Coastal Financial Corporation Announces Third Quarter 2021 Results

10/27, 3:23 PM (Source: GlobeNewswire)

Third Quarter 2021 Highlights:

  • Total assets increased $444.4 million, or 22.1%, to $2.45 billion for the quarter ended September 30, 2021, compared to $2.01 billion at June 30, 2021.
  • Total deposits increased $421.9 million, or 23.4%, to $2.22 billion for the quarter ended September 30, 2021, compared to $1.8 billion at June 30, 2021.
  • Loan growth of $47.5 million during the quarter ended September 30, 2021. This growth is net of $130.8 million in forgiven or paid down Paycheck Protection Program (“PPP”) loans during the quarter ended September 30, 2021.
  • CCBX loans increased $86.7 million, and community bank loans increased $89.4 million, excluding PPP loans during the quarter ended September 30, 2021.
  • CCBX deposits increased $339.8 million during the quarter ended September 30, 2021.
  • Net income totaled $6.7 million for the quarter ended September 30, 2021, or $0.54 per diluted common share, compared to $7.0 million, or $0.56 per diluted common share, for the quarter ended June 30, 2021.

EVERETT, Wash., Oct. 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 September 30, 2021. Net income for the third quarter of 2021 was $6.7 million, or $0.54 per diluted common share, compared with net income of $7.0 million, or $0.56 per diluted common share, for the second quarter of 2021, and $4.1 million, or $0.34 per diluted common share, for the quarter ended September 30, 2020.  

“The third quarter of 2021 ended with total assets of $2.45 billion, an increase of $444.4 million from June 30, 2021. Deposit growth was strong, increasing $421.9 million during the three months ended September 30, 2021. Loans receivable increased $47.5 million, which included non-PPP loan growth of $176.1 million partially offset by $130.8 million in forgiven or repaid PPP loans. Core deposits increased $424.3 million and represented 96.6% of total deposits as of September 30, 2021.

“Our three-prong strategy for success and growth continues to be the guide and focus of our efforts. Our CCBX division, which provides Banking as a Service (“BaaS”), has a total of 26 relationships as of September 30, 2021, an increase of 15 relationships compared to September 30, 2020. CCBX generates additional fee and interest income, as well as related expenses, for the Company by providing BaaS to broker dealers and digital financial service providers who offer their clients these banking services. During the quarter ended September 30, 2021, CCBX deposits increased $339.8 million to $607.2 million. Additionally, we have access to $331.1 million in CCBX brokered deposits that are swept off the balance sheet as of September 30, 2021. CCBX loans increased $86.7 million to $190.1 million as of September 30, 2021, compared to $103.5 million as of June 30, 2021. CCDB our digital banking division, has shifted from the Google banking collaboration to exploring other opportunities in this sector of banking,” stated Eric Sprink, the President and CEO of the Company and the Bank.

Results of Operations

Net interest income was $18.8 million for the quarter ended September 30, 2021, an increase of $195,000, or 1.0%, from $18.6 million for the quarter ended June 30, 2021, and an increase of $3.7 million, or 24.6%, from $15.1 million for the quarter ended September 30, 2020. Yield on loans receivable was 4.57% for the three months ended September 30, 2021, compared to 4.44% for the three months ended June 30, 2021 and 4.33% for the three months ended September 30, 2020. The increase in net interest income compared to June 30, 2021 and September 30, 2020, was largely related to increased yield on loans resulting from loan growth and a decrease in lower yielding PPP loans. Average loans receivable for the three months ended September 30, 2021, was $1.68 billion, compared to $1.75 billion and $1.49 billion for the three months ended June 30, 2021 and September 30, 2020, respectively.

Interest and fees on loans totaled $19.4 million for the three months ended September 30, 2021 and June 30, 2021, compared to $16.2 million for the three months ended September 30, 2020. Net non-PPP loan growth of $176.1 million during the quarter ended September 30, 2021, offset a decrease of $130.8 million in PPP loans that were forgiven or repaid, which resulted in the recognition of $2.9 million in net deferred fees on PPP loans. Capital call lines increased $62.6 million, or 63.2%, during the quarter ended September 30, 2021. These loans bear a lower rate of interest, but have less credit risk due to the way the loans are structured compared to other commercial loans. The increase in interest and fees on loans for the quarter ended September 30, 2021, compared to September 30, 2020, was largely due to $3.1 million in increased interest income as a result of loan volume, combined with an increase in net deferred fees recognized on forgiven or repaid PPP loans.

As of September 30, 2021, there were $267.3 million in PPP loans, compared to $398.0 million as of June 30, 2021, and $452.8 million as of September 30, 2020. In the three months ended September 30, 2021, a total of $130.8 million in PPP loans were forgiven or repaid. Net deferred fees recognized on PPP loans contributed $2.9 million for the three months ended September 30, 2021, compared to $3.6 million for the three months ended June 30, 2021, and $2.4 million for the three months ended September 30, 2020.

As of September 30, 2021, $9.4 million in net deferred fees on PPP loans remains to be recognized in interest income along with interest on loans. Net deferred fees on PPP loans are earned over the life of the loan, as a yield adjustment in interest income. Forgiveness of principal, early paydowns and payoffs on PPP loans will increase interest income earned in those periods from the recognition of PPP deferred fees. PPP loans in round one and two were originated in 2020, and were predominately two year loans, with $16.2 million of these loans remaining at September 30, 2021. PPP loans in round three were originated in 2021 and are all five year loans, with $251.1 million of these loans remaining at September 30, 2021.

Interest income from interest earning deposits with other banks was $170,000 at September 30, 2021, an increase of $96,000 and $71,000 due to higher balances compared to June 30, 2021, and September 30, 2020, respectively.

Interest expense was $801,000 for the quarter ended September 30, 2021, a $158,000 decrease from the quarter ended June 30, 2021 and a $497,000 decrease from the quarter ended September 30, 2020. Interest expense on interest bearing deposits decreased despite an increase of $18.7 million and $169.0 million in average interest bearing deposits for the quarter ended September 30, 2021 over the quarters ended June 30, 2021 and September 30, 2020, respectively, as a result of management lowering deposit interest rates and a low interest rate environment. This contributed to our improved cost of deposits which decreased 26.6% and 60.5% for the three months ended September 30, 2021 when compared to the three months ended June 30, 2021 and September 30, 2020, respectively. Interest expense on borrowed funds was $278,000 for the quarter ended September 30, 2021, compared to $331,000 and $418,000 for the quarters ended June 30, 2021 and September 30, 2020, respectively. The decrease in interest expense on borrowed funds from the quarters ended June 30, 2021 and September 30, 2020 is the result of a decrease in average PPPLF borrowings, which were paid off in full as of June 30, 2021. During the quarter ended September 30, 2021, the Company entered into a $25.0 million subordinated note purchase agreement with a current rate of 3.375%, and part of the proceeds were used to repay $10.0 million in subordinated debt at a higher interest rate of 5.65%. The increase in principal balance outstanding resulted in an increase in interest expense on subordinated debt.

Net interest margin decreased for the three months ended September 30, 2021 to 3.48%, compared to 3.70% and 3.62% for the three months ended June 30, 2021 and September 30, 2020, respectively. The net interest margin will likely fluctuate over the near term as PPP loans originated in 2020 and 2021 continue to be forgiven and paid off. The decrease in net interest margin was largely a result of $419.7 million in interest earning deposits as of September 30, 2021, a $184.5 million and $282.1 million increase compared to the quarters ended June 30, 2021 and September 30, 2020, respectively. These interest earning deposits earned an average rate of 16 basis points for the quarter ended September 30, 2021.

Cost of funds decreased four basis points in the quarter ended September 30, 2021 to 0.16%, compared to the quarter ended June 30, 2021 and decreased 17 basis points from the quarter ended September 30, 2020. Cost of deposits for the quarter ended September 30, 2021 was 0.10%, a decrease of four basis points, or a 26.6% decrease, from 0.14% for the quarter ended June 30, 2021, and a 17 basis point decrease, or a 60.5% decrease, from 0.27% for the quarter ended September 30, 2020, largely due to an increase in noninterest bearing deposits and a lower rate environment. Deposit growth from CCBX in noninterest bearing and low interest bearing accounts contributed to the reduced cost of funds in conjunction with rate reductions on our community bank deposits. Noninterest bearing deposits increased $408.5 million, or 46.0%, and $725.8 million, or 127.2%, compared to the quarters ended June 30, 2021, and September 30, 2020, respectively. Market conditions for deposits continued to be competitive during the quarter ended September 30, 2021; however, we have been able to keep our cost of deposits down by increasing low interest bearing and noninterest bearing deposits and allowing high cost deposits to run-off when appropriate, lowering deposit rates and replacing them with lower cost core deposits.  

During the quarter ended September 30, 2021, total loans receivable increased by $47.5 million, to $1.71 billion, compared to $1.66 billion for the quarter ended June 30, 2021. Non-PPP loans increased $176.1 million, or 13.8%, for the quarter ended September 30, 2021, compared to the quarter ended June 30, 2021. PPP loans decreased $130.8 million as a result of forgiveness and repayments and totaled $267.3 million as of September 30, 2021 compared to June 30, 2021.

Total yield on loans receivable for the quarter ended September 30, 2021 was 4.57%, compared to 4.44% for the quarter ended June 30, 2021, and 4.33% for the quarter ended September 30, 2020. This increase in yield on loans receivable is attributed to a decrease in the outstanding balance of PPP loans that have a stated rate of 1.0% which is combined with the recognition of net deferred fees on PPP loans that are forgiven or repaid. Additionally, new non-PPP loans generally bear a higher average interest rate than the PPP loans they are replacing.

Yield on loans receivable, excluding earned fees* approximated 3.74% for the quarter ended September 30, 2021, compared to 3.46% for the quarter ended June 30, 2021, and 3.61% for the quarter ended September 30, 2020. Net deferred fees recognized on loans were $3.5 million (includes $2.9 million on PPP loans), $4.3 million (includes $3.6 million on PPP loans) and $2.7 million (includes $2.4 million on PPP loans) for the quarters ended September 30, 2021, June 30, 2021 and September 30, 2020, respectively.

Return on average assets (“ROA”) was 1.21% for the quarter ended September 30, 2021 compared to 1.36% and 0.95% for the quarters ended June 30, 2021 and September 30, 2020, respectively. ROA for the quarter ended September 30, 2021 was impacted by increased demand deposits and cash on the balance sheet, which has resulted in a lower loan to deposit ratio. ROA for the quarter ended September 30, 2020 was impacted 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 1.59% for the quarter ended September 30, 2021, compared to 1.87% for the quarter ended June 30, 2021, and 1.72% for the quarter ended September 30, 2020.

The PPP loans originated in the first and second rounds during 2020 and in the third round in 2021 have had a significant impact on our financial statements. These PPP loans will continue to impact our results in the future. We continued to receive forgiveness payments from the SBA. Any estimated adjusted ratios that exclude the impact of this activity are non-GAAP measures. For more information about non-GAAP financial measures, please see the end of this earnings release.

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

  Total PPP Loan Origination 
  Round 1 & 2
2020
 Round 3
2021
 Total 
(Dollars in thousands; unaudited)          
Loans Originated $452,846 $311,012 $763,858 
Deferred fees, net  12,933  13,334 $26,267 
Outstanding loans and deferred fees as of September 30, 2021 
Loans outstanding $16,228 $251,050 $267,278 
Deferred fees, net  148  9,269 $9,417 

As of September 30, 2021 there was $267.3 million in PPP loans, this includes $16.2 million from round 1 & 2 and $251.1 million from round 3. The table below summarizes key information about the remaining PPP loans originated in 2020 and 2021 as of the period indicated:

  Outstanding PPP Loans 
  Original Loan Size 
  As of and for the Three Months Ended September 30, 2021 
  $0.00 -
$50,000.00
 $50,0000.01 -
$150,000.00
 $150,000.01 -
$350,000.00
 $350,000.01 -
$2,000,000.00
 > 2,000,000.01 Totals 
(Dollars in thousands; unaudited)             
Principal outstanding:                   
Round 1 & 2 $1,084 $952 $1,179 $4,221 $8,792 $16,228 
Round 3  23,692  40,604  60,700  123,098  2,956  251,050 
Total principal outstanding  24,776  41,556  61,879  127,319  11,748  267,278 
Net deferred fees outstanding                   
Round 1 & 2 $15 $22 $36 $42 $33 $148 
Round 3  2,083  1,532  2,506  3,123  25  9,269 
Total net deferred fees
outstanding
 $2,098 $1,554 $2,542 $3,165 $58 $9,417 
Number of loans:                   
Round 1 & 2  73  14  9  10  5  111 
Round 3  1,294  445  262  160  1  2,162 
Total loan count  1,367  459  271  170  6  2,273 
Percent of total  60.1% 20.2% 11.9% 7.5% 0.3% 100.0%
                    
Forgiveness/Payoffs/Paydowns in Three Months Ended September 30, 2021          
Dollars $12,199 $17,408 $21,557 $44,995 $34,601 $130,760 
Deferred fee recognized  671  579  638  946  112  2,946 

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  Nine Months Ended 
(unaudited) September 30,
2021
 June 30,
2021
 March 31,
2021
 December 31,
2020
 September 30,
2020
  September 30, 2021 September 30, 2020 
                        
Return on average assets (1)  1.21% 1.36% 1.28% 1.04% 0.95%  1.28% 0.96%
Return on average equity (1)  16.77% 18.60% 16.84% 13.36% 12.14%  17.40% 10.73%
Pre-tax, pre-provision return
on average assets (1)(2)
  1.59% 1.87% 1.69% 1.90% 1.72%  1.71% 1.73%
Yield on earnings assets (1)  3.63% 3.89% 3.99% 4.16% 3.93%  3.83% 4.23%
Yield on loans receivable (1)  4.57% 4.44% 4.51% 4.64% 4.33%  4.51% 4.65%
Yield on loans receivable,
excluding PPP loans (1)(2)
  4.53% 4.65% 4.78% 5.00% 4.78%  4.64% 4.99%
Yield on loans receivable,
excluding earned
fees (1)(2)
  3.74% 3.46% 3.53% 3.66% 3.61%  3.57% 4.09%
Yield on loans receivable,
excluding earned
fees and interest on PPP
loans, as adjusted (1)(2)
  4.36% 4.42% 4.52% 4.65% 4.69%  4.43% 4.86%
Cost of funds (1)  0.16% 0.20% 0.24% 0.29% 0.33%  0.20% 0.45%
Cost of deposits (1)  0.10% 0.14% 0.17% 0.22% 0.27%  0.14% 0.40%
Net interest margin (1)  3.48% 3.70% 3.76% 3.89% 3.62%  3.64% 3.81%
Noninterest expense to average
assets (1)
  2.91% 2.65% 2.62% 2.35% 2.26%  2.74% 2.52%
Efficiency ratio  64.68% 58.69% 60.85% 55.26% 56.73%  61.51% 59.31%
Loans receivable to deposits  76.71% 92.03% 105.68% 108.85% 110.98%  76.71% 110.98%
                        
(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 $6.1 million as of September 30, 2021, an increase of $1.3 million from $4.8 million as of June 30, 2021, and an increase of $4.2 million from $1.9 million as of September 30, 2020. The increase in noninterest income over the quarter ended June 30, 2021 was due to a $1.5 million unrealized holding gain on an equity investment, a $862,000 increase in BaaS fees, a $175,000 increase in gain on sale of loans, partially offset by the absence of a $1.3 million gain from the sale of a branch that occurred the quarter ended June 30, 2021. The $4.2 million increase in noninterest income over the quarter ended September 30, 2020 was primarily due to a $1.7 million increase in BaaS fees, a $1.5 million unrealized holding gain on an equity investment, a $543,000 increase in loan referral fees, a $159,000 increase in gain on sale of loans, and $132,000 increase in deposit service charges and fees, primarily in point of sale and ATM fees, which were down in 2020 because of stay-at-home orders related to the COVID-19 pandemic. Interchange income from BaaS partners for the quarter ended September 30, 2021 was $188,000, compared to $110,000 and $4,000, as of June 30, 2021 and September 30, 2020, respectively.

Our CCBX division continues to grow, and now has 26 relationships, at varying stages, as of September 30, 2021, compared to 24 CCBX relationships at June 30, 2021 and 11 CCBX relationships as of September 30, 2020, respectively. As of September 30, 2021, we had 16 active CCBX relationships, seven relationships in onboarding/implementation, three signed letters of intent and we believe we have a strong pipeline of potential new CCBX relationships. The following table illustrates the activity and growth in CCBX for the periods presented:

 As of
 September 30, 2021June 30, 2021September 30, 2020
Active16124
Friends and family / testing031
Implementation / onboarding774
Signed letters of intent322
Total CCBX relationships262411

Total noninterest expense increased to $16.1 million as of September 30, 2021, compared to $13.7 million as of June 30, 2021 and $9.7 million as of September 30, 2020. Increase in noninterest expense for the quarter ended September 30, 2021, as compared to the quarter ended June 30, 2021, was primarily due to a $1.0 million increase in salaries and employee benefits which is related to the hiring in CCBX, CCDB, and additional staff for our ongoing growth initiatives. BaaS expense increased $616,000 compared to June 30, 2021, which includes $319,000 increase in partner loan expense and $297,000 increase in partner fraud expense. Partner loan expense represents the amount paid to partners for originating and servicing loans. Partner fraud expense represents non-credit fraud losses on partner’s customer loan and deposit accounts. Any credit enhancement provided by the partner is reimbursed and included in noninterest income. Also contributing to the increase in expenses compared to June 30, 2021 is a $274,000 increase in software license, maintenance and subscription expenses, which is expected to increase as we invest more in automated processing and as we grow our product lines for CCBX and CCDB. In the third quarter of 2021 compared to the second quarter of 2021, legal and professional fees increased $170,000 and Federal Deposit Insurance Corporation (“FDIC”) assessments increased $175,000. The increase in legal and professional expenses is associated with CCBX division expenses and higher costs associated with legal and accounting work related to financial reporting. The increase in FDIC assessments is largely the result of an increase in deposits combined with other factors that impact the FDIC assessment calculation compared to the quarter ended June 30, 2021.

The increased noninterest expenses for the quarter ended September 30, 2021 compared to the quarter ended September 30, 2020 were largely due to a $4.0 million increase in salary expenses related to hiring staff for CCBX, CCDB and additional staff for our ongoing banking growth initiatives, an increase of $524,000 in BaaS partner expense and a $480,000 increase in software license, maintenance and subscription expenses. In addition, in the third quarter of 2021 compared to the third quarter of 2020, legal and professional fees increased $415,000 and Federal Deposit Insurance Corporation (“FDIC”) assessments increased $252,000. The increase in legal and professional expenses is associated with CCBX division expenses and higher costs associated with legal and accounting work related to financial reporting. The increase in FDIC assessments is largely the result of an increase in deposits combined with other factors that impact the FDIC assessment calculation compared to the quarter ended September 30, 2020.

The provision for income taxes was $1.9 million at September 30, 2021, a $419,000 decrease compared to $2.3 million for the second quarter of 2021 as a result of decreased taxable income, and a $788,000 increase compared to $1.1 million for the third quarter of 2020, as a result of increased taxable income. Additionally, the Company is now subject to various state taxes that are being assessed as a result of hiring employees nationwide and CCBX activities expanding into other states, which has increased the overall rate used in calculating the provision for income taxes in the current and future periods. The Company uses a federal statutory tax rate of 21% as a basis for calculating provision for federal income taxes.

Financial Condition

Total assets increased $444.4 million, or 22.1%, to $2.45 billion at September 30, 2021 compared to $2.01 billion at June 30, 2021. The primary cause of the increase was a $386.6 million increase in interest earning deposits with other banks, primarily a result of increased CCBX deposits during the quarter ended September 30, 2021, combined with $47.5 million increase in loans receivable even after experiencing $130.8 million in PPP loan forgiveness and paydowns. Total assets increased $702.0 million, or 40.1%, at September 30, 2021, compared to $1.75 billion at September 30, 2020. This increase was largely the result of a $470.0 million increase in interest earning deposits with other banks including the Federal Reserve, combined with $196.5 million increase in loans receivable.

Total loans receivable increased $47.5 million to $1.71 billion at September 30, 2021, from $1.66 billion at June 30, 2021, and increased $196.3 million from $1.51 billion at September 30, 2020. The increase in loans receivable over the quarter ended June 30, 2021 was the result of $176.1 million in non-PPP loan growth partially offset by $130.8 million in forgiveness, payoffs or principal paydowns on PPP loans. The $176.1 million increase in non-PPP loans includes CCBX loan growth of $86.7 million, and core banking loan growth, which excludes PPP loans and CCBX loans, of $89.4 million during the three months ended September 30, 2021. CCBX loans totaled $190.1 million at September 30, 2021 compared to $103.5 million at June 30, 2021 and $43.8 million at September 30, 2020. Total loans receivable as of September 30, 2021 is net of $14.5 million in net deferred origination fees, $9.4 million of which is attributed to PPP loans. Deferred fees on PPP loans are earned over the life of the loan. Loans that were originated in 2020 are primarily two year loans with some being 5 year loans with $16.2 million of these loans remaining as of September 30, 2021, and all PPP loans originated in 2021 have five year maturities, with $251.1 million of these loans remaining as of September 30, 2021. Along with an increase in loans receivable as of September 30, 2021 compared to June 30, 2021, unused commitments also increased during the same period, with the unused commitments on capital call lines increasing $60.6 million to $347.4 million at September 30, 2021 compared to $286.8 million at June 30, 2021, which should translate into future loan growth as the commitments are utilized. The increase in loans receivable over the quarter ended September 30, 2020 includes growth of $385.4 million in non-PPP loans, partially offset by a $185.6 million decrease in PPP loans as of September 30, 2021. Non-PPP loan growth consists of $117.7 million in capital call lines, $132.2 million in commercial real estate loans, $57.8 million in construction, land and land development loans, $49.0 million in residential real estate loans, and $15.5 million in other commercial and industrial loans. Consumer loans increased $13.2 million, primarily due to growth in CCBX.  

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

  As of 
  September 30, 2021  June 30, 2021  September 30, 2020 
(Dollars in thousands; unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                      
Commercial and industrial loans:                     
PPP loans $267,278  15.5% $398,038  23.8% $452,846  29.8%
Capital call lines  161,457  9.4   98,905  5.9   43,776  2.9 
All other commercial &
industrial loans
  108,120  6.3   102,775  6.1   92,582  6.0 
Real estate loans:                     
Construction, land and
land development loans
  158,710  9.2   116,733  7.0   100,955  6.6 
Residential real estate loans  170,167  9.9   143,574  8.6   121,147  8.0 
Commercial real estate loans  837,342  48.7   807,711  48.2   705,186  46.4 
Consumer and other loans  17,140  1.0   7,161  0.4   3,927  0.3 
Gross loans receivable  1,720,214  100.0%  1,674,897  100.0%  1,520,419  100.0%
Net deferred origination fees -
PPP loans
  (9,417)     (12,363)     (8,586)   
Net deferred origination fees -
Other loans
  (5,115)     (4,385)     (2,444)   
Loans receivable $1,705,682     $1,658,149     $1,509,389    

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

The following table details the CCBX loans which are included in the total loan portfolio table above.

  As of 
  September 30, 2021  June 30, 2021  September 30, 2020 
(Dollars in thousands; unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                      
Commercial and industrial loans:                     
Capital call lines $161,457  84.9% $98,905  95.6% $43,776  99.9%
Real estate loans:                     
Residential real estate loans  14,039  7.4   -  0.0   -  0.0 
Consumer and other loans:                     
Credit cards  1,711  0.9   1,850  1.8   1  0.0 
Other consumer loans  12,937  6.8   2,721  2.6   47  0.1 
Gross CCBX loans receivable  190,144  100.0%  103,476  100.0%  43,824  100.0%

Total deposits increased $421.9 million, or 23.4%, to $2.22 billion at September 30, 2021 from $1.8 billion at June 30, 2021. The increase was due primarily to a $424.3 million increase in core deposits, which is primarily the result of growth in CCBX partners and expanding and growing banking relationships with new customers. Deposits in our CCBX division increased $339.8 million, from $267.4 million at June 30, 2021, to $607.2 million at September 30, 2021. The deposits from our CCBX division are predominately classified as noninterest bearing, or NOW and money market accounts, but a portion of such CCBX deposits may be classified as brokered deposits as a result of the relevant relationship agreement. Currently, the majority of CCBX deposits are noninterest bearing, however, as the Federal Reserve Open Market Committee raises interest rates, a majority of these accounts will bear interest and be reclassified to interest bearing deposits once rates exceed the minimum interest rate set in their respective program agreements and begin to earn interest. During the quarter ended September 30, 2021, noninterest bearing deposits increased $408.5 million, or 46.0%, to $1.30 billion from $887.9 million at June 30, 2021. Included in the increase in noninterest bearing deposits is an increase in CCBX division deposits of $339.8 million for the quarter ended September 30, 2021. In the third quarter of 2021 compared to the second quarter of 2021, NOW and money market accounts increased $12.8 million, and savings accounts increased $3.0 million. BaaS-brokered deposits increased $1.0 million, or 3.7%, and time deposits decreased $3.5 million, or 6.9% in the third quarter of 2021 compared to the second quarter of 2021.

Total deposits increased $863.5 million, or 63.5%, to $2.22 billion at September 30, 2021 compared to $1.36 billion at September 30, 2020. Noninterest bearing deposits increased $725.8 million, or 127.2%, to $1.30 billion at September 30, 2021 from $570.7 million at September 30, 2020. NOW and money market accounts increased $130.9 million, or 21.0%, to $755.8 million at September 30, 2021, and savings accounts increased $21.5 million, or 28.8%, and BaaS-brokered deposits increased $3.5 million, or 14.2% while time deposits decreased $18.2 million, or 28.0%. The overall increase in deposits was achieved despite a decrease of $26.4 million in total deposits compared to September 30, 2020 due to the sale of our Freeland branch which included deposits. Additionally, as of September 30, 2021 we have access to $331.1 million in CCBX customer deposits that are currently being transferred or swept off the Bank’s balance sheet to other financial institutions on a daily basis. The Bank could retain these deposits for liquidity and funding purposes if needed. If a portion of these deposits are retained, they would be classified as brokered deposits, however if the entire available balance is retained, they would be non-brokered deposits. 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 
  September 30, 2021  June 30, 2021  September 30, 2020 
(Dollars in thousands, unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                      
Demand, noninterest bearing $1,296,443  58.3% $887,896  49.3% $570,664  42.0%
NOW and money market  755,810  34.0   743,014  41.2   624,891  45.9 
Savings  96,192  4.3   93,224  5.2   74,694  5.5 
Total core deposits  2,148,445  96.6   1,724,134  95.7   1,270,249  93.4 
BaaS-brokered deposits  28,396  1.3   27,388  1.5   24,870  1.8 
Time deposits less than $250,000  32,937  1.5   34,809  1.9   41,676  3.1 
Time deposits $250,000 and over  13,762  0.6   15,347  0.9   23,216  1.7 
Total deposits $2,223,540  100.0% $1,801,678  100.0% $1,360,011  100.0%

The following table details the CCBX deposits which are included in the total deposit portfolio table above.

  As of
  September 30, 2021  June 30, 2021  September 30, 2020 
(Dollars in thousands, unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                      
Demand, noninterest bearing $573,985  94.5% $230,185  86.1% $18,215  35.3%
Interest bearing  4,837  0.8   9,810  3.7   8,489  16.5 
Total core deposits  578,822  95.3   239,995  89.8   26,704  51.8 
BaaS-brokered deposits  28,395  4.7   27,387  10.2   24,869  48.2 
Total CCBX deposits $607,217  100.0% $267,382  100.0% $51,573  100.0%

The Federal Home Loan Bank (“FHLB”) allows us to borrow against our line of credit, which is collateralized by certain loans. As of September 30, 2021, we borrowed a total of $25.0 million in FHLB term advances. This includes a $10.0 million advance that matures in March of 2023 and $15.0 million advance that matures in March 2025. These advances provide an alternative and stable source of funding for loan demand. Although there are no immediate plans to borrow additional funds, additional FHLB borrowing capacity of $95.4 million was available under this arrangement as of September 30, 2021.

During the quarter ended September 30, 2021, the Company entered into a $25.0 million subordinated note purchase agreement with a current rate of 3.375%, some of the proceeds of which were used to repay an existing $10.0 million in subordinated debt at a higher 5.65% interest rate. A total of $11.5 million was contributed to the Bank, and the balance of the amount was retained in cash at the Company level.

Total shareholders’ equity increased $7.0 million since June 30, 2021. The increase in shareholders’ equity was primarily due to $6.7 million in net earnings for the three months ended September 30, 2021.

Capital Ratios

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

Capital Ratios:Coastal Community Bank  Coastal Financial Corporation  Financial Institution Basel III Regulatory Guidelines 
(unaudited)           
Tier 1 leverage capital 8.14%  7.48%  5.00%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans (1) 9.54%  8.77%  5.00%
Common Equity Tier 1 risk-based capital 11.07%  9.94%  6.50%
Tier 1 risk-based capital 11.07%  10.15%  8.00%
Total risk-based capital 12.32%  12.95%  10.00%
(1) A reconciliation of the non-GAAP measure is set forth at the end of this earnings release. 

Asset Quality

The allowance for loan losses was $20.2 million and 1.19% of loans receivable at September 30, 2021 compared to $20.0 million and 1.20% at June 30, 2021 and $17.0 million and 1.13% at September 30, 2020. At September 30, 2021, there was $267.3 million in PPP loans, which are 100% guaranteed by the SBA. Adjusted allowance for loan losses to loans receivable, excluding PPP loans* was 1.40% for the quarter ended September 30, 2021. Provision for loan losses totaled $255,000 for the three months ended September 30, 2021, $361,000 for the three months ended June 30, 2021, and $2.2 million for the three months ended September 30, 2020. Net recoveries totaled $1,000 for the quarter ended September 30, 2021, compared to net charge-offs of $5,000 for the quarter ended June 30, 2021 and $1,000 for the quarter ended September 30, 2020.

The Company’s provision for loan losses during the quarter ended September 30, 2021, is related to an increase in non-PPP loan growth. The factors used in management’s analysis of the provision for loan losses indicated that a provision of $255,000 and $361,000 was needed for the quarters ended September 30, 2021 and June 30, 2021, respectively. The expected loan losses did not materialize as originally anticipated in 2020 due to the COVID-19 pandemic and related economic slowdown, as evidenced by the low level of charge-offs and nonperforming loans. The economic environment is continuously changing and has shown signs of improvement, with the United States implementing stimulus packages, ongoing vaccination of its population and increased re-opening of economic activities. The Company is not required to implement the provisions of the Current Expected Credit Loss accounting standard until January 1, 2023 and continues to account for the allowance for credit losses under the incurred loss model.

At September 30, 2021, our nonperforming assets were $740,000, or 0.03% of total assets, compared to $648,000, or 0.03%, of total assets at June 30, 2021, and $4.5 million, or 0.26%, of total assets at September 30, 2020. Nonperforming assets increased $92,000 during the quarter ended September 30, 2021, compared to the quarter ended June 30, 2021, due to $123,000 in CCBX loans that are past due 90 days or more and still accruing interest. There were no repossessed assets or other real estate owned at September 30, 2021. Our nonperforming loans to loans receivable ratio was 0.04% at September 30, 2021 and June 30, 2021, compared to 0.30% at September 30, 2020.

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

Pursuant to federal guidance, the Company deferred and/or modified payments on loans to assist customers financially during the COVID-19 pandemic and economic shutdown. A total of $246.4 million in loans were deferred and/or modified under this guidance. As of the quarter ended September 30, 2021, all loans have either been paid off or returned to active status. The purpose of this program was 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.

           
  September 30, June 30, September 30, 
(Dollars in thousands, unaudited) 2021 2021 2020 
           
Nonaccrual loans:          
Commercial and industrial loans $561 $482 $625 
Real estate:          
Construction, land and land development  -  -  3,269 
Residential real estate  56  166  178 
Commercial real estate  -  -  405 
Total nonaccrual loans  617  648  4,477 
           
Accruing loans past due 90 days or more:          
Total accruing loans past due 90 days or more  123  -  - 
Total nonperforming loans  740  648  4,477 
Other real estate owned  -  -  - 
Repossessed assets  -  -  - 
Total nonperforming assets $740 $648 $4,477 
Troubled debt restructurings, accruing  -  -  - 
Total nonperforming loans to loans receivable  0.04% 0.04% 0.30%
Total nonperforming assets to total assets  0.03% 0.03% 0.26%



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

About Coastal Financial

Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), is an Everett, Washington based bank holding company whose wholly owned subsidiaries are Coastal Community Bank (“Bank”) and Arlington Olympic LLC. The $2.45 billion Bank provides service through 14 branches in Snohomish, Island, and King Counties, the Internet and its mobile banking application. The Bank provides banking as a service to broker dealers and digital financial service providers through its CCBX Division. 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 
  September 30,  June 30,  September 30, 
  2021  2021  2020 
Cash and due from banks $31,722  $31,473  $14,136 
Interest earning deposits with other banks  638,003   251,416   168,034 
Investment securities, available for sale, at fair value  32,838   25,341   20,428 
Investment securities, held to maturity, at amortized cost  2,086   2,101   3,354 
Other investments  8,349   6,839   5,951 
Loans receivable  1,705,682   1,658,149   1,509,389 
Allowance for loan losses  (20,222)  (19,966)  (17,046)
Total loans receivable, net  1,685,460   1,638,183   1,492,343 
Premises and equipment, net  17,231   17,207   16,881 
Operating lease right-of-use assets  6,372   6,637   7,379 
Accrued interest receivable  7,549   8,108   8,216 
Bank-owned life insurance, net  12,166   12,056   7,031 
Deferred tax asset, net  3,807   3,808   2,722 
Other assets  5,985   3,969   3,144 
Total assets $2,451,568  $2,007,138  $1,749,619 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY 
LIABILITIES            
Deposits $2,223,540  $1,801,678  $1,360,011 
Federal Home Loan Bank advances  24,999   24,999   24,999 
Paycheck Protection Program Liquidity Facility  -   -   202,595 
Subordinated debt, net  24,269   10,000   9,989 
Junior subordinated debentures, net  3,586   3,585   3,584 
Deferred compensation  774   803   891 
Accrued interest payable  147   179   481 
Operating lease liabilities  6,583   6,845   7,579 
Other liabilities  6,584   4,949   4,258 
Total liabilities  2,290,482   1,853,038   1,614,387 
             
SHAREHOLDERS’ EQUITY            
Common stock  88,997   88,699   87,479 
Retained earnings  72,083   65,399   47,707 
Accumulated other comprehensive income, net of tax  6   2   46 
Total shareholders’ equity  161,086   154,100   135,232 
Total liabilities and shareholders’ equity $2,451,568  $2,007,138  $1,749,619 

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

 Three Months Ended 
 September 30, June 30, September 30, 
 2021 2021 2020 
INTEREST AND DIVIDEND INCOME         
Interest and fees on loans$19,383 $19,365 $16,244 
Interest on interest earning deposits with other banks 170  74  99 
Interest on investment securities 24  24  27 
Dividends on other investments 31  108  24 
Total interest and dividend income 19,608  19,571  16,394 
INTEREST EXPENSE         
Interest on deposits 523  628  880 
Interest on borrowed funds 278  331  418 
Total interest expense 801  959  1,298 
Net interest income 18,807  18,612  15,096 
PROVISION FOR LOAN LOSSES 255  361  2,200 
Net interest income after provision for loan losses 18,552  18,251  12,896 
NONINTEREST INCOME       - 
BaaS fees 2,286  1,424  576 
Unrealized holding gain on equity securities, net 1,472  -  - 
Deposit service charges and fees 956  949  824 
Loan referral fees 723  806  180 
Gain on sales of loans, net 206  31  47 
Mortgage broker fees 187  253  125 
Gain on sale of branch -  1,263  - 
Other income 302  56  190 
Total noninterest income 6,132  4,782  1,942 
NONINTEREST EXPENSE         
Salaries and employee benefits 9,961  8,913  5,971 
Occupancy 1,037  990  1,091 
Software licenses, maintenance and subscriptions 817  543  337 
Legal and professional fees 796  626  381 
Data processing 761  734  577 
BaaS expense 715  99  100 
Excise taxes 407  388  291 
Federal Deposit Insurance Corporation assessments 400  225  148 
Director and staff expenses 274  318  156 
Marketing 130  132  52 
Other expense 832  763  562 
Total noninterest expense 16,130  13,731  9,666 
Income before provision for income taxes 8,554  9,302  5,172 
PROVISION FOR INCOME TAXES 1,870  2,289  1,082 
NET INCOME$6,684 $7,013 $4,090 
          
Basic earnings per common share$0.56 $0.59 $0.34 
Diluted earnings per common share$0.54 $0.56 $0.34 
Weighted average number of common shares outstanding:         
Basic 11,999,899  11,984,927  11,919,850 
Diluted 12,456,674  12,459,467  12,181,272 

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

       
 Nine Months Ended 
 September 30, September 30, 
 2021 2020 
INTEREST AND DIVIDEND INCOME      
Interest and fees on loans$56,978 $44,025 
Interest on interest earning deposits with other banks 314  587 
Interest on investment securities 76  199 
Dividends on other investments 169  129 
Total interest and dividend income 57,537  44,940 
INTEREST EXPENSE      
Interest on deposits 1,811  3,530 
Interest on borrowed funds 992  957 
Total interest expense 2,803  4,487 
Net interest income 54,734  40,453 
PROVISION FOR LOAN LOSSES 973  5,708 
Net interest income after provision for loan losses 53,761  34,745 
NONINTEREST INCOME      
BaaS fees 4,658  1,630 
Unrealized holding gain on equity securities, net 1,472    
Deposit service charges and fees 2,768  2,224 
Loan referral fees 2,126  1,303 
Gain on sales of loans, net 367  47 
Mortgage broker fees 702  439 
Gain on sale of branch 1,263  - 
Other 542  490 
Total noninterest income 13,898  6,133 
NONINTEREST EXPENSE      
Salaries and employee benefits 26,560  16,869 
Occupancy 3,085  2,951 
Software licenses, maintenance and subscriptions 1,844  919 
Legal and professional fees 2,182  1,178 
Data processing 2,192  1,749 
BaaS expense 905  191 
Excise taxes 1,154  756 
Federal Deposit Insurance Corporation assessments 820  292 
Director and staff expenses 812  613 
Marketing 344  280 
Other 2,315  1,832 
Total noninterest expense 42,213  27,630 
Income before provision for income taxes 25,446  13,248 
PROVISION FOR INCOME TAXES 5,731  2,763 
NET INCOME$19,715 $10,485 
       
Basic earnings per common share$1.65 $0.88 
Diluted earnings per common share$1.58 $0.86 
Weighted average number of common shares outstanding:      
Basic 11,982,009  11,915,513 
Diluted 12,465,346  12,183,845 

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

   
 September 30, 2021  June 30, 2021  September 30, 2020 
 Average Interest & Yield /  Average Interest & Yield /  Average Interest & Yield / 
 Balance Dividends Cost (4)  Balance Dividends Cost (4)  Balance Dividends Cost (4) 
Assets                             
Interest earning assets:                             
Interest earning deposits$419,715 $170  0.16% $235,187 $74  0.13% $137,568 $99  0.29%
Investment securities (1) 33,788  24  0.28   25,000  24  0.39   23,882  27  0.45 
Other investments 6,859  31  1.79   6,835  108  6.34   5,951  24  1.60 
Loans receivable (2) 1,681,069  19,383  4.57   1,750,825  19,365  4.44   1,493,024  16,244  4.33 
Total interest earning assets 2,141,431  19,608  3.63   2,017,847  19,571  3.89   1,660,425  16,394  3.93 
Noninterest earning assets:                             
Allowance for loan losses (20,102)        (19,733)        (15,711)      
Other noninterest earning assets 77,221         76,727         60,160       
Total assets$2,198,550        $2,074,841        $1,704,874       
                              
Liabilities and Shareholders’ Equity 
Interest bearing liabilities:                             
Interest bearing deposits$919,792 $523  0.23% $901,120 $628  0.28% $750,790 $880  0.47%
Subordinated debt, net 17,073  185  4.30   9,998  146  5.86   9,987  148  5.90 
Junior subordinated debentures, net 3,586  21  2.32   3,585  21  2.35   3,584  23  2.55 
PPPLF borrowings -  -  0.00   107,047  94  0.35   199,076  176  0.35 
FHLB advances and other borrowings 24,999  72  1.14   24,999  70  1.12   24,999  71  1.13 
Total interest bearing liabilities 965,450  801  0.33   1,046,749  959  0.37   988,436  1,298  0.52 
Noninterest bearing deposits 1,061,311         863,962         569,615       
Other liabilities 13,705         12,887         12,781       
Total shareholders' equity 158,084         151,243         134,042       
Total liabilities and                             
shareholders' equity$2,198,550        $2,074,841        $1,704,874       
Net interest income   $18,807        $18,612        $15,096    
Interest rate spread       3.30%        3.52%        3.41%
Net interest margin (3)       3.48%        3.70%        3.62%
                              
(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 Nine Months Ended 
 September 30, 2021  September 30, 2020 
 Average Interest & Yield /  Average Interest & Yield / 
 Balance Dividends Cost (4)  Balance Dividends Cost (4) 
Assets                   
Interest earning assets:                   
Interest earning deposits$284,225 $314  0.15% $122,941 $587  0.64%
Investment securities (1) 27,693  76  0.37   24,252  199  1.10 
Other Investments 6,594  169  3.43   5,435  129  3.17 
Loans receivable (2) 1,690,817  56,978  4.51   1,265,705  44,025  4.65 
Total interest earning assets 2,009,329  57,537  3.83   1,418,333  44,940  4.23 
Noninterest earning assets:                   
Allowance for loan losses (19,744)        (13,651)      
Other noninterest earning assets 73,328         57,830       
Total assets$2,062,913        $1,462,512       
                    
Liabilities and Shareholders’ Equity                   
Interest bearing liabilities:                   
Interest bearing deposits$892,574 $1,811  0.27% $696,051 $3,530  0.68%
Subordinated debt, net 12,381  477  5.15   9,984  441  5.90 
Junior subordinated debentures, net 3,585  63  2.35   3,583  83  3.09 
PPPLF borrowings 91,850  240  0.35   102,527  269  0.35 
FHLB advances and other borrowings 24,999  212  1.13   19,304  164  1.13 
Total interest bearing liabilities 1,025,389  2,803  0.37   831,449  4,487  0.72 
Noninterest bearing deposits 873,271         488,296       
Other liabilities 12,798         12,607       
Total shareholders' equity 151,455         130,160       
Total liabilities and                   
shareholders' equity$2,062,913        $1,462,512       
Net interest income   $54,734        $40,453    
Interest rate spread       3.46%        3.51%
Net interest margin (3)       3.64%        3.81%
                    
(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 
 September 30, June 30, March 31, December 31, September 30, 
 2021 2021 2021 2020 2020 
Income Statement Data:               
Interest and dividend income$19,608 $19,571 $18,358 $18,098 $16,394 
Interest expense 801  959  1,043  1,165  1,298 
Net interest income 18,807  18,612  17,315  16,933  15,096 
Provision for loan losses 255  361  357  2,600  2,200 
Net interest income after               
provision for loan losses 18,552  18,251  16,958  14,333  12,896 
Noninterest income 6,132  4,782  2,984  2,049  1,942 
Noninterest expense 16,130  13,731  12,352  10,489  9,666 
Provision for income tax 1,870  2,289  1,572  1,232  1,082 
Net income 6,684  7,013  6,018  4,661  4,090 
Net income - pre-tax, pre-provision (1) 8,809  9,663  7,947  8,493  7,372 
   
 As of and for the Three Month Period 
 September 30, June 30, March 31, December 31, September 30, 
 2021 2021 2021 2020 2020 
Balance Sheet Data:               
Cash and cash equivalents$669,725 $282,889 $204,314 $163,117 $182,170 
Investment securities 34,924  27,442  22,893  23,247  23,782 
Loans receivable 1,705,682  1,658,149  1,766,723  1,547,138  1,509,389 
Allowance for loan losses (20,222) (19,966) (19,610) (19,262) (17,046)
Total assets 2,451,568  2,007,138  2,029,359  1,766,122  1,749,619 
Interest bearing deposits 927,097  913,782  903,025  829,046  789,347 
Noninterest bearing deposits 1,296,443  887,896  768,690  592,261  570,664 
Core deposits (2) 2,148,445  1,724,134  1,590,850  1,328,195  1,270,249 
Total deposits 2,223,540  1,801,678  1,671,715  1,421,307  1,360,011 
Total borrowings 52,854  38,584  197,099  192,292  241,167 
Total shareholders’ equity 161,086  154,100  146,739  140,217  135,232 
                
Share and Per Share Data (3):               
Earnings per share – basic$0.56 $0.59 $0.50 $0.39 $0.34 
Earnings per share – diluted$0.54 $0.56 $0.49 $0.38 $0.34 
Dividends per share -  -  -  -  - 
Book value per share (4)$13.41 $12.83 $12.24 $11.73 $11.34 
Tangible book value per share (5)$13.41 $12.83 $12.24 $11.73 $11.34 
Weighted avg outstanding shares – basic 11,999,899  11,984,927  11,960,772  11,936,289  11,919,850 
Weighted avg outstanding shares – diluted 12,456,674  12,459,467  12,393,493  12,280,191  12,181,272 
Shares outstanding at end of period 12,012,107  12,007,669  11,988,636  11,954,327  11,930,243 
Stock options outstanding at end of period 710,182  714,620  728,492  749,397  769,607 
                
See footnotes on following page               
                
                
 As of and for the Three Month Period 
 September 30, June 30, March 31, December 31, September 30, 
 2021 2021 2021 2020 2020 
Credit Quality Data:               
Nonperforming assets to total assets 0.03% 0.03% 0.03% 0.04% 0.26%
Nonperforming assets to loans receivable and OREO 0.04% 0.04% 0.04% 0.05% 0.30%
Nonperforming loans to total loans receivable 0.04% 0.04% 0.04% 0.05% 0.30%
Allowance for loan losses to nonperforming loans 2732.7% 3081.2% 2966.7% 2705.3% 380.7%
Allowance for loan losses to total loans receivable 1.19% 1.20% 1.11% 1.25% 1.13%
Allowance for loan losses to loans receivable, as adjusted (1) 1.40% 1.57% 1.59% 1.62% 1.60%
Gross charge-offs$31 $12 $18 $386 $2 
Gross recoveries$32 $7 $9 $2 $1 
Net charge-offs to average loans (6) 0.00% 0.00% 0.00% 0.10% 0.00%
                
Capital Ratios (7):               
Tier 1 leverage capital 7.48% 8.00% 8.62% 9.05% 9.20%
Common equity Tier 1 risk-based capital 9.94% 10.92% 10.89% 11.27% 12.14%
Tier 1 risk-based capital 10.15% 11.16% 11.15% 11.55% 12.45%
Total risk-based capital 12.95% 13.12% 13.15% 13.61% 14.61%
                
(1) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release. 
(2) Core deposits are defined as all deposits excluding brokered and all time deposits. 
(3) Share and per share amounts are based on total common shares outstanding. 
(4) We calculate book value per share as total shareholders’ equity at the end of the relevant period divided by the outstanding number of
our common shares at the end of each period.
 
(5) Tangible book value per share is a non-GAAP financial measure. We calculate tangible book value per share as total shareholders’
equity at the end of the relevant period, less goodwill and other intangible assets, divided by the outstanding number of our
common shares at the end of each period. The most directly comparable GAAP financial measure is book value per share. We
had no goodwill or other intangible assets as of any of the dates indicated. As a result, tangible book value per share is the
same as book value per share as of each of the dates indicated.
 
(6) Annualized calculations.               
(7) Capital ratios are for the Company, Coastal Financial Corporation. 

BaaS

The following tables are a summary of the direct fees, expenses and interest components of BaaS for the periods indicated and are not inclusive of all income and expense related to BaaS.

Interest income Three Months      Nine Months     
  Ended September 30,  Increase  Ended September 30,  Increase 
(Dollars in thousands) 2021  2020  (Decrease)  2021  2020  (Decrease) 
Loan interest income $1,471  $279  $1,192  $2,761  $447  $2,314 
Total BaaS interest income $1,471  $279  $1,192  $2,761  $447  $2,314 


Interest expense Three Months      Nine Months     
  Ended September 30,  Increase  Ended September 30,  Increase 
(Dollars in thousands) 2021  2020  (Decrease)  2021  2020  (Decrease) 
BaaS interest expense $23  $24  $(1) $65  $155  $(90)
Total BaaS interest expense $23  $24  $(1) $65  $155  $(90)


Noninterest income Three Months      Nine Months     
  Ended September 30,  Increase  Ended September 30,  Increase 
(Dollars in thousands) 2021  2020  (Decrease)  2021  2020  (Decrease) 
Servicing and other BaaS fees $1,792  $572  $1,220  $4,019  $1,626  $2,393 
Fraud recovery  296   -   296   296   -   296 
Credit enhancement recovery  10   -   10   10   -   10 
Interchange  188   4   184   333   4   329 
Total BaaS fees $2,286  $576  $1,710  $4,658  $1,630  $3,028 


Noninterest expense Three Months      Nine Months     
  Ended September 30,  Increase  Ended September 30,  Increase 
(Dollars in thousands) 2021  2020  (Decrease)  2021  2020  (Decrease) 
BaaS loan expense $419  $100  $319  $609  $191  $418 
BaaS fraud expense  296   -   296   296   -   296 
Total BaaS expense $715  $100  $615  $905  $191  $714 

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
Nine Months Ended
 
(Dollars in thousands, unaudited) September 30,
2021
 June 30,
2021
 March 31,
2021
 December 31,
2020
 September 30,
2020
  September 30,
2021
 September 30,
2020
 
Pre-tax, pre-provision net income and pre-tax, pre-provision return on average assets:        
Total average assets $2,198,550 $2,074,841 $1,912,202 $1,774,723 $1,704,874  $2,062,913 $1,462,512 
Total net income  6,684  7,013  6,018  4,661  4,090   19,715  10,485 
Plus: provision for loan
losses
  255  361  357  2,600  2,200   973  5,708 
Plus: provision for
income taxes
  1,870  2,289  1,572  1,232  1,082   5,731  2,763 
Pre-tax, pre-provision
net income
 $8,809 $9,663 $7,947 $8,493 $7,372  $26,419 $18,956 
Return on average assets  1.21% 1.36% 1.28% 1.04% 0.95%  1.28% 0.96%
Pre-tax, pre-provision
return on average assets:
  1.59% 1.87% 1.69% 1.90% 1.72%  1.71% 1.73%

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

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

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

  As of and for the Three Months Ended  As of and for the
Nine Months Ended
 
(Dollars in thousands, unaudited) September 30,
2021
 June 30,
2021
 March 31,
2021
 December 31,
2020
 September 30,
2020
  September 30,
2021
 September 30,
2020
 
Yield on loans receivable, excluding earned fees :        
Total average loans
receivable
 $1,681,069 $1,750,825 $1,640,108 $1,533,533 $1,493,024  $1,690,817 $1,265,705 
Interest and earned fee
income on loans
  19,383  19,365  18,230  17,885  16,244   56,978  44,025 
Less: earned fee income on
all loans
  (3,533) (4,274) (3,974) (3,765) (2,692)  (11,782) (5,303)
Adjusted interest income
on loans
 $15,850 $15,091 $14,256 $14,120 $13,552  $45,196 $38,722 
Yield on loans receivable  4.57% 4.44% 4.51% 4.64% 4.33%  4.51% 4.65%
Yield on loans
receivable, excluding
earned fees:
  3.74% 3.46% 3.53% 3.66% 3.61%  3.57% 4.09%
Yield on loans
receivable, excluding
earned fees on all loans
and interest on PPP
loans (1):
  4.36% 4.42% 4.52% 4.65% 4.69%  4.43% 4.86%
(1) Non-GAAP measure - see next table of "Non-GAAP Financial Measures" for more information. 

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

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

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

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

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

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

  As of and for the  As of and for the 
  Three Months Ended  Nine Months Ended 
(Dollars in thousands, unaudited) September
30,
2021
 June
30,
2021
 March
31,
2021
 December
31,
2020
 September
30,
2020
  September
30,
2021
 September
30,
2020
 
Adjusted allowance for loan losses to loans receivable, excluding PPP loans:        
Total loans, net of deferred fees $1,705,682 $1,658,149 $1,766,723 $1,547,138 $1,509,389  $1,705,682 $1,509,389 
Less: PPP loans  (267,278) (398,038) (543,827) (365,842) (452,846)  (267,278) (452,846)
Less: net deferred fees on
PPP loans
  9,417  12,363  14,279  5,803  8,586   9,417  8,586 
Adjusted loans, net of
deferred fees
 $1,447,820 $1,272,474 $1,237,175 $1,187,099 $1,065,129  $1,447,821 $1,065,129 
Allowance for loan losses $(20,222)$(19,966)$(19,610)$(19,262)$(17,046) $(20,222)$(17,046)
Allowance for loan losses to
loans receivable
  1.19% 1.20% 1.11% 1.25% 1.13%  1.19% 1.13%
Adjusted allowance for loan
losses to loans receivable,
excluding PPP loans
  1.40% 1.57% 1.59% 1.62% 1.60%  1.40% 1.60%
Yield on loans receivable, excluding PPP loans:                 
Total average loans receivable $1,681,069 $1,750,825 $1,640,108 $1,533,533 $1,493,024  $1,690,817 $1,265,705 
Less: average PPP loans  (322,595) (509,265) (475,941) (424,290) (448,313)  (435,372) (261,854)
Plus: average deferred fees on
PPP loans
  11,639  14,213  10,788  7,385  9,599   12,216  6,112 
Adjusted total average loans
receivable
 $1,370,113 $1,255,773 $1,174,955 $1,116,628 $1,054,310  $1,267,661 $1,009,964 
Interest income on loans $19,383 $19,365 $18,230 $17,885 $16,244  $56,978 $44,025 
Less: interest and deferred fee
income recognized on
PPP loans
  (3,744) (4,821) (4,378) (3,847) (3,566)  (12,943) (6,325)
Adjusted interest income on loans $15,639 $14,544 $13,852 $14,038 $12,678  $44,035 $37,700 
Yield on loans receivable  4.57% 4.44% 4.51% 4.64% 4.33%  4.51% 4.65%
Yield on loans receivable,
excluding PPP loans:
  4.53% 4.65% 4.78% 5.00% 4.78%  4.64% 4.99%
Yield on loans receivable, excluding earned fees on all loans and interest on PPP loans:        
Total average loans receivable $1,681,069 $1,750,825 $1,640,108 $1,533,533 $1,493,024  $1,690,817 $1,265,705 
Less: average PPP loans  (322,595) (509,265) (475,941) (424,290) (448,313)  (435,372) (261,854)
Plus: average deferred fees on
PPP loans
 $11,639 $14,213 $10,788 $7,385 $9,599  $12,216 $6,112 
Adjusted total average loans
receivable
 $1,370,113 $1,255,773 $1,174,955 $1,116,628 $1,054,310  $1,267,661 $1,009,963 
Interest and earned fee income
on loans
 $19,383 $19,365 $18,230 $17,885 $16,244  $56,978 $44,025 
Less: earned fee income on
all loans
 $(3,533)$(4,274)$(3,974)$(3,762)$(2,693) $(11,782)$(5,303)
Less: interest income on
PPP loans
  (796) (1,257) (1,169) (1,064) (1,129)  (3,222) (1,966)
Adjusted interest income on loans $15,054 $13,834 $13,087 $13,059 $12,422  $41,974 $36,756 
Yield on loans receivable  4.57% 4.44% 4.51% 4.64% 4.33%  4.51% 4.65%
Yield on loans receivable,
excluding earned fees on
all loans (1):
  3.74% 3.46% 3.53% 4.65% 3.61%  3.57% 4.09%
Yield on loans receivable,
excluding earned fees on
all loans and interest on
PPP loans:
  4.36% 4.42% 4.52% 4.65% 4.69%  4.43% 4.86%
(1) Non-GAAP measure - see previous table of "Non-GAAP Financial Measures" for more information. 


(Dollars in thousands, unaudited) As of
September 30, 2021
 As of
June 30, 2021
 
Adjusted Tier 1 leverage capital ratio, excluding PPP loans: 
Company:       
Tier 1 capital $164,437 $157,450 
Average assets for the leverage capital ratio $2,198,406 $1,967,646 
Less: Average PPP loans  (322,595) (509,265)
Plus: Average PPPLF borrowings  -  107,047 
Adjusted average assets for the leverage capital ratio $1,875,811 $1,565,428 
Tier 1 leverage capital ratio  7.48% 8.00%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans  8.77% 10.06%
Bank:       
Tier 1 capital $178,857 $161,368 
Average assets for the leverage capital ratio $2,197,276 $1,966,528 
Less: Average PPP loans  (322,595) (509,265)
Plus: Average PPPLF borrowings  -  107,047 
Adjusted average assets for the leverage capital ratio $1,874,681 $1,564,310 
Tier 1 leverage capital ratio  8.14% 8.21%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans  9.54% 10.32%

APPENDIX A -
As of September 30, 2021

Industry Concentration

We have a diversified loan portfolio, representing a wide variety of industries. Three of our largest categories of our loans are commercial real estate, commercial and industrial, and construction, land and land development loans. Together they represent $1.27 billion in outstanding loan balances, or 87.1% of total gross loans outstanding, excluding PPP loans of $267.3 million. When combined with $589.3 million in unused commitments the total of these three categories is $1.85 billion, or 87.1% of total outstanding loans and loan commitments.

Commercial real estate loans represent the largest segment of our loans, comprising 57.6% of our total balance of outstanding loans, excluding PPP loans, as of September 30, 2021. Unused commitments to extend credit represents an additional $20.9 million, the combined total exposure in commercial real estate loans represents $858.2 million, or 40.3% 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 September 30, 2021:

(Dollars in thousands, unaudited) Outstanding Balance  Available Loan Commitments  Total Exposure  % of Total Loans
(Outstanding Balance & Available Commitment)
  Average Loan Balance  Number of Loans 
Apartments $140,616  $2,595  $143,211   6.7% $1,926   73 
Hotel/Motel  117,924   228   118,152   5.5   4,368   27 
Office  92,199   4,513   96,712   4.5   951   97 
Retail  84,940   2,672   87,612   4.1   988   86 
Convenience Store  78,361   1,093   79,454   3.7   1,822   43 
Mixed use  74,521   3,929   78,450   3.7   877   85 
Warehouse  76,372   892   77,264   3.6   1,497   51 
Mini Storage  39,880   137   40,017   1.9   2,849   14 
Manufacturing  37,128   600   37,728   1.8   1,160   32 
Groups < 2.0% of total  95,401   4,247   99,648   4.7   1,239   77 
Total $837,342  $20,906  $858,248   40.3% $1,431   585 

Commercial and industrial loans comprise 18.6% of our total balance of outstanding loans, excluding PPP loans, as of September 30, 2021. Unused commitments to extend credit represents an additional $415.9 million, the combined total exposure in commercial and industrial loans represents $685.5 million, or 32.2% 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 September 30, 2021:

(Dollars in thousands, unaudited) Outstanding Balance  Available Loan Commitments  Total Exposure  % of Total Loans
(Outstanding Balance & Available Commitment)
  Average Loan Balance  Number of Loans 
Capital Call Lines $161,457  $347,386  $508,843   23.9% $1,509   107 
Construction/Contractor
Services
  15,027   29,913   44,940   2.1   98   153 
Financial Institutions  20,150   -   20,150   0.9   3,358   6 
Medical / Dental /
Other Care
  12,412   7,155   19,567   0.9   210   59 
Manufacturing  12,180   5,041   17,221   0.8   210   58 
Retail  9,576   4,348   13,924   0.7   399   24 
Groups < 0.70% of total  38,775   22,033   60,808   2.9   137   284 
Total $269,577  $415,876  $685,453   32.2% $390   691 

Construction, land and land development loans comprise 10.9% of our total balance of outstanding loans, excluding PPP loans, as of September 30, 2021. Unused commitments to extend credit represents an additional $152.5 million, the combined total exposure in construction, land and land development loans represents $311.3 million, or 14.6% 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 September 30, 2021:

(Dollars in thousands, unaudited) Outstanding Balance  Available Loan Commitments  Total Exposure  % of Total Loans
(Outstanding Balance & Available Commitment)
  Average Loan Balance  Number of Loans 
Commercial construction $63,763  $123,937  $187,700   8.8% $1,993   32 
Residential construction  25,370   19,019   44,389   2.1   793   32 
Undeveloped land loans  37,704   3,440   41,144   1.9   2,900   13 
Developed land loans  17,934   2,240   20,174   0.9   498   36 
Land development  13,939   3,912   17,851   0.8   871   16 
Total $158,710  $152,548  $311,258   14.6% $1,230   129 

 


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