, 2021.
Yield on loans receivable, excluding earned fees* approximated 3.46% for the quarter ended June 30, 2021, compared to 3.53% for the quarter ended March 31, 2021, and 3.91% for the quarter ended June 30, 2020. During the quarter ended June 30, 2021, the average balance of PPP loans was $509.3 million. These loans bear a contractual rate of 1.0%, which negatively impacted the average yield on loans. Excluding PPP loans from the calculation results in a yield on loans receivable of 4.65%* for the quarter ended June 30, 2021. Also contributing to the reduction in yield is the current low-rate environment, which has resulted in lower rates on our variable rate loans and on new and renewing loans.
Return on average assets (“ROA”) was 1.36% for the quarter ended June 30, 2021 compared to 1.28% and 0.96% for the quarters ended March 31, 2021 and June 30, 2020, respectively. ROA was impacted in the quarter ended June 30, 2020 by increased provision for loan losses due to the economic uncertainties of the COVID-19 pandemic and loan growth. Pre-tax, pre-provision ROA* was 1.87% for the quarter ended June 30, 2021, compared to 1.69% for the quarter ended March 31, 2021, and 1.72% for the quarter ended June 30, 2020.
During the first half of 2021, significant focus was placed on helping the small businesses in our communities through the third round of PPP loans, which ended on May 31, 2021. The PPP loans originated in the first and second rounds during 2020 and in the third round in 2021 have had a significant impact on our financial statements. These PPP loans will continue to impact our results in the future. We continued to receive forgiveness payments from the SBA. Throughout this earnings release, we will address the impact, to the extent possible, of these loans including borrowings received through PPPLF to help fund these loans and to aid in liquidity, in addition to earnings and expenses related to these activities. Any estimated adjusted ratios that exclude the impact of this activity are non-GAAP measures. For more information about non-GAAP financial measures, please see the end of this earnings release.
The table below summarizes information about total PPP loans originated in 2020 and 2021.
| Total PPP Loan Origination | ||||||||||
| Round 1 & 2 2020 |
Round 3 2021 |
Total | ||||||||
| (Dollars in thousands; unaudited) | ||||||||||
| Loans Originated | $ | 452,846 | $ | 311,012 | $ | 763,858 | ||||
| Deferred fees, net | 12,933 | 13,334 | $ | 26,267 | ||||||
The table below summarizes key information regarding the PPP loans originated in 2020 as of the period indicated:
| Round 1 and 2 – Originated in 2020 | |||||||||||||||||||
| Original Loan Size | |||||||||||||||||||
| As of and for the Three Months Ended June 30, 2021 | |||||||||||||||||||
| $0.00 – $50,000.00 |
$50,0000.01 – $150,000.00 |
$150,000.01 – $350,000.00 |
$350,000.01 – $2,000,000.00 |
> 2,000,000.01 | Totals | ||||||||||||||
| (Dollars in thousands; unaudited) | |||||||||||||||||||
| Principal outstanding: | |||||||||||||||||||
| Existing customer | $ | 6,333 | $ | 6,496 | $ | 12,864 | $ | 17,256 | $ | 27,852 | $ | 70,801 | |||||||
| New customer | 2,076 | 3,649 | 4,550 | 13,878 | 15,540 | 39,693 | |||||||||||||
| Total principal outstanding | 8,409 | 10,145 | 17,414 | 31,134 | 43,392 | 110,494 | |||||||||||||
| Deferred fees outstanding | (227 | ) | (214 | ) | (333 | ) | (351 | ) | (145 | ) | (1,270 | ) | |||||||
| Deferred costs outstanding | 128 | 30 | 27 | 15 | 2 | 202 | |||||||||||||
| Net deferred fees | $ | (99 | ) | $ | (184 | ) | $ | (306 | ) | $ | (336 | ) | $ | (143 | ) | $ | (1,068 | ) | |
| Number of loans: | |||||||||||||||||||
| Existing customer | 107 | 41 | 21 | 19 | 5 | 193 | |||||||||||||
| New customer | 379 | 77 | 60 | 27 | 9 | 552 | |||||||||||||
| Total loan count | 486 | 118 | 81 | 46 | 14 | 745 | |||||||||||||
| Percent of total | 65.3 | % | 15.8 | % | 10.9 | % | 6.2 | % | 1.9 | % | 100.0 | % | |||||||
| Forgiveness/Payoffs/Paydowns in Three Months Ended June 30, 2021 | |||||||||||||||||||
| Dollars | $ | 7,227 | $ | 15,346 | $ | 15,788 | $ | 41,375 | $ | 69,959 | $ | 149,695 | |||||||
| Deferred fee recognized | 104 | 370 | 425 | 613 | 358 | 1,870 | |||||||||||||
The table below summarizes key information regarding the PPP loans originated in 2021 as of the period indicated:
| Round 3 – Originated in 2021 | |||||||||||||||||||
| Original Loan Size | |||||||||||||||||||
| As of and for the Three Months Ended June 30, 2021 | |||||||||||||||||||
| $0.00 – $50,000.00 |
$50,0000.01 – $150,000.00 |
$150,000.01 – $350,000.00 |
$350,000.01 – $2,000,000.00 |
> 2,000,000.01 | Totals | ||||||||||||||
| (Dollars in thousands; unaudited) | |||||||||||||||||||
| Principal outstanding: | |||||||||||||||||||
| Existing customer | $ | 14,830 | $ | 33,279 | $ | 43,218 | $ | 106,856 | $ | 2,956 | $ | 201,139 | |||||||
| New customer | 13,735 | 15,541 | 22,804 | 34,325 | – | 86,405 | |||||||||||||
| Total principal outstanding | 28,565 | 48,820 | 66,022 | 141,181 | 2,956 | 287,544 | |||||||||||||
| Deferred fees outstanding | (3,524 | ) | (2,272 | ) | (3,045 | ) | (3,895 | ) | (27 | ) | (12,763 | ) | |||||||
| Deferred costs outstanding | 854 | 323 | 172 | 118 | 1 | 1,468 | |||||||||||||
| Net deferred fees | $ | (2,670 | ) | $ | (1,949 | ) | $ | (2,873 | ) | $ | (3,777 | ) | $ | (26 | ) | $ | (11,295 | ) | |
| Number of loans: | |||||||||||||||||||
| Existing customer | 724 | 362 | 187 | 133 | 1 | 1,407 | |||||||||||||
| New customer | 838 | 181 | 100 | 51 | – | 1,170 | |||||||||||||
| Total loan count | 1,562 | 543 | 287 | 184 | 1 | 2,577 | |||||||||||||
| Percent of total | 60.6 | % | 21.1 | % | 11.1 | % | 7.1 | % | 0.0 | % | 100.0 | % | |||||||
| First or Second Draw | |||||||||||||||||||
| First Draw | $ | 9,881 | $ | 6,265 | $ | 2,728 | $ | 6,024 | $ | 2,956 | $ | 27,854 | |||||||
| Second Draw | 18,684 | 42,555 | 63,294 | 135,157 | – | 259,690 | |||||||||||||
| Forgiveness/Payoffs/Paydowns in Three Months Ended June 30, 2021 | |||||||||||||||||||
| Dollars | $ | 5,047 | $ | 8,402 | $ | 2,585 | $ | 7,433 | $ | – | $ | 23,467 | |||||||
| Deferred fee recognized | 586 | 433 | 259 | 407 | 2 | 1,687 | |||||||||||||
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 PPP loans as described above. 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 | Six Months Ended | ||||||||||||||||||||
| (unaudited) | June 30, 2021 |
March 31, 2021 |
December 31, 2020 |
September 30, 2020 |
June 30, 2020 |
June 30, 2021 |
June 30, 2020 |
||||||||||||||
| Return on average assets (1) | 1.36 | % | 1.28 | % | 1.04 | % | 0.95 | % | 0.96 | % | 1.31 | % | 0.96 | % | |||||||
| Return on average equity (1) | 18.60 | % | 16.84 | % | 13.36 | % | 12.14 | % | 11.37 | % | 17.65 | % | 10.03 | % | |||||||
| Pre-tax, pre-provision return on average assets (1)(2) | 1.87 | % | 1.69 | % | 1.90 | % | 1.72 | % | 1.72 | % | 1.78 | % | 1.74 | % | |||||||
| Yield on earnings assets (1) | 3.89 | % | 3.99 | % | 4.16 | % | 3.93 | % | 4.16 | % | 3.94 | % | 4.43 | % | |||||||
| Yield on loans receivable (1) | 4.44 | % | 4.51 | % | 4.64 | % | 4.33 | % | 4.57 | % | 4.47 | % | 4.85 | % | |||||||
| Yield on loans receivable, excluding PPP loans (1)(2) | 4.65 | % | 4.78 | % | 5.00 | % | 4.78 | % | 4.94 | % | 4.71 | % | 5.10 | % | |||||||
| Yield on loans receivable, excluding earned fees (1)(2) | 3.46 | % | 3.53 | % | 3.66 | % | 3.61 | % | 3.91 | % | 3.49 | % | 4.40 | % | |||||||
| Yield on loans receivable, excluding earned fees and interest on PPP loans, as adjusted (1)(2) | 4.42 | % | 4.52 | % | 4.65 | % | 4.69 | % | 4.84 | % | 4.47 | % | 4.96 | % | |||||||
| Cost of funds (1) | 0.20 | % | 0.24 | % | 0.29 | % | 0.33 | % | 0.41 | % | 0.22 | % | 0.54 | % | |||||||
| Cost of deposits (1) | 0.14 | % | 0.17 | % | 0.22 | % | 0.27 | % | 0.35 | % | 0.16 | % | 0.48 | % | |||||||
| Net interest margin (1) | 3.70 | % | 3.76 | % | 3.89 | % | 3.62 | % | 3.78 | % | 3.73 | % | 3.93 | % | |||||||
| Noninterest expense to average assets (1) | 2.65 | % | 2.62 | % | 2.35 | % | 2.26 | % | 2.34 | % | 2.64 | % | 2.71 | % | |||||||
| Efficiency ratio | 58.69 | % | 60.85 | % | 55.26 | % | 56.73 | % | 57.66 | % | 59.70 | % | 60.80 | % | |||||||
| Loans receivable to deposits | 92.03 | % | 105.68 | % | 108.85 | % | 110.98 | % | 110.77 | % | 92.03 | % | 110.77 | % | |||||||
| (1) Annualized calculations shown for quarterly periods presented. | |||||||||||||||||||||
| (2) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release. | |||||||||||||||||||||
Noninterest income was $4.8 million as of June 30, 2021, an increase of $1.8 million from $3.0 million as of March 31, 2021, and an increase of $3.3 million from $1.5 million as of June 30, 2020. The increase in noninterest income over the quarter ended March 31, 2021 was due to a $1.3 million gain on the sale of the Freeland Branch, which closed on April 30, 2021, a $476,000 increase in BaaS fees, which includes interchange income of $110,000 compared to $35,000 as of March 31, 2021, a $209,000 increase in loan referral fees, which are earned when we originate a variable rate loan and arrange for the borrower to enter into an interest rate swap agreement with a third party to fix the interest rate for an extended period, partially offset by a $127,000 decrease in other income and a $99,000 decrease in gain on sale of loans. The $127,000 decrease in other income was the result of a market adjustment associated with the purchase of $5.0 million in new bank owned life insurance (“BOLI”) during the quarter ended June 30, 2021. We expect that the BOLI policy will grow in value in future periods. The $3.3 million increase in noninterest income over the quarter ended June 30, 2020 was primarily due to the $1.3 million gain on sale of the Freeland Branch, a $949,000 increase in BaaS fees, which includes $110,000 in interchange income, compared to zero interchange income at June 30, 2020, a $736,000 increase in loan referral fees, a $272,000 increase in deposit service charges and fees, primarily in point of sale and ATM fees, which were down in 2020 because of stay-at-home orders related to the COVID-19 pandemic, and a $101,000 increase in mortgage broker fees, partially offset by $90,000 decrease in other income, which is related to the market value adjustment paid on the BOLI purchased.
Our CCBX division continues to grow, and consists of 24 relationships, at varying stages, as of June 30, 2021, compared to 21 CCBX relationships at March 31, 2021 and ten CCBX relationships as of June 30, 2020, respectively. As of June 30, 2021, we had twelve active CCBX relationships, three in friends and family/testing, seven relationships in onboarding/implementation, two signed letters of intent and a strong pipeline of potential new CCBX relationships. The following table illustrates the activity and growth in CCBX for the periods presented:
| As of | ||||
| June 30, 2021 | March 31, 2021 | June 30, 2020 | March 31, 2020 | |
| Active | 12 | 10 | 3 | 2 |
| Friends and family / testing | 3 | – | 2 | – |
| Implementation / onboarding | 7 | 5 | 2 | 3 |
| Signed letters of intent | 2 | 6 | 3 | 2 |
| Total CCBX relationships | 24 | 21 | 10 | 7 |
Total noninterest expense increased to $13.7 million as of June 30, 2021, compared to $12.4 million as of March 31, 2021 and $8.9 million as of June 30, 2020. Increase in noninterest expense for the quarter ended June 30, 2021, as compared to the quarter ended March 31, 2021, was due to a $1.2 million increase in salaries and employee benefits which is related to the hiring in CCBX, CCDB, and additional staff for our ongoing banking growth initiatives. The increase in salary expense included a sizable decrease in deferred loan costs of $787,000, primarily from the slow-down of originating PPP loans, which is recorded as a salary offset, for the quarter ended June 30, 2021, compared to the quarter ended March 31, 2021. Other expenses increased $109,000 in the second quarter of 2021 compared to the prior quarter largely due to an $59,000 increase in software license, maintenance and subscription expenses, which is expected to increase as we invest more in automated processing and as we grow our product lines and CCBX and CCDB. In addition, in the second quarter of 2021 compared to the quarter ended March 31, 2021, director and staff expenses increased $98,000 due to increased travel expense and general staff appreciation recognition as the economy opens back up.
The increased noninterest expenses for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020 were largely due to a $3.7 million increase in salary expenses related to hiring staff for CCBX, CCDB and additional staff for our ongoing banking growth initiatives. The increase in salary expense for the quarter ended June 30, 2021 was also higher as a result of a $861,000 decrease in deferred loan costs recorded as salary offsets, primarily from the slow-down of originating PPP loans, compared to the quarter ended June 30, 2020. Other expenses increased $290,000 in the second quarter of 2021 compared to the quarter ended June 30, 2020, largely due to a $232,000 increase in software license, maintenance and subscription expenses. In addition, in the second quarter of 2021 compared to the second quarter of 2020, legal and professional fees increased $152,000 and Federal Deposit Insurance Corporation (“FDIC”) assessments increased $151,000. The increase in legal and professional expenses is associated with CCBX division expenses and higher costs associated with legal and accounting work related to financial reporting. The increase in FDIC assessments is largely the result of an increase in deposits combined with other factors that impact the FDIC assessment calculation compared to the quarter ended June 30, 2020.
The provision for income taxes was $2.3 million at June 30, 2021, a $717,000 increase compared to $1.6 million for the first quarter of 2021 and a $1.3 million increase compared to $967,000 for the second quarter of 2020, both as a result of increased taxable income. Additionally, the Company is now subject to various state taxes that are being assessed as a result of CCBX activities expanding into other states, which has increased the overall rate used in calculating the provision for income taxes in the current and future periods. The Company uses a federal statutory tax rate of 21% as a basis for calculating provision for federal income taxes.
Financial Condition
Total assets decreased $22.2 million, or 1.1%, to $2.01 billion at June 30, 2021 compared to $2.03 billion at March 31, 2021. The primary cause of the decrease was $108.6 million in decreased loans receivable, primarily due to forgiveness payments on PPP loans. Partially offsetting the decrease in loans receivable is an increase in interest earning deposits with other banks of $63.9 million, a $14.6 million increase in cash due from banks and a $4.5 million increase in securities. Total assets increased $328.2 million, or 19.5%, at June 30, 2021, compared to $1.68 billion at June 30, 2020. This increase was largely the result of a $211.0 million increase in loans receivable, combined with a $103.8 million increase in interest earning deposits with other banks.
Total loans receivable decreased $108.6 million to $1.66 billion at June 30, 2021, from $1.77 billion at March 31, 2021, and increased $211.0 million from $1.45 billion at June 30, 2020. The reduction in loans receivable over the quarter ended March 31, 2021 was the result of $173.2 million in forgiveness, payoffs or principal paydowns on PPP loans, partially offset by $27.0 million in new PPP loans and growth of $35.7 million in non-PPP loans, consisting of CCBX loan growth of $412,000, and core banking loan growth, which excludes PPP loans and CCBX loans, of $35.2 million during the three months ended June 30, 2021. CCBX loans totaled $103.5 million at June 30, 2021 compared to $103.1 million at March 31, 2021 and $12.2 million at June 30, 2020. Total loans receivable as of June 30, 2021 is net of $16.7 million in net deferred origination fees, $12.4 million of which is attributed to PPP loans. Deferred fees on PPP loans are earned over the life of the loan, for loans originated in 2020 are primarily two year loans with some being 5 year loans as of June 30, 2021 ,and all PPP loans originated in 2021 have five year maturities. Although loans receivable decreased as of June 30, 2021 compared to March 31, 2021, unused commitments increased during the same period, with the unused commitments on capital call lines increasing $112.0 million to $286.8 million at June 30, 2021 compared to $174.8 million at March 31, 2021, which may translate to loan growth in future periods as the commitments are utilized. The increase in loans receivable over the quarter ended June 30, 2020 includes growth of $254.9 million in non-PPP loans, partially offset by a $40.0 million decrease in PPP loans as of June 30, 2021. Non-PPP loan growth consists of $129.4 million in commercial real estate loans, $88.2 million in commercial and industrial loans, $20.6 million in residential real estate loans, and $14.3 million in construction, land and land development loans.
The latest round of the PPP loans closed on May 31, 2021. We have been accepting applications from customers for loan forgiveness on PPP loans originated in 2020 and 2021. In the three months ended June 30, 2021, we received $173.2 million in forgiveness payments or principal paydowns. We expect that the forgiveness of loans to be fairly active in 2021 and will slow in 2022 until the loans are forgiven or paid off through maturity. Forgiveness of principal, early paydowns and payoffs on PPP loans will increase interest income earned in those periods from the recognition of deferred PPP loan fees. Customers with two-year loans are also able to request that their PPP loan be extended to a five-year maturity, which we anticipate will be an option for customers not eligible for forgiveness.
The following table summarizes the loan portfolio at the periods indicated.
| As of | |||||||||||||||||||||
| June 30, 2021 | March 31, 2021 | June 30, 2020 | |||||||||||||||||||
| (Dollars in thousands; unaudited) | Balance | % to Total | Balance | % to Total | Balance | % to Total | |||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||||||
| PPP loans | $ | 398,038 | 23.8 | % | $ | 543,827 | 30.5 | % | $ | 438,077 | 30.0 | % | |||||||||
| All other commercial & industrial loans | 201,680 | 11.9 | 202,447 | 11.2 | 113,473 | 7.8 | |||||||||||||||
| Real estate loans: | |||||||||||||||||||||
| Construction, land and land development loans | 116,733 | 7.0 | 104,596 | 5.9 | 102,422 | 7.0 | |||||||||||||||
| Residential real estate loans | 143,574 | 8.7 | 136,417 | 7.7 | 122,949 | 8.4 | |||||||||||||||
| Commercial real estate loans | 807,711 | 48.2 | 793,633 | 44.5 | 678,335 | 46.5 | |||||||||||||||
| Consumer and other loans | 7,161 | 0.4 | 4,114 | 0.2 | 4,735 | 0.3 | |||||||||||||||
| Gross loans receivable | 1,674,897 | 100.0 | % | 1,785,034 | 100.0 | % | 1,459,991 | 100.0 | % | ||||||||||||
| Net deferred origination fees – PPP loans | (12,363 | ) | (14,279 | ) | (10,639 | ) | |||||||||||||||
| Net deferred origination fees – Other loans | (4,385 | ) | (4,032 | ) | (2,208 | ) | |||||||||||||||
| Loans receivable | $ | 1,658,149 | $ | 1,766,723 | $ | 1,447,144 | |||||||||||||||
Please see Appendix A for additional loan portfolio detail regarding industry concentrations.
Total deposits increased $130.0 million, or 7.8%, to $1.80 billion at June 30, 2021 from $1.67 billion at March 31, 2021. The increase was due primarily to a $133.3 million increase in core deposits, which is the result of expanding and growing banking relationships with new customers, including deposit relationships from PPP loans made to noncustomers, who moved their banking relationship to the Bank. The overall increase in deposits was achieved despite a decrease of $24.9 million in total deposits compared to March 31, 2021, due to the sale of our Freeland branch. Additionally, deposits in our CCBX division increased $128.3 million, from $139.1 million at March 31, 2021, to $267.4 million at June 30, 2021. The deposits from our CCBX division are predominately classified as noninterest bearing, or NOW and money market accounts, but a portion of such CCBX deposits may be classified as brokered deposits as a result of the relevant relationship agreement. During the quarter ended June 30, 2021, noninterest bearing deposits increased $119.2 million, or 15.5%, to $887.9 million from $768.7 million at March 31, 2021. Included in the increase in noninterest bearing deposits is an increase in CCBX division deposits of $121.8 million for the quarter ended June 30, 2021. In the second quarter of 2021 compared to the quarter ended March 31, 2021, NOW and money market accounts increased $14.8 million, and savings accounts decreased $693,000. BaaS-brokered deposits increased $1.8 million, or 7.0%, and time deposits decreased $5.1 million, or 9.2%. Total deposits increased $495.3 million, or 37.9%, to $1.80 billion at June 30, 2021 compared to $1.31 billion at June 30, 2020. Noninterest bearing deposits increased $324.1 million, or 57.5%, to $887.9 million at June 30, 2021 from $536.8 million at June 30, 2020. NOW and money market accounts increased $166.6 million, or 28.9%, to $743.0 million at June 30, 2021, and savings accounts increased $21.2 million, or 29.4%, and BaaS-brokered deposits increased $859,000, or 3.2% while time deposits decreased $17.5 million, or 25.9%. Efforts to retain and grow core deposits are evidenced by the high ratios in these categories when compared to total deposits.
The following table summarizes the deposit portfolio at the periods indicated.
| As of | |||||||||||||||||||||
| June 30, 2021 | March 31, 2021 | June 30, 2020 | |||||||||||||||||||
| (Dollars in thousands, unaudited) | Balance | % to Total | Balance | % to Total | Balance | % to Total | |||||||||||||||
| Demand, noninterest bearing | $ | 887,896 | 49.3 | % | $ | 768,690 | 46.0 | % | $ | 563,794 | 43.2 | % | |||||||||
| NOW and money market | 743,014 | 41.2 | 728,243 | 43.6 | 576,376 | 44.1 | |||||||||||||||
| Savings | 93,224 | 5.2 | 93,917 | 5.6 | 72,045 | 5.5 | |||||||||||||||
| Total core deposits | 1,724,134 | 95.7 | 1,590,850 | 95.2 | 1,212,215 | 92.8 | |||||||||||||||
| BaaS-brokered deposits | 27,388 | 1.5 | 25,597 | 1.5 | 26,529 | 2.0 | |||||||||||||||
| Time deposits less than $250,000 | 34,809 | 1.9 | 38,986 | 2.3 | 43,900 | 3.4 | |||||||||||||||
| Time deposits $250,000 and over | 15,347 | 0.9 | 16,282 | 1.0 | 23,783 | 1.8 | |||||||||||||||
| Total deposits | $ | 1,801,678 | 100.0 | % | $ | 1,671,715 | 100.0 | % | $ | 1,306,427 | 100.0 | % | |||||||||
To support and promote the effectiveness of the SBA PPP loan program, the Federal Reserve is supplying liquidity to participating financial institutions through non-recourse term financing secured by PPP loans to small businesses. The PPPLF extends low cost borrowings at a 0.35% interest rate, to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value. Borrowings are required to be paid down as the pledged PPP loans are paid down. As of June 30, 2021, all PPPLF borrowings were fully repaid with no outstanding PPPLF advances and pledged PPP loans, compared to $158.5 million at March 31, 2021. The PPPLF program will close for new borrowings as of July 30, 2021.
The Federal Home Loan Bank (“FHLB”) allows us to borrow against our line of credit, which is collateralized by certain loans. As of June 30, 2021, we borrowed a total of $25.0 million in FHLB term advances. This includes a $10.0 million advance that matures in March of 2023 and $15.0 million advance that matures in March 2025. These advances provide an alternative and stable source of funding for loan demand. Although there are no immediate plans to borrow additional funds, additional FHLB borrowing capacity of $89.2 million was available under this arrangement as of June 30, 2021.
Total shareholders’ equity increased $7.4 million since March 31, 2021. The increase in shareholders’ equity was primarily due to $7.0 million in net earnings for the three months ended June 30, 2021.
Capital Ratios
The Company and the Bank remain well capitalized at June 30, 2021, as summarized in the following table.
| Capital Ratios: | Coastal Community Bank | Coastal Financial Corporation | Financial Institution Basel III Regulatory Guidelines | ||||||||
| (unaudited) | |||||||||||
| Tier 1 leverage capital | 8.21 | % | 8.00 | % | 5.00 | % | |||||
| Adjusted Tier 1 leverage capital ratio, excluding PPP loans (1) | 10.32 | % | 10.06 | % | 5.00 | % | |||||
| Common Equity Tier 1 risk-based capital | 11.45 | % | 10.92 | % | 6.50 | % | |||||
| Tier 1 risk-based capital | 11.45 | % | 11.16 | % | 8.00 | % | |||||
| Total risk-based capital | 12.70 | % | 13.12 | % | 10.00 | % | |||||
| (1) A reconciliation of the non-GAAP measure is set forth at the end of this earnings release. | |||||||||||
Asset Quality
The allowance for loan losses was $20.0 million and 1.20% of loans receivable at June 30, 2021 compared to $19.6 million and 1.11% at March 31, 2021 and $14.8 million and 1.03% at June 30, 2020. At June 30, 2021, there was $398.0 million in PPP loans, which are 100% guaranteed by the SBA. Excluding PPP loans, the allowance for loan losses to loans receivable* would be 1.57% for the quarter ended June 30, 2021. Provision for loan losses totaled $361,000 for the three months ended June 30, 2021, $357,000 for the three months ended March 31, 2021, and $1.9 million for the three months ended June 30, 2020. Net charge-offs totaled $5,000 for the quarter ended June 30, 2021, compared to $9,000 for the quarter ended March 31, 2021 and $8,000 for the quarter ended June 30, 2020.
The Company’s provision for loan losses during the quarter ended June 30, 2021, is related to an increase in non-PPP loan growth. The factors used in management’s analysis of the provision for loan losses indicated that a provision of $361,000 and $357,000 was needed for the quarters ended June 30, 2021 and March 31, 2021, respectively. The expected loan losses did not materialize as originally anticipated in 2020, as evidenced by the low level of charge-offs and nonperforming loans. The economic environment is continuously changing and has shown signs of improvement, with the United States implementing a $1.9 trillion stimulus package, ongoing vaccination of its population and increased re-opening of economic activities. The Company is not required to implement the provisions of the Current Expected Credit Loss accounting standard until January 1, 2023 and continues to account for the allowance for credit losses under the incurred loss model.
At June 30, 2021, our nonperforming assets were $648,000, or 0.03% of total assets, compared to $661,000, or 0.03%, of total assets at March 31, 2021, and $4.4 million, or 0.26%, of total assets at June 30, 2020. Nonperforming assets decreased $13,000 during the quarter ended June 30, 2021, compared to the quarter ended March 31, 2021. There were no repossessed assets or other real estate owned at June 30, 2021. Our nonperforming loans to loans receivable ratio was 0.04% at June 30, 2021 and March 31, 2021, compared to 0.31% at June 30, 2020.
For the quarter ended June 30, 2021, we have not seen a significant change in our credit quality metrics, as demonstrated by the low level of charge-offs and nonperforming loans. The long-term economic impact of the COVID-19 pandemic, political gridlock, and trade issues is unknown; however, the Company remains diligent in its efforts to communicate and proactively work with borrowers to help mitigate potential credit deterioration.
Pursuant to federal guidance, the Company deferred and/or modified payments on loans to assist customers financially during the COVID-19 pandemic and economic shutdown. A total of $246.4 million in loans were deferred and/or modified under this guidance. For the quarter ended June 30, 2021, two loans, or $11.7 million remained on deferred and/or modified status. The purpose of this program is to provide cash flow relief for small business customers as they navigate through the uncertainties of the COVID-19 pandemic. The Company’s deferral program has been successful as evidenced by customers’ ability to migrate from deferral to active status and resume making payments as planned.
The table below illustrates the status of all loans that were deferred and/or modified under this guidance since the guidelines were issued:
| COVID-19 Deferral Status | |||||||
| As of June 30, 2021 | |||||||
| Amount | Number of loans | ||||||
| (Dollars in thousands; unaudited) | |||||||
| Currently deferred | $ | 11,738 | 2 | ||||
| Closed – paid off | 18,618 | 44 | |||||
| Successfully resumed payments | 216,036 | 204 | |||||
| Total | $ | 246,392 | 250 | ||||
The following table details the Company’s nonperforming assets for the periods indicated.
| June 30, | March 31, | June 30, | ||||||||
| (Dollars in thousands, unaudited) | 2021 | 2021 | 2020 | |||||||
| Nonaccrual loans: | ||||||||||
| Commercial and industrial loans | $ | 482 | $ | 488 | $ | 689 | ||||
| Real estate: | ||||||||||
| Construction, land and land development | – | – | 3,270 | |||||||
| Residential real estate | 166 | 173 | 63 | |||||||
| Commercial real estate | – | – | 413 | |||||||
| Total nonaccrual loans | 648 | 661 | 4,435 | |||||||
| Accruing loans past due 90 days or more: | ||||||||||
| Total accruing loans past due 90 days or more | – | – | – | |||||||
| Total nonperforming loans | 648 | 661 | 4,435 | |||||||
| Other real estate owned | – | – | – | |||||||
| Repossessed assets | – | – | – | |||||||
| Total nonperforming assets | $ | 648 | $ | 661 | $ | 4,435 | ||||
| Troubled debt restructurings, accruing | – | – | – | |||||||
| Total nonperforming loans to loans receivable | 0.04 | % | 0.04 | % | 0.31 | % | ||||
| Total nonperforming assets to total assets | 0.03 | % | 0.03 | % | 0.26 | % | ||||
_______________
*-A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.
About Coastal Financial
Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), is an Everett, Washington based bank holding company whose wholly owned subsidiaries are Coastal Community Bank (“Bank”) and Arlington Olympic LLC. The $2.0 billion community bank that the Bank operates provides service through 14 branches in Snohomish, Island, and King Counties, the Internet and its mobile banking application. The Bank provides banking as a service to broker dealers and digital financial service providers through its CCBX Division. Late in 2021 or early 2022, the Bank expects to open deposit accounts to consumers over the internet in CCDB, its digital bank division in collaboration with Google. To learn more about Coastal visit www.coastalbank.com.
Contact
Eric Sprink, President & Chief Executive Officer, (425) 357-3659
Joel Edwards, Executive Vice President & Chief Financial Officer, (425) 357-3687
Forward-Looking Statements
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Any or all of the forward-looking statements in this earnings release may turn out to be inaccurate. The inclusion of or reference to forward-looking information in this earnings release should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of risks, uncertainties and assumptions that are difficult to predict. Factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, the risks and uncertainties discussed under “Risk Factors” in our Annual Report on Form 10-K for the most recent period filed, our Quarterly Report on Form 10-Q for the most recent quarter, and in any of our subsequent filings with the Securities and Exchange Commission.
If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. You are cautioned not to place undue reliance on forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law.
Source: Coastal Financial Corporation
COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands; unaudited)
| ASSETS | ||||||||||||
| June 30, | March 31, | June 30, | ||||||||||
| 2021 | 2021 | 2020 | ||||||||||
| Cash and due from banks | $ | 31,473 | $ | 16,842 | $ | 26,510 | ||||||
| Interest earning deposits with other banks | 251,416 | 187,472 | 147,666 | |||||||||
| Investment securities, available for sale, at fair value | 25,341 | 20,378 | 20,448 | |||||||||
| Investment securities, held to maturity, at amortized cost | 2,101 | 2,515 | 3,870 | |||||||||
| Other investments | 6,839 | 6,829 | 5,951 | |||||||||
| Loans receivable | 1,658,149 | 1,766,723 | 1,447,144 | |||||||||
| Allowance for loan losses | (19,966 | ) | (19,610 | ) | (14,847 | ) | ||||||
| Total loans receivable, net | 1,638,183 | 1,747,113 | 1,432,297 | |||||||||
| Premises and equipment, net | 17,207 | 17,194 | 16,668 | |||||||||
| Operating lease right-of-use assets | 6,637 | 6,900 | 7,635 | |||||||||
| Accrued interest receivable | 8,108 | 8,597 | 5,944 | |||||||||
| Bank-owned life insurance, net | 12,056 | 7,133 | 6,981 | |||||||||
| Deferred tax asset, net | 3,808 | 3,802 | 2,721 | |||||||||
| Other assets | 3,969 | 4,584 | 2,265 | |||||||||
| Total assets | $ | 2,007,138 | $ | 2,029,359 | $ | 1,678,956 | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||
| LIABILITIES | ||||||||||||
| Deposits | $ | 1,801,678 | $ | 1,671,715 | $ | 1,306,427 | ||||||
| Federal Home Loan Bank advances | 24,999 | 24,999 | 24,999 | |||||||||
| Paycheck Protection Program Liquidity Facility | – | 158,519 | 190,156 | |||||||||
| Subordinated debt, net | 10,000 | 9,996 | 9,986 | |||||||||
| Junior subordinated debentures, net | 3,585 | 3,585 | 3,584 | |||||||||
| Deferred compensation | 803 | 833 | 919 | |||||||||
| Accrued interest payable | 179 | 538 | 312 | |||||||||
| Operating lease liabilities | 6,845 | 7,105 | 7,831 | |||||||||
| Other liabilities | 4,949 | 5,330 | 3,765 | |||||||||
| Total liabilities | 1,853,038 | 1,882,620 | 1,547,979 | |||||||||
| SHAREHOLDERS’ EQUITY | ||||||||||||
| Common stock | 88,699 | 88,329 | 87,309 | |||||||||
| Retained earnings | 65,399 | 58,386 | 43,617 | |||||||||
| Accumulated other comprehensive income, net of tax | 2 | 24 | 51 | |||||||||
| Total shareholders’ equity | 154,100 | 146,739 | 130,977 | |||||||||
| Total liabilities and shareholders’ equity | $ | 2,007,138 | $ | 2,029,359 | $ | 1,678,956 | ||||||
COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)
| Three Months Ended | |||||||||
| June 30, | March 31, | June 30, | |||||||
| 2021 | 2021 | 2020 | |||||||
| INTEREST AND DIVIDEND INCOME | |||||||||
| Interest and fees on loans | $ | 19,365 | $ | 18,230 | $ | 15,154 | |||
| Interest on interest earning deposits with other banks | 74 | 70 | 130 | ||||||
| Interest on investment securities | 24 | 28 | 53 | ||||||
| Dividends on other investments | 108 | 30 | 89 | ||||||
| Total interest and dividend income | 19,571 | 18,358 | 15,426 | ||||||
| INTEREST EXPENSE | |||||||||
| Interest on deposits | 628 | 660 | 1,096 | ||||||
| Interest on borrowed funds | 331 | 383 | 337 | ||||||
| Total interest expense | 959 | 1,043 | 1,433 | ||||||
| Net interest income | 18,612 | 17,315 | 13,993 | ||||||
| PROVISION FOR LOAN LOSSES | 361 | 357 | 1,930 | ||||||
| Net interest income after provision for loan losses | 18,251 | 16,958 | 12,063 | ||||||
| NONINTEREST INCOME | |||||||||
| Deposit service charges and fees | 949 | 863 | 677 | ||||||
| BaaS fees | 1,424 | 948 | 475 | ||||||
| Loan referral fees | 806 | 597 | 70 | ||||||
| Mortgage broker fees | 253 | 262 | 152 | ||||||
| Sublease and lease income | 31 | 32 | 31 | ||||||
| Gain on sales of loans, net | 31 | 130 | – | ||||||
| Gain on sale of branch | 1,263 | – | – | ||||||
| Other income | 25 | 152 | 115 | ||||||
| Total noninterest income | 4,782 | 2,984 | 1,520 | ||||||
| NONINTEREST EXPENSE | |||||||||
| Salaries and employee benefits | 8,913 | 7,686 | 5,215 | ||||||
| Occupancy | 990 | 1,058 | 933 | ||||||
| Data processing | 734 | 697 | 621 | ||||||
| Director and staff expenses | 318 | 220 | 187 | ||||||
| Excise taxes | 388 | 359 | 262 | ||||||
| Marketing | 132 | 82 | 116 | ||||||
| Legal and professional fees | 626 | 760 | 474 | ||||||
| Federal Deposit Insurance Corporation assessments | 225 | 195 | 74 | ||||||
| Business development | 100 | 99 | 48 | ||||||
| Other expense | 1,305 | 1,196 | 1,015 | ||||||
| Total noninterest expense | 13,731 | 12,352 | 8,945 | ||||||
| Income before provision for income taxes | 9,302 | 7,590 | 4,638 | ||||||
| PROVISION FOR INCOME TAXES | 2,289 | 1,572 | 967 | ||||||
| NET INCOME | $ | 7,013 | $ | 6,018 | $ | 3,671 | |||
| Basic earnings per common share | $ | 0.59 | $ | 0.50 | $ | 0.31 | |||
| Diluted earnings per common share | $ | 0.56 | $ | 0.49 | $ | 0.30 | |||
| Weighted average number of common shares outstanding: | |||||||||
| Basic | 11,984,927 | 11,960,772 | 11,917,394 | ||||||
| Diluted | 12,459,467 | 12,393,493 | 12,190,284 | ||||||
COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)
| Six Months Ended | ||||||
| June 30, | June 30, | |||||
| 2021 | 2020 | |||||
| INTEREST AND DIVIDEND INCOME | ||||||
| Interest and fees on loans | $ | 37,595 | $ | 27,781 | ||
| Interest on interest earning deposits with other banks | 144 | 488 | ||||
| Interest on investment securities | 52 | 172 | ||||
| Dividends on other investments | 138 | 105 | ||||
| Total interest and dividend income | 37,929 | 28,546 | ||||
| INTEREST EXPENSE | ||||||
| Interest on deposits | 1,288 | 2,650 | ||||
| Interest on borrowed funds | 714 | 539 | ||||
| Total interest expense | 2,002 | 3,189 | ||||
| Net interest income | 35,927 | 25,357 | ||||
| PROVISION FOR LOAN LOSSES | 718 | 3,508 | ||||
| Net interest income after provision for loan losses | 35,209 | 21,849 | ||||
| NONINTEREST INCOME | ||||||
| Deposit service charges and fees | 1,812 | 1,400 | ||||
| BaaS fees | 2,372 | 1,054 | ||||
| Loan referral fees | 1,403 | 1,123 | ||||
| Mortgage broker fees | 515 | 314 | ||||
| Sublease and lease income | 63 | 61 | ||||
| Gain on sales of loans, net | 161 | – | ||||
| Gain on sale of branch | 1,263 | – | ||||
| Other | 177 | 239 | ||||
| Total noninterest income | 7,766 | 4,191 | ||||
| NONINTEREST EXPENSE | ||||||
| Salaries and employee benefits | 16,599 | 10,898 | ||||
| Occupancy | 2,048 | 1,860 | ||||
| Data processing | 1,431 | 1,172 | ||||
| Director and staff expenses | 538 | 457 | ||||
| Excise taxes | 747 | 465 | ||||
| Marketing | 214 | 228 | ||||
| Legal and professional fees | 1,386 | 797 | ||||
| Federal Deposit Insurance Corporation assessments | 420 | 144 | ||||
| Business development | 199 | 173 | ||||
| Other | 2,501 | 1,770 | ||||
| Total noninterest expense | 26,083 | 17,964 | ||||
| Income before provision for income taxes | 16,892 | 8,076 | ||||
| PROVISION FOR INCOME TAXES | 3,861 | 1,681 | ||||
| NET INCOME | $ | 13,031 | $ | 6,395 | ||
| Basic earnings per common share | $ | 1.09 | $ | 0.54 | ||
| Diluted earnings per common share | $ | 1.05 | $ | 0.52 | ||
| Weighted average number of common shares outstanding: | ||||||
| Basic | 11,972,916 | 11,913,321 | ||||
| Diluted | 12,423,659 | 12,185,154 | ||||
COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – QUARTERLY
(Dollars in thousands; unaudited)
| For the Three Months Ended | |||||||||||||||||||||||||||||
| June 30, 2021 | March 31, 2021 | June 30, 2020 | |||||||||||||||||||||||||||
| 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 | $ | 235,187 | $ | 74 | 0.13 | % | $ | 195,308 | $ | 70 | 0.15 | % | $ | 127,721 | $ | 130 | 0.41 | % | |||||||||||
| Investment securities (1) | 25,000 | 24 | 0.39 | 24,185 | 28 | 0.47 | 21,835 | 53 | 0.98 | ||||||||||||||||||||
| Other investments | 6,835 | 108 | 6.34 | 6,080 | 30 | 2.00 | 5,841 | 89 | 6.13 | ||||||||||||||||||||
| Loans receivable (2) | 1,750,825 | 19,365 | 4.44 | 1,640,108 | 18,230 | 4.51 | 1,334,991 | 15,154 | 4.57 | ||||||||||||||||||||
| Total interest earning assets | 2,017,847 | 19,571 | 3.89 | 1,865,681 | 18,358 | 3.99 | 1,490,388 | 15,426 | 4.16 | ||||||||||||||||||||
| Noninterest earning assets: | |||||||||||||||||||||||||||||
| Allowance for loan losses | (19,733 | ) | (19,391 | ) | (13,555 | ) | |||||||||||||||||||||||
| Other noninterest earning assets | 76,727 | 65,912 | 61,713 | ||||||||||||||||||||||||||
| Total assets | $ | 2,074,841 | $ | 1,912,202 | $ | 1,538,546 | |||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||||||||||||||||
| Interest bearing liabilities: | |||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 901,120 | $ | 628 | 0.28 | % | $ | 856,111 | $ | 660 | 0.31 | % | $ | 708,724 | $ | 1,096 | 0.62 | % | |||||||||||
| Subordinated debt, net | 9,998 | 146 | 5.86 | 9,994 | 145 | 5.88 | 9,984 | 147 | 5.92 | ||||||||||||||||||||
| Junior subordinated debentures, net | 3,585 | 21 | 2.35 | 3,585 | 21 | 2.38 | 3,583 | 26 | 2.92 | ||||||||||||||||||||
| PPPLF borrowings | 107,047 | 94 | 0.35 | 170,376 | 147 | 0.35 | 107,443 | 94 | 0.35 | ||||||||||||||||||||
| FHLB advances and other borrowings | 24,999 | 70 | 1.12 | 24,999 | 70 | 1.14 | 24,999 | 70 | 1.13 | ||||||||||||||||||||
| Total interest bearing liabilities | 1,046,749 | 959 | 0.37 | 1,065,065 | 1,043 | 0.40 | 854,733 | 1,433 | 0.67 | ||||||||||||||||||||
| Noninterest bearing deposits | 863,962 | 690,465 | 541,448 | ||||||||||||||||||||||||||
| Other liabilities | 12,887 | 11,778 | 12,498 | ||||||||||||||||||||||||||
| Total shareholders’ equity | 151,243 | 144,894 | 129,867 | ||||||||||||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 2,074,841 | $ | 1,912,202 | $ | 1,538,546 | |||||||||||||||||||||||
| Net interest income | $ | 18,612 | $ | 17,315 | $ | 13,993 | |||||||||||||||||||||||
| Interest rate spread | 3.52 | % | 3.59 | % | 3.49 | % | |||||||||||||||||||||||
| Net interest margin (3) | 3.70 | % | 3.76 | % | 3.78 | % | |||||||||||||||||||||||
| (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 Six Months Ended | |||||||||||||||||||
| June 30, 2021 | June 30, 2020 | ||||||||||||||||||
| Average | Interest & | Yield / | Average | Interest & | Yield / | ||||||||||||||
| Balance | Dividends | Cost (4) | Balance | Dividends | Cost (4) | ||||||||||||||
| Assets | |||||||||||||||||||
| Interest earning assets: | |||||||||||||||||||
| Interest earning deposits | $ | 215,358 | $ | 144 | 0.13 | % | $ | 115,547 | $ | 488 | 0.85 | % | |||||||
| Investment securities (1) | 24,595 | 52 | 0.43 | 24,438 | 172 | 1.42 | |||||||||||||
| Other Investments | 6,460 | 138 | 4.31 | 5,174 | 105 | 4.08 | |||||||||||||
| Loans receivable (2) | 1,695,772 | 37,595 | 4.47 | 1,150,797 | 27,781 | 4.85 | |||||||||||||
| Total interest earning assets | $ | 1,942,185 | $ | 37,929 | 3.94 | $ | 1,295,956 | $ | 28,546 | 4.43 | |||||||||
| Noninterest earning assets: | |||||||||||||||||||
| Allowance for loan losses | (19,563 | ) | (12,610 | ) | |||||||||||||||
| Other noninterest earning assets | 71,349 | 56,654 | |||||||||||||||||
| Total assets | $ | 1,993,971 | $ | 1,340,000 | |||||||||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||||||
| Interest bearing liabilities: | |||||||||||||||||||
| Interest bearing deposits | $ | 878,740 | $ | 1,288 | 0.30 | % | $ | 668,381 | $ | 2,650 | 0.80 | % | |||||||
| Subordinated debt, net | 9,996 | 291 | 5.87 | 9,982 | 293 | 5.90 | |||||||||||||
| Junior subordinated debentures, net | 3,585 | 42 | 2.36 | 3,583 | 61 | 3.42 | |||||||||||||
| PPPLF borrowings | 138,536 | 240 | 0.35 | 53,722 | 94 | 0.35 | |||||||||||||
| FHLB advances and other borrowings | 24,999 | 141 | 1.14 | 16,425 | 91 | 1.11 | |||||||||||||
| Total interest bearing liabilities | $ | 1,055,856 | $ | 2,002 | 0.38 | $ | 752,093 | $ | 3,189 | 0.85 | |||||||||
| Noninterest bearing deposits | 777,693 | 447,189 | |||||||||||||||||
| Other liabilities | 12,336 | 12,520 | |||||||||||||||||
| Total shareholders’ equity | 148,086 | 128,198 | |||||||||||||||||
| Total liabilities and shareholders’ equity | $ | 1,993,971 | $ | 1,340,000 | |||||||||||||||
| Net interest income | $ | 35,927 | $ | 25,357 | |||||||||||||||
| Interest rate spread | 3.56 | % | 3.58 | % | |||||||||||||||
| Net interest margin (3) | 3.73 | % | 3.93 | % | |||||||||||||||
| (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 | |||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||
| 2021 | 2021 | 2020 | 2020 | 2020 | |||||||||||
| Income Statement Data: | |||||||||||||||
| Interest and dividend income | $ | 19,571 | $ | 18,358 | $ | 18,098 | $ | 16,394 | $ | 15,426 | |||||
| Interest expense | 959 | 1,043 | 1,165 | 1,298 | 1,433 | ||||||||||
| Net interest income | 18,612 | 17,315 | 16,933 | 15,096 | 13,993 | ||||||||||
| Provision for loan losses | 361 | 357 | 2,600 | 2,200 | 1,930 | ||||||||||
| Net interest income after provision for loan losses | 18,251 | 16,958 | 14,333 | 12,896 | 12,063 | ||||||||||
| Noninterest income | 4,782 | 2,984 | 2,049 | 1,942 | 1,520 | ||||||||||
| Noninterest expense | 13,731 | 12,352 | 10,489 | 9,666 | 8,945 | ||||||||||
| Net income – pre-tax, pre-provision (1) | 9,663 | 7,947 | 8,493 | 7,372 | 6,568 | ||||||||||
| Provision for income tax | 2,289 | 1,572 | 1,232 | 1,082 | 967 | ||||||||||
| Net income | 7,013 | 6,018 | 4,661 | 4,090 | 3,671 | ||||||||||
| As of and for the Three Month Period | |||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||
| 2021 | 2021 | 2020 | 2020 | 2020 | |||||||||||
| Balance Sheet Data: | |||||||||||||||
| Cash and cash equivalents | $ | 282,889 | $ | 204,314 | $ | 163,117 | $ | 182,170 | $ | 174,176 | |||||
| Investment securities | 27,442 | 22,893 | 23,247 | 23,782 | 24,318 | ||||||||||
| Loans receivable | 1,658,149 | 1,766,723 | 1,547,138 | 1,509,389 | 1,447,144 | ||||||||||
| Allowance for loan losses | (19,966 | ) | (19,610 | ) | (19,262 | ) | (17,046 | ) | (14,847 | ) | |||||
| Total assets | 2,007,138 | 2,029,359 | 1,766,122 | 1,749,619 | 1,678,956 | ||||||||||
| Interest bearing deposits | 913,782 | 903,025 | 829,046 | 789,347 | 742,633 | ||||||||||
| Noninterest bearing deposits | 887,896 | 768,690 | 592,261 | 570,664 | 563,794 | ||||||||||
| Core deposits (2) | 1,724,134 | 1,590,850 | 1,328,195 | 1,270,249 | 1,212,215 | ||||||||||
| Total deposits | 1,801,678 | 1,671,715 | 1,421,307 | 1,360,011 | 1,306,427 | ||||||||||
| Total borrowings | 38,584 | 197,099 | 192,292 | 241,167 | 228,725 | ||||||||||
| Total shareholders’ equity | 154,100 | 146,739 | 140,217 | 135,232 | 130,977 | ||||||||||
| Share and Per Share Data (3): | |||||||||||||||
| Earnings per share – basic | $ | 0.59 | $ | 0.50 | $ | 0.39 | $ | 0.34 | $ | 0.31 | |||||
| Earnings per share – diluted | $ | 0.56 | $ | 0.49 | $ | 0.38 | $ | 0.34 | $ | 0.30 | |||||
| Dividends per share | – | – | – | – | – | ||||||||||
| Book value per share (4) | $ | 12.83 | $ | 12.24 | $ | 11.73 | $ | 11.34 | $ | 10.98 | |||||
| Tangible book value per share (5) | $ | 12.83 | $ | 12.24 | $ | 11.73 | $ | 11.34 | $ | 10.98 | |||||
| Weighted avg outstanding shares – basic | 11,984,927 | 11,960,772 | 11,936,289 | 11,919,850 | 11,917,394 | ||||||||||
| Weighted avg outstanding shares – diluted | 12,459,467 | 12,393,493 | 12,280,191 | 12,181,272 | 12,190,284 | ||||||||||
| Shares outstanding at end of period | 12,007,669 | 11,988,636 | 11,954,327 | 11,930,243 | 11,926,263 | ||||||||||
| Stock options outstanding at end of period | 714,620 | 728,492 | 749,397 | 769,607 | 774,587 | ||||||||||
| See footnotes on following page | |||||||||||||||
| As of and for the Three Month Period | |||||||||||||||
| June 30, | March 31, | December 31, | September 30, | June 30, | |||||||||||
| 2021 | 2021 | 2020 | 2020 | 2020 | |||||||||||
| Credit Quality Data: | |||||||||||||||
| Nonperforming assets to total assets | 0.03 | % | 0.03 | % | 0.04 | % | 0.26 | % | 0.26 | % | |||||
| Nonperforming assets to loans receivable and OREO | 0.04 | % | 0.04 | % | 0.05 | % | 0.30 | % | 0.31 | % | |||||
| Nonperforming loans to total loans receivable | 0.04 | % | 0.04 | % | 0.05 | % | 0.30 | % | 0.31 | % | |||||
| Allowance for loan losses to nonperforming loans | 3081.2 | % | 2966.7 | % | 2705.3 | % | 380.7 | % | 334.8 | % | |||||
| Allowance for loan losses to total loans receivable | 1.20 | % | 1.11 | % | 1.25 | % | 1.13 | % | 1.03 | % | |||||
| Allowance for loan losses to loans receivable, as adjusted (1) | 1.57 | % | 1.59 | % | 1.62 | % | 1.60 | % | 1.46 | % | |||||
| Gross charge-offs | $ | 12 | $ | 18 | $ | 386 | $ | 2 | $ | 13 | |||||
| Gross recoveries | $ | 7 | $ | 9 | $ | 2 | $ | 1 | $ | 5 | |||||
| Net charge-offs to average loans (6) | 0.00 | % | 0.00 | % | 0.10 | % | 0.00 | % | 0.00 | % | |||||
| Capital Ratios (7): | |||||||||||||||
| Tier 1 leverage capital | 8.00 | % | 8.62 | % | 9.05 | % | 9.20 | % | 9.38 | % | |||||
| Common equity Tier 1 risk-based capital | 10.92 | % | 10.89 | % | 11.27 | % | 12.14 | % | 12.34 | % | |||||
| Tier 1 risk-based capital | 11.16 | % | 11.15 | % | 11.55 | % | 12.45 | % | 12.67 | % | |||||
| Total risk-based capital | 13.12 | % | 13.15 | % | 13.61 | % | 14.61 | % | 14.88 | % | |||||
| (1) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release. | |||||||||||||||
| (2) Core deposits are defined as all deposits excluding brokered and all time deposits. | |||||||||||||||
| (3) Share and per share amounts are based on total common shares outstanding. | |||||||||||||||
| (4) 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 at the end of each period. | |||||||||||||||
| (5) 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 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. | |||||||||||||||
| (6) Annualized calculations. | |||||||||||||||
| (7) Capital ratios are for the Company, Coastal Financial Corporation. | |||||||||||||||
Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.
The following non-GAAP measures are presented to illustrate the impact of provision for loan losses and provision for income taxes on net income and return on average assets.
Pre-tax, pre-provision net income is a non-GAAP measure that excludes the impact of provision for loan losses and provision for income taxes from net income. The most directly comparable GAAP measure is net income.
Pre-tax, pre-provision return on average assets is a non-GAAP measure that excludes the impact of provision for loan losses and provision for income taxes from return on average assets. The most directly comparable GAAP measure is return on average assets.
Reconciliations of the GAAP and non-GAAP measures are presented below.
| As of and for the Three Months Ended | As of and for the Six Months Ended |
||||||||||||||||||||||
| (Dollars in thousands, unaudited) | June 30, 2021 |
March 31, 2021 |
December 31, 2020 |
September 30, 2020 |
June 30, 2020 |
June 30, 2021 |
June 30, 2020 |
||||||||||||||||
| Pre-tax, pre-provision net income and pre-tax, pre-provision return on average assets: | |||||||||||||||||||||||
| Total average assets | $ | 2,074,841 | $ | 1,912,202 | $ | 1,774,723 | $ | 1,704,874 | $ | 1,538,546 | $ | 1,993,971 | $ | 1,340,000 | |||||||||
| Total net income | 7,013 | 6,018 | 4,661 | 4,090 | 3,671 | 13,031 | 6,395 | ||||||||||||||||
| Plus: provision for loan losses | 361 | 357 | 2,600 | 2,200 | 1,930 | 718 | 3,508 | ||||||||||||||||
| Plus: provision for income taxes | 2,289 | 1,572 | 1,232 | 1,082 | 967 | 3,861 | 1,681 | ||||||||||||||||
| Pre-tax, pre-provision net income | $ | 9,663 | $ | 7,947 | $ | 8,493 | $ | 7,372 | $ | 6,568 | $ | 17,610 | $ | 11,584 | |||||||||
| Return on average assets | 1.36 | % | 1.28 | % | 1.04 | % | 0.95 | % | 0.96 | % | 1.31 | % | 0.96 | % | |||||||||
| Pre-tax, pre-provision return on average assets: | 1.87 | % | 1.69 | % | 1.90 | % | 1.72 | % | 1.72 | % | 1.78 | % | 1.74 | % | |||||||||
The following non-GAAP measure is presented to illustrate the impact of loan fees on contractual loan yield.
Yield on loans receivable, excluding earned fees is a non-GAAP measure that excludes the impact of earned loan fees on the contractual interest rate yield. The most directly comparable GAAP measure is yield on loans.
Reconciliations of the GAAP and non-GAAP measures are presented below.
| As of and for the Three Months Ended | As of and for the Six Months Ended |
||||||||||||||||||||||
| (Dollars in thousands, unaudited) | June 30, 2021 |
March 31, 2021 |
December 31, 2020 |
September 30, 2020 |
June 30, 2020 |
June 30, 2021 |
June 30, 2020 |
||||||||||||||||
| Yield on loans receivable, excluding earned fees : | |||||||||||||||||||||||
| Total average loans receivable | $ | 1,750,825 | $ | 1,640,108 | $ | 1,533,533 | $ | 1,493,024 | $ | 1,334,991 | $ | 1,695,772 | $ | 1,150,797 | |||||||||
| Interest and earned fee income on loans | 19,365 | 18,230 | 17,885 | 16,244 | 15,154 | 37,595 | 27,781 | ||||||||||||||||
| Less: earned fee income on all loans | (4,274 | ) | (3,974 | ) | (3,765 | ) | (2,692 | ) | (2,182 | ) | (8,248 | ) | (2,610 | ) | |||||||||
| Adjusted interest income on loans | $ | 15,091 | $ | 14,256 | $ | 14,120 | $ | 13,552 | $ | 12,972 | $ | 29,347 | $ | 25,171 | |||||||||
| Yield on loans receivable | 4.44 | % | 4.51 | % | 4.64 | % | 4.33 | % | 4.57 | % | 4.47 | % | 4.85 | % | |||||||||
| Yield on loans receivable, excluding earned fees: | 3.46 | % | 3.53 | % | 3.66 | % | 3.61 | % | 3.91 | % | 3.49 | % | 4.40 | % | |||||||||
| Yield on loans receivable, excluding earned fees and interest on PPP loans (1): | 4.42 | % | 4.52 | % | 4.65 | % | 4.69 | % | 4.84 | % | 4.47 | % | 4.96 | % | |||||||||
| (1) Non-GAAP measure – see next table of “Non-GAAP Financial Measures” for more information. | |||||||||||||||||||||||
The following non-GAAP financial measures are presented to illustrate and identify the impact of PPP loans on loans receivable related measures. By removing these items and showing what the results would have been without them, we are providing investors with the information to better compare results with periods that did not have these items. These measures include the following:
Adjusted allowance for loan losses to loans receivable is a non-GAAP measure that excludes the impact of PPP loans on balance sheet. The most directly comparable GAAP measure is allowance for loan losses to loans receivable.
Yield on loans receivable, excluding PPP loans is a non-GAAP measure that excludes the impact of PPP loans on balance sheet and income statement. The most directly comparable GAAP measure is yield on loans.
Yield on loans receivable, excluding earned fees and interest on PPP loans is a non-GAAP measure that excludes the impact of PPP loans on the balance sheet and income statement. The most directly comparable GAAP measure is yield on loans.
Adjusted Tier 1 leverage capital ratio, excluding PPP loans is a non-GAAP measure that excludes the impact of PPP loans on balance sheet. The most directly comparable GAAP measure is Tier 1 leverage capital ratio.
Reconciliations of the GAAP and non-GAAP measures are presented below.
| As of and for the | As of and for the | ||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||
| (Dollars in thousands, unaudited) | June 30, 2021 | March 31, 2021 | June 30, 2020 | June 30, 2021 | June 30, 2020 | ||||||||||||
| Adjusted allowance for loan losses to loans receivable, excluding PPP loans: | |||||||||||||||||
| Total loans, net of deferred fees | $ | 1,658,149 | $ | 1,766,723 | $ | 1,447,144 | $ | 1,658,149 | $ | 1,447,144 | |||||||
| Less: PPP loans | (398,038 | ) | (543,827 | ) | (438,077 | ) | (398,038 | ) | (438,077 | ) | |||||||
| Less: net deferred fees on PPP loans | 12,363 | 14,279 | 10,639 | 12,363 | 10,639 | ||||||||||||
| Adjusted loans, net of deferred fees | $ | 1,272,474 | $ | 1,237,175 | $ | 1,019,707 | $ | 1,272,474 | $ | 1,019,707 | |||||||
| Allowance for loan losses | $ | (19,966 | ) | $ | (19,610 | ) | $ | (14,847 | ) | $ | (19,966 | ) | $ | (14,847 | ) | ||
| Allowance for loan losses to loans receivable | 1.20 | % | 1.11 | % | 1.03 | % | 1.20 | % | 1.03 | % | |||||||
| Adjusted allowance for loan losses to loans receivable, excluding PPP loans | 1.57 | % | 1.59 | % | 1.46 | % | 1.57 | % | 1.46 | % | |||||||
| Yield on loans receivable, excluding PPP loans: | |||||||||||||||||
| Total average loans receivable | $ | 1,750,825 | $ | 1,640,108 | $ | 1,334,991 | $ | 1,695,772 | $ | 1,150,797 | |||||||
| Less: average PPP loans | (509,265 | ) | (475,941 | ) | (335,200 | ) | (492,695 | ) | (167,600 | ) | |||||||
| Plus: average deferred fees on PPP loans | 14,213 | 10,788 | 8,700 | 12,510 | 4,350 | ||||||||||||
| Adjusted total average loans receivable | $ | 1,255,773 | $ | 1,174,955 | $ | 1,008,491 | $ | 1,215,587 | $ | 987,547 | |||||||
| Interest income on loans | $ | 19,365 | $ | 18,230 | $ | 15,154 | $ | 37,595 | $ | 27,781 | |||||||
| Less: interest and deferred fee income recognized on PPP loans | (4,821 | ) | (4,378 | ) | (2,759 | ) | (9,199 | ) | (2,759 | ) | |||||||
| Adjusted interest income on loans | $ | 14,544 | $ | 13,852 | $ | 12,395 | $ | 28,396 | $ | 25,022 | |||||||
| Yield on loans receivable | 4.44 | % | 4.51 | % | 4.57 | % | 4.47 | % | 4.85 | % | |||||||
| Yield on loans receivable, excluding PPP loans: | 4.65 | % | 4.78 | % | 4.94 | % | 4.71 | % | 5.10 | % | |||||||
| Yield on loans receivable, excluding earned fees and interest on PPP loans: | |||||||||||||||||
| Total average loans receivable | $ | 1,750,825 | $ | 1,640,108 | $ | 1,334,991 | $ | 1,695,772 | $ | 1,150,797 | |||||||
| Less: average PPP loans | (509,265 | ) | (475,941 | ) | (335,200 | ) | (492,695 | ) | (167,600 | ) | |||||||
| Plus: average deferred fees on PPP loans | $ | 14,213 | $ | 10,788 | $ | 8,700 | $ | 12,510 | $ | 4,350 | |||||||
| Adjusted total average loans receivable | $ | 1,255,773 | $ | 1,174,955 | $ | 1,008,491 | $ | 1,215,587 | $ | 987,547 | |||||||
| Interest and earned fee income on loans | $ | 19,365 | $ | 18,230 | $ | 15,154 | $ | 37,595 | $ | 27,781 | |||||||
| Less: earned fee income on all loans | $ | (4,274 | ) | $ | (3,974 | ) | $ | (2,182 | ) | $ | (8,248 | ) | $ | (2,610 | ) | ||
| Less: interest income on PPP loans | (1,257 | ) | (1,169 | ) | (837 | ) | (2,426 | ) | (837 | ) | |||||||
| Adjusted interest income on loans | $ | 13,834 | $ | 13,086 | $ | 12,135 | $ | 26,921 | $ | 24,334 | |||||||
| Yield on loans receivable | 4.44 | % | 4.51 | % | 4.57 | % | 4.47 | % | 4.85 | % | |||||||
| Yield on loans receivable, excluding earned fees (1): | 3.46 | % | 3.53 | % | 3.91 | % | 3.49 | % | 4.40 | % | |||||||
| Yield on loans receivable, excluding earned fees and interest on PPP loans: | 4.42 | % | 4.52 | % | 4.84 | % | 4.47 | % | 4.96 | % | |||||||
| (1) Non-GAAP measure – see previous table of “Non-GAAP Financial Measures” for more information. | |||||||||||||||||
| (Dollars in thousands, unaudited) | As of June 30, 2021 |
As of March 31, 2021 |
|||||
| Adjusted Tier 1 leverage capital ratio, excluding PPP loans: | |||||||
| Company: | |||||||
| Tier 1 capital | $ | 157,450 | $ | 150,055 | |||
| Average assets for the leverage capital ratio | $ | 1,967,646 | $ | 1,741,666 | |||
| Less: Average PPP loans | (509,265 | ) | (475,941 | ) | |||
| Plus: Average PPPLF borrowings | 107,047 | 170,376 | |||||
| Adjusted average assets for the leverage capital ratio | $ | 1,565,428 | $ | 1,436,101 | |||
| Tier 1 leverage capital ratio | 8.00 | % | 8.62 | % | |||
| Adjusted Tier 1 leverage capital ratio, excluding PPP loans | 10.06 | % | 10.45 | % | |||
| Bank: | |||||||
| Tier 1 capital | $ | 161,368 | $ | 153,844 | |||
| Average assets for the leverage capital ratio | $ | 1,966,528 | $ | 1,740,660 | |||
| Less: Average PPP loans | (509,265 | ) | (475,941 | ) | |||
| Plus: Average PPPLF borrowings | 107,047 | 170,376 | |||||
| Adjusted average assets for the leverage capital ratio | $ | 1,564,310 | $ | 1,435,095 | |||
| Tier 1 leverage capital ratio | 8.21 | % | 8.84 | % | |||
| Adjusted Tier 1 leverage capital ratio, excluding PPP loans | 10.32 | % | 10.72 | % | |||
APPENDIX A –
As of June 30, 2021
Industry Concentration
We have a diversified loan portfolio, representing a wide variety of industries. Three of our largest categories of our loans are commercial real estate, commercial and industrial, and construction, land and land development loans. Together they represent $1.13 billion in outstanding loan balances, or 88.2% of total gross loans outstanding, excluding PPP loans of $398.0 million. When combined with $544.1 million in unused commitments the total of these three categories is $1.62 billion, or 88.8% of total outstanding loans and loan commitments.
Commercial real estate loans represent the largest segment of our loans, comprising 63.3% of our total balance of outstanding loans, excluding PPP loans, as of June 30, 2021. Unused commitments to extend credit represents an additional $18.2 million, the combined total exposure in commercial real estate loans represents $825.9 million, or 45.4% of our total outstanding loans and loan commitments, excluding PPP loans.
The following table summarizes our exposure by industry for our commercial real estate portfolio as of June 30, 2021:
| (Dollars in thousands, unaudited) | Outstanding Balance | Available Loan Commitments | Total Exposure | % of Total Loans (Outstanding Balance & Available Commitment) |
Average Loan Balance | Number of Loans | ||||||||||||||||||
| Apartments | $ | 124,057 | $ | 2,466 | $ | 126,523 | 6.9 | % | $ | 1,676 | 74 | |||||||||||||
| Hotel/Motel | 111,831 | 228 | 112,059 | 6.2 | 4,301 | 26 | ||||||||||||||||||
| Office | 91,200 | 3,218 | 94,418 | 5.2 | 970 | 94 | ||||||||||||||||||
| Retail | 83,957 | 2,630 | 86,587 | 4.8 | 1,012 | 83 | ||||||||||||||||||
| Warehouse | 74,164 | 1,480 | 75,644 | 4.2 | 1,514 | 49 | ||||||||||||||||||
| Convenience Store | 73,584 | 1,093 | 74,677 | 4.1 | 1,795 | 41 | ||||||||||||||||||
| Mixed use | 69,092 | 1,717 | 70,809 | 3.9 | 823 | 84 | ||||||||||||||||||
| Mini Storage | 44,085 | 174 | 44,259 | 2.4 | 2,755 | 16 | ||||||||||||||||||
| Manufacturing | 38,165 | 600 | 38,765 | 2.1 | 1,123 | 34 | ||||||||||||||||||
| Groups < 2.0% of total | 97,576 | 4,577 | 102,153 | 5.6 | 1,267 | 77 | ||||||||||||||||||
| Total | $ | 807,711 | $ | 18,183 | $ | 825,894 | 45.4 | % | $ | 1,397 | 578 | |||||||||||||
Commercial and industrial loans comprise 15.8% of our total balance of outstanding loans, excluding PPP loans, as of June 30, 2021. Unused commitments to extend credit represents an additional $347.1 million, the combined total exposure in commercial and industrial loans represents $548.8 million, or 30.1% of our total outstanding loans and loan commitments, excluding PPP loans.
The following table summarizes our exposure by industry, excluding PPP loans, for our commercial and industrial loan portfolio as of June 30, 2021:
| (Dollars in thousands, unaudited) | Outstanding Balance | Available Loan Commitments | Total Exposure | % of Total Loans (Outstanding Balance & Available Commitment) |
Average Loan Balance | Number of Loans | ||||||||||||||||||
| Capital Call Lines | $ | 98,905 | $ | 286,775 | $ | 385,680 | 21.2 | % | $ | 1,124 | 88 | |||||||||||||
| Construction/Contractor Services |
13,930 | 25,222 | 39,152 | 2.2 | 92 | 152 | ||||||||||||||||||
| Financial Institutions | 20,150 | – | 20,150 | 1.1 | 3,358 | 6 | ||||||||||||||||||
| Manufacturing | 10,939 | 6,699 | 17,638 | 1.0 | 185 | 59 | ||||||||||||||||||
| Medical / Dental / Other Care | 10,386 | 4,153 | 14,539 | 0.8 | 185 | 56 | ||||||||||||||||||
| Retail | 7,793 | 4,710 | 12,503 | 0.7 | 312 | 25 | ||||||||||||||||||
| Groups < 0.70% of total | 39,577 | 19,549 | 59,126 | 3.2 | 141 | 281 | ||||||||||||||||||
| Total | $ | 201,680 | $ | 347,108 | $ | 548,788 | 30.1 | % | $ | 302 | 667 | |||||||||||||
Construction, land and land development loans comprise 9.1% of our total balance of outstanding loans, excluding PPP loans, as of June 30, 2021. Unused commitments to extend credit represents an additional $125.8 million, the combined total exposure in construction, land and land development loans represents $242.6 million, or 13.3% of our total outstanding loans and loan commitments, excluding PPP loans.
The following table details our exposure for our construction, land and land development portfolio as of June 30, 2021:
| (Dollars in thousands, unaudited) | Outstanding Balance | Available Loan Commitments | Total Exposure | % of Total Loans (Outstanding Balance & Available Commitment) |
Average Loan Balance | Number of Loans | ||||||||||||||||||
| Commercial construction | $ | 65,895 | $ | 106,626 | $ | 172,521 | 9.5 | % | $ | 2,126 | 31 | |||||||||||||
| Residential construction | 17,685 | 15,640 | 33,325 | 1.8 | 680 | 26 | ||||||||||||||||||
| Land development | 13,626 | 1,963 | 15,589 | 0.9 | 852 | 16 | ||||||||||||||||||
| Developed land loans | 14,221 | 1,598 | 15,819 | 0.9 | 474 | 30 | ||||||||||||||||||
| Undeveloped land loans | 5,306 | – | 5,306 | 0.3 | 379 | 14 | ||||||||||||||||||
| Total | $ | 116,733 | $ | 125,827 | $ | 242,560 | 13.3 | % | $ | 998 | 117 | |||||||||||||