• Coastal Financial Corporation Announces Fourth Quarter and Year End 2020 Results

    ソース: Nasdaq GlobeNewswire / 27 1 2021 08:27:01   America/Chicago

    2020 Highlights:

    • Net income totaled $15.1 million for the year ended December 31, 2020, or $1.24 per diluted common share, an increase of 14.0% from $13.2 million, or $1.08 per diluted common share, for the year ended December 31, 2019.
    • Basic earnings per share increased 30.0%, and diluted earnings per share increased 26.7%, for the quarter ended December 31, 2020, compared to the quarter ended December 31, 2019.
    • An $8.3 million provision for loan losses was recorded during the year ended December 31, 2020, largely due to continued economic uncertainties from the COVID-19 pandemic.
    • Total assets grew $637.6 million, or 56.5%, to $1.77 billion for the year ended December 31, 2020, compared to $1.13 billion at December 31, 2019.
    • Total loans receivable, net, including $365.8 million in PPP loans, grew $608.0 million, or 64.7%, to $1.55 billion for the year ended December 31, 2020, compared to $939.1 million at December 31, 2019.
    • Total deposits increased $453.3 million, or 46.8%, to $1.42 billion for the year ended December 31, 2020, compared to $968.0 million at December 31, 2019.

    EVERETT, Wash., Jan. 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 and year ended December 31, 2020. Net income for the fourth quarter of 2020 was $4.7 million, or $0.38 per diluted common share, compared with net income of $4.1 million, or $0.34 per diluted common share, for the third quarter of 2020, and $3.6 million, or $0.30 per diluted common share, for the quarter ended December 31, 2019.

    “If there is one thing 2020 has taught us, it’s how resilient we are. Those words ring true time and time again as we continue to navigate our way through these unprecedented times. Despite the disruptions and economic uncertainty resulting from the COVID-19 pandemic, we are pleased to announce that we finished the year with $15.1 million in net income, which includes $8.3 million in provision for loan losses, primarily in response to the economic uncertainties of the COVID-19 pandemic. To date we have not seen a significant shift in our credit quality metrics, yet there are still economic uncertainties that exist. Deposit growth was strong, increasing $453.3 million, or 46.8%, in 2020, with core deposits totaling $1.3 billion, or 93.4% of total deposits, at December 31, 2020.

    “As a preferred Small Business Administration (“SBA”) lender, we are committed to working with the SBA to provide financial assistance to existing and new small business customers via the third round of PPP loans as provided in the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which opened for applications on January 19, 2021. I am proud to report that as of January 25, 2021, we have accepted applications for $233.6 million, representing 1,385 new and existing customers, in this latest round of PPP loans, consisting of $14.7 million in new PPP applications for first draws and $218.9 million in a second draw for small businesses that previously received PPP funds. Our growing CCBX division continues to develop and provide an additional source of fee income for the Company. CCBX provides Banking as a Service (“BaaS”) enabling broker dealers and digital financial service providers to offer their clients banking services. We are hard at work on CCDB, our digital banking division, and look forward to introducing our digital bank accounts later this year in connection with our previously announced collaboration with Google Pay. We recently went live with our new mobile wallet product which provides our customers with more ways to pay,” stated Eric Sprink, the President and CEO of the Company and the Bank.

    “The health and safety of our employees and customers is of utmost importance, and as such we continue to enhance and modify measures already in place to keep us all healthy and safe while remaining open and serving our customers at our drive-throughs, by appointment, call center, mobile banking, online banking and ATMs. In addition, the Company continues to successfully employ remote work arrangements to the fullest extent possible. We remain committed to our customers, communities and employees as we move into this new year. The road ahead may be uncertain, but we are dedicated to strengthening existing relationships and embracing new opportunities for growth by continuing to focus on our three prong strategy of growing our core community bank, growing CCBX, our BaaS division, and building CCDB, our digital banking division.”

    Results of Operations

    Net interest income was $16.9 million for the quarter ended December 31, 2020, an increase of 12.2% from $15.1 million for the quarter ended September 30, 2020, and an increase of 49.4% from $11.3 million for the quarter ended December 31, 2019. The increase compared to the prior quarter and prior year’s fourth quarter is largely related to increased interest income resulting from loan growth. This loan growth included $365.8 million in PPP loans as of December 31, 2020, which contributed $2.8 million in net deferred PPP fees recognized, which is an increase of $347,000, or 14.2%, when compared to the quarter ended September 30, 2020, and $1.0 million in interest from the 1.0% contractual interest rate, for a total of $3.8 million in interest income for the quarter ended December 31, 2020.

    As of December 31, 2020, $7.1 million, or 55.2%, of the total $12.9 million in PPP net deferred fees on PPP loans have been fully earned, with $5.8 million remaining 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.

    Also contributing to the increase in interest income is fee income recognized on loans made through the Main Street Lending Program (“MSLP”). During the quarter ended December 31, 2020, we recognized $383,000 in earned fees through MSLP loans, and there was no fee income on MSLP loans in previous quarters.

    Our yield on loans receivable was 4.64% for the three months ended December 31, 2020, compared to 4.33% for the three months ended September 30, 2020, and 5.36% for the three months ended December 31, 2019. In the first three quarters of 2020 we generally saw a decrease in loan yield resulting from the lower interest rate that PPP loans earn and downward repricing of our variable rate loans in the low interest rate environment. The increase in yield on loans receivable for the quarter ended December 31, 2020 was due to the addition of higher rate, non-PPP loans that were added during the quarter along with the recognition of deferred fees on PPP loans that were forgiven and paid off during the quarter ended December 31, 2020, as well as fee income recognized on MSLP loans. MSLP loans were established by the Federal Reserve to support lending to small- and medium-sized businesses that were in sound financial condition prior to the COVID-19 pandemic. The Federal Reserve purchases participations on these loans, with the Bank retaining approximately 5% of the outstanding balance. Management concluded that the sold portion of the MSLP loans qualified for sale accounting. The MSLP loans have a five year maturity with deferral of principal payments for two years and deferral of interest payments for one year. The program stopped purchasing participations on January 8, 2021.

    Non-PPP loan growth was $122.0 million, or 11.5%, for the quarter ended December 31, 2020, compared to the quarter ended September 30, 2020, and this included CCBX loan growth of $21.8 million for the quarter ended December 31, 2020. The average rate on new loans was approximately 4.26%, compared to an average rate of approximately 3.44% for the quarter ended September 30, 2020. Interest and fees on loans was $1.6 million higher compared to the three months ended September 30, 2020 and $5.6 million higher than the three months ended December 31, 2019 due to increased loan balances, increased average interest rate, recognition of PPP deferred fees on PPP loans that were forgiven and paid off and recognition of fee income on MSLP loans. Interest income from interest earning deposits with other banks decreased $23,000, and $401,000 from September 30, 2020 and December 31, 2019, respectively, to $76,000 for the three months ended December 31, 2020, compared to $99,000 and $477,000 the three months ended September 30, 2020 and December 31, 2019, respectively, as a result of lower interest rates.

    Interest expense was $1.2 million for the quarter ended December 31, 2020, a $133,000 decrease from the quarter ended September 30, 2020 and a $538,000 decrease from the quarter ended December 31, 2019. The interest expense decrease occurred despite an increase in average interest bearing deposits for the quarter ended December 31, 2020 of $29.2 million and $59.8 million, over the quarter ended September 30, 2020 and December 31, 2019, respectively, as a result of lower interest rates. Interest expense on borrowed funds was $407,000 for the quarter ended December 31, 2020, compared to $418,000 and $192,000 for the quarters ended September 30, 2020 and December 31, 2019, respectively. This increase from the quarter ended December 31, 2019 was primarily the result of the PPPLF borrowings, which were obtained to provide liquidity to fund the PPP loans; the decrease from the quarter ended September 30, 2020 is the result of a decrease in average PPPLF borrowings due to paydowns on PPP loans.

    Net interest income increased $15.4 million, or 36.6%, to $57.4 million for the year ended December 31, 2020, compared to $42.0 million for the year ended December 31, 2019. These increases are largely related to increased interest income resulting from loan growth, the recognition of deferred fees on PPP loans that have been forgiven and paid off, and the additional fee income recognized on MSLP loans. Interest and fees on loans increased $16.6 million, or 36.5%, over the prior year period, despite a decrease in yield on loans receivable of 0.74% for the year ended December 31, 2020, compared to the year ended December 31, 2019. Non-PPP loan growth of $248.0 million, which includes CCBX loan growth of $65.3 million, for the year ended December 31, 2020, compared to the year ended December 31, 2019, contributed to this increase. Also contributing to the increase in loans is $365.8 million in PPP loans as of December 31, 2020. An average balance of $302.7 million in PPP loans contributed $3.0 million from the 1% interest rate and $7.2 million in fees recognized, for a total of $10.2 million in interest income on PPP loans for the year ended December 31, 2020, compared to the year ended December 31, 2019. Interest and fee income on MSLP loans also contributed to the increase, and was $398,000 for the year ended December 31, 2020, compared to no income on MSLP loans for the year ended December 31, 2019. 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 net deferred fees. Interest income from interest earning deposits with other banks decreased $1.8 million, or 72.6%, to $663,000 for the year ended December 31, 2020, compared to $2.4 million for the year ended December 31, 2019, as a result of lower interest rates. Interest expense decreased $924,000, or 14.1%, to $5.7 million for the year ended December 31, 2020 compared to $6.6 million for the year ended December 31, 2019. Lower interest rates resulted in a decrease in interest expense despite a $158.6 million increase in average interest bearing deposits and $144.0 million increase in average borrowings for the year ended December 31, 2020, compared to the prior year period. Borrowings included $124.1 million in average PPPLF borrowings, which were obtained to partially fund the PPP loans.

    Net interest margin widened in the quarter ending December 31, 2020 and will likely fluctuate over the near term as round one and round two PPP loans are forgiven and round three PPP loans are on-boarded. Accelerated deferred fee recognition related to the forgiven PPP loans supplemented interest income resulting in a net interest margin for the quarter ended December 31, 2020 of 3.89%, a 28 basis point increase from 3.62% for the quarter ended September 30, 2020 and a 37 basis point decrease from 4.26% for the quarter ended December 31, 2019. The increase over the prior quarter is due to the increase of higher rate, non-PPP loans coupled with the recognition of PPP deferred fees on PPP loans that paid down or paid off during the quarter ended December 31, 2020. The decrease in net interest margin from the quarter ended December 31, 2019 was largely a result of the low interest rate on PPP loans and lower interest rates on all other loans, especially our variable rate loans. PPP loans accounted for an average of $424.3 million in gross loans for the quarter ended December 31, 2020, and bear a contractual interest rate of 1.0%, and yield approximately 3.61% after considering the amortization of deferred PPP loan fees, for the quarter ended December 31, 2020. Cost of funds decreased four basis points in the quarter ended December 31, 2020 to 0.29%, compared to the quarter ended September 30, 2020 and decreased 41 basis points from the quarter ended December 31, 2019. Deposits into noninterest bearing and low interest bearing accounts by new and existing customers contributed to the reduced cost of funds. In addition, the Federal Open Market Committee (“FOMC”) lowered the Fed Funds rates five times for a total decrease of 2.25% since June 2019, which has impacted market rates paid on deposits. The lower interest rate environment will continue to impact the Company's net interest margin. Net interest margin for the year ended December 31, 2020 decreased 40 basis points compared to the year ended December 31, 2019 as a result of the low rate on PPP loans and lower rates on all other loans, especially our variable rate loans. Cost of funds decreased 33 basis points to 0.40% for the year ended December 31, 2020 compared to 0.73% for the year ended December 31, 2019. Growth in new and existing noninterest bearing deposit accounts and the lowered Fed Funds rates contributed to the reduced cost of funds.

    During the quarter ended December 31, 2020, the average balance of total loans receivable increased by $40.5 million, to $1.53 billion, compared to $1.49 billion for the quarter ended September 30, 2020, as a result of loan growth. New loans in the fourth quarter of 2020 had an average interest rate of approximately 4.26%, compared to approximately 3.44% for the quarter ended September 30, 2020. Non-PPP loans grew by $122.0 million, or 11.5%, during the quarter ended December 31, 2020. PPP loans totaled $365.8 million as of December 31, 2020, which is a decrease of $87.0 million compared to the quarter ended September 31, 2020. PPP loans bear a contractual interest rate of 1.0%, yielding approximately 3.61%, after considering the amortization of deferred PPP loan fees. The average balance of total loans receivable at December 31, 2020 increased by $622.2 million to $1.53 billion, compared to $911.4 million for the fourth quarter of 2019, due to overall growth in the loan portfolio, combined with the aforementioned growth in PPP loans. Non-PPP loans grew by $248.0 million, or 26.4%, to $1.19 billion for the year ended December 31, 2020. Total yield on loans receivable for the quarter ended December 31, 2020 was 4.64%, compared to 4.33% for the quarter ended September 30, 2020, and 5.36% for the quarter ended December 31, 2019. The increase in yield on loans receivable over the quarter ended September 30, 2020 was a result of new higher rate, non-PPP loans added during the fourth quarter, combined with the recognition of PPP deferred fee income on PPP loans that paid down or paid off as well as fee income recognized on MSLP loans. The reduction in yield on loans receivable compared to the quarter ended December 31, 2019 was a result of the lower rate that PPP loans bear and the downward repricing of our variable rate loans in the low rate environment. PPP loans reduced the yield on loans receivable* by 36 basis points for the quarter ended December 31, 2020.

    Contractual yield on loans receivable, excluding earned fees approximated 3.66% for the quarter ended December 31, 2020, compared to 3.61% for the quarter ended September 30, 2020, and 5.15% for the quarter ended December 31, 2019. During the quarter ended December 31, 2020, the average balance of PPP loans was $424.3 million. These loans bear a contractual rate of 1.0%, which negatively impacted the average contractual yield on loans. Excluding PPP loans and their related earned fees and interest, the contractual yield on loans receivable approximated 4.65%*. Also contributing to the reduction in contractual yield was the reduction in rates by the FOMC, which has resulted in lower rates on our variable rate loans and on new and renewing loans. Although we have rate floors in place for $398.6 million, or 25.6%, in existing loans, the rate reductions by FOMC has a corresponding impact on yield on loans receivables and the net interest margin in future periods.

    Cost of deposits for the quarter ended December 31, 2020 was 0.22%, a decrease of five basis points from 0.27% for the quarter ended September 30, 2020, and a 41 basis point decrease from the quarter ended December 31, 2019. Deposit growth in new and existing noninterest bearing and low interest bearing accounts contributed to the reduced cost of funds in conjunction with rate reductions on deposits. We gained new customer relationships by making PPP loans to noncustomers that continue to move their deposit relationships to the Bank. Market conditions for deposits continued to be competitive during the quarter ended December 31, 2020; however, we continued lowering deposit rates, with the largest changes to our interest-bearing demand deposit and certificate of deposit rates being effective in second quarter of 2020. We expect to continue repricing high-rate certificates of deposits and letting those high cost deposits run-off when appropriate; such as when we are able to replace them with lower cost, core deposits.

    Return on average assets (“ROA”) was 1.04% for the quarter ended December 31, 2020 compared to 0.95% and 1.31% for the quarters ended September 30, 2020 and December 31, 2019, respectively. ROA was impacted in the fourth quarter of 2020 and prior quarter in 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 1.90% for the quarter ended December 31, 2020, compared to 1.72% for the quarter ended September 30, 2020, and 1.95% for the quarter ended December 31, 2019.

    During the second and third quarters of 2020, significant focus was placed on helping the small businesses in our communities through the PPP. We are currently accepting applications for the third round of PPP loans which will begin funding in the first quarter of 2021. The PPP loans from the first and second rounds in 2020 have had a significant impact on our financial statements for the year ended December 31, 2020. These PPP loans along with those loans that fund in round three will continue to impact our results in the future. During the quarter ended December 31, 2020 we began receiving 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 key information regarding the PPP loans as of the period indicated:

        
      Original Loan Size 
      As of December 31, 2020 
      $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 $9,399 $22,614 $17,211 $55,821 $52,299 $157,344 
    New customer  18,324  30,325  34,206  64,591  61,052  208,498 
    Total principal outstanding  27,723  52,939  51,417  120,412  113,351  365,842 
    Deferred fees outstanding  (906) (1,580) (1,538) (2,060) (631) (6,715)
    Deferred costs outstanding  487  208  114  86  17  912 
    Net deferred fees $(419)$(1,372)$(1,424)$(1,974)$(614)$(5,803)
    Total principal, net of deferred
    fees
     $27,304 $51,567 $49,993 $118,438 $112,737 $360,039 
    Number of loans:                   
    Existing customer  434  263  81  77  13  868 
    New customer  1,006  344  161  90  19  1,620 
    Total loan count  1,440  607  242  167  32  2,488 
    Percent of total  57.9% 24.4% 9.7% 6.7% 1.3% 100.0%
                        
    Forgiveness/Payoffs/Paydowns in Quarter Ended December 31, 2020, net          
    Dollars $4,139 $9,330 $20,948 $52,587 $- $87,004 
    Deferred fee recognized  114  470  826  1,254  119  2,783 
                        

    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  Year ended 
    (unaudited) December 31,
    2020
     September 30,
    2020
     June 30,
    2020
     March 31,
    2020
     December 31,
    2019
      December 31,
    2020
     December 31,
    2019
     
                            
    Return on average assets (1)  1.04% 0.95% 0.96% 0.96% 1.31%  0.98% 1.28%
    Return on average equity (1)  13.36% 12.14% 11.37% 8.66% 11.66%  11.44% 11.29%
    Pre-tax, pre-provision return
    on average assets (1)(2)
      1.90% 1.72% 1.72% 1.77% 1.95%  1.78% 1.86%
    Yield on earnings assets (1)  4.16% 3.93% 4.16% 4.79% 4.90%  4.21% 4.90%
    Yield on loans receivable (1)  4.64% 4.33% 4.57% 5.25% 5.36%  4.64% 5.38%
    Yield on loans receivable,
    as adjusted (1)(2)
      5.00% 4.78% 4.94%n/a n/a   4.99%n/a 
    Contractual yield on loans
    receivable, excluding earned
    fees (1)
      3.66% 3.61% 3.91% 5.08% 5.15%  3.96% 4.75%
    Contractual yield on loans
    receivable, excluding earned
    fees and interest on PPP loans,
    as adjusted (1)(2)
      4.65% 4.69% 4.84%n/a n/a   4.80%n/a 
    Cost of funds (1)  0.29% 0.33% 0.41% 0.70% 0.70%  0.40% 0.73%
    Cost of deposits (1)  0.22% 0.27% 0.35% 0.64% 0.63%  0.35% 0.65%
    Net interest margin (1)  3.89% 3.62% 3.78% 4.15% 4.26%  3.83% 4.23%
    Noninterest expense to average
    assets (1)
      2.35% 2.26% 2.34% 3.18% 2.90%  2.47% 3.01%
    Efficiency ratio  55.26% 56.73% 57.66% 64.26% 59.86%  58.14% 61.79%
    Loans receivable to deposits  108.85% 110.98% 110.77% 100.01% 97.02%  108.85% 97.02%
                            
    (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 $2.0 million in the fourth quarter of 2020, an increase of $107,000 from $1.9 million at the third quarter of 2020, and a decrease of $10,000 from $2.1 million in the fourth quarter of 2019. The increase over the prior quarter was primarily due to a $243,000 increase in loan referral fees that 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, a $159,000 increase in BaaS fees as a result of adding new relationships, and a $91,000 increase in mortgage broker fees, which are a result of increased production from the attractive low rate environment, partially offset by a decrease in other income due to the revaluation and write-down of an equity interest of $400,000. The $10,000 decrease over the quarter ended December 31, 2019 was primarily due to the revaluation and write-down of an equity interest of $400,000 recorded in other income, partially offset by $105,000 increase in mortgage broker fees, a $91,000 increase in loan referral fees, and a $79,000 increase in BaaS fees.

    As of December 31, 2020, there were six active CCBX relationships, two CCBX relationships in the friends and family trials, three CCBX relationships in onboarding/implementation, four signed letters of intent for a CCBX relationship and a solid pipeline of potential new CCBX relationships. The following table illustrates the activity and growth in CCBX for the periods presented:

     As of
     December 31, 2020September 30, 2020December 31, 2019
    Active642
    Friends and family trials210
    Implementation / onboarding343
    Signed letters of intent420
    Total CCBX relationships15115
        

    Total noninterest expense for the fourth quarter of 2020 increased to $10.5 million compared to $9.7 million for the preceding quarter and compared to $8.0 million for the fourth quarter of 2019. Noninterest expense variances for the quarter ended December 31, 2020, as compared to the quarter ended September 30, 2020, include a $66,000 increase in other expenses due to $65,000 increase in software license, maintenance and subscription expenses, which is expected to increase as we invest more in automated processing and as we grow product lines and our CCBX division. Salaries and employee benefits increased $462,000 for the quarter ended December 31, 2020 compared to $6.0 million for the quarter ended September 30, 2020, which is related to the hiring in our CCBX and CCDB divisions and additional staff for our ongoing banking growth initiatives. Legal and professional fees increased $203,000 due to CCBX division expenses and higher costs associated with legal and accounting work related to financial reporting. The increased expenses for the quarter ended December 31, 2020 compared to the fourth quarter in 2019 were largely due to a $1.5 million increase in salary expenses related to hiring staff for our CCBX division and additional staff for our ongoing banking growth initiatives. Other expenses increased $301,000 in the fourth quarter of 2020 compared to $692,000 for the quarter ended December 31, 2019, which is largely due to a $159,000 increase in software license, maintenance and subscription expenses, and a $74,000 increase in the provision for unfunded commitments. In addition, in the fourth quarter of 2020 compared to the fourth quarter of 2019, legal and professional fees increased $353,000 and Federal Deposit Insurance Corporation (“FDIC”) assessments increased $251,000. 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 primarily the result of a credit issued to the Bank for assessments in the quarter ended December 31, 2019, combined with an increase in deposits compared to the quarter ended December 31, 2019.

    The provision for income taxes was $1.2 million at December 31, 2020, a $150,000 increase compared to $1.1 million for the third quarter of 2020 and a $285,000 increase compared to $947,000 for the fourth quarter of 2019, both as a result of increased taxable income. The Company uses a federal statutory tax rate of 21% as a basis for calculating provision for income taxes.

    Financial Condition

    Total assets increased $16.5 million, or 0.9%, to $1.77 billion at December 31, 2020 compared to $1.75 billion at September 30, 2020. The primary cause of the increase was $37.7 million in increased loans receivable, as a result of overall growth in the loan portfolio, partially offset by a $23.9 million decrease in interest earning deposits with other banks. Total assets increased $637.6 million, or 56.5% at December 31, 2020, compared to $1.13 billion at December 31, 2019. This increase was largely the result of a $608.0 million increase in loans receivable, which includes $365.8 million in PPP loans as of December 31, 2020, combined with a $32.9 million increase in interest earning deposits with other banks.

    Total loans receivable increased $37.7 million to $1.55 billion at December 31, 2020, from $1.51 billion at September 30, 2020, and increased $608.0 million from $939.1 million at December 31, 2019. The growth in loans receivable over the quarter ended September 30, 2020 was due primarily to growth in non-PPP loans of $122.0 million consisting of an increase of $69.7 million in commercial real estate loans, $37.0 million in other commercial and industrial loans, and $22.7 million in residential real estate loans, partially offset by a decrease of $87.0 million in PPP loans. Total loans receivable is net of $9.2 million in net deferred origination fees, $5.8 million of which is attributed to PPP loans. Deferred fees on PPP loans are earned over the life of the loan, with a maximum maturity of five years. As of December 31, 2020, 55.2% of the total $12.9 million in net deferred fees on the first and second rounds of PPP loans was fully earned. The increase in loans receivable over the quarter ended December 31, 2019 was due to a $365.8 million increase in PPP loans, and $248.0 million increase in non-PPP loans consisting of $161.5 million increase in commercial real estate loans, $62.0 million in other commercial and industrial loans and $28.9 million in residential real estate loans.

    The second round of the PPP program closed to new loan applicants on August 8, 2020, and since that time we have been accepting applications from customers for loan forgiveness. As of December 31, 2020, we have received $87.0 million in forgiveness payments or principal paydowns, on 472 loans. We expect that the pace of forgiveness will increase in the first half of 2021. 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 may be a good option for customers not eligible for forgiveness.

    The third round of PPP loans opened to applicants on January 19, 2021. We expect to again accept and process applications for both existing and new customers, to help small businesses in our communities. As of January 25, 2021, we have accepted applications for $233.6 million, representing 1,385 new and existing customers, in the third round of the PPP program.

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

      As of 
      December 31, 2020  September 30, 2020  December 31, 2019 
    (Dollars in thousands; unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                          
    Commercial and industrial loans:                     
    PPP loans $365,842  23.5% $452,846  29.8% $-  0.0%
    All other commercial &
    industrial loans
      173,358  11.0   136,358  8.9   111,401  11.8 
    Real estate loans:                     
    Construction, land and
    land development loans
      94,423  6.1   100,955  6.6   97,034  10.3 
    Residential real estate loans  143,869  9.3   121,147  8.0   115,011  12.2 
    Commercial real estate loans  774,925  49.8   705,186  46.4   613,398  65.2 
    Consumer and other loans  3,916  0.3   3,927  0.3   4,214  0.5 
    Gross loans receivable  1,556,333  100.0%  1,520,419  100.0%  941,058  100.0%
    Net deferred origination fees -
    PPP loans
      (5,803)     (8,586)     -    
    Net deferred origination fees -
    Other loans
      (3,392)     (2,444)     (1,955)   
    Loans receivable $1,547,138     $1,509,389     $939,103    
                          

    Please see Appendix A for additional loan portfolio detail regarding industry concentrations in response to the volatile economic environment due to the COVID-19 pandemic.

    Total deposits increased $61.3 million, or 4.5%, to $1.42 billion at December 31, 2020 from $1.36 billion at September 30, 2020. The increase is largely due to a $57.9 million increase in core deposits, which is primarily 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. During the quarter ended December 31, 2020, noninterest bearing deposits increased $21.6 million, or 3.8%, to $592.3 million from $570.7 million at September 30, 2020. Included in the increase in noninterest bearing deposits is an increase in CCBX deposits of $11.9 million for the quarter ended December 31, 2020. In the fourth quarter of 2020 compared to the quarter ended September 30, 2020, NOW and money market accounts increased $33.4 million, and savings accounts increased $2.9 million. BaaS-brokered deposits increased $8.6 million, and time deposits decreased $5.3 million. Total deposits increased $453.3 million, or 46.8%, to $1.42 billion at December 31, 2020 compared to $968.0 million at December 31, 2019. Noninterest bearing deposits increased $221.0 million, or 59.5%, to $592.3 million at December 31, 2020 from $371.2 million at December 31, 2019. NOW and money market accounts increased $220.4 million, or 50.3%, to $658.3 million at December 31, 2020, and savings accounts increased $24.3 million and BaaS-brokered deposits increased $9.9 million while time deposits decreased $22.2 million. 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 
      December 31, 2020  September 30, 2020  December 31, 2019 
    (Dollars in thousands, unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                          
    Demand, noninterest bearing $592,261  41.7% $570,664  42.0% $371,243  38.4%
    NOW and money market  658,323  46.3   624,891  45.9   437,908  45.2 
    Savings  77,611  5.4   74,694  5.5   53,365  5.5 
    Total core deposits  1,328,195  93.4   1,270,249  93.4   862,516  89.1 
    BaaS-brokered deposits  33,482  2.4   24,870  1.8   23,586  2.4 
    Time deposits less than $250,000  41,145  2.9   41,676  3.1   51,644  5.4 
    Time deposits $250,000 and over  18,485  1.3   23,216  1.7   30,213  3.1 
    Total deposits $1,421,307  100.0% $1,360,011  100.0% $967,959  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 borrowing lines, 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 December 31, 2020, there was $153.7 million in outstanding PPPLF advances and pledged PPP loans, compared to $202.6 million at September 30, 2020. The PPPLF program is currently available for new borrowings until March 31, 2021.

    The Federal Home Loan Bank (“FHLB”) allows us to borrow against our line of credit, which is collateralized by certain loans. As of December 31, 2020, we borrowed a total of $25.0 million in FHLB medium term advances. This includes a $10.0 million advance with a remaining term of 2.25 years and $15.0 million advance with a remaining term of 4.25 years. 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 $65.7 million was available under this arrangement as of December 31, 2020.

    Total shareholders’ equity increased $5.0 million since September 30, 2020. The increase in shareholders’ equity was primarily due to $4.7 million in net earnings for the three months ended December 31, 2020.

    Capital Ratios

    The Company and the Bank remain well capitalized at December 31, 2020, 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 9.29%  9.05%  5.00%
    Adjusted Tier 1 leverage capital ratio, excluding PPP loans (1) 10.91%  10.63%  5.00%
    Common Equity Tier 1 risk-based capital 11.86%  11.27%  6.50%
    Tier 1 risk-based capital 11.86%  11.55%  8.00%
    Total risk-based capital 13.11%  13.61%  10.00%
                
    (1) A reconciliation of the non-GAAP measure is set forth at the end of this earnings release. 
      

    As previously disclosed, during the quarter ended March 31, 2020, the Company contributed $7.5 million in capital to the Bank due to the volatile economic environment. No additional contributions have been made; however, the Company could downstream additional funds to the Bank in the future, if necessary.

    Asset Quality

    The allowance for loan losses was $19.3 million and 1.25% of loans receivable at December 31, 2020 compared to $17.0 million and 1.13% at September 30, 2020 and $11.5 million and 1.22% at December 31, 2019. At December 31, 2020, there was $365.8 million in PPP loans, which are 100% guaranteed by the SBA. Excluding PPP loans, the allowance for loan losses to loans receivable* would be 1.62% for the quarter ended December 31, 2020. Provision for loan losses totaled $2.6 million for the three months ended December 31, 2020, $2.2 million for the three months ended September 30, 2020, and $820,000 for the three months ended December 31, 2019. Net charge-offs totaled $384,000 for the quarter ended December 31, 2020, compared to $1,000 for the quarter ended September 30, 2020 and $238,000 for the quarter ended December 31, 2019. Net charge-offs for the quarter ended December 31, 2020 primarily included a charge-off for $368,000 to secure a payoff of a $3.3 million longer-term nonperforming loan from the portfolio.

    The Company’s provision for loan losses during the quarters ended December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, is related to an increase in qualitative factors related to the economic uncertainties caused by the COVID-19 pandemic and loan growth. The Company is not required to implement the provisions of the Current Expected Credit Loss accounting standard until January 1, 2023 and will continue to account for the allowance for credit losses under the incurred loss model.

    At December 31, 2020, our nonperforming assets were $712,000, or 0.04% of total assets, compared to $4.5 million, or 0.26%, of total assets at September 30, 2020, and $1.0 million, or 0.09%, of total assets at December 31, 2019. Nonperforming assets decreased $3.8 million during the quarter ended December 31, 2020, compared to the quarter ended September 30, 2020, with the pay-off and partial charge-off of one loan ($3.3 million) and principal pay-downs and pay-offs on other loans.

    Management is continuing to actively monitor the loan portfolio to identify borrowers experiencing difficulties with repayment and are proactively working with them to reduce potential losses through the prudent use of PPP loans, deferrals, and modifications in accordance with regulatory guidelines. There were no repossessed assets or other real estate owned at December 31, 2020. Our nonperforming loans to loans receivable ratio was 0.05% at December 31, 2020, compared to 0.30% at September 30, 2020, and 0.11% at December 31, 2019. Nonperforming loans totaled $712,000 at December 31, 2020, compared to $4.5 million at September 30, 2020. The decrease of $3.8 million in the quarter ended December 31, 2020, compared to the quarter ended September 30, 2020 was largely due to one nonperforming construction, land and land development loan for $3.3 million that was paid-off and included a partial charge-off of $368,000. These changes, combined with other pay-offs and principal reductions, resulted an overall decrease in our ratio of nonperforming loans to loans receivable and nonperforming loans to total assets compared to September 30, 2020.

    To date we have not seen a significant change in our credit quality metrics, as demonstrated by the low level of charge-offs and nonperforming loans for the year ended December 31, 2020. The long-term economic impact of the COVID-19 pandemic, political gridlock, trade issues, and decline in oil prices 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 $233.9 million in loans were deferred and/or modified under this guidance during the second, third and fourth quarters of 2020. All of the loans that were on deferred and/or modified status as of the quarter ended September 30, 2020 have either successfully returned to active status or have closed. All of these loans are current, with no loans more than 30 days past due as of December 31, 2020. For the quarter ended December 31, 2020, three loans, or $9.3 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 following table details the Company’s nonperforming assets for the periods indicated.

      As of 
      December 31, September 30, December 31, 
    (Dollars in thousands, unaudited) 2020 2020 2019 
               
    Nonaccrual loans:          
    Commercial and industrial loans $537 $625 $965 
    Real estate:          
    Construction, land and land development  -  3,269  - 
    Residential real estate  175  178  65 
    Commercial real estate  -  405  - 
    Total nonaccrual loans  712  4,477  1,030 
               
    Accruing loans past due 90 days or more:          
    Total accruing loans past due 90 days or more  -  -  - 
    Total nonperforming loans  712  4,477  1,030 
    Other real estate owned  -  -  - 
    Repossessed assets  -  -  - 
    Total nonperforming assets $712 $4,477 $1,030 
    Troubled debt restructurings, accruing  -  -  - 
    Total nonperforming loans to loans receivable  0.05% 0.30% 0.11%
    Total nonperforming assets to total assets  0.04% 0.26% 0.09%

    ____
    * 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 $1.8 billion community bank that the Bank operates provides service through 15 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. In 2021, the Bank expects to introduce 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.


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

    ASSETS 
      December 31,  September 30,  December 31, 
      2020  2020  2019 
    Cash and due from banks $18,965  $14,136  $16,555 
    Interest earning deposits with other banks  144,152   168,034   111,259 
    Investment securities, available for sale, at fair value  20,399   20,428   28,360 
    Investment securities, held to maturity, at amortized cost  2,848   3,354   4,350 
    Other investments  6,059   5,951   4,505 
    Loans receivable  1,547,138   1,509,389   939,103 
    Allowance for loan losses  (19,262)  (17,046)  (11,470)
    Total loans receivable, net  1,527,876   1,492,343   927,633 
    Premises and equipment, net  17,108   16,881   13,108 
    Operating lease right-of-use assets  7,120   7,379   8,493 
    Accrued interest receivable  8,616   8,216   2,980 
    Bank-owned life insurance, net  7,082   7,031   6,882 
    Deferred tax asset, net  3,799   2,722   2,743 
    Other assets  2,098   3,144   1,658 
    Total assets $1,766,122  $1,749,619  $1,128,526 
                 
    LIABILITIES AND SHAREHOLDERS’ EQUITY 
    LIABILITIES            
    Deposits $1,421,307  $1,360,011  $967,959 
    Federal Home Loan Bank advances  24,999   24,999   10,000 
    Paycheck Protection Program Liquidity Facility  153,716   202,595   - 
    Subordinated debt, net  9,993   9,989   9,979 
    Junior subordinated debentures, net  3,584   3,584   3,583 
    Deferred compensation  863   891   974 
    Accrued interest payable  531   481   308 
    Operating lease liabilities  7,323   7,579   8,679 
    Other liabilities  3,589   4,258   2,871 
    Total liabilities  1,625,905   1,614,387   1,004,353 
                 
    SHAREHOLDERS’ EQUITY            
    Common stock  87,815   87,479   86,983 
    Retained earnings  52,368   47,707   37,222 
    Accumulated other comprehensive income (loss), net of tax  34   46   (32)
    Total shareholders’ equity  140,217   135,232   124,173 
    Total liabilities and shareholders’ equity $1,766,122  $1,749,619  $1,128,526 
                 

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

     Three Months Ended 
     December 31, September 30, December 31, 
     2020 2020 2019 
    INTEREST AND DIVIDEND INCOME         
    Interest and fees on loans$17,885 $16,244 $12,323 
    Interest on interest earning deposits with other banks 76  99  477 
    Interest on investment securities 31  27  154 
    Dividends on other investments 106  24  80 
    Total interest and dividend income 18,098  16,394  13,034 
    INTEREST EXPENSE         
    Interest on deposits 758  880  1,511 
    Interest on borrowed funds 407  418  192 
    Total interest expense 1,165  1,298  1,703 
    Net interest income 16,933  15,096  11,331 
    PROVISION FOR LOAN LOSSES 2,600  2,200  820 
    Net interest income after provision for loan losses 14,333  12,896  10,511 
    NONINTEREST INCOME         
    Deposit service charges and fees 867  824  805 
    BaaS fees 735  576  656 
    Loan referral fees 423  180  332 
    Mortgage broker fees 216  125  111 
    Sublease and lease income 31  30  27 
    Gain on sales of loans, net 35  47  - 
    Other (258) 160  128 
    Total noninterest income 2,049  1,942  2,059 
    NONINTEREST EXPENSE         
    Salaries and employee benefits 6,433  5,971  4,901 
    Occupancy 1,026  1,091  972 
    Data processing 599  577  544 
    Director and staff expenses 187  156  302 
    Excise taxes 301  291  190 
    Marketing 37  52  93 
    Legal and professional fees 584  381  231 
    Federal Deposit Insurance Corporation assessments 230  148  (21)
    Business development 99  72  111 
    Other 993  927  692 
    Total noninterest expense 10,489  9,666  8,015 
    Income before provision for income taxes 5,893  5,172  4,555 
    PROVISION FOR INCOME TAXES 1,232  1,082  947 
    NET INCOME$4,661 $4,090 $3,608 
              
    Basic earnings per common share$0.39 $0.34 $0.30 
    Diluted earnings per common share$0.38 $0.34 $0.30 
    Weighted average number of common shares outstanding:         
    Basic 11,936,289  11,919,850  11,903,750 
    Diluted 12,280,191  12,181,272  12,213,512 
              

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

           
     Year ended 
     December 31, December 31, 
     2020 2019 
    INTEREST AND DIVIDEND INCOME      
    Interest and fees on loans$61,910 $45,350 
    Interest on interest earning deposits with other banks 663  2,423 
    Interest on investment securities 230  635 
    Dividends on other investments 235  179 
    Total interest and dividend income 63,038  48,587 
    INTEREST EXPENSE      
    Interest on deposits 4,288  5,802 
    Interest on borrowed funds 1,364  774 
    Total interest expense 5,652  6,576 
    Net interest income 57,386  42,011 
    PROVISION FOR LOAN LOSSES 8,308  2,544 
    Net interest income after provision for loan losses 49,078  39,467 
    NONINTEREST INCOME      
    Deposit service charges and fees 3,091  3,107 
    BaaS fees 2,365  2,060 
    Loan referral fees 1,726  1,438 
    Mortgage broker fees 655  447 
    Sublease and lease income 122  58 
    Gain on sales of loans, net 82  490 
    Gain on sales of securities, net -  171 
    Other 141  487 
    Total noninterest income 8,182  8,258 
    NONINTEREST EXPENSE      
    Salaries and employee benefits 23,302  18,959 
    Occupancy 3,977  3,775 
    Data processing 2,348  2,081 
    Director and staff expenses 800  1,000 
    Excise taxes 1,057  719 
    Marketing 317  393 
    Legal and professional fees 1,762  1,103 
    Federal Deposit Insurance Corporation assessments 522  184 
    Business development 344  431 
    Other 3,690  2,418 
    Total noninterest expense 38,119  31,063 
    Income before provision for income taxes 19,141  16,662 
    PROVISION FOR INCOME TAXES 3,995  3,461 
    NET INCOME$15,146 $13,201 
           
    Basic earnings per common share$1.27 $1.11 
    Diluted earnings per common share$1.24 $1.08 
    Weighted average number of common shares outstanding:      
    Basic 11,920,735  11,896,258 
    Diluted 12,209,371  12,196,120 
           

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

     For the Three Months Ended 
     December 31, 2020  September 30, 2020  December 31, 2019 
     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$166,744 $76  0.18% $137,568 $99  0.29% $106,985 $477  1.77%
    Investment securities (1) 23,730  31  0.52   23,882  27  0.45   32,871  154  1.86 
    Other Investments 6,124  106  6.89   5,951  24  1.60   3,743  80  8.48 
    Loans receivable (2) 1,533,533  17,885  4.64   1,493,024  16,244  4.33   911,373  12,323  5.36 
    Total interest earning assets 1,730,131  18,098  4.16   1,660,425  16,394  3.93   1,054,972  13,034  4.90 
    Noninterest earning assets:                             
    Allowance for loan losses (17,767)        (15,711)        (11,002)      
    Other noninterest earning assets 62,359         60,160         51,373       
    Total assets$1,774,723        $1,704,874        $1,095,343       
                                  
    Liabilities and Shareholders’ Equity 
    Interest bearing liabilities:                             
    Interest bearing deposits$808,351 $758  0.37% $750,790 $880  0.47% $585,277 $1,511  1.02%
    Subordinated debt, net 9,991  148  5.89   9,987  148  5.90   9,977  148  5.89 
    Junior subordinated debentures, net 3,584  22  2.44   3,584  23  2.55   3,583  39  4.32 
    PPPLF borrowings 188,222  166  0.35   199,076  176  0.35   -  -  0.00 
    FHLB advances and other borrowings 25,001  71  1.13   24,999  71  1.13   893  5  2.22 
    Total interest bearing liabilities 1,035,149  1,165  0.45   988,436  1,298  0.52   599,730  1,703  1.13 
    Noninterest bearing deposits 588,764         569,615         360,030       
    Other liabilities 11,968         12,781         12,869       
    Total shareholders' equity 138,842         134,042         122,714       
    Total liabilities and                             
    shareholders' equity$1,774,723        $1,704,874        $1,095,343       
    Net interest income   $16,933        $15,096        $11,331    
    Interest rate spread       3.71%        3.41%        3.77%
    Net interest margin (3)       3.89%        3.62%        4.26%
                                  
    (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 Year Ended 
     December 31, 2020  December 31, 2019 
     Average Interest & Yield /  Average Interest & Yield / 
     Balance Dividends Cost  Balance Dividends Cost 
    Assets                   
    Interest earning assets:                   
    Interest earning deposits$133,951 $663  0.49% $107,916 $2,423  2.25%
    Investment securities (1) 24,120  230  0.95   37,368  635  1.70 
    Other Investments 5,608  235  4.19   3,545  179  5.05 
    Loans receivable (2) 1,333,028  61,910  4.64   843,450  45,350  5.38 
    Total interest earning assets$1,496,707 $63,038  4.21  $992,279 $48,587  4.90 
    Noninterest earning assets:                   
    Allowance for loan losses (14,686)        (10,304)      
    Other noninterest earning assets 58,970         49,998       
    Total assets$1,540,991        $1,031,973       
                        
    Liabilities and Shareholders’ Equity                   
    Interest bearing liabilities:                   
    Interest bearing deposits$724,279 $4,288  0.59% $565,713 $5,802  1.03%
    Subordinated debt, net 9,986  589  5.90   9,971  587  5.89 
    Junior subordinated debentures, net 3,584  105  2.93   3,582  168  4.69 
    PPPLF borrowings 124,068  435  0.35   -  -  0.00 
    FHLB advances and other borrowings 20,736  235  1.13   819  19  2.32 
    Total interest bearing liabilities$882,653 $5,652  0.64  $580,085 $6,576  1.13 
    Noninterest bearing deposits 513,550         322,064       
    Other liabilities 12,445         12,944       
    Total shareholders' equity 132,343         116,880       
    Total liabilities and                   
    shareholders' equity$1,540,991        $1,031,973       
    Net interest income   $57,386        $42,011    
    Interest rate spread       3.57%        3.76%
    Net interest margin (3)       3.83%        4.23%
                        
    (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. 
      

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

     Three Months Ended 
     December 31, September 30, June 30, March 31, December 31, 
     2020 2020 2020 2020 2019 
    Income Statement Data:               
    Interest and dividend income$18,098 $16,394 $15,426 $13,120 $13,034 
    Interest expense 1,165  1,298  1,433  1,756  1,703 
    Net interest income 16,933  15,096  13,993  11,364  11,331 
    Provision for loan losses 2,600  2,200  1,930  1,578  820 
    Net interest income after               
    provision for loan losses 14,333  12,896  12,063  9,786  10,511 
    Noninterest income 2,049  1,942  1,520  2,671  2,059 
    Noninterest expense 10,489  9,666  8,945  9,019  8,015 
    Net income - pre-tax, pre-provision (1) 8,493  7,372  6,568  5,016  5,375 
    Provision for income tax 1,232  1,082  967  714  947 
    Net income 4,661  4,090  3,671  2,724  3,608 
       
     As of and for the Three Month Period 
       
     December 31, September 30, June 30, March 31, December 31, 
     2020 2020 2020 2020 2019 
    Balance Sheet Data:               
    Cash and cash equivalents$163,117 $182,170 $174,176 $129,236 $127,814 
    Investment securities 23,247  23,782  24,318  19,759  32,710 
    Loans receivable 1,547,138  1,509,389  1,447,144  1,005,180  939,103 
    Allowance for loan losses (19,262) (17,046) (14,847) (12,925) (11,470)
    Total assets 1,766,122  1,749,619  1,678,956  1,184,071  1,128,526 
    Interest bearing deposits 829,046  789,347  742,633  659,559  596,716 
    Noninterest bearing deposits 592,261  570,664  563,794  345,503  371,243 
    Core deposits (2) 1,328,195  1,270,249  1,212,215  892,408  862,516 
    Total deposits 1,421,307  1,360,011  1,306,427  1,005,062  967,959 
    Total borrowings 192,292  241,167  228,725  38,564  23,562 
    Total shareholders’ equity 140,217  135,232  130,977  127,166  124,173 
                    
    Share and Per Share Data (3):               
    Earnings per share – basic$0.39 $0.34 $0.31 $0.23 $0.30 
    Earnings per share – diluted$0.38 $0.34 $0.30 $0.22 $0.30 
    Dividends per share -  -  -  -  - 
    Book value per share (4)$11.73 $11.34 $10.98 $10.66 $10.42 
    Tangible book value per share (5)$11.73 $11.34 $10.98 $10.66 $10.42 
    Weighted avg outstanding shares – basic 11,936,289  11,919,850  11,917,394  11,909,248  11,903,750 
    Weighted avg outstanding shares – diluted 12,280,191  12,181,272  12,190,284  12,208,175  12,213,512 
    Shares outstanding at end of period 11,954,327  11,930,243  11,926,263  11,929,413  11,913,885 
    Stock options outstanding at end of period 749,397  769,607  774,587  774,937  784,217 
                    
                    
                    
     As of and for the Three Month Period 
     December 31, September 30, June 30, March 31, December 31, 
     2020 2020 2020 2020 2019 
    Credit Quality Data:               
    Nonperforming assets to total assets 0.04% 0.26% 0.26% 0.06% 0.09%
    Nonperforming assets to loans receivable and OREO 0.05% 0.30% 0.31% 0.08% 0.11%
    Nonperforming loans to total loans receivable 0.05% 0.30% 0.31% 0.08% 0.11%
    Allowance for loan losses to nonperforming loans 2705.3% 380.7% 334.8% 1694.0% 1113.6%
    Allowance for loan losses to total loans receivable 1.25% 1.13% 1.03% 1.29% 1.22%
    Allowance for loan losses to loans receivable, as adjusted (1) 1.62% 1.60% 1.46%n/a n/a 
    Gross charge-offs$386 $2 $13 $124 $242 
    Gross recoveries$2 $1 $5 $1 $4 
    Net charge-offs to average loans (6) 0.10% 0.00% 0.00% 0.05% 0.10%
                    
    Capital Ratios (7):               
    Tier 1 leverage capital 9.05% 9.20% 9.38% 11.43% 11.64%
    Common equity Tier 1 risk-based capital 11.27% 12.14% 12.34% 12.10% 12.74%
    Tier 1 risk-based capital 11.55% 12.45% 12.67% 12.43% 13.10%
    Total risk-based capital 13.61% 14.61% 14.88% 14.65% 15.35%
                    
    (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 BaaS-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
    Years Ended
     
    (Dollars in thousands, unaudited) December 31,
    2020
     September 30,
    2020
      June 30,
    2020
      March 31,
    2020
      December 31,
    2019
      December 31,
    2020
      December 31,
    2019
     
    Pre-tax, pre-provision net income and pre-tax, pre-provision return on average assets:         
    Total average assets $1,774,723 $1,704,874  $1,538,546  $1,141,453  $1,095,343  $1,540,991  $1,031,973 
    Total net income  4,661  4,090   3,671   2,724   3,608   15,146   13,201 
    Plus: provision for loan
    losses
      2,600  2,200   1,930   1,578   820   8,308   2,544 
    Plus: provision for
    income taxes
      1,232  1,082   967   714   947   3,995   3,461 
    Pre-tax, pre-provision net
    income
     $8,493 $7,372  $6,568  $5,016  $5,375  $27,449  $19,206 
    Return on average assets  1.04% 0.95%  0.96%  0.96%  1.31%  0.98%  1.28%
    Pre-tax, pre-provision
    return on average
    assets:
      1.90% 1.72%  1.72%  1.77%  1.95%  1.78%  1.86%
                                

    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 significant 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 significant 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.

    Adjusted yield on loans receivable is a non-GAAP measure that excludes the impact of PPP loans on balance sheet. The most directly comparable GAAP measure is yield on loans.

    Adjusted contractual 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 balance sheet. The most directly comparable GAAP measure is contractual yield on loans, excluding fees.

    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.

      Three Months Ended  Year Ended 
    (Dollars in thousands, unaudited) December 31, 2020 September 30, 2020  December 31, 2020 
    Adjusted allowance for loan losses to loans receivable:           
    Total loans, net of deferred fees $1,547,138 $1,509,389  $1,547,138 
    Less: PPP loans  (365,842) (452,846)  (365,842)
    Less: net deferred fees on PPP loans  5,803  8,586   5,803 
    Adjusted loans, net of deferred fees $1,187,099 $1,065,129  $1,187,099 
    Allowance for loan losses $(19,262)$(17,046) $(19,262)
    Allowance for loan losses to loans receivable  1.25% 1.13%  1.25%
    Adjusted allowance for loan losses to loans receivable  1.62% 1.60%  1.62%
    Adjusted yield on loans receivable:           
    Total average loans receivable $1,533,533 $1,493,024  $1,333,028 
    Less: average PPP loans  (424,290) (448,313)  (302,685)
    Plus: average deferred fees on PPP loans  7,385  9,599   6,432 
    Adjusted total average loans receivable $1,116,628 $1,054,310  $1,036,775 
    Interest income on loans $17,885 $16,244  $61,910 
    Less: interest and deferred fee income
    recognized on PPP loans
      (3,847) (3,566)  (10,172)
    Adjusted interest income on loans $14,038 $12,678  $51,738 
    Yield on loans receivable  4.64% 4.33%  4.64%
    Adjusted yield on loans receivable:  5.00% 4.78%  4.99%
    Adjusted contractual yield on loans receivable, excluding earned fees and interest on PPP loans:     
    Total average loans receivable $1,533,533 $1,493,024  $1,333,028 
    Less: average PPP loans  (424,290) (448,313)  (302,685)
    Plus: average deferred fees on PPP loans $7,385 $9,599  $6,432 
    Adjusted total average loans receivable,
    excluding earned fees
     $1,116,628 $1,054,310  $1,036,775 
    Interest and earned fee income on loans $17,885 $16,244  $61,910 
    Less: earned fee income on all loans $(3,762)$(2,693) $(9,065)
    Less: interest income on PPP loans  (1,064) (1,129)  (3,030)
    Adjusted interest income on loans $13,059 $12,422  $49,815 
    Contractual yield on loans receivable,
    excluding earned fees
      3.66% 3.61%  3.96%
    Adjusted contractual yield on loans receivable,
    excluding earned fees and interest on PPP loans:
      4.65% 4.69%  4.80%
                


    (Dollars in thousands, unaudited) As of
    December 31, 2020
     
    Adjusted Tier 1 leverage capital ratio, excluding PPP loans: 
    Company:    
    Tier 1 capital $143,532 
    Average assets for the leverage capital ratio $1,586,350 
    Less: Average PPP loans  (424,290)
    Plus: Average PPPLF borrowings  188,222 
    Adjusted average assets for the leverage capital ratio $1,350,282 
    Tier 1 leverage capital ratio  9.05%
    Adjusted Tier 1 leverage capital ratio, excluding PPP loans  10.63%
    Bank:    
    Tier 1 capital $147,262 
    Average assets for the leverage capital ratio $1,585,514 
    Less: Average PPP loans  (424,290)
    Plus: Average PPPLF borrowings  188,222 
    Adjusted average assets for the leverage capital ratio $1,349,446 
    Tier 1 leverage capital ratio  9.29%
    Adjusted Tier 1 leverage capital ratio, excluding PPP loans  10.91%
         

    APPENDIX A
    As of December 31, 2020

    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 $1.04 billion in outstanding loan balances, or 87.6% of total gross loans outstanding, excluding PPP loans of $365.8 million. When combined with $298.7 million in unused commitments the total of these three categories is $1.34 billion, or 88.9% of total outstanding loans and loan commitments.

    Commercial real estate loans represent the largest segment of our loans, comprising 65.1% of our total balance of outstanding loans, excluding PPP loans, as of December 31, 2020. Unused commitments to extend credit represents an additional $20.5 million, the combined total exposure in commercial real estate loans represents $795.4 million, or 52.7% 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 December 31, 2020:

    (Dollars in thousands, unaudited) Outstanding Balance  Available Loan Commitments  Total Exposure  % of Total
    Loans

    (Outstanding
    Balance &
    Available
    Commitment)
      Average Loan Balance  Number of Loans 
    Hotel/Motel $120,018  $228  $120,246   8.0% $4,445   27 
    Apartments  107,094   2,956   110,050   7.3   1,467   73 
    Office  79,712   3,008   82,720   5.5   876   91 
    Warehouse  78,732   1,900   80,632   5.3   1,575   50 
    Convenience Store  75,699   817   76,516   5.1   1,846   41 
    Retail  71,914   2,723   74,637   4.9   910   79 
    Mixed use  70,196   2,555   72,751   4.8   789   89 
    Mini Storage  38,923   528   39,451   2.6   2,780   14 
    Manufacturing  32,381   500   32,881   2.2   952   34 
    Groups < 2.0% of total  100,256   5,267   105,523   7.0   1,253   80 
    Total $774,925  $20,482  $795,407   52.7% $1,341   578 
                             

    Commercial and industrial loans comprise 14.6% of our total balance of outstanding loans, excluding PPP loans, as of December 31, 2020. Unused commitments to extend credit represents an additional $189.9 million, the combined total exposure in commercial and industrial loans represents $363.2 million, or 24.1% 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 December 31, 2020:

    (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 $65,559  $128,208  $193,767   12.8% $1,192   55 
    Construction/Contractor
    Services
      14,089   26,046   40,135   2.7   99   143 
    Manufacturing  11,787   5,607   17,394   1.2   210   56 
    Family and Social Services  9,894   5,466   15,360   1.0   707   14 
    Medical / Dental /
    Other Care
      12,300   2,376   14,676   1.0   192   64 
    Financial Institutions  13,400   -   13,400   0.9   3,350   4 
    Groups < 0.85% of total  46,329   22,181   68,510   4.5   150   309 
    Total $173,358  $189,884  $363,242   24.1% $269   645 
                             

    Construction, land and land development loans comprise 7.9% of our total balance of outstanding loans, excluding PPP loans, as of December 31, 2020. Unused commitments to extend credit represents an additional $88.4 million, the combined total exposure in construction, land and land development loans represents $182.8 million, or 12.1% 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 December 31, 2020:

    (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 $43,511  $66,944  $110,455   7.3% $1,813   24 
    Residential construction  21,632   16,245   37,877   2.5   1,082   20 
    Land development  10,405   4,505   14,910   1.0   946   11 
    Developed land loans  12,624   468   13,092   0.9   395   32 
    Undeveloped land loans  6,251   193   6,444   0.4   391   16 
    Total $94,423  $88,355  $182,778   12.1% $917   103 
                             

    Payment Modifications and Deferrals

    As part of our ongoing commitment to our customers we have been continuously proactive in contacting customers impacted by the stay-at-home order in Washington State, temporary business closures, or that have otherwise been impacted by the COVID-19 pandemic and responses thereto. As of December 31, 2020, $9.3 million in deferred or modified payments, pursuant to federal guidance, representing three loans, remained on deferred or modified status.

    There was a total of $233.9 million, or 247 loans, granted deferred or modified payments in the quarters ended June 30, 2020 September 30, 2020 and December 31, 2020. As of December 31, 2020, $209.8 million, or 220 loans, have successfully resumed payments as scheduled, $7.9 million, or 7 loans, have moved to active status and have a payment due in the first quarter of 2021, $6.9 million, or 17 loans, have closed and paid-in-full, leaving $9.3 million, or 3 loans, on deferral.

    The graph below illustrates the status of all the loans that were part of the COVID-19 deferral program:

    View graph here: https://www.globenewswire.com/NewsRoom/AttachmentNg/eac49836-c27f-46a0-9a59-a54084ec55f1

    The graph below indicates the percentage of loans that remain on a COVID-19 deferral. This illustration is based on total loans outstanding as of as of December 31, 2020.

    View graph here: https://www.globenewswire.com/NewsRoom/AttachmentNg/c403935e-5443-44e0-ae4c-c3a529d56ff1

    Remaining deferrals by deferral end date as of December 31, 2020:

    View graph here: https://www.globenewswire.com/NewsRoom/AttachmentNg/78a0c167-4705-43a0-8739-58ce2faf0ed5

    As a result of our proactive approach with customers, we did not see material downgrades in credit during quarter ended December 31, 2020 related to the COVID-19 pandemic. We will continue to be diligent in monitoring credit and changes in the economy, keeping the lines of communication open with our customers, but the full impact of these challenging economic times on our financial condition and liquidity remains to be seen at this time.


    Primary Logo

    Status of All Loans Deferred or Modified in the COVID-19 Program

    Status of All Loans Deferred or Modified in the COVID-19 Program
    Current Deferrals Compared to December 31, 2020 Total Loans

    Current Deferrals Compared to December 31, 2020 Total Loans
    Total Loan Deferrals by Ending Date

    Total Loan Deferrals by Ending Date
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