Coastal Carolina Bancshares, Inc. Reports Earnings

Staff Report From South Carolina CEO

Wednesday, April 29th, 2020

Coastal Carolina Bancshares, Inc. (the "Company") (CCNB), parent of Coastal Carolina National Bank ("Bank"), reported unaudited financial results for the first quarter of 2020. The Company reported net income of $762,734 or $.12 cents per basic share for the quarter ended March 31, 2020, compared to $486,898 or $.08 cents per share, for the same period ended March 31, 2019.

2020 First Quarter Financial Highlights

Total Assets grew 7% to $479 million at March 31, 2020, compared to $446 million at December 31, 2019

Total Deposits grew 10% to $424 million at March 31, 2020, compared to $385 million at December 31, 2019

Total Loans grew 5% to $370 million at March 31, 2020, compared to $354 million at December 31, 2019

"As we report our first quarter 2020 results, we are clearly focused on the COVID-19 pandemic and how it has impacted the lives of our team and our customers. We are pleased with our solid growth in assets, deposits and loans in the first quarter of 2020 as well as our 57% increase in our net income as compared to the first quarter in 2019. Though our results are important, the first quarter of 2020 will go down in history as being very different from any quarter that our country has ever experienced. As a community bank, we share the concern for the well-being of our communities and are committed to standing beside our customers as they work to return to a new normal when it is safe to do so. As this story continues to unfold, we realize communities and our Bank as well will be impacted by this pandemic to a degree, which is unknown at this time. The health and safety of our teammates and
our customers is our top priority as we all work through this unprecedented period in our country's history.

By following daily guidance from our state and local leaders, and bank regulators, we implemented our Disaster Recovery Plan and began social distancing measures immediately. Approximately 60% of our workforce began working remotely from home within a few days while converting our branch locations to providing drive-thru service only for our customers. 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.

SBA Payroll Protection Program (PPP)
The Bank has been an active participant in the Small Business Administration Paycheck Protection Program (PPP). Through the diligent effort of our lending team, the Bank was able to serve more than 200 local businesses in the communities we serve with PPP funding. Total committed funds secured in the program were approximately $25.0 million.


The Company and Bank continued to increase capital through retained earnings during 2020, resulting in regulatory capital ratios at the Bank that exceed the minimums to be considered

well-capitalized based on the regulatory definition. At March 31, 2020, the Bank's regulatory capital ratios (Leverage, Tier 1, and Total Risk-Based) were 9.35%, 11.11%, and 11.93%, respectively.

Subsequently, at the end of the first quarter, the Company further augmented regulatory capital by issuing $10 million of subordinated debt securities. 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 7% to $479 million at March 31, 2020 compared to $446 million at December 31, 2019. Asset growth was primarily concentrated in additional liquidity and loan growth as total loans grew by $16 million or 5% to $370 million at March 31, 2020, compared to $354 million at December 31, 2019. The Bank continues to grow loans effectively while maintaining strong asset quality metrics.

The Bank's asset quality metrics remained sound at the end of the first quarter. The Bank's non-performing asset ratio as of March 31, 2020, was 0.33%, excluding TDRs and 0.54% with the inclusion of performing TDRs. Additionally; the Bank has no outstanding OREO property.

The impacts of COVID-19 are vast, and will affect many, if not all, individuals and businesses within the communities we serve. The direct impact on our portfolio is too difficult to anticipate at this time, but we will lean on our historically strong underwriting standards and diligence as we adjust to the current environment.

Due to the statewide "Stay at Home" order and other disruptions caused by COVID-19, the Bank has offered temporary deferral and forbearance programs to customers who have been or expect to be negatively impacted by the pandemic. As of April 22, 2020, deferral requests had been granted on loans totaling $78 million, which represents approximately 20% of the Bank's loan portfolio.

The Bank continues to fund its growth primarily through local core deposits. Total deposits grew 10% to $424 million at March 31, 2020, compared to $385 million at December 31, 2019. Bank-level

checking and savings account balances increased by $15 million to $119 million during the quarter. Checking and savings accounts represent 28% of the Bank's total deposit balances.

Income Statement

Net Interest Income

Net interest income increased 16% to $3.9 million for the quarter ended March 31, 2020, compared to $3.3 million for the prior year's first quarter ended March 31, 2019. Net interest income increased 2% when compared to the most recent quarter ended December 31, 2019.

The Bank's net interest margin was 3.63% for the quarter ended March 31, 2020, compared to 3.66% for the year ended December 31, 2019. The decline in margin primarily results from the impact 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.

Market rate decreases have an immediate impact on particular asset yields (including cash and variable rate assets), and a more gradual impact on longer-term asset re-pricing. Downward rate pressure has been partially offset by increased earning assets and decreased deposit and other funding costs.

Noninterest Income

First-quarter noninterest income of $566 thousand was relatively flat on a linked quarter basis and increased by $156 thousand or 39% 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 $71 thousand when compared to the same quarter in 2019. The declining mortgage rate environment during the most recent quarter resulted in increased refinance volume, which bolstered the existing strong mortgage pipeline. Increased interchange and other fees also contributed to the Bank's improvement in noninterest income.

Noninterest Expense

Noninterest expense totaled $3.2 million for the quarter ended March 31, 2020, compared to $3.0 million for the comparative quarter ended March 31, 2019, and $2.9 million for the quarter ended December 31, 2019. The increase resulted primarily from increased salaries and employee benefits, occupancy and equipment, and data processing costs.

Provision for Loan Losses

The provision for loan losses totaled $215 thousand for the quarter ended March 31, 2020, resulting in an overall loan loss reserve as a percentage of total loans of 0.84% as of March 31, 2020, compared to 0.82% at December 31, 2019.

As a result of the impact of the COVID 19 pandemic, we anticipate that there may be a need for increased loan loss provisions over the next few quarters. We will continue to analyze 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.