STOCK TITAN
  1. Home
  2. News
  3. CCB

Coastal Financial Corporation Announces Fourth Quarter 2022 Results

Rhea-AI Impact
(Neutral)
Rhea-AI Sentiment
(Neutral)
Tags
Rhea-AI Summary

Coastal Financial Corporation (Nasdaq: CCB) reported a robust fourth quarter for 2022, achieving a net income of $13.1 million or $0.96 per diluted common share, compared to $11.1 million in Q3 2022. Total assets rose by 0.3% to $3.14 billion. Loan growth was significant with an increase of $119.4 million (4.8%) for total loans at $2.63 billion, reflecting strong performance in the CCBX segment. Deposits saw a slight decline, down 0.7% to $2.82 billion, influenced by competitive deposit rates. Overall, 2022 saw total revenue surge 147.3% year-over-year, demonstrating the company's strong operational growth.

Positive
  • Net income increased 50.4% to $40.6 million for 2022, up from $27.0 million in 2021.
  • Total assets rose by 19.3%, totaling $3.14 billion for the year.
  • Loan growth of $884.5 million (50.8%) for 2022 highlights strong demand.
  • CCBX loans surged 192.1% to $1.0 billion for the year, indicating robust growth.
  • Total revenue increased 147.3% for 2022, reaching $190.5 million.
Negative
  • Community bank deposits decreased 6.6% to $1.54 billion for the year.
  • Decline in PPP loans, down 95.8% to $4.7 million as of December 31, 2022.
  • Interest expense rose $10.8 million year-over-year due to increased rates.

Fourth Quarter 2022 Highlights:

  • Quarterly net income of $13.1 million, or $0.96 per diluted common share, for the three months ended December 31, 2022, compared to $11.1 million, or $0.82 per diluted common share for the three months ended September 30, 2022.
  • Total assets increased $10.7 million, or 0.3%, to $3.14 billion for the quarter ended December 31, 2022, compared to $3.13 billion at September 30, 2022.
  • Loan growth of $119.4 million, or 4.8%, to $2.63 billion for the three months ended December 31, 2022.
    • CCBX loans increased $96.9 million, or 10.6%, to $1.0 billion.
    • Community bank loans increased $22.4 million, or 1.4%, to $1.61 billion.
      • PPP loans decreased $1.1 million, or 18.9%, to $4.7 million.
  • Deposits decreased $19.5 million, or 0.7%, to $2.82 billion for the three months ended December 31, 2022.
    • CCBX deposit growth of $77.0 million, or 6.4%, to $1.28 billion.
      • Additional $225.0 million in CCBX deposits transferred off balance sheet.
    • Community bank deposits decreased $96.6 million, or 5.9%, to $1.54 billion and community bank cost of deposits was 0.37%.
  • Total revenue increased $12.7 million, or 15.2%, for the three months ended December 31, 2022, compared to September 30, 2022.
  • Total revenue excluding BaaS credit enhancements and BaaS fraud enhancements(*) increased $4.3 million, or 8.0%, to $58.3 million for the three months ended December 31, 2022.
  • On November 1, 2022 the Company completed its private placement of $20.0 million in fixed-to-floating rate subordinated notes due November 1, 2032; the intention is to use net proceeds from the offering for general corporate purposes.

2022 Highlights:

  • Total assets increased $509.0 million, or 19.3%, to $3.14 billion for the year ended December 31, 2022, compared to $2.64 billion at December 31, 2021.
  • Total deposits increased $453.7 million, or 19.2%, to $2.82 billion for the year ended December 31, 2022, compared to $2.36 billion at December 31, 2021.
    • CCBX deposits increased $563.0 million, or 78.6%, during the year ended December 31, 2022.
    • Community bank deposits decreased $109.3 million, or 6.6%, during the year ended December 31, 2022
  • Loan growth of $884.5 million, or 50.8%, to $2.63 billion for the year ended December 31, 2022, compared to $1.74 billion for the year ended December 31, 2021.
    • CCBX loans increased $665.8 million, or 192.1%.
    • Community bank loans increased $218.7 million, or 15.7%.
      • PPP loans decreased $107.1 million, or 95.8%, to $4.7 million.
  • Net income increased $13.6 million, or 50.4%, to $40.6 million for the year ended December 31, 2022, or $3.01 per diluted common share, compared to $27.0 million, or $2.16 per diluted common share, for the year ended December 31, 2021.
  • Total revenue increased $57.3 million, or 147.3% for the year ended December 31, 2022, compared to the year ended December 31, 2021.
  • Total revenue excluding BaaS credit enhancements and BaaS fraud enhancements(*) increased $29.6 million, or 103.5%, to $190.5 million for the year ended December 31, 2022, compared to $97.0 million for the year ended December 31, 2021.
  • Loan losses (net charge-offs) for the year ended December 31, 2022:
    • Community bank: $32,000.
    • Holding Company: $350,000.
    • CCBX: $33.3 million; $33.1 million covered by credit enhancements.

EVERETT, Wash., Jan. 27, 2023 (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 December31, 2022. Quarterly net income for the fourth quarter of 2022 was $13.1 million, or $0.96 per diluted common share, compared with net income of $11.1 million, or $0.82 per diluted common share, for the third quarter of 2022, and $7.3 million, or $0.57 per diluted common share, for the quarter ended December 31, 2021. 

Total assets increased $10.7 million, or 0.3%, during the fourth quarter of 2022 to $3.14 billion, from $3.13 billion at September 30, 2022. Loan growth of $119.4 million, or 4.8%, during the three months ended December 31, 2022 to $2.63 billion, compared to $2.51 billion at September 30, 2022 . Loan growth included CCBX loan growth of $96.9 million, or 10.6%, and an increase of $22.4 million, or 1.4% in community bank loans, which is net of $1.1 million in PPP loan forgiveness/repayments. Deposits decreased $19.5 million, or 0.7%, during the three months ended December 31, 2022 and included CCBX deposit growth of $77.0 million, or 6.4%, and a decrease in community bank deposits of $96.6 million, or 5.9%.

“Loans increased $119.4 million, or 4.8%, in the three months ended December 31, 2022, with $96.9 million of that growth in our CCBX segment, which provides Banking as a Service (“BaaS”). Our CCBX segment has grown to $1.0 billion in loans receivable, or 38.5% of total loans receivable, and our community bank loans have grown to $1.6 billion in loans receivable, as of December 31, 2022. Additionally, we sold excess loans back to our partners to help partners manage credit and interest rate risk. During the quarter ended December 31, 2022 we allowed some community bank deposits to run off in order to manage our our deposit costs, resulting in deposits decreasing $19.5 million, or 0.7%, during the three months ended December 31, 2022. Community bank cost of deposits was 0.37% for the quarter ended December 31, 2022. For the quarter ended December 31, 2022 we had net income of $13.1 million, an increase of $2.0 million, or 18.2%, over the quarter ended September 30, 2022.

“We are so proud to have recently received the Everett Herald Readers Choice Best of Snohomish County in three categories; Best Place to Work, Best Mortgage, and Best Bank. This recognition reflects our strong commitment to our community bank roots. We are also pleased that Coastal World, www.coastalworld.com, an immersive 3D web platform that promotes, educates and informs visitors about digital banking solutions through our fintech partners is garnering recognition, and was awarded site of the day and site of the month from three major outlets and was nominated as site of the year as well,” stated Eric Sprink, the CEO of the Company and the Bank.

Results of Operations Overview

The Company has one main subsidiary, the Bank which consists of two segments: CCBX and the community bank. The CCBX segment includes our BaaS activities and the community bank segment includes all other banking activities. Net interest income was $53.4 million for the quarter ended December 31, 2022, an increase of $4.2 million, or 8.6%, from $49.2 million for the quarter ended September 30, 2022, and an increase of $28.7 million, or 116.3%, from $24.7 million for the quarter ended December 31, 2021. Yield on loans receivable was 9.33% for the three months ended December 31, 2022, compared to 8.46% for the three months ended September 30, 2022 and 5.92% for the three months ended December 31, 2021. The increase in net interest income compared to September 30, 2022 and December 31, 2021, was largely related to increased yield on loans resulting from higher interest rates and growth in higher yielding loans, primarily from CCBX. Total average loans receivable for the three months ended December 31, 2022 was $2.60 billion, compared to $2.45 billion for the three months ended September 30, 2022, and $1.68 billion for the three months ended December 31, 2021.

Interest and fees on loans totaled $61.2 million for the three months ended December 31, 2022 compared to $52.3 million and $25.1 million for the three months ended September 30, 2022 and December 31, 2021, respectively. Loan growth of $119.4 million, or 4.8%, during the quarter ended December 31, 2022 included $96.9 million increase in CCBX loans; this includes capital call lines, which decreased $28.3 million, or 16.2%, during the quarter ended December 31, 2022, compared to the quarter ended September 30, 2022. Capital call lines bear a lower rate of interest, but have less credit risk due to the way the loans are structured compared to other commercial loans. The increase in interest and fees on loans for the quarter ended December 31, 2022, compared to September 30, 2022 and December 31, 2021, was largely due to growth in higher yielding loans and increased interest rates. As a result of the Federal Open Market Committee (“FOMC”) raising the target Federal Funds rate 4.25% in 2022, interest rates on our existing variable rate loans are affected, as are the rates on new loans. We continue to monitor the impact of these increases in interest rates. The FOMC last raised the target Federal Funds rate 0.50% on December 14, 2022.

Interest income from interest earning deposits with other banks was $3.1 million at December 31, 2022, an increase of $824,000 compared to September 30, 2022, and an increase of $2.8 million compared to December 31, 2021 due to an increase in interest rates. The average balance of interest earning deposits with other banks for the three months ended December 31, 2022 was $329.4 million, compared to $397.6 million and $751.8 million for the three months ended September 30, 2022 and December 31, 2021, respectively. Interest earning deposits with other banks decreased as a result of increased loan demand and decreased deposits compared to the three months ended September 30, 2022. Interest earning deposits with other banks decreased as a result of increased loan demand compared to the three months ended December 31, 2021. Additionally, the average yield on these interest earning deposits with other banks increased to 3.73% for the quarter ended December 31, 2022, compared to 2.27% and 0.16% for the quarters ended September 30, 2022 and December 31, 2021, respectively.

Interest expense was $11.6 million for the quarter ended December 31, 2022, a $5.3 million increase from the quarter ended September 30, 2022 and a $10.8 million increase from the quarter ended December 31, 2021. Interest expense on borrowed funds was $537,000 for the quarter ended December 31, 2022, compared to $273,000 and $327,000 for the quarters ended September 30, 2022 and December 31, 2021, respectively. Interest expense on borrowed funds increased $264,000 compared to the three months ended September 30, 2022, as a result of an increase of $20.0 million in subordinated debt, which closed on November 1, 2022, combined with the increase in interest rates. The $210,000 increase in interest expense on borrowed funds from the quarter ended December 31, 2021 is the result of an increase in interest rates partially offset by a decrease in Federal Home Loan Bank borrowings, which were paid off in the first quarter of 2022. Interest expense on interest bearing deposits increased $5.3 million for the quarter ended December 31, 2022, compared to the quarter ended September 30, 2022, and $10.5 million compared to the quarter ended December 31, 2021 as a result an increase in CCBX deposits that are tied to and reprice when the FOMC raises rates, just like our CCBX loans which also reprice when the FOMC raises interest rates. Additionally, as a result of the interest rate increases, a significant portion of CCBX deposits that were not earning interest were reclassified to interest bearing deposits from noninterest bearing deposits during the first and second quarters of 2022, which also contributed to the increase in interest expense compared to December 31, 2021. These CCBX deposits were reclassified because the current interest rate exceeded the minimum interest rate set in their respective program agreements, as a result of the first and second quarter 2022 interest rate increases. We do not expect additional CCBX deposits will be reclassified as a result of future rate increases.

Total cost of deposits was 1.56% for the three months ended December 31, 2022, 0.82% for the three months ended September 30, 2022, and 0.09%, for the three months ended December 31, 2021. Community bank and CCBX cost of deposits were 0.37% and 3.13% respectively, for the three months ended December 31, 2022, compared to 0.16% and 1.79%, for the three months ended September 30, 2022, and 0.12% and 0.02% for the three months ended December 31, 2021. The increase in cost of deposits for the three months ended December 31, 2022 compared to the prior periods for both segments is a result of increased interest rates. Also impacting CCBX cost of deposits was the reclassification of deposits from noninterest bearing to interest bearing in the first two quarters of 2022. Any additional interest rate increases will increase our cost of deposits and result in higher interest expense on interest bearing deposits.

Net Interest Margin

Net interest margin was 6.96% for the three months ended December 31, 2022, compared to 6.58% and 3.95% for the three months ended September 30, 2022 and December 31, 2021, respectively. The increase in net interest margin compared to the three months ended September 30, 2022 and December 31, 2021, was largely a result of increased volume and an increase in higher interest rates on new loans and on existing variable rate loans as they reprice. Loans receivable increased $119.4 million and $884.5 million, compared to September 30, 2022 and December 31, 2021, respectively. Additionally, the Fed Funds interest rate increases have resulted in existing, variable rate loans repricing to higher interest rates. Interest on loans receivable increased $8.9 million, or 17.0%, to $61.2 million for the three months ended December 31, 2022, compared to $52.3 million for the three months ended September 30, 2022, and $25.1 million for the three months ended December 31, 2021. Also contributing to the increase in net interest margin compared to the three months ended September 30, 2022 and December 31, 2021, was $824,000 and $2.8 million increase in interest on interest earning deposits, respectively. These interest earning deposits earned an average rate of 3.73% for the quarter ended December 31, 2022, compared to 2.27% and 0.16% for the quarters ended September 30, 2022 and December 31, 2021, respectively. Average investment securities decreased $2.2 million to $101.5 million for the three months ended December 31, 2022 compared to the three months ended September 30, 2022, and increased $64.5 million compared to the three months ended December 31, 2021. Interest on investment securities increased $3,000 for the three months ended December 31, 2022 compared to the three months ended September 30, 2022. Investment securities increased $554,000 compared to December 31, 2021, as a result of the increase in average outstanding balance coupled with increased yield, which also positively impacted net interest margin. These increases in interest income were partially offset by increases in interest expense on interest bearing deposits, as previously discussed.

Cost of funds was 1.61% for the quarter ended December 31, 2022, an increase of 76 basis points from the quarter ended September 30, 2022 and an increase of 147 basis points from the quarter ended December 31, 2021. Cost of deposits for the quarter ended December 31, 2022 was 1.56%, compared to 0.82% for the quarter ended September 30, 2022, and 0.09% for the quarter ended December 31, 2021. The increased cost of funds and deposits compared to September 30, 2022 and December 31, 2021 was largely due to the increase in interest rates compared to the previous periods and growth in deposits compared to December 31, 2021.

During the quarter ended December 31, 2022, total loans receivable increased by $119.4 million, or 4.8%, to $2.63 billion, compared to $2.51 billion for the quarter ended September 30, 2022. The increase consists of $96.9 million in CCBX loan growth and $22.4 million in community bank loan growth. Community bank loan growth is net of $1.1 million in PPP loan forgiveness/repayments. Total loans receivable grew $884.5 million as of December 31, 2022, compared to the quarter ended December 31, 2021. This increase includes CCBX loan growth of $665.8 million and community bank loan growth of $218.7 million. Community bank loan growth is net of $107.1 million in PPP loan forgiveness/repayments as of December 31, 2022 compared to December 31, 2021. During the quarter ended December 31, 2022, $24.4 million in CCBX loans were transferred into loans held for sale, with $67.7 million in loans sold during the quarter and no loans remaining in loans held for sale as of December 31, 2022; compared to $43.3 million held for sale as of September 30, 2022. 

Total yield on loans receivable for the quarter ended December 31, 2022 was 9.33%, compared 8.46% for the quarter ended September 30, 2022, and 5.92% for the quarter ended December 31, 2021. This increase in yield on loans receivable is a combination of an overall increase in interest rates, repricing of variable rate loans as well as additional volume in higher rate consumer loans from CCBX partners. During the quarter ended December 31, 2022, CCBX loans outstanding increased 10.6%, or $96.9 million, compared to September 30, 2022, with an average CCBX yield of 15.20% and community bank loans increased 1.4%, or $22.4 million, September 30, 2022, with an average yield of 5.70%. The yield on CCBX loans does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. Net BaaS loan income(*) divided by average CCBX loans outstanding was 8.33% for the quarter ended December 31, 2022 and was impacted by the $28.3 million decline in capital call lines during the quarter that are priced at prime minus 0.50%.

The following table summarizes the average yield on loans receivable and cost of deposits for each segment for the periods indicated:

 For the Three Months Ended For the Twelve Months Ended
 December 31, 2022 September 30, 2022 December 31, 2021 December 31, 2022 December 31, 2021
 Yield on
Loans		 Cost of
Deposits		 Yield on
Loans		 Cost of
Deposits		 Yield on
Loans		 Cost of
Deposits		 Yield on
Loans		 Cost of
Deposits		 Yield on
Loans		 Cost of
Deposits
Community Bank5.70% 0.37% 5.31% 0.16% 5.89% 0.12% 5.32% 0.18% 4.90% 0.14%
CCBX (1)15.20% 3.13% 13.96% 1.79% 6.13% 0.02% 13.85% 1.57% 4.46% 0.03%
Consolidated9.33% 1.56% 8.46% 0.82% 5.92% 0.09% 8.12% 0.71% 4.86% 0.12%


(1)CCBX yield on loans does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit and fraud enhancements and servicing CCBX loans. To determine Net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at Net BaaS loan income which can be compared to interest income on the Company’s community bank loans.


The following tables illustrates how BaaS loan interest income is affected by BaaS loan interest expense resulting in net BaaS loan income and the associated yield:

  For the Three Months Ended
  December 31, 2022 September 30, 2022 December 31, 2021
(dollars in thousands, unaudited) Income / Expense Income / expense divided by average CCBX loans (2) Income / Expense Income / expense divided by
average CCBX loans(2)		 Income / Expense Income / expense divided by average CCBX loans (2)
BaaS loan interest income $38,086 15.20% $31,449 13.96% $3,771 6.13%
Less: BaaS loan expense  17,215 6.87%  15,560 6.91%  2,368 3.85%
Net BaaS loan income (1) $20,871 8.33% $15,889 7.05% $1,403 2.28%
Average BaaS Loans $994,080   $893,655   $244,038  


  For the Twelve Months Ended
  December 31, 2022 December 31, 2021
(dollars in thousands; unaudited) Income / Expense Income / expense divided by average CCBX loans Income / Expense Income / expense divided by average CCBX loans
BaaS loan interest income $102,808 13.85% $6,532 4.46%
Less: BaaS loan expense  53,294 7.18%  2,976 2.03%
Net BaaS loan income (1) $49,514 6.67% $3,556 2.43%
Average BaaS Loans $742,392   $146,304  

(1) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.
(2) Annualized calculations shown for quarterly periods presented.

The following table illustrates the net BaaS loan income spread for the periods indicated:

  For the Three Months Ended
(unaudited) December 31, 2022 September 30, 2022 December 31, 2021
Net BaaS loan income (1)(2) 8.33% 7.05% 2.28%
CCBX cost of deposits(2) 3.13% 1.79% 0.02%
Net BaaS loan income interest rate spread (1) 5.20% 5.26% 2.26%


  For the Twelve Months Ended
(unaudited) December 31, 2022 December 31, 2021
Net BaaS loan income (1) 6.67% 2.43%
CCBX cost of deposits 1.57% 0.03%
Net BaaS loan income interest rate spread (1) 5.10% 2.40%

(1) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.
(2) Annualized calculations shown for quarterly periods presented.

Key Performance Ratios

Return on average assets (“ROA”) was 1.66% for the quarter ended December 31, 2022 compared to 1.45% and 1.14% for the quarters ended September 30, 2022 and December 31, 2021, respectively. ROA for the quarter ended December 31, 2022, was impacted by an increase in loan volume and overall higher interest rates on interest earning assets, compared to the quarters ended September 30, 2022 and December 31, 2021.

The following table shows the Company’s key performance ratios for the periods indicated.

  Three Months Ended Twelve Months Ended
(unaudited) December 31,
2022		 September 30,
2022		 June 30,
2022		 March 31,
2022		 December 31,
2021		 December 31,
2022		 December 31,
2021
               
Return on average assets (1) 1.66% 1.45% 1.41% 0.93% 1.14% 1.38% 1.24%
Return on average equity (1) 21.86% 19.36% 18.86% 12.12% 16.80% 18.24% 17.24%
Yield on earnings assets (1) 8.47% 7.38% 5.94% 4.58% 4.09% 6.68% 3.90%
Yield on loans receivable (1) 9.33% 8.46% 7.34% 6.80% 5.92% 8.12% 4.86%
Cost of funds (1) 1.61% 0.85% 0.29% 0.14% 0.14% 0.75% 0.18%
Cost of deposits (1) 1.56% 0.82% 0.25% 0.09% 0.09% 0.71% 0.12%
Net interest margin (1) 6.96% 6.58% 5.66% 4.45% 3.95% 5.97% 3.73%
Noninterest expense to average assets (1) 5.97% 6.66% 5.29% 4.52% 3.29% 5.65% 2.90%
Noninterest income to average assets (1) 5.43% 4.48% 3.53% 3.27% 2.22% 4.23% 1.29%
Efficiency ratio 48.94% 61.12% 58.38% 59.34% 54.08% 56.26% 58.82%
Loans receivable to deposits (2) 93.25% 89.92% 86.54% 76.24% 73.73% 93.25% 73.73%

(1) Annualized calculations shown for quarterly periods presented.
(2) Includes loans held for sale.

The following table details noninterest income for the periods indicated:

Noninterest Income

 Three Months Ended
 December 31, September 30, December 31,
(dollars in thousands; unaudited) 2022   2022   2021 
Deposit service charges and fees$946  $986  $930 
Mortgage broker fees 25   24   218 
Unrealized (loss) gain on equity securities, net (18)  (133)  (3)
Gain on sales of loans, net —   —   29 
Other 273   236   397 
Noninterest income, excluding BaaS program income and BaaS indemnification income 1,226   1,113   1,571 
Servicing and other BaaS fees 1,001   1,079   1,421 
Transaction fees 964   940   280 
Interchange fees 785   738   368 
Reimbursement of expenses 857   885   295 
BaaS program income 3,607   3,642   2,364 
BaaS credit enhancements 31,164   17,928   9,076 
Baas fraud enhancements 6,818   11,708   1,209 
BaaS indemnification income 37,982   29,636   10,285 
Total noninterest income$42,815  $34,391  $14,220 

Noninterest income was $42.8 million for the three months ended December 31, 2022, an increase of $8.4 million from $34.4 million for the three months ended September 30, 2022, and an increase of $28.6 million from $14.2 million for the three months ended December 31, 2021. The increase in noninterest income over the quarter ended September 30, 2022 was primarily due to an increase of $8.3 million in BaaS income. The $8.3 million increase in BaaS income included a $13.2 million increase in BaaS credit enhancements related to the allowance for loan losses and reserve for unfunded commitments, a $4.9 million decrease in BaaS fraud enhancements, and a decrease of $35,000 in BaaS program income (see “Appendix B” for more information on the accounting for BaaS allowance for loan losses, reserve for unfunded commitments and credit and fraud enhancements). The $28.6 million increase in noninterest income over the quarter ended December 31, 2021 was primarily due to a $28.9 million increase in BaaS income. The $28.9 million increase in BaaS income included a $22.1 million increase in BaaS credit enhancements, a $5.6 million increase in BaaS fraud enhancements and a $1.2 million increase in other BaaS program income.

Our CCBX segment continues to evolve, and we now have 27 relationships, at varying stages, as of December 31, 2022. We continue to refine the criteria for CCBX partnerships and are exiting relationships where it makes sense for both parties and are focusing more on selecting larger and more established partners, with experienced management teams, existing customer bases and strong financial positions.

The following table illustrates the activity and evolution in CCBX relationships for the periods presented. During the quarter ended December 31, 2022, a couple partners wound down their CCBX programs; these programs were not material in terms of income and sources of funds or loans.

 As of
(unaudited)December 31,
2022		September 30,
2022		December 31,
2021
Active191919
Friends and family / testing121
Implementation / onboarding005
Signed letters of intent553
Wind down - preparing to exit relationship230
Total CCBX relationships272928

Noninterest Expense

The following table details noninterest expense for the periods indicated:

  Three Months Ended
  December 31, September 30, December 31,
(dollars in thousands; unaudited)  2022  2022  2021
Salaries and employee benefits $14,399 $14,506 $10,541
Legal and professional fees  2,799  2,251  951
Data processing and software licenses  1,768  1,670  1,494
Occupancy  1,182  1,147  1,043
Point of sale expense  710  742  195
FDIC assessments  550  850  812
Director and staff expenses  515  475  393
Marketing  109  69  107
Excise taxes  702  588  435
Other  335  1,522  1,502
Noninterest expense, excluding BaaS loan and BaaS fraud expense  23,069  23,820  17,473
BaaS loan expense  17,215  15,560  2,368
BaaS fraud expense  6,819  11,707  1,209
BaaS loan and fraud expense  24,034  27,267  3,577
Total noninterest expense $47,103 $51,087 $21,050

Total noninterest expense decreased to $47.1 million for the three months ended December 31, 2022, compared to $51.1 million for the three months ended September 30, 2022 and increased from $21.1 million for the three months ended December 31, 2021. The decrease in noninterest expense for the quarter ended December 31, 2022, as compared to the quarter ended September 30, 2022, was primarily due to a $3.2 million decrease in BaaS expense (of which $4.9 million is related to a decrease in partner fraud expense partially offset by an increase of $1.7 million in partner loan expense). Partner loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, and servicing CCBX loans. Partner fraud expense represents non-credit fraud losses on partner’s customer loan and deposit accounts, a portion of this expense is realized during the quarter, and a portion is estimated based on historical or other information from our partners. Also contributing to the decrease in noninterest expense compared to September 30, 2022 is a $1.2 million decrease in other expenses, which is related to reduction in the unfunded commitment reserve of $1.1 million.

The increase in noninterest expenses for the quarter ended December 31, 2022 compared to the quarter ended December 31, 2021 were largely due to an increase of $20.5 million in BaaS partner expense ($14.8 million of which is related to partner loan expense and $5.6 million of which is related to partner fraud expense), $3.9 million increase in salary and employee benefits related to hiring staff for CCBX and additional staff for our ongoing growth initiatives and $1.8 million increase in legal and professional fees due to increased fees related to data and risk management, and increased consulting expenses for projects and enhanced monitoring. Additionally, there was a $515,000 increase in point of sale expenses which is attributed to increased CCBX activity. Partially offsetting the increase in noninterest expense compared to December 31, 2021 is a $1.2 million decrease in other expenses, which is related to reduction in the unfunded commitment reserve of $1.5 million.

The provision for income taxes was $2.4 million for the three months ended December 31, 2022, $3.0 million for the three months ended September 30, 2022 and $1.6 million for the fourth quarter of 2021. The Company is subject to various state taxes that are assessed as CCBX activities and employees expand into other states, which has increased the overall tax rate used in calculating the provision for income taxes in the current and future periods. The effective tax rate was lower for the three months ended December 31, 2022 due to an update in the state apportionment of the revenues in the states in which we operate combined with tax benefits that resulted from the exercise of stock awards. The Company uses a federal statutory tax rate of 21.0% as a basis for calculating provision for federal income taxes and 2.62% for calculating the provision for state taxes.

Financial Condition Overview

Total assets increased $10.7 million, or 0.3%, to $3.14 billion at December 31, 2022 compared to $3.13 billion at September 30, 2022. The increase is primarily due to loans receivable increasing $119.4 million during the quarter ended December 31, 2022. Partially offsetting the increase in loans for the quarter ended December 31, 2022 was a $63.8 million decrease in interest earning deposits with other banks, resulting from increased loan demand and decreased customer deposits. Additionally, there were no loans held for sale at December 31, 2022, a decrease of $43.3 million, compared to the quarter ended September 30, 2022.

Total assets increased $509.0 million, or 19.3%, at December 31, 2022, compared to $2.64 billion at December 31, 2021. The increase is primarily due to loans receivable increasing $884.5 million, and an increase of $61.7 million in investment securities. Partially offsetting the increase is a $489.2 million decrease in interest earning deposits with other banks, resulting from increased loan demand and funds being shifted from interest earning deposits with other banks to loans, compared to December 31, 2021.

Loans Receivable

Total loans receivable increased $119.4 million to $2.63 billion at December 31, 2022, from $2.51 billion at September 30, 2022, and increased $884.5 million from $1.74 billion at December 31, 2021. The increase in loans receivable over the quarter ended September 30, 2022 was the result of $96.9 million in CCBX loan growth and $22.4 million in community bank loan growth. Community bank loan growth is net of $1.1 million in PPP loan forgiveness/repayments compared to the quarter ended September 30, 2022. The change in loans receivable over the quarter ended December 31, 2021 includes CCBX loan growth of $665.8 million and $218.7 million in community bank loan growth as of December 31, 2022. Community bank loan growth is net of $107.1 million in PPP loan forgiveness and paydowns since December 31, 2021.

The following table summarizes the loan portfolio at the period indicated:

 As of December 31, 2022 As of September 30, 2022 As of December 31, 2021
(dollars in thousands; unaudited)Amount Percent Amount Percent Amount Percent
Commercial and industrial loans:           
PPP loans$4,699  0.2% $5,794  0.2% $111,813  6.4%
Capital call lines 146,029  5.5   174,311  6.9   202,882  11.5 
All other commercial & industrial loans 161,900  6.1   159,823  6.4   104,365  6.0 
Total commercial and industrial loans: 312,628  11.8   339,928  13.5   419,060  23.9 
Real estate loans:           
Construction, land and land development 214,055  8.1   224,188  8.9   183,594  10.5 
Residential real estate 449,157  17.1   402,781  16.0   204,389  11.7 
Commercial real estate 1,048,752  39.8   1,024,067  40.7   835,587  47.7 
Consumer and other loans 608,771  23.2   523,536  20.9   108,871  6.2 
    Gross loans receivable 2,633,363  100.0%  2,514,500  100.0%  1,751,501  100.0%
Net deferred origination fees - PPP loans (82)    (111)    (3,633)  
Net deferred origination fees - all other loans (6,025)    (6,500)    (5,133)  
    Loans receivable$2,627,256    $2,507,889    $1,742,735   
Loan Yield (1) 9.33%    8.46%    5.92%  

(1) Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.

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

The following tables detail the community bank and CCBX loans which are included in the total loan portfolio table above.

Community Bank As of
  December 31, 2022 September 30, 2022 December 31, 2021
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Commercial and industrial loans:            
PPP loans $4,699  0.3% $5,794  0.4% $111,813  8.0%
All other commercial & industrial loans  146,982  9.1   143,808  9.0   104,365  7.4 
Real estate loans:            
Construction, land and land development loans  214,055  13.2   224,188  14.0   183,594  13.1 
Residential real estate loans  204,581  12.6   198,871  12.5   167,502  11.9 
Commercial real estate loans  1,048,752  64.7   1,024,067  64.0   835,587  59.5 
Consumer and other loans:            
Other consumer and other loans  1,725  0.1   2,220  0.1   2,034  0.1 
Gross Community Bank loans receivable  1,620,794  100.0%  1,598,948  100.0%  1,404,895  100.0%
Net deferred origination fees  (6,042)    (6,628)    (8,835)  
Loans receivable $1,614,752    $1,592,320    $1,396,060   
Loan Yield(1)  5.70%    5.31%    5.89%  

(1) Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.

CCBX As of
  December 31, 2022 September 30, 2022 December 31, 2021
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Commercial and industrial loans:            
Capital call lines $146,029  14.4% $174,311  19.0% $202,882  58.6%
All other commercial & industrial loans  14,918  1.5   16,015  1.8   —  0.0 
Real estate loans:            
Residential real estate loans  244,576  24.2   203,910  22.3   36,887  10.6 
Consumer and other loans:            
Credit cards  279,644  27.6   216,995  23.7   11,429  3.3 
Other consumer and other loans  327,402  32.3   304,321  33.2   95,408  27.5 
Gross CCBX loans receivable  1,012,569  100.0%  915,552  100.0%  346,606  100.0%
Net deferred origination (fees) costs  (65)    17     69   
Loans receivable $1,012,504    $915,569    $346,675   
Loan Yield - CCBX (1)(2)  15.20%    13.96%    6.13%  


(1)CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release for the impact of BaaS loan expense on CCBX loan yield.
(2)Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.

Deposits

Total deposits decreased $19.5 million, or 0.7%, to $2.82 billion at December 31, 2022 from $2.84 billion at September 30, 2022. The decrease was due to a $41.3 million decrease in core deposits, combined with a $4.4 million decrease in time deposits, partially offset by a $26.2 million increase in BaaS-brokered deposits. We believe our decrease in deposits is primarily the result of significantly higher deposit rates being offered by competitors and depositors investing in the market. Deposits in our CCBX segment increased $77.0 million, from $1.20 billion at September 30, 2022, to $1.28 billion at December 31, 2022 and community bank deposits decreased $96.6 million to $1.54 billion at December 31, 2022. The deposits from our CCBX segment are predominately classified as interest bearing, or NOW and money market accounts, but a portion of such CCBX deposits may be classified as brokered deposits as a result of the relationship agreement. During the quarter ended December 31, 2022, noninterest bearing deposits decreased $38.2 million, or 4.7%, to $775.0 million from $813.2 million at September 30, 2022. In the quarter ended December 31, 2022 compared to the quarter ended September 30, 2022, NOW and money market accounts decreased $2.7 million, savings deposits decreased $391,000, and time deposits decreased $4.4 million. Partially offsetting those decreases is an increase of $26.2 million in BaaS-brokered deposits.

Total deposits increased $453.7 million, or 19.2%, to $2.82 billion at December 31, 2022 compared to $2.36 billion at December 31, 2021. The increase is largely the result of growth in CCBX deposits. Noninterest bearing deposits decreased $580.9 million, or 42.8%, to $775.0 million at December 31, 2022 from $1.4 billion at December 31, 2021. NOW and money market accounts increased $1.01 billion, or 128.5%, to $1.80 billion at December 31, 2022, and savings accounts increased $3.2 million, or 3.0%, and BaaS-brokered deposits increased $30.8 million, or 43.5% while time deposits decreased $14.0 million, or 32.2%, in the fourth quarter of 2022 compared to the fourth quarter of 2021. Additionally, as of December 31, 2022 we have access to $225.0 million in CCBX customer deposits that are currently being transferred off the Bank’s balance sheet to other financial institutions on a daily basis. The Bank could retain these deposits for liquidity and funding purposes if needed. If a portion of these deposits are retained, they would be classified as brokered deposits, however if the entire available balance is retained, they would be non-brokered deposits. Efforts to retain and grow core deposits are evidenced by the high ratios in these categories when compared to total deposits.

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

 As of December 31, 2022 As of September 30, 2022 As of December 31, 2021
(dollars in thousands; unaudited)Amount Percent of
Total
Deposits		 Balance Percent of
Total
Deposits		 Balance Percent of
Total
Deposits
Demand, noninterest bearing$775,012  27.5% $813,217  28.7% $1,355,908  57.4%
NOW and money market 1,804,399  64.0   1,807,105  63.7   789,709  33.4 
Savings 107,117  3.8   107,508  3.8   103,956  4.4 
Total core deposits 2,686,528  95.3   2,727,830  96.2   2,249,573  95.2 
BaaS-brokered deposits 101,546  3.6   75,363  2.6   70,757  3.0 
Time deposits less than $100,000 12,596  0.5   13,296  0.5   14,961  0.6 
Time deposits $100,000 and over 16,851  0.6   20,577  0.7   28,496  1.2 
Total$2,817,521  100.0% $2,837,066  100.0% $2,363,787  100.0%
Cost of Deposits (1) 1.56%    0.82%    0.09%  

(1) Cost of deposits is annualized for the three months ended for each period presented.

The following tables detail the community bank and CCBX deposits which are included in the total deposit portfolio table above.

Community Bank As of
  December 31, 2022 September 30, 2022 December 31, 2021
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Demand, noninterest bearing $694,179  45.2% $746,516  45.7% $719,233  43.7%
NOW and money market  709,490  46.1   748,347  45.8   780,884  47.4 
Savings  105,101  6.8   106,059  6.4   103,954  6.3 
Total core deposits  1,508,770  98.1   1,600,922  97.9   1,604,071  97.4 
Brokered deposits  1  0.0   1  0.0   1  0.0 
Time deposits less than $100,000  12,596  0.8   13,296  0.8   14,961  0.9 
Time deposits $100,000 and over  16,851  1.1   20,577  1.3   28,496  1.7 
Total Community Bank deposits $1,538,218  100.0% $1,634,796  100.0% $1,647,529  100.0%
Cost of deposits(1)  0.37%    0.16%    0.12%  

(1) Cost of deposits is annualized for the three months ended for each period presented.

CCBX As of
  December 31, 2022 September 30, 2022 December 31, 2021
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Demand, noninterest bearing $80,833  6.3% $66,701  5.5% $636,675  88.9%
NOW and money market  1,094,909  85.6   1,058,758  88.1   8,825  1.2 
Savings  2,016  0.2   1,449  0.1   2  — 
Total core deposits  1,177,758  92.1   1,126,908  93.7   645,502  90.1 
BaaS-brokered deposits  101,545  7.9   75,362  6.3   70,756  9.9 
Total CCBX deposits $1,279,303  100.0% $1,202,270  100.0% $716,258  100.0%
Cost of deposits (1)  3.13%    1.79%    0.02%  

(1) Cost of deposits is annualized for the three months ended for each period presented.

Borrowings

On November 1, 2022, the Company completed its private placement of $20.0 million in fixed-to-floating rate subordinated notes due November 1, 2032 (the “Notes”). The Notes bear interest at a fixed annual rate of 7.00% for the first five years and will reset quarterly thereafter to the then-current three-month Secured Overnight Financing Rate ("SOFR") plus 290 basis points. The Company may redeem the Notes, in whole or in part, on any interest payment date on or after November 1, 2027, or at any time, in whole but not in part, upon certain other specified events prior to the Notes’ maturity on November 1, 2032.

Shareholders’ Equity

During the twelve months ended December 31, 2022, the Company contributed $21.0 million in capital to the Bank. The Company has a cash balance of $22.9 million as of December 31, 2022, which is retained for general operating purposes, including debt repayment, and for funding $988,000 in commitments to bank technology funds.

Total shareholders’ equity increased $14.8 million since September 30, 2022. The increase in shareholders’ equity was primarily due to $13.1 million in net earnings and $1.2 million increase from stock options being exercised for the three months ended December 31, 2022.

Capital Ratios

The Company and the Bank remain well capitalized at December 31, 2022, as summarized in the following table.

(unaudited) Coastal
Community
Bank		 Coastal
Financial
Corporation		 Financial
Institution
Basel III
Regulatory
Guidelines
Tier 1 leverage capital 8.56% 7.97% 5.00%
Common Equity Tier 1 risk-based capital 9.77% 8.95% 6.50%
Tier 1 risk-based capital 9.77% 9.08% 8.00%
Total risk-based capital 11.04% 11.99% 10.00%

Asset Quality

The total allowance for loan losses was $74.0 million and 2.82% of loans receivable at December 31, 2022 compared to $59.3 million and 2.36% at September 30, 2022 and $28.6 million and 1.64% at December 31, 2021. The allowance for loan loss allocated to the CCBX portfolio was $53.4 million and 5.27% of CCBX loans receivable at December 31, 2022, with $20.6 million of allowance for loan loss allocated to the community bank or 1.28% of total community bank loans receivable.

The following table details the allocation of the allowance for loan loss as of the period indicated:

  As of December 31, 2022 As of September 30, 2022 As of December 31, 2021
(dollars in thousands; unaudited) Community
Bank		 CCBX Total Community
Bank		 CCBX Total Community
Bank		 CCBX Total
Loans receivable $1,614,751  $1,012,505  $2,627,256  $1,592,320  $915,569  $2,507,889  $1,396,060  $346,675  $1,742,735 
Allowance for loan losses  (20,636)  (53,393)  (74,029)  (20,139)  (39,143)  (59,282)  (20,299)  (8,333)  (28,632)
Allowance for loan losses to total loans receivable  1.28%  5.27%  2.82%  1.26%  4.28%  2.36%  1.45%  2.40%  1.64%

Provision for loan losses totaled $33.6 million for the three months ended December 31, 2022, $18.4 million for the three months ended September 30, 2022, and $8.9 million for the three months ended December 31, 2021. Net charge-offs totaled $18.9 million for the quarter ended December 31, 2022, compared to $8.5 million for the quarter ended September 30, 2022 and $532,000 for the quarter ended December 31, 2021. Net charge-offs increased due to CCBX partner loans and the reclassification and charge-off of negative deposit accounts. CCBX partner agreements provide for a credit enhancement that covers the net-charge-offs on CCBX loans and negative deposit accounts, except in accordance with the program agreement for one partner where the Company is responsible for credit losses on approximately 10% of a $114.5 million loan portfolio. At December 31, 2022, 10% of this portfolio represented $11.5 million in loans.

The following table details net charge-offs for the core bank and CCBX for the period indicated:

  Three Months Ended
  December 31, 2022 September 30, 2022 December 31, 2021
(dollars in thousands; unaudited) Community
Bank		 CCBX Total Community
Bank		 CCBX Total Community
Bank		 CCBX Total
Gross charge-offs $10  $18,876  $18,886  $411  $8,102  $8,513  $215  $364  $579 
Gross recoveries  (3)  (30)  (33)  (3)  (6)  (9)  (47)  —   (47)
Net charge-offs $7  $18,846  $18,853  $408  $8,096  $8,504  $168  $364  $532 
Net charge-offs to average loans (1)  —%  7.52%  2.87%  0.10%  3.59%  1.38%  0.05%  0.59%  0.13%

The increase in the Company’s provision for loan losses during the quarter ended December 31, 2022, is largely related to the provision for loan growth in CCBX partner loans. During the quarter ended December 31, 2022, a $33.1 million provision for loan losses was recorded for CCBX partner loans based on management’s analysis, compared to the $18.7 million provision for loan losses that was recorded for CCBX for the quarter ended September 30, 2022. CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for loan losses. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses. In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans and reclassified negative deposit accounts. When the provision for CCBX loan losses and provision for unfunded commitments is recorded, a receivable is also recorded on the balance sheet through noninterest income (BaaS credit enhancements). Incurred losses are recorded in the allowance for loan losses. The receivable is relieved when credit enhancement recoveries are received from the CCBX partner. Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by absorbing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligations then the bank would be exposed to additional loan losses, as a result of this counterparty risk. The factors used in management’s analysis for community bank loan losses indicated that a provision of $504,000 and recapture/adjustment for loan losses of $238,000 was needed for the quarters ended December 31, 2022 and September 30, 2022, respectively. In accordance with the program agreement and for this CCBX partner only, the Company is responsible for credit losses on approximately 10% of a $114.5 million loan portfolio. At December 31, 2022, 10% of this portfolio represented $11.5 million in loans. The partner is responsible for credit losses on approximately 90% of this portfolio and for fraud losses on 100% of this portfolio. The Company earns 100% of the revenue on the aforementioned $11.5 million of loans. The economic environment is continuously changing, due to increased inflation, global unrest, the war in Ukraine, political environment, trade issues that may impact the provision and therefore the allowance. The Company is not required to implement the provisions of the Current Expected Credit Loss ("CECL") accounting standard until January 1, 2023 and continues to account for the allowance for credit losses under the incurred loss model. The Company is on track with its migration and adoption plan for CECL.

The following table details the provision expense for the community bank and CCBX for the period indicated:

  Three Months Ended Twelve Months Ended
(dollars in thousands; unaudited) December 31,
2022		 September 30,
2022		 December 31,
2021		 December 31,
2022		 December 31,
2021
Community bank $504 $(238) $243 $719 $1,275
CCBX  33,096  18,666   8,699  78,345  8,640
Total provision expense $33,600 $18,428  $8,942 $79,064 $9,915

At December 31, 2022, our nonperforming assets were $33.2 million, or 1.06% of total assets, compared to $22.9 million, or 0.73%, of total assets, at September 30, 2022, and $1.7 million, or 0.07% of total assets, at December 31, 2021. These ratios are impacted by the increase in CCBX loans over 90 days delinquent that are covered by CCBX partner credit enhancements. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses. Under the agreement, the CCBX partner will reimburse the Bank for its loss/charge-off on these loans. Nonperforming assets increased $10.3 million during the quarter ended December 31, 2022, compared to the quarter ended September 30, 2022, due to the addition of $10.3 million in CCBX loans that are past due 90 days or more and still accruing combined with $19,000 more in community bank nonaccrual loans. As a result of the type of loans (primarily consumer loans) originated through our CCBX partners we anticipate that balances 90 days past due or more and still accruing will increase as those loans grow. Installment/closed-end and revolving/open-end consumer loans originated through CCBX lending partners will continue to accrue interest until 120 and 180 days past due, respectively and are reported as substandard, 90 days or more days past due and still accruing. Community bank nonaccrual loans increased with the addition of one new nonaccrual loan partially offset by other nonaccrual principal reductions/charge-offs. There were no repossessed assets or other real estate owned at December 31, 2022. Our nonperforming loans to loans receivable ratio was 1.26% at December 31, 2022, compared to 0.91% at September 30, 2022, and 0.10% at December 31, 2021.

For the quarter ended December 31, 2022, there were $7,000 of community bank net charge-offs and $7.1 million of nonperforming community bank loans. The $6.9 million nonaccrual balance in commercial real estate loans shown below consists of one loan, is well secured with an original loan to value of 62%, and an updated loan to value of 75% as of January 2023. Management anticipates this loan being resolved in the first half of 2023. For the quarter ended December 31, 2022, $18.8 million in net charge-offs were recorded on CCBX loans. These loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for loan losses. In accordance with the program agreement and for this CCBX partner only, the Company is responsible for credit losses on approximately 10% of a $114.5 million loan portfolio. At December 31, 2022, 10% of this portfolio represented $11.5 million in loans. The partner is responsible for credit losses on approximately 90% of this portfolio and for fraud losses on 100% of this portfolio.

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

(dollars in thousands; unaudited)As of December
31, 2022		 As of September
30, 2022		 As of December
31, 2021
Nonaccrual loans:     
Commercial and industrial loans$113  $94  $166 
Real estate loans:     
Construction, land and land development 66   66   — 
Residential real estate —   —   55 
Commercial real estate 6,901   6,901   — 
Total nonaccrual loans 7,080   7,061   221 
Accruing loans past due 90 days or more:     
Commercial & industrial loans 404   138   — 
Real estate loans:     
Residential real estate loans 876   638   39 
Consumer and other loans:     
Credit cards 10,570   4,777   155 
Other consumer and other loans 14,245   10,268   1,312 
    Total accruing loans past due 90 days or more 26,095   15,821   1,506 
Total nonperforming loans 33,175   22,882   1,727 
Real estate owned —   —   — 
Repossessed assets —   —   — 
Troubled debt restructurings, accruing —   —   — 
Total nonperforming assets$33,175  $22,882  $1,727 
Total nonaccrual loans to loans receivable 0.27%  0.28%  0.01%
Total nonperforming loans to loans receivable 1.26%  0.91%  0.10%
Total nonperforming assets to total assets 1.06%  0.73%  0.07%

The following tables detail the community bank and CCBX nonperforming assets which are included in the total nonperforming assets table above.

Community BankAs of
(dollars in thousands; unaudited)December 31,
2022		 September 30,
2022		 December 31,
2021
Nonaccrual loans:     
Commercial and industrial loans$113 $94 $166
Real estate:     
Construction, land and land development 66  66  —
Residential real estate —  —  55
Commercial real estate 6,901  6,901  —
Total nonaccrual loans 7,080  7,061  221
      —
Accruing loans past due 90 days or more:     
Total accruing loans past due 90 days or more —  —  —
Total nonperforming loans 7,080  7,061  221
Other real estate owned —  —  —
Repossessed assets —  —  —
Total nonperforming assets$7,080 $7,061 $221


CCBXAs of
(dollars in thousands; unaudited)December 31,
2022		 September 30,
2022		 December 31,
2021
Nonaccrual loans$— $— $—
Accruing loans past due 90 days or more:     
Commercial & industrial loans 404  138  —
Real estate loans:     
Residential real estate loans 876  638  39
Consumer and other loans:     
Credit cards 10,570  4,777  155
Other consumer and other loans 14,245  10,268  1,312
Total accruing loans past due 90 days or more 26,095  15,821  1,506
Total nonperforming loans 26,095  15,821  1,506
Other real estate owned —  —  —
Repossessed assets —  —  —
Total nonperforming assets$26,095 $15,821 $1,506

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

About Coastal Financial

Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), is an Everett, Washington based bank holding company whose wholly owned subsidiaries are Coastal Community Bank (“Bank”) and Arlington Olympic LLC. The $3.14 billion Bank provides service through 14 branches in Snohomish, Island, and King Counties, the Internet and its mobile banking application. The Bank provides banking as a service to broker-dealers, digital financial service providers, companies and brands that want to provide financial services to their customers through the Bank's CCBX segment. To learn more about the Company visit www.coastalbank.com.

CCB-ER

Contact

Eric Sprink, Chief Executive Officer, (425) 357-3659
Joel Edwards, Executive Vice President & Chief Financial Officer, (425) 357-3687

Forward-Looking Statements

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

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


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

ASSETS
 December 31,
2022		 September 30,
2022		 December 31,
2021
Cash and due from banks$32,722  $37,482  $14,496 
Interest earning deposits with other banks 309,417   373,246   798,665 
Investment securities, available for sale, at fair value 97,317   97,621   35,327 
Investment securities, held to maturity, at amortized cost 1,036   1,250   1,296 
Other investments 10,555   10,581   8,478 
Loans held for sale —   43,314   — 
Loans receivable 2,627,256   2,507,889   1,742,735 
Allowance for loan losses (74,029)  (59,282)  (28,632)
Total loans receivable, net 2,553,227   2,448,607   1,714,103 
CCBX credit enhancement asset 53,377   48,228   8,712 
CCBX receivable 10,416   6,145   1,266 
Premises and equipment, net 18,213   18,467   17,219 
Operating lease right-of-use assets 5,018   5,293   6,105 
Accrued interest receivable 17,815   13,114   8,105 
Bank-owned life insurance, net 12,667   12,576   12,254 
Deferred tax asset, net 18,458   13,997   6,818 
Other assets 4,229   3,820   2,673 
Total assets$3,144,467  $3,133,741  $2,635,517 
      
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES     
Deposits$2,817,521  $2,837,066  $2,363,787 
Federal Home Loan Bank ("FHLB") advances —   —   24,999 
Subordinated debt, net 43,999   24,343   24,288 
Junior subordinated debentures, net 3,588   3,588   3,586 
Deferred compensation 616   648   744 
Accrued interest payable 684   153   357 
Operating lease liabilities 5,234   5,514   6,320 
Other liabilities 29,331   33,696   10,214 
Total liabilities 2,900,973   2,905,008   2,434,295 
      
SHAREHOLDERS’ EQUITY     
Common stock 125,830   123,944   121,845 
Retained earnings 119,998   106,880   79,373 
Accumulated other comprehensive (loss) income, net of tax (2,334)  (2,091)  4 
Total shareholders’ equity 243,494   228,733   201,222 
Total liabilities and shareholders’ equity$3,144,467  $3,133,741  $2,635,517 


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

 Three Months Ended
 December 31,
2022		 September 30,
2022		 December 31,
2021
INTEREST AND DIVIDEND INCOME     
Interest and fees on loans$61,226  $52,328  $25,134 
Interest on interest earning deposits with other banks 3,097   2,273   294 
Interest on investment securities 557   554   3 
Dividends on other investments 150   24   115 
Total interest income 65,030   55,179   25,546 
INTEREST EXPENSE     
Interest on deposits 11,061   5,717   516 
Interest on borrowed funds 537   273   327 
Total interest expense 11,598   5,990   843 
Net interest income 53,432   49,189   24,703 
PROVISION FOR LOAN LOSSES 33,600   18,428   8,942 
Net interest income after provision for loan losses 19,832   30,761   15,761 
NONINTEREST INCOME     
Deposit service charges and fees 946   986   930 
Gain on sales of loans, net —   —   29 
Mortgage broker fees 25   24   218 
Unrealized (loss) gain on equity securities, net (18)  (133)  (3)
Other income 273   236   397 
Noninterest income, excluding BaaS program income and BaaS indemnification income 1,226   1,113   1,571 
Servicing and other BaaS fees 1,001   1,079   1,421 
Transaction fees 964   940   280 
Interchange fees 785   738   368 
Reimbursement of expenses 857   885   295 
BaaS program income 3,607   3,642   2,364 
BaaS credit enhancements 31,164   17,928   9,076 
BaaS fraud enhancements 6,818   11,708   1,209 
BaaS indemnification income 37,982   29,636   10,285 
Total noninterest income 42,815   34,391   14,220 
NONINTEREST EXPENSE     
Salaries and employee benefits 14,399   14,506   10,541 
Occupancy 1,182   1,147   1,043 
Data processing and software licenses 1,768   1,670   1,494 
Legal and professional fees 2,799   2,251   951 
Point of sale expense 710   742   195 
Excise taxes 702   588   435 
Federal Deposit Insurance Corporation ("FDIC") assessments 550   850   812 
Director and staff expenses 515   475   393 
Marketing 109   69   107 
Other expense 335   1,522   1,502 
Noninterest expense, excluding BaaS loan and BaaS fraud expense 23,069   23,820   17,473 
BaaS loan expense 17,215   15,560   2,368 
BaaS fraud expense 6,819   11,707   1,209 
BaaS loan and fraud expense 24,034   27,267   3,577 
Total noninterest expense 47,103   51,087   21,050 
Income before provision for income taxes 15,544   14,065   8,931 
PROVISION FOR INCOME TAXES 2,426   2,964   1,641 
NET INCOME$13,118  $11,101  $7,290 
Basic earnings per common share$1.01  $0.86  $0.60 
Diluted earnings per common share$0.96  $0.82  $0.57 
Weighted average number of common shares outstanding:     
Basic 13,030,726   12,938,200   12,144,452 
Diluted 13,603,978   13,536,823   12,701,464 


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

 Twelve Months Ended
 December 31,
2022		 December 31,
2021
INTEREST AND DIVIDEND INCOME   
Interest and fees on loans$183,352  $82,112
Interest on interest earning deposits with other banks 6,728   608
Interest on investment securities 1,745   79
Dividends on other investments 345   284
Total interest income 192,170   83,083
INTEREST EXPENSE   
Interest on deposits 19,004   2,327
Interest on borrowed funds 1,391   1,319
Total interest expense 20,395   3,646
Net interest income 171,775   79,437
PROVISION FOR LOAN LOSSES 79,064   9,915
Net interest income after provision for loan losses 92,711   69,522
NONINTEREST INCOME   
Deposit service charges and fees 3,804   3,698
Loan referral fees 810   2,126
Gain on sales of loans, net —   396
Mortgage broker fees 257   920
Unrealized (loss) gain on equity securities, net (153)  1,469
Gain on sale of bank branch including deposits and loans, net —   1,263
Other income 1,087   939
Noninterest income, excluding BaaS program income and BaaS indemnification income 5,805   10,811
Servicing and other BaaS fees 4,408   4,467
Transaction fees 3,211   544
Interchange fees 2,583   701
Reimbursement of expenses 2,732   1,004
BaaS program income 12,934   6,716
BaaS credit enhancements 76,374   9,086
BaaS fraud enhancements 29,571   1,505
BaaS indemnification income 105,945   10,591
Total noninterest income 124,684   28,118
NONINTEREST EXPENSE   
Salaries and employee benefits 52,228   37,101
Occupancy 4,548   4,128
Data processing and software licenses 6,487   4,951
Legal and professional fees 6,760   3,133
Point of sale expense 2,109   671
Excise taxes 2,204   1,589
Federal Deposit Insurance Corporation ("FDIC") assessments 2,859   1,632
Director and staff expenses 1,711   1,205
Marketing 351   451
Other expense 4,652   3,921
Noninterest expense, excluding BaaS loan and BaaS fraud expense 83,909   58,782
BaaS loan expense 53,294   2,976
BaaS fraud expense 29,571   1,505
BaaS loan and fraud expense 82,865   4,481
Total noninterest expense 166,774   63,263
Income before provision for income taxes 50,621   34,377
PROVISION FOR INCOME TAXES 9,996   7,372
NET INCOME$40,625  $27,005
Basic earnings per common share$3.14  $2.25
Diluted earnings per common share$3.01  $2.16
Weighted average number of common shares outstanding:   
Basic 12,949,266   12,022,954
Diluted 13,514,952   12,521,426


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

 For the Three Months Ended
 December 31, 2022 September 30, 2022 December 31, 2021
 Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)		 Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)		 Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)
Assets                 
Interest earning assets:                 
Interest earning deposits$329,354  $3,097 3.73% $397,621  $2,273 2.27% $751,805  $294  0.16%
Investment securities, available for sale (2) 100,269   550 2.18   102,438   545 2.11   35,517   5  0.06 
Investment securities, held to maturity (2) 1,235   7 2.25   1,257   9 2.84   1,507   (2) (0.53)
Other investments 10,592   150 5.62   10,520   24 0.91   8,411   115  5.42 
Loans receivable (3) 2,603,962   61,226 9.33   2,452,815   52,328 8.46   1,683,310   25,134  5.92 
Total interest earning assets 3,045,412   65,030 8.47   2,964,651   55,179 7.38   2,480,550   25,546  4.09 
Noninterest earning assets:                 
Allowance for loan losses (58,440)      (51,259)      (20,242)    
Other noninterest earning assets 141,624       128,816       76,343     
Total assets$3,128,596      $3,042,208      $2,536,651     
                  
Liabilities and Shareholders’ Equity                 
Interest bearing liabilities:                 
Interest bearing deposits$2,006,679  $11,061 2.19% $1,953,170  $5,717 1.16% $962,128  $516  0.21%
FHLB advances and borrowings 5   — —   —   — —   25,000   72  1.14 
Subordinated debt 37,455   484 5.13   24,331   234 3.82   24,276   234  3.82 
Junior subordinated debentures 3,588   53 5.86   3,587   39 4.31   3,586   21  2.32 
Total interest bearing liabilities 2,047,727   11,598 2.25   1,981,088   5,990 1.20   1,014,990   843  0.33 
Noninterest bearing deposits 807,794       807,952       1,336,161     
Other liabilities 34,944       25,662       13,308     
Total shareholders' equity 238,131       227,506       172,192     
Total liabilities and shareholders' equity$3,128,596      $3,042,208      $2,536,651     
Net interest income  $53,432     $49,189     $24,703   
Interest rate spread    6.22%     6.18%     3.76%
Net interest margin (4)    6.96%     6.58%     3.95%


(1)Yields and costs are annualized.
(2)For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(3)Includes loans held for sale and nonaccrual loans.
(4)Net interest margin represents net interest income divided by the average total interest earning assets.


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

 For the Three Months Ended
 December 31, 2022 September 30, 2022 December 31, 2021
(dollars in thousands, unaudited)Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)		 Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)		 Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)
Community Bank                 
Assets                 
Loans receivable (2)$1,609,882 $23,140 5.70% $1,559,160 $20,879 5.31% $1,439,272 $21,363 5.89%
Liabilities                 
Interest bearing deposits 864,001  1,502 0.69   901,339  642 0.28   920,125  482 0.21 
Noninterest bearing deposits 737,812      735,038      715,267    
Total deposits 1,601,813  1,502 0.37   1,636,377  642 0.16   1,635,392  482 0.12 
Interest rate spread    5.33%     5.16%     5.77%
                  
CCBX                 
Assets                 
Loans receivable (2)(3)$994,080 $38,086 15.20% $893,655 $31,449 13.96% $244,038 $3,771 6.13%
Liabilities                 
Interest bearing deposits 1,142,678  9,559 3.32   1,051,831  5,075 1.91   42,003  34 0.32 
Noninterest bearing deposits 69,982      72,914      620,894    
Total deposits 1,212,660  9,559 3.13   1,124,745  5,075 1.79   662,897  34 0.02 
Interest rate spread    12.07%     12.17%     6.11%
Net Baas loan income                    
interest rate spread (4)    5.20%     5.26%     2.26%


(1)Yields and costs are annualized.
(2)Includes loans held for sale and nonaccrual loans.
(3)CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans.
(4)A reconciliation of non-GAAP measures are set forth at the end of this earnings release.


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

 For the Twelve Months Ended
 December 31, 2022 December 31, 2021
(dollars in thousands; unaudited)Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)		 Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)
Assets           
Interest earning assets:           
Interest earning deposits$515,967  $6,728 1.30% $402,081  $608 0.15%
Investment securities, available for sale (2) 91,970   1,710 1.86   27,908   49 0.18 
Investment securities, held to maturity (2) 1,266   35 2.76   2,137   30 1.40 
Other investments 10,146   345 3.40   7,052   284 4.03 
Loans receivable (3) 2,257,787   183,352 8.12   1,688,925   82,112 4.86 
Total interest earning assets 2,877,136   192,170 6.68   2,128,103   83,083 3.90 
Noninterest earning assets:           
Allowance for loan losses (46,769)      (19,870)    
Other noninterest earning assets 119,817       74,088     
Total assets$2,950,184      $2,182,321     
            
Liabilities and Shareholders’ Equity           
Interest bearing liabilities:           
Interest bearing deposits$1,724,020  $19,004 1.10% $910,106  $2,327 0.26%
PPPLF borrowings —   — 0.00   68,699   240 0.35 
FHLB advances and borrowings 6,029   69 1.14   24,999   284 1.14 
Subordinated debt 27,626   1,179 4.27   15,379   711 4.62 
Junior subordinated debentures 3,587   143 3.99   3,585   84 2.34 
Total interest bearing liabilities 1,761,262   20,395 1.16   1,022,768   3,646 0.36 
Noninterest bearing deposits 942,087       989,945     
Other liabilities 24,097       12,926     
Total shareholders' equity 222,738       156,682     
Total liabilities and shareholders' equity$2,950,184      $2,182,321     
Net interest income  $171,775     $79,437  
Interest rate spread    5.52%     3.54%
Net interest margin (4)    5.97%     3.73%


(1)Yields and costs are annualized.
(2)For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(3)Includes loans held for sale and nonaccrual loans.
(4)Net interest margin represents net interest income divided by the average total interest earning assets.


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

  For the Twelve Months Ended
  December 31, 2022 December 31, 2021
(dollars in thousands; unaudited) Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)		 Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)
Community Bank            
Assets            
Loans receivable (2) $1,515,395 $80,544 5.32% $1,542,621 $75,580 4.90%
Liabilities            
Interest bearing deposits  905,447  2,896 0.32   877,389  2,228 0.25 
Noninterest bearing deposits  733,104      674,509    
Total deposits $1,638,551 $2,896 0.18  $1,551,898 $2,228 0.14 
Interest rate spread     5.14%     4.76%
             
CCBX            
Assets            
Loans receivable (2)(3) $742,392 $102,808 13.85% $146,304 $6,532 4.46%
Liabilities            
Interest bearing deposits  818,573  16,108 1.97   32,717  99 0.30 
Noninterest bearing deposits  208,983      315,436    
Total deposits $1,027,556 $16,108 1.57  $348,153 $99 0.03 
Interest rate spread     12.28%     4.43%
Net BaaS loan income interest rate spread (4)     5.10%     2.40%

 

(1)Yields and costs are annualized.
(2)Includes loans held for sale and nonaccrual loans.
(3)CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans.
(4)A reconciliation of non-GAAP measures are set forth at the end of this earnings release.


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

 Three Months Ended
 December 31,
2022		 September 30,
2022		 June 30,
2022		 March 31,
2022		 December 31,
2021
Income Statement Data:         
Interest and dividend income$65,030  $55,179  $41,819  $30,142  $25,546 
Interest expense 11,598   5,990   1,933   874   843 
Net interest income 53,432   49,189   39,886   29,268   24,703 
Provision for loan losses 33,600   18,428   14,094   12,942   8,942 
Net interest income after provision for loan losses 19,832   30,761   25,792   16,326   15,761 
Noninterest income 42,815   34,391   25,492   21,986   14,220 
Noninterest expense 47,103   51,087   38,169   30,415   21,050 
Provision for income tax 2,426   2,964   2,939   1,667   1,641 
Net income 13,118   11,101   10,176   6,230   7,290 
          
 As of and for the Three Month Period
 December 31,
2022		 September 30,
2022		 June 30,
2022		 March 31,
2022		 December 31,
2021
Balance Sheet Data:         
Cash and cash equivalents$342,139  $410,728  $405,689  $682,109  $813,161 
Investment securities 98,353   98,871   109,821   136,177   36,623 
Loans held for sale —   43,314   60,000   —   — 
Loans receivable 2,627,256   2,507,889   2,334,354   1,964,209   1,742,735 
Allowance for loan losses (74,029)  (59,282)  (49,358)  (38,770)  (28,632)
Total assets 3,144,467   3,133,741   2,969,722   2,833,750   2,635,517 
Interest bearing deposits 2,042,509   2,023,849   1,879,253   1,738,426   1,007,879 
Noninterest bearing deposits 775,012   813,217   818,052   838,044   1,355,908 
Core deposits (1) 2,686,528   2,727,830   2,584,831   2,460,954   2,249,573 
Total deposits 2,817,521   2,837,066   2,697,305   2,576,470   2,363,787 
Total borrowings 47,587   27,931   27,911   27,893   52,873 
Total shareholders’ equity 243,494   228,733   217,661   207,920   201,222 
          
Share and Per Share Data (2):         
Earnings per share – basic$1.01  $0.86  $0.79  $0.48  $0.60 
Earnings per share – diluted$0.96  $0.82  $0.76  $0.46  $0.57 
Dividends per share —   —   —   —   — 
Book value per share (3)$18.50  $17.66  $16.81  $16.08  $15.63 
Tangible book value per share (4)$18.50  $17.66  $16.81  $16.08  $15.63 
Weighted avg outstanding shares – basic 13,030,726   12,938,200   12,928,061   12,898,746   12,144,452 
Weighted avg outstanding shares – diluted 13,603,978   13,536,823   13,442,013   13,475,337   12,701,464 
Shares outstanding at end of period 13,161,147   12,954,573   12,948,623   12,928,548   12,875,315 
Stock options outstanding at end of period 438,103   644,334   655,844   666,774   694,519 

See footnotes on following page

 As of and for the Three Month Period
 December 31,
2022		 September 30,
2022		 June 30,
2022		 March 31,
2022		 December 31,
2021
Credit Quality Data:         
Nonperforming assets (5) to total assets 1.06%  0.73%  0.09%  0.08%  0.07%
Nonperforming assets (5) to loans receivable and OREO 1.26%  0.91%  0.11%  0.12%  0.10%
Nonperforming loans (5) to total loans receivable 1.26%  0.91%  0.11%  0.12%  0.10%
Allowance for loan losses to nonperforming loans 224.4%  259.1%  849.4%  1653.3%  1657.9%
Allowance for loan losses to total loans receivable 2.82%  2.36%  2.11%  1.97%  1.64%
Gross charge-offs$18,886  $8,513  $3,542  $2,808  $579 
Gross recoveries$33  $9  $36  $4  $47 
Net charge-offs to average loans (6) 2.87%  1.38%  0.64%  0.64%  0.13%
          
Capital Ratios (7):         
Tier 1 leverage capital 7.97%  7.70%  7.68%  7.75%  8.07%
Common equity Tier 1 risk-based capital 8.95%  8.49%  8.51%  9.71%  11.06%
Tier 1 risk-based capital 9.08%  8.62%  8.65%  9.88%  11.26%
Total risk-based capital 11.99%  10.80%  10.88%  12.30%  13.89%


(1)Core deposits are defined as all deposits excluding brokered and all time deposits.
(2)Share and per share amounts are based on total actual or average common shares outstanding, as applicable.
(3)We calculate book value per share as total shareholders’ equity at the end of the relevant period divided by the outstanding number of our common shares at the end of each period.
(4)Tangible book value per share is a non-GAAP financial measure. We calculate tangible book value per share as total shareholders’ equity at the end of the relevant period, less goodwill and other intangible assets, divided by the outstanding number of our common shares at the end of each period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets as of any of the dates indicated. As a result, tangible book value per share is the same as book value per share as of each of the dates indicated.
(5)Nonperforming assets and nonperforming loans include loans 90+ days past due and accruing interest.
(6)Annualized calculations.
(7)Capital ratios are for the Company, Coastal Financial Corporation.

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.

However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.

The following non-GAAP measure is presented to illustrate the impact of BaaS credit enhancements and BaaS fraud enhancements on total revenue.

Revenue excluding BaaS credit enhancements and BaaS fraud enhancements is a non-GAAP measure that excludes the impact of BaaS credit enhancements and BaaS fraud enhancements on revenue. The most directly comparable GAAP measure is revenue.

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

  As of and for the Three Months Ended As of and for the Twelve Months Ended
(dollars in thousands, unaudited) December 31,
2022		 September 30,
2022		 December 31,
2021		 December 31,
2022		 December 31,
2021
Revenue excluding BaaS credit enhancements and BaaS fraud enhancements:
Total net interest income $53,432  $49,189  $24,703  $171,775  $79,437 
Total noninterest income  42,815   34,391   14,220   124,684   28,118 
Total Revenue $96,247  $83,580  $38,923  $296,459  $107,555 
Less: BaaS credit enhancements  (31,164)  (17,928)  (9,076)  (76,374)  (9,086)
Less: BaaS fraud enhancements  (6,818)  (11,708)  (1,209)  (29,571)  (1,505)
Total revenue excluding BaaS credit enhancements and BaaS fraud enhancements $58,265  $53,944  $28,638  $190,514  $96,964 

The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense on net loan income, yield on CCBX loans and interest rate spread.

Net BaaS loan income divided by average CCBX loans is a non-GAAP measure that includes the impact BaaS loan expense on net BaaS loan income and the yield on CCBX loans. The most directly comparable GAAP measure is yield on CCBX loans.

Net BaaS loan interest income interest rate spread is a non-GAAP measure that includes the impact of BaaS loan expense on interest rate spread. The most directly comparable GAAP measure is interest rate spread.

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

  As of and for the Three Months Ended  As of and for the Twelve Months Ended
(dollars in thousands; unaudited) December 31,
2022		 September 30,
2022		 December 31,
2021		 December 31,
2022		 December 31,
2021
Net BaaS loan income divided by average CCBX loans:    
CCBX loan yield (GAAP)  15.20%  13.96%  6.13%  13.85%  4.46%
Total average CCBX loans receivable $994,080  $893,655  $244,038  $742,392  $146,304 
Interest and earned fee income on CCBX loans (GAAP)  38,086   31,449   3,771   102,808   6,532 
Less: loan expense on CCBX loans  (17,215)  (15,560)  (2,368)  (53,294)  (2,976)
Net BaaS loan income $20,871  $15,889  $1,403  $49,514  $3,556 
Net BaaS loan income divided by average CCBX loans  8.33%  7.05%  2.28%  6.67%  2.43%
Net BaaS loan income interest rate spread:          
CCBX interest rate spread (GAAP)  12.07%  12.17%  6.11%  12.28%  4.43%
Net BaaS loan income divided by average CCBX loans  8.33%  7.05%  2.28%  6.67%  2.43%
CCBX cost of funds  3.13%  1.79%  0.02%  1.57%  0.03%
Net BaaS loan income interest rate spread  5.20%  5.26%  2.26%  5.10%  2.40%


APPENDIX A -
As of December 31, 2022

Industry Concentration

We have a diversified loan portfolio, representing a wide variety of industries. Our major categories of loans are commercial real estate, consumer and other loans, residential real estate, commercial and industrial, and construction, land and land development loans. Together they represent $2.63 billion in outstanding loan balances. When combined with $2.29 billion in unused commitments the total of these categories is $4.92 billion.

Commercial real estate loans represent the largest segment of our loans, comprising 39.8% of our total balance of outstanding loans as of December 31, 2022. Unused commitments to extend credit represents an additional $35.8 million, and the combined total exposure in commercial real estate loans represents $1.08 billion, or 22.0% of our total outstanding loans and loan commitments.

The following table summarizes our exposure by industry for our commercial real estate portfolio as of December 31, 2022:

(dollars in thousands; unaudited) Outstanding
Balance		 Available Loan
Commitments		 Total Exposure % of Total Loans
(Outstanding Balance &
Available Commitment)		 Average Loan
Balance		 Number of
Loans
Apartments $215,371 $5,912 $221,283 4.5% $2,564 84
Hotel/Motel  160,938  4,101  165,039 3.4   5,961 27
Office  101,205  3,744  104,949 2.1   1,043 97
Retail  82,257  4,116  86,373 1.8   904 91
Convenience Store  91,075  4,336  95,411 1.9   1,786 51
Mixed use  83,640  4,632  88,272 1.8   950 88
Warehouse  77,716  1,862  79,578 1.6   1,439 54
Manufacturing  38,694  1,780  40,474 0.8   1,138 34
Strip Mall  45,873  —  45,873 0.9   5,734 8
Mini Storage  47,380  1,287  48,667 1.0   2,961 16
Groups < 0.70% of total  104,603  4,005  108,608 2.2   1,260 83
Total $1,048,752 $35,775 $1,084,527 22.0% $1,657 633

Consumer loans comprise 23.2% of our total balance of outstanding loans as of December 31, 2022. Unused commitments to extend credit represents an additional $812.2 million, and the combined total exposure in consumer and other loans represents $1.42 billion, or 28.9% of our total outstanding loans and loan commitments. As illustrated in the table below, our CCBX partners bring in a large number of mostly smaller dollar loans, resulting in an average consumer loan of just $1,400. CCBX consumer loans are underwritten to CCBX credit standards and underwriting of these loans is regularly tested.

The following table summarizes our exposure by industry for our consumer and other loan portfolio as of December 31, 2022:

(dollars in thousands; unaudited) Outstanding
Balance		 Available Loan
Commitments		 Total Exposure (1) % of Total Loans
(Outstanding Balance &
Available Commitment)		 Average Loan
Balance		 Number of
Loans
CCBX consumer loans
Installment loans $320,017 $— $320,017 6.5% $1.5 211,547
Credit cards  279,644  810,419  1,090,063 22.1   1.5 189,642
Lines of credit  4,822  689  5,511 0.1   0.3 14,349
Other loans  2,563  —  2,563 0.1   0.1 17,987
Community bank consumer loans
Lines of credit  162  1,116  1,278 0.0   3.4 47
Installment loans  1,351  —  1,351 0.1   42.2 32
Other loans  212  —  212 0.0   0.6 332
Total $608,771 $812,224 $1,420,995 28.9% $1.4 433,936

(1) Total exposure on CCBX loans is subject to portfolio maximum limits.

Residential real estate loans comprise 17.1% of our total balance of outstanding loans as of December 31, 2022. Unused commitments to extend credit represents an additional $442.2 million, and the combined total exposure in residential real estate loans represents $891.4 million, or 18.1% of our total outstanding loans and loan commitments.

The following table summarizes our exposure by industry for our commercial and industrial loan portfolio as of December 31, 2022:

(dollars in thousands; unaudited) Outstanding
Balance		 Available Loan
Commitments		 Total
Exposure(1)		 % of Total Loans
(Outstanding Balance &
Available Commitment)		 Average Loan
Balance		 Number of
Loans
CCBX residential real estate loans
Home equity line of credit $244,576 $396,652 $641,228 13.0% $28 8,607
Community bank residential real estate loans
Closed end, secured by first liens  178,901  4,625  183,526 3.7   604 296
Home equity line of credit  15,853  39,005  54,858 1.2   79 200
Closed end, second liens  9,827  1,912  11,739 0.2   351 28
Total $449,157 $442,194 $891,351 18.1% $49 9,131

(1) Total exposure on CCBX loans is subject to portfolio maximum limits.

Commercial and industrial loans comprise 11.8% of our total balance of outstanding loans as of December 31, 2022. Unused commitments to extend credit represents an additional $856.6 million, and the combined total exposure in commercial and industrial loans represents $1.17 billion, or 23.8% of our total outstanding loans and loan commitments. Included in commercial and industrial loans is $146.0 million in outstanding capital call lines, with an additional $772.7 million in available loan commitments, which is provided to venture capital firms through one of our CCBX BaaS clients. These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards and the underwriting is reviewed by the Bank on every line.

The following table summarizes our exposure by industry for our commercial and industrial loan portfolio as of December 31, 2022:

(dollars in thousands; unaudited) Outstanding
Balance		 Available Loan
Commitments		 Total Exposure % of Total Loans
(Outstanding Balance &
Available Commitment)		 Average Loan
Balance		 Number of
Loans
Capital Call Lines (1) $146,029 $772,732 $918,761 18.7% $859 170
Construction/Contractor Services  20,714  32,508  53,222 1.1   114 181
Financial Institutions  45,149  —  45,149 0.9   4,104 11
Manufacturing  13,341  4,854  18,195 0.4   222 60
Medical / Dental / Other Care  21,790  2,464  24,254 0.5   726 30
Retail  15,991  6,245  22,236 0.4   26 623
Groups < 0.30% of total  49,614  37,811  87,425 1.8   163 305
Total $312,628 $856,614 $1,169,242 23.8% $227 1,380

(1) Total exposure on CCBX loans is subject to portfolio maximum limits.

Construction, land and land development loans comprise 8.1% of our total balance of outstanding loans as of December 31, 2022. Unused commitments to extend credit represents an additional $142.5 million, and the combined total exposure in construction, land and land development loans represents $356.6 million, or 7.2% of our total outstanding loans and loan commitments.

The following table details our exposure for our construction, land and land development portfolio as of December 31, 2022:

(dollars in thousands; unaudited) Outstanding
Balance		 Available Loan Commitments Total Exposure % of Total Loans
(Outstanding Balance &
Available Commitment)		 Average Loan
Balance		 Number of Loans
Commercial construction $100,714 $100,647 $201,361 4.1% $4,196 24
Residential construction  32,879  26,708  59,587 1.2   865 38
Undeveloped land loans  44,578  7,653  52,231 1.1   2,972 15
Developed land loans  20,167  4,315  24,482 0.5   672 30
Land development  15,717  3,219  18,936 0.3   827 19
Total $214,055 $142,542 $356,597 7.2% $1,699 126


APPENDIX B -
As of December 31, 2022

CCBX – BaaS Reporting Information

During the quarter ended December 31, 2022, $31.2 million was recorded in BaaS credit enhancements related to the provision for loan losses and reserve for unfunded commitments for CCBX partner loans and negative deposit accounts. Agreements with our CCBX partners provide for a credit enhancement provided by the partner which protects the Bank by absorbing incurred losses. In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans and negative deposit accounts. When the provision for loan losses and provision for unfunded commitments is recorded, a receivable is also recorded on the balance sheet through noninterest income (BaaS credit enhancements) in recognition of the CCBX partner legal commitment to cover losses. The receivable is relieved as credit enhancement recoveries are received from the CCBX partner. Agreements with our CCBX partners also provide protection to the Bank from fraud by absorbing incurred fraud losses. Partner fraud includes noncredit fraud losses on loans and deposits originated through partners. Fraud losses are recorded when incurred as losses in noninterest expense, and the enhancement received from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement. CCBX partners also pledge a cash reserve account at the Bank which the Bank can collect from when losses occur that is then replenished by the partner on a regular interval. Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by absorbing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligations to replenish their cash reserve account then the bank would be exposed to additional loan and deposit losses, as a result of this counterparty risk. If a CCBX partner does not replenish their cash reserve account then the Bank can declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. The Bank would write-off any remaining receivable from the CCBX partner but would retain the full yield on the loan going forward, and BaaS loan expense would decrease once default occurred and payments to the CCBX partner were stopped.

For CCBX partner loans the Bank records contractual interest earned from the borrower on loans in interest income, adjusted for origination costs which are paid or payable to the CCBX partner. BaaS loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans. To determine net revenue (Net BaaS loan income) earned from CCBX loan relationships, the Bank takes BaaS loan interest income and deducts BaaS loan expense to arrive at Net BaaS loan income(1) which can be compared to interest income on the Company’s community bank loans.

The following table illustrates how CCBX partner loan income and expenses are recorded in the financial statements:

Loan income and related loan expense Three Months Ended Twelve Months Ended
(dollars in thousands; unaudited) December 31,
2022		 September 30,
2022		 December 31,
2021		 December 31,
2022		 December 31,
2021
Yield on loans (2)  15.20%  13.96%  6.13%  13.85%  4.46%
BaaS loan interest income $38,086  $31,449  $3,771  $102,808  $6,532 
Less: BaaS loan expense  17,215   15,560   2,368   53,294   2,976 
Net BaaS loan income (1)  20,871   15,889   1,403   49,514   3,556 
Net BaaS loan income divided by average BaaS loans (1)  8.33%  7.05%  2.28%  6.67%  2.43%

(1) A reconciliation of the non-GAAP measures are set forth in the preceding section of this earnings release.
(2) Annualized calculation for quarterly periods shown.

The addition of new CCBX partners and increased activity has resulted in increases in interest, direct fees and expenses for the quarter ended December 31, 2022 compared to the quarters ended September 30, 2022 and December 31, 2021. The following tables are a summary of the interest components, direct fees, and expenses of BaaS for the periods indicated and are not inclusive of all income and expense related to BaaS.

Interest income Three Months Ended Twelve Months Ended
(dollars in thousands; unaudited) December 31,
2022		 September 30,
2022		 December 31,
2021		 December 31,
2022		 December 31,
2021
Loan interest income $38,086 $31,449 $3,771 $102,808 $6,532
Total BaaS interest income $38,086 $31,449 $3,771 $102,808 $6,532


Interest expense Three Months Ended Twelve Months Ended
(dollars in thousands; unaudited) December 31,
2022		 September 30,
2022		 December 31,
2021		 December 31,
2022		 December 31,
2021
BaaS interest expense $9,559 $5,075 $34 $16,108 $99
Total BaaS interest expense $9,559 $5,075 $34 $16,108 $99


BaaS income Three Months Ended Twelve Months Ended
(dollars in thousands; unaudited) December 31,
2022		 September 30,
2022		 December 31,
2021		 December 31,
2022		 December 31,
2021
Program income:          
Servicing and other BaaS fees $1,001 $1,079 $1,421 $4,408 $4,467
Transaction fees  964  940  280  3,211  544
Interchange fees  785  738  368  2,583  701
Reimbursement of expenses  857  885  295  2,732  1,004
Program income  3,607  3,642  2,364  12,934  6,716
Indemnification income:          
Credit enhancements  31,164  17,928  9,076  76,374  9,086
Fraud enhancements  6,818  11,708  1,209  29,571  1,505
Indemnification income  37,982  29,636  10,285  105,945  10,591
Total BaaS income $41,589 $33,278 $12,649 $118,879 $17,307


BaaS loan and fraud expense Three Months Ended Twelve Months Ended
(dollars in thousands; unaudited) December 31,
2022		 September 30,
2022		 December 31,
2021		 December 31,
2022		 December 31,
2021
BaaS loan expense $17,215 $15,560 $2,368 $53,294 $2,976
BaaS fraud expense  6,819  11,707  1,209  29,571  1,505
Total BaaS loan and fraud expense $24,034 $27,267 $3,577 $82,865 $4,481


(1) A reconciliation of the non-GAAP measures are set forth in the preceding section of this earnings release.


FAQ

What were Coastal Financial Corporation's Q4 2022 net income figures?

Coastal Financial Corporation reported a Q4 2022 net income of $13.1 million, or $0.96 per diluted common share.

How did total revenue perform in 2022 for CCB?

Total revenue for Coastal Financial Corporation increased 147.3% in 2022, reaching $190.5 million.

What was the loan growth percentage for CCB in Q4 2022?

Coastal Financial Corporation's loan growth in Q4 2022 was 4.8%, amounting to an increase of $119.4 million.

What impact did interest rates have on Coastal Financial's expenses?

Interest expense for Coastal Financial Corporation rose by $10.8 million year-over-year due to higher interest rates.

How much did community bank deposits decrease in 2022?

Community bank deposits for Coastal Financial Corporation decreased by 6.6% to $1.54 billion in 2022.

Stock CCB logo
Coastal Financial Corporation

NASDAQ:CCB

CCB Rankings

#2570 Ranked by Market Cap
N/A Ranked by Dividends

CCB Latest News

Oct 28, 2024
Coastal Financial Corporation Announces Third Quarter 2024 Results
Oct 3, 2024
Coastal Community Bank Appoints President of CCBX Division
Jul 29, 2024
Coastal Financial Corporation Announces Second Quarter 2024 Results
Apr 29, 2024
Coastal Financial Corporation Announces First Quarter 2024 Results
Feb 2, 2024
Jason Wingo Joins Coastal Community Bank as Head of BSA/AML Strategy and Solution Management

CCB Stock Data

1.02B
11.03M
18.56%
63.24%
2.46%
Banks - Regional
State Commercial Banks
Link
United States of America
EVERETT