Coastal Financial Corporation Announces Second Quarter 2021 Results

Second Quarter 2021 Highlights:

• Net income totaled $7.0 million for the quarter ended June 30, 2021, or $0.56 per diluted common share, an increase of 16.5% from $6.0 million, or $0.49 per diluted common share, for the quarter ended March 31, 2021.
• Basic earnings per share increased 18.0%, and diluted earnings per share increased 15.9%, for the quarter ended June 30, 2021, compared to the quarter ended March 31, 2021.
• Total deposits increased $130.0 million, or 7.8%, to $1.8 billion for the quarter ended June 30, 2021, compared to $1.67 billion at March 31, 2021.
• Loan growth of $35.7 million, or 2.9%, excluding Paycheck Protection Program (“PPP”) loans during the quarter ended June 30, 2021.
• CCBX relationships increased to 24 at June 30, 2021, compared to 21 at March 31, 2021.
  

EVERETT, Wash., July 27, 2021 (GLOBE NEWSWIRE) -- Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), the holding company for Coastal Community Bank (the “Bank”), today reported unaudited financial results for the quarter ended June 30, 2021. Net income for the second quarter of 2021 was $7.0 million, or $0.56 per diluted common share, compared with net income of $6.0 million, or $0.49 per diluted common share, for the first quarter of 2021, and $3.7 million, or $0.30 per diluted common share, for the quarter ended June 30, 2020.  

“The second quarter of 2021 ended with total assets of $2.01 billion, down just $22.2 million from March 31, 2021 despite $173.2 million in PPP loan forgiveness, pay-offs and principal paydowns during the quarter, and the payoff of $158.5 million in Paycheck Protection Program Liquidity Facility (“PPPLF”) borrowings that were obtained to help fund PPP loans. Deposit growth was strong, increasing $130.0 million during the three months ended June 30, 2021. Core deposits increased $133.3 million and represented 95.7% of total deposits as of June 30, 2021. And to top it off, we were thrilled at the announcement that Coastal was again named one of the “Top 200 Community Banks” by American Banker for 2021, making this the third year in a row we have received this recognition.

“As a preferred Small Business Administration (“SBA”) lender, we worked with the SBA to provide financial assistance via PPP loans to existing and new small business customers as provided through the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). We diligently accepted and processed applications from the start of the first round of the program back in March of 2020 and until the latest round of PPP loans closed for applications on May 31, 2021. We are proud to report that we funded a grand total of $763.9 million in PPP loans for small businesses in our communities during that time.

“We remain focused on our three-prong strategy for success and growth. Our community bank, CCBX division, which provides Banking as a Service (“BaaS”) and CCDB division, our digital banking division, each play an integral role in the future success of our Company. Our CCBX division has a total of 24 relationships as of June 30, 2021, an increase of 14 relationships compared to June 30, 2020.   CCBX generates additional fee and interest income for the Company by providing BaaS to broker dealers and digital financial service providers who offer their clients these banking services. During the quarter ended June 30, 2021, we were pleased with the growth in CCBX loans and deposits.   CCDB is our digital banking division, and we are excited to introduce our digital bank accounts later this year or early next year in collaboration with Google,” stated Eric Sprink, the President and CEO of the Company and the Bank.

Results of Operations

Net interest income was $18.6 million for the quarter ended June 30, 2021, an increase of $1.3 million, or 7.5%, from $17.3 million for the quarter ended March 31, 2021, and an increase of $4.6 million, or 33.0%, from $14.0 million for the quarter ended June 30, 2020.   The increase compared to the prior quarters ended March 31, 2021 and June 30, 2020 was largely related to increased interest income resulting from loan growth. Average loans receivable for the three months ended June 30, 2021, was $1.75 billion, compared to $1.64 billion for the three months ended March 31, 2021, and $1.33 billion for the three months ended June 30, 2020.

Interest and fees on loans totaled $19.4 million for the three months ended June 30, 2021, compared to $18.2 million for the three months ended March 31, 2021 and $15.2 million for the three months ended June 30, 2020. The increase in interest and fees on loans for the quarter ended June 30, 2021, compared to the quarters ended March 31, 2021 and June 30, 2020, was largely due to $692,000 and $2.1 million in increased interest income as a result of loan volume, compared to March 31, 2021 and June 30, 2020, respectively. Also contributing to the increase was the recognition of interest and deferred fees on PPP loans which totaled $4.8 million for the three months ended June 30, 2021, compared to $4.4 million for the three months ended March 31, 2021, and $2.8 million for the three months ended June 30, 2020.

As of June 30, 2021, there were $398.0 million in PPP loans, compared to $543.8 million as of March 31, 2021, and $438.1 million as of June 30, 2020. In the three months ended June 30, 2021, a total of $27.0 million in new PPP loans were generated and $173.2 million in PPP loans were forgiven or repaid. Net deferred fees recognized on PPP loans contributed $3.6 million for the three months ended June 30, 2021, compared to $3.2 million for the three months ended March 31, 2021, and $1.9 million for the three months ended June 30, 2020.

As of June 30, 2021, $12.4 million in net deferred fees on PPP loans remains to be recognized in interest income along with interest on loans. Net deferred fees on PPP loans are earned over the life of the loan, as a yield adjustment in interest income. Forgiveness of principal, early paydowns and payoffs on PPP loans will increase interest income earned in those periods from the recognition of PPP deferred fees. PPP loans in round one and two were originated in 2020, and were predominately two year loans. PPP loans in round three were originated in 2021 and are all five year loans. The fees recognized on PPP loans originated in 2021 will be recognized over the term of the loan until forgiven or paid off.

Interest income from interest earning deposits with other banks was $74,000 at June 30, 2021, an increase of $4,000 due to higher balances compared to March 31, 2021, and a decrease of $56,000, as a result of lower interest rates, compared to June 30, 2020.

Interest expense was $959,000 for the quarter ended June 30, 2021, a $84,000 decrease from the quarter ended March 31, 2021 and a $474,000 decrease from the quarter ended June 30, 2020. Interest expense on interest bearing deposits decreased despite an increase of $45.0 million and $192.4 million in average interest bearing deposits for the quarter ended June 30, 2021 over the quarters ended March 31, 2021 and June 30, 2020, respectively, as a result of lower interest rates. This contributed to our improved cost of deposits which decreased 17.5% and 59.5% for the three months ended June 30, 2021 when compared to the three months ended March 31, 2021 and June 30, 2020, respectively. Interest expense on borrowed funds was $331,000 for the quarter ended June 30, 2021, compared to $383,000 and $337,000 for the quarters ended March 31, 2021 and June 30, 2020, respectively. The decrease in interest expense on borrowed funds from the quarters ended March 31, 2021 and June 30, 2020 is the result of a decrease in average PPPLF borrowings, which were paid off in full as of June 30, 2021. PPPLF borrowings were obtained to provide liquidity to fund the three rounds of PPP loans.

Net interest margin decreased for the three months ended June 30, 2021 to 3.70%, compared to 3.76% and 3.78% for the three months ended March 31, 2021 and June 30, 2020, respectively. The net interest margin will likely fluctuate over the near term as PPP loans originated in 2020 and 2021 are forgiven and paid off. The decrease in net interest margin compared to the quarters ended March 31, 2021 and June 30, 2020 was largely a result of the low interest rate on PPP loans and lower interest rates on all other loans, especially variable rate loans. Gross PPP loans averaged $509.3 million in for the quarter ended June 30, 2021, and have a contractual interest rate of 1.0%, and a yield of approximately 3.80% after considering the amortization of deferred PPP loan fees, for the quarter ended June 30, 2021.

Cost of funds decreased four basis points in the quarter ended June 30, 2021 to 0.20%, compared to the quarter ended March 31, 2021 and decreased 21 basis points from the quarter ended June 30, 2020. Cost of deposits for the quarter ended June 30, 2021 was 0.14%, a decrease of three basis points, or a 17.5% decrease, from 0.17% for the quarter ended March 31, 2021, and a 21 basis point decrease, or a 59.5% decrease, from 0.35% for the quarter ended June 30, 2020, largely due to the decrease in interest expense. Deposit growth, primarily from CCBX, in noninterest bearing and low interest bearing accounts contributed to the reduced cost of funds in conjunction with rate reductions on deposits. Noninterest bearing deposits increased $119.2 million, or 15.5%, and $324.1 million, or 57.5%, compared to the quarters ended March 31, 2021, and June 30, 2020, respectively. Market conditions for deposits continued to be competitive during the quarter ended June 30, 2021; however, we have been able to keep cost of deposit down by increasing low interest bearing and noninterest bearing deposits and permitting high cost deposits to run-off when appropriate, such as when we are able to replace them with lower cost core deposits.  

During the quarter ended June 30, 2021, total loans receivable decreased by $108.6 million, to $1.66 billion, compared to $1.77 billion for the quarter ended March 31, 2021. Non-PPP loans increased $35.7 million, or 2.9%, for the quarter ended June 30, 2021, compared to the quarter ended March 31, 2021. PPP loans decreased $145.8 million and totaled $398.0 million as of June 30, 2021 compared to March 31, 2021. In the three months ended June 30, 2021, a total of $27.0 million in new PPP loans were generated and $173.2 million in PPP loans were forgiven or repaid during that same period.

Total yield on loans receivable for the quarter ended June 30, 2021 was 4.44%, compared to 4.51% for the quarter ended March 31, 2021, and 4.57% for the quarter ended June 30, 2020. The decrease in yield on loans receivable compared to the quarters ended March 31, 2021 and June 30, 2020 is attributed to the lower 1.0% rate that PPP loans earn and the downward repricing of our variable rate loans in the low interest rate environment established by the Federal Reserve Open Market Committee, which decreased the Fed funds rate in the first quarter of 2020. Although we have rate floors in place for $429.8 million, or 25.7%, in existing loans, the lowered rates may have a corresponding impact on yield on loans receivables and the net interest margin in future periods.   PPP loans reduced the yield on loans receivable* by 26 basis points for the quarter ended June 30, 2021.

Yield on loans receivable, excluding earned fees* approximated 3.46% for the quarter ended June 30, 2021, compared to 3.53% for the quarter ended March 31, 2021, and 3.91% for the quarter ended June 30, 2020. During the quarter ended June 30, 2021, the average balance of PPP loans was $509.3 million. These loans bear a contractual rate of 1.0%, which negatively impacted the average yield on loans. Excluding PPP loans from the calculation results in a yield on loans receivable of 4.65%* for the quarter ended June 30, 2021. Also contributing to the reduction in yield is the current low-rate environment, which has resulted in lower rates on our variable rate loans and on new and renewing loans.

Return on average assets (“ROA”) was 1.36% for the quarter ended June 30, 2021 compared to 1.28% and 0.96% for the quarters ended March 31, 2021 and June 30, 2020, respectively. ROA was impacted in the quarter ended June 30, 2020 by increased provision for loan losses due to the economic uncertainties of the COVID-19 pandemic and loan growth. Pre-tax, pre-provision ROA* was 1.87% for the quarter ended June 30, 2021, compared to 1.69% for the quarter ended March 31, 2021, and 1.72% for the quarter ended June 30, 2020.

During the first half of 2021, significant focus was placed on helping the small businesses in our communities through the third round of PPP loans, which ended on May 31, 2021. The PPP loans originated in the first and second rounds during 2020 and in the third round in 2021 have had a significant impact on our financial statements.   These PPP loans will continue to impact our results in the future. We continued to receive forgiveness payments from the SBA. Throughout this earnings release, we will address the impact, to the extent possible, of these loans including borrowings received through PPPLF to help fund these loans and to aid in liquidity, in addition to earnings and expenses related to these activities. Any estimated adjusted ratios that exclude the impact of this activity are non-GAAP measures. For more information about non-GAAP financial measures, please see the end of this earnings release.

The table below summarizes information about total PPP loans originated in 2020 and 2021.

		Total PPP Loan Origination
		Round 1 & 2 2020			Round 3 2021			Total
(Dollars in thousands; unaudited)
Loans Originated		$	452,846		$	311,012		$	763,858
Deferred fees, net			12,933			13,334		$	26,267

The table below summarizes key information regarding the PPP loans originated in 2020 as of the period indicated:

		Round 1 and 2 - Originated in 2020
		Original Loan Size
		As of and for the Three Months Ended June 30, 2021
		$0.00 - $50,000.00			$50,0000.01 - $150,000.00			$150,000.01 - $350,000.00			$350,000.01 - $2,000,000.00			> 2,000,000.01			Totals
(Dollars in thousands; unaudited)
Principal outstanding:
Existing customer		$	6,333		$	6,496		$	12,864		$	17,256		$	27,852		$	70,801
New customer			2,076			3,649			4,550			13,878			15,540			39,693
Total principal outstanding			8,409			10,145			17,414			31,134			43,392			110,494
Deferred fees outstanding			(227	)		(214	)		(333	)		(351	)		(145	)		(1,270	)
Deferred costs outstanding			128			30			27			15			2			202
Net deferred fees		$	(99	)	$	(184	)	$	(306	)	$	(336	)	$	(143	)	$	(1,068	)
Number of loans:
Existing customer			107			41			21			19			5			193
New customer			379			77			60			27			9			552
Total loan count			486			118			81			46			14			745
Percent of total			65.3	%		15.8	%		10.9	%		6.2	%		1.9	%		100.0	%
Forgiveness/Payoffs/Paydowns in Three Months Ended June 30, 2021
Dollars		$	7,227		$	15,346		$	15,788		$	41,375		$	69,959		$	149,695
Deferred fee recognized			104			370			425			613			358			1,870

The table below summarizes key information regarding the PPP loans originated in 2021 as of the period indicated:

		Round 3 - Originated in 2021
		Original Loan Size
		As of and for the Three Months Ended June 30, 2021
		$0.00 - $50,000.00			$50,0000.01 - $150,000.00			$150,000.01 - $350,000.00			$350,000.01 - $2,000,000.00			> 2,000,000.01			Totals
(Dollars in thousands; unaudited)
Principal outstanding:
Existing customer		$	14,830		$	33,279		$	43,218		$	106,856		$	2,956		$	201,139
New customer			13,735			15,541			22,804			34,325			-			86,405
Total principal outstanding			28,565			48,820			66,022			141,181			2,956			287,544
Deferred fees outstanding			(3,524	)		(2,272	)		(3,045	)		(3,895	)		(27	)		(12,763	)
Deferred costs outstanding			854			323			172			118			1			1,468
Net deferred fees		$	(2,670	)	$	(1,949	)	$	(2,873	)	$	(3,777	)	$	(26	)	$	(11,295	)
Number of loans:
Existing customer			724			362			187			133			1			1,407
New customer			838			181			100			51			-			1,170
Total loan count			1,562			543			287			184			1			2,577
Percent of total			60.6	%		21.1	%		11.1	%		7.1	%		0.0	%		100.0	%
First or Second Draw
First Draw		$	9,881		$	6,265		$	2,728		$	6,024		$	2,956		$	27,854
Second Draw			18,684			42,555			63,294			135,157			-			259,690
Forgiveness/Payoffs/Paydowns in Three Months Ended June 30, 2021
Dollars		$	5,047		$	8,402		$	2,585		$	7,433		$	-		$	23,467
Deferred fee recognized			586			433			259			407			2			1,687

The following table shows the Company’s key performance ratios for the periods indicated. The table also includes ratios that were adjusted by removing the impact of the PPP loans as described above. The adjusted ratios are non-GAAP measures. For more information about non-GAAP financial measures, see the end of this earnings release.

	Three Months Ended															Six Months Ended
(unaudited)	June 30, 2021		March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020				June 30, 2021			June 30, 2020
Return on average assets (1)	1.36	%		1.28	%		1.04	%		0.95	%		0.96	%			1.31	%		0.96	%
Return on average equity (1)	18.60	%		16.84	%		13.36	%		12.14	%		11.37	%			17.65	%		10.03	%
Pre-tax, pre-provision return on average assets (1)(2)	1.87	%		1.69	%		1.90	%		1.72	%		1.72	%			1.78	%		1.74	%
Yield on earnings assets (1)	3.89	%		3.99	%		4.16	%		3.93	%		4.16	%			3.94	%		4.43	%
Yield on loans receivable (1)	4.44	%		4.51	%		4.64	%		4.33	%		4.57	%			4.47	%		4.85	%
Yield on loans receivable, excluding PPP loans (1)(2)	4.65	%		4.78	%		5.00	%		4.78	%		4.94	%			4.71	%		5.10	%
Yield on loans receivable, excluding earned fees (1)(2)	3.46	%		3.53	%		3.66	%		3.61	%		3.91	%			3.49	%		4.40	%
Yield on loans receivable, excluding earned fees and interest on PPP loans, as adjusted (1)(2)	4.42	%		4.52	%		4.65	%		4.69	%		4.84	%			4.47	%		4.96	%
Cost of funds (1)	0.20	%		0.24	%		0.29	%		0.33	%		0.41	%			0.22	%		0.54	%
Cost of deposits (1)	0.14	%		0.17	%		0.22	%		0.27	%		0.35	%			0.16	%		0.48	%
Net interest margin (1)	3.70	%		3.76	%		3.89	%		3.62	%		3.78	%			3.73	%		3.93	%
Noninterest expense to average assets (1)	2.65	%		2.62	%		2.35	%		2.26	%		2.34	%			2.64	%		2.71	%
Efficiency ratio	58.69	%		60.85	%		55.26	%		56.73	%		57.66	%			59.70	%		60.80	%
Loans receivable to deposits	92.03	%		105.68	%		108.85	%		110.98	%		110.77	%			92.03	%		110.77	%
(1) Annualized calculations shown for quarterly periods presented.
(2) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.

Noninterest income was $4.8 million as of June 30, 2021, an increase of $1.8 million from $3.0 million as of March 31, 2021, and an increase of $3.3 million from $1.5 million as of June 30, 2020. The increase in noninterest income over the quarter ended March 31, 2021 was due to a $1.3 million gain on the sale of the Freeland Branch, which closed on April 30, 2021, a $476,000 increase in BaaS fees, which includes interchange income of $110,000 compared to $35,000 as of March 31, 2021, a $209,000 increase in loan referral fees, which are earned when we originate a variable rate loan and arrange for the borrower to enter into an interest rate swap agreement with a third party to fix the interest rate for an extended period, partially offset by a $127,000 decrease in other income and a $99,000 decrease in gain on sale of loans. The $127,000 decrease in other income was the result of a market adjustment associated with the purchase of $5.0 million in new bank owned life insurance (“BOLI”) during the quarter ended June 30, 2021. We expect that the BOLI policy will grow in value in future periods. The $3.3 million increase in noninterest income over the quarter ended June 30, 2020 was primarily due to the $1.3 million gain on sale of the Freeland Branch, a $949,000 increase in BaaS fees, which includes $110,000 in interchange income, compared to zero interchange income at June 30, 2020, a $736,000 increase in loan referral fees, a $272,000 increase in deposit service charges and fees, primarily in point of sale and ATM fees, which were down in 2020 because of stay-at-home orders related to the COVID-19 pandemic, and a $101,000 increase in mortgage broker fees, partially offset by $90,000 decrease in other income, which is related to the market value adjustment paid on the BOLI purchased.

Our CCBX division continues to grow, and consists of 24 relationships, at varying stages, as of June 30, 2021, compared to 21 CCBX relationships at March 31, 2021 and ten CCBX relationships as of June 30, 2020, respectively. As of June 30, 2021, we had twelve active CCBX relationships, three in friends and family/testing, seven relationships in onboarding/implementation, two signed letters of intent and a strong pipeline of potential new CCBX relationships. The following table illustrates the activity and growth in CCBX for the periods presented:

	As of
	June 30, 2021	March 31, 2021	June 30, 2020	March 31, 2020
Active	12	10	3	2
Friends and family / testing	3	-	2	-
Implementation / onboarding	7	5	2	3
Signed letters of intent	2	6	3	2
Total CCBX relationships	24	21	10	7

Total noninterest expense increased to $13.7 million as of June 30, 2021, compared to $12.4 million as of March 31, 2021 and $8.9 million as of June 30, 2020. Increase in noninterest expense for the quarter ended June 30, 2021, as compared to the quarter ended March 31, 2021, was due to a $1.2 million increase in salaries and employee benefits which is related to the hiring in CCBX, CCDB, and additional staff for our ongoing banking growth initiatives. The increase in salary expense included a sizable decrease in deferred loan costs of $787,000, primarily from the slow-down of originating PPP loans, which is recorded as a salary offset, for the quarter ended June 30, 2021, compared to the quarter ended March 31, 2021. Other expenses increased $109,000 in the second quarter of 2021 compared to the prior quarter largely due to an $59,000 increase in software license, maintenance and subscription expenses, which is expected to increase as we invest more in automated processing and as we grow our product lines and CCBX and CCDB. In addition, in the second quarter of 2021 compared to the quarter ended March 31, 2021, director and staff expenses increased $98,000 due to increased travel expense and general staff appreciation recognition as the economy opens back up.

The increased noninterest expenses for the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020 were largely due to a $3.7 million increase in salary expenses related to hiring staff for CCBX, CCDB and additional staff for our ongoing banking growth initiatives. The increase in salary expense for the quarter ended June 30, 2021 was also higher as a result of a $861,000 decrease in deferred loan costs recorded as salary offsets, primarily from the slow-down of originating PPP loans, compared to the quarter ended June 30, 2020. Other expenses increased $290,000 in the second quarter of 2021 compared to the quarter ended June 30, 2020, largely due to a $232,000 increase in software license, maintenance and subscription expenses. In addition, in the second quarter of 2021 compared to the second quarter of 2020, legal and professional fees increased $152,000 and Federal Deposit Insurance Corporation (“FDIC”) assessments increased $151,000. The increase in legal and professional expenses is associated with CCBX division expenses and higher costs associated with legal and accounting work related to financial reporting. The increase in FDIC assessments is largely the result of an increase in deposits combined with other factors that impact the FDIC assessment calculation compared to the quarter ended June 30, 2020.

The provision for income taxes was $2.3 million at June 30, 2021, a $717,000 increase compared to $1.6 million for the first quarter of 2021 and a $1.3 million increase compared to $967,000 for the second quarter of 2020, both as a result of increased taxable income. Additionally, the Company is now subject to various state taxes that are being assessed as a result of CCBX activities expanding into other states, which has increased the overall rate used in calculating the provision for income taxes in the current and future periods. The Company uses a federal statutory tax rate of 21% as a basis for calculating provision for federal income taxes.

Financial Condition

Total assets decreased $22.2 million, or 1.1%, to $2.01 billion at June 30, 2021 compared to $2.03 billion at March 31, 2021. The primary cause of the decrease was $108.6 million in decreased loans receivable, primarily due to forgiveness payments on PPP loans. Partially offsetting the decrease in loans receivable is an increase in interest earning deposits with other banks of $63.9 million, a $14.6 million increase in cash due from banks and a $4.5 million increase in securities. Total assets increased $328.2 million, or 19.5%, at June 30, 2021, compared to $1.68 billion at June 30, 2020. This increase was largely the result of a $211.0 million increase in loans receivable, combined with a $103.8 million increase in interest earning deposits with other banks.

Total loans receivable decreased $108.6 million to $1.66 billion at June 30, 2021, from $1.77 billion at March 31, 2021, and increased $211.0 million from $1.45 billion at June 30, 2020. The reduction in loans receivable over the quarter ended March 31, 2021 was the result of $173.2 million in forgiveness, payoffs or principal paydowns on PPP loans, partially offset by $27.0 million in new PPP loans and growth of $35.7 million in non-PPP loans, consisting of CCBX loan growth of $412,000, and core banking loan growth, which excludes PPP loans and CCBX loans, of $35.2 million during the three months ended June 30, 2021. CCBX loans totaled $103.5 million at June 30, 2021 compared to $103.1 million at March 31, 2021 and $12.2 million at June 30, 2020. Total loans receivable as of June 30, 2021 is net of $16.7 million in net deferred origination fees, $12.4 million of which is attributed to PPP loans. Deferred fees on PPP loans are earned over the life of the loan, for loans originated in 2020 are primarily two year loans with some being 5 year loans as of June 30, 2021 ,and all PPP loans originated in 2021 have five year maturities. Although loans receivable decreased as of June 30, 2021 compared to March 31, 2021, unused commitments increased during the same period, with the unused commitments on capital call lines increasing $112.0 million to $286.8 million at June 30, 2021 compared to $174.8 million at March 31, 2021, which may translate to loan growth in future periods as the commitments are utilized.   The increase in loans receivable over the quarter ended June 30, 2020 includes growth of $254.9 million in non-PPP loans, partially offset by a $40.0 million decrease in PPP loans as of June 30, 2021. Non-PPP loan growth consists of $129.4 million in commercial real estate loans, $88.2 million in commercial and industrial loans, $20.6 million in residential real estate loans, and $14.3 million in construction, land and land development loans.  

The latest round of the PPP loans closed on May 31, 2021. We have been accepting applications from customers for loan forgiveness on PPP loans originated in 2020 and 2021. In the three months ended June 30, 2021, we received $173.2 million in forgiveness payments or principal paydowns. We expect that the forgiveness of loans to be fairly active in 2021 and will slow in 2022 until the loans are forgiven or paid off through maturity.   Forgiveness of principal, early paydowns and payoffs on PPP loans will increase interest income earned in those periods from the recognition of deferred PPP loan fees. Customers with two-year loans are also able to request that their PPP loan be extended to a five-year maturity, which we anticipate will be an option for customers not eligible for forgiveness.

The following table summarizes the loan portfolio at the periods indicated.

		As of
		June 30, 2021							March 31, 2021							June 30, 2020
(Dollars in thousands; unaudited)		Balance			% to Total				Balance			% to Total				Balance			% to Total
Commercial and industrial loans:
PPP loans		$	398,038			23.8	%		$	543,827			30.5	%		$	438,077			30.0	%
All other commercial & industrial loans			201,680			11.9				202,447			11.2				113,473			7.8
Real estate loans:
Construction, land and land development loans			116,733			7.0				104,596			5.9				102,422			7.0
Residential real estate loans			143,574			8.7				136,417			7.7				122,949			8.4
Commercial real estate loans			807,711			48.2				793,633			44.5				678,335			46.5
Consumer and other loans			7,161			0.4				4,114			0.2				4,735			0.3
Gross loans receivable			1,674,897			100.0	%			1,785,034			100.0	%			1,459,991			100.0	%
Net deferred origination fees - PPP loans			(12,363	)						(14,279	)						(10,639	)
Net deferred origination fees - Other loans			(4,385	)						(4,032	)						(2,208	)
Loans receivable		$	1,658,149						$	1,766,723						$	1,447,144

Please see Appendix A for additional loan portfolio detail regarding industry concentrations.

Total deposits increased $130.0 million, or 7.8%, to $1.80 billion at June 30, 2021 from $1.67 billion at March 31, 2021. The increase was due primarily to a $133.3 million increase in core deposits, which is the result of expanding and growing banking relationships with new customers, including deposit relationships from PPP loans made to noncustomers, who moved their banking relationship to the Bank. The overall increase in deposits was achieved despite a decrease of $24.9 million in total deposits compared to March 31, 2021, due to the sale of our Freeland branch. Additionally, deposits in our CCBX division increased $128.3 million, from $139.1 million at March 31, 2021, to $267.4 million at June 30, 2021. The deposits from our CCBX division are predominately classified as noninterest bearing, or NOW and money market accounts, but a portion of such CCBX deposits may be classified as brokered deposits as a result of the relevant relationship agreement. During the quarter ended June 30, 2021, noninterest bearing deposits increased $119.2 million, or 15.5%, to $887.9 million from $768.7 million at March 31, 2021. Included in the increase in noninterest bearing deposits is an increase in CCBX division deposits of $121.8 million for the quarter ended June 30, 2021. In the second quarter of 2021 compared to the quarter ended March 31, 2021, NOW and money market accounts increased $14.8 million, and savings accounts decreased $693,000. BaaS-brokered deposits increased $1.8 million, or 7.0%, and time deposits decreased $5.1 million, or 9.2%. Total deposits increased $495.3 million, or 37.9%, to $1.80 billion at June 30, 2021 compared to $1.31 billion at June 30, 2020. Noninterest bearing deposits increased $324.1 million, or 57.5%, to $887.9 million at June 30, 2021 from $536.8 million at June 30, 2020. NOW and money market accounts increased $166.6 million, or 28.9%, to $743.0 million at June 30, 2021, and savings accounts increased $21.2 million, or 29.4%, and BaaS-brokered deposits increased $859,000, or 3.2% while time deposits decreased $17.5 million, or 25.9%. Efforts to retain and grow core deposits are evidenced by the high ratios in these categories when compared to total deposits.

The following table summarizes the deposit portfolio at the periods indicated.

		As of
		June 30, 2021							March 31, 2021							June 30, 2020
(Dollars in thousands, unaudited)		Balance			% to Total				Balance			% to Total				Balance			% to Total
Demand, noninterest bearing		$	887,896			49.3	%		$	768,690			46.0	%		$	563,794			43.2	%
NOW and money market			743,014			41.2				728,243			43.6				576,376			44.1
Savings			93,224			5.2				93,917			5.6				72,045			5.5
Total core deposits			1,724,134			95.7				1,590,850			95.2				1,212,215			92.8
BaaS-brokered deposits			27,388			1.5				25,597			1.5				26,529			2.0
Time deposits less than $250,000			34,809			1.9				38,986			2.3				43,900			3.4
Time deposits $250,000 and over			15,347			0.9				16,282			1.0				23,783			1.8
Total deposits		$	1,801,678			100.0	%		$	1,671,715			100.0	%		$	1,306,427			100.0	%

To support and promote the effectiveness of the SBA PPP loan program, the Federal Reserve is supplying liquidity to participating financial institutions through non-recourse term financing secured by PPP loans to small businesses. The PPPLF extends low cost borrowings at a 0.35% interest rate, to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value. Borrowings are required to be paid down as the pledged PPP loans are paid down. As of June 30, 2021, all PPPLF borrowings were fully repaid with no outstanding PPPLF advances and pledged PPP loans, compared to $158.5 million at March 31, 2021. The PPPLF program will close for new borrowings as of July 30, 2021.

The Federal Home Loan Bank (“FHLB”) allows us to borrow against our line of credit, which is collateralized by certain loans. As of June 30, 2021, we borrowed a total of $25.0 million in FHLB term advances. This includes a $10.0 million advance that matures in March of 2023 and $15.0 million advance that matures in March 2025. These advances provide an alternative and stable source of funding for loan demand. Although there are no immediate plans to borrow additional funds, additional FHLB borrowing capacity of $89.2 million was available under this arrangement as of June 30, 2021.

Total shareholders’ equity increased $7.4 million since March 31, 2021. The increase in shareholders’ equity was primarily due to $7.0 million in net earnings for the three months ended June 30, 2021.

Capital Ratios

The Company and the Bank remain well capitalized at June 30, 2021, as summarized in the following table.  

Capital Ratios:	Coastal Community Bank				Coastal Financial Corporation				Financial Institution Basel III Regulatory Guidelines
(unaudited)
Tier 1 leverage capital		8.21	%			8.00	%			5.00	%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans (1)		10.32	%			10.06	%			5.00	%
Common Equity Tier 1 risk-based capital		11.45	%			10.92	%			6.50	%
Tier 1 risk-based capital		11.45	%			11.16	%			8.00	%
Total risk-based capital		12.70	%			13.12	%			10.00	%
(1) A reconciliation of the non-GAAP measure is set forth at the end of this earnings release.

Asset Quality

The allowance for loan losses was $20.0 million and 1.20% of loans receivable at June 30, 2021 compared to $19.6 million and 1.11% at March 31, 2021 and $14.8 million and 1.03% at June 30, 2020. At June 30, 2021, there was $398.0 million in PPP loans, which are 100% guaranteed by the SBA. Excluding PPP loans, the allowance for loan losses to loans receivable* would be 1.57% for the quarter ended June 30, 2021. Provision for loan losses totaled $361,000 for the three months ended June 30, 2021, $357,000 for the three months ended March 31, 2021, and $1.9 million for the three months ended June 30, 2020. Net charge-offs totaled $5,000 for the quarter ended June 30, 2021, compared to $9,000 for the quarter ended March 31, 2021 and $8,000 for the quarter ended June 30, 2020.

The Company’s provision for loan losses during the quarter ended June 30, 2021, is related to an increase in non-PPP loan growth. The factors used in management’s analysis of the provision for loan losses indicated that a provision of $361,000 and $357,000 was needed for the quarters ended June 30, 2021 and March 31, 2021, respectively. The expected loan losses did not materialize as originally anticipated in 2020, as evidenced by the low level of charge-offs and nonperforming loans. The economic environment is continuously changing and has shown signs of improvement, with the United States implementing a $1.9 trillion stimulus package, ongoing vaccination of its population and increased re-opening of economic activities. The Company is not required to implement the provisions of the Current Expected Credit Loss accounting standard until January 1, 2023 and continues to account for the allowance for credit losses under the incurred loss model.

At June 30, 2021, our nonperforming assets were $648,000, or 0.03% of total assets, compared to $661,000, or 0.03%, of total assets at March 31, 2021, and $4.4 million, or 0.26%, of total assets at June 30, 2020. Nonperforming assets decreased $13,000 during the quarter ended June 30, 2021, compared to the quarter ended March 31, 2021.   There were no repossessed assets or other real estate owned at June 30, 2021. Our nonperforming loans to loans receivable ratio was 0.04% at June 30, 2021 and March 31, 2021, compared to 0.31% at June 30, 2020.

For the quarter ended June 30, 2021, we have not seen a significant change in our credit quality metrics, as demonstrated by the low level of charge-offs and nonperforming loans. The long-term economic impact of the COVID-19 pandemic, political gridlock, and trade issues is unknown; however, the Company remains diligent in its efforts to communicate and proactively work with borrowers to help mitigate potential credit deterioration.

Pursuant to federal guidance, the Company deferred and/or modified payments on loans to assist customers financially during the COVID-19 pandemic and economic shutdown. A total of $246.4 million in loans were deferred and/or modified under this guidance. For the quarter ended June 30, 2021, two loans, or $11.7 million remained on deferred and/or modified status. The purpose of this program is to provide cash flow relief for small business customers as they navigate through the uncertainties of the COVID-19 pandemic. The Company’s deferral program has been successful as evidenced by customers’ ability to migrate from deferral to active status and resume making payments as planned.

The table below illustrates the status of all loans that were deferred and/or modified under this guidance since the guidelines were issued:

		COVID-19 Deferral Status
		As of June 30, 2021
		Amount			Number of loans
		(Dollars in thousands; unaudited)
Currently deferred		$	11,738			2
Closed - paid off			18,618			44
Successfully resumed payments			216,036			204
Total		$	246,392			250

The following table details the Company’s nonperforming assets for the periods indicated.

		June 30,			March 31,			June 30,
(Dollars in thousands, unaudited)		2021			2021			2020
Nonaccrual loans:
Commercial and industrial loans		$	482		$	488		$	689
Real estate:
Construction, land and land development			-			-			3,270
Residential real estate			166			173			63
Commercial real estate			-			-			413
Total nonaccrual loans			648			661			4,435
Accruing loans past due 90 days or more:
Total accruing loans past due 90 days or more			-			-			-
Total nonperforming loans			648			661			4,435
Other real estate owned			-			-			-
Repossessed assets			-			-			-
Total nonperforming assets		$	648		$	661		$	4,435
Troubled debt restructurings, accruing			-			-			-
Total nonperforming loans to loans receivable			0.04	%		0.04	%		0.31	%
Total nonperforming assets to total assets			0.03	%		0.03	%		0.26	%

_______________
*-A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.

 

About Coastal Financial

Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), is an Everett, Washington based bank holding company whose wholly owned subsidiaries are Coastal Community Bank (“Bank”) and Arlington Olympic LLC. The $2.0 billion community bank that the Bank operates provides service through 14 branches in Snohomish, Island, and King Counties, the Internet and its mobile banking application. The Bank provides banking as a service to broker dealers and digital financial service providers through its CCBX Division. Late in 2021 or early 2022, the Bank expects to open deposit accounts to consumers over the internet in CCDB, its digital bank division in collaboration with Google. To learn more about Coastal visit www.coastalbank.com.

Contact

Eric Sprink, President & Chief Executive Officer, (425) 357-3659
Joel Edwards, Executive Vice President & Chief Financial Officer, (425) 357-3687

Forward-Looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Any or all of the forward-looking statements in this earnings release may turn out to be inaccurate. The inclusion of or reference to forward-looking information in this earnings release should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of risks, uncertainties and assumptions that are difficult to predict. Factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, the risks and uncertainties discussed under “Risk Factors” in our Annual Report on Form 10-K for the most recent period filed, our Quarterly Report on Form 10-Q for the most recent quarter, and in any of our subsequent filings with the Securities and Exchange Commission.

If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. You are cautioned not to place undue reliance on forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law.

Source: Coastal Financial Corporation

COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands; unaudited)

ASSETS
		June 30,				March 31,				June 30,
		2021				2021				2020
Cash and due from banks		$	31,473			$	16,842			$	26,510
Interest earning deposits with other banks			251,416				187,472				147,666
Investment securities, available for sale, at fair value			25,341				20,378				20,448
Investment securities, held to maturity, at amortized cost			2,101				2,515				3,870
Other investments			6,839				6,829				5,951
Loans receivable			1,658,149				1,766,723				1,447,144
Allowance for loan losses			(19,966	)			(19,610	)			(14,847	)
Total loans receivable, net			1,638,183				1,747,113				1,432,297
Premises and equipment, net			17,207				17,194				16,668
Operating lease right-of-use assets			6,637				6,900				7,635
Accrued interest receivable			8,108				8,597				5,944
Bank-owned life insurance, net			12,056				7,133				6,981
Deferred tax asset, net			3,808				3,802				2,721
Other assets			3,969				4,584				2,265
Total assets		$	2,007,138			$	2,029,359			$	1,678,956
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits		$	1,801,678			$	1,671,715			$	1,306,427
Federal Home Loan Bank advances			24,999				24,999				24,999
Paycheck Protection Program Liquidity Facility			-				158,519				190,156
Subordinated debt, net			10,000				9,996				9,986
Junior subordinated debentures, net			3,585				3,585				3,584
Deferred compensation			803				833				919
Accrued interest payable			179				538				312
Operating lease liabilities			6,845				7,105				7,831
Other liabilities			4,949				5,330				3,765
Total liabilities			1,853,038				1,882,620				1,547,979
SHAREHOLDERS’ EQUITY
Common stock			88,699				88,329				87,309
Retained earnings			65,399				58,386				43,617
Accumulated other comprehensive income, net of tax			2				24				51
Total shareholders’ equity			154,100				146,739				130,977
Total liabilities and shareholders’ equity		$	2,007,138			$	2,029,359			$	1,678,956

COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)

	Three Months Ended
	June 30,			March 31,			June 30,
	2021			2021			2020
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	19,365		$	18,230		$	15,154
Interest on interest earning deposits with other banks		74			70			130
Interest on investment securities		24			28			53
Dividends on other investments		108			30			89
Total interest and dividend income		19,571			18,358			15,426
INTEREST EXPENSE
Interest on deposits		628			660			1,096
Interest on borrowed funds		331			383			337
Total interest expense		959			1,043			1,433
Net interest income		18,612			17,315			13,993
PROVISION FOR LOAN LOSSES		361			357			1,930
Net interest income after provision for loan losses		18,251			16,958			12,063
NONINTEREST INCOME
Deposit service charges and fees		949			863			677
BaaS fees		1,424			948			475
Loan referral fees		806			597			70
Mortgage broker fees		253			262			152
Sublease and lease income		31			32			31
Gain on sales of loans, net		31			130			-
Gain on sale of branch		1,263			-			-
Other income		25			152			115
Total noninterest income		4,782			2,984			1,520
NONINTEREST EXPENSE
Salaries and employee benefits		8,913			7,686			5,215
Occupancy		990			1,058			933
Data processing		734			697			621
Director and staff expenses		318			220			187
Excise taxes		388			359			262
Marketing		132			82			116
Legal and professional fees		626			760			474
Federal Deposit Insurance Corporation assessments		225			195			74
Business development		100			99			48
Other expense		1,305			1,196			1,015
Total noninterest expense		13,731			12,352			8,945
Income before provision for income taxes		9,302			7,590			4,638
PROVISION FOR INCOME TAXES		2,289			1,572			967
NET INCOME	$	7,013		$	6,018		$	3,671
Basic earnings per common share	$	0.59		$	0.50		$	0.31
Diluted earnings per common share	$	0.56		$	0.49		$	0.30
Weighted average number of common shares outstanding:
Basic		11,984,927			11,960,772			11,917,394
Diluted		12,459,467			12,393,493			12,190,284

COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)

	Six Months Ended
	June 30,			June 30,
	2021			2020
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	37,595		$	27,781
Interest on interest earning deposits with other banks		144			488
Interest on investment securities		52			172
Dividends on other investments		138			105
Total interest and dividend income		37,929			28,546
INTEREST EXPENSE
Interest on deposits		1,288			2,650
Interest on borrowed funds		714			539
Total interest expense		2,002			3,189
Net interest income		35,927			25,357
PROVISION FOR LOAN LOSSES		718			3,508
Net interest income after provision for loan losses		35,209			21,849
NONINTEREST INCOME
Deposit service charges and fees		1,812			1,400
BaaS fees		2,372			1,054
Loan referral fees		1,403			1,123
Mortgage broker fees		515			314
Sublease and lease income		63			61
Gain on sales of loans, net		161			-
Gain on sale of branch		1,263			-
Other		177			239
Total noninterest income		7,766			4,191
NONINTEREST EXPENSE
Salaries and employee benefits		16,599			10,898
Occupancy		2,048			1,860
Data processing		1,431			1,172
Director and staff expenses		538			457
Excise taxes		747			465
Marketing		214			228
Legal and professional fees		1,386			797
Federal Deposit Insurance Corporation assessments		420			144
Business development		199			173
Other		2,501			1,770
Total noninterest expense		26,083			17,964
Income before provision for income taxes		16,892			8,076
PROVISION FOR INCOME TAXES		3,861			1,681
NET INCOME	$	13,031		$	6,395
Basic earnings per common share	$	1.09		$	0.54
Diluted earnings per common share	$	1.05		$	0.52
Weighted average number of common shares outstanding:
Basic		11,972,916			11,913,321
Diluted		12,423,659			12,185,154

COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – QUARTERLY
(Dollars in thousands; unaudited)

	For the Three Months Ended
	June 30, 2021										March 31, 2021										June 30, 2020
	Average			Interest &			Yield /				Average			Interest &			Yield /				Average			Interest &			Yield /
	Balance			Dividends			Cost (4)				Balance			Dividends			Cost (4)				Balance			Dividends			Cost (4)
Assets
Interest earning assets:
Interest earning deposits	$	235,187		$	74			0.13	%		$	195,308		$	70			0.15	%		$	127,721		$	130			0.41	%
Investment securities (1)		25,000			24			0.39				24,185			28			0.47				21,835			53			0.98
Other investments		6,835			108			6.34				6,080			30			2.00				5,841			89			6.13
Loans receivable (2)		1,750,825			19,365			4.44				1,640,108			18,230			4.51				1,334,991			15,154			4.57
Total interest earning assets		2,017,847			19,571			3.89				1,865,681			18,358			3.99				1,490,388			15,426			4.16
Noninterest earning assets:
Allowance for loan losses		(19,733	)									(19,391	)									(13,555	)
Other noninterest earning assets		76,727										65,912										61,713
Total assets	$	2,074,841									$	1,912,202									$	1,538,546
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Interest bearing deposits	$	901,120		$	628			0.28	%		$	856,111		$	660			0.31	%		$	708,724		$	1,096			0.62	%
Subordinated debt, net		9,998			146			5.86				9,994			145			5.88				9,984			147			5.92
Junior subordinated debentures, net		3,585			21			2.35				3,585			21			2.38				3,583			26			2.92
PPPLF borrowings		107,047			94			0.35				170,376			147			0.35				107,443			94			0.35
FHLB advances and other borrowings		24,999			70			1.12				24,999			70			1.14				24,999			70			1.13
Total interest bearing liabilities		1,046,749			959			0.37				1,065,065			1,043			0.40				854,733			1,433			0.67
Noninterest bearing deposits		863,962										690,465										541,448
Other liabilities		12,887										11,778										12,498
Total shareholders' equity		151,243										144,894										129,867
Total liabilities and shareholders' equity	$	2,074,841									$	1,912,202									$	1,538,546
Net interest income				$	18,612									$	17,315									$	13,993
Interest rate spread								3.52	%									3.59	%									3.49	%
Net interest margin (3)								3.70	%									3.76	%									3.78	%
(1) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(2) Includes nonaccrual loans.
(3) Net interest margin represents net interest income divided by the average total interest earning assets.
(4) Yields and costs are annualized.

COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – YEAR-TO-DATE
(Dollars in thousands; unaudited)

	For the Six Months Ended
	June 30, 2021										June 30, 2020
	Average			Interest &			Yield /				Average			Interest &			Yield /
	Balance			Dividends			Cost (4)				Balance			Dividends			Cost (4)
Assets
Interest earning assets:
Interest earning deposits	$	215,358		$	144			0.13	%		$	115,547		$	488			0.85	%
Investment securities (1)		24,595			52			0.43				24,438			172			1.42
Other Investments		6,460			138			4.31				5,174			105			4.08
Loans receivable (2)		1,695,772			37,595			4.47				1,150,797			27,781			4.85
Total interest earning assets	$	1,942,185		$	37,929			3.94			$	1,295,956		$	28,546			4.43
Noninterest earning assets:
Allowance for loan losses		(19,563	)									(12,610	)
Other noninterest earning assets		71,349										56,654
Total assets	$	1,993,971									$	1,340,000
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Interest bearing deposits	$	878,740		$	1,288			0.30	%		$	668,381		$	2,650			0.80	%
Subordinated debt, net		9,996			291			5.87				9,982			293			5.90
Junior subordinated debentures, net		3,585			42			2.36				3,583			61			3.42
PPPLF borrowings		138,536			240			0.35				53,722			94			0.35
FHLB advances and other borrowings		24,999			141			1.14				16,425			91			1.11
Total interest bearing liabilities	$	1,055,856		$	2,002			0.38			$	752,093		$	3,189			0.85
Noninterest bearing deposits		777,693										447,189
Other liabilities		12,336										12,520
Total shareholders' equity		148,086										128,198
Total liabilities and shareholders' equity	$	1,993,971									$	1,340,000
Net interest income				$	35,927									$	25,357
Interest rate spread								3.56	%									3.58	%
Net interest margin (3)								3.73	%									3.93	%
(1) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(2) Includes nonaccrual loans.
(3) Net interest margin represents net interest income divided by the average total interest earning assets.
(4) Yields and costs are annualized.

COASTAL FINANCIAL CORPORATION
QUARTERLY STATISTICS
(Dollars in thousands, except share and per share data; unaudited)

	Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,
	2021			2021			2020			2020			2020
Income Statement Data:
Interest and dividend income	$	19,571		$	18,358		$	18,098		$	16,394		$	15,426
Interest expense		959			1,043			1,165			1,298			1,433
Net interest income		18,612			17,315			16,933			15,096			13,993
Provision for loan losses		361			357			2,600			2,200			1,930
Net interest income after provision for loan losses		18,251			16,958			14,333			12,896			12,063
Noninterest income		4,782			2,984			2,049			1,942			1,520
Noninterest expense		13,731			12,352			10,489			9,666			8,945
Net income - pre-tax, pre-provision (1)		9,663			7,947			8,493			7,372			6,568
Provision for income tax		2,289			1,572			1,232			1,082			967
Net income		7,013			6,018			4,661			4,090			3,671
	As of and for the Three Month Period
	June 30,			March 31,			December 31,			September 30,			June 30,
	2021			2021			2020			2020			2020
Balance Sheet Data:
Cash and cash equivalents	$	282,889		$	204,314		$	163,117		$	182,170		$	174,176
Investment securities		27,442			22,893			23,247			23,782			24,318
Loans receivable		1,658,149			1,766,723			1,547,138			1,509,389			1,447,144
Allowance for loan losses		(19,966	)		(19,610	)		(19,262	)		(17,046	)		(14,847	)
Total assets		2,007,138			2,029,359			1,766,122			1,749,619			1,678,956
Interest bearing deposits		913,782			903,025			829,046			789,347			742,633
Noninterest bearing deposits		887,896			768,690			592,261			570,664			563,794
Core deposits (2)		1,724,134			1,590,850			1,328,195			1,270,249			1,212,215
Total deposits		1,801,678			1,671,715			1,421,307			1,360,011			1,306,427
Total borrowings		38,584			197,099			192,292			241,167			228,725
Total shareholders’ equity		154,100			146,739			140,217			135,232			130,977
Share and Per Share Data (3):
Earnings per share – basic	$	0.59		$	0.50		$	0.39		$	0.34		$	0.31
Earnings per share – diluted	$	0.56		$	0.49		$	0.38		$	0.34		$	0.30
Dividends per share		-			-			-			-			-
Book value per share (4)	$	12.83		$	12.24		$	11.73		$	11.34		$	10.98
Tangible book value per share (5)	$	12.83		$	12.24		$	11.73		$	11.34		$	10.98
Weighted avg outstanding shares – basic		11,984,927			11,960,772			11,936,289			11,919,850			11,917,394
Weighted avg outstanding shares – diluted		12,459,467			12,393,493			12,280,191			12,181,272			12,190,284
Shares outstanding at end of period		12,007,669			11,988,636			11,954,327			11,930,243			11,926,263
Stock options outstanding at end of period		714,620			728,492			749,397			769,607			774,587
See footnotes on following page
	As of and for the Three Month Period
	June 30,			March 31,			December 31,			September 30,			June 30,
	2021			2021			2020			2020			2020
Credit Quality Data:
Nonperforming assets to total assets		0.03	%		0.03	%		0.04	%		0.26	%		0.26	%
Nonperforming assets to loans receivable and OREO		0.04	%		0.04	%		0.05	%		0.30	%		0.31	%
Nonperforming loans to total loans receivable		0.04	%		0.04	%		0.05	%		0.30	%		0.31	%
Allowance for loan losses to nonperforming loans		3081.2	%		2966.7	%		2705.3	%		380.7	%		334.8	%
Allowance for loan losses to total loans receivable		1.20	%		1.11	%		1.25	%		1.13	%		1.03	%
Allowance for loan losses to loans receivable, as adjusted (1)		1.57	%		1.59	%		1.62	%		1.60	%		1.46	%
Gross charge-offs	$	12		$	18		$	386		$	2		$	13
Gross recoveries	$	7		$	9		$	2		$	1		$	5
Net charge-offs to average loans (6)		0.00	%		0.00	%		0.10	%		0.00	%		0.00	%
Capital Ratios (7):
Tier 1 leverage capital		8.00	%		8.62	%		9.05	%		9.20	%		9.38	%
Common equity Tier 1 risk-based capital		10.92	%		10.89	%		11.27	%		12.14	%		12.34	%
Tier 1 risk-based capital		11.16	%		11.15	%		11.55	%		12.45	%		12.67	%
Total risk-based capital		13.12	%		13.15	%		13.61	%		14.61	%		14.88	%
(1) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.
(2) Core deposits are defined as all deposits excluding brokered and all time deposits.
(3) Share and per share amounts are based on total common shares outstanding.
(4) We calculate book value per share as total shareholders’ equity at the end of the relevant period divided by the outstanding number of our common shares at the end of each period.
(5) Tangible book value per share is a non-GAAP financial measure. We calculate tangible book value per share as total shareholders’ equity at the end of the relevant period, less goodwill and other intangible assets, divided by the outstanding number of our common shares at the end of each period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets as of any of the dates indicated. As a result, tangible book value per share is the same as book value per share as of each of the dates indicated.
(6) Annualized calculations.
(7) Capital ratios are for the Company, Coastal Financial Corporation.

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.

The following non-GAAP measures are presented to illustrate the impact of provision for loan losses and provision for income taxes on net income and return on average assets.

Pre-tax, pre-provision net income is a non-GAAP measure that excludes the impact of provision for loan losses and provision for income taxes from net income. The most directly comparable GAAP measure is net income.

Pre-tax, pre-provision return on average assets is a non-GAAP measure that excludes the impact of provision for loan losses and provision for income taxes from return on average assets. The most directly comparable GAAP measure is return on average assets.

Reconciliations of the GAAP and non-GAAP measures are presented below.

		As of and for the Three Months Ended																As of and for the Six Months Ended
(Dollars in thousands, unaudited)		June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020				June 30, 2021			June 30, 2020
Pre-tax, pre-provision net income and pre-tax, pre-provision return on average assets:
Total average assets		$	2,074,841		$	1,912,202		$	1,774,723		$	1,704,874		$	1,538,546			$	1,993,971		$	1,340,000
Total net income			7,013			6,018			4,661			4,090			3,671				13,031			6,395
Plus: provision for loan losses			361			357			2,600			2,200			1,930				718			3,508
Plus: provision for income taxes			2,289			1,572			1,232			1,082			967				3,861			1,681
Pre-tax, pre-provision net income		$	9,663		$	7,947		$	8,493		$	7,372		$	6,568			$	17,610		$	11,584
Return on average assets			1.36	%		1.28	%		1.04	%		0.95	%		0.96	%			1.31	%		0.96	%
Pre-tax, pre-provision return on average assets:			1.87	%		1.69	%		1.90	%		1.72	%		1.72	%			1.78	%		1.74	%

The following non-GAAP measure is presented to illustrate the impact of loan fees on contractual loan yield.

Yield on loans receivable, excluding earned fees is a non-GAAP measure that excludes the impact of earned loan fees on the contractual interest rate yield. The most directly comparable GAAP measure is yield on loans.

Reconciliations of the GAAP and non-GAAP measures are presented below.

		As of and for the Three Months Ended																As of and for the Six Months Ended
(Dollars in thousands, unaudited)		June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020				June 30, 2021			June 30, 2020
Yield on loans receivable, excluding earned fees :
Total average loans receivable		$	1,750,825		$	1,640,108		$	1,533,533		$	1,493,024		$	1,334,991			$	1,695,772		$	1,150,797
Interest and earned fee income on loans			19,365			18,230			17,885			16,244			15,154				37,595			27,781
Less: earned fee income on all loans			(4,274	)		(3,974	)		(3,765	)		(2,692	)		(2,182	)			(8,248	)		(2,610	)
Adjusted interest income on loans		$	15,091		$	14,256		$	14,120		$	13,552		$	12,972			$	29,347		$	25,171
Yield on loans receivable			4.44	%		4.51	%		4.64	%		4.33	%		4.57	%			4.47	%		4.85	%
Yield on loans receivable, excluding earned fees:			3.46	%		3.53	%		3.66	%		3.61	%		3.91	%			3.49	%		4.40	%
Yield on loans receivable, excluding earned fees and interest on PPP loans (1):			4.42	%		4.52	%		4.65	%		4.69	%		4.84	%			4.47	%		4.96	%
(1) Non-GAAP measure - see next table of "Non-GAAP Financial Measures" for more information.

The following non-GAAP financial measures are presented to illustrate and identify the impact of PPP loans on loans receivable related measures. By removing these items and showing what the results would have been without them, we are providing investors with the information to better compare results with periods that did not have these items. These measures include the following:

Adjusted allowance for loan losses to loans receivable is a non-GAAP measure that excludes the impact of PPP loans on balance sheet. The most directly comparable GAAP measure is allowance for loan losses to loans receivable.

Yield on loans receivable, excluding PPP loans is a non-GAAP measure that excludes the impact of PPP loans on balance sheet and income statement. The most directly comparable GAAP measure is yield on loans.

Yield on loans receivable, excluding earned fees and interest on PPP loans is a non-GAAP measure that excludes the impact of PPP loans on the balance sheet and income statement. The most directly comparable GAAP measure is yield on loans.

Adjusted Tier 1 leverage capital ratio, excluding PPP loans is a non-GAAP measure that excludes the impact of PPP loans on balance sheet. The most directly comparable GAAP measure is Tier 1 leverage capital ratio.

Reconciliations of the GAAP and non-GAAP measures are presented below.

		As of and for the										As of and for the
		Three Months Ended										Six Months Ended
(Dollars in thousands, unaudited)		June 30, 2021			March 31, 2021			June 30, 2020				June 30, 2021			June 30, 2020
Adjusted allowance for loan losses to loans receivable, excluding PPP loans:
Total loans, net of deferred fees		$	1,658,149		$	1,766,723		$	1,447,144			$	1,658,149		$	1,447,144
Less: PPP loans			(398,038	)		(543,827	)		(438,077	)			(398,038	)		(438,077	)
Less: net deferred fees on PPP loans			12,363			14,279			10,639				12,363			10,639
Adjusted loans, net of deferred fees		$	1,272,474		$	1,237,175		$	1,019,707			$	1,272,474		$	1,019,707
Allowance for loan losses		$	(19,966	)	$	(19,610	)	$	(14,847	)		$	(19,966	)	$	(14,847	)
Allowance for loan losses to loans receivable			1.20	%		1.11	%		1.03	%			1.20	%		1.03	%
Adjusted allowance for loan losses to loans receivable, excluding PPP loans			1.57	%		1.59	%		1.46	%			1.57	%		1.46	%
Yield on loans receivable, excluding PPP loans:
Total average loans receivable		$	1,750,825		$	1,640,108		$	1,334,991			$	1,695,772		$	1,150,797
Less: average PPP loans			(509,265	)		(475,941	)		(335,200	)			(492,695	)		(167,600	)
Plus: average deferred fees on PPP loans			14,213			10,788			8,700				12,510			4,350
Adjusted total average loans receivable		$	1,255,773		$	1,174,955		$	1,008,491			$	1,215,587		$	987,547
Interest income on loans		$	19,365		$	18,230		$	15,154			$	37,595		$	27,781
Less: interest and deferred fee income recognized on PPP loans			(4,821	)		(4,378	)		(2,759	)			(9,199	)		(2,759	)
Adjusted interest income on loans		$	14,544		$	13,852		$	12,395			$	28,396		$	25,022
Yield on loans receivable			4.44	%		4.51	%		4.57	%			4.47	%		4.85	%
Yield on loans receivable, excluding PPP loans:			4.65	%		4.78	%		4.94	%			4.71	%		5.10	%
Yield on loans receivable, excluding earned fees and interest on PPP loans:
Total average loans receivable		$	1,750,825		$	1,640,108		$	1,334,991			$	1,695,772		$	1,150,797
Less: average PPP loans			(509,265	)		(475,941	)		(335,200	)			(492,695	)		(167,600	)
Plus: average deferred fees on PPP loans		$	14,213		$	10,788		$	8,700			$	12,510		$	4,350
Adjusted total average loans receivable		$	1,255,773		$	1,174,955		$	1,008,491			$	1,215,587		$	987,547
Interest and earned fee income on loans		$	19,365		$	18,230		$	15,154			$	37,595		$	27,781
Less: earned fee income on all loans		$	(4,274	)	$	(3,974	)	$	(2,182	)		$	(8,248	)	$	(2,610	)
Less: interest income on PPP loans			(1,257	)		(1,169	)		(837	)			(2,426	)		(837	)
Adjusted interest income on loans		$	13,834		$	13,086		$	12,135			$	26,921		$	24,334
Yield on loans receivable			4.44	%		4.51	%		4.57	%			4.47	%		4.85	%
Yield on loans receivable, excluding earned fees (1):			3.46	%		3.53	%		3.91	%			3.49	%		4.40	%
Yield on loans receivable, excluding earned fees and interest on PPP loans:			4.42	%		4.52	%		4.84	%			4.47	%		4.96	%
(1) Non-GAAP measure - see previous table of "Non-GAAP Financial Measures" for more information.

(Dollars in thousands, unaudited)		As of June 30, 2021			As of March 31, 2021
Adjusted Tier 1 leverage capital ratio, excluding PPP loans:
Company:
Tier 1 capital		$	157,450		$	150,055
Average assets for the leverage capital ratio		$	1,967,646		$	1,741,666
Less: Average PPP loans			(509,265	)		(475,941	)
Plus: Average PPPLF borrowings			107,047			170,376
Adjusted average assets for the leverage capital ratio		$	1,565,428		$	1,436,101
Tier 1 leverage capital ratio			8.00	%		8.62	%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans			10.06	%		10.45	%
Bank:
Tier 1 capital		$	161,368		$	153,844
Average assets for the leverage capital ratio		$	1,966,528		$	1,740,660
Less: Average PPP loans			(509,265	)		(475,941	)
Plus: Average PPPLF borrowings			107,047			170,376
Adjusted average assets for the leverage capital ratio		$	1,564,310		$	1,435,095
Tier 1 leverage capital ratio			8.21	%		8.84	%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans			10.32	%		10.72	%

APPENDIX A -
As of June 30, 2021

Industry Concentration

We have a diversified loan portfolio, representing a wide variety of industries. Three of our largest categories of our loans are commercial real estate, commercial and industrial, and construction, land and land development loans. Together they represent $1.13 billion in outstanding loan balances, or 88.2% of total gross loans outstanding, excluding PPP loans of $398.0 million. When combined with $544.1 million in unused commitments the total of these three categories is $1.62 billion, or 88.8% of total outstanding loans and loan commitments.

Commercial real estate loans represent the largest segment of our loans, comprising 63.3% of our total balance of outstanding loans, excluding PPP loans, as of June 30, 2021. Unused commitments to extend credit represents an additional $18.2 million, the combined total exposure in commercial real estate loans represents $825.9 million, or 45.4% of our total outstanding loans and loan commitments, excluding PPP loans.

The following table summarizes our exposure by industry for our commercial real estate portfolio as of June 30, 2021:

(Dollars in thousands, unaudited)		Outstanding Balance				Available Loan Commitments				Total Exposure				% of Total Loans (Outstanding Balance & Available Commitment)				Average Loan Balance				Number of Loans
Apartments		$	124,057			$	2,466			$	126,523				6.9	%		$	1,676				74
Hotel/Motel			111,831				228				112,059				6.2				4,301				26
Office			91,200				3,218				94,418				5.2				970				94
Retail			83,957				2,630				86,587				4.8				1,012				83
Warehouse			74,164				1,480				75,644				4.2				1,514				49
Convenience Store			73,584				1,093				74,677				4.1				1,795				41
Mixed use			69,092				1,717				70,809				3.9				823				84
Mini Storage			44,085				174				44,259				2.4				2,755				16
Manufacturing			38,165				600				38,765				2.1				1,123				34
Groups < 2.0% of total			97,576				4,577				102,153				5.6				1,267				77
Total		$	807,711			$	18,183			$	825,894				45.4	%		$	1,397				578

Commercial and industrial loans comprise 15.8% of our total balance of outstanding loans, excluding PPP loans, as of June 30, 2021. Unused commitments to extend credit represents an additional $347.1 million, the combined total exposure in commercial and industrial loans represents $548.8 million, or 30.1% of our total outstanding loans and loan commitments, excluding PPP loans.

The following table summarizes our exposure by industry, excluding PPP loans, for our commercial and industrial loan portfolio as of June 30, 2021:

(Dollars in thousands, unaudited)		Outstanding Balance				Available Loan Commitments				Total Exposure				% of Total Loans (Outstanding Balance & Available Commitment)				Average Loan Balance				Number of Loans
Capital Call Lines		$	98,905			$	286,775			$	385,680				21.2	%		$	1,124				88
Construction/Contractor Services			13,930				25,222				39,152				2.2				92				152
Financial Institutions			20,150				-				20,150				1.1				3,358				6
Manufacturing			10,939				6,699				17,638				1.0				185				59
Medical / Dental / Other Care			10,386				4,153				14,539				0.8				185				56
Retail			7,793				4,710				12,503				0.7				312				25
Groups < 0.70% of total			39,577				19,549				59,126				3.2				141				281
Total		$	201,680			$	347,108			$	548,788				30.1	%		$	302				667

Construction, land and land development loans comprise 9.1% of our total balance of outstanding loans, excluding PPP loans, as of June 30, 2021. Unused commitments to extend credit represents an additional $125.8 million, the combined total exposure in construction, land and land development loans represents $242.6 million, or 13.3% of our total outstanding loans and loan commitments, excluding PPP loans.

The following table details our exposure for our construction, land and land development portfolio as of June 30, 2021:

(Dollars in thousands, unaudited)		Outstanding Balance				Available Loan Commitments				Total Exposure				% of Total Loans (Outstanding Balance & Available Commitment)				Average Loan Balance				Number of Loans
Commercial construction		$	65,895			$	106,626			$	172,521				9.5	%		$	2,126				31
Residential construction			17,685				15,640				33,325				1.8				680				26
Land development			13,626				1,963				15,589				0.9				852				16
Developed land loans			14,221				1,598				15,819				0.9				474				30
Undeveloped land loans			5,306				-				5,306				0.3				379				14
Total		$	116,733			$	125,827			$	242,560				13.3	%		$	998				117