• Coastal Financial Corporation Announces First Quarter 2021 Results

    Source: Nasdaq GlobeNewswire / 27 Apr 2021 08:27:01   America/Chicago

    First Quarter 2021 Highlights:

    • Net income totaled $6.0 million for the quarter ended March 31, 2021, or $0.49 per diluted common share, an increase of 29.1% from $4.7 million, or $0.38 per diluted common share, for the quarter ended December 31, 2020.
    • Basic earnings per share increased 28.2%, and diluted earnings per share increased 27.9%, for the quarter ended March 31, 2021, compared to the quarter ended December 31, 2020.
    • Total assets grew $263.2 million, or 14.9%, to $2.03 billion for the quarter ended March 31, 2021, compared to $1.77 billion at December 31, 2020.
    • Total loans receivable, including $543.8 million in Paycheck Protection Program (“PPP”) loans, grew $219.6 million, or 14.2%, to $1.77 billion for the quarter ended March 31, 2021, compared to $1.55 billion at December 31, 2020.
    • Total deposits increased $250.4 million, or 17.6%, to $1.67 billion for the quarter ended March 31, 2021, compared to $1.42 billion at December 31, 2020.
    • Originated $283.6 million in PPP loans in the three months ended March 31, 2021.
    • CCBX relationships increased to 21 at March 31, 2021, compared to 15 at December 31, 2020.

    EVERETT, Wash., April 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 March 31, 2021. Net income for the first quarter of 2021 was $6.0 million, or $0.49 per diluted common share, compared with net income of $4.7 million, or $0.38 per diluted common share, for the fourth quarter of 2020, and $2.7 million, or $0.22 per diluted common share, for the quarter ended March 31, 2020.

    “We are pleased to announce that we are ending the first quarter of 2021 with total assets of $2.03 billion, an increase of $263.2 million compared to December 31, 2020. Loan and deposit growth was strong, with loans increasing $219.6 million and deposits increasing $250.4 million during the three months ended March 31, 2021. Core deposits increased $262.7 million and represent 95.2% of our total deposits. Additionally, it was recently announced that we received the Raymond James Community Bankers Cup for a second year in a row, which is a huge honor, especially looking at the challenges we faced this past year.

    “As a preferred Small Business Administration (“SBA”) lender, we continued to work 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. Since that time, through March 31, 2021, we have funded $283.6 million, representing 2,368 new and existing customers, in this latest round of PPP loans, consisting of $23.6 million in new PPP applications for first draws and $260.0 million in a second draw for small businesses that previously received PPP funds.

    “We have ambitious goals and are implementing a plan that employs 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 future success of our Company. Our CCBX division continues to develop and grow, with a total of 21 CCBX relationships as of March 31, 2021, an increase of 14 relationships compared to March 31, 2020. CCBX generates additional fee and interest income for the Company by providing BaaS enabling broker dealers and digital financial service providers to offer their clients banking services, including loans. CCDB, our digital banking division, is our newest division and we look forward to introducing our digital bank accounts later this year or early next year in connection with our previously announced collaboration with Google,” stated Eric Sprink, the President and CEO of the Company and the Bank.

    Results of Operations

    Net interest income was $17.3 million for the quarter ended March 31, 2021, an increase of $382,000, or 2.3%, from $16.9 million for the quarter ended December 31, 2020, and an increase of $6.0 million, or 52.4%, from $11.4 million for the quarter ended March 31, 2020. The increase compared to the prior quarters ended December 31, 2020 and March 31, 2020 is largely related to increased interest income resulting from loan growth. This loan growth included $543.8 million in PPP loans as of March 31, 2021, which contributed $3.2 million in net deferred PPP fees recognized, compared to $2.8 million for the quarter ended December 31, 2020, an increase of $425,000, or 15.3%. There were no PPP loans as of March 31, 2020, so no deferred fee income was recognized in that quarter. A total of $283.6 million in PPP loans were generated in the three months ended March 31, 2021 while $105.6 million in PPP loans were forgiven or repaid during the same period.

    As of March 31, 2021, $14.3 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 are being originated in 2021 and are five year loans. The fees recognized on PPP loans originated in 2021 will be recognized over the longer term until forgiven or paid off.

    Our yield on loans receivable was 4.51% for the three months ended March 31, 2021, compared to 4.64% for the three months ended December 31, 2020, and 5.25% for the three months ended March 31, 2020. The decrease in yield on loans receivable compared to the quarters ended December 31, 2020 and March 31, 2020 is largely the result of the lower, 1.0% interest rate that PPP loans earn. During the quarter ended March 31, 2021, we added $283.6 million in new PPP loans. The decrease in yield on loans receivable compared to the quarter ended March 31, 2020 is attributed to the lower rate that PPP loans earn and the downward repricing of our variable rate loans in the low interest rate environment maintained by the Federal Reserve Open Market Committee, which lowered the Fed funds rate in the first quarter of 2020.

    Non-PPP loan growth was $50.1 million, or 4.2%, for the quarter ended March 31, 2021, compared to the quarter ended December 31, 2020, which includes CCBX loan growth of $37.4 million for the quarter ended March 31, 2021. The average interest rate on new loans was approximately 2.00%, compared to an average interest rate of approximately 4.26% for the quarter ended December 31, 2020. The decrease in average interest rate compared to the prior year’s fourth quarter is due to the $283.6 million in 1.0% interest rate PPP loans that were added during the quarter ended March 31, 2021. During the three months ended March 31, 2021, most of our loan focus was on generating PPP loans. Interest and fees on loans was $18.2 million for the three months ended March 31, 2021, compared to $17.9 million for the three months ended December 31, 2020 and $12.6 million for the three months ended March 31, 2020. The increase in the interest and fees on loans for the quarter ended March 31, 2021, compared to the quarters ended December 31, 2020 and March 31, 2020, respectively, is due to increased loan balances and recognition of $2.8 million in PPP deferred fees on PPP loans that were forgiven and paid off. Interest income from interest earning deposits with other banks decreased $6,000, and $288,000 from December 31, 2020 and March 31, 2020, respectively, to $70,000 for the three months ended March 31, 2021, compared to $76,000 and $358,000 the three months ended December 31, 2020 and March 31, 2020, respectively, as a result of lower interest rates.

    Interest expense was $1.0 million for the quarter ended March 31, 2021, a $122,000 decrease from the quarter ended December 31, 2020 and a $713,000 decrease from the quarter ended March 31, 2020. The interest expense decreased despite an increase in average interest bearing deposits for the quarter ended March 31, 2021 of $47.8 million and $228.1 million, over the quarter ended December 31, 2020 and March 31, 2020, respectively, as a result of lower interest rates. Interest expense on borrowed funds was $383,000 for the quarter ended March 31, 2021, compared to $407,000 and $202,000 for the quarters ended December 31, 2020 and March 31, 2020, respectively. The decrease from the quarter ended December 31, 2020 is the result of a decrease in average Paycheck Protection Program Liquidity Facility (“PPPLF”) borrowings due to paydowns on PPP loans; the increase from the quarter ended March 31, 2020 was primarily the result of the PPPLF borrowings obtained to provide liquidity to fund the PPP loans.

    Net interest margin decreased for the three months ended March 31, 2021 to 3.76%, compared to 3.89% and 4.15% for the three months ended December 31, 2020 and March 31, 2020, respectively. The net interest margin will likely fluctuate over the near term as round one and two PPP loans originated in 2020 are forgiven and round three PPP loans continue to be originated. The decrease in net interest margin from the quarters ended December 31, 2020 and March 31, 2020 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. Gross PPP loans averaged $475.9 million in for the quarter ended March 31, 2021, and have a contractual interest rate of 1.0%, and yield approximately 3.69% after considering the amortization of deferred PPP loan fees, for the quarter ended March 31, 2021. Cost of funds decreased five basis points in the quarter ended March 31, 2021 to 0.24%, compared to the quarter ended December 31, 2020 and decreased 46 basis points from the quarter ended March 31, 2020. Deposits into noninterest bearing and low interest bearing accounts by new and existing customers contributed to the reduced cost of funds. In addition, the low Fed Funds rate has decreased market rates paid on deposits.

    During the quarter ended March 31, 2021, the average balance of total loans receivable increased by $106.6 million, to $1.64 billion, compared to $1.53 billion for the quarter ended December 31, 2020, as a result of loan growth. New loans in the first quarter of 2021 had an average interest rate of approximately 2.00%, compared to approximately 4.26% for the quarter ended December 31, 2020. Non-PPP loans grew by $50.1 million, or 4.2%, during the quarter ended March 31, 2021. PPP loans totaled $543.8 million as of March 31, 2021, which is an increase of $178.0 million compared to December 31, 2020. During the quarter ended March 31, 2021, the average balance of total loans receivable increased by $673.5 million, compared to $966.6 million for the quarter ended March 31, 2020, due to the aforementioned PPP loans combined with overall growth in the loan portfolio. Non-PPP loans grew by $232.0 million, or 23.1%, from $1.01 billion, when compared to the quarter ended March 31, 2020. Total yield on loans receivable for the quarter ended March 31, 2021 was 4.51%, compared to 4.64% for the quarter ended December 31, 2020, and 5.25% for the quarter ended March 31, 2020. The reduction in yield on loans receivable compared to the quarters ended December 31, 2020 and March 31, 2020 was a result of the lower 1.00% rate on PPP loans and the downward repricing of our variable rate loans in the low interest rate environment. PPP loans reduced the yield on loans receivable* by 27 basis points for the quarter ended March 31, 2021.

    Contractual yield on loans receivable, excluding earned fees* approximated 3.53% for the quarter ended March 31, 2021, compared to 3.66% for the quarter ended December 31, 2020, and 5.08% for the quarter ended March 31, 2020. During the quarter ended March 31, 2021, the average balance of PPP loans was $475.9 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 was 4.52%*. Also contributing to the reduction in contractual yield is the current low-rate environment, 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 $410.4 million, or 23.0%, in existing loans, the lowered rates may have a corresponding impact on yield on loans receivables and the net interest margin in future periods.

    Cost of deposits for the quarter ended March 31, 2021 was 0.17%, a decrease of five basis points from 0.22% for the quarter ended December 31, 2020, and a 47 basis point decrease from 0.64% for the quarter ended March 31, 2020. 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 continue to gain new customer relationships from the PPP loans originated to noncustomers that move their deposit relationships to the Bank. Market conditions for deposits continued to be competitive during the quarter ended March 31, 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 run-off when appropriate, such as when we are able to replace them with lower cost core deposits.

    Return on average assets (“ROA”) was 1.28% for the quarter ended March 31, 2021 compared to 1.04% and 0.96% for the quarters ended December 31, 2020 and March 31, 2020, respectively. ROA was impacted in the quarters ended December 31, 2020 and March 31, 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 1.69% for the quarter ended March 31, 2021, compared to 1.90% for the quarter ended December 31, 2020, and 1.77% for the quarter ended March 31, 2020.

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

     

    During the first quarter of 2021, significant focus was placed on helping the small businesses in our communities through the third round of PPP loans. The current PPP loan program is currently scheduled to end on May 31, 2021. We will continue to accept and process PPP loans for the duration of the program. The PPP loans originated in the first and second rounds during 2020 and from the third round originated in 2021 have had a significant impact on our financial statements. These PPP loans along with any additional PPP loans that fund through the end of the program will continue to impact our results in the future. During the quarter ended March 31, 2021 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 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 March 31, 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 $4,506 $10,141 $10,382 $32,375 $52,299 $109,703 
    New customer  11,132  15,352  22,820  40,151  61,052  150,507 
    Total principal outstanding  15,638  25,493  33,202  72,526  113,351  260,210 
    Deferred fees outstanding  (450) (636) (791) (978) (515) (3,370)
    Deferred costs outstanding  247  85  60  44  14  450 
    Net deferred fees $(203)$(551)$(731)$(934)$(501)$(2,920)
    Total principal, net of deferred fees $15,435 $24,942 $32,471 $71,592 $112,850 $257,290 
    Number of loans:                   
    Existing customer  214  112  47  42  13  428 
    New customer  615  177  106  55  19  972 
    Total loan count  829  289  153  97  32  1,400 
    Percent of total  59.3% 20.6% 10.9% 6.9% 2.3% 100.0%
                        
    Forgiveness/Payoffs/Paydowns in Quarter Ended March 31, 2021, net          
    Dollars $12,083 $27,446 $18,215 $47,886 $- $105,630 
    Deferred fee recognized  155  817  689  1,040  113  2,814 


    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 March 31, 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 $14,872 $36,882 $43,811 $111,178 $2,956 $209,699 
    New customer  11,006  14,263  20,111  28,538  -  73,918 
    Total principal outstanding  25,878  51,145  63,922  139,716  2,956  283,617 
    Deferred fees outstanding  (3,143) (2,479) (3,099) (4,056) (29) (12,806)
    Deferred costs outstanding  800  362  173  110  1  1,446 
    Net deferred fees $(2,343)$(2,117)$(2,926)$(3,946)$(28)$(11,360)
    Number of loans:                   
    Existing customer  707  399  190  141  1  1,438 
    New customer  633  163  89  45  -  930 
    Total loan count  1,340  562  279  186  1  2,368 
    Percent of total  56.6% 23.7% 11.8% 7.9% 0.0% 100.0%
                        
    First or Second Draw          
    First Draw $7,456 $5,930 $1,983 $5,264 $2,956 $23,589 
    Second Draw  18,422  45,215  61,939  134,452  -  260,028 


    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 
    (unaudited) March 31,
    2021    		 December 31,
    2020    		 September 30,
    2020    		 June 30,
    2020    		 March 31,
    2020    		 
                     
    Return on average assets (1)  1.28% 1.04% 0.95% 0.96% 0.96%
    Return on average equity (1)  16.84% 13.36% 12.14% 11.37% 8.66%
    Pre-tax, pre-provision return
          on average assets (1)(2)    		  1.69% 1.90% 1.72% 1.72% 1.77%
    Yield on earnings assets (1)  3.99% 4.16% 3.93% 4.16% 4.79%
    Yield on loans receivable (1)  4.51% 4.64% 4.33% 4.57% 5.25%
    Yield on loans receivable,
          excluding PPP loans (1)(2)    		  4.78% 5.00% 4.78% 4.94%n/a 
    Contractual yield on loans
          receivable, excluding earned
          fees (1)(2)    		  3.53% 3.66% 3.61% 3.91% 5.08%
    Contractual yield on loans
          receivable, excluding earned
          fees and interest on PPP loans,
          as adjusted (1)(2)    		  4.52% 4.65% 4.69% 4.84%n/a 
    Cost of funds (1)  0.24% 0.29% 0.33% 0.41% 0.70%
    Cost of deposits (1)  0.17% 0.22% 0.27% 0.35% 0.64%
    Net interest margin (1)  3.76% 3.89% 3.62% 3.78% 4.15%
    Noninterest expense to average
          assets (1)    		  2.62% 2.35% 2.26% 2.34% 3.18%
    Efficiency ratio  60.85% 55.26% 56.73% 57.66% 64.26%
    Loans receivable to deposits  105.68% 108.85% 110.98% 110.77% 100.01%
                     
    (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 $3.0 million in the first quarter of 2021, an increase of $935,000 from $2.0 million at the fourth quarter of 2020, and an increase of $313,000 from $2.7 million in the first quarter of 2020. The increase in noninterest income over the quarter ended December 31, 2020 was due to a $213,000 increase in BaaS fees, a $174,000 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, and an increase of $410,000 in other income. The increase in other income was primarily due to the revaluation and write-down of an equity interest of $400,000 recorded in other income in December 2020, which had reduced other income for the quarter ended December 31, 2020. The $313,000 increase over the quarter ended March 31, 2020 was primarily due to a $369,000 increase in BaaS fees, $140,000 increase in deposit service charges and fees, $130,000 increase in gain on sale of loans, and a $100,000 increase in mortgage broker fees, partially offset by $456,000 decrease in loan referral fees.

    Our CCBX division continues to grow, and consists of 21 relationships, at varying stages, as of March 31, 2021, compared to 15 CCBX relationships at December 31, 2020 and seven CCBX relationships as of March 31, 2020, respectively. As of March 31, 2021, we had ten active CCBX relationships, five relationships in onboarding/implementation, six signed letters of intent 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
     March 31, 2021December 31, 2020March 31, 2020
    Active1062
    Friends and family-2-
    Implementation / onboarding533
    Signed letters of intent642
    Total CCBX relationships21157


    Total noninterest expense for the first quarter of 2021 increased to $12.4 million compared to $10.5 million for the preceding quarter and compared to $9.0 million for the first quarter of 2020. Increase in noninterest expense for the quarter ended March 31, 2021, as compared to the quarter ended December 31, 2020, was due to a $1.3 million increase in salaries and employee benefits which is related to the hiring in our CCBX and CCDB divisions and additional staff for our ongoing banking growth initiatives and includes bonus expense which was $1.2 million higher compared to $687,000 for the three months ended December 31, 2020, due to incentives paid to employees that have been involved in the production and support of PPP loans during the three months ended March 31, 2021. The increase in salary expense was offset by an increase in deferred loan costs of $992,000, primarily from originating PPP loans, which is recorded as a salary offset, thereby reducing salary expense, for the quarter ended March 31, 2021, compared to the quarter ended December 31, 2020. Other expenses increased $203,000 in the first quarter of 2021 compared to the prior year’s fourth quarter largely due to an $82,000 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 and CCDB divisions, and $41,000 increase in the provision for unfunded commitments. In addition, in the first quarter of 2021 compared to the prior year’s fourth quarter, legal and professional fees increased $176,000 due to CCBX division expenses and higher costs associated with legal and accounting work related to financial reporting related to our growth.

    The increased noninterest expenses for the quarter ended March 31, 2021 compared to the first quarter in 2020 were largely due to a $2.0 million increase in salary expenses related to hiring staff for our CCBX and CCDB divisions, additional staff for our ongoing banking growth initiatives and bonus incentive expense which was $1.4 million higher than the three months ended March 31, 2020, due to incentives paid to employees involved in the production and support of PPP loans originated in the first quarter of 2021. The increase in salary expense was reduced as a result of an increase in deferred loan costs recorded as salary offsets, primarily from originating PPP loans, which was $1.2 million higher compared to $438,000, thereby lowering salary expense, for the quarter ended March 31, 2021, compared to the quarter ended March 31, 2020. Other expenses increased $441,000 in the first quarter of 2021 compared to the quarter ended March 31, 2020, largely due to a $213,000 increase in software license, maintenance and subscription expenses and $115,000 increase in the provision for unfunded commitments. In addition, in the first quarter of 2021 compared to the first quarter of 2020, legal and professional fees increased $437,000 and Federal Deposit Insurance Corporation (“FDIC”) assessments increased $125,000. 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 March 31, 2020, which reduced the expenses in 2020, combined with an increase in deposits compared to the quarter ended March 31, 2020.

    The provision for income taxes was $1.6 million at March 31, 2021, a $340,000 increase compared to $1.2 million for the fourth quarter of 2020 and a $858,000 increase compared to $714,000 for the first quarter of 2020, 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 $263.2 million, or 14.9%, to $2.03 billion at March 31, 2021 compared to $1.77 billion at December 31, 2020. The primary cause of the increase was $219.6 million in increased loans receivable, which includes $283.6 in new PPP loans, offset by $105.6 million in forgiveness, payoffs or principal paydowns on PPP loans originated in 2020, together with overall growth in the loan portfolio, combined with a $43.3 million increase in interest earning deposits with other banks. Total assets increased $845.3 million, or 71.4% at March 31, 2021, compared to $1.18 billion at March 31, 2020. This increase was largely the result of a $761.5 million increase in loans receivable, which includes $543.8 million in PPP loans as of March 31, 2021, combined with a $72.4 million increase in interest earning deposits with other banks.

    Total loans receivable increased $219.6 million to $1.77 billion at March 31, 2021, from $1.55 billion at December 31, 2020, and increased $761.5 million from $1.01 billion at March 31, 2020. The growth in loans receivable over the quarter ended December 31, 2020 was due to a net increase of $178.0 million in PPP loans, which includes $283.6 million in new PPP loans originated during 2021 in the third round of the program net of $105.6 million in forgiveness/payoffs or principal paydowns on PPP loans from the first two rounds of the program. Also contributing to the increase in loans receivable was non-PPP loan growth of $50.1 million, consisting of CCBX loan growth of $37.4 million, and core banking loan growth, which excludes PPP loans and CCBX loans, of $12.7 million during the three months ended March 31, 2021. Total loans receivable is net of $18.3 million in net deferred origination fees, $14.3 million of which is attributed to PPP loans and $11.4 million is attributed it loans originated in the three months ended March 31, 2021. Deferred fees on PPP loans are earned over the life of the loan, with a maximum maturity of five years for loans originated in 2020 and all PPP loans originated in 2021 have five year maturities. The increase in loans receivable over the quarter ended March 31, 2020 was due to a $543.8 million increase in PPP loans, and $233.9 million increase in non-PPP loans consisting of $150.1 million increase in commercial real estate loans, $79.8 million in other commercial and industrial loans and $18.6 million in residential real estate loans.

    The second round of the PPP loans closed on August 8, 2020, and since that time we have been accepting applications from customers for loan forgiveness on PPP loans originated in 2020. As of March 31, 2021, we have received $105.6 million in forgiveness payments or principal paydowns. We expect that the pace of forgiveness will continue throughout 2021 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 to be an option for customers not eligible for forgiveness.

    The third round of PPP loans opened to applicants on January 19, 2021. Once again, we will continue to accept and process applications for both existing and new customers, for the duration of the program which runs through May 30, 2021. As of March 31, 2021, we have originated loans for $283.6 million, representing 2,368 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 
      March 31, 2021  December 31, 2020  March 31, 2020 
    (Dollars in thousands; unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                          
    Commercial and industrial loans:                     
    PPP loans $543,827  30.5% $365,842  23.5% $-  0.0%
    All other commercial &
       industrial loans    		  202,447  11.2   173,358  11.1   122,667  12.2 
    Real estate loans:                     
    Construction, land and
       land development loans    		  104,596  5.9   94,423  6.1   119,668  11.9 
    Residential real estate loans  136,417  7.7   143,869  9.2   117,821  11.7 
    Commercial real estate loans  793,633  44.5   774,925  49.8   643,488  63.9 
    Consumer and other loans  4,114  0.2   3,916  0.3   3,695  0.3 
    Gross loans receivable  1,785,034  100.0%  1,556,333  100.0%  1,007,339  100.0%
    Net deferred origination fees -
         PPP loans    		  (14,279)     (5,803)     -    
    Net deferred origination fees -
         Other loans    		  (4,032)     (3,392)     (2,159)   
    Loans receivable $1,766,723     $1,547,138     $1,005,180    


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

    Total deposits increased $250.4 million, or 17.6%, to $1.67 billion at March 31, 2021 from $1.42 billion at December 31, 2020. The increase is largely due to a $262.7 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. Additionally, deposits in our CCBX division increased $70.4 million, from $68.7 million at December 31, 2020, to $139.1 million at March 31, 2021. The deposits from our CCBX division are included in noninterest bearing, NOW and money market and brokered deposit totals. During the quarter ended March 31, 2021, noninterest bearing deposits increased $176.4 million, or 29.8%, to $768.7 million from $592.3 million at December 31, 2020. Included in the increase in noninterest bearing deposits is an increase in CCBX division deposits of $79.6 million for the quarter ended March 31, 2021. In the first quarter of 2021 compared to the quarter ended December 31, 2020, NOW and money market accounts increased $69.9 million, and savings accounts increased $16.3 million, or 21.0%. BaaS-brokered deposits decreased $7.9 million, or 23.5%, and time deposits decreased $4.4 million, or 7.3%. Total deposits increased $666.7 million, or 66.3%, to $1.67 billion at March 31, 2021 compared to $1.01 billion at March 31, 2020. Noninterest bearing deposits increased $423.2 million, or 122.5%, to $768.7 million at March 31, 2021 from $345.5 million at March 31, 2020. NOW and money market accounts increased $236.2 million, or 48.0%, to $728.2 million at March 31, 2021, and savings accounts increased $39.1 million, or 71.2% and BaaS-brokered deposits increased $1.7 million, or 7.1% while time deposits decreased $33.5 million, or 37.7%. 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 
      March 31, 2021  December 31, 2020  March 31, 2020 
    (Dollars in thousands, unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                          
    Demand, noninterest bearing $768,690  46.0% $592,261  41.7% $345,503  34.4%
    NOW and money market  728,243  43.6   658,323  46.3   492,054  49.0 
    Savings  93,917  5.6   77,611  5.4   54,851  5.4 
    Total core deposits  1,590,850  95.2   1,328,195  93.4   892,408  88.8 
    BaaS-brokered deposits  25,597  1.5   33,482  2.4   23,904  2.4 
    Time deposits less than $250,000  38,986  2.3   41,145  2.9   58,366  5.8 
    Time deposits $250,000 and over  16,282  1.0   18,485  1.3   30,384  3.0 
    Total deposits $1,671,715  100.0% $1,421,307  100.0% $1,005,062  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 March 31, 2021, there was $158.5 million in outstanding PPPLF advances and pledged PPP loans, compared to $153.7 million at December 31, 2020. The PPPLF program is currently available for new borrowings until June 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 March 31, 2021, we borrowed a total of $25.0 million in FHLB term advances. This includes a $10.0 million advance with a remaining term of 2.0 years and $15.0 million advance with a remaining term of 4.0 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 $76.0 million was available under this arrangement as of March 31, 2021.

    Total shareholders’ equity increased $6.5 million since December 31, 2020. The increase in shareholders’ equity was primarily due to $6.0 million in net earnings for the three months ended March 31, 2021.

    Capital Ratios

    The Company and the Bank remain well capitalized at March 31, 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 8.84%  8.62%  5.00%
    Adjusted Tier 1 leverage capital ratio, excluding PPP loans (1) 10.72%  10.45%  5.00%
    Common Equity Tier 1 risk-based capital 11.45%  10.89%  6.50%
    Tier 1 risk-based capital 11.45%  11.15%  8.00%
    Total risk-based capital 12.70%  13.15%  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 $19.6 million and 1.11% of loans receivable at March 31, 2021 compared to $19.3 million and 1.25% at December 31, 2020 and $12.9 million and 1.29% at March 31, 2020. At March 31, 2021, there was $543.8 million in PPP loans, which are 100% guaranteed by the SBA. Excluding PPP loans, the allowance for loan losses to loans receivable* would be 1.59% for the quarter ended March 31, 2021. Provision for loan losses totaled $357,000 for the three months ended March 31, 2021, $2.6 million for the three months ended December 31, 2020, and $1.6 million for the three months ended March 31, 2020. Net charge-offs totaled $9,000 for the quarter ended March 31, 2021, compared to $384,000 for the quarter ended December 31, 2020 and $123,000 for the quarter ended March 31, 2020. Net charge-offs for the quarter ended March 31, 2021 included a net charge-off of $9,000 for a non-performing commercial and industrial loan.

    The Company’s increased provision for loan losses during the quarters ended December 31, 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 qualitative and economic factors used in management’s analysis of the provision for loan losses indicated an increased provision was not required for the quarter ended March 31, 2021. The expected loan losses have not materialized 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 United States implementing $1.9 trillion in stimulus package, ongoing vaccination of its population and increased re-opening of business activities. 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.

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

    At March 31, 2021, our nonperforming assets were $661,000, or 0.03% of total assets, compared to $712,000, or 0.04%, of total assets at December 31, 2020, and $763,000, or 0.06%, of total assets at March 31, 2020. Nonperforming assets decreased $51,000 during the quarter ended March 31, 2021, compared to the quarter ended December 31, 2020, with a partial charge-off of one loan ($9,000), the addition of one loan ($133,000) and principal paydowns 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 March 31, 2021. Our nonperforming loans to loans receivable ratio was 0.04% at March 31, 2021, compared to 0.05% at December 31, 2020, and 0.08% at March 31, 2020.

    For the quarter ended March 31, 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 $241.6 million in loans were deferred and/or modified under this guidance since the guidelines were issued. For the quarter ended March 31, 2021, three loans, or $13.3 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 table below illustrates the status of all loans that were deferred and/or modified under this guidance since the guidelines were issued:

     COVID-19 Deferrals
     As of March 31, 2021
     Amount Number of loans
     (Dollars in thousands; unaudited)
    Successfully resumed payments$211,351  217
    Closed - paid off 13,247  27
    Pending first payment 3,660  2
    Currently deferred 13,296  3
    Total$241,554  249


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

         As of    
      March 31, December 31, March 31, 
    (Dollars in thousands, unaudited) 2021 2020 2020 
               
    Nonaccrual loans:          
    Commercial and industrial loans $488 $537 $699 
    Real estate:          
    Residential real estate  173  175  64 
    Total nonaccrual loans  661  712  763 
               
    Accruing loans past due 90 days or more:          
    Total accruing loans past due 90 days or more  -  -  - 
    Total nonperforming loans  661  712  763 
    Other real estate owned  -  -  - 
    Repossessed assets  -  -  - 
    Total nonperforming assets $661 $712 $763 
    Troubled debt restructurings, accruing  -  -  - 
    Total nonperforming loans to loans receivable  0.04% 0.05% 0.08%
    Total nonperforming assets to total assets  0.03% 0.04% 0.06%


    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 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 
      March 31,  December 31,  March 31, 
      2021  2020  2020 
    Cash and due from banks $16,842  $18,965  $14,124 
    Interest earning deposits with other banks  187,472   144,152   115,112 
    Investment securities, available for sale, at fair value  20,378   20,399   15,469 
    Investment securities, held to maturity, at amortized cost  2,515   2,848   4,290 
    Other investments  6,829   6,059   5,723 
    Loans receivable  1,766,723   1,547,138   1,005,180 
    Allowance for loan losses  (19,610)  (19,262)  (12,925)
    Total loans receivable, net  1,747,113   1,527,876   992,255 
    Premises and equipment, net  17,194   17,108   14,195 
    Operating lease right-of-use assets  6,900   7,120   8,228 
    Accrued interest receivable  8,597   8,616   3,014 
    Bank-owned life insurance, net  7,133   7,082   6,931 
    Deferred tax asset, net  3,802   3,799   2,735 
    Other assets  4,584   2,098   1,995 
    Total assets $2,029,359  $1,766,122  $1,184,071 
                 
    LIABILITIES AND SHAREHOLDERS’ EQUITY 
    LIABILITIES            
    Deposits $1,671,715  $1,421,307  $1,005,062 
    Federal Home Loan Bank advances  24,999   24,999   24,999 
    Paycheck Protection Program Liquidity Facility  158,519   153,716   - 
    Subordinated debt, net  9,996   9,993   9,982 
    Junior subordinated debentures, net  3,585   3,584   3,583 
    Deferred compensation  833   863   947 
    Accrued interest payable  538   531   310 
    Operating lease liabilities  7,105   7,323   8,419 
    Other liabilities  5,330   3,589   3,603 
    Total liabilities  1,882,620   1,625,905   1,056,905 
                 
    SHAREHOLDERS’ EQUITY            
    Common stock  88,329   87,815   87,166 
    Retained earnings  58,386   52,368   39,946 
    Accumulated other comprehensive income (loss), net of tax  24   34   54 
    Total shareholders’ equity  146,739   140,217   127,166 
    Total liabilities and shareholders’ equity $2,029,359  $1,766,122  $1,184,071 


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

     Three Months Ended 
     March 31, December 31, March 31, 
     2021 2020 2020 
    INTEREST AND DIVIDEND INCOME         
    Interest and fees on loans$18,230 $17,885 $12,627 
    Interest on interest earning deposits with other banks 70  76  358 
    Interest on investment securities 28  31  119 
    Dividends on other investments 30  106  16 
    Total interest and dividend income 18,358  18,098  13,120 
    INTEREST EXPENSE         
    Interest on deposits 660  758  1,554 
    Interest on borrowed funds 383  407  202 
    Total interest expense 1,043  1,165  1,756 
    Net interest income 17,315  16,933  11,364 
    PROVISION FOR LOAN LOSSES 357  2,600  1,578 
    Net interest income after provision for loan losses 16,958  14,333  9,786 
    NONINTEREST INCOME         
    Deposit service charges and fees 863  867  723 
    BaaS fees 948  735  579 
    Loan referral fees 597  423  1,053 
    Mortgage broker fees 262  216  162 
    Sublease and lease income 32  31  30 
    Gain on sales of loans, net 130  35  - 
    Other income (loss) 152  (258) 124 
    Total noninterest income 2,984  2,049  2,671 
    NONINTEREST EXPENSE         
    Salaries and employee benefits 7,686  6,433  5,683 
    Occupancy 1,058  1,026  927 
    Data processing 697  599  551 
    Director and staff expenses 220  187  270 
    Excise taxes 359  301  203 
    Marketing 82  37  112 
    Legal and professional fees 760  584  323 
    Federal Deposit Insurance Corporation assessments 195  230  70 
    Business development 99  99  125 
    Other expense 1,196  993  755 
    Total noninterest expense 12,352  10,489  9,019 
    Income before provision for income taxes 7,590  5,893  3,438 
    PROVISION FOR INCOME TAXES 1,572  1,232  714 
    NET INCOME$6,018 $4,661 $2,724 
              
    Basic earnings per common share$0.50 $0.39 $0.23 
    Diluted earnings per common share$0.49 $0.38 $0.22 
    Weighted average number of common shares outstanding:         
    Basic 11,980,092  11,936,289  11,909,248 
    Diluted 12,392,000  12,280,191  12,208,175 


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

     March 31, 2021  December 31, 2020  March 31, 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$195,308 $70  0.15% $166,744 $76  0.18% $103,372 $358  1.39%
    Investment securities (1) 24,185  28  0.47   23,730  31  0.52   27,041  119  1.77 
    Other investments 6,080  30  2.00   6,124  106  6.89   4,507  16  1.43 
    Loans receivable (2) 1,640,108  18,230  4.51   1,533,533  17,885  4.64   966,602  12,627  5.25 
    Total interest earning assets 1,865,681  18,358  3.99   1,730,131  18,098  4.16   1,101,522  13,120  4.79 
    Noninterest earning assets:                             
    Allowance for loan losses (19,391)        (17,767)        (11,665)      
    Other noninterest earning assets 65,912         62,359         51,596       
    Total assets$1,912,202        $1,774,723        $1,141,453       
                                  
    Liabilities and Shareholders’ Equity 
    Interest bearing liabilities:                             
    Interest bearing deposits$856,111 $660  0.31% $808,351 $758  0.37% $628,037 $1,554  1.00%
    Subordinated debt, net 9,994  145  5.88   9,991  148  5.89   9,980  146  5.88 
    Junior subordinated debentures, net 3,585  21  2.38   3,584  22  2.44   3,583  35  3.93 
    PPPLF borrowings 170,376  147  0.35   188,222  166  0.35   -  -  0.00 
    FHLB advances and other borrowings 24,999  70  1.14   25,001  71  1.13   7,851  21  1.08 
    Total interest bearing liabilities 1,065,065  1,043  0.40   1,035,149  1,165  0.45   649,451  1,756  1.09 
    Noninterest bearing deposits 690,465         588,764         352,930       
    Other liabilities 11,778         11,968         12,542       
    Total shareholders' equity 144,894         138,842         126,530       
    Total liabilities and                             
    shareholders' equity$1,912,202        $1,774,723        $1,141,453       
    Net interest income   $17,315        $16,933        $11,364    
    Interest rate spread       3.59%        3.71%        3.70%
    Net interest margin (3)       3.76%        3.89%        4.15%
                                  
    (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 
     March 31, December 31, September 30, June 30, March 31, 
     2021 2020 2020 2020 2020 
    Income Statement Data:               
    Interest and dividend income$18,358 $18,098 $16,394 $15,426 $13,120 
    Interest expense 1,043  1,165  1,298  1,433  1,756 
    Net interest income 17,315  16,933  15,096  13,993  11,364 
    Provision for loan losses 357  2,600  2,200  1,930  1,578 
    Net interest income after               
    provision for loan losses 16,958  14,333  12,896  12,063  9,786 
    Noninterest income 2,984  2,049  1,942  1,520  2,671 
    Noninterest expense 12,352  10,489  9,666  8,945  9,019 
    Net income - pre-tax, pre-provision (1) 7,947  8,493  7,372  6,568  5,016 
    Provision for income tax 1,572  1,232  1,082  967  714 
    Net income 6,018  4,661  4,090  3,671  2,724 
     As of and for the Three Month Period 
     March 31, December 31, September 30, June 30, March 31, 
     2021 2020 2020 2020 2020 
    Balance Sheet Data:               
    Cash and cash equivalents$204,314 $163,117 $182,170 $174,176 $129,236 
    Investment securities 22,893  23,247  23,782  24,318  19,759 
    Loans receivable 1,766,723  1,547,138  1,509,389  1,447,144  1,005,180 
    Allowance for loan losses (19,610) (19,262) (17,046) (14,847) (12,925)
    Total assets 2,029,359  1,766,122  1,749,619  1,678,956  1,184,071 
    Interest bearing deposits 903,025  829,046  789,347  742,633  659,559 
    Noninterest bearing deposits 768,690  592,261  570,664  563,794  345,503 
    Core deposits (2) 1,590,850  1,328,195  1,270,249  1,212,215  892,408 
    Total deposits 1,671,715  1,421,307  1,360,011  1,306,427  1,005,062 
    Total borrowings 197,099  192,292  241,167  228,725  38,564 
    Total shareholders’ equity 146,739  140,217  135,232  130,977  127,166 
                    
    Share and Per Share Data (3):               
    Earnings per share – basic$0.50 $0.39 $0.34 $0.31 $0.23 
    Earnings per share – diluted$0.49 $0.38 $0.34 $0.30 $0.22 
    Dividends per share -  -  -  -  - 
    Book value per share (4)$12.24 $11.73 $11.34 $10.98 $10.66 
    Tangible book value per share (5)$12.24 $11.73 $11.34 $10.98 $10.66 
    Weighted avg outstanding shares – basic 11,980,092  11,936,289  11,919,850  11,917,394  11,909,248 
    Weighted avg outstanding shares – diluted 12,392,000  12,280,191  12,181,272  12,190,284  12,208,175 
    Shares outstanding at end of period 11,988,636  11,954,327  11,930,243  11,926,263  11,929,413 
    Stock options outstanding at end of period 728,492  749,397  769,607  774,587  774,937 
                    
    See footnotes on following page               
                    
                    
     As of and for the Three Month Period 
     March 31, December 31, September 30, June 30, March 31, 
     2021 2020 2020 2020 2020 
    Credit Quality Data:               
    Nonperforming assets to total assets 0.03% 0.04% 0.26% 0.26% 0.06%
    Nonperforming assets to loans receivable and OREO 0.04% 0.05% 0.30% 0.31% 0.08%
    Nonperforming loans to total loans receivable 0.04% 0.05% 0.30% 0.31% 0.08%
    Allowance for loan losses to nonperforming loans 2966.7% 2705.3% 380.7% 334.8% 1694.0%
    Allowance for loan losses to total loans receivable 1.11% 1.25% 1.13% 1.03% 1.29%
    Allowance for loan losses to loans receivable, as adjusted (1) 1.59% 1.62% 1.60% 1.46%n/a 
    Gross charge-offs$18 $386 $2 $13 $124 
    Gross recoveries$9 $2 $1 $5 $1 
    Net charge-offs to average loans (6) 0.00% 0.10% 0.00% 0.00% 0.05%
                    
    Capital Ratios (7):               
    Tier 1 leverage capital 8.62% 9.05% 9.20% 9.38% 11.43%
    Common equity Tier 1 risk-based capital 10.89% 11.27% 12.14% 12.34% 12.10%
    Tier 1 risk-based capital 11.15% 11.55% 12.45% 12.67% 12.43%
    Total risk-based capital 13.15% 13.61% 14.61% 14.88% 14.65%
                    
    (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 

    (Dollars in thousands, unaudited)    		 March 31,
    2021    		 December 31,
    2020    		 September 30,
    2020    		 June 30,
    2020    		 March 31,
    2020    		 
                
    Pre-tax, pre-provision net income and pre-tax, pre-provision return on average assets: 
    Total average assets $1,912,202 $1,774,723 $1,704,874 $1,538,546 $1,141,453 
    Total net income  6,018  4,661  4,090  3,671  2,724 
    Plus: provision for loan
        losses    		  357  2,600  2,200  1,930  1,578 
    Plus: provision for
        income taxes    		  1,572  1,232  1,082  967  714 
    Pre-tax, pre-provision net income $7,947 $8,493 $7,372 $6,568 $5,016 
    Return on average assets  1.28% 1.04% 0.95% 0.96% 0.96%
    Pre-tax, pre-provision
        return on average assets:    		  1.69% 1.90% 1.72% 1.72% 1.77%


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

    Contractual 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 
    (Dollars in thousands, unaudited) March 31,
    2021    		 December 31,
    2020    		 September 30,
    2020    		 June 30,
    2020    		 March 31,
    2020    		 
                
    Contractual yield on loans receivable, excluding earned fees : 
    Total average loans receivable $1,640,108 $1,533,533 $1,493,024 $1,334,991 $966,602 
    Interest and earned fee income on loans  18,230  17,885  16,244  15,154  12,627 
    Less: earned fee income on all loans  (3,974) (3,765) (2,692) (2,182) (429)
    Adjusted interest income on loans $14,256 $14,120 $13,552 $12,972 $12,198 
    Yield on loans receivable  4.51% 4.64% 4.33% 4.57% 5.25%
    Contractual yield on loans
        receivable, excluding earned fees:    		  3.53% 3.66% 3.61% 3.91% 5.08%
    Contractual yield on loans
        receivable, excluding earned fees
        and interest on PPP loans (1):    		  4.52% 4.65% 4.69% 4.84%n/a 
    (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 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.

    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.

    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.

    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 
    (Dollars in thousands, unaudited) March 31, 2021 December 31, 2020 
    Adjusted allowance for loan losses to loans receivable:       
    Total loans, net of deferred fees $1,766,723 $1,547,138 
    Less: PPP loans  (543,827) (365,842)
    Less: net deferred fees on PPP loans  14,279  5,803 
    Adjusted loans, net of deferred fees $1,237,175 $1,187,099 
    Allowance for loan losses $(19,610)$(19,262)
    Allowance for loan losses to loans receivable  1.11% 1.25%
    Adjusted allowance for loan losses to loans receivable  1.59% 1.62%
    Yield on loans receivable, excluding PPP loans:       
    Total average loans receivable $1,640,108 $1,533,533 
    Less: average PPP loans  (475,941) (424,290)
    Plus: average deferred fees on PPP loans  10,788  7,385 
    Adjusted total average loans receivable $1,174,955 $1,116,628 
    Interest income on loans $18,230 $17,885 
    Less: interest and deferred fee income
        recognized on PPP loans    		  (4,378) (3,847)
    Adjusted interest income on loans $13,852 $14,038 
    Yield on loans receivable  4.51% 4.64%
    Yield on loans receivable, excluding PPP loans:  4.78% 5.00%
    Contractual yield on loans receivable, excluding earned fees and interest on PPP loans: 
    Total average loans receivable $1,640,108 $1,533,533 
    Less: average PPP loans  (475,941) (424,290)
    Plus: average deferred fees on PPP loans $10,788 $7,385 
    Adjusted total average loans receivable $1,174,955 $1,116,628 
    Interest and earned fee income on loans $18,230 $17,885 
    Less: earned fee income on all loans $(3,974)$(3,762)
    Less: interest income on PPP loans  (1,169) (1,064)
    Adjusted interest income on loans $13,086 $13,059 
    Yield on loans receivable  4.51% 4.64%
    Contractual yield on loans receivable,
        excluding earned fees (1):    		  4.52% 4.65%
    Contractual yield on loans receivable,
        excluding earned fees and interest on PPP loans:    		  4.52% 4.65%
    (1) Non-GAAP measure - see previous table of "Non-GAAP Financial Measures" for more information. 


    (Dollars in thousands, unaudited) As of
    March 31, 2021    		 As of
    December 31, 2020    		 
          
    Adjusted Tier 1 leverage capital ratio, excluding PPP loans: 
    Company:       
    Tier 1 capital $150,055 $143,532 
    Average assets for the leverage capital ratio $1,741,666 $1,586,350 
    Less: Average PPP loans  (475,941) (424,290)
    Plus: Average PPPLF borrowings  170,376  188,222 
    Adjusted average assets for the leverage capital ratio $1,436,101 $1,350,282 
    Tier 1 leverage capital ratio  8.62% 9.05%
    Adjusted Tier 1 leverage capital ratio, excluding PPP loans  10.45% 10.63%
    Bank:       
    Tier 1 capital $153,844 $147,262 
    Average assets for the leverage capital ratio $1,740,660 $1,585,514 
    Less: Average PPP loans  (475,941) (424,290)
    Plus: Average PPPLF borrowings  170,376  188,222 
    Adjusted average assets for the leverage capital ratio $1,435,095 $1,349,446 
    Tier 1 leverage capital ratio  8.84% 9.29%
    Adjusted Tier 1 leverage capital ratio, excluding PPP loans  10.72% 10.91%


    APPENDIX A -
    As of March 31, 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 $1.10 billion in outstanding loan balances, or 88.7% of total gross loans outstanding, excluding PPP loans of $543.8 million. When combined with $393.5 million in unused commitments the total of these three categories is $1.49 billion, or 90.2% of total outstanding loans and loan commitments.

    Commercial real estate loans represent the largest segment of our loans, comprising 63.9% of our total balance of outstanding loans, excluding PPP loans, as of March 31, 2021. Unused commitments to extend credit represents an additional $23.2 million, the combined total exposure in commercial real estate loans represents $816.9 million, or 49.3% 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 March 31, 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 $119,556  $3,316  $122,872   7.4% $1,616   74 
    Hotel/Motel  115,093   228   115,321   7.0   4,427   26 
    Office  89,949   3,202   93,151   5.6   967   93 
    Retail  79,874   2,530   82,404   5.0   974   82 
    Convenience Store  75,215   5,317   80,532   4.9   1,749   43 
    Mixed use  71,527   2,200   73,727   4.5   786   91 
    Warehouse  69,920   1,853   71,773   4.3   1,488   47 
    Mini Storage  40,998   215   41,213   2.5   2,733   15 
    Manufacturing  36,124   200   36,324   2.2   1,095   33 
    Groups < 2.0% of total  95,377   4,170   99,547   6.0   1,223   78 
    Total $793,633  $23,231  $816,864   49.3% $1,364   582 


    Commercial and industrial loans     comprise 16.3% of our total balance of outstanding loans, excluding PPP loans, as of March 31, 2021. Unused commitments to extend credit represents an additional $239.7 million, the combined total exposure in commercial and industrial loans represents $442.1 million, or 26.7% 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 March 31, 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 $102,195  $174,805  $277,000   16.7% $1,503   68 
    Construction/Contractor
    Services    		  14,255   24,684   38,939   2.4   94   151 
    Financial Institutions  16,150   -   16,150   1.0   3,230   5 
    Manufacturing  11,501   4,459   15,960   1.0   186   62 
    Medical / Dental /
    Other Care    		  8,347   7,188   15,535   0.9   149   56 
    Retail  8,686   4,010   12,696   0.8   334   26 
    Family and Social Services  9,237   3,283   12,520   0.8   660   14 
    Groups < 0.80% of total  32,076   21,222   53,298   3.2   113   283 
    Total $202,447  $239,651  $442,098   26.7% $304   665 


    Construction, land and land development loans     comprise 8.4% of our total balance of outstanding loans, excluding PPP loans, as of March 31, 2021. Unused commitments to extend credit represents an additional $130.6 million, the combined total exposure in construction, land and land development loans represents $235.2 million, or 14.2% 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 March 31, 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 $51,516  $106,086  $157,602   9.5% $1,662   31 
    Residential construction  22,223   20,028   42,251   2.6   966   23 
    Land development  12,948   2,408   15,356   0.9   1,079   12 
    Developed land loans  11,863   1,927   13,790   0.8   409   29 
    Undeveloped land loans  6,046   122   6,168   0.4   378   16 
    Total $104,596  $130,571  $235,167   14.2% $942   111 

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