GlobeNewswire Inc | Oct 27, 2020 09:25AM EDT

October 27, 2020

Quarter Three 2020 Highlights:

-- Net income totaled $4.1 million for the quarter ended September 30, 2020, or $0.34 per diluted common share, an increase of 16.5% from $3.5 million, or $0.29 per diluted common share, for the quarter ended September 30, 2019. -- A $2.2 million provision for loan losses was recorded during the quarter ended September 30, 2020, largely due to economic uncertainties from the COVID-19 pandemic, bringing the year to date provision to $5.7 million. -- Total assets grew $70.7 million, or 4.2%, to $1.75 billion for the quarter ended September 30, 2020, compared to $1.68 billion at June 30, 2020. -- Total loans receivable, net of deferred loan fees, grew $62.2 million, or 4.3%, during the quarterended September 30, 2020 to $1.51 billion compared to $1.45 billion at June 30, 2020. -- Paycheck Protection Program(PPP) loanstotaled $452.8 millionat September 30, 2020. -- Total deposits increased$53.6 million, or 4.1%, during the quarter ended September 30, 2020 to $1.36 billion, compared to $1.31billion at June 30, 2020. -- Utilized the Paycheck Protection Program Liquidity Facility (PPPLF) to funda portion of our PPP loans. $202.6 million loans pledged and borrowed at September 30, 2020.

EVERETT, Wash., Oct. 27, 2020 (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, 2020. Net income for the second quarter of 2020 was $4.1 million, or $0.34 per diluted common share, compared with net income of $3.7 million, or $0.30 per diluted common share, for the second quarter of 2020, and $3.5 million, or $0.29 per diluted common share, for the quarter ended September 30, 2019.

As we continue to navigate our way through these uncertain times, I am reminded that the success of our Company is not dependent on just our financial results, but also on the team behind the results. Our team continues to be relentless in their commitment to helping our communities and each other, despite the disruptions and economic unrest resulting from the COVID-19 pandemic. This dedication enabled us to finish the third quarter of 2020 with net income of $4.1 million, which includes $2.2 million in provision for loan losses primarily in response to the economic uncertainties of the pandemic. As a preferred Small Business Administration (SBA) lender, we continued to accept and fund 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), until the program ended in August 2020. We continue to develop our CCBX division, which provides Banking as a Service (BaaS) enabling broker dealers and digital financial service providers to offer their clients banking services, which continues to provide additional sources of fee income. We are excited about our recently announced collaboration with Google and look forward to introducing digital bank accounts through Google Pay, anticipated in 2021, stated Eric Sprink, the President and CEO of the Company and the Bank.

Our commitment to our customers was evidenced in part by the deferred or modified payments, pursuant to federal guidance, that we were able to provide to customers. The majority of these loans have successfully returned to active status, with just $19.6 million, representing 15 loans, remaining outstanding with deferred or modified payments as of October 23, 2020. This proactive approach to working with customers and modifying payments helped provide financial relief within our communities.

We are steadfast in our dedication to the health and safety of our employees and customers. As guidance from our federal, state and local government and public health officials is updated, we continue to enhance and modify measures already in place to keep us all healthy and safe while remaining open and serving our customers at our drive-throughs, by appointment, call center, mobile banking, online banking and ATMs. In addition, the Company continues to successfully employ remote work arrangements to the fullest extent possible.

Results of Operations

During the second and third quarters of 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 September 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 September 30, 2020 $0.00 - $50,0000.01 $150,000.01 $350,000.01 - > $50,000.00 - - $2,000,000.00 2,000,000.01 Totals $150,000.00 $350,000.00(Dollars inthousands; unaudited)Principal outstanding:Existing $ 11,232 $ 27,696 $ 29,806 $ 86,302 $ 52,299 $ 207,335 customerNew customer 20,604 34,355 42,793 86,707 61,052 245,511 Totalprincipal 31,836 62,051 72,599 173,009 113,351 452,846 outstandingDeferred fees (1,161 ) (2,116 ) (2,417 ) (3,375 ) (752 ) (9,821 )outstandingDeferred costs 629 278 174 134 19 1,234 outstandingNet deferred $ (532 ) $ (1,838 ) $ (2,243 ) $ (3,241 ) $ (733 ) $ (8,587 )feesTotalprincipal, net $ 31,304 $ 60,213 $ 70,356 $ 169,768 $ 112,618 $ 444,259 ofdeferredfeesWeightedaverage 2.21 1.75 1.63 1.63 1.64 1.69 maturity(years)Number of loans:Existing 498 307 129 108 13 1,055 customerNew customer 1,107 386 193 119 19 1,824 Total loan 1,605 693 322 227 32 2,879 countPercent of 55.7 % 24.1 % 11.2 % 7.9 % 1.1 % 100.0 %total

Net interest income was $15.1 million for the quarter ended September 30, 2020, an increase of 17.9% from $14.0 million for the quarter ended June 30, 2020, and an increase of 40.7% from $10.7 million for the quarter ended September 30, 2019. The increase compared to the prior quarter and prior years third quarter is largely related to increased interest income resulting from loan growth. This loan growth included $452.8 million in PPP loans as of September 30, 2020, which contributed $3.6 million in interest income for the quarter ended September 30, 2020. 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. Our loan yield was 4.33% for the three months ended September 30, 2020, compared to 4.57% for the three months ended June 30, 2020. This loan yield was lower due to the lower rate that PPP loans bear and downward repricing of our variable rate loans in the low interest rate environment. Interest and fees on loans was $1.1 million higher compared to the three months ended June 30, 2020 and $4.6 million higher than the three months ended September 30, 2019 due to increased loan balances. Interest income from interest earning deposits with other banks decreased $31,000, and $387,000 from June 30, 2020 and September 30, 2019, respectively, to $99,000 for the three months ended September 30, 2020, compared to $130,000 and $486,000 the three months ended June 30, 2020 and September 30, 2019, respectively, as a result of decreased interest rates and interest paid by other banks due to excess cash in the market. Interest expense was $1.3 million for the quarter ended September 30, 2020, compared to $1.4 million for the quarter ended June 30, 2020, a $135,000 decrease from the quarter ended June 30, 2020 and a $330,000 decrease from the quarter ended September 30, 2019. Interest expense on deposit accounts was $880,000 a decrease of $216,000, or 19.7%, from the quarter ended June 30, 2020, and a decrease of $555,000, or 38.7%, from the quarter ended September 30, 2019. The interest expense decrease occurred despite an increase in average interest bearing deposits for the quarter ended September 30, 2020 of $42.1 million and $195.1 million, over the quarter ended June 30, 2020 and September 30, 2019, respectively, as a result of lower interest rates. Interest expense on borrowed funds was $418,000 for the quarter ended September 30, 2020, compared to $337,000 and $193,000 for the quarters ended June 30, 2020 and September 30, 2019, respectively. This increase was primarily the result of the PPPLF borrowings, which were obtained to provide liquidity to fund the PPP loans.

Net interest income increased $9.8 million, or 31.9%, to $40.5 million for the nine months ended September 30, 2020, compared to $30.7 million for the nine months ended September 30, 2019. These increases are largely related to increased interest income resulting from loan growth. Interest and fees on loans increased $11.0 million, or 33.3%, over the prior year period. This loan growth included $452.8 million in PPP loans as of September 30, 2020, which contributed $6.3 million in interest income for the nine months ended September 30, 2020. Overall growth in the other categories of the loan portfolio also contributed to this increase. 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. Interest income from interest earning deposits with other banks decreased $1.4 million, or 69.8%, to $587,000 for the nine months ended September 30, 2020, compared to $1.9 million for the nine months ended September 30, 2019, as a result of decreased interest rates and interest paid by other banks due to excess cash in the market. Interest expense decreased $386,000, or 7.9%, to $4.5 million for the nine months ended September 30, 2020 compared to $4.9 million for the nine months ended September 30, 2019. Lower interest rates resulted in a decrease in interest expense despite a $136.9 million increase in average interest bearing deposits and $121.1 million increase in average borrowings for the nine months ended September 30, 2020, compared to the prior year period. Borrowings included $102.5 million in average PPPLF borrowings, which were obtained to partially fund the PPP loans.

Net interest margin for the quarter ended September 30, 2020 was 3.62%, a 16 basis point decrease from 3.78% for the quarter ended June 30, 2020 and a 67 basis point decrease from 4.29% for the quarter ended September 30, 2019. The decrease over the prior quarter and third quarter in 2019 was largely a result of the low interest rate on PPP loans and lower interest rates on all other loans, especially our variable rate loans. PPP loans accounted for an average of $448.3 million in gross loans for the quarter ended September 30, 2020, and bear a contractual interest rate of 1.0%, and yield approximately 3.16% after considering the amortization of deferred PPP loan fees, for the quarter ended September 30, 2020. Cost of funds decreased eight basis points in the quarter ended September 30, 2020 compared to the quarter ended June 30, 2020 and decreased 39 basis points from the quarter ended September 30, 2019. Deposits into noninterest bearing and low interest bearing accounts by new and existing customers contributed to the reduced cost of funds. In addition, the Federal Open Market Committee (FOMC) lowered the Fed Funds rates five times for a total decrease of 2.25% since June 2019, which has impacted market rates paid on deposits. The lower interest rate environment will continue to impact the Company's net interest margin. Net interest margin for the nine months ended September 30, 2020 decreased 41 basis points compared to the nine months ended September 30, 2019 as a result of the low rate on PPP loans and lower rates on all other loans, especially our variable rate loans. Cost of funds decreased 29 basis points to 0.45% for the nine months ended September 30, 2020 compared to 0.74% for the nine months ended September 30, 2019. Deposits into new and existing noninterest bearing accounts and the lowered Fed Funds rates contributed to the reduced cost of funds.

During the quarter ended September 30, 2020, the average balance of total loans receivable increased by $158.0 million, to $1.49 billion, compared to $1.33 billion for the quarter ended June 30, 2020, largely as a result of PPP loans. PPP loans bear a contractual interest rate of 1.0%, yielding approximately 3.16%, after considering the amortization of deferred PPP loan fees. The average balance of total loans receivable at September 30, 2020 increased by $627.4 million, compared to $865.7 million for the third quarter in 2019, due to overall growth in the loan portfolio, combined with the aforementioned growth in PPP loans. Total loan yield for the quarter ended September 30, 2020 was 4.33%, compared to 4.57% for the quarter ended June 30, 2020, and 5.36% for the quarter ended September 30, 2019. The reduction in loan yield was a result of the lower rate that PPP loans bear and the downward repricing of our variable rate loans in the low rate environment. PPP loans reduced the loan yield* by 45 basis points for the quarter ended September 30, 2020.

Contractual yield on loans receivable, excluding earned fees approximated 3.61% for the quarter ended September 30, 2020, compared to 3.91% for the quarter ended June 30, 2020, and 5.24% for the quarter ended September 30, 2019. During the quarter ended September 30, 2020, the average balance of PPP loans was $448.3 million. These loans bear a contractual rate of 1.0%, which negatively impacted the average contractual yield on loans. Excluding PPP loans and their related earned loan fees, the contractual yield on loans approximated 4.69%*. Also contributing to the reduction in contractual yield was the reduction in rates by the FOMC, which has resulted in lower rates on our variable rate loans and on new and renewing loans. Although we have rate floors in place for $361.8 million, or 23.8%, in existing loans, the rate reductions by FOMC has a corresponding impact on loan yields and the net interest margin in future periods.

Cost of deposits for the quarter ended September 30, 2020 were 0.27%, a decrease of eight basis points from 0.35% for the quarter ended June 30, 2020, and a 37 basis point decrease from the quarter ended September 30, 2019. Deposit growth in new and existing noninterest bearing and low interest bearing accounts contributed to the reduced cost of funds. We gained new customer relationships by making PPP loans to noncustomers that continue to move their deposit relationships to the Bank. Market conditions for deposits continued to be competitive during the quarter ended September 30, 2020; however, we continued lowering deposit rates, with the largest changes to our interest-bearing demand deposit and certificate of deposit rates being effective in second quarter of 2020, and we saw the full impact of those changes in the quarter ended September 30, 2020.

Return on average assets (ROA) was 0.95% for the quarter ended September 30, 2020 compared to 0.96% and 1.35% for the quarters ended June 30, 2020 and September 30, 2019, respectively. ROA was impacted in the third quarter of 2020 and prior quarter in 2020 by increased provision for loan losses due to the economic uncertainties of the COVID-19 pandemic and loan growth. Pre-tax, pre-provision ROA* was 1.72% for the quarters ended September 30, 2020 and June 30, 2020, compared to 1.95% for the quarter ended September 30, 2019.

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

The following table shows the Companys 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 Nine Months Ended (unaudited) September30, June 30, March 31, December31, September30, September September 2020 2020 2020 2019 2019 30, 2020 30, 2019 Return on average 0.95 % 0.96 % 0.96 % 1.31 % 1.35 % 0.96 % 1.27 %assets (1)Return on average 12.14 % 11.37 % 8.66 % 11.66 % 11.72 % 10.73 % 11.16 %equity (1)Pre-tax,pre-provision 1.72 % 1.72 % 1.77 % 1.95 % 1.95 % 2.51 % 1.83 %returnon averageassets (1)(2)Yield on earnings 3.93 % 4.16 % 4.79 % 4.90 % 4.94 % 4.23 % 4.89 %assets (1)Yield on loans 4.33 % 4.57 % 5.25 % 5.36 % 5.36 % 4.65 % 5.38 %receivable (1)Yield on loansreceivable,as 4.78 % 4.94 % n/a n/a n/a 4.99 % n/a adjusted (1)(2)Contractual yieldonloansreceivable, 3.61 % 3.91 % 5.08 % 5.15 % 5.24 % 4.08 % 5.23 %excludingearnedfees (1)Contractual yieldonloansreceivable, 4.69 % 4.84 % n/a n/a n/a 4.86 % n/a excludingearnedfees, asadjusted (1)(2)Cost of funds (1) 0.33 % 0.41 % 0.70 % 0.70 % 0.72 % 0.45 % 0.74 %Cost of deposits 0.27 % 0.35 % 0.64 % 0.63 % 0.64 % 0.40 % 0.66 %(1)Net interest 3.62 % 3.78 % 4.15 % 4.26 % 4.29 % 3.81 % 4.22 %margin (1)Noninterestexpense to 2.26 % 2.34 % 3.18 % 2.90 % 2.98 % 2.52 % 3.05 %averageassets(1)Efficiency ratio 56.73 % 57.66 % 64.26 % 59.86 % 60.46 % 59.31 % 62.50 %Loans receivable 110.98 % 110.77 % 100.01 % 97.02 % 94.78 % 110.98 % 94.78 %to deposits (1) Annualized calculations shown for quarterly and nine month periods presented.(2) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.

Noninterest income was $1.9 million in the third quarter of 2020, an increase of $422,000 from $1.5 million at the second quarter of 2020, and a decrease of $146,000 from $2.1 million in the third quarter of 2019. The increase over the prior quarter was primarily due to a $147,000 increase in deposit service charges from the economy re-opening, resulting in increased transactions, a $101,000 increase in BaaS fees and a $110,000 increase in loan referral fees that are earned when we originate a variable rate loan and arrange for the borrower to enter into an interest rate swap agreement with a third party to fix the interest rate for an extended period. The $146,000 decrease over the quarter ended September 30, 2019 was due to a $322,000 decline in gain on sale of loans, a $171,000 decrease in gain on sale securities, which resulted from the restructuring of the investment portfolio last year, partially offset by a $180,000 more in loan referral fees and a $120,000 more in BaaS fees. As of September 30, 2020, there were four active CCBX relationships, one in the friends and family trials, four in onboarding/implementation, two signed letters of intent and a solid pipeline of potential new relationships.

Total noninterest expense for the third quarter of 2020 increased to $9.7 million compared to $8.9 million for the preceding quarter and compared to $7.7 million for the third quarter of 2019. Noninterest expense variances for the quarter ended September 30, 2020, as compared to the quarter ended June 30, 2020, included a $756,000 increase in salaries and employee benefits, which was largely related to the hiring staff for our BaaS CCBX division and additional staff for our ongoing banking growth initiatives. The increased expenses for the quarter ended September 30, 2020 compared to the third quarter in 2019 were largely due to a $1.0 million increase in salary expenses related to hiring staff for our BaaS CCBX division and additional staff for our ongoing banking growth initiatives. Occupancy expenses increased by $158,000 and $207,000 in the quarter ended September 30, 2020 over the quarters ended June 30, 2020 and September 30, 2019, respectively. The increase in occupancy is related to a one-time $119,000 building operating expense and higher rent and depreciation expenses resulting from the opening of our Arlington branch in the second quarter of 2020 and from our overall growth. In addition, legal and professional fees increased $211,000 in the third quarter of 2020 over the quarter ended September 30, 2019. The increase in legal and professional expenses is associated with BaaS CCBX division expenses and higher costs associated with legal and accounting work related to financial reporting.

The provision for income taxes was $1.1 million at September 30, 2020, a $115,000 increase compared to $967,000 for the second quarter of 2020 and a $163,000 increase compared to $919,000 for the third quarter of 2019, both as a result of increased taxable income. The Company uses a federal statutory tax rate of 21% as a basis for calculating provision for income taxes.

Financial Condition

The Companys total assets increased $70.7 million, or 4.2%, to $1.75 billion at September 30, 2020 compared to $1.68 billion at June 30, 2020. The primary cause of the increase was $62.2 million in increased loans receivable, as a result of overall growth in the loan portfolio and from PPP loans that were processed early in the third quarter, combined with an increase in interest earning deposits with other banks, partially offset by a decrease in cash and due from banks. In the quarter ended September 30, 2020, total assets increased $659.6 million, or 60.5%, compared to $1.09 billion at September 30, 2019. This increase was largely the result of $635.3 million increase in loans receivable, combined with an increase in interest earning deposits with other banks, partially offset by a decrease in cash and due from banks.

Total loans receivable increased $62.2 million to $1.51 billion at September 30, 2020, from $1.45 billion at June 30, 2020, and $635.3 million from $874.1 million at September 30, 2019. The growth in loans receivable over the quarter ended June 30, 2020 was due primarily to an increase of $37.7 million in commercial and industrial loans, which includes $14.8 million in new PPP loans for small business owners and $22.9 million in other commercial and industrial loans, combined with $26.9 million increase in commercial real estate loans. Loans receivable is net of $8.6 million in net deferred origination fees on PPP loans, which are earned over the life of those loans, with a maximum maturity of five years. However, the majority of our PPP loans have a two-year maturity. The increase over the quarter ended September 30, 2019 was due to a $483.6 million increase in commercial and industrial loans, which includes $452.8 million in PPP loans and $30.7 million in all other commercial and industrial loans, $126.6 million in commercial real estate loans, $20.3 million in residential real estate loans, and $14.0 million in construction, land and land development loans. Partially offsetting the increase in net loans receivable is an additional $8.6 million in net deferred loan origination fees on PPP loans.

The PPP program closed to new loan applicants on August 8, 2020. We accepted and processed requests for existing and new customers for the duration of the program. Deferral on PPP payments was extended as we await final guidance on these loans; however, 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 forgiveness of PPP loans will begin in fourth quarter 2020, and the pace of forgiveness will increase in the first half of 2021. Forgiveness of principal, early paydowns and payoffs on PPP loans will increase interest income earned in those periods from the recognition of deferred PPP loan fees. Customers with two-year loans are also able to request that their PPP loan be extended to a five year maturity, which we anticipate may be a good option for customers not eligible for forgiveness.

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

As of September 30, 2020 June 30, 2020 September 30, 2019 (Dollars in % to % to % tothousands; Balance Total Balance Total Balance Total unaudited) Commercialand industrialloans:PPP loans $ 452,846 29.8 % $ 438,077 30.0 % $ - 0.0 %All othercommercial & 136,358 8.9 113,473 7.8 105,634 12.1 industrialloansReal estate loans:Construction,landandland 100,955 6.6 102,422 7.0 86,919 9.9 developmentloansResidentialreal estate 121,147 8.0 122,949 8.4 100,818 11.5 loansCommercialreal estate 705,186 46.4 678,335 46.5 578,607 66.1 loansConsumer and 3,927 0.3 4,735 0.3 3,720 0.4 other loansGross loans 1,520,419 100.0 % 1,459,991 100.0 % 875,698 100.0 %receivableNet deferredorigination (8,586 ) (10,639 ) - fees -PPPloansNet deferredorigination (2,444 ) (2,208 ) (1,586 ) fees -OtherloansLoans $ 1,509,389 $ 1,447,144 $ 874,112 receivable

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 $53.6 million, or 4.1%, to $1.36 billion at September 30, 2020 from $1.31 billion at June 30, 2020. The increase is largely due to a $58.0 million increase in core deposits and is primarily the result of expanding and growing banking relationships with new customers, including deposit relationships from PPP loans made to noncustomers, who moved their banking relationship to the Bank. During the quarter ended September 30, 2020, noninterest bearing deposits increased $6.9 million, or 1.2%, to $570.7 million from $563.8 million at June 30, 2020. NOW and money market accounts increased $48.5 million and savings accounts increased $2.6 million, while BaaS-brokered deposits decreased $1.7 million and time deposits decreased $2.8 million. Total deposits increased $437.8 million, or 47.5%, compared to $922.2 million at September 30, 2019. Noninterest bearing deposits increased $221.6 million, or 63.5%, from $349.1 million at September 30, 2019. NOW and money market accounts increased $208.6 million, or 50.1%, savings accounts increased $22.5 million and BaaS-brokered deposits increased $11.5 million while time deposits decreased $26.4 million. Efforts to retain and grow core deposits are evidenced by the high ratios in these categories when compared to total deposits.

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

As of September 30, 2020 June 30, 2020 September 30, 2019 (Dollars in % to % to % tothousands, Balance Total Balance Total Balance Total unaudited) Demand,noninterest $ 570,664 42.0 % $ 563,794 43.2 % $ 349,087 37.9 %bearingNOW and money 624,891 45.9 576,376 44.1 416,315 45.1 marketSavings 74,694 5.5 72,045 5.5 52,191 5.7 Total core 1,270,249 93.4 1,212,215 92.8 817,593 88.7 depositsBaaS-brokered 24,870 1.8 26,529 2.0 13,340 1.4 depositsTime depositsless than 41,676 3.1 43,900 3.4 58,369 6.3 $250,000Time deposits$250,000 and 23,216 1.7 23,783 1.8 32,947 3.6 overTotal $ 1,360,011 100.0 % $ 1,306,427 100.0 % $ 922,249 100.0 %deposits

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. We continued to utilize the PPPLF in the third quarter of 2020. 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 September 30, 2020, there was $202.6 million in outstanding PPPLF advances and pledged PPP loans, compared to $190.2 million at June 30, 2020.

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, 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 2.5 years and $15.0 million advance with a remaining term of 4.5 years. These advances provide an alternative and stable source of funding for loan demand. Although there are no immediate plans to borrow additional funds, additional FHLB borrowing capacity of $67.7 million was available under this arrangement as of September 30, 2020.

Total shareholders equity increased $4.3 million since June 30, 2020. The increase in shareholders equity was primarily due to $4.1 million in net earnings for the three months ended September 30, 2020.

Capital Ratios

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

Capital Coastal Coastal Financial InstitutionRatios: Community Financial Basel III Regulatory Bank Corporation Guidelines(unaudited) Tier 1leverage 9.43 % 9.20 % 5.00 %capitalCommon EquityTier 1 12.66 % 12.14 % 6.50 %risk-basedcapitalTier 1risk-based 12.66 % 12.45 % 8.00 %capitalTotalrisk-based 13.92 % 14.61 % 10.00 %capital

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 $17.0 million and 1.13% of loans receivable at September 30, 2020 compared to $14.8 million and 1.03% at June 30, 2020 and $10.9 million and 1.25% at September 30, 2019. At September 30, 2020, there was $444.3 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 1.60% for the quarter ended September 30, 2020. Provision for loan losses totaled $2.2 million for the three months ended September 30, 2020, $1.9 million for the three months ended June 30, 2020, and $637,000 for the three months ended September 30, 2019. Net charge-offs totaled $1,000 for the quarter ended September 30, 2020, compared to $8,000 for the quarter ended June 30, 2020 and $192,000 for the quarter ended September 30, 2019.

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

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

At September 30, 2020, our nonperforming assets were $4.5 million, or 0.26% of total assets, compared to $4.4 million, or 0.26%, of total assets at June 30, 2020, and $1.3 million, or 0.12%, of total assets at September 30, 2019. Nonperforming assets increased $42,000 during the quarter ended September 30, 2020, compared to the quarter ended June 30, 2020, with the addition of one loan partially offset by principal paydowns.

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 past prudent use of PPP loans, deferrals, and modifications in accordance with regulatory guidelines. There were no repossessed assets or other real estate owned at September 30, 2020. Our nonperforming loans to loans receivable ratio was 0.30% at September 30, 2020, compared to 0.31% at June 30, 2020, and 0.15% at September 30, 2019. Commercial and industrial nonaccrual loans totaled $625,000 at September 30, 2020 and consisted of three lending relationships. One loan moved to nonperforming status during the third quarter of 2020 for $117,000 in residential real estate, bringing the balance in that category to $178,000 at September 30, 2020. The addition of this loan to nonperforming status in the third quarter of 2020, which was not related to the COVID-19 pandemic, was partially offset by principal reductions and resulted in a slight overall decrease in our ratio of nonperforming loans to loans receivable and no change to the nonperforming assets to total assets ratio compared to June 30, 2020.

Credit quality has remained stable as of September 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 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. The majority of those loans have successfully returned to active status. At September 30, 2020, the Company had 44 loans, or $52.5 million, that remained outstanding with deferred or modified payments. This decreased from June 30, 2020 when we had 215 loans, or $207.2 million, on deferred or modified payments. All of the loans that have migrated to active status are current, with 128 loans, or $93.1 million, successfully resuming payments and 65 loans, or $76.0 million, back on active status with an initial payment due in the fourth quarter of 2020. In addition, $3.0 million of deferred and/or modified loans have paid-in-full or closed as of September 30, 2020. The purpose of this program was to provide cash flow relief for small business customers as they navigated through the uncertainties of the COVID-19 pandemic. The Companys deferral program was successful as evidenced by customers ability to migrate from deferral to active status and resume making payments as planned. Additional information on these loans can be found in Appendix A.

The following table details the Companys nonperforming assets for the periods indicated.

As of September June 30, September 30, 30,(Dollars in thousands, unaudited) 2020 2020 2019 Nonaccrual loans: Commercial and industrial loans $ 625 $ 689 $ 1,233 Real estate: Construction, land and land 3,269 3,270 - developmentResidential real estate 178 63 67 Commercial real estate 405 413 - Total nonaccrual loans 4,477 4,435 1,300 Accruing loans past due 90 days or more:Total accruing loans past due 90 - - - days or moreTotal nonperforming loans 4,477 4,435 1,300 Other real estate owned - - - Repossessed assets - - - Total nonperforming assets $ 4,477 $ 4,435 $ 1,300 Troubled debt restructurings, - - - accruingTotal nonperforming loans to loans 0.30 % 0.31 % 0.15 %receivableTotal nonperforming assets to total 0.26 % 0.26 % 0.12 %assets

About Coastal Financial

Coastal Financial Corporation (Nasdaq: CCB) (the Company), is an Everett, Washington based bank holding company whose wholly owned subsidiaries are Coastal Community Bank (Bank) and Arlington Olympic LLC. The $1.7 billion community bank that the Bank operates provides service through 15 branches in Snohomish, Island, and King Counties, the Internet and its mobile banking application. The Bank provides banking as a service to broker dealers and digital financial service providers through its CCBX Division. In 2021, the Bank expects to introduce a digital bank offering in collaboration with Google. To learn more about Coastal visit www.coastalbank.com.

Contact

Eric Sprink, President & Chief Executive Officer, (425) 357-3659Joel 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 managements 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 CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION(Dollars in thousands; unaudited)

ASSETS September June 30, September 30, 30, 2020 2020 2019 Cash and due from banks $ 14,136 $ 26,510 $ 22,060 Interest earning deposits with 168,034 147,666 131,287 other banksInvestment securities,available for sale, at fair 20,428 20,448 28,319 valueInvestment securities, held to 3,354 3,870 4,377 maturity, at amortized costOther investments 5,951 5,951 4,405 Loans receivable 1,509,389 1,447,144 874,112 Allowance for loan losses (17,046 ) (14,847 ) (10,888 )Total loans receivable, net 1,492,343 1,432,297 863,224 Premises and equipment, net 16,881 16,668 13,167 Operating lease right-of-use 7,379 7,635 8,666 assetsAccrued interest receivable 8,216 5,944 2,629 Bank-owned life insurance, net 7,031 6,981 6,832 Deferred tax asset, net 2,722 2,721 2,206 Other assets 3,144 2,265 2,888 Total assets $ 1,749,619 $ 1,678,956 $ 1,090,060 LIABILITIES AND SHAREHOLDERS? EQUITY LIABILITIES Deposits $ 1,360,011 $ 1,306,427 $ 922,249 Federal Home Loan Bank advances 24,999 24,999 20,000 Paycheck Protection Program 202,595 190,156 Liquidity FacilitySubordinated debt, net 9,989 9,986 9,975 Junior subordinated debentures, 3,584 3,584 3,582 netDeferred compensation 891 919 1,000 Accrued interest payable 481 312 303 Operating lease liabilities 7,579 7,831 8,847 Other liabilities 4,258 3,765 3,682 Total liabilities 1,614,387 1,547,979 969,638 SHAREHOLDERS? EQUITY Common stock 87,479 87,309 86,866 Retained earnings 47,707 43,617 33,614 Accumulated other comprehensive 46 51 (58 )income (loss), net of taxTotal shareholders? equity 135,232 130,977 120,422 Total liabilities and $ 1,749,619 $ 1,678,956 $ 1,090,060 shareholders? equity

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

Three Months Ended September 30, June 30, September 30, 2020 2020 2019 INTEREST AND DIVIDEND INCOME Interest and fees on loans $ 16,244 $ 15,154 $ 11,691 Interest on interest earning 99 130 486 deposits with other banksInterest on investment 27 53 168 securitiesDividends on other 24 89 10 investmentsTotal interest and dividend 16,394 15,426 12,355 incomeINTEREST EXPENSE Interest on deposits 880 1,096 1,435 Interest on borrowed funds 418 337 193 Total interest expense 1,298 1,433 1,628 Net interest income 15,096 13,993 10,727 PROVISION FOR LOAN LOSSES 2,200 1,930 637 Net interest income after 12,896 12,063 10,090 provision for loan lossesNONINTEREST INCOME Deposit service charges and 824 677 795 feesBaaS fees 576 475 456 Loan referral fees 180 70 - Mortgage broker fees 125 152 140 Sublease and lease income 30 31 16 Gain on sales of loans, net 47 - 369 Gain on sales of securities, - - 171 netOther 160 115 141 Total noninterest income 1,942 1,520 2,088 NONINTEREST EXPENSE Salaries and employee 5,971 5,215 4,971 benefitsOccupancy 1,091 933 884 Data processing 577 621 509 Director and staff expenses 156 187 241 Excise taxes 291 262 184 Marketing 52 116 98 Legal and professional fees 381 474 170 Federal Deposit Insurance 148 74 (4 )Corporation assessmentsBusiness development 72 48 122 Other 927 1,015 573 Total noninterest expense 9,666 8,945 7,748 Income before provision for 5,172 4,638 4,430 income taxesPROVISION FOR INCOME TAXES 1,082 967 919 NET INCOME $ 4,090 $ 3,671 $ 3,511 Basic earnings per common $ 0.34 $ 0.31 $ 0.30 shareDiluted earnings per common $ 0.34 $ 0.30 $ 0.29 shareWeighted average number of common shares outstanding:Basic 11,919,850 11,917,394 11,901,873 Diluted 12,181,272 12,190,284 12,188,507

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

Nine Months Ended September 30, September 30, 2020 2019INTEREST AND DIVIDEND INCOME Interest and fees on loans $ 44,025 $ 33,027Interest on interest earning deposits with other 587 1,946banksInterest on investment securities 199 481Dividends on other investments 129 99Total interest and dividend income 44,940 35,553INTEREST EXPENSE Interest on deposits 3,530 4,291Interest on borrowed funds 957 582Total interest expense 4,487 4,873Net interest income 40,453 30,680PROVISION FOR LOAN LOSSES 5,708 1,724Net interest income after provision for loan 34,745 28,956lossesNONINTEREST INCOME Deposit service charges and fees 2,224 2,302BaaS fees 1,630 1,404Loan referral fees 1,303 1,106Mortgage broker fees 439 336Sublease and lease income 91 36Gain on sales of loans, net 47 490Gain on sales of securities, net - 171Other 399 359Total noninterest income 6,133 6,204NONINTEREST EXPENSE Salaries and employee benefits 16,869 14,058Occupancy 2,951 2,808Data processing 1,749 1,537Director and staff expenses 613 698Excise taxes 756 529Marketing 280 300Legal and professional fees 1,178 872Federal Deposit Insurance Corporation 292 205assessmentsBusiness development 245 320Other 2,697 1,726Total noninterest expense 27,630 23,053Income before provision for income taxes 13,248 12,107PROVISION FOR INCOME TAXES 2,763 2,514NET INCOME $ 10,485 $ 9,593 Basic earnings per common share $ 0.88 $ 0.81Diluted earnings per common share $ 0.86 $ 0.79Weighted average number of common shares outstanding:Basic 11,915,513 11,893,734Diluted 12,183,845 12,193,071

COASTAL FINANCIAL CORPORATIONAVERAGE BALANCES, YIELDS, AND RATES QUARTERLY(Dollars in thousands; unaudited)

For the Three Months Ended September 30, 2020 June 30, 2020 September 30, 2019 Average Interest Yield Average Interest Yield Average Interest Yield & / & / & / Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost (4) (4) (4)Assets Interest earning assets:Interest earning $ 137,568 $ 99 0.29 % $ 127,721 $ 130 0.41 % $ 85,406 $ 486 2.26 %depositsInvestment 23,882 27 0.45 21,835 53 0.98 36,974 168 1.80 securities (1)Other Investments 5,951 24 1.60 5,841 89 6.13 3,621 10 1.10 Loans receivable 1,493,024 16,244 4.33 1,334,991 15,154 4.57 865,674 11,691 5.36 (2)Total interest 1,660,425 16,394 3.93 1,490,388 15,426 4.16 991,675 12,355 4.94 earning assetsNoninterest earning assets:Allowance for (15,711 ) (13,555 ) (10,548 ) loan lossesOther noninterest 60,160 61,713 50,842 earning assetsTotal assets $ 1,704,874 $ 1,538,546 $ 1,031,969 Liabilities and Shareholders? Equity Interest bearing liabilities:Interest bearing $ 750,790 $ 880 0.47 % $ 708,724 $ 1,096 0.62 % $ 555,665 $ 1,435 1.02 %depositsSubordinated 9,987 148 5.90 9,984 147 5.92 9,973 148 5.89 debt, netJuniorsubordinated 3,584 23 2.55 3,583 26 2.92 3,582 42 4.65 debentures, netPPPLF borrowings 199,076 176 0.35 107,443 94 0.35 - - 0.00 FHLB advances and 24,999 71 1.13 24,999 70 1.13 539 3 2.21 other borrowingsTotal interestbearing 988,436 1,298 0.52 854,733 1,433 0.67 569,759 1,628 1.13 liabilitiesNoninterest 569,615 541,448 330,553 bearing depositsOther liabilities 12,781 12,498 12,756 Totalshareholders' 134,042 129,867 118,901 equityTotal liabilitiesand shareholders' $ 1,704,874 $ 1,538,546 $ 1,031,969 equityNet interest $ 15,096 $ 13,993 $ 10,727 incomeInterest rate 3.41 % 3.49 % 3.81 %spreadNet interest 3.62 % 3.78 % 4.29 %margin (3) (1) For presentation in this table, average balances and the correspondingaverage 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 CORPORATIONAVERAGE BALANCES, YIELDS, AND RATES YEAR-TO-DATE(Dollars in thousands; unaudited)

For the Nine Months Ended September 30, 2020 September 30, 2019 Average Interest Yield Average Interest Yield & / & / Balance Dividends Cost Balance Dividends Cost (4) (4)Assets Interestearning assets:Interestearning $ 122,941 $ 587 0.64 % $ 108,230 $ 1,946 2.40 %depositsInvestmentsecurities 24,252 199 1.10 38,883 481 1.65 (1)Other 5,435 129 3.17 3,479 99 3.80 InvestmentsLoansreceivable 1,265,705 44,025 4.65 820,560 33,027 5.38 (2)Totalinterest 1,418,333 44,940 4.23 971,152 35,553 4.89 earningassetsNoninterestearning assets:Allowance for (13,651 ) (10,068 ) loan lossesOthernoninterest 57,830 49,536 earningassetsTotal assets $ 1,462,512 $ 1,010,620 Liabilitiesand Shareholders?EquityInterestbearing liabilities:Interestbearing $ 696,051 $ 3,530 0.68 % $ 559,119 $ 4,291 1.03 %depositsSubordinated 9,984 441 5.90 9,970 439 5.89 debt, netJuniorsubordinated 3,583 83 3.09 3,582 129 4.81 debentures,netPPPLF 102,527 269 0.35 - - 0.00 borrowingsFHLB advancesand other 19,304 164 1.13 794 14 2.36 borrowingsTotalinterest 831,449 4,487 0.72 573,465 4,873 1.14 bearingliabilitiesNoninterestbearing 488,296 309,270 depositsOther 12,607 12,971 liabilitiesTotalshareholders' 130,160 114,914 equityTotalliabilitiesand $ 1,462,512 $ 1,010,620 shareholders'equityNet interest $ 40,453 $ 30,680 incomeInterest rate 3.51 % 3.76 %spreadNet interest 3.81 % 4.22 %margin (3) (1) For presentation in this table, average balances and the correspondingaverage rates for investment securitiesare 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 CORPORATIONQUARTERLY STATISTICS(Dollars in thousands, except share and per share data; unaudited)

Three Months Ended September June 30, March 31, December 31, September 30, 30, 2020 2020 2020 2019 2019 IncomeStatement Data:Interest anddividend $ 16,394 $ 15,426 $ 13,120 $ 13,034 $ 12,355 incomeInterest 1,298 1,433 1,756 1,703 1,628 expenseNet interest 15,096 13,993 11,364 11,331 10,727 incomeProvision for 2,200 1,930 1,578 820 637 loan lossesNet interestincome after 12,896 12,063 9,786 10,511 10,090 provision forloan lossesNoninterest 1,942 1,520 2,671 2,059 2,088 incomeNoninterest 9,666 8,945 9,019 8,015 7,748 expenseNet income -pre-tax, 7,372 6,568 5,016 5,375 5,067 pre-provision(1)Provision for 1,082 967 714 947 919 income taxNet income 4,090 3,671 2,724 3,608 3,511 As of and for the Three Month Period September June 30, March 31, December 31, September 30, 30, 2020 2020 2020 2019 2019 Balance Sheet Data:Cash and cash $ 182,170 $ 174,176 $ 129,236 $ 127,814 $ 153,347 equivalentsInvestment 23,782 24,318 19,759 32,710 32,696 securitiesLoans 1,509,389 1,447,144 1,005,180 939,103 874,112 receivableAllowance for (17,046 ) (14,847 ) (12,925 ) (11,470 ) (10,888 )loan lossesTotal assets 1,749,619 1,678,956 1,184,071 1,128,526 1,090,060 Interestbearing 789,347 742,633 659,559 596,716 573,162 depositsNoninterestbearing 570,664 563,794 345,503 371,243 349,087 depositsCore deposits 1,270,249 1,212,215 892,408 862,516 817,593 (2)Total 1,360,011 1,306,427 1,005,062 967,959 922,249 depositsTotal 241,167 228,725 38,564 23,562 33,557 borrowingsTotalshareholders? 135,232 130,977 127,166 124,173 120,422 equity Share and PerShare Data (3):Earnings per $ 0.34 $ 0.31 $ 0.23 $ 0.30 $ 0.30 share ? basicEarnings pershare ? $ 0.34 $ 0.30 $ 0.22 $ 0.30 $ 0.29 dilutedDividends per - - - - - shareBook value $ 11.34 $ 10.98 $ 10.66 $ 10.42 $ 10.11 per share (4)Tangible bookvalue per $ 11.34 $ 10.98 $ 10.66 $ 10.42 $ 10.11 share (5)Weighted avgoutstanding 11,919,850 11,917,394 11,909,248 11,903,750 11,901,873 shares ?basicWeighted avgoutstanding 12,181,272 12,190,284 12,208,175 12,213,512 12,188,507 shares ?dilutedSharesoutstanding 11,930,243 11,926,263 11,929,413 11,913,885 11,912,115 at end ofperiodStock optionsoutstanding 769,607 774,587 774,937 784,217 786,257 at end ofperiod See footnoteson following page As of and for the Three Month Period September June 30, March 31, December 31, September 30, 30, 2020 2020 2020 2019 2019 Credit Quality Data:Nonperformingassets to 0.26 % 0.26 % 0.06 % 0.09 % 0.12 %total assetsNonperformingassets toloans 0.30 % 0.31 % 0.08 % 0.11 % 0.15 %receivableand OREONonperformingloans to 0.30 % 0.31 % 0.08 % 0.11 % 0.15 %total loansreceivableAllowance forloan lossesto 380.7 % 334.8 % 1694.0 % 1113.6 % 837.5 %nonperformingloansAllowance forloan lossesto total 1.13 % 1.03 % 1.29 % 1.22 % 1.25 %loansreceivableAllowance forloan lossesto loans 1.60 % 1.46 % n/a n/a n/a receivable,as adjusted(1)Gross $ 2 $ 13 $ 124 $ 242 $ 196 charge-offsGross $ 1 $ 5 $ 1 $ 4 $ 4 recoveriesNetcharge-offs 0.00 % 0.00 % 0.05 % 0.10 % 0.09 %to averageloans (6) Capital Ratios (7):Tier 1leverage 9.20 % 9.38 % 11.43 % 11.64 % 12.00 %capitalCommon equityTier 1 12.14 % 12.34 % 12.10 % 12.74 % 13.02 %risk-basedcapitalTier 1risk-based 12.45 % 12.67 % 12.43 % 13.10 % 13.40 %capitalTotalrisk-based 14.61 % 14.88 % 14.65 % 15.35 % 15.70 %capital (1) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.(2) Core deposits are defined as all deposits excluding BaaS-brokered and all time deposits.(3) Share and per share amounts are based on total common shares outstanding. (4) We calculate book value per share as total shareholders? equity at the endof the relevant period divided by the outstanding number ofour common shares at the end of each period.(5) Tangible book value per share is a non-GAAP financial measure. We calculatetangible book value per share as total shareholders?equity at the end of therelevant period, less goodwill and other intangible assets, divided by theoutstanding number of ourcommon shares at the end of each period. The most directly comparable GAAP financial measure is book value per share. Wehad nogoodwill or other intangible assets as of any of the dates indicated. As aresult, tangible book value per share is thesame as book value per share as ofeach of the dates indicated.(6)Annualized calculations.(7) Capital ratios are for the Company, Coastal Financial Corporation.

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Companys 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 As of and for the Three Months Ended Nine Months Ended(Dollars in thousands, September30, June 30, March 31, December31, September30, September30, September30, unaudited) 2020 2020 2020 2019 2019 2020 2019Pre-tax, pre-provision net income and pre-tax, pre-provision return on average assets:Total average assets $ 1,704,874 $ 1,538,546 $ 1,141,453 $ 1,095,343 $ 1,031,969 $ 1,462,512 $ 1,010,620 Total net income 4,090 3,671 2,724 3,608 3,511 10,485 9,593 Plus: provision for loan 2,200 1,930 1,578 820 637 5,708 1,724 lossesPlus: provision forincome 1,082 967 714 947 919 2,763 2,514 taxesPre-tax, pre-provision $ 7,372 $ 6,568 $ 5,016 $ 5,375 $ 5,067 $ 18,956 $ 13,831 netincomeReturn on average assets 0.95 % 0.96 % 0.96 % 1.31 % 1.35 % 0.96 % 1.27 %Pre-tax,pre-provisionreturn on 1.72 % 1.72 % 1.77 % 1.95 % 1.95 % 1.73 % 1.83 %averageassets:

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 Nine Months Ended(Dollars in thousands, September June 30, September unaudited) 30, 2020 2020 30, 2020Adjusted allowance forloan losses to loans receivable:Total loans, net of $ 1,509,389 $ 1,447,144 $ 1,509,389 deferred feesLess: PPP loans (452,846 ) (438,077 ) (452,846 )Less: net deferred fees 8,586 10,639 8,586 on PPP loansAdjusted loans, net of $ 1,065,129 $ 1,019,707 $ 1,065,129 deferred feesAllowance for loan losses $ (17,046 ) $ (14,847 ) $ (17,046 )Allowance for loan losses 1.13 % 1.03 % 1.13 %to loans receivableAdjusted allowance forloan losses to loans 1.60 % 1.46 % 1.60 %receivableAdjusted yield on loans receivable:Total average loans $ 1,493,024 $ 1,334,991 $ 1,265,705 receivableLess: average PPP loans (448,313 ) (335,200 ) (261,854 )Plus: average deferred 9,599 8,700 6,112 fees on PPP loansAdjusted total average $ 1,054,310 $ 1,008,491 $ 1,009,964 loans receivableInterest income on loans $ 16,244 $ 15,154 $ 44,025 Less: interest anddeferred fee (3,566 ) (2,759 ) (6,325 )incomerecognized on PPPloansAdjusted interest income $ 12,678 $ 12,395 $ 37,700 on loansYield on loans receivable 4.33 % 4.57 % 4.65 %Adjusted yield on loans 4.78 % 4.94 % 4.99 %receivable:Adjusted contractual yield on loans receivable, excluding earned fees and interest on PPP loans:Total average loans $ 1,493,024 $ 1,334,991 $ 1,265,705 receivableLess: average PPP loans (448,313 ) (335,200 ) (261,854 )Plus: average deferred $ 9,599 $ 8,700 $ 6,112 fees on PPP loansAdjusted total averageloans $ 1,054,310 $ 1,008,491 $ 1,009,964 receivable,excludingearned feesInterest and earned fee $ 16,244 $ 15,154 $ 44,025 income on loansLess: earned fee income $ (2,693 ) $ (2,182 ) $ (5,303 )on all loansLess: interest income on (1,129 ) (837 ) (1,966 )PPP loansAdjusted interest income $ 12,422 $ 12,135 $ 36,756 on loansContractual yield onloans receivable, 3.61 % 3.91 % 4.08 %excluding earned feesAdjusted contractualyield on loansreceivable,excluding 4.69 % 4.84 % 4.86 %earned fees and intereston PPP loans:

APPENDIX AAs of September 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 $942.5 million in outstanding loan balances, or 88.3% of total gross loans outstanding, excluding PPP loans of $452.8 million. When combined with $232.4 million in unused commitments the total of these three categories is $1.17 billion, or 89.0% of total outstanding loans and loan commitments.

Commercial real estate loans represent the largest segment of our loans, comprising 66.1% of our total balance of outstanding loans, excluding PPP loans, as of September 30, 2020. Unused commitments to extend credit represents an additional $15.6 million, the combined total exposure in commercial real estate loans represents $720.8 million, or 54.6% 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, 2020:

% of Total(Dollars in Available Loans Average Numberthousands, Outstanding Loan Total (Outstanding Loan ofunaudited) Balance Commitments Exposure Balance & Balance Loans Available Commitment)Hotel/Motel $ 111,316 $ 986 $ 112,302 8.5 % $ 4,281 26Apartments 92,556 3,159 95,715 7.3 1,402 66Retail 73,247 55 73,302 5.6 927 79Office 76,151 3,012 79,163 6.0 810 94Mixed use 68,011 4,428 72,439 5.5 791 86Convenience 69,725 - 69,725 5.3 1,835 38StoreWarehouse 62,611 14 62,625 4.7 1,181 53Manufacturing 35,810 500 36,310 2.8 995 36Mini Storage 33,169 857 34,026 2.6 3,317 10Groups < 2.0% 82,590 2,593 85,183 6.5 1,073 77of totalTotal $ 705,186 $ 15,604 $ 720,790 54.6 % $ 1,248 565

Commercial and industrial loans comprise 12.8% of our total balance of outstanding loans, excluding PPP loans, as of September 30, 2020. Unused commitments to extend credit represents an additional $140.5 million, the combined total exposure in commercial and industrial loans represents $276.9 million, or 21.0% 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, 2020:

% of Total(Dollars in Available Loans Average Numberthousands, Outstanding Loan Total (Outstanding Loan ofunaudited) Balance Commitments Exposure Balance & Balance Loans Available Commitment)Capital Call Lines $ 43,776 $ 79,238 $ 123,014 9.3 % $ 1,122 39Construction/ 14,052 22,916 36,968 2.8 96 146ContractorServicesFinancial 15,400 - 15,400 1.2 3,850 4InstitutionsFamily and Social 9,994 5,247 15,241 1.2 769 13ServicesManufacturing 8,293 6,172 14,465 1.1 151 55Medical / Dental / 13,584 483 14,067 1.1 203 67Other CareGroups < 1.0% of 31,259 26,480 57,739 4.4 101 311totalTotal $ 136,358 $ 140,536 $ 276,894 21.0 % $ 215 635

Construction, land and land development loans comprise 9.5% of our total balance of outstanding loans, excluding PPP loans, as of September 30, 2020. Unused commitments to extend credit represents an additional $76.3 million, the combined total exposure in construction, land and land development loans represents $177.3 million, or 13.4% 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, 2020:

% of Total(Dollars in Available Loans Average Numberthousands, Outstanding Loan Total (Outstanding Loan ofunaudited) Balance Commitments Exposure Balance & Balance Loans Available Commitment)Commercial $ 46,674 $ 53,820 $ 100,494 7.6 % $ 2,223 21constructionResidential 24,149 14,493 38,642 2.9 894 27constructionDeveloped 13,097 236 13,333 1.0 409 32land loansUndeveloped 9,726 332 10,058 0.8 486 20land loansLand 7,309 7,423 14,732 1.1 731 10developmentTotal $ 100,955 $ 76,304 $ 177,259 13.4 % $ 918 110

Payment Modifications and Deferrals

As part of our ongoing commitment to our customers we have been continuously proactive in contacting customers impacted by the stay-at-home order in Washington State, temporary business closures, or that have otherwise been impacted by the COVID-19 pandemic and responses thereto. In addition to the PPP loans we made to assist customers, as of September 30, 2020, we have $52.5 million in deferred or modified payments, pursuant to federal guidance, representing 44 loans. During the quarter ended September 30, 2020, there were an additional 7 loans, or $10.2 million, that were granted deferred or modified payments and 169 loans, representing $161.9 million, that moved back to active status from deferral status. In total, we have deferred or modified payments on 245 loans, or $224.6 million. As of September 30, 2020, $93.1 million, or 128 loans, have successfully resumed payments as scheduled, $76.0 million, or 65 loans, have moved to active status and have a payment due in the fourth quarter of 2020, $3.0 million, or 8 loans, have closed and paid-in-full, leaving $52.5 million, or 44 loans, on deferral. All of the loans that were on modified or deferred status as of September 30, 2020 are scheduled to return to active status during the fourth quarter 2020. The graph below illustrates the status of all the loans that were part of the COVID-19 deferral program:

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/52a3af9b-02e7-4ca8-b14b-bc4225265725

The graph below indicates the percentage of loans that remain on a COVID-19 deferral. This illustration is based on total loans outstanding as of as of September 30, 2020.

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/4a798c79-e29b-4527-92b2-9be617bd7b76

Remaining deferrals by industry as of September 30, 2020:

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/fbe810c7-8540-47da-b039-4ddf7fce9878

As a result of our proactive approach with customers, we did not see material downgrades in credit during quarter ended September 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.