0001564590-20-033709.txt : 20200728 0001564590-20-033709.hdr.sgml : 20200728 20200728092556 ACCESSION NUMBER: 0001564590-20-033709 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 20200727 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20200728 DATE AS OF CHANGE: 20200728 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COASTAL FINANCIAL CORP CENTRAL INDEX KEY: 0001437958 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 000000000 STATE OF INCORPORATION: WA FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-38589 FILM NUMBER: 201052097 BUSINESS ADDRESS: STREET 1: 2817 COLBY AVENUE CITY: EVERETT STATE: WA ZIP: 98201 BUSINESS PHONE: 425-257-1652 MAIL ADDRESS: STREET 1: 2817 COLBY AVENUE CITY: EVERETT STATE: WA ZIP: 98201 8-K 1 ck0001437958-8k_20200727.htm 8-K ck0001437958-8k_20200727.DOCX.htm
false 0001437958 0001437958 2020-07-27 2020-07-27

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 8-K

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):  July 27, 2020

 

COASTAL FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Washington

001-38589

56-2392007

(State or other jurisdiction

of incorporation)

(Commission File Number)

(IRS Employer

Identification No.)

     

5415 Evergreen Way, Everett, Washington 98203

(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code:  (425257-9000

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, no par value per share

 

CCB

 

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

 

 

 

 

 

 

 

 

 


 

Item 2.02

Results of Operations and Financial Condition

 

On July 27, 2020, Coastal Financial Corporation (the “Company”) issued a press release announcing its results of operations and financial condition for the quarter ended June 30, 2020 (the “Press Release”). The Press Release is “furnished” as Exhibit 99.1 to this Current Report on Form 8-K pursuant to General Instruction B.2 of Form 8-K and the information provided in Item 2.02 of this report, including Exhibit 99.1, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities under that Section. The information provided in Item 2.02 of this report, including Exhibit 99.1, shall not be deemed incorporated by reference into any filings the Company has made or may make under the Securities Act of 1933, as amended, or the Exchange Act, except as otherwise expressly stated in such filing.

 

Item 9.01   Financial Statements and Exhibits

 

Exhibits

 

NumberDescription

 

99.1Press Release, dated July 27, 2020

104Cover Page Interactive Data File (Embedded within the Inline XBRL document)

 

  


 


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

 

COASTAL FINANCIAL CORPORATION

 

 

 

 

Date: July 28, 2020

 

By:

/s/ Joel G. Edwards

 

 

 

Joel G. Edwards

 

 

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

EX-99.1 2 ck0001437958-ex991_6.htm EX-99.1 ck0001437958-ex991_6.htm

Exhibit 99.1

 

COASTAL FINANCIAL CORPORATION ANNOUNCES SECOND QUARTER 2020 RESULTS

Company Release: July 27, 2020

Quarter Two 2020 Highlights:

 

Net income totaled $3.7 million for the quarter ended June 30, 2020, or $0.30 per diluted common share, an increase of 12.2% from $3.3 million, or $0.27 per diluted common share, for the quarter ended June 30, 2019.  

 

A $1.9 million provision for loan losses was recorded during the quarter ended June 30, 2020, due to economic uncertainties from the COVID-19 pandemic, up from $1.6 million during the quarter ended March 31, 2020.

 

Asset growth of $494.9 million, or 41.8%, to $1.68 billion for the quarter ended June 30, 2020, compared to $1.18 billion at March 31, 2020.  

 

Total loans receivable, net of deferred loan fees, grew 44.0% during the quarter ended June 30, 2020 to $1.45 billion compared to $1.01 billion at March 31, 2020. Includes $427.4 million in Paycheck Protection Program (“PPP”) loans originated in the second quarter of 2020.  Loans receivable, net of PPP loans, grew at an annualized rate of 5.8%, or $14.5 million, during the quarter ended June 30, 2020.

 

Total deposits increased 30.0% during the quarter ended June 30, 2020 to $1.31 billion, compared to $1.01 billion at March 31, 2020.  

 

Utilized the Paycheck Protection Program Liquidity Facility (“PPPLF”) to fund PPP loans.  $190.2 million loans pledged and borrowed at June 30, 2020.

 

Opened 15th branch in Arlington, Washington.

Everett, WA – Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), the holding company for Coastal Community Bank (the “Bank”), today reported unaudited financial results for the quarter ended June 30, 2020.  Net income for the second quarter of 2020 was $3.7 million, or $0.30 per diluted common share, compared with net income of $2.7 million, or $0.22 per diluted common share, for the first quarter of 2020, and $3.3 million, or $0.27 per diluted common share, for the quarter ended June 30, 2019.  

“During a period in which businesses and individuals had to contend with the impact of a global COVID-19 pandemic on the economy and on their personal lives, I am proud of the accomplishments and achievements of our team who have remained positive, flexible, and relentlessly focused on serving our communities and continued growth of our Company. Despite the pandemic related disruptions that continued through the quarter, we finished the second quarter of 2020 with net income of $3.7 million, which includes $1.9 million in loan loss provision expense primarily in response to the economic uncertainties of the pandemic.  As a preferred Small Business Administration (“SBA”) lender, we have funded $438.1 million gross funds in financial assistance to existing and new small business customers via the PPP as provided in the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), which represents 2,526 loans, impacting nearly 40,000 employees in our communities as of June 30, 2020.  We placed special emphasis on small companies, with 98% of the loans funded going to companies with fewer than 100 employees. In addition, we continue to develop our CCBX division and added three new customers for the quarter, which provides Banking as a Service (“BaaS”) enabling broker dealers and digital financial service providers to offer their clients banking services, while providing additional sources of fee income for the Bank,” stated Eric Sprink, the President and CEO of the Company and the Bank.

“During this uncertain time, we remain committed to our customers and, pursuant to federal guidance, have deferred or modified payments for $207.2 million in loans for our customers, representing 215 loans, remaining as of June 30, 2020.  This proactive approach to restructuring payments helped provide financial relief within our communities.

1

 


We remain committed to following the guidelines set forth by our federal, state and local government and public health officials to keep us all healthy and safe while remaining open and serving our communities through our drive throughs, call center, mobile banking, online banking and ATMs.  As new guidance emerges, the Company is enhancing measures already in place to protect the health and safety of its employees and continues to successfully employ remote work arrangements to the fullest extent possible.  

“We remain focused on closely analyzing higher risk segments within the loan portfolio, monitoring economic conditions, and are working diligently to proactively manage the risks and uncertainties associated with these unprecedented times.  The Coastal team is dedicated to our customers and to working within our communities to provide assistance through traditional banking services and are also committed to growing and developing our CCBX division, which provides an alternative means of income for the Company.”

Results of Operations

During the quarter ended June 30, 2020, significant focus was placed on helping the small businesses in our communities through the PPP.  These loans have had a significant impact on our financial statements for the quarter ended June 30, 2020 and will continue to impact our results in the future.  Throughout this earnings release, we will address the impact of these loans including borrowings received through PPPLF to help fund these loans and to aid in liquidity, increased customer deposit accounts from unused disbursements, and 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, see the end of this earnings release.

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

 

 

Loan Size

 

 

 

As of June 30, 2020

 

 

 

$0.00 -

$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

 

$

37,674

 

$

29,561

 

$

86,232

 

$

52,299

 

$

205,766

 

New customer

 

 

48,914

 

 

42,205

 

 

82,940

 

 

58,252

 

 

232,311

 

Total principal outstanding

 

 

86,588

 

 

71,766

 

 

169,172

 

 

110,551

 

 

438,077

 

Deferred fees outstanding

 

 

(3,729

)

 

(3,057

)

 

(4,247

)

 

(940

)

 

(11,973

)

Deferred costs outstanding

 

 

940

 

 

215

 

 

161

 

 

18

 

 

1,334

 

Net deferred fees

 

$

(2,789

)

$

(2,842

)

$

(4,086

)

$

(922

)

$

(10,639

)

Total principal, net of deferred fees

 

$

83,799

 

$

68,924

 

$

165,086

 

$

109,629

 

$

427,438

 

Weighted average maturity (years)

 

 

1.91

 

 

1.83

 

 

1.83

 

 

1.81

 

 

1.83

 

Number of loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Existing customer

 

 

768

 

 

128

 

 

108

 

 

13

 

 

1,017

 

New customer

 

 

1,185

 

 

190

 

 

116

 

 

18

 

 

1,509

 

Total loan count

 

 

1,953

 

 

318

 

 

224

 

 

31

 

 

2,526

 

Percent of total

 

 

77.3

%

 

12.6

%

 

8.9

%

 

1.2

%

 

100.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income was $14.0 million for the quarter ended June 30, 2020, an increase of 23.1% from $11.4 million for the quarter ended March 31, 2020, and an increase of 37.4% from $10.2 million for the quarter ended June 30, 2019.   The increase compared to the prior quarter and prior year’s second quarter is largely related to increased interest income resulting from our loan growth.  This loan growth includes $438.1 million in PPP loans and $2.8 million in related interest income for the quarter ended June 30, 2020, combined with lower interest expense resulting from a decrease in interest rates paid on interest bearing deposits and an increase in noninterest bearing deposits from cash advanced on PPP loans being placed in noninterest bearing demand accounts.  Interest expense was $1.4 million as of June 30, 2020, a $323,000 decrease from the period ended March 31, 2020 and a $185,000 decrease from the period ended June 30, 2019.  Partially offsetting this decrease is a $228,000 decrease in interest earned on deposits with other banks compared to March 31, 2020, and a $522,000 decrease compared to June 30, 2019, largely as a result of lower rates.  Deposits held with other banks increased $32.6

2

 


million as of June 30, 2020, compared to March 31, 2020, as a result of the PPPLF borrowings, which were obtained to provide liquidity as PPP funds in deposit accounts are withdrawn.  Net deferred fees on PPP loans will be earned over the life of the loan, as a yield adjustment.  Forgiveness of principal, early paydowns and payoffs on PPP loans will increase interest income earned in those periods.  

Net interest margin for the quarter ended June 30, 2020 was 3.78%, a 37 basis point decrease from 4.15% for the quarter ended March 31, 2020 and a 46 basis point decrease from 4.24% for the quarter ended June 30, 2019. The decrease over the prior quarter and second quarter in the previous year was largely due to the originating and holding of PPP loans and lower interest rates on all other loans.  Contributing to the decrease in net interest margin were PPP loans, which account for an average of $335.2 million in gross loans for the quarter ended June 30, 2020, and bear a contractual interest rate of 1.0%, and yield 3.31% after considering the amortization of loan fees, for the quarter ended June 30, 2020.   Cost of funds decreased 29 basis points in the quarter ended June 30, 2020 compared to the quarter ended March 31, 2020 and decreased 33 basis points from the quarter ended June 30, 2019.  Proceeds from the PPP loans were largely deposited into noninterest bearing accounts, which helped reduce our cost of funds.  In addition, the Federal Open Market Committee (“FOMC”) lowered the Fed Funds rates five times for a total decrease of 2.25% since June 2019, which has impacted the rates paid on deposits.  Interest rates may decline further, or may persist at current low levels, and may continue to impact the Company's net interest margin.

During the quarter ended June 30, 2020, the average balance of total loans receivable increased by $368.4 million, to $1.33 billion, compared to $966.6 million for the quarter ended March 31, 2020, largely as a result of PPP loans.  PPP loans bear a contractual interest rate of 1.0%, yielding approximately 3.31%, after considering the amortization of loan fees.  The average balance of total loans receivable increased by $522.3 million, compared to $812.7 million for the same quarter one year ago, due to overall growth in the loan portfolio, combined with the aforementioned growth in PPP loans. Total loan yield for the quarter ended June 30, 2020 was 4.57%, compared to 5.25% for the quarter ended March 31, 2020, and 5.39% for the quarter ended June 30, 2019. The reduction in loan yield is a result of the lower yielding PPP loans combined with the reduction in FOMC rates.  PPP loans reduced the loan yield* by 37 basis points for the quarter ended June 30, 2020.

Contractual loan yields approximated 3.91% for the quarter ended June 30, 2020, compared to 5.08% for the quarter ended March 30, 2020, and 5.23% for the quarter ended June 30, 2019. During the quarter ended June 30, 2020, the average balance of PPP loans was $335.2 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 loan fees, the contractual yield on loans approximated 4.84%*.  Also contributing to the reduction in contractual yield was the reduction in rates by the FOMC which has resulted in lower rates on new and renewing loans as well as loans tied to indexes.  Although we have rate floors in place for $349.1 million, or 23.9%, in existing loans, the rate reductions by FOMC have a corresponding impact on loan yields and subsequently the net interest margin in future periods.

Deposit costs for the quarter ended June 30, 2020 were 0.35%, a decrease of 29 basis points from 0.64% for the quarter ended March 31, 2020, and a 31 basis point decrease from the quarter ended June 30, 2019.  Deposit costs and balances were favorably impacted from PPP loan proceeds being deposited into noninterest or low interest-bearing accounts.  During the quarter ended June 30, 2020, PPP proceeds directly transferred into new or existing customer deposit accounts approximated $327.6 million.  These deposits have been, and continue to be, gradually withdrawn as customers use the funds.  Market conditions for deposits continued to be competitive during the quarter ended June 30, 2020; however we lowered many rates, with most changes to our interest-bearing demand deposit and certificate of deposit rates effective at the start of second quarter of 2020, which helped decrease deposit costs in the current quarter.  

 

 

 

 

 

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

3

 


Return on average assets (“ROA”) was 0.96% for the quarter ended June 30, 2020 compared to 0.96% and 1.31% for the quarters ended March 31, 2020 and June 30, 2019, respectively.  ROA was impacted in the current and prior quarter by increased provision for loan losses due to loan growth and in response to the economic uncertainties of the COVID-19 pandemic. Pre-tax, pre-provision ROA* was 1.72% for the quarter ended June 30, 2020 and 1.77% for the quarter ended March 31, 2020, compared to 1.87% for the quarter ended June 30, 2019.

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.  The adjusted ratios are non-GAAP measures.  For more information about non-GAAP financial measures, see the end of this earnings release.

 

 

Three months ended

 

 

Six months ended

 

(unaudited)

 

June 30,

2020

 

March 31,

2020

 

December 31, 2019

 

September 30, 2019

 

June 30,

2019

 

 

June 30,

2020

 

June 30,

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Return on average assets (1)

 

 

0.96

%

 

0.96

%

 

1.31

%

 

1.35

%

 

1.31

%

 

 

0.96

%

 

1.23

%

Return on average equity (1)

 

 

11.37

%

 

8.66

%

 

11.66

%

 

11.72

%

 

11.45

%

 

 

10.03

%

 

10.86

%

Pre-tax, pre-provision return

     on average assets (1)(2)

 

 

1.72

%

 

1.77

%

 

1.95

%

 

1.95

%

 

1.87

%

 

 

1.74

%

 

1.77

%

Yield on earnings assets (1)

 

 

4.16

%

 

4.79

%

 

4.90

%

 

4.94

%

 

4.92

%

 

 

4.43

%

 

4.87

%

Yield on loans receivable (1)

 

 

4.57

%

 

5.25

%

 

5.36

%

 

5.36

%

 

5.39

%

 

 

4.85

%

 

5.39

%

Yield on loans receivable,

     as adjusted (1)(2)

 

 

4.94

%

n/a

 

n/a

 

n/a

 

n/a

 

 

 

5.10

%

n/a

 

Contractual yield on loans

     receivable, excluding earned

     fees (1)

 

 

3.91

%

 

5.08

%

 

5.15

%

 

5.24

%

 

5.23

%

 

 

4.40

%

 

5.23

%

Contractual yield on loans

     receivable, excluding earned

     fees, as adjusted (1)(2)

 

 

4.84

%

n/a

 

n/a

 

n/a

 

n/a

 

 

 

4.96

%

n/a

 

Cost of funds (1)

 

 

0.41

%

 

0.70

%

 

0.70

%

 

0.72

%

 

0.74

%

 

 

0.54

%

 

0.75

%

Cost of deposits (1)

 

 

0.35

%

 

0.64

%

 

0.63

%

 

0.64

%

 

0.66

%

 

 

0.48

%

 

0.67

%

Net interest margin (1)

 

 

3.78

%

 

4.15

%

 

4.26

%

 

4.29

%

 

4.24

%

 

 

3.93

%

 

4.19

%

Noninterest expense to average

     assets (1)

 

 

2.34

%

 

3.18

%

 

2.90

%

 

2.98

%

 

3.06

%

 

 

2.71

%

 

3.09

%

Efficiency ratio

 

 

57.66

%

 

64.26

%

 

59.86

%

 

60.46

%

 

62.05

%

 

 

60.80

%

 

63.59

%

Loans receivable to deposits

 

 

110.77

%

 

100.01

%

 

97.02

%

 

94.78

%

 

97.39

%

 

 

110.77

%

 

97.39

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Annualized calculations shown for quarterly and six month periods presented.

 

 

 

 

 

 

 

 

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

 

 

Noninterest income was $1.5 million in the second quarter of 2020, a decrease of $1.2 million from $2.7 million at the first quarter of 2020, and a decrease of $612,000 from $2.1 million in the second quarter of 2019.  The decrease was primarily due to a $983,000 decrease in loan referral fees, which is 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 $104,000 decrease in BaaS fees contributed to the decrease when compared to the quarter ended March 31, 2020.  The $612,000 decrease over the quarter ended June 30, 2019 was largely due to a $403,000 decrease in loan referral fees, a $132,000 decline in gain on sale of loans and a $104,000 decrease in deposit service changes and fees.  Amendments to partner agreements and longer implementation periods negatively impacted BaaS fees in the current quarter.  As of June 30, 2020, there were three active CCBX partners, two in the friends and family trials, two in onboarding/implementation, three signed letters of intent and a solid pipeline that may lead us to onboarding up to two new partners per quarter.  Some amendments were made for CCBX partners that were beneficial to the long-term relationship, resulting in a slight shift of

 

 

 

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

4

 


revenue from the quarter ended June 30, 2020, to a future period. As partnerships move to active status and develop their customer base, it is expected that BaaS fees will increase.  The decline in deposit service fees over June 30, 2019 is largely due to a reduction in nonsufficient funds and overdraft charges on personal and business accounts as consumer activity decreased due to the COVID-19 pandemic and economic shut-down.

Total noninterest expense for the second quarter of 2020 was $8.9 million compared to $9.0 million for the preceding quarter and increased 17.0% from $7.6 million from the second quarter of 2019. Noninterest expense variances for the quarter ended June 30, 2020 as compared to the quarter ended March 31, 2020 include a $468,000 decrease in salaries and employee benefits, which is largely related to the deferred loan costs recorded as salary offsets from originating PPP loans.  The increased expenses for the current quarter compared to the comparable quarter one year ago were largely due to increases in salary expenses related to hiring staff for our BaaS CCBX division and additional staff for our ongoing banking growth initiatives, along with temporary additions to help with operations to originate PPP loans.  Legal and professional fees increased $151,000 and $181,000 in the current quarter over the quarters ended March 31, 2020 and June 30, 2019, respectively.  The increase is associated with BaaS activities through CCBX operations and regular costs related to legal and accounting work related to reporting.  In the quarter ended June 30, 2020, other expenses increased $260,000 and $358,000 over the quarters ended March 31, 2020 and June 30, 2019, respectively, largely as a result of increased dues and memberships, subscription and software license expense of $40,000 and $138,000 at March 31, 2020 and June 20, 2019, respectively. Also contributing to the increase in other expenses over March 31, 2020 and June 30, 2019 is a $103,000 and $39,000 increase, respectively, in the provision for off balance sheet commitments.

The provision for income taxes was $967,000 at June 30, 2020, a $253,000 increase compared to $714,000 for the first quarter of 2020 and a $113,000 increase compared to $854,000 for the second quarter of 2019, both as a result of increased taxable income.  The Company uses a federal statutory tax rate of 21% as a basis for calculating provision for income taxes.

Balance Sheet

The Company’s total assets increased $494.9 million, or 41.8%, to $1.68 billion at June 30, 2020 compared to $1.18 billion at March 31, 2020.  The primary cause of the increase was $440.0 million in increased loans receivable (net of allowance for loan losses), largely from PPP loans, combined with a $44.9 million increase in cash and due from banks and interest earning deposits with other banks. In the quarter ended June 30, 2020, total assets increased $550.0 million, or 48.8%, compared to $1.13 billion at December 31, 2019.  This increase is largely the result of $504.7 million increase in net loans receivable, combined with a $46.4 million increase in cash and due from banks and interest earning deposits with other banks.

Total loans receivable increased $508.0 million from $939.1 million at December 31, 2019 to $1.45 billion at June 30, 2020, and $601.7 million from $845.4 million at June 30, 2019.  The growth in loans receivable over the quarter ended December 31, 2019 was due primarily to an increase of $440.1 million in commercial and industrial loans, which includes $438.1 million in PPP loans for small business owners as prescribed in the CARES Act, combined with $64.9 million increase in commercial real estate loans.  Partially offsetting that increase is $10.9 million in additional net deferred loan origination fees, which includes $10.6 million in unearned fees on PPP loans, which are earned over the life of those loans, and have a maturity term of two to five years.  The increase over the quarter ended June 30, 2019 was due to a $450.4 million increase in commercial and industrial loans, $120.6 million in commercial real estate loans, $22.5 million in residential real estate loans, and $17.8 million in construction, land and land development loans.  Partially offsetting the increase in net loans receivable is an additional $11.5 million in net deferred loan origination fees, including $10.6 million in net unearned fees on PPP loans.

The PPP has been extended to August 8, 2020, and we will continue to accept and process requests for existing and new customers for the duration of the program; however, the volume of loans has significantly declined since the program began.  Guidance is being issued and we have begun accepting applications from customers for loan forgiveness.  It is still uncertain what the final forgiveness criteria will be, but we anticipate that the third quarter of 2020 will be busy as we migrate to the forgiveness stage of the PPP.  Forgiveness of principal, early paydowns and payoffs on PPP loans will increase interest income earned in those periods.   Customers with two-year loans are also able to request that their PPP loan be extended to a five year maturity, which we anticipate may be a good option for customers not eligible for forgiveness.

5

 


The following table shows the number of PPP loans originated through July 22, 2020:

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

 

 

As of

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

June 30, 2019

 

(Dollars in thousands; unaudited)

 

Balance

 

% to Total

 

 

Balance

 

% to Total

 

 

Balance

 

% to Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   PPP loans

 

$

438,077

 

 

30.0

%

 

$

-

 

 

0.0

%

 

$

-

 

 

0.0

%

   All other commercial &

     industrial loans

 

 

113,473

 

 

7.8

 

 

 

111,401

 

 

11.8

 

 

 

101,110

 

 

11.9

 

Real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Construction, land and

     land development loans

 

 

102,422

 

 

7.0

 

 

 

97,034

 

 

10.3

 

 

 

84,666

 

 

10.0

 

   Residential real estate loans

 

 

122,949

 

 

8.4

 

 

 

115,011

 

 

12.2

 

 

 

100,446

 

 

11.9

 

   Commercial real estate loans

 

 

678,335

 

 

46.5

 

 

 

613,398

 

 

65.2

 

 

 

557,692

 

 

65.8

 

Consumer and other loans

 

 

4,735

 

 

0.3

 

 

 

4,214

 

 

0.5

 

 

 

2,893

 

 

0.4

 

      Gross loans receivable

 

 

1,459,991

 

 

100.0

%

 

 

941,058

 

 

100.0

%

 

 

846,807

 

 

100.0

%

Net deferred origination fees -

     PPP loans

 

 

(10,639

)

 

 

 

 

 

-

 

 

 

 

 

 

-

 

 

 

 

Net deferred origination fees -

     Other loans

 

 

(2,208

)

 

 

 

 

 

(1,955

)

 

 

 

 

 

(1,364

)

 

 

 

      Loans receivable

 

$

1,447,144

 

 

 

 

 

$

939,103

 

 

 

 

 

$

845,443

 

 

 

 

 

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

Total deposits increased $338.5 million, or 35.0%, to $1.31 billion at June 30, 2020 from $968.0 million at December 31, 2019.  The increase is largely due to a $349.7 million increase in core deposits.  A portion of the funds from PPP loans were deposited directly into existing or new deposit accounts, thus increasing deposit account balances.  These deposits have been, and continue to be, gradually withdrawn as the customers use the funds. During the quarter ended June 30, 2020, noninterest bearing deposits increased $192.6 million, or 51.9%, to $563.8 million from $371.2 million at December 31, 2019.  NOW and money market accounts increased $138.5 million, savings accounts increased $18.7 million, BaaS-brokered deposits increased $2.9 million and time deposits decreased $14.2 million. Total deposits increased $438.3 million, or 50.5%, compared to $868.1 million at June 30, 2019.  The increase is primarily in core deposits and is the result of expanding and growing banking relationships, combined with the PPP related deposits remaining in accounts at June 30, 2020. Noninterest bearing deposits increased $247.9 million, or 78.5%, from $315.9 million at June 30, 2019.  NOW and money market accounts increased $188.6 million, savings accounts increased $20.9 million, BaaS-brokered deposits increased $12.4 million and time deposits decreased $31.5 million. Efforts to retain and grow core deposits are evidenced by the high ratios in these categories when compared to total deposits.  

6

 


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

 

 

As of

 

 

 

June 30, 2020

 

 

December 31, 2019

 

 

June 30, 2019

 

(Dollars in thousands, unaudited)

 

Balance

 

% to Total

 

 

Balance

 

% to Total

 

 

Balance

 

% to Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Demand, noninterest bearing

 

$

563,794

 

 

43.2

%

 

$

371,243

 

 

38.4

%

 

$

315,890

 

 

36.4

%

NOW and money market

 

 

576,376

 

 

44.1

 

 

 

437,908

 

 

45.2

 

 

 

387,758

 

 

44.7

 

Savings

 

 

72,045

 

 

5.5

 

 

 

53,365

 

 

5.5

 

 

 

51,120

 

 

5.9

 

      Total core deposits

 

 

1,212,215

 

 

92.8

 

 

 

862,516

 

 

89.1

 

 

 

754,768

 

 

87.0

 

BaaS-brokered deposits

 

 

26,529

 

 

2.0

 

 

 

23,586

 

 

2.4

 

 

 

14,166

 

 

1.6

 

Time deposits less than $250,000

 

 

43,900

 

 

3.4

 

 

 

51,644

 

 

5.4

 

 

 

62,303

 

 

7.2

 

Time deposits $250,000 and over

 

 

23,783

 

 

1.8

 

 

 

30,213

 

 

3.1

 

 

 

36,907

 

 

4.2

 

      Total deposits

 

$

1,306,427

 

 

100.0

%

 

$

967,959

 

 

100.0

%

 

$

868,144

 

 

100.0

%

 

Funds from PPP loans were frequently deposited directly into existing or new customer accounts during the quarter ended June 30, 2020.  This includes approximately 842 new customer deposit relationships that were established as a result of funding PPP loans for business owners in the communities we serve.  The time and effort spent working with these new customers throughout the PPP process has resulted in new relationships that the Company will work to retain into the future.  

Distributions from PPP loans were largely directly deposited into new or existing deposit accounts as illustrated below:

To bolster 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 PPP provides loans to small businesses so that they can keep their employees on the payroll and pay other allowed business expenses. The PPPLF extends low cost borrowing lines, 0.35% interest rate, to eligible financial institutions that originate PPP loans, taking the loans as collateral at face value. Borrowings are required to be paid down as the pledged PPP loans are paid down.  As of June 30, 2020, there was $190.2 million outstanding in PPPLF advances and pledged PPP loans.

The Federal Home Loan Bank (“FHLB”) allows us to borrow against our line of credit, which is collateralized by certain loans. As of June 30, 2020, we borrowed a total of $25.0 million in FHLB long term advances.  This includes a $10.0 million advance with a remaining term of 2.75 years and $15.0 million advance with a 4.75 years remaining term.  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 $63.7 million was available under this arrangement as of June 30, 2020.

Total shareholders’ equity increased $6.8 million since December 31, 2019.  The increase in shareholders’ equity was primarily due to $6.4 million in net earnings for the six months ended June 30, 2020.  

7

 


Capital Ratios

The Company and the Bank remain well capitalized at June 30, 2020, as summarized in the following table.  

Capital Ratios:

Coastal Community Bank

 

 

Coastal Financial Corporation

 

 

Financial Institution Basel III Regulatory Guidelines

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

9.61

%

 

 

9.38

%

 

 

5.00

%

Common Equity Tier 1 risk-based capital

 

12.86

%

 

 

12.34

%

 

 

6.50

%

Tier 1 risk-based capital

 

12.86

%

 

 

12.67

%

 

 

8.00

%

Total risk-based capital

 

14.11

%

 

 

14.88

%

 

 

10.00

%

 

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

Asset Quality

The allowance for loan losses was $14.8 million and 1.03% of loans receivable at June 30, 2020 compared to $11.5 million and 1.22% at December 31, 2019 and $10.4 million and 1.24% at June 30, 2019.  At June 30, 2020, there was $427.4 million in PPP loans, net of deferred fees, which are 100% guaranteed by the SBA.  Excluding PPP loans, the allowance for loan losses to loans receivable* would be 1.46% for the quarter ended June 30, 2020.  Provision for loan losses totaled $1.9 million for the current quarter, $1.6 million for the preceding quarter, and $547,000 for the same quarter in the prior year. Net charge-offs totaled $8,000 for the quarter ended June 30, 2020, compared to $123,000 for the quarter ended March 31, 2020 and $19,000 net charge-offs for the quarter ended June 30, 2019.

The Company’s provision for loan losses of $1.9 million and $1.6 million during the quarters ended June 30, 2020 and March 31, 2020, respectively, is related to the growth in the loan portfolio along with an increase in qualitative factors related to the economic uncertainties caused by the COVID-19 pandemic. The Company is not required to implement the provisions of the Current Expected Credit Loss accounting standard until January 1, 2023 and will continue to account for the allowance for credit losses under the incurred loss model.  

At June 30, 2020, our nonperforming assets were $4.4 million, or 0.26% of total assets, compared to $1.0 million, or 0.09%, of total assets at December 31, 2019, and $1.6 million, or 0.16%, of total assets at June 30, 2019.  Nonperforming assets increased $3.4 million during the quarter ended June 30, 2020, with the addition of two loans.  

Management is actively monitoring 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 June 30, 2020.  Our nonperforming loans to loans receivable ratio was 0.31% at June 30, 2020, compared to 0.11% at December 31, 2019.  Commercial and industrial nonaccrual loans totaled $689,000 at June 30, 2020 and consisted of three lending relationships.  During the second quarter of 2020, there was $11,000 in charge-offs on one nonperforming loan and $3,000 in recoveries.  Two loans moved to nonperforming status, both non-COVID-19 pandemic related, during the second quarter, which includes $3.3 million in construction, land and land development loans and $413,000 in commercial real estate loans.  The addition of these loans to nonperforming status in the second quarter was a result of our proactive monitoring program and review activities and was partially offset by principal reductions and the aforementioned charge-off and resulted in an overall increase in our ratios of nonperforming loans and nonperforming assets to total assets compared to December 31, 2019.

Credit quality has remained stable as of June 30, 2020, as demonstrated by the low level of charge-offs and nonperforming loans.  The short and long-term economic impact of the COVID-19 pandemic, trade issues, political gridlock, and decline in

 

 

 

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

8

 


oil prices is unknown; however, the Company remains diligent in its efforts to communicate and proactively work with borrowers to help mitigate potential credit deterioration.

Pursuant to federal guidance, the Company deferred and/or modified payments on loans to assist customers financially during the COVID-19 pandemic and economic shutdown. At June 30, 2020, the Company had 215 loans, or $207.2 million, outstanding with deferred or modified payments.   Additional information on these loans can be found in Appendix A.

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

 

 

As of

 

 

 

June 30,

 

December 31,

 

June 30,

 

(Dollars in thousands, unaudited)

 

2020

 

2019

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

Nonaccrual loans:

 

 

 

 

 

 

 

 

 

 

Commercial and industrial loans

 

$

689

 

$

965

 

$

1,579

 

Real estate:

 

 

 

 

 

 

 

 

 

 

   Construction, land and land development

 

 

3,270

 

 

-

 

 

-

 

   Residential

 

 

63

 

 

65

 

 

69

 

   Commercial real estate

 

 

413

 

 

-

 

 

-

 

         Total nonaccrual loans

 

 

4,435

 

 

1,030

 

 

1,648

 

 

 

 

 

 

 

 

 

 

 

 

Accruing loans past due 90 days or more:

 

 

 

 

 

 

 

 

 

 

         Total accruing loans past due 90 days or more

 

 

-

 

 

-

 

 

-

 

         Total nonperforming loans

 

 

4,435

 

 

1,030

 

 

1,648

 

Other real estate owned

 

 

-

 

 

-

 

 

-

 

Repossessed assets

 

 

-

 

 

-

 

 

-

 

Total nonperforming assets

 

$

4,435

 

$

1,030

 

$

1,648

 

Troubled debt restructurings, accruing

 

 

-

 

 

-

 

 

-

 

Total nonperforming loans to loans receivable

 

 

0.31

%

 

0.11

%

 

0.19

%

Total nonperforming assets to total assets

 

 

0.26

%

 

0.09

%

 

0.16

%

 

About Coastal Financial

Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), is an Everett, Washington based bank holding company with Coastal Community Bank (the “Bank”), a full-service commercial bank, as its sole wholly-owned banking subsidiary.  The $1.6 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 select partners with BaaS 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

9

 


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.

10

 


COASTAL FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollars in thousands; unaudited)

 

ASSETS

 

 

June 30,

 

 

March 31,

 

 

December 31,

 

 

 

 

2020

 

 

2020

 

 

2019

 

 

Cash and due from banks

 

$

26,510

 

 

$

14,124

 

 

$

16,555

 

 

Interest earning deposits with other banks

 

 

147,666

 

 

 

115,112

 

 

 

111,259

 

 

Investment securities, available for sale, at fair value

 

 

20,448

 

 

 

15,469

 

 

 

28,360

 

 

Investment securities, held to maturity, at amortized cost

 

 

3,870

 

 

 

4,290

 

 

 

4,350

 

 

Other investments

 

 

5,951

 

 

 

5,723

 

 

 

4,505

 

 

Loans receivable

 

 

1,447,144

 

 

 

1,005,180

 

 

 

939,103

 

 

Allowance for loan losses

 

 

(14,847

)

 

 

(12,925

)

 

 

(11,470

)

 

     Total loans receivable, net

 

 

1,432,297

 

 

 

992,255

 

 

 

927,633

 

 

Premises and equipment, net

 

 

16,668

 

 

 

14,195

 

 

 

13,108

 

 

Operating lease right-of-use assets

 

 

7,635

 

 

 

8,228

 

 

 

8,493

 

 

Accrued interest receivable

 

 

5,944

 

 

 

3,014

 

 

 

2,980

 

 

Bank-owned life insurance, net

 

 

6,981

 

 

 

6,931

 

 

 

6,882

 

 

Deferred tax asset, net

 

 

2,721

 

 

 

2,735

 

 

 

2,743

 

 

Other assets

 

 

2,265

 

 

 

1,995

 

 

 

1,658

 

 

     Total assets

 

$

1,678,956

 

 

$

1,184,071

 

 

$

1,128,526

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

$

1,306,427

 

 

$

1,005,062

 

 

$

967,959

 

 

Federal Home Loan Bank advances

 

 

24,999

 

 

 

24,999

 

 

 

10,000

 

 

Paycheck Protection Program Liquidity Facility

 

 

190,156

 

 

 

-

 

 

 

-

 

 

Subordinated debt, net

 

 

9,986

 

 

 

9,982

 

 

 

9,979

 

 

Junior subordinated debentures, net

 

 

3,584

 

 

 

3,583

 

 

 

3,583

 

 

Deferred compensation

 

 

919

 

 

 

947

 

 

 

974

 

 

Accrued interest payable

 

 

312

 

 

 

310

 

 

 

308

 

 

Operating lease liabilities

 

 

7,831

 

 

 

8,419

 

 

 

8,679

 

 

Other liabilities

 

 

3,765

 

 

 

3,603

 

 

 

2,871

 

 

     Total liabilities

 

 

1,547,979

 

 

 

1,056,905

 

 

 

1,004,353

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

87,309

 

 

 

87,166

 

 

 

86,983

 

 

Retained earnings

 

 

43,617

 

 

 

39,946

 

 

 

37,222

 

 

Accumulated other comprehensive income (loss), net of tax

 

 

51

 

 

 

54

 

 

 

(32

)

 

     Total shareholders’ equity

 

 

130,977

 

 

 

127,166

 

 

 

124,173

 

 

     Total liabilities and shareholders’ equity

 

$

1,678,956

 

 

$

1,184,071

 

 

$

1,128,526

 

 

11

 


COASTAL FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts; unaudited)

 

 

Three months ended

 

 

June 30,

 

March 31,

 

June 30,

 

 

2020

 

2020

 

2019

 

INTEREST AND DIVIDEND INCOME

 

 

 

 

 

 

 

 

 

Interest and fees on loans

$

15,154

 

$

12,627

 

$

10,917

 

Interest on interest earning deposits with other banks

 

130

 

 

358

 

 

652

 

Interest on investment securities

 

53

 

 

119

 

 

160

 

Dividends on other investments

 

89

 

 

16

 

 

75

 

Total interest and dividend income

 

15,426

 

 

13,120

 

 

11,804

 

INTEREST EXPENSE

 

 

 

 

 

 

 

 

 

Interest on deposits

 

1,096

 

 

1,554

 

 

1,420

 

Interest on borrowed funds

 

337

 

 

202

 

 

198

 

Total interest expense

 

1,433

 

 

1,756

 

 

1,618

 

Net interest income

 

13,993

 

 

11,364

 

 

10,186

 

PROVISION FOR LOAN LOSSES

 

1,930

 

 

1,578

 

 

547

 

Net interest income after provision for loan losses

 

12,063

 

 

9,786

 

 

9,639

 

NONINTEREST INCOME

 

 

 

 

 

 

 

 

 

Deposit service charges and fees

 

677

 

 

723

 

 

781

 

BaaS fees

 

475

 

 

579

 

 

502

 

Loan referral fees

 

70

 

 

1,053

 

 

473

 

Mortgage broker fees

 

152

 

 

162

 

 

111

 

Sublease and lease income

 

31

 

 

30

 

 

10

 

Gain on sales of loans, net

 

-

 

 

-

 

 

132

 

Other

 

115

 

 

124

 

 

123

 

Total noninterest income

 

1,520

 

 

2,671

 

 

2,132

 

NONINTEREST EXPENSE

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

5,215

 

 

5,683

 

 

4,529

 

Occupancy

 

933

 

 

927

 

 

930

 

Data processing

 

621

 

 

551

 

 

499

 

Director and staff expenses

 

187

 

 

270

 

 

217

 

Excise taxes

 

262

 

 

203

 

 

180

 

Marketing

 

116

 

 

112

 

 

108

 

Legal and professional fees

 

474

 

 

323

 

 

293

 

Federal Deposit Insurance Corporation assessments

 

74

 

 

70

 

 

134

 

Business development

 

48

 

 

125

 

 

96

 

Other

 

1,015

 

 

755

 

 

657

 

Total noninterest expense

 

8,945

 

 

9,019

 

 

7,643

 

Income before provision for income taxes

 

4,638

 

 

3,438

 

 

4,128

 

PROVISION FOR INCOME TAXES

 

967

 

 

714

 

 

854

 

NET INCOME

$

3,671

 

$

2,724

 

$

3,274

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

$

0.31

 

$

0.23

 

$

0.28

 

Diluted earnings per common share

$

0.30

 

$

0.22

 

$

0.27

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

11,917,394

 

 

11,909,248

 

 

11,895,026

 

Diluted

 

12,190,284

 

 

12,208,175

 

 

12,202,197

 

 

12

 


COASTAL FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Dollars in thousands, except per share amounts; unaudited)

 

 

 

 

 

 

 

 

 

Six months ended

 

 

 

 

 

 

 

 

 

June 30, 2020

 

June 30, 2019

 

INTEREST AND DIVIDEND INCOME

 

 

 

 

 

 

Interest and fees on loans

$

27,781

 

$

21,336

 

Interest on interest earning deposits with other banks

 

488

 

 

1,460

 

Interest on investment securities

 

172

 

 

313

 

Dividends on other investments

 

105

 

 

89

 

Total interest and dividend income

 

28,546

 

 

23,198

 

INTEREST EXPENSE

 

 

 

 

 

 

Interest on deposits

 

2,650

 

 

2,856

 

Interest on borrowed funds

 

539

 

 

389

 

Total interest expense

 

3,189

 

 

3,245

 

Net interest income

 

25,357

 

 

19,953

 

PROVISION FOR LOAN LOSSES

 

3,508

 

 

1,087

 

Net interest income after provision for loan losses

 

21,849

 

 

18,866

 

NONINTEREST INCOME

 

 

 

 

 

 

Deposit service charges and fees

 

1,400

 

 

1,507

 

BaaS fees

 

1,054

 

 

948

 

Loan referral fees

 

1,123

 

 

1,106

 

Mortgage broker fees

 

314

 

 

196

 

Sublease and lease income

 

61

 

 

20

 

Gain on sales of loans, net

 

-

 

 

121

 

Other

 

239

 

 

218

 

Total noninterest income

 

4,191

 

 

4,116

 

NONINTEREST EXPENSE

 

 

 

 

 

 

Salaries and employee benefits

 

10,898

 

 

9,087

 

Occupancy

 

1,860

 

 

1,924

 

Data processing

 

1,172

 

 

1,028

 

Director and staff expenses

 

457

 

 

457

 

Excise taxes

 

465

 

 

345

 

Marketing

 

228

 

 

202

 

Legal and professional fees

 

797

 

 

702

 

Federal Deposit Insurance Corporation assessments

 

144

 

 

209

 

Business development

 

173

 

 

198

 

Other

 

1,770

 

 

1,153

 

Total noninterest expense

 

17,964

 

 

15,305

 

Income before provision for income taxes

 

8,076

 

 

7,677

 

PROVISION FOR INCOME TAXES

 

1,681

 

 

1,595

 

NET INCOME

$

6,395

 

$

6,082

 

 

 

 

 

 

 

 

Basic earnings per common share

$

0.54

 

$

0.51

 

Diluted earnings per common share

$

0.52

 

$

0.50

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

Basic

 

11,913,321

 

 

11,889,597

 

Diluted

 

12,185,154

 

 

12,192,647

 

13

 


COASTAL FINANCIAL CORPORATION

AVERAGE BALANCES, YIELDS, AND RATES – QUARTERLY

(Dollars in thousands; unaudited)

 

 

For the Three Months Ended

 

 

June 30, 2020

 

 

March 31, 2020

 

 

 

June 30, 2019

 

 

Average

 

Interest &

 

Yield /

 

 

Average

 

Interest &

 

Yield /

 

 

 

Average

 

Interest &

 

Yield /

 

 

Balance

 

Dividends

 

Cost (4)

 

 

Balance

 

Dividends

 

Cost (4)

 

 

 

Balance

 

Dividends

 

Cost (4)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits

$

127,721

 

$

130

 

 

0.41

%

 

$

103,372

 

$

358

 

 

1.39

%

 

 

$

106,353

 

$

652

 

 

2.46

%

Investment securities (1)

 

21,835

 

 

53

 

 

0.98

 

 

 

27,041

 

 

119

 

 

1.77

 

 

 

 

40,151

 

 

160

 

 

1.60

 

Other Investments

 

5,841

 

 

89

 

 

6.13

 

 

 

4,507

 

 

16

 

 

1.43

 

 

 

 

3,659

 

 

75

 

 

8.22

 

Loans receivable (2)

 

1,334,991

 

 

15,154

 

 

4.57

 

 

 

966,602

 

 

12,627

 

 

5.25

 

 

 

 

812,704

 

 

10,917

 

 

5.39

 

Total interest earning assets

 

1,490,388

 

 

15,426

 

 

4.16

 

 

 

1,101,522

 

 

13,120

 

 

4.79

 

 

 

 

962,867

 

 

11,804

 

 

4.92

 

Noninterest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

(13,555

)

 

 

 

 

 

 

 

 

(11,665

)

 

 

 

 

 

 

 

 

 

(10,025

)

 

 

 

 

 

 

Other noninterest earning assets

 

61,713

 

 

 

 

 

 

 

 

 

51,596

 

 

 

 

 

 

 

 

 

 

49,594

 

 

 

 

 

 

 

Total assets

$

1,538,546

 

 

 

 

 

 

 

 

$

1,141,453

 

 

 

 

 

 

 

 

 

$

1,002,436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

$

708,724

 

$

1,096

 

 

0.62

%

 

$

628,037

 

$

1,554

 

 

1.00

%

 

 

$

550,777

 

$

1,420

 

 

1.03

%

Subordinated debt, net

 

9,984

 

 

147

 

 

5.92

 

 

 

9,980

 

 

146

 

 

5.88

 

 

 

 

9,970

 

 

146

 

 

5.87

 

Junior subordinated debentures, net

 

3,583

 

 

26

 

 

2.92

 

 

 

3,583

 

 

35

 

 

3.93

 

 

 

 

3,582

 

 

43

 

 

4.81

 

PPPFL borrowings

 

107,443

 

 

94

 

 

0.35

 

 

 

-

 

 

-

 

 

0.00

 

 

 

 

-

 

 

-

 

 

0.00

 

FHLB advances and other borrowings

 

24,999

 

 

70

 

 

1.13

 

 

 

7,851

 

 

21

 

 

1.08

 

 

 

 

1,542

 

 

9

 

 

2.34

 

Total interest bearing liabilities

 

854,733

 

 

1,433

 

 

0.67

 

 

 

649,451

 

 

1,756

 

 

1.09

 

 

 

 

565,871

 

 

1,618

 

 

1.15

 

Noninterest bearing deposits

 

541,448

 

 

 

 

 

 

 

 

 

352,930

 

 

 

 

 

 

 

 

 

 

308,739

 

 

 

 

 

 

 

Other liabilities

 

12,498

 

 

 

 

 

 

 

 

 

12,542

 

 

 

 

 

 

 

 

 

 

13,132

 

 

 

 

 

 

 

Total shareholders' equity

 

129,867

 

 

 

 

 

 

 

 

 

126,530

 

 

 

 

 

 

 

 

 

 

114,694

 

 

 

 

 

 

 

Total liabilities and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    shareholders' equity

$

1,538,546

 

 

 

 

 

 

 

 

$

1,141,453

 

 

 

 

 

 

 

 

 

$

1,002,436

 

 

 

 

 

 

 

Net interest income

 

 

 

$

13,993

 

 

 

 

 

 

 

 

$

11,364

 

 

 

 

 

 

 

 

 

$

10,186

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

3.49

%

 

 

 

 

 

 

 

 

3.70

%

 

 

 

 

 

 

 

 

 

3.77

%

Net interest margin (3)

 

 

 

 

 

 

 

3.78

%

 

 

 

 

 

 

 

 

4.15

%

 

 

 

 

 

 

 

 

 

4.24

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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.

 

14

 


COASTAL FINANCIAL CORPORATION

AVERAGE BALANCES, YIELDS, AND RATES – YEAR-TO-DATE

(Dollars in thousands; unaudited)

 

 

For the Six Months Ended

 

 

June 30, 2020

 

 

June 30, 2019

 

 

Average

 

Interest &

 

Yield /

 

 

Average

 

Interest &

 

Yield /

 

 

Balance

 

Dividends

 

Cost (4)

 

 

Balance

 

Dividends

 

Cost (4)

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest earning deposits

$

115,547

 

$

488

 

 

0.85

%

 

$

119,830

 

$

1,460

 

 

2.46

%

Investment securities (1)

 

24,438

 

 

172

 

 

1.42

 

 

 

39,853

 

 

313

 

 

1.58

 

Other Investments

 

5,174

 

 

105

 

 

4.08

 

 

 

3,406

 

 

89

 

 

5.27

 

Loans receivable (2)

 

1,150,797

 

 

27,781

 

 

4.85

 

 

 

797,629

 

 

21,336

 

 

5.39

 

Total interest earning assets

$

1,295,956

 

$

28,546

 

 

4.43

 

 

$

960,718

 

$

23,198

 

 

4.87

 

Noninterest earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

(12,610

)

 

 

 

 

 

 

 

 

(9,825

)

 

 

 

 

 

 

Other noninterest earning assets

 

56,654

 

 

 

 

 

 

 

 

 

48,873

 

 

 

 

 

 

 

Total assets

$

1,340,000

 

 

 

 

 

 

 

 

$

999,766

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest bearing deposits

$

668,381

 

$

2,650

 

 

0.80

%

 

$

560,875

 

$

2,856

 

 

1.03

%

Subordinated debt, net

 

9,982

 

 

293

 

 

5.90

 

 

 

9,968

 

 

291

 

 

5.89

 

Junior subordinated debentures, net

 

3,583

 

 

61

 

 

3.42

 

 

 

3,581

 

 

87

 

 

4.90

 

PPPLF borrowings

 

53,722

 

 

94

 

 

0.35

 

 

 

-

 

 

-

 

 

0.00

 

FHLB advances and other borrowings

 

16,425

 

 

91

 

 

1.11

 

 

 

923

 

 

11

 

 

2.40

 

Total interest bearing liabilities

$

752,093

 

$

3,189

 

 

0.85

 

 

$

575,347

 

$

3,245

 

 

1.14

 

Noninterest bearing deposits

 

447,189

 

 

 

 

 

 

 

 

 

298,451

 

 

 

 

 

 

 

Other liabilities

 

12,520

 

 

 

 

 

 

 

 

 

13,080

 

 

 

 

 

 

 

Total shareholders' equity

 

128,198

 

 

 

 

 

 

 

 

 

112,888

 

 

 

 

 

 

 

Total liabilities and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    shareholders' equity

$

1,340,000

 

 

 

 

 

 

 

 

$

999,766

 

 

 

 

 

 

 

Net interest income

 

 

 

$

25,357

 

 

 

 

 

 

 

 

$

19,953

 

 

 

 

Interest rate spread

 

 

 

 

 

 

 

3.58

%

 

 

 

 

 

 

 

 

3.73

%

Net interest margin (3)

 

 

 

 

 

 

 

3.93

%

 

 

 

 

 

 

 

 

4.19

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 


COASTAL FINANCIAL CORPORATION

QUARTERLY STATISTICS

(Dollars in thousands, except share and per share data; unaudited)

 

 

Three Months Ended

 

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

 

2020

 

2020

 

2019

 

2019

 

2019

 

Income Statement Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and dividend income

$

15,426

 

$

13,120

 

$

13,034

 

$

12,355

 

$

11,804

 

Interest expense

 

1,433

 

 

1,756

 

 

1,703

 

 

1,628

 

 

1,618

 

Net interest income

 

13,993

 

 

11,364

 

 

11,331

 

 

10,727

 

 

10,186

 

Provision for loan losses

 

1,930

 

 

1,578

 

 

820

 

 

637

 

 

547

 

Net interest income after

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

provision for loan losses

 

12,063

 

 

9,786

 

 

10,511

 

 

10,090

 

 

9,639

 

Noninterest income

 

1,520

 

 

2,671

 

 

2,059

 

 

2,088

 

 

2,132

 

Noninterest expense

 

8,945

 

 

9,019

 

 

8,015

 

 

7,748

 

 

7,643

 

Net income - pre-tax, pre-provision (1)

 

6,568

 

 

5,016

 

 

5,375

 

 

5,067

 

 

4,675

 

Provision for income tax

 

967

 

 

714

 

 

947

 

 

919

 

 

854

 

Net income

 

3,671

 

 

2,724

 

 

3,608

 

 

3,511

 

 

3,274

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the Three Month Period

 

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

 

2020

 

2020

 

2019

 

2019

 

2019

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

174,176

 

$

129,236

 

$

127,814

 

$

153,347

 

$

113,470

 

Investment securities

 

24,318

 

 

19,759

 

 

32,710

 

 

32,696

 

 

42,381

 

Loans receivable

 

1,447,144

 

 

1,005,180

 

 

939,103

 

 

874,112

 

 

845,443

 

Allowance for loan losses

 

(14,847

)

 

(12,925

)

 

(11,470

)

 

(10,888

)

 

(10,443

)

Total assets

 

1,678,956

 

 

1,184,071

 

 

1,128,526

 

 

1,090,060

 

 

1,031,024

 

Interest bearing deposits

 

742,633

 

 

659,559

 

 

596,716

 

 

573,162

 

 

552,254

 

Noninterest bearing deposits

 

563,794

 

 

345,503

 

 

371,243

 

 

349,087

 

 

315,890

 

Core deposits (2)

 

1,212,215

 

 

892,408

 

 

862,516

 

 

817,593

 

 

754,768

 

Total deposits

 

1,306,427

 

 

1,005,062

 

 

967,959

 

 

922,249

 

 

868,144

 

Total borrowings

 

228,725

 

 

38,564

 

 

23,562

 

 

33,557

 

 

33,554

 

Total shareholders’ equity

 

130,977

 

 

127,166

 

 

124,173

 

 

120,422

 

 

116,591

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share and Per Share Data (3):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share – basic

$

0.31

 

$

0.23

 

$

0.30

 

$

0.30

 

$

0.28

 

Earnings per share – diluted

$

0.30

 

$

0.22

 

$

0.30

 

$

0.29

 

$

0.27

 

Dividends per share

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Book value per share (4)

$

10.98

 

$

10.66

 

$

10.42

 

$

10.11

 

$

9.79

 

Tangible book value per share (5)

$

10.98

 

$

10.66

 

$

10.42

 

$

10.11

 

$

9.79

 

Weighted avg outstanding shares – basic

 

11,917,394

 

 

11,909,248

 

 

11,903,750

 

 

11,901,873

 

 

11,895,026

 

Weighted avg outstanding shares – diluted

 

12,190,284

 

 

12,208,175

 

 

12,213,512

 

 

12,188,507

 

 

12,202,197

 

Shares outstanding at end of period

 

11,926,263

 

 

11,929,413

 

 

11,913,885

 

 

11,912,115

 

 

11,908,185

 

Stock options outstanding at end of period

 

774,587

 

 

774,937

 

 

784,217

 

 

786,257

 

 

791,267

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See footnotes on following page

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16

 


 

As of and for the Three Month Period

 

 

June 30,

 

March 31,

 

December 31,

 

September 30,

 

June 30,

 

 

2020

 

2020

 

2019

 

2019

 

2019

 

Credit Quality Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nonperforming assets to total assets

 

0.26

%

 

0.06

%

 

0.09

%

 

0.12

%

 

0.16

%

Nonperforming assets to loans receivable and OREO

 

0.31

%

 

0.08

%

 

0.11

%

 

0.15

%

 

0.19

%

Nonperforming loans to total loans receivable

 

0.31

%

 

0.08

%

 

0.11

%

 

0.15

%

 

0.19

%

Allowance for loan losses to nonperforming loans

 

334.8

%

 

1694.0

%

 

1113.6

%

 

837.5

%

 

633.7

%

Allowance for loan losses to total loans receivable

 

1.03

%

 

1.29

%

 

1.22

%

 

1.25

%

 

1.24

%

Allowance for loan losses to loans receivable, as adjusted (1)

 

1.46

%

n/a

 

n/a

 

n/a

 

n/a

 

Gross charge-offs

$

13

 

$

124

 

$

242

 

$

196

 

$

22

 

Gross recoveries

$

5

 

$

1

 

$

4

 

$

4

 

$

3

 

Net charge-offs to average loans (6)

 

0.00

%

 

0.05

%

 

0.10

%

 

0.09

%

 

0.01

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital Ratios (7):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage capital

 

9.38

%

 

11.43

%

 

11.64

%

 

12.00

%

 

11.99

%

Common equity Tier 1 risk-based capital

 

12.34

%

 

12.10

%

 

12.74

%

 

13.02

%

 

12.99

%

Tier 1 risk-based capital

 

12.67

%

 

12.43

%

 

13.10

%

 

13.40

%

 

13.37

%

Total risk-based capital

 

14.88

%

 

14.65

%

 

15.35

%

 

15.70

%

 

15.70

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(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 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.

 

 

 

17

 


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

 

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

 

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

 

 

 

As of and for the

Three Months Ended

 

 

As of and for the

Six Months Ended

 

(Dollars in thousands, unaudited)

 

June 30,

2020

 

 

March 31,

2020

 

 

December 31,

2019

 

 

September 30,

2019

 

 

June 30,

2019

 

 

June 30,

2020

 

 

June 30,

2019

 

Pre-tax, pre-provision net income and pre-tax, pre-provision return on average assets:

 

 

 

 

 

 

 

 

 

Total average assets

 

$

1,538,546

 

 

$

1,141,453

 

 

$

1,095,343

 

 

$

1,031,969

 

 

$

1,002,436

 

 

$

1,340,000

 

 

$

999,766

 

Total net income

 

 

3,671

 

 

 

2,724

 

 

 

3,608

 

 

 

3,511

 

 

 

3,274

 

 

 

6,395

 

 

 

6,082

 

Plus:  provision for loan losses

 

 

1,930

 

 

 

1,578

 

 

 

820

 

 

 

637

 

 

 

547

 

 

 

3,508

 

 

 

1,087

 

Plus:  provision for income

     taxes

 

 

967

 

 

 

714

 

 

 

947

 

 

 

919

 

 

 

854

 

 

 

1,681

 

 

 

1,595

 

Pre-tax, pre-provision net

     income

 

$

6,568

 

 

$

5,016

 

 

$

5,375

 

 

$

5,067

 

 

$

4,675

 

 

$

11,584

 

 

$

8,764

 

Return on average assets

 

 

0.96

%

 

 

0.96

%

 

 

1.31

%

 

 

1.35

%

 

 

1.31

%

 

 

0.96

%

 

 

1.23

%

Pre-tax, pre-provision return

     on average assets:

 

 

1.72

%

 

 

1.77

%

 

 

1.95

%

 

 

1.95

%

 

 

1.87

%

 

 

1.74

%

 

 

1.77

%

 

18

 


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

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

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

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

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

 

 

 

As of and for the

 

 

As of and for the

 

 

 

Three Months Ended

 

 

Six Months Ended

 

(Dollars in thousands, unaudited)

 

June 30, 2020

 

 

June 30, 2020

 

Adjusted allowance for loan losses to loans receivable:

 

 

 

 

 

 

 

 

Total loans, net of deferred fees

 

$

1,447,144

 

 

$

1,447,144

 

Less: PPP loans

 

 

(438,077

)

 

 

(438,077

)

Less: net deferred fees on PPP loans

 

 

10,639

 

 

 

10,639

 

Adjusted loans, net of deferred fees

 

$

1,019,707

 

 

$

1,019,707

 

Allowance for loan losses

 

$

(14,847

)

 

$

(14,847

)

Allowance for loan losses to loans receivable

 

 

1.03

%

 

 

1.03

%

Adjusted allowance for loan losses to loans receivable

 

 

1.46

%

 

 

1.46

%

Adjusted yield on loans receivable:

 

 

 

 

 

 

 

 

Total average loans receivable

 

$

1,334,991

 

 

$

1,150,797

 

Less: average PPP loans

 

 

(335,200

)

 

 

(167,600

)

Plus: average deferred fees on PPP loans

 

 

8,700

 

 

 

4,350

 

Adjusted total average loans receivable

 

$

1,008,491

 

 

$

987,547

 

Interest income on loans

 

$

15,154

 

 

$

27,781

 

Less: interest and fee income on PPP loans

 

 

(2,759

)

 

 

(2,759

)

Adjusted interest income on loans

 

$

12,395

 

 

$

25,022

 

Yield on loans receivable

 

 

4.57

%

 

 

4.85

%

Adjusted yield on loans receivable:

 

 

4.94

%

 

 

5.10

%

Adjusted contractual yield on loans receivable, excluding earned fees:

 

 

 

 

 

Total average loans receivable

 

$

1,334,991

 

 

$

1,150,797

 

Less: average PPP loans

 

 

(335,200

)

 

 

(167,600

)

Plus: average deferred fees on PPP loans

 

$

8,700

 

 

$

4,350

 

Adjusted total average loans receivable, excluding earned fees

 

$

1,008,491

 

 

$

987,547

 

Interest and earned fee income on loans

 

$

15,154

 

 

$

27,781

 

Less: earned fee income on loans

 

$

(2,182

)

 

$

(2,610

)

Less: interest income on PPP loans

 

 

(837

)

 

 

(837

)

Adjusted interest income on loans

 

$

12,135

 

 

$

24,334

 

Contractual yield on loans receivable, excluding earned fees

 

 

3.91

%

 

 

4.40

%

Adjusted contractual yield on loans receivable, excluding earned fees:

 

 

4.84

%

 

 

4.96

%

19

 


APPENDIX A

 

As of June 30, 2020

Industry Concentration

We have a diversified loan portfolio, representing a wide variety of industries. Three of our largest categories of our loans are commercial real estate, commercial and industrial, and construction, land and land development loans.  Together they represent $894.2 million in outstanding loan balances, or 87.5% of total gross loans outstanding, excluding PPP loans of $438.1 million.  When combined with $189.9 million in unused commitments the total of these three categories is $1.08 billion, or 87.9% of total outstanding loans and loan commitments.

Commercial real estate loans represent the largest segment of our loans, comprising 66.4% of our total balance of outstanding loans, excluding PPP loans, as of June 30, 2020.  Unused commitments to extend credit represents an additional $13.5 million, the combined total exposure in commercial real estate loans represents $691.9 million, or 56.1% of our total outstanding loans and loan commitments, excluding PPP loans.

The following table summarizes our exposure by industry for our commercial real estate portfolio as of June 30, 2020:

 

(Dollars in thousands, unaudited)

 

Outstanding Balance

 

 

Available Loan Commitments

 

 

Total Exposure

 

 

% of Total Loans

(Outstanding Balance & Available Commitment)

 

 

Average Loan Balance

 

 

Number of Loans

 

Hotel/Motel

 

$

99,389

 

 

$

632

 

 

$

100,021

 

 

 

8.1

%

 

$

3,823

 

 

 

26

 

Apartments

 

 

92,453

 

 

 

2,596

 

 

 

95,049

 

 

 

7.7

 

 

 

1,360

 

 

 

68

 

Retail

 

 

79,436

 

 

 

55

 

 

 

79,491

 

 

 

6.4

 

 

 

993

 

 

 

80

 

Office

 

 

75,833

 

 

 

2,976

 

 

 

78,809

 

 

 

6.4

 

 

 

824

 

 

 

92

 

Mixed use

 

 

71,636

 

 

 

3,365

 

 

 

75,001

 

 

 

6.1

 

 

 

823

 

 

 

87

 

Convenience Store

 

 

65,086

 

 

 

700

 

 

 

65,786

 

 

 

5.3

 

 

 

1,713

 

 

 

38

 

Warehouse

 

 

56,586

 

 

 

50

 

 

 

56,636

 

 

 

4.6

 

 

 

1,179

 

 

 

48

 

Manufacturing

 

 

36,094

 

 

 

453

 

 

 

36,547

 

 

 

3.0

 

 

 

1,003

 

 

 

36

 

Mini Storage

 

 

28,382

 

 

 

137

 

 

 

28,519

 

 

 

2.3

 

 

 

3,154

 

 

 

9

 

Groups < 2.0% of total

 

 

73,440

 

 

 

2,587

 

 

 

76,027

 

 

 

6.2

 

 

 

1,049

 

 

 

70

 

Total

 

$

678,335

 

 

$

13,551

 

 

$

691,886

 

 

 

56.1

%

 

$

1,224

 

 

 

554

 

 

20

 


Commercial and industrial loans comprise 11.1% of our total balance of outstanding loans, excluding PPP loans, as of June 30, 2020.  Unused commitments to extend credit represents an additional $98.8 million, the combined total exposure in commercial and industrial loans represents $212.7 million, or 17.2% 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 June 30, 2020:

 

(Dollars in thousands, unaudited)

 

Outstanding Balance

 

 

Available Loan Commitments

 

 

Total Exposure

 

 

% of Total Loans

(Outstanding Balance & Available Commitment)

 

 

Average Loan Balance

 

 

Number of Loans

 

Capital Call Lines

 

$

11,971

 

 

$

40,093

 

 

$

52,064

 

 

 

4.2

%

 

$

570

 

 

 

21

 

Construction/Contractor

     Services

 

 

13,625

 

 

 

21,305

 

 

 

34,930

 

 

 

2.8

 

 

 

99

 

 

 

138

 

Manufacturing

 

 

12,603

 

 

 

7,854

 

 

 

20,457

 

 

 

1.7

 

 

 

221

 

 

 

57

 

Medical / Dental /

     Other Care

 

 

14,766

 

 

 

2,230

 

 

 

16,996

 

 

 

1.4

 

 

 

208

 

 

 

71

 

Family and Social Services

 

 

11,007

 

 

 

4,599

 

 

 

15,606

 

 

 

1.3

 

 

 

847

 

 

 

13

 

Financial Institutions

 

 

15,400

 

 

 

-

 

 

 

15,400

 

 

 

1.2

 

 

 

5,133

 

 

 

3

 

Groups < 1.0% of total

 

 

34,101

 

 

 

23,138

 

 

 

57,239

 

 

 

4.6

 

 

 

109

 

 

 

312

 

Total

 

$

113,473

 

 

$

99,219

 

 

$

212,692

 

 

 

17.2

%

 

$

185

 

 

 

615

 

 

Construction, land and land development loans comprise 10.0% of our total balance of outstanding loans, excluding PPP loans, as of June 30, 2020.  Unused commitments to extend credit represents an additional $77.5 million, the combined total exposure in construction, land and land development loans represents $180.0 million, or 14.6% of our total outstanding loans and loan commitments.

The following table details our exposure for our construction, land and land development portfolio as of June 30, 2020:

 

(Dollars in thousands, unaudited)

 

Outstanding Balance

 

 

Available Loan Commitments

 

 

Total Exposure

 

 

% of Total Loans

(Outstanding Balance & Available Commitment)

 

 

Average Loan Balance

 

 

Number of Loans

 

Commercial construction

 

$

48,256

 

 

$

56,597

 

 

$

104,853

 

 

 

8.5

%

 

$

2,540

 

 

 

19

 

Residential construction

 

 

26,344

 

 

 

15,274

 

 

 

41,618

 

 

 

3.4

 

 

 

753

 

 

 

35

 

Developed land loans

 

 

14,200

 

 

 

2,804

 

 

 

17,004

 

 

 

1.4

 

 

 

418

 

 

 

34

 

Undeveloped land loans

 

 

8,976

 

 

 

492

 

 

 

9,468

 

 

 

0.8

 

 

 

472

 

 

 

19

 

Land development

 

 

4,646

 

 

 

2,378

 

 

 

7,024

 

 

 

0.6

 

 

 

581

 

 

 

8

 

Total

 

$

102,422

 

 

$

77,545

 

 

$

179,967

 

 

 

14.6

%

 

$

891

 

 

 

115

 

 

 

21

 


Payment Modifications and Deferrals

As part of our ongoing commitment to our customers we have been proactive in contacting customers impacted by the stay-at-home order in Washington State, temporary business closures, or that have otherwise been impacted by the COVID-19 pandemic and responses thereto.  In addition to the PPP loans we made to assist customers, as of June 30, 2020, we have $207.2 million in deferred or restructured payments, pursuant to federal guidance, representing 215 loans.  Of the 215 loans that remain on deferral, 92 loans, or $77.1 million, were subject to a loan extension as part of the deferral and restructuring process.  During the quarter ended June 30, 2020, there were 24 loans, representing $7.2 million, that moved back to active status from deferral status, with all of them successfully resuming payments.  

 

We offered various options depending upon the needs of the customer, with the 93% of the current loan deferrals being principal and interest, and 7% interest only deferrals.  The number of deferral days also varied among 90, 120 and 180 days.  The charts below show more detail regarding the payment modifications and deferrals.

 

The graphs below indicate the percentage of loans that were granted a COVID-19 deferral.  This illustration is based on total loans outstanding as of March 31, 2020 to approximate the impact to our portfolio, pre-COVID-19; also presented is deferred loans compared to total loans outstanding as of June 30, 2020.  

 

 

Deferrals remaining as of June 30, 2020:  

 

 

22

 


Remaining deferrals by industry as of June 30, 2020:

 

 

As a result of our proactive approach with customers, we did not see material downgrades in credit during quarter ended June 30, 2020 related to the COVID-19 pandemic.  We will continue to be diligent in monitoring credit and changes in the economy, keeping the lines of communication open with our customers, but the full impact of these challenging economic times on our financial condition and liquidity remains to be seen at this time.  

 

 

 

23

 

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Document and Entity Information
Jul. 27, 2020
Cover [Abstract]  
Document Type 8-K
Amendment Flag false
Document Period End Date Jul. 27, 2020
Entity Registrant Name COASTAL FINANCIAL CORP
Entity Central Index Key 0001437958
Entity Emerging Growth Company true
Entity Ex Transition Period true
Entity File Number 001-38589
Entity Incorporation State Country Code WA
Entity Tax Identification Number 56-2392007
Entity Address Address Line1 5415 Evergreen Way
Entity Address City Or Town Everett
Entity Address State Or Province WA
Entity Address Postal Zip Code 98203
City Area Code 425
Local Phone Number 257-9000
Written Communications false
Soliciting Material false
Pre Commencement Tender Offer false
Pre Commencement Issuer Tender Offer false
Title of 12(b) Security Common stock, no par value per share
Trading Symbol CCB
Name of each exchange on which registered NASDAQ
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