Coastal Carolina Bancshares, Inc. Reports Strong Third Quarter Earnings
Myrtle Beach, South Carolina – October 27, 2020 – Today, Coastal Carolina Bancshares, Inc. (the “Company”) (OTCQX: CCNB), parent of Coastal Carolina National Bank (the “Bank”), reported unaudited financial results for the third quarter of 2020. The Company reported net income of $2,475,101 or $.40 cents per share for the nine months ended September 30, 2020, compared to $1,925,269 or $.31 cents per share, for the same period ended September 30, 2019, representing a 29% increase. Net income for the three months ended September 30, 2020, was $1,033,424 or $.17 cents per share which represents a 52% increase over prior quarter income of $678,943 and a 29% increase over quarterly net income of $799,824 for the same period one year ago.
2020 YTD Financial Highlights
- Year-to-date net income of $2,475,101
- Year-to-date pre-tax pre-provision earnings of $4.5 million representing an increase of 59%, when compared to the prior year
- Total Assets increased 29% year-to-date to $576 million at September 30, 2020
- Total Deposits increased by 32% year-to-date to $507 million at September 30, 2020
- Total Loans increased 17% year-to-date to $414 million at September 30, 2020
“As we report our third 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. The past nine months have been challenging as we have operated in unprecedented times under significant pressure. That being said, we are pleased with our strong YTD 2020 results, which included a 29% increase in Net Income when compared to the same nine months last year in addition to recording double digit growth in Total Assets, Total Deposits and Total Loans. We previously reported last quarter that in order to assist our loan customers who have been severely impacted by COVID-19 we executed 90 day payment deferrals for loans totaling approximately $79 Million or approximately 20% of our loan portfolio. We are pleased to report that pandemic related payment deferrals decreased to $13 million or approximately 3% of our loan portfolio as of September 30, 2020. While our loan portfolio continues to perform very well in this challenging environment, we have continued to increase our loan loss reserve in advance of any potential credit losses we may see in our loan portfolio as a result of the COVID-19 pandemic. While we remain cautiously optimistic about the financial recovery, we continue to position our balance sheet proactively for potential deterioration that may occur as a result of an extended pandemic which remains unknown at this time.” says Laurence S. Bolchoz, Jr., President and Chief Executive Officer of the Company and the Bank.
The Company and Bank continued to increase capital through retained earnings during the second quarter of 2020, resulting in Bank capital ratios that exceed the regulatory minimums to be considered well-capitalized. At September 30, 2020, the Bank’s regulatory capital ratios (Leverage, Tier 1, and Total Risk-Based) were 8.71%, 11.72%, and 12.69%, respectively.
Balance Sheet and Credit Quality
Total Assets grew 4% to $576 million at September 30, 2020, compared to $551 million at June 30, 2020, and 29% year-to-date. Total loans increased by $18 million during the quarter to $414 million at September 30, 2020. This quarterly increase represents an annualized growth rate of 18%. Loan growth totaled $60 million year-to-date bolstered by Payroll Protection Program (PPP) loan originations of $26 million. Excluding PPP loans, year to date loan growth was $34 million which represents a 13% annualized growth rate.
As previously disclosed, the Bank originated approximately $26 million in PPP loans in the second quarter, and these balances remain on Bank’s balance sheet as of quarter end September 30, 2020. In October, the Small Business Administration (SBA) issued additional guidance relative to loan forgiveness, and provided a simplified loan forgiveness application for PPP loans of $50,000 or less. This change impacts approximately 161 or 58% of the Bank’s 280 PPP loans. The Bank is currently in the initial stages of working through the forgiveness process with its customers, and anticipates that the majority of loan forgiveness will occur over the final quarter of 2020 and into the first half of 2021.
The Bank experienced continued deposit growth during the quarter, reporting $507 million in total deposits on September 30, 2020, compared to $484 million at June 30, 2020, and $385 million at December 31, 2019. Deposits increased 4% over the most recent linked quarter, and 32% year to date. The Bank has experienced a positive shift in its deposit mix over the year as checking and savings accounts represented 33% of the Bank’s total deposit balances at quarter end versus 27% at year-end 2019. The Bank has achieved record deposit growth without significant increases in higher cost time deposits. Time deposit balances have remained relatively flat for the year with quarter end balances of $139 million compared to total time deposit balances of $140 million at year end 2019.
The Bank continues to demonstrate strong asset quality metrics through the third quarter of 2020. The Bank’s non-performing asset ratio as of September 30, 2020 decreased to 0.16% excluding TDRs and 0.34% with the inclusion of performing TDRs. Additionally, the Bank has no outstanding OREO property. The Bank had one charge-off during the quarter of approximately $294 thousand. The related loan was obtained through a prior acquisition and was included in the Bank’s non-performing assets with an allocated specific reserve of approximately 75% of the ultimate charge off prior to the start of fiscal year 2020. The charge-off was unrelated to the current pandemic, and was specifically reserved in full prior to start of the third quarter. As a result, this charge-off had no direct impact on the Bank’s third quarter provision for loan losses.
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. During the second quarter of 2020, 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 June 30, 2020, loan balances representing 13% of the loan portfolio remained in their initial deferral period. At quarter end September 30, 2020, total deferrals had decreased to $13.7 million or approximately 3% of the Bank’s quarter end loan portfolio.
As of October 15, 2020 loans on deferral decreased further to $9.9 million or approximately 2% of September 30, 2020 loan totals. Of the remaining deferral balances approximately $7 million have requested and received relief beyond their initial deferral period.
Net Interest Income
Net interest income increased 21% to $4.4 million for the quarter ended September 30, 2020, compared to $3.6 million for the prior year’s third quarter ended September 30, 2019. Net interest income increased 2% when compared to $4.3 million reported during the most recent quarter ended June 30, 2020.
The Bank’s quarterly net interest margin was 3.44% for the quarter ended September 30, 2020, compared to 3.66% for the quarter ended June 30, 2020, and 3.62% for the quarter ended September 30, 2019. The linked quarter decrease in margin is largely attributable to decreased purchase accounting accretion and decreased PPP fee recognition in the third quarter, while the decreased margin year over year illustrates the changing interest rate environment as a result of 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.
Asset yields have decreased as rate sensitive assets reprice and the Bank holds higher levels of liquidity post pandemic. The impact of asset yield reduction has been partially offset by the Bank’s decreasing cost of funds resulting from reduced deposit pricing. The Bank’s quarterly cost of funds was 0.72% for the quarter ended September 30, 2020, compared to 0.88% for the quarter ended June 30, 2020, and 1.19% for the quarter ended September 30, 2019.
Third-quarter noninterest income of $1,148 thousand increased by $280 thousand over the second quarter of 2020 which represents a 32% increase on a linked quarter basis. Noninterest income increased by $679 thousand or 145% when compared to the third quarter of 2019. The primary driver of the increase in noninterest income was the improvement in gain on sale of mortgage loans. Third quarter revenues from the gain on sale of mortgage loans were $947 thousand, which represents an increase of $297 thousand when compared to the prior quarter, and $657 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 equating to record mortgage revenues for the Bank. The Bank has also added mortgage sales and operations staff to help capture opportunities in the mortgage market.
Noninterest expense totaled $3.8 million for the quarter ended September 30, 2020, compared to $3.6 million for the prior quarter ended June 30, 2020, and $2.9 million for the comparative quarter ended September 30, 2019. Increases resulted primarily from increased salaries and employee benefits largely impacted by mortgage compensation expense. Additional noninterest expense increases resulted from professional service expenses related to the Company’s subordinated debt issuance, increased FDIC insurance expenses and increased data processing costs.
Provision for Loan Losses
As indicated in the credit quality section above, the Bank’s asset quality metrics remain solid, and the Bank has demonstrated encouraging trends in loan deferrals which decreased from 13% of the total loan portfolio at June 30, 2020 to 2% at October 15, 2020. However, the COVID-19 pandemic and related mandatory shutdowns continue to impact the nation and the communities we serve, creating continued uncertainty regarding future credit losses. As a result, the Bank continues to position its balance sheet for the uncertainty in the current economic climate.
During the quarter, the Bank recorded provision expense of $405,000 compared to $139,000 in the same quarter last year. The Bank has contributed $1,390,000 year-to-date compared to $397,000 during the first nine months of 2019. The Bank’s loan loss reserves to total loans have increased from 0.82% at year-end 2019 to 0.96% at September 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 1.05% at September 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. To learn more about the Company and its subsidiary bank, please visit our website at www.myccnb.com.
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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