Coastal Carolina Bancshares, Inc. Reports Second Quarter Earnings
Myrtle Beach, South Carolina – July 29, 2020 – Today, Coastal Carolina Bancshares, Inc. (the “Company”) (OTCQX: CCNB), parent of Coastal Carolina National Bank (“Bank”), reported unaudited financial results for the second quarter of 2020. The Company reported net income of $1,441,677 or $.23 cents per share for the six months ended June 30, 2020, compared to $1,125,445 or $.18 cents per share, for the same period ended June 30, 2019, representing a 28% increase. Net income for the three months ended June 30, 2020, was $678,943 or $.11 cents per share, compared to $638,547 or $.10 cents per share for the same period one year ago.
2020 Second Quarter Financial Highlights
- Year-to-date and quarter-to-date net income of $1,441,677 and $678,943, respectively
- Quarter to date pre-tax pre-provision earnings of $1.6 million representing an increase of 78% when compared to the same period in the prior year
- Total Assets increased 15% during the quarter and 24% year-to-date to $551 million at June 30, 2020
- Total Deposits increased 14% during the quarter and 26% year-to-date to $484 million at June 30, 2020
- Total Loans increased 7% during the quarter and 12% year-to-date to $396 million at June 30, 2020
- 275 PPP (Payroll Protection Program) loans funded totaling $26 million
“As we report our second quarter 2020 results, we continue to be focused on the COVID-19 pandemic and how it has impacted the lives of our team and our customers. We are pleased with our strong second quarter 2020 results, which included a 6% increase in net income as compared to the same quarter in 2019 and a 28% increase for the six months ended June 30, 2020, when compared to the same period last year. We continue to demonstrate solid growth metrics in Total Assets, Total Deposits, and Total Loans, despite operating in these unprecedented times. Also, while our loan portfolio continues to perform very well, we increased our loan loss provision in advance of any potential credit losses we may see in our loan portfolio as a result of the COVID-19 pandemic.
As a community bank, we worked with our commercial customers to provide $26 million in PPP loans and also provided short-term payment deferrals for borrowers who could not meet their payment obligations as a result of the pandemic. We have positioned our balance sheet to handle the challenges of the COVID-19 pandemic on our company while continuing to demonstrate the consistent ability to grow our franchise. We are so thankful for the tremendous commitment of our employees to continue serving our customers during this very challenging environment. Despite the pandemic, our team continues to exemplify a ‘We Can Do That’ spirit while meeting customer needs and keeping clients informed during the ever-changing times,” says Laurence S. Bolchoz, Jr., President and Chief Executive Officer of the Company and the Bank.
The Company and Bank continued to increase capital during the second quarter of 2020 through retained earnings and the issuance of subordinated debt, resulting in Bank regulatory capital ratios that exceed the minimums to be considered well-capitalized based on the regulatory definition. At June 30, 2020, the Bank’s regulatory capital ratios (Leverage, Tier 1, and Total Risk-Based) were 9.24%, 12.01%, and 13.00%, respectively.
The Company issued $10 million of subordinated debt securities in April 2020. The debt securities bear interest at a fixed rate of 5.875% for five years from the date of issuance, after which they will bear interest at a floating rate and are redeemable at the option of the Company, subject to applicable regulatory requirements.
Balance Sheet and Credit Quality
Total Assets grew 15% to $551 million at June 30, 2020, compared to $479 million at March 31, 2020, and 24% year-to-date. Asset growth consisted primarily of increased loan balances and investment securities. Total loans increased by $27 million during the quarter, and $43 million year-to-date to $396 million at quarter end. Securities increased from $32 million at March 31, 2020 to $65 million at June 30, 2020.
Second quarter loan growth was concentrated primarily in PPP loan originations of $26 million. As a community bank, CCNB was proud to support our local community and small businesses by funding 275 PPP loans totaling $26 million. These loans remain on the Bank’s balance sheet as forgiveness procedures continue to evolve. We anticipate a significant reduction in PPP loan balances over the remainder of the year as the SBA’s forgiveness process materializes.
The Bank continues to fund its growth primarily through local core deposits. Total deposits grew 14% to $484 million at June 30, 2020, compared to $424 million at March 31, 2020, and 26% year-to-date. Bank-level checking and savings account balances increased by $43 million to $162 million during the quarter. The Bank is experiencing a positive shift in its deposit mix as checking and savings accounts represented 34% of the Bank’s total deposit balances at quarter end. In addition to the Bank’s continued focus on core deposit gathering, deposit balance increases were impacted by the retention of a portion of the Bank’s PPP funding. General market conditions, including government stimulus and seasonality, also contributed to the Bank’s deposit growth.
The Bank’s asset quality metrics continued to hold strong at the end of the second quarter. The Bank’s non-performing asset ratio as of June 30, 2020, was 0.32%, excluding TDRs and 0.50% with the inclusion of performing TDRs. Additionally, the Bank has no outstanding OREO property.
Due to the statewide “Stay at Home” order and other disruptions caused by COVID-19, the Bank demonstrated its support for its local communities by proactively offering temporary deferral and forbearance programs to customers who were, or expected to be, negatively impacted by the pandemic. Deferral requests (or interest only payment relief) were granted on loans totaling $78 million, which represented approximately 20% of the Bank’s loan portfolio. At quarter end June 30, 2020, loan balances representing 13% of the loan portfolio remained in their initial deferral period. As of July 24, 2020 loans on deferral decreased to 3.7% of June 30, 2020 loan totals. Of the remaining deferral balances $4 million, or 1% of total loans, have requested and received an extension to their initial deferral period.
Net Interest Income
Net interest income increased 23% to $4.3 million for the quarter ended June 30, 2020, compared to $3.5 million for the prior year’s second quarter ended June 30, 2019. Net interest income increased 12% when compared to $3.9 million reported during the most recent quarter ended March 31, 2020. Second quarter net interest income was buoyed by PPP income recognized during the quarter of $330 thousand and an increase in loan mark accretion of $118 thousand when compared to the most recent linked quarter.
The Bank’s year to date net interest margin was 3.65% at June 30, 2020, compared to 3.63% at March 31, 2020. The increase in margin primarily resulted from the positive impact of PPP fee recognition and increased loan mark accretion in addition to the Bank’s declining cost of deposits.
These positive impacts were largely offset by reductions in average loan yields and yields on liquid assets. Declining asset yields resulted primarily from the Federal Reserve rate decreases during the latter part of 2019 and first quarter of 2020. The Federal Reserve’s target rate was reduced by 1.50% during March 2020 in response to the COVID-19 pandemic. Loan yields are also negatively impacted by low yielding PPP loan balances.
First-quarter noninterest income of $868 thousand increased by $302 thousand over the first quarter of 2020 which represents a 53% increase on a linked quarter basis. Noninterest income increased by $378 thousand or 77% when compared to the first quarter of 2019. The primary driver of this increase was an improvement in gain on sale of mortgage loans, which increased by $303 thousand when compared to the prior quarter, and $336 thousand when compared to the same quarter in 2019. The declining mortgage rate environment has resulted in increased refinance volume, which bolstered the existing strong mortgage pipeline resulting in record mortgage revenues for the Bank.
Noninterest expense totaled $3.6 million for the quarter ended June 30, 2020, compared to $3.1 million for the comparative quarter ended June 30, 2019, and $3.2 million for the quarter ended March 31, 2020. Increases resulted primarily from increased salaries and employee benefits, professional service expenses resulting from the subordinated debt issuance, and data processing costs.
Provision for Loan Losses
The effects of COVID-19 and related mandatory shutdowns continue to impact the communities we serve creating continued uncertainty regarding future credit losses. While our asset quality metrics remain solid, and we are encouraged by the positive trends in our deferrals (as indicated in the credit quality section above), the Bank felt it was prudent to increase loan loss reserves to reflect the level of uncertainty in the economic climate.
During the quarter, the Bank recorded provision expense of $770,000 compared to $92,000 in the same quarter last year. The Bank has contributed $985,000 year-to-date compared to $257,000 during the first six months of 2019. The Bank’s loan loss reserves to gross loans have increased from 0.81% at year-end 2019 to 0.96% at June 30, 2020. The Bank’s loan loss reserves to total loans requiring reserve (excludes loans held for sale, government guaranteed and cash secured loans) have increased from 0.89% at year-end 2019 to 1.06% at June 30, 2020.
We will continue to monitor local market and portfolio level data to identify negative impacts on the performance of our loan portfolio caused by the pandemic. As the Bank recognizes the need for an increased allowance for loan losses, provisions will be made accordingly.
About Coastal Carolina Bancshares, Inc. Coastal Carolina Bancshares, Inc. is the Bank holding Company of Coastal Carolina National Bank, a Myrtle Beach-based community bank serving Horry, Georgetown, Aiken, Richland, Greenville, Spartanburg, and Brunswick (NC) counties. Coastal Carolina National Bank is a locally operated financial institution focused on providing personalized service. It offers a full range of banking services designed to meet the specific needs of individuals and small and medium-sized businesses. Headquartered in Myrtle Beach, SC, the Bank also has branches in Garden City, North Myrtle Beach, Conway, Aiken, Columbia, and Greenville, as well as a Loan Production Office in Spartanburg, South Carolina. Through the substantial experience of our local management and Board of Directors, Coastal Carolina Bancshares, Inc. seeks to enhance value for our shareholders, build lasting customer relationships, benefit our communities and give our employees a meaningful career opportunity.
Forward-Looking Statements Except for historical information, all of the statements, expectations, and assumptions contained in this press release are forward-looking statements. Actual results might differ materially from those explicit or implicit in the forward-looking statements. Important factors that could cause actual results to differ materially include, without limitation: the effects of future economic conditions; governmental fiscal and monetary policies; legislative and regulatory changes; the risks of changes in interest rates; successful merger integration; management of growth; fluctuations in our financial results; reliance on key personnel; our ability to compete effectively; privacy, security and other risks associated with our business. Coastal Carolina Bancshares, Inc. assumes no obligation and does not intend to update these forward-looking statements, except as required by law.
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