Market Overview

Coastal Banking Company Reports First Quarter 2017 Earnings

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BEAUFORT, SC / ACCESSWIRE / May 2, 2017 / Coastal Banking Company Inc. (OTCQX: CBCO), the holding company of CBC National Bank, which operates branches in Beaufort and Port Royal, S.C., and in Fernandina Beach, Ocala, and The Villages, Fla., today reported net income of $1.45 million, or $0.38 diluted earnings per common share, for the three months ended March 31, 2017. This compares to $1.22 million, or $0.44 in diluted earnings per common share, for the first quarter of 2016, an increase of $230,000. The decline in diluted earnings per common share was due to the additional common shares issued in April 2016 for the acquisition of First Avenue National Bank (FANB) in Ocala, Fla.

On a linked-quarter basis, the $1.45 million of net income in the first quarter of 2017 declined from fourth-quarter 2016 net income of $2.21 million, or $0.59 diluted earnings per common share. Coupled with the uncertainty surrounding interest rates in the first quarter of 2017, Coastal's mortgage segment historically experiences lower volume during the first quarter consistent with the industry.

Key performance highlights for the first quarter of 2017 include:

  • Continued strong profitability. First-quarter 2017 net income increased by 18.9 percent over the first quarter of 2016. First quarter results featured more balanced net income for all three of the Company's operating segments: Community Banking earned $812,000 in 2017's first quarter, up from $528,000 in 2016, SBA Lending earned $638,000 in 2017, up from $354,000 earned in 2016, and Mortgage Banking earned $574,000 in 2017, down from $760,000 in 2016. All three segments outperformed the Company's 2017 budget for the first quarter.
  • Continued shareholder value creation. Driven by strong earnings over the last five quarters, book value per share has risen to $14.58 per share at March 31, 2017, from $14.18 per share at Dec. 31, 2016, and $12.88 at March 31, 2016. The CBCO closing market price on March 31, 2017, was $17.20, up from $15.01 at Dec. 31, 2016.
  • Increased mortgage banking income on lower volume. For the first quarter of 2017, $346.6 million in residential mortgage loans were sold and $3.41 million in total mortgage banking income generated, down in volume from $379.7 million, but up in income from $2.93 million, from the first quarter of 2016. Mortgage banking generated enhanced yields on sold loans in first-quarter 2017 compared to the same period in 2016 as a result of strategic changes in its loan origination mix.
  • Strong SBA originations and loan sales. For the first quarter of 2017, SBA Lending originated $10.3 million in loans and sold $8.9 million into the secondary market. The balance of SBA loans available for sale at March 31, 2017, has grown to $38 million.
  • Robust balance sheet and Community Banking loan growth. Year-over-year growth in the balance sheet of $87.8 million, or 18.5 percent, with total assets of $562.6 million at March 31, 2017. The asset growth was driven by increased portfolio loan balances and the FANB acquisition. Since March 31, 2016, SBA portfolio loans grew $8.2 million and Community Banking portfolio loans grew $95.2 million, of which $81.4 million were added as part of the acquisition. The growth in portfolio loans was offset by a decline in loans held for sale of $28.5 million from March 31, 2016, to March 31, 2017.
  • Strong quarterly and year-over-year deposit growth. Deposits have grown from $319.8 million at March 31, 2016, to $431.7 million at March 31, 2017, an increase of 35.0 percent. During the first quarter of 2017, deposits grew by $14.4 million, predominantly in non-interest bearing and low-cost NOW accounts.
  • Steady credit quality. Related to credit quality, the ratio of non-performing assets to assets decreased from 1.73 percent at March 31, 2016, to 1.50 percent at March 31, 2017. The ratio was 1.98 percent at Dec. 31, 2016. The allowance for loan losses was 1.39 percent of loans outstanding (excluding loans held for sale) at the end of March 2017, slightly down from 1.48 percent at the end of March 2016. The allowance for loan losses was 1.47 percent at Dec. 31, 2016. Other real estate owned (OREO) declined $1.3 million, or 21.2 percent, from March 31, 2016, to March 31, 2017. Net charge-offs were $667,000 for the first three months of 2017 compared to net charge-offs of $869,000 for the first three months in 2016.
  • Strong capital ratios. Capital ratios for the Company remained strong, with a total risk-based capital ratio of 20.83 percent and a Tier 1 risk-based capital ratio of 19.56 percent at March 31, 2017, up from 20.11 percent and 19.21 percent, respectively, at March 31, 2016.
  • Continued steady efficiency ratio. The Company's efficiency ratio for the first quarter of 2017 was 73.2 percent, compared to 74.3 percent for first-quarter 2016. The Company's efficiency ratio for the year 2016 was 70.5 percent.

"We continue to see stable, strong, diversified earnings driving robust shareholder value creation," said Michael G. Sanchez, Chairman and Chief Executive Officer. "Book value per share has risen to $14.58 per share at March 31, 2017, from $12.88 at March 31, 2016, an increase of $1.70 per share, or 13.2 percent. It is gratifying to see the continued progress toward a balanced contribution to core earnings from all three of our Company's divisions. Community Banking earned $812,000 in the first quarter of 2017, as we continue to see our Company strengthened by the acquisition of First Avenue National Bank. The balance sheet has shown year-over-year growth of $87.8 million, or 18.5 percent. And through a combination of the acquisition and organic growth, deposits have increased $111.9 million year over year, an increase of 35.0 percent. During the first quarter of 2017, deposits grew by $14.4 million, predominantly in non-interest bearing, low-cost NOW accounts. Mortgage Banking earned $574,000 in the first quarter of 2017 in an uncertain interest rate environment that has now shown signs of stabilizing. The Mortgage division has also made a strategic shift to diversify production more evenly between government-backed and conventional loans. SBA Lending earned $638,000 during the quarter, a direct result of increasing secondary market sales. Portfolio loan balances have increased 10 percent over first-quarter 2016, enhancing interest income. We are now realizing the rewards of our strategic plan by growing our SBA portfolio, which allows us to build loans available for sale (AFS) inventory while also generating interest income. During the quarter, SBA originations continued to outpace SBA loan sales, providing $38 million in AFS inventory, a ready tool to help maintain steady earnings."

For the three months ended March 31, 2017, net interest income before the provision for loan losses was $5.11 million, an increase of 29.6 percent, from the $3.94 million for the first three months of 2016. The first-quarter increase was due to the acquisition of FANB, increased yields and growth in portfolio loans. The Company's net interest margin increased from 3.89 percent for the three months ended March 31, 2016, to 4.16 percent for the same period in 2017.

Noninterest income was $4.77 million for the first quarter of 2017, compared to $3.70 million for the first quarter of 2016. The increase was due primarily to an increase in both mortgage banking income and SBA loan income. Additionally, service charges and other income increased year over year primarily due to the FANB acquisition.

For the first quarter of 2017, noninterest expense was $7.23 million, an increase of 27.3 percent, from the $5.68 million for the first quarter of 2016. This increase reflects an increase of $1.02 million in salary and benefit expense primarily from the additional staff from the FANB branches added. Additionally, there was an increase of $530,000 of all other operating expense categories in 2017, again primarily as a result of the FANB acquisition.

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

"As we continue to see more balanced core earnings contributions from all three of our Company's divisions, our steady earnings continue to result in strong shareholder value creation," said Sanchez. "The FANB acquisition has helped strengthen our balance sheet, grow deposits and add management and employee depth. We will maintain our focus on strong profitability across our divisions while remaining vigilant on expense control, asset and loan quality. We maintain full confidence in the capabilities of our talented staff and management to continue to successfully execute our operating strategy, and to continue to deliver strong shareholder value growth in 2017."

About Coastal Banking Company Inc.

Coastal Banking Company Inc. is the $562.6 million-asset bank holding company of CBC National Bank, headquartered in Fernandina Beach, Fla., which provides a full range of consumer and business banking services through full-service banking offices in Fernandina Beach, Ocala, and The Villages, Fla, and Beaufort and Port Royal, S.C. The company's residential mortgage banking division, headquartered in Atlanta, includes traditional retail and wholesale lending, as well as a national retail group that has lending offices in Florida, Georgia, Maryland, Michigan, North Carolina, Illinois, Ohio and Tennessee. The company's SBA lending division originates SBA loans primarily in Jacksonville, Ft. Myers, Tampa and Vero Beach, Fla., Greensboro, N.C., Atlanta, and Beaufort.

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

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

For complete audited annual financial results, click here.

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

FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK FACTORS

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

For More Information, Contact:

Thomas J. Flournoy

EVP & Chief Financial Officer

Coastal Banking Company Inc.

904-321-2917

Michael G. Sanchez

Chairman & Chief Executive Officer

Coastal Banking Company Inc.

904-321-0400

Coastal Banking Company

Consolidated Balance Sheet

March 31, 2017

3/31/2017 QTD
3/31/2016 QTD
12/31/2016
Consolidated
Consolidated
Consolidated
Assets
Cash and due from banks
$ 9,587,795 $ 6,145,349 $ 7,956,004
Federal funds sold
184,588 106,930 387,123
Investment securities
29,833,319 25,637,363 24,760,056
Loans held for sale
95,845,656 124,355,880 92,009,241
Loans, gross
403,081,514 298,261,921 408,743,325
Less allowance
(5,618,072 ) (4,418,991 ) (5,990,733 )
Loans, net
397,463,442 293,842,930 402,752,592
Premises and equipment, net
13,479,317 7,184,570 13,604,166
Accrued interest receivable
1,185,415 864,917 1,242,703
Other real estate owned
4,956,572 6,292,050 5,061,661
Other assets
10,032,622 10,330,843 13,615,180
Total assets
$ 562,568,726 $ 474,760,832 $ 561,388,726
Liabilities
DDA - non interest bearing
$ 82,424,329 $ 43,879,074 $ 77,603,027
Interest bearing DDA
178,010,237 127,858,006 174,112,178
Savings
16,767,772 5,262,299 15,618,336
Time
154,522,728 142,768,113 149,983,376
Total deposits
431,725,066 319,767,492 417,316,917
FHLB Advances & other borrowings
53,582,881 91,001,004 63,060,005
Senior Note Payable
8,666,667 9,666,667 8,916,667
Junior subordinated debentures
7,217,000 7,217,000 7,217,000
Accrued interest payable
243,636 207,547 198,018
Other liabilities
7,620,401 12,147,715 12,964,827
Total liabilities
509,055,651 440,007,425 509,673,434
Stockholders' equity
Common stock
36,702 26,983 36,475
Additional paid-in-capital
53,689,837 41,904,148 53,354,381
Retained earnings
(421,768 ) (7,608,044 ) (1,870,202 )
Net unrealized gain (loss) - securities AFS
208,304 430,320 194,638
Total stockholders' equity
53,513,075 34,753,407 51,715,292
Total liabilities and stockholders' equity
$ 562,568,726 $ 474,760,832 $ 561,388,726

CBC Bank Only

Consolidated Income Statement

March 31, 2017

3/31/2017 QTD
3/31/2016 QTD
12/31/2016 YTD
Consolidated
Consolidated
Consolidated
Interest Income:
Loans
$ 5,814,891 $ 4,508,908 $ 22,709,121
Securities
206,177 193,701 805,347
Interest on Deposits
1,067 4,442 14,771
Federal funds sold
44,436 345 12,764
Total interest income
6,066,571 4,707,396 23,542,003
Interest Expense:
Deposits
677,016 411,921 2,422,894
Other
281,631 355,151 1,625,529
Total interest expense
958,647 767,072 4,048,423
Net interest income before provision for loan losses
5,107,924 3,940,324 19,493,580
Provision for loan losses
294,836 33,409 1,450,061
Net interest income after provision for loan losses
4,813,088 3,906,915 18,043,519
Operating income:
Service charges on deposits
241,869 127,363 860,338
Mortgage banking income
3,407,778 2,929,058 18,225,244
SBA loan income
1,025,043 580,146 1,962,023
Gain on sale of securities
- - 18,373
Increase in cash surrender value of life insurance
19,878 21,666 83,584
Other income
76,586 38,206 1,536,287
Total operating income
4,771,154 3,696,439 22,685,849
Operating expenses:
Salaries and benefits
4,617,769 3,599,239 17,373,369
Net occupancy and equipment expense
781,908 579,243 3,147,188
Other operating expense
1,826,455 1,498,960 9,222,448
7,226,132 5,677,442 29,743,005
Income before provision for income taxes
2,358,110 1,925,912 10,986,363
Provision for income taxes
909,676 707,968 4,030,577
Net income
$ 1,448,434 $ 1,217,944 $ 6,955,786

Coastal Banking Company

Consolidated Financial Highlights

March 31, 2017

3/31/2017 QTD
3/31/2016 QTD
12/31/2016 YTD
Consolidated
Consolidated
Consolidated
$ Earnings
Net interest income
$ 5,107,924 $ 3,940,324 $ 19,493,580
Provision for loan loss
$ 294,836 $ 33,409 $ 1,450,061
Other income
$ 4,771,154 $ 3,696,439 $ 22,685,849
Other expense
$ 7,226,132 $ 5,677,442 $ 29,743,005
Pre-tax income
$ 2,358,110 $ 1,925,912 $ 10,986,363
Taxes
$ 909,676 $ 707,968 $ 4,030,577
Net income
$ 1,448,434 $ 1,217,944 $ 6,955,786
Earnings per share (basic)
$ 0.40 $ 0.45 $ 2.10
Earnings per share (diluted)
$ 0.38 $ 0.44 $ 2.05
Performance Ratios
ROAA
1.07 % 1.13 % 1.29 %
ROAE
11.01 % 14.33 % 16.07 %
Net Interest Margin
4.16 % 3.89 % 3.85 %
Efficiency Ratio
73.15 % 74.34 % 70.52 %
Capital
Tier 1 leverage capital ratio
10.87 % 9.67 % 10.01 %
Common equity risk-based capital ratio
19.56 % 19.21 % 18.47 %
Tier 1 risk-based capital ratio
19.56 % 19.21 % 18.47 %
Total risk-based capital ratio
20.83 % 20.11 % 19.74 %
Book value per share
$ 14.58 $ 12.88 $ 14.18
Tangible book value per share
$ 13.98 $ 12.29 $ 13.57
Asset Quality
Other real estate owned
$ 4,956,572 $ 6,292,050 $ 5,061,661
Net Charge-offs (recoveries)
$ 667,497 $ 868,825 $ 713,736
Net Charge-offs to average loans
0.17 % 0.30 % 0.20 %
Allowance to total loans, net of LHFS
1.39 % 1.48 % 1.47 %
Nonaccrual Loans
$ 3,503,189 $ 1,935,692 $ 6,070,027
Nonperforming assets to total assets
1.50 % 1.73 % 1.98 %
End of Period Balances
Assets
$ 562,568,726 $ 474,760,832 $ 561,388,726
Portfolio Loans
$ 403,081,514 $ 298,261,921 $ 408,743,325
Loans Held for Sale
$ 95,845,656 $ 124,355,880 $ 92,009,241
Deposits
$ 431,725,066 $ 319,767,492 $ 417,316,917
Borrowings
$ 53,582,881 $ 91,001,004 $ 63,060,005
Shareholders' Equity
$ 53,513,075 $ 34,753,407 $ 51,715,292
Average Balances
Assets
$ 543,075,717 $ 429,415,886 $ 540,550,612
Portfolio Loans
$ 404,301,900 $ 286,799,547 $ 364,242,751
Loans Held for Sale
$ 63,173,922 $ 91,186,757 $ 111,509,816
Deposits
$ 421,532,981 $ 294,582,848 $ 385,102,055
Borrowings
$ 41,362,714 $ 75,782,444 $ 83,230,853
Shareholders' Equity
$ 52,614,183 $ 34,006,155 $ 43,270,921
Average Shares
3,661,384 2,693,802 3,307,965
Stock Valuation
Closing Market Price (OTCQX)
$ 17.20 $ 12.40 $ 15.01

SOURCE: Coastal Banking Company Inc.

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