COASTALSOUTH BANCSHARES, INC. August 9, 2022
To our Shareholders:
CoastalSouth Bancshares, Inc. (the "Company") is pleased to announce net income of $3.7 million, or $0.42 per diluted share, for the second quarter of 2022, similar to $3.7 million net income, or $0.42 per diluted share, for the first quarter of 2022.
"The second quarter of 2022 was another outstanding quarter for loan production," said Steve Stone, President and Chief Executive Officer of the Company and its wholly owned subsidiary, Coastal States Bank ("CSB" or the "Bank"). "Despite an extremely competitive lending environment, our bankers' relationship-focused approach led to $137.5 million in core loan growth during the quarter across the franchise. This growth, coupled with the rising interest-rate environment, should position the Company for strong earnings performance during the second half of the year."
Highlights for the Second Quarter of 2022
- Net income of $3.7 million, and $0.42 diluted earnings per share ("Diluted EPS")
- Total assets grew $43.6 million, a 2.6% increase from March 31, 2022
- Core loans held for investment grew $137.5 million, a 16.2% increase from March 31, 2022
- Total deposits grew $17.5 million, a 1.2% increase from March 31, 2022
- Efficiency ratio was 58.01% compared to 55.52% and 64.69% in the first and second quarters of 2022 and 2021, respectively
- Net interest margin was 3.45% compared to 3.09% and 3.36% in the first and second quarters of 2022 and 2021, respectively
During the second quarter, core loans held for investment ("LHFI") grew by $137.5 million, excluding acquired loans. One new contributor to the loan growth was the addition of a Correspondent Marine Lending Division at the Bank. CSB is pleased to announce the addition of John Redmond to the CSB team to lead this division. John's experience in the industry and familiarity with the CSB management team helped the Bank launch this line of business in May 2022 and originating $18.1 million in new loans during the quarter. This addition creates a unique consumer-based lending product that helps to further diversify the Banks's loan portfolio.
The Company's deposits also increased by $17.5 million to $1.51 billion from $1.49 billion in the first quarter of 2022. In order to keep pace with loan demand, management has strategically deployed competitively priced deposit products early in the third quarter of 2022 to help acquire deposit new customers.
Equal Housing Lender Member FDIC
As a result of continued inflationary pressure, the Federal Reserve increased the federal funds interest rate target by an additional 125 basis points during the second quarter of 2022, following the 75 basis point increase during the first quarter of 2022. The rate setting Federal Open Market Committee ("FOMC") members indicated a much stronger path of rate increases ahead to arrest inflation that will increase the federal funds rate in 2022 and 2023. Like many other institutions during this same time period, the Company's available-for-sale ("AFS") investment portfolio experienced a decline in fair value driven by these rising interest rates, which reduced tangible book value. The Company's investment portfolio as structured at the end of the second quarter of 2022 has approximately 31% invested in floating rate securities and the overall yield will benefit as rates increase. Unrealized losses will decrease as the securities portfolio moves toward maturity which will increase tangible book value over the remaining life of portfolio. The Company reviews its AFS securities portfolio quarterly for other-than- temporary impairment, and none was recognized. Management believes that the decreases in value are driven by these interest rate movements and are not indicative of credit or other performance issues within the securities portfolio. Tangible book value per share at June 30, 2022 was $12.12, a decrease from $12.77 at March 31, 2022.
Notwithstanding a small increase in Non-Performing Assets ("NPA") ratio from the first quarter of 2022, the Company's credit metrics remained strong throughout the second quarter. The Company's NPA ratio was 0.28% at the end of the second quarter of 2022 compared to 0.18% at the end of the first quarter of 2021. The increase is due an increase in nonaccrual loans during the period, driven by one larger loan relationship that was subsequently refinanced by another institution early in the third quarter of 2022 and has therefore exited the Bank. The Company's net charge-offs to total LHFI ratio remains low at 0.01% for the second quarter of 2022.
Making charitable contributions in the local communities we serve continues to be a focus of the Company. Year-to-date during 2022, the Company's employee and the Board supported CSB Community Commitment Fund made contributions of over $73 thousand to 20 different organizations supporting a variety of causes that impact our Metro-Atlanta, Savannah, and the Lowcountry communities.
Equal Housing Lender Member FDIC | 2 |
CoastalSouth Bancshares, Inc. and Subsidiary
Consolidated Financial Highlights - Unaudited
(dollars in thousands except per share data)
Quarterly Trends | 2Q22 change vs | |||||||||||||||||||||||||||
2Q22 | 1Q22 | 4Q21 | 3Q21 | 2Q21 | 1Q22 | 2Q21 | ||||||||||||||||||||||
Selected Balance Sheet Data | ||||||||||||||||||||||||||||
Total assets | $ | 1,713,183 | $ | 1,669,622 | $ | 1,611,657 | $ | 1,333,349 | $ | 1,261,987 | $ | 43,561 | $ | 451,196 | ||||||||||||||
Total gross loans (LHFS + LHFI) | 1,171,467 | 1,052,917 | 1,019,569 | 855,738 | 865,664 | 118,550 | 305,803 | |||||||||||||||||||||
Total deposits | 1,506,808 | 1,489,263 | 1,424,117 | 1,168,370 | 1,109,913 | 17,545 | 396,895 | |||||||||||||||||||||
Earnings Highlights | ||||||||||||||||||||||||||||
Net income | $ | 3,681 | $ | 3,745 | $ | 2,723 | $ | 3,251 | $ | 3,274 | $ | (64) | $ | 407 | ||||||||||||||
Diluted earnings per share (EPS) | $ | 0.42 | $ | 0.42 | $ | 0.31 | $ | 0.39 | $ | 0.40 | $ | - | $ | 0.02 | ||||||||||||||
Net interest income | $ | 13,661 | $ | 11,824 | $ | 11,739 | $ | 10,105 | $ | 9,678 | $ | 1,837 | $ | 3,983 | ||||||||||||||
Performance Ratios | 3.45% | 3.09% | 3.28% | 0.36% | 0.09% | |||||||||||||||||||||||
Net interest margin | 3.03% | 3.36% | ||||||||||||||||||||||||||
Net interest spread | 3.30% | 2.94% | 2.87% | 3.11% | 3.18% | 0.36% | 0.12% | |||||||||||||||||||||
Cost of total deposits | 0.28% | 0.25% | 0.26% | 0.29% | 0.32% | 0.03% | -0.04% | |||||||||||||||||||||
Cost of total funding | 0.37% | 0.34% | 0.34% | 0.38% | 0.41% | 0.03% | -0.04% | |||||||||||||||||||||
Efficiency ratio | 58.01% | 55.52% | 77.45% | 62.66% | 64.69% | 2.49% | -6.68% | |||||||||||||||||||||
Loan-to-deposit ratio | 77.74% | 70.70% | 71.59% | 73.24% | 77.99% | 7.04% | -0.25% | |||||||||||||||||||||
Return on (annualized): | 0.89% | 0.93% | 1.01% | -0.05% | -0.20% | |||||||||||||||||||||||
Average assets (ROAA)2 | 0.68% | 1.08% | ||||||||||||||||||||||||||
Average tangible assets (ROTA)2 | 0.89% | 0.94% | 0.68% | 1.01% | 1.09% | -0.05% | -0.20% | |||||||||||||||||||||
Average tangible common equity (ROTCE)2 | 13.44% | 12.83% | 9.10% | 12.01% | 12.77% | 0.62% | 0.67% | |||||||||||||||||||||
Tangible common equity to tangible assets2 | 6.61% | 7.32% | 7.44% | 8.44% | 8.53% | -0.70% | -1.91% | |||||||||||||||||||||
Tangible book value per share2 | $ | 12.12 | $ | 12.77 | $ | 13.84 | $ | 13.52 | $ | 13.07 | $ | (0.65) | $ | (0.95) | ||||||||||||||
Other Operating Measures1: | ||||||||||||||||||||||||||||
Pre-taxpre-provision net revenue (PPNR) | $ | 6,639 | $ | 6,327 | $ | 3,482 | $ | 4,851 | $ | 4,414 | $ | 312 | $ | 2,225 | ||||||||||||||
PPNR ROAA | 1.60% | 1.58% | 0.86% | 1.51% | 1.46% | 0.02% | 0.14% | |||||||||||||||||||||
Net interest margin excluding PPP income | 3.39% | 3.00% | 2.86% | 2.98% | 3.22% | 0.38% | 0.17% | |||||||||||||||||||||
Adjusted net income | $ | 3,693 | $ | 3,838 | $ | 2,795 | $ | 3,346 | $ | 3,468 | $ | (145) | $ | 225 | ||||||||||||||
Adjusted diluted EPS | $ | 0.43 | $ | 0.45 | $ | 0.33 | $ | 0.42 | $ | 0.43 | $ | (0.02) | $ | - | ||||||||||||||
Adjusted ROTA | 0.89% | 0.96% | 0.70% | 1.04% | 1.15% | -0.07% | -0.26% | |||||||||||||||||||||
Adjusted ROTCE | 13.49% | 13.14% | 9.34% | 12.36% | 13.53% | 0.35% | -0.04% | |||||||||||||||||||||
Adjusted efficiency ratio | 57.91% | 54.65% | 74.07% | 61.69% | 62.64% | 3.26% | -4.73% | |||||||||||||||||||||
Adjusted noninterest expense to avg. assets | 2.20% | 1.94% | 2.53% | 2.49% | 2.59% | 0.26% | -0.39% |
- Non-GAAPmeasure, see "GAAP to Non-GAAP Reconciliation" schedule.
- The Company defines tangible assets as total assets less intangible assets (excluding commercial mortgage servicing assets), and tangible common equity as total shareholders' equity less intangible assets (excluding commercial mortgage servicing assets)
Equal Housing Lender Member FDIC | 3 |
Financial Results
Income Statement
Net income was $3.7 million for the second quarter of 2022 similar to a net income of $3.7 million in the first quarter of 2022, and up from a $3.3 million net income in the second quarter of 2021. Compared to the second quarter of 2021, the increase in net income was primarily attributable to an overall increase in net interest income, offset by higher provision for credit losses, noninterest expense, and income tax expense due to growth, coupled with a decline in noninterest income.
Interest income was $15.1 million in the second quarter of 2022, compared to $13.1 million in the first quarter of 2022, and $10.8 million in the second quarter of 2021. The increase in the second quarter of 2022 compared to the first quarter of 2022 was primarily in interest income on LHFI and interest and dividends on investment securities. Additionally, the rising interest rate environment and tightening housing inventory has slowed the pace of activity in the Mortgage Banker Finance division, resulting in lower LHFS volumes, but with a higher yield. The increase in the second quarter of 2022 compared to the second quarter of 2021 is due to growth in the loan portfolio coupled with the expansion of the investment portfolio throughout 2021 and into 2022 as well as the recent acquisition of Cornerstone Bank.
The components of interest income are presented below:
CoastalSouth Bancshares, Inc. and Subsidiary
Components of Interest Income
(dollars in thousands)
Quarterly Trends | 2Q22 change vs | |||||||||||||||||||||
2Q22 | 1Q22 | 4Q21 | 3Q21 | 2Q21 | 1Q22 | 2Q21 | ||||||||||||||||
Interest on cash and due from banks | $ | 6 | $ | 5 | $ | 19 | $ | 2 | $ | 2 | $ | 1 | $ | 4 | ||||||||
Interest on federal funds sold and resell | ||||||||||||||||||||||
agreements | 261 | 197 | 286 | 282 | 288 | 64 | (27) | |||||||||||||||
Interest and dividends on investment securities | 2,174 | 1,640 | 1,181 | 865 | 806 | 534 | 1,368 | |||||||||||||||
Interest and fees on LHFS | 1,166 | 1,027 | 1,172 | 1,309 | 1,448 | 139 | (282) | |||||||||||||||
Interest and fees on LHFI excluding PPP loans | 11,038 | 9,583 | 9,264 | 7,017 | 6,671 | 1,455 | 4,367 | |||||||||||||||
Interest and fees on PPP loans | 433 | 621 | 1,054 | 1,736 | 1,579 | (188) | (1,146) | |||||||||||||||
Interest income | $ | 15,078 | $ | 13,073 | $ | 12,976 | $ | 11,211 | $ | 10,794 | $ | 2,005 | $ | 4,284 | ||||||||
Interest expense was $1.4 million in the second quarter of 2022 compared to $1.2 million in the first quarter of 2022, and $1.1 million in the second quarter of 2021. Compared to the first quarter of 2022, the increase in interest expense is due to a combination of an increase in average balance as well as a 3 basis points increase in costs of interest-bearing deposits. Compared to the same quarter last year, the increase in interest expense is due to an increase in average balance of interest-bearing deposits due to deposits growth, and the Company's revolving commercial line of credit, which was added during the fourth quarter of 2021 to provide the ability to downstream additional capital to the Bank, as needed.
Equal Housing Lender Member FDIC | 4 |
Net interest margin for the second quarter of 2022 was 3.45%, compared to 3.09% for the first quarter of 2022 and 3.36% for the second quarter of 2021. Compared to the first quarter of 2022, net interest margin increased by 36 basis points, which is related to increased total earning assets balances, primarily investment securities and LHFI, coupled with a rising interest rate environment. Compared to the same quarter last year, net interest margin increased by 9 basis points and is attributable to LHFI growth as well as the rising interest rates.
The cost of funds for the second quarter of 2022 was 37 basis points compared to 34 basis points in the first quarter of 2022, and 41 basis points in the second quarter of 2021. The cost of funds increase from the first quarter of 2022 is primarily due the current rising interest rate environment as deposits rates are adjusted to align with the current market prices and to retain current customers and attract new customers. The cost of funds decline compared to the second quarter of 2021 is primarily driven by a decrease in costs of interest-bearing deposits as the Federal Reserve held rates near zero during 2021, offset by the cost of the new revolving commercial line of credit.
The cost of deposits was 28 basis points in the second quarter of 2022 compared to 25 and 32 basis points in the first and second quarters of 2022 and 2021, respectively. Compared to the first quarter of 2022, the increase is attributable to the current interest rate rising environment. Compared to the second quarter of 2021, the decline is due to the fact that over the last year, higher priced deposits had continued to reprice into lower cost deposits.
Provision for credit losses was $1.7 million during the second quarter of 2022, compared to $1.4 million and $222 thousand in the first and second quarters of 2022 and 2021, respectively. Compared to the first quarter of 2022, the increase is primarily related to a $576 thousand allowance provision related to purchased credit-impaired ("PCI") loans from the Cornerstone acquisition. Compared to the second quarter of 2021, the increase is primarily attributable to organic growth of LHFI in addition to acquired loans. Net charge-offs were $14 thousand during the second quarter of 2022, compared to $620 thousand in the first quarter of 2022.
Noninterest income was $2.2 million in the second quarter of 2022, compared to $2.4 million and $2.8 million in the first and second quarters of 2022 and 2021, respectively. Compared to the first quarter of 2022, the decrease is primarily in mortgage banking related income of $123 thousand and gain on sale of government guaranteed loans of $106 thousand. Compared to the second quarter of 2021, the decrease in noninterest income of $672 thousand is primarily attributable to mortgage banking related income of $391 thousand, gain on sale of government guaranteed loans of $140 thousand, and bank- owned life insurance of $117 thousand. As interest rates have risen, the premium on government guaranteed loans has fallen. As a result, the Bank may hold more of its guaranteed loan balances in its portfolio, thus reducing gain on sale income in the future.
Equal Housing Lender Member FDIC | 5 |
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Coastalsouth Bancshares Inc. published this content on 09 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 09 August 2022 19:19:08 UTC.
