Coastal Financial Corporation Announces Second Quarter 2020 Results

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 15^th branch in Arlington, Washington.

EVERETT, Wash., July 27, 2020 (GLOBE NEWSWIRE) -- Coastal Financial Corporation 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.

"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:

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 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 4.84¹%.  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.

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.

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 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.

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

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.

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

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/e4860ddd-93a0-4677-83f5-b7a5c61fa408

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

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. 

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

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:

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/77d1e725-6646-4196-b4b4-4d790d737b9c

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. 

Capital Ratios

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

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 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.

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

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.

About Coastal Financial

Coastal Financial Corporation 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.

Forward-Looking Statements

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our management's expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as "anticipate," "believes," "can," "could," "may," "predicts," "potential," "should," "will," "estimate," "plans," "projects," "continuing," "ongoing," "expects," "intends" and similar words or phrases. Any or all of the forward-looking statements in this earnings release may turn out to be inaccurate. The inclusion of or reference to forward-looking information in this earnings release should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of risks, uncertainties and assumptions that are difficult to predict. Factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, the risks and uncertainties discussed under "Risk Factors" in our Annual Report on Form 10-K for the most recent period filed, our Quarterly Report on Form 10-Q for the most recent quarter, and in any of our subsequent filings with the Securities and Exchange Commission.

If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. You are cautioned not to place undue reliance on forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law.

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

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

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

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

COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – YEAR-TO-DATE
(Dollars in thousands; unaudited)

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

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.  

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.  

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: