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Coastal Financial Corporation Announces Second Quarter 2024 Results

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Coastal Financial announced its second-quarter 2024 results, highlighting substantial growth. Net income rose to $11.6 million ($0.84 per diluted share) from $6.8 million ($0.50 per share) in Q1 2024. Total assets increased by $96.3 million to $3.96 billion, while total loans rose by $126.9 million to $3.33 billion, mainly driven by a $98.1 million increase in CCBX loans. Deposits grew by $80.5 million to $3.54 billion, with community bank deposits increasing by $52.9 million. Net interest margin improved to 7.13%, up from 6.78% in the previous quarter. ROA and ROE increased to 1.21% and 15.22%, respectively. The yield on loans climbed to 11.23%, and the cost of deposits rose to 3.58%. The report also emphasized the sale of $155.2 million in CCBX loans and a focus on maintaining strong credit quality.

Coastal Financial ha annunciato i risultati del secondo trimestre 2024, evidenziando una crescita significativa. L'utile netto è aumentato a 11,6 milioni di dollari (0,84 dollari per azione diluita) rispetto ai 6,8 milioni di dollari (0,50 dollari per azione) nel primo trimestre 2024. Il totale degli attivi è cresciuto di 96,3 milioni di dollari, raggiungendo 3,96 miliardi di dollari, mentre il totale dei prestiti è aumentato di 126,9 milioni di dollari, raggiungendo 3,33 miliardi di dollari, principalmente grazie a un incremento di 98,1 milioni di dollari nei prestiti CCBX. I depositi sono cresciuti di 80,5 milioni di dollari, arrivando a 3,54 miliardi di dollari, con un aumento di 52,9 milioni di dollari nei depositi delle banche comunitarie. Il margine di interesse netto è migliorato al 7,13%, rispetto al 6,78% del trimestre precedente. ROA e ROE sono aumentati rispettivamente all'1,21% e al 15,22%. Il rendimento sui prestiti è salito all'11,23%, mentre il costo dei depositi è aumentato al 3,58%. Il report ha inoltre sottolineato la vendita di prestiti CCBX per 155,2 milioni di dollari e l'impegno a mantenere una forte qualità del credito.

Coastal Financial anunció sus resultados del segundo trimestre de 2024, destacando un crecimiento sustancial. El ingreso neto aumentó a 11,6 millones de dólares (0,84 dólares por acción diluida) desde los 6,8 millones de dólares (0,50 dólares por acción) en el primer trimestre de 2024. Los activos totales aumentaron en 96,3 millones de dólares, alcanzando los 3,96 mil millones de dólares, mientras que los préstamos totales crecieron en 126,9 millones de dólares, llegando a 3,33 mil millones de dólares, impulsados principalmente por un incremento de 98,1 millones de dólares en los préstamos CCBX. Los depósitos crecieron en 80,5 millones de dólares, alcanzando los 3,54 mil millones de dólares, con un aumento de 52,9 millones de dólares en los depósitos de los bancos comunitarios. El margen de interés neto mejoró al 7,13%, subiendo desde el 6,78% del trimestre anterior. El ROA y el ROE aumentaron al 1,21% y al 15,22%, respectivamente. El rendimiento de los préstamos subió al 11,23%, y el costo de los depósitos aumentó al 3,58%. El informe también destacó la venta de préstamos CCBX por un valor de 155,2 millones de dólares y un enfoque en mantener una sólida calidad crediticia.

코스탈 파이낸셜이 2024년 2분기 실적을 발표하며 상당한 성장을 강조했습니다. 순이익은 1160만 달러 (희석주당 0.84 달러)로, 2024년 1분기의 680만 달러 (주당 0.50 달러)에서 증가했습니다. 총 자산은 9,630만 달러 증가하여 39억 6천만 달러에 이르렀으며, 총 대출은 1억 2,690만 달러 증가하여 33억 3천만 달러로, 주로 CCBX 대출에서 9,810만 달러 증가가 주효했습니다. 예금은 8,050만 달러 증가하여 35억 4천만 달러에 도달했으며, 커뮤니티 은행 예금은 5,290만 달러 증가했습니다. 순이자 마진은 7.13%로 개선되었으며, 이는 이전 분기 6.78%에서 상승했습니다. ROA와 ROE는 각각 1.21% 및 15.22%로 증가했습니다. 대출 수익률은 11.23%로 상승했으며, 예금 비용은 3.58%로 증가했습니다. 보고서는 또한 CCBX 대출 1억 5,520만 달러의 판매와 강력한 신용 품질 유지를 위한 노력을 강조했습니다.

Coastal Financial a annoncé ses résultats du deuxième trimestre 2024, soulignant une croissance substantielle. Le revenu net a augmenté à 11,6 millions de dollars (0,84 dollar par action diluée) contre 6,8 millions de dollars (0,50 dollar par action) au premier trimestre 2024. Les actifs totaux ont augmenté de 96,3 millions de dollars pour atteindre 3,96 milliards de dollars, tandis que les prêts totaux ont crû de 126,9 millions de dollars, atteignant 3,33 milliards de dollars, principalement grâce à une augmentation de 98,1 millions de dollars des prêts CCBX. Les dépôts ont augmenté de 80,5 millions de dollars pour atteindre 3,54 milliards de dollars, avec une hausse de 52,9 millions de dollars des dépôts des banques communautaires. La marge d'intérêt nette s'est améliorée à 7,13%, contre 6,78% au trimestre précédent. Le ROA et le ROE ont respectivement augmenté à 1,21% et 15,22%. Le rendement des prêts a grimpé à 11,23%, tandis que le coût des dépôts a augmenté à 3,58%. Le rapport a également souligné la vente de 155,2 millions de dollars de prêts CCBX et l'accent mis sur le maintien d'une solide qualité de crédit.

Coastal Financial hat seine Ergebnisse für das zweite Quartal 2024 bekannt gegeben und dabei ein erhebliches Wachstum hervorgehoben. Der Nettogewinn stieg auf 11,6 Millionen Dollar (0,84 Dollar pro verwässerter Aktie) im Vergleich zu 6,8 Millionen Dollar (0,50 Dollar pro Aktie) im ersten Quartal 2024. Die Gesamtvermögenswerte erhöhten sich um 96,3 Millionen Dollar auf 3,96 Milliarden Dollar, während die Gesamtvergabe von Krediten um 126,9 Millionen Dollar auf 3,33 Milliarden Dollar anstieg, hauptsächlich bedingt durch einen Anstieg von 98,1 Millionen Dollar bei den CCBX-Krediten. Die Einlagen wuchsen um 80,5 Millionen Dollar auf 3,54 Milliarden Dollar, wobei die Einlagen der Gemeinschaftsbanken um 52,9 Millionen Dollar zunahmen. Die Nettomarge verbesserte sich auf 7,13%, im Vergleich zu 6,78% im vorherigen Quartal. ROA und ROE stiegen auf 1,21% bzw. 15,22%. Die Rendite der Kredite kletterte auf 11,23%, während die Kosten der Einlagen auf 3,58% anstiegen. Der Bericht hob außerdem den Verkauf von CCBX-Darlehen über 155,2 Millionen Dollar hervor und betonte den Fokus auf die Aufrechterhaltung einer starken Kreditqualität.

Positive
  • Net income increased to $11.6 million from $6.8 million in Q1 2024.
  • Total assets grew by $96.3 million to $3.96 billion.
  • Total loans increased by $126.9 million to $3.33 billion.
  • Deposits rose by $80.5 million to $3.54 billion.
  • Net interest margin improved to 7.13% from 6.78%.
  • ROA and ROE increased to 1.21% and 15.22%, respectively.
Negative
  • Cost of deposits increased to 3.58% from 3.49%.

Insights

Coastal Financial 's Q2 2024 results demonstrate solid performance and growth, with some notable highlights:

  • Net income increased to $11.6 million ($0.84 per diluted share), up from $6.8 million in Q1 2024.
  • ROA improved to 1.21%, up from 0.73% in Q1.
  • Net interest margin expanded to 7.13%, compared to 6.78% in Q1.
  • Total assets grew 2.5% to $3.96 billion.
  • Total loans increased 4.0% to $3.33 billion, with growth in both community bank and CCBX segments.
  • Deposits rose 2.3% to $3.54 billion, with growth in both segments as well.

The company's improved profitability metrics and balance sheet growth are positive signs. The expansion in net interest margin is particularly noteworthy in the current rate environment. However, it's important to note the increase in cost of deposits to 3.58%, up from 3.49% in Q1, reflecting competitive pressures.

The company's strategic focus on managing credit risk is evident in their sale of $155.2 million in CCBX loans during the quarter. While this may impact short-term growth, it demonstrates a prudent approach to risk management.

Liquidity appears strong, with $487.2 million in cash and $650.1 million in borrowing capacity, which exceeds uninsured deposits of $532.9 million.

Overall, Coastal Financial shows resilience and adaptability in a challenging banking environment, but investors should monitor deposit costs and credit quality closely in future quarters.

Coastal Financial's Q2 results highlight the company's success in navigating the complex Banking-as-a-Service (BaaS) landscape while maintaining a strong community banking presence. Key observations include:

  • CCBX (BaaS) segment showed robust growth, with loans increasing 7.4% to $1.41 billion.
  • Community bank loans grew 1.5% to $1.91 billion, reversing previous declining trends.
  • CCBX deposits grew 1.4%, while community bank deposits increased 3.7%.
  • The company is actively managing its CCBX portfolio, selling $155.2 million in loans to optimize risk and credit quality.

The divergence in yields between CCBX loans (17.77%) and community bank loans (6.52%) is striking. While CCBX loans offer higher yields, they also come with higher costs and risks, as evidenced by the BaaS loan expense of 8.58%.

The company's strategy of balancing high-yield CCBX business with traditional community banking appears to be paying off, but it's not without challenges. The overall cost of deposits increased to 3.58%, with CCBX deposits costing 4.92% compared to 1.77% for community bank deposits.

Coastal's approach to managing interest rate risk by positioning the balance sheet for expected rate changes is prudent, especially given the current volatile rate environment.

The significant increase in BaaS program income and credit enhancements demonstrates the growing importance of this segment to Coastal's business model. However, the complexity and potential risks associated with BaaS partnerships require ongoing vigilance and risk management.

In summary, Coastal Financial is successfully leveraging its dual strategy of traditional banking and BaaS, but the inherent complexities and risks of the BaaS model warrant continued close attention from investors and management alike.

Second Quarter 2024 Highlights:

  • Net income of $11.6 million, or $0.84 per diluted common share, for the three months ended June 30, 2024, compared to $6.8 million, or $0.50 per diluted common share, for the three months ended March 31, 2024.
    • Return on average assets ("ROA") of 1.21% for the three months ended June 30, 2024, compared to 0.73% for the three months ended March 31, 2024.
    • Return on average equity ("ROE") of 15.22% for the three months ended June 30, 2024 compared to 9.21% for the three months ended March 31, 2024.
  • Net interest margin increased to 7.13% for the quarter ended June 30, 2024, compared to 6.78% for the quarter ended March 31, 2024.
    • Yield on loans receivable increased 0.38% to 11.23% for the quarter ended June 30, 2024, compared to 10.85% for the quarter ended March 31, 2024.
    • Cost of deposits increased 0.09% to 3.58% for the quarter ended June 30, 2024, compared to 3.49% for the quarter ended March 31, 2024.
  • Total assets increased $96.3 million, or 2.5%, to $3.96 billion for the quarter ended June 30, 2024, compared to $3.87 billion at March 31, 2024.
  • Total loans, net of deferred fees increased $126.9 million, or 4.0%, to $3.33 billion for the quarter ended June 30, 2024 compared to the quarter ended March 31, 2024.
    • Community bank loans increased $28.8 million, or 1.5%, to $1.91 billion.
    • CCBX loans increased $98.1 million, or 7.4%, to $1.41 billion.
      • Enhanced credit standards on new CCBX loan originations.
      • Effective April 1, 2024, exposure was reduced from 10% to 5% on the CCBX portfolio that the Company is responsible for losses on.   
  • Total of $155.2 million in CCBX loans sold during the quarter ended June 30, 2024. The Company will continue to sell loans as part of our strategy to reduce risk, optimize the CCBX loan portfolio, maintain strong credit quality, and manage portfolio and partner limits.
  • Deposits increased $80.5 million, or 2.3%, to $3.54 billion for the quarter ended June 30, 2024.
    • CCBX deposit growth of $27.5 million, or 1.4%, to $2.06 billion.
      • CCBX deposit growth excludes the $117.7 million in CCBX deposits that were transferred off balance sheet for increased Federal Deposit Insurance Corporation ("FDIC") insurance coverage purposes, compared to $92.2 million for the quarter ended March 31, 2024. Amounts in excess of FDIC insurance coverage are transferred, using a third party facilitator/vendor sweep product, to participating financial institutions.
    • Community bank deposits increased $52.9 million, or 3.7%, to $1.49 billion, after two quarters of declining balances.
      • Includes noninterest bearing deposits of $531.6 million or 35.7% of total community bank deposits.
      • Community bank cost of deposits was 1.77% compared to 1.66% for the quarter ended March 31, 2024.
    • Uninsured deposits of $532.9 million, or 15.0% of total deposits as of June 30, 2024, compared to $495.6 million, or 14.3% of total deposits as of March 31, 2024.
  • We have taken steps to ensure our balance sheet is well positioned to handle upcoming expected interest rate changes and continue to improve our position in a declining interest rate environment for the quarters ended March 31, 2024 and June 30, 2024 compared to the quarter ended December 31, 2023.
  • Liquidity/Borrowings as of June 30, 2024:
    • Capacity to borrow up to $650.1 million from Federal Home Loan Bank and the Federal Reserve Bank discount window with no borrowings on these lines at June 30, 2024 and only minimal borrowings, taken to test the lines, under these facilities since the first quarter of 2022.

EVERETT, Wash., July 29, 2024 (GLOBE NEWSWIRE) -- Coastal Financial Corporation (Nasdaq: CCB) (the “Company”, "Coastal", "we", "our", or "us"), the holding company for Coastal Community Bank (the “Bank”), today reported unaudited financial results for the quarter ended June 30, 2024. 

Quarterly net income for the second quarter of 2024 was $11.6 million, or $0.84 per diluted common share, compared with net income of $6.8 million, or $0.50 per diluted common share, for the first quarter of 2024, and $12.9 million, or $0.95 per diluted common share, for the quarter ended June 30, 2023. 

Total assets increased $96.3 million, or 2.5%, during the second quarter of 2024 to $3.96 billion, from $3.87 billion at March 31, 2024. Total loans, net of deferred fees increased $126.9 million, or 4.0%, during the three months ended June 30, 2024 to $3.33 billion, compared to $3.20 billion at March 31, 2024. CCBX loans increased $98.1 million, or 7.4%, primarily as a result of a $107.4 million increase in consumer and other loans, partially offset by a decrease of $26.5 million in capital call lines, as a result of normal fluctuations. CCBX loan growth is net of $155.2 million in CCBX loans sold during the quarter ended June 30, 2024. We will continue to sell loans back to our CCBX partners, pursuant to the applicable partner agreement, as part of our strategy to reduce risk, optimize the CCBX loan portfolio, maintain strong credit quality, and manage portfolio and partner limits.

We saw solid deposit growth in the second quarter, with deposits increasing $80.5 million, or 2.3%, compared to March 31, 2024. CCBX deposits grew $27.5 million, or 1.4%. Community bank deposits increased $52.9 million, or 3.7%, after two consecutive quarters of declining balances primarily as a result of letting some of our higher rate deposits run-off during those quarters. Fully insured IntraFi network reciprocal deposits increased $15.5 million to $352.3 million as of June 30, 2024, compared to $336.8 million as of March 31, 2024. These fully insured reciprocal deposits allow our larger deposit customers to fully insure their deposits through a reciprocal agreement with other banks. We continue to monitor our liquidity position through diligent management of our liquid assets and liabilities as well as maintaining access to alternative sources of funds. As of June 30, 2024, we had $487.2 million in cash on the balance sheet and the capacity to borrow up to $650.1 million from Federal Home Loan Bank and the Federal Reserve Bank discount window, and an additional $50.0 million from a correspondent bank, with no borrowings occurring, except minimal amounts borrowed to test the lines, under these facilities since the first quarter of 2022. Cash on the balance sheet and total borrowing capacity totaled $1.19 billion, which represented 33.5% of total deposits and exceeded our $532.9 million in uninsured deposits as of June 30, 2024.

"We are happy to report that we have experienced robust loan growth of $126.9 million for the quarter ended June 30, 2024. This growth can be attributed to our strong relationships with existing CCBX partners and successful efforts to attract new community bank borrowers. We are pleased to report that we are maintaining our strong credit quality, and our portfolio is performing as expected. This is a testament to our diligent risk management practices and proactive measures to optimize our loan portfolio.

We have taken steps to manage our balance sheet and we believe it is well positioned to handle upcoming expected interest rate changes. This involves carefully managing our interest rate risk exposure and implementing strategies to mitigate any adverse impacts on our financial performance from interest rate changes. By closely monitoring market trends and leveraging our expertise in financial analysis, we believe we are well positioned to adapt to changing interest rate environments.

In late 2023 and early 2024, we took proactive measures to enhance the credit quality of our CCBX loans by selling higher rate and higher risk loans. This strategic decision, although it resulted in a short-term reduction in income, is expected to result in long-term stability and success. By focusing on the quality of our loan portfolio, we believe that we are well positioned to achieve our goals and deliver sustainable financial performance in the future.

We believe our organization's strong credit quality, neutral to slightly liability sensitive balance sheet, robust loan and deposit growth, and proactive risk management measures demonstrate our commitment to maintaining a solid financial position. We remain confident in our ability to navigate changing market conditions and achieve long-term success in the BaaS and community bank space," stated Eric Sprink, the CEO of the Company and the Bank.

Overview

The Company has one main subsidiary, the Bank which consists of three segments: CCBX, the community bank and treasury & administration.  The CCBX segment includes all of our BaaS activities, the community bank segment includes all community banking activities, and the treasury & administration segment includes treasury management, overall administration and all other aspects of the Company.  

Net interest income was $66.2 million for the quarter ended June 30, 2024, an increase of $5.3 million, or 8.7%, from $60.9 million for the quarter ended March 31, 2024, and an increase of $3.9 million, or 6.2%, from $62.4 million for the quarter ended June 30, 2023.  Yield on loans receivable was 11.23% for the three months ended June 30, 2024, compared to 10.85% for the three months ended March 31, 2024 and June 30, 2023.  Cost of deposits was 3.58% for the three months ended June 30, 2024, compared to 3.49% for the three months ended March 31, 2024 and 2.72% for the three months ended June 30, 2023. The increase in net interest income compared to March 31, 2024, was a result of increased interest income due to an increase in average loans receivable partially offset by an increase in cost of deposits as a result of deposit portfolio composition and competitive pressures. The increase in net interest income compared to June 30, 2023 was largely related to increased yield on loans resulting from higher interest rates and growth in higher yielding loans.  Total average loans receivable for the three months ended June 30, 2024 was $3.26 billion, compared to $3.14 billion for the three months ended March 31, 2024, and $2.97 billion for the three months ended June 30, 2023.

Interest and fees on loans totaled $90.9 million for the three months ended June 30, 2024 compared to $84.6 million and $80.2 million for the three months ended March 31, 2024 and June 30, 2023, respectively.  Total loans, net of deferred fees increased $126.9 million, or 4.0%, during the quarter ended June 30, 2024, which included a $98.1 million increase in CCBX loans and an increase of $28.8 million in community bank loans. The increase in CCBX loans includes an increase of $107.4 million, or 12.4%, in consumer and other loans, $22.8 million increase in residential real estate loans and a decrease of $26.5 million, or 19.6%, in capital call lines as a result of normal balance fluctuations and business activities.  We continue to monitor and manage the CCBX loan portfolio, and sold $155.2 million in CCBX loans during the quarter ended June 30, 2024 to reduce credit exposure in certain loan categories and manage credit risk, compared to sales of $100.5 million in the quarter ended March 31, 2024. We continue to reposition ourselves by managing CCBX credit and concentration levels in an effort to optimize our loan portfolio. The increase in interest and fees on loans compared to the quarter ended March 31, 2024 was largely due to loan growth in higher yielding loans. The increase compared to the quarter ended June 30, 2023 was also largely due to growth in higher yielding loans.  The FOMC has increased rates 0.25% since June 30, 2023 and last raised the target Federal Funds rate 0.25% on July 26, 2023. Loans have been repricing at these higher rates for almost a year.

Interest income from interest earning deposits with other banks was $5.7 million for the quarter ended June 30, 2024, an increase of $903,000 compared to March 31, 2024, due to an increase in average balance and an increase of $3.0 million compared to June 30, 2023 due to an increase in average balance and higher interest rates.  The average balance of interest earning deposits with other banks for the three months ended June 30, 2024 was $418.2 million, compared to $350.9 million and $211.4 million for the three months ended March 31, 2024 and June 30, 2023, respectively.  The average yield on these interest earning deposits with other banks decreased nominally to 5.47% for the quarter ended June 30, 2024, compared to 5.48% for the quarter ended March 31, 2024 and increased from 5.08% in the quarter ended June 30, 2023.

Total interest expense was $31.3 million for the quarter ended June 30, 2024, a $1.7 million increase from the quarter ended March 31, 2024 and a $9.9 million increase from the quarter ended June 30, 2023. Interest expense on deposits was $30.6 million for the quarter ended June 30, 2024, compared to $28.9 million for the quarter ended March 31, 2024 and $20.7 million for the quarter ended June 30, 2023. Interest expense on interest bearing deposits increased $1.7 million for the quarter ended June 30, 2024, compared to the quarter ended March 31, 2024, and $9.9 million compared to the quarter ended June 30, 2023 as a result of an increase in CCBX deposits that are tied to, and reprice when the FOMC raises rates. Similarly, most of our CCBX loans also reprice when the FOMC raises interest rates. Interest expense on borrowed funds was $672,000 for the quarter ended June 30, 2024, compared to $669,000 and $661,000 for the quarters ended March 31, 2024 and June 30, 2023, respectively. The $11,000 increase in interest expense on borrowed funds from the quarter ended June 30, 2023 is the result of an increase in interest rates.

Total cost of deposits was 3.58% for the three months ended June 30, 2024, compared to 3.49% for the three months ended March 31, 2024, and 2.72%, for the three months ended June 30, 2023. Community bank and CCBX cost of deposits were 1.77% and 4.92% respectively, for the three months ended June 30, 2024, compared to 1.66% and 4.93%, for the three months ended March 31, 2024, and 0.98% and 4.42% for the three months ended June 30, 2023. The increase in cost of deposits for the three months ended June 30, 2024 compared to the prior periods for both segments is a result of the continued higher interest rate environment. While we continue working to hold down deposit costs, the higher interest rate environment has impacted our cost of deposits and resulted in higher interest expense on interest bearing deposits as we work to retain and grow our community bank deposits and CCBX deposits continue to grow as a percent of total deposits.

Net Interest Margin

Net interest margin was 7.13% for the three months ended June 30, 2024, compared to 6.78% for the three months ended March 31, 2024.  The increase in net interest margin compared to the three months ended March 31, 2024 was primarily due to higher loan yields. Net interest margin was 7.58% for the three months ended June 30, 2023. The decrease in net interest margin for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was largely due to an increase in cost of deposits, partially offset by an increase in loan yield. Increases in rates on interest bearing deposits by our competitors and the growth in higher cost CCBX deposits contributed to an overall increase in interest expense on interest bearing deposits.    Interest and fees on loans receivable increased $6.3 million, or 7.5%, to $90.9 million for the three months ended June 30, 2024, compared to $84.6 million for the three months ended March 31, 2024, and increased $10.7 million, or 13.4%, compared to $80.2 million for the three months ended June 30, 2023, due to an increase in outstanding balances and higher interest rates.  Compared to the three months ended June 30, 2023, there was a $3.0 million increase in interest on interest earning deposits held at other financial institutions.  These interest earning deposits earned an average rate of 5.47% for the quarter ended June 30, 2024, compared to 5.48% and 5.08% for the quarters ended March 31, 2024 and June 30, 2023, respectively.  Average investment securities decreased $65.6 million to $49.8 million compared to the three months ended March 31, 2024 and decreased $60.5 million compared to the three months ended June 30, 2023 as a result of $100.0 million in AFS U.S. Treasury securities that matured on February 29, 2024. Interest on investment securities decreased $348,000 for the three months ended June 30, 2024 compared to the three months ended March 31, 2024 as a result of the maturing Treasury securities. Interest on total investment securities increased $33,000 compared to June 30, 2023, as a result of increased yield.  These increases in interest income were partially offset by increases in interest expense on interest bearing deposits, as previously discussed.

Cost of funds was 3.60% for the quarter ended June 30, 2024, an increase of 8 basis points from the quarter ended March 31, 2024 and an increase of 83 basis points from the quarter ended June 30, 2023. Cost of deposits for the quarter ended June 30, 2024 was 3.58%, compared to 3.49% for the quarter ended March 31, 2024, and 2.72% for the quarter ended June 30, 2023. The increased cost of funds and deposits compared to March 31, 2024 and June 30, 2023 was due to the increase in interest rates compared to the previous periods and growth in higher rate CCBX deposits.

During the quarter ended June 30, 2024, total loans receivable increased by $126.9 million, or 4.0%, to $3.33 billion, compared to $3.20 billion for the quarter ended March 31, 2024.  This increase consists of a $98.1 million increase in CCBX loans and $28.8 million in community bank loan growth. Total loans receivable as of June 30, 2024 increased $318.9 million compared to June 30, 2023.  This increase includes community bank loan growth of $199.0 million and an increase in CCBX loans of $119.9 million. During the quarter ended June 30, 2024, $155.2 million in CCBX loans were sold, compared to sales of $100.5 million in the quarter ended March 31, 2024.

Total yield on loans receivable for the quarter ended June 30, 2024 was 11.23%, compared to 10.85% for the quarters ended March 31, 2024 and June 30, 2023. During the quarter ended June 30, 2024, community bank loans increased 1.5%, or $28.8 million, to $1.91 billion compared to $1.88 billion at March 31, 2024, with an average yield of 6.52%. CCBX loans outstanding increased 7.4%, or $98.1 million, to $1.41 billion compared to $1.32 billion at March 31, 2024, with an average CCBX yield of 17.77%. 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 originating & servicing CCBX loans.  

The following table summarizes the average yield on loans receivable and cost of deposits for our community bank and CCBX segments for the periods indicated:

  For the Three Months Ended For the Six Months Ended
  June 30, 2024 March 31, 2024 June 30, 2023 June 30, 2024 June 30, 2023
  Yield on
Loans (2)		 Cost of
Deposits (2)		 Yield on
Loans (2)		 Cost of
Deposits (2)		 Yield on
Loans (2)		 Cost of
Deposits (2)		 Yield on
Loans (2)		 Cost of
Deposits (2)		 Yield on
Loans (2)		 Cost of
Deposits (2)
Community Bank 6.52% 1.77% 6.46% 1.66% 6.28% 0.98% 6.49% 1.71% 6.13% 0.82%
CCBX (1) 17.77% 4.92% 17.34% 4.93% 16.95% 4.42% 17.56% 4.92% 16.56% 4.18%
Consolidated 11.23% 3.58% 10.85% 3.49% 10.85% 2.72% 11.04% 3.53% 10.42% 2.44%

(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 originating & 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. 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)  Annualized calculations for periods shown.

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

  For the Three Months Ended
  June 30, 2024 March 31, 2024 June 30, 2023
(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 $60,203 17.77% $54,569 17.34% $53,632 16.95%
Less: BaaS loan expense  29,076 8.58%  24,837 7.89%  22,033 6.96%
Net BaaS loan income (1) $31,127 9.19% $29,732 9.45% $31,599 9.98%
Average BaaS Loans(3) $1,362,343   $1,265,857   $1,269,406  


  For the Six Months Ended
  June 30, 2024 June 30, 2023
(dollars in thousands; unaudited) Income /
Expense		 Income / expense
divided by
average CCBX
loans (2)		 Income /
Expense		 Income / expense
divided by
average CCBX
loans (2)
BaaS loan interest income $114,772 17.56% $95,851 16.56%
Less: BaaS loan expense  53,913 8.25%  39,587 6.84%
Net BaaS loan income (1) $60,859 9.31% $56,264 9.72%
Average BaaS Loans(3) $1,314,099   $1,167,366  

(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. 
(3) Includes loans held for sale.

Key Performance Ratios

ROA was 1.21% for the quarter ended June 30, 2024 compared to 0.73% and 1.52% for the quarters ended March 31, 2024 and June 30, 2023, respectively.  ROA for the quarter ended June 30, 2024, was up 0.48% and down 0.31% compared to March 31, 2024 and June 30, 2023, respectively. Noninterest expenses were higher for the quarter ended June 30, 2024 compared to the quarters ended March 31, 2024 and June 30, 2023 due to an increase in BaaS loan expense, which is directly related to interest earned on CCBX loans. Noninterest expense excluding Baas loan and fraud expense was lower for the quarter ended June 30, 2024 compared to the quarters ended March 31, 2024 and June 30, 2023 largely due to the $1.2 million credit for business and occupation taxes paid on CCBX income that was sourced/allocated outside the State of Washington for years 2019 through 2022.

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

  Three Months Ended Six Months Ended
(unaudited) June 30,
2024		 March 31,
2024		 December 31,
2023		 September 30,
2023		 June 30,
2023		 June 30,
2024		 June 30,
2023
               
Return on average assets (1) 1.21% 0.73% 0.97% 1.13% 1.52% 0.98% 1.55%
Return on average equity (1) 15.22% 9.21% 12.35% 14.60% 19.53% 12.26% 19.70%
Yield on earnings assets (1) 10.49% 10.07% 9.77% 10.08% 10.18% 10.28% 9.70%
Yield on loans receivable (1) 11.23% 10.85% 10.71% 10.84% 10.85% 11.04% 10.42%
Cost of funds (1) 3.60% 3.52% 3.39% 3.18% 2.77% 3.56% 2.49%
Cost of deposits (1) 3.58% 3.49% 3.36% 3.14% 2.72% 3.53% 2.44%
Net interest margin (1) 7.13% 6.78% 6.61% 7.10% 7.58% 6.96% 7.37%
Noninterest expense to average assets (1) 6.14% 6.04% 5.56% 6.23% 6.11% 6.09% 5.91%
Noninterest income to average assets (1) 7.30% 9.38% 6.95% 3.81% 6.90% 8.32% 6.60%
Efficiency ratio 43.19% 37.88% 41.58% 58.36% 42.92% 40.43% 42.97%
Loans receivable to deposits (2) 93.88% 92.42% 90.05% 90.19% 96.23% 93.88% 96.23%

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

Noninterest Income

The following table details noninterest income for the periods indicated:

  Three Months Ended
  June 30, March 31, June 30,
(dollars in thousands; unaudited) 2024 2024 2023
Deposit service charges and fees $946 $908 $989
Loan referral fees  —  168  682
Unrealized gain (loss) on equity securities, net  9  15  155
Gain on sales of loans, net  —  —  23
Other  257  308  234
Noninterest income, excluding BaaS program income and BaaS indemnification income  1,212  1,399  2,083
Servicing and other BaaS fees  1,525  1,131  895
Transaction fees  1,309  1,122  1,052
Interchange fees  1,625  1,539  975
Reimbursement of expenses  1,637  1,033  1,026
BaaS program income  6,096  4,825  3,948
BaaS credit enhancements  60,826  79,808  51,027
Baas fraud enhancements  1,784  923  1,537
BaaS indemnification income  62,610  80,731  52,564
Total BaaS income  68,706  85,556  56,512
Total noninterest income $69,918 $86,955 $58,595
 

Noninterest income was $69.9 million for the three months ended June 30, 2024, a decrease of $17.1 million from $87.0 million for the three months ended March 31, 2024, and a increase of $11.3 million from $58.6 million for the three months ended June 30, 2023.  The decrease in noninterest income over the quarter ended March 31, 2024 was primarily due to a decrease of $16.9 million in total BaaS income.  The $16.9 million decrease in total BaaS income included a $19.0 million decrease in BaaS credit enhancements related to the provision for credit losses, partially offset by a $861,000 increase in BaaS fraud enhancements, and an increase of $1.3 million in BaaS program income. The increase in BaaS program income is largely due to higher servicing and other BaaS fees, transaction fees and interchange fees and our primary BaaS source for recurring fee income (see “Appendix B” for more information on the accounting for BaaS allowance for credit losses and credit and fraud enhancements). Additionally, community bank loan referral fees decreased $168,000 due to the continued high interest rate environment. Other income decreased $51,000 largely due to a decrease in SBA servicing fees. The $11.3 million increase in noninterest income over the quarter ended June 30, 2023 was primarily due to a $10.0 million increase in BaaS credit and fraud enhancements, an increase of $2.1 million in BaaS program income, partially offset by a decrease of $682,000 in loan referral fees.

Our CCBX segment continues to evolve, and we have 21 relationships, at varying stages, as of June 30, 2024.  We continue to refine the criteria for CCBX partnerships and are exiting relationships where it makes sense and are focusing on larger more established partners, with experienced management teams, existing customer bases and strong financial positions.

We launched two new lending products through our CCBX segment in the first quarter of 2024 that can reach wide, established customer bases. One was a point-of-sale installment loan program. These loans are fully disclosed and offered as standard credit products, which we believe will minimize the concerns raised with respect to more typical point of sale "Buy Now Pay Later" offerings. The second product was a new credit card that will be marketed to CCBX partner customers who satisfy heightened underwriting standards.

The following table illustrates the activity and evolution in CCBX relationships for the periods presented.

  As of
(unaudited) June 30, 2024March 31, 2024June 30, 2023
Active 191918
Friends and family / testing 111
Implementation / onboarding 111
Signed letters of intent 001
Wind down - active but preparing to exit relationship 001
Total CCBX relationships 212122


The following table details noninterest expense for the periods indicated:

Noninterest Expense

  Three Months Ended
  June 30, March 31, June 30,
(dollars in thousands; unaudited)  2024   2024  2023
Salaries and employee benefits $17,005  $17,984 $16,309
Legal and professional expenses  3,631   3,672  4,645
Data processing and software licenses  2,924   2,892  1,972
Occupancy  1,686   1,518  1,143
Point of sale expense  852   869  814
Director and staff expenses  470   400  519
FDIC assessments  690   683  570
Excise taxes  (706)  320  531
Marketing  14   53  115
Other  1,383   1,867  1,722
Noninterest expense, excluding BaaS loan and BaaS fraud expense  27,949   30,258  28,340
BaaS loan expense  29,076   24,837  22,033
BaaS fraud expense  1,784   923  1,537
BaaS loan and fraud expense  30,860   25,760  23,570
Total noninterest expense $58,809  $56,018 $51,910
 

Total noninterest expense increased $2.8 million to $58.8 million for the three months ended June 30, 2024, compared to $56.0 million for the three months ended March 31, 2024, and increased $6.9 million from $51.9 million for the three months ended June 30, 2023. The increase in noninterest expense for the quarter ended June 30, 2024, as compared to the quarter ended March 31, 2024, was primarily due to a $5.1 million increase in BaaS expense (including a $861,000 increase in BaaS fraud expense and a $4.2 million increase in BaaS loan expense) (BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, and originating & servicing CCBX loans. BaaS 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 during which the loss occurs, and a portion is estimated based on historical or other information from our partners), partially offset by a $1.0 million decrease in excise taxes (due to the recording of $1.2 million business and occupation tax credit from the State of Washington as a result of a tax apportionment study completed to quantify revenue earned outside of the state of Washington. CCBX income is sourced to the state the partner is headquartered, and the majority of partners are located outside the state of Washington, therefore the credit was for taxes we paid on CCBX income to Washington state that was sourced to other states), $1.0 million decrease in salaries and employee benefits, a $484,000 decrease in other expenses as a result of unanticipated expenses in the quarter ended March 31, 2024 that did not recur in the current quarter and a $41,000 decrease in legal and professional fees as some of our risk management infrastructure projects are being completed. We continue to invest in our infrastructure and the automation of our processes so that they are scalable.

The increase in noninterest expenses for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 were largely due to an increase of $7.3 million in BaaS partner expense (including a $7.0 million increase in BaaS loan and an increase of $247,000 in BaaS fraud expense), a $952,000 increase in data processing and software licenses due to enhancements in technology, $696,000 increase in salary and employee benefits related to hiring staff for CCBX and additional staff for our ongoing growth initiatives, partially offset by a $1.2 million decrease in business and occupation excise taxes as mentioned above, and a $1.0 million decrease in legal and professional fees as a result of risk management projects are being completed.

Provision for Income Taxes

The provision for income taxes was $3.4 million for the three months ended June 30, 2024, $1.9 million for the three months ended March 31, 2024 and $3.9 million for the second quarter of 2023.  The income tax provision was higher for the three months ended June 30, 2024 compared to the quarter ended March 31, 2024 primarily due to higher net income and lower than the quarter ended June 30, 2023 primarily due to lower net income compared to that quarter. Also contributing to the variances is the tax impact of stock equity award deductions which fluctuates based on activity. 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 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 income taxes.

Financial Condition Overview

Total assets increased $96.3 million, or 2.5%, to $3.96 billion at June 30, 2024 compared to $3.87 billion at March 31, 2024.  The increase is primarily due to a $126.9 million increase in loans receivable partially offset by $8.7 million increase in the allowance for credit losses, a $55.1 million decrease in interest earning deposits held at other banks, a $6.2 million increase in the credit enhancement asset and a $1.1 million decrease in accrued interest receivable. During the quarter ended June 30, 2024, we sold $155.2 million in CCBX loans compared to $100.5 million sold during the quarter ended March 31, 2024.

Total assets increased $426.3 million, or 12.1%, to $3.96 billion at June 30, 2024, compared to $3.54 billion at June 30, 2023.  The increase is primarily due to loans receivable increasing $318.9 million, a $182.0 million increase in interest earning deposits with other banks, and an increase of $46.6 million in the credit enhancement asset, partially offset by a decrease of $61.5 million in investment securities compared to June 30, 2023.

Loans Receivable

Total loans receivable increased $126.9 million to $3.33 billion at June 30, 2024, from $3.20 billion at March 31, 2024, and increased $318.9 million from $3.01 billion at June 30, 2023.  The increase in loans receivable over the quarter ended March 31, 2024 was the result of an increase of $98.1 million in CCBX loans as we continue to build back this portfolio with new loans, subject to enhanced credit standards, following several periods of shrinking this portfolio to optimize our balance sheet, and a $28.8 million increase in community bank loans. We continue to monitor and manage the CCBX loan portfolio, and sold $155.2 million in CCBX loans during the quarter ended June 30, 2024 as part of our strategy to reduce risk, optimize the CCBX loan portfolio, maintain strong credit quality, and manage portfolio and partner limits. The change in loans receivable over the quarter ended June 30, 2023 includes CCBX loan growth of $119.9 million and community bank loan growth of $199.0 million as of June 30, 2024.  

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

Consolidated As of June 30, 2024 As of March 31, 2024 As of June 30, 2023
(dollars in thousands; unaudited) Amount Percent Amount Percent Amount Percent
Commercial and industrial loans:            
Capital call lines $109,133  3.3% $135,671  4.2% $138,428  4.6%
All other commercial & industrial loans  186,167  5.6   201,555  6.3   215,401  7.1 
Total commercial and industrial loans:  295,300  8.9   337,226  10.5   353,829  11.7 
Real estate loans:            
Construction, land and land development  173,064  5.2   160,862  5.0   186,706  6.2 
Residential real estate  517,589  15.5   496,305  15.5   463,179  15.4 
Commercial real estate  1,357,979  40.7   1,342,489  41.9   1,164,088  38.6 
Consumer and other loans  990,270  29.7   870,134  27.1   846,459  28.1 
Gross loans receivable  3,334,202  100.0%  3,207,016  100.0%  3,014,261  100.0%
Net deferred origination fees  (7,742)    (7,462)    (6,708)  
Loans receivable $3,326,460    $3,199,554    $3,007,553   
Loan Yield (1)  11.23%    10.85%    10.85%  

(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
  June 30, 2024 March 31, 2024 June 30, 2023
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Commercial and industrial loans $144,436  7.5% $154,395  8.2% $155,078  9.0%
Real estate loans:            
Construction, land and land development loans  173,064  9.0   160,862  8.5   186,706  10.9 
Residential real estate loans  229,639  12.0   231,157  12.2   211,966  12.3 
Commercial real estate loans  1,357,979  70.8   1,342,489  71.0   1,164,088  67.7 
Consumer and other loans:            
Other consumer and other loans  14,220  0.7   1,447  0.1   1,457  0.1 
Gross Community Bank loans receivable  1,919,338  100.0%  1,890,350  100.0%  1,719,295  100.0%
Net deferred origination fees  (7,304)    (7,068)    (6,261)  
Loans receivable $1,912,034    $1,883,282    $1,713,034   
Loan Yield(1)  6.52%    6.46%    6.28%  

(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
  June 30, 2024 March 31, 2024 June 30, 2023
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Commercial and industrial loans:            
Capital call lines $109,133  7.7% $135,671  10.3% $138,428  10.7%
All other commercial & industrial loans  41,731  3.0   47,160  3.6   60,323  4.7 
Real estate loans:            
Residential real estate loans  287,950  20.4   265,148  20.1   251,213  19.4 
Consumer and other loans:            
Credit cards  549,241  38.7   505,706  38.4   379,642  29.3 
Other consumer and other loans  426,809  30.2   362,981  27.6   465,360  35.9 
Gross CCBX loans receivable  1,414,864  100.0%  1,316,666  100.0%  1,294,966  100.0%
Net deferred origination (fees) costs  (438)    (394)    (447)  
Loans receivable $1,414,426    $1,316,272    $1,294,519   
Loan Yield - CCBX (1)(2)  17.77%    17.34%    16.95%  
             

(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 originating & 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 increased $80.5 million, or 2.3%, to $3.54 billion at June 30, 2024 from $3.46 billion at March 31, 2024. The increase was due to a $80.5 million increase in core deposits. Deposits in our community bank segment increased $52.9 million from $1.43 billion at March 31, 2024, to $1.49 billion at June 30, 2024 and CCBX deposits increased $27.5 million, from $2.03 billion at March 31, 2024, to $2.06 billion at June 30, 2024. The deposits from our CCBX segment are predominately classified as interest bearing demand and money market accounts. During the quarter ended June 30, 2024, noninterest bearing deposits increased $19.7 million, or 3.4%, to $593.8 million from $574.1 million at March 31, 2024. Community bank noninterest bearing deposits totaled $531.6 million or 35.7% of total community bank deposits and CCBX noninterest bearing deposits totaled $62.2 million, or 3.0% of total CCBX deposits. In the quarter ended June 30, 2024 compared to the quarter ended March 31, 2024, interest bearing demand and money market accounts increased $66.1 million, savings deposits decreased $5.3 million, and time deposits decreased $22,000. Included in total deposits is $352.3 million in IntraFi network reciprocal interest bearing demand and money market accounts as of June 30, 2024, which provides our larger deposit customers with fully insured deposits through a reciprocal agreement with other banks. Uninsured deposits decreased to $532.9 million as of June 30, 2024, compared to $495.6 million as of March 31, 2024.

Total deposits increased $380.9 million, or 12.0%, to $3.54 billion at June 30, 2024 compared to $3.16 billion at June 30, 2023. The increase is largely the result of growth in CCBX deposits. Noninterest bearing deposits decreased $131.8 million, or 18.2%, to $593.8 million at June 30, 2024 from $725.6 million at June 30, 2023 as a result of customer movement from noninterest to interest bearing accounts. Interest bearing demand and money market accounts increased $542.6 million, or 23.4%, to $2.87 billion at June 30, 2024, and savings deposits decreased $20.2 million, or 22.7%, and time deposits decreased   $9.7 million, or 39.2%, in the second quarter of 2024 compared to the second quarter of 2023. Deposits in our CCBX segment increased $403.4 million, from $1.65 billion at June 30, 2023, to $2.06 billion at June 30, 2024 and community bank deposits decreased $22.5 million, from $1.51 billion at June 30, 2023, to $1.49 billion at June 30, 2024. The deposits from our CCBX segment are predominately classified as interest bearing demand and money market accounts. Uninsured deposits decreased to $532.9 million as of June 30, 2024, compared to $632.1 million as of June 30, 2023 primarily as a result of increased usage of our cash sweep and exchange services to other banks for increased FDIC insurance coverage as described below.

Additionally, as of June 30, 2024, $117.7 million in CCBX customer deposits were transferred off the Bank’s balance sheet to other financial institutions on a daily basis for additional FDIC insurance coverage. 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.

Consolidated As of June 30, 2024 As of March 31, 2024 As of June 30, 2023
(dollars in thousands; unaudited) Amount Percent of
Total
Deposits		 Balance Percent of
Total
Deposits		 Balance Percent of
Total
Deposits
Demand, noninterest bearing $593,789  16.8% $574,112  16.6% $725,592  22.9%
Interest bearing demand and
money market		  2,865,773  80.9   2,799,667  80.9   2,323,164  73.5 
Savings  68,777  1.9   74,085  2.1   88,991  2.8 
Total core deposits  3,528,339  99.6   3,447,864  99.6   3,137,747  99.2 
Brokered deposits  1  0.0   1  0.0   1  — 
Time deposits less than $100,000  6,741  0.2   7,199  0.2   9,741  0.3 
Time deposits $100,000 and over  8,351  0.2   7,915  0.2   15,083  0.5 
Total $3,543,432  100.0% $3,462,979  100.0% $3,162,572  100.0%
Cost of deposits (1)  3.58%    3.49%    2.72%  

(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
  June 30, 2024 March 31, 2024 June 30, 2023
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Demand, noninterest bearing $531,555  35.7% $515,443  35.9% $621,012  41.1%
Interest bearing demand and
money market		  876,668  59.0   834,725  58.2   778,475  51.6 
Savings  63,627  4.3   68,747  4.8   85,146  5.7 
Total core deposits  1,471,850  99.0   1,418,915  98.9   1,484,633  98.4 
Brokered deposits  1  0.0   1  0.0   1  0.0 
Time deposits less than $100,000  6,741  0.5   7,199  0.5   9,741  0.6 
Time deposits $100,000 and over  8,351  0.5   7,915  0.6   15,083  1.0 
Total Community Bank deposits $1,486,943  100.0% $1,434,030  100.0% $1,509,458  100.0%
Cost of deposits(1)  1.77%    1.66%    0.98%  

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

CCBX As of
  June 30, 2024 March 31, 2024 June 30, 2023
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Demand, noninterest bearing $62,234  3.0% $58,669  2.9% $104,580  6.3%
Interest bearing demand and
money market		  1,989,105  96.7   1,964,942  96.8   1,544,689  93.5 
Savings  5,150  0.3   5,338  0.3   3,845  0.2 
Total core deposits  2,056,489  100.0   2,028,949  100.0   1,653,114  100.0 
BaaS-brokered deposits  —  0.0   —  0.0   —  — 
Total CCBX deposits $2,056,489  100.0% $2,028,949  100.0% $1,653,114  100.0%
Cost of deposits (1)  4.92%    4.93%    4.42%  

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

Borrowings

As of June 30, 2024, the Company had the capacity to borrow up to a total of $650.1 million from the Federal Reserve Bank discount window and Federal Home Loan Bank, and an additional $50.0 million from a correspondent bank, with no borrowings outstanding on these lines as of June 30, 2024.

Shareholders’ Equity

The Company had a cash balance of $5.3 million as of June 30, 2024, which is retained for general operating purposes, including debt repayment, and for funding $593,000 in commitments to bank technology funds.  

Total shareholders’ equity increased $13.0 million since March 31, 2024.  The increase in shareholders’ equity was primarily due to $11.6 million in net earnings, combined with an increase of $1.4 million in common stock outstanding as a result of equity awards exercised during the three months ended June 30, 2024.

Capital Ratios

The Company and the Bank remained well capitalized at June 30, 2024, as summarized in the following table.

(unaudited) Coastal
Community
Bank		 Coastal
Financial
Corporation		 Minimum Well
Capitalized
Ratios under
Prompt
Corrective
Action (1)
Tier 1 Leverage Capital (to average assets) 9.24% 8.31% 5.00%
Common Equity Tier 1 Capital (to risk-weighted assets) 10.15% 9.03% 6.50%
Tier 1 Capital (to risk-weighted assets) 10.15% 9.13% 8.00%
Total Capital (to risk-weighted assets) 11.44% 11.70% 10.00%

(1) Presents the minimum capital ratios for an insured depository institution, such as the Bank, to be considered well capitalized under the Prompt Corrective Action framework. The minimum requirements for the Company to be considered well capitalized under Regulation Y include to maintain, on a consolidated basis, a total risk-based capital ratio of 10.0 percent or greater and a tier 1 risk-based capital ratio of 6.0 percent or greater.

Asset Quality

The total allowance for credit losses was $147.9 million and 4.45% of loans receivable at June 30, 2024 compared to $139.3 million and 4.35% at March 31, 2024 and $110.8 million and 3.68% at June 30, 2023. The allowance for credit loss allocated to the CCBX portfolio was $126.9 million and 8.97% of CCBX loans receivable at June 30, 2024, with $21.0 million of allowance for credit loss allocated to the community bank or 1.10% of total community bank loans receivable.

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

  As of June 30, 2024 As of March 31, 2024 As of June 30, 2023
(dollars in thousands; unaudited) Community
Bank		 CCBX Total Community
Bank		 CCBX Total Community
Bank		 CCBX Total
Loans receivable $1,912,034  $1,414,426  $3,326,460  $1,883,282  $1,316,272  $3,199,554  $1,713,034  $1,294,519  $3,007,553 
Allowance for credit losses  (21,045)  (126,869)  (147,914)  (21,384)  (117,874)  (139,258)  (20,653)  (90,109)  (110,762)
Allowance for credit losses to total loans receivable  1.10%  8.97%  4.45%  1.14%  8.96%  4.35%  1.21%  6.96%  3.68%


Provision for credit losses - loans totaled $61.9 million for the three months ended June 30, 2024, $79.5 million for the three months ended March 31, 2024, and $52.6 million for the three months ended June 30, 2023. Net charge-offs totaled $53.2 million for the quarter ended June 30, 2024, compared to $57.2 million for the quarter ended March 31, 2024 and $31.0 million for the quarter ended June 30, 2023. Net charge-offs as a percent of average loans decreased to 6.57% for the quarter ended June 30, 2024 compared to 7.34% for the quarter ended March 31, 2024 which we believe is a result of the steps we took to strengthen our credit quality.   Provisions for credit losses – loans decreased largely due to a steadying of expected loss rates on CCBX loans receivable. CCBX partner agreements provide for a credit enhancement that covers the net-charge-offs on CCBX loans and negative deposit accounts by indemnifying or reimbursing incurred losses, except in accordance with the program agreement for one partner where the Company was responsible for credit losses on approximately 5% of a $353.6 million loan portfolio. At June 30, 2024, our portion of this portfolio represented $17.7 million in loans. The provision on the Company's portion of the portfolio was $1.6 million for the three months ended June 30, 2024 compared to $1.3 million for the three months ended March 31, 2024 and $1.6 million for the three months ended June 30, 2023.

Net charge-offs for this $17.7 million in loans were $1.3 million for the three months ended June 30, 2024, compared to $2.1 million for the three months ended March 31, 2024 and $917,000 for the three months ended June 30, 2023.

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

  Three Months Ended
  June 30, 2024 March 31, 2024 June 30, 2023
(dollars in thousands; unaudited) Community
Bank		 CCBX Total Community
Bank		 CCBX Total Community
Bank		 CCBX Total
Gross charge-offs $2  $55,205  $55,207  $15  $58,979  $58,994  $9  $32,290  $32,299 
Gross recoveries  (4)  (1,969)  (1,973)  (4)  (1,772)  (1,776)  —   (1,340)  (1,340)
Net charge-offs $(2) $53,236  $53,234  $11  $57,207  $57,218  $9  $30,950  $30,959 
Net charge-offs to average loans (1)  0.00%  15.72%  6.57%  0.00%  18.18%  7.34%  0.00%  9.78%  4.19%


  Six Months Ended
  June 30, 2024 June 30, 2023
(dollars in thousands; unaudited) Community
Bank		 CCBX Total Community
Bank		 CCBX Total
Gross charge-offs $17  $114,184  $114,201  $59  $66,407  $66,466 
Gross recoveries  (8)  (3,741)  (3,749)  (5)  (3,200)  (3,205)
Net charge-offs $9  $110,443  $110,452  $54  $63,207  $63,261 
Net charge-offs to
average loans (1)		  0.00%  16.90%  6.95%  0.01%  10.92%  4.50%

(1) Annualized calculations shown for periods presented.

The decrease in the Company’s provision for credit losses - loans during the quarter ended June 30, 2024, is largely the result of a steadying of expected loss rates in our CCBX portfolio. During the quarter ended June 30, 2024, a $62.2 million provision for credit losses - loans was recorded for CCBX partner loans based on management’s analysis, compared to the $79.7 million provision for credit losses - loans that was recorded for CCBX for the quarter ended March 31, 2024, largely as a result of the mix in CCBX loans receivable. CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by indemnifying or reimbursing incurred losses.

In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans and reclassified negative deposit accounts. When the provision for CCBX credit losses and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements). Expected losses are recorded in the allowance for credit losses. The credit enhancement asset is relieved when credit enhancement recoveries are received from the CCBX partner. If our partner is unable to fulfill their contracted obligations then the Bank could be exposed to additional credit losses. Management regularly evaluates and manages this counterparty risk.

The factors used in management’s analysis for community bank credit losses indicated that a provision recapture of $341,000 and was needed for the quarter ended June 30, 2024 compared to provision recaptures of $199,000 and $47,000 for the quarters ended March 31, 2024 and June 30, 2023, respectively.

The following table details the provision expense/(recapture) for the community bank and CCBX for the period indicated:

  Three Months Ended Six Months Ended
(dollars in thousands; unaudited) June 30,
2024		 March 31,
2024		 June 30,
2023		 June 30,
2024		 June 30,
2023
Community bank $(341) $(199) $(47) $(540) $381
CCBX  62,231   79,717   52,645   141,948   95,761
Total provision expense $61,890  $79,518  $52,598  $141,408  $96,142


At June 30, 2024, our nonperforming assets were $53.2 million, or 1.34% of total assets, compared to $54.9 million, or 1.42%, of total assets, at March 31, 2024, and $33.7 million, or 0.95% of total assets, at June 30, 2023. These ratios are impacted by CCBX loans over 90 days delinquent that are covered by CCBX partner credit enhancements. As of June 30, 2024, $43.9 million of the $45.2 million in nonperforming CCBX loans were covered by CCBX partner credit enhancements described above. Nonperforming assets decreased $1.7 million during the quarter ended June 30, 2024, compared to the quarter ended March 31, 2024, primarily due to a $1.7 million decrease in CCBX loans that are past due 90 days or more and still accruing. 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 generally increase as those loan portfolios 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. There were no repossessed assets or other real estate owned at June 30, 2024. Our nonperforming loans to loans receivable ratio was 1.60% at June 30, 2024, compared to 1.71% at March 31, 2024, and 1.12% at June 30, 2023.

For the quarter ended June 30, 2024, there were $2,000 community bank net recoveries and $7.9 million nonperforming community bank loans, including a multifamily loan for $6.9 million with a $1.1 million reserve to align with purchase sale agreement. For the quarter ended June 30, 2024 $53.2 million in net charge-offs were recorded on CCBX loans. These CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses.

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

Consolidated      
(dollars in thousands; unaudited) As of June 30,
2024		 As of March 31,
2024		 As of June 30,
2023
Nonaccrual loans:      
Commercial and industrial loans $—  $—  $5 
Real estate loans:      
Construction, land and land development  —   —   66 
Residential real estate  213   212   186 
Commercial real estate  7,731   7,731   7,142 
Total nonaccrual loans  7,944   7,943   7,399 
Accruing loans past due 90 days or more:      
Commercial & industrial loans  1,278   1,793   808 
Real estate loans:      
Residential real estate loans  2,722   1,796   1,722 
Consumer and other loans:      
Credit cards  36,465   37,603   18,306 
Other consumer and other loans  4,779   5,731   5,492 
Total accruing loans past due 90 days or more  45,244   46,923   26,328 
Total nonperforming loans  53,188   54,866   33,727 
Real estate owned  —   —   — 
Repossessed assets  —   —   — 
Total nonperforming assets $53,188  $54,866  $33,727 
Total nonaccrual loans to loans receivable  0.24%  0.25%  0.25%
Total nonperforming loans to loans receivable  1.60%  1.71%  1.12%
Total nonperforming assets to total assets  1.34%  1.42%  0.95%
             

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

Community Bank As of
(dollars in thousands; unaudited) June 30,
2024		 March 31,
2024		 June 30,
2023
Nonaccrual loans:      
Commercial and industrial loans $—  $—  $5 
Real estate:      
Construction, land and land development  —   —   66 
Residential real estate  213   212   186 
Commercial real estate  7,731   7,731   7,142 
Total nonaccrual loans  7,944   7,943   7,399 
Accruing loans past due 90 days or more:      
Total accruing loans past due 90 days or more  —   —   — 
Total nonperforming loans  7,944   7,943   7,399 
Other real estate owned  —   —   — 
Repossessed assets  —   —   — 
Total nonperforming assets $7,944  $7,943  $7,399 
Total community bank nonperforming assets to total consolidated assets  0.20%  0.21%  0.21%
             


CCBX As of
(dollars in thousands; unaudited) June 30,
2024		 March 31,
2024		 June 30,
2023
Nonaccrual loans $—  $—  $— 
Accruing loans past due 90 days or more:      
Commercial & industrial loans  1,278   1,793   808 
Real estate loans:      
Residential real estate loans  2,722   1,796   1,722 
Consumer and other loans:      
Credit cards  36,465   37,603   18,306 
Other consumer and other loans  4,779   5,731   5,492 
Total accruing loans past due 90 days or more  45,244   46,923   26,328 
Total nonperforming loans  45,244   46,923   26,328 
Other real estate owned  —   —   — 
Repossessed assets  —   —   — 
Total nonperforming assets $45,244  $46,923  $26,328 
Total CCBX nonperforming assets to total consolidated assets  1.14%  1.21%  0.74%
             

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 $3.96 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 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
  June 30,
2024		 March 31,
2024		 June 30,
2023
Cash and due from banks $59,995  $32,790  $29,783 
Interest earning deposits with other banks  427,250   482,338   245,277 
Investment securities, available for sale, at fair value  39   41   98,167 
Investment securities, held to maturity, at amortized cost  49,174   50,049   12,563 
Other investments  10,664   10,583   12,037 
Loans held for sale  —   797   35,923 
Loans receivable  3,326,460   3,199,554   3,007,553 
Allowance for credit losses  (147,914)  (139,258)  (110,762)
Total loans receivable, net  3,178,546   3,060,296   2,896,791 
CCBX credit enhancement asset  143,485   137,276   96,928 
CCBX receivable  11,520   10,369   19,113 
Premises and equipment, net  24,526   22,995   18,903 
Lease right-of-use assets  5,635   5,756   6,216 
Accrued interest receivable  23,617   24,681   21,581 
Bank-owned life insurance, net  13,132   12,991   12,873 
Deferred tax asset, net  2,221   2,221   25,764 
Other assets  11,742   12,075   3,364 
Total assets $3,961,546  $3,865,258  $3,535,283 
       
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES      
Deposits $3,543,432  $3,462,979  $3,162,572 
Subordinated debt, net  44,219   44,181   44,069 
Junior subordinated debentures, net  3,591   3,590   3,589 
Deferred compensation  405   442   547 
Accrued interest payable  999   1,061   766 
Lease liabilities  5,821   5,946   6,413 
CCBX payable  34,536   33,095   27,714 
Other liabilities  11,850   10,255   16,951 
Total liabilities  3,644,853   3,561,549   3,262,621 
       
SHAREHOLDERS’ EQUITY      
Common stock  132,989   131,601   128,315 
Retained earnings  183,706   172,110   146,029 
Accumulated other comprehensive loss, net of tax  (2)  (2)  (1,682)
Total shareholders’ equity  316,693   303,709   272,662 
Total liabilities and shareholders’ equity $3,961,546  $3,865,258  $3,535,283 


 
COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)
 
  Three Months Ended
  June 30,
2024		 March 31,
2024		 June 30,
2023
INTEREST AND DIVIDEND INCOME      
Interest and fees on loans $90,944  $84,621  $80,199
Interest on interest earning deposits with other banks  5,683   4,780   2,678
Interest on investment securities  686   1,034   653
Dividends on other investments  174   37   156
Total interest income  97,487   90,472   83,686
INTEREST EXPENSE      
Interest on deposits  30,578   28,867   20,675
Interest on borrowed funds  672   669   661
Total interest expense  31,250   29,536   21,336
Net interest income  66,237   60,936   62,350
PROVISION FOR CREDIT LOSSES  62,325   83,158   52,253
Net interest income/(expense) after provision for credit losses  3,912   (22,222)  10,097
NONINTEREST INCOME      
Deposit service charges and fees  946   908   989
Loan referral fees  —   168   682
Gain on sales of loans, net  —   —   23
Unrealized gain (loss) on equity securities, net  9   15   155
Other income  257   308   234
Noninterest income, excluding BaaS program income and BaaS indemnification income  1,212   1,399   2,083
Servicing and other BaaS fees  1,525   1,131   895
Transaction fees  1,309   1,122   1,052
Interchange fees  1,625   1,539   975
Reimbursement of expenses  1,637   1,033   1,026
BaaS program income  6,096   4,825   3,948
BaaS credit enhancements  60,826   79,808   51,027
BaaS fraud enhancements  1,784   923   1,537
BaaS indemnification income  62,610   80,731   52,564
Total noninterest income  69,918   86,955   58,595
NONINTEREST EXPENSE      
Salaries and employee benefits  17,005   17,984   16,309
Occupancy  1,686   1,518   1,143
Data processing and software licenses  2,924   2,892   1,972
Legal and professional expenses  3,631   3,672   4,645
Point of sale expense  852   869   814
Excise taxes  (706)  320   531
Federal Deposit Insurance Corporation ("FDIC") assessments  690   683   570
Director and staff expenses  470   400   519
Marketing  14   53   115
Other expense  1,383   1,867   1,722
Noninterest expense, excluding BaaS loan and BaaS fraud expense  27,949   30,258   28,340
BaaS loan expense  29,076   24,837   22,033
BaaS fraud expense  1,784   923   1,537
BaaS loan and fraud expense  30,860   25,760   23,570
Total noninterest expense  58,809   56,018   51,910
Income before provision for income taxes  15,021   8,715   16,782
PROVISION FOR INCOME TAXES  3,425   1,915   3,876
NET INCOME $11,596  $6,800  $12,906
Basic earnings per common share $0.86  $0.51  $0.97
Diluted earnings per common share $0.84  $0.50  $0.95
Weighted average number of common shares outstanding:      
Basic  13,412,667   13,340,997   13,275,640
Diluted  13,736,508   13,676,917   13,597,763


 
COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)
  Six Months Ended
  June 30,
2024		 June 30,
2023
INTEREST AND DIVIDEND INCOME    
Interest and fees on loans $175,565  $146,630
Interest on interest earning deposits with other banks  10,463   5,775
Interest on investment securities  1,720   1,206
Dividends on other investments  211   186
Total interest income  187,959   153,797
INTEREST EXPENSE    
Interest on deposits  59,445   35,633
Interest on borrowed funds  1,341   1,323
Total interest expense  60,786   36,956
Net interest income  127,173   116,841
PROVISION FOR CREDIT LOSSES  145,483   95,950
Net interest income/(expense) after provision for credit losses  (18,310)  20,891
NONINTEREST INCOME    
Deposit service charges and fees  1,854   1,899
Loan referral fees  168   682
Gain on sales of loans, net  —   146
Unrealized gain (loss) on equity securities, net  24   194
Other income  565   533
Noninterest income, excluding BaaS program income and BaaS indemnification income  2,611   3,454
Servicing and other BaaS fees  2,656   1,843
Transaction fees  2,431   1,969
Interchange fees  3,164   1,764
Reimbursement of expenses  2,670   1,947
BaaS program income  10,921   7,523
BaaS credit enhancements  140,634   93,389
BaaS fraud enhancements  2,707   3,536
BaaS indemnification income  143,341   96,925
Total noninterest income  156,873   107,902
NONINTEREST EXPENSE    
Salaries and employee benefits  34,989   31,884
Occupancy  3,204   2,362
Data processing and software licenses  5,816   3,812
Legal and professional expenses  7,303   7,707
Point of sale expense  1,721   1,567
Excise taxes  (386)  986
Federal Deposit Insurance Corporation ("FDIC") assessments  1,373   1,165
Director and staff expenses  870   1,145
Marketing  67   210
Other expense  3,250   2,612
Noninterest expense, excluding BaaS loan and BaaS fraud expense  58,207   53,450
BaaS loan expense  53,913   39,587
BaaS fraud expense  2,707   3,536
BaaS loan and fraud expense  56,620   43,123
Total noninterest expense  114,827   96,573
Income before provision for income taxes  23,736   32,220
PROVISION FOR INCOME TAXES  5,340   6,923
NET INCOME $18,396  $25,297
Basic earnings per common share $1.38  $1.91
Diluted earnings per common share $1.34  $1.86
Weighted average number of common shares outstanding:    
Basic  13,376,832   13,236,517
Diluted  13,706,713   13,603,594


 
COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – QUARTERLY
(Dollars in thousands; unaudited)
 
  For the Three Months Ended
  June 30, 2024 March 31, 2024 June 30, 2023
  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 with other banks $418,165  $5,683 5.47% $350,868  $4,780 5.48% $211,369  $2,678 5.08%
Investment securities, available for sale (2)  43   — 3.13   64,878   349 2.16   100,278   534 2.14 
Investment securities, held to maturity (2)  49,737   686 5.55   50,490   685 5.46   10,047   119 4.75 
Other investments  10,592   174 6.61   10,262   37 1.45   11,773   156 5.31 
Loans receivable (3)  3,258,042   90,944 11.23   3,137,271   84,621 10.85   2,965,287   80,199 10.85 
Total interest earning assets  3,736,579   97,487 10.49   3,613,769   90,472 10.07   3,298,754   83,686 10.18 
Noninterest earning assets:                  
Allowance for credit losses  (138,472)      (114,985)      (87,713)    
Other noninterest earning assets  255,205       229,437       194,747     
Total assets $3,853,312      $3,728,221      $3,405,788     
                   
Liabilities and Shareholders’ Equity                  
Interest bearing liabilities:                  
Interest bearing deposits $2,854,575  $30,578 4.31% $2,728,884  $28,867 4.25% $2,326,702  $20,675 3.56%
FHLB advances and other borrowings  1,648   3 0.73   5   — 5.43   —   — — 
Subordinated debt  44,197   598 5.44   44,159   598 5.45   44,047   596 5.43 
Junior subordinated debentures  3,590   71 7.95   3,590   71 7.95   3,589   65 7.26 
Total interest bearing liabilities  2,904,010   31,250 4.33   2,776,638   29,536 4.28   2,374,338   21,336 3.60 
Noninterest bearing deposits  584,661       595,693       717,256     
Other liabilities  58,267       58,829       49,085     
Total shareholders' equity  306,374       297,061       265,109     
Total liabilities and shareholders' equity $3,853,312      $3,728,221      $3,405,788     
Net interest income   $66,237     $60,936     $62,350  
Interest rate spread     6.17%     5.79%     6.57%
Net interest margin (4)     7.13%     6.78%     7.58%

(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
  June 30, 2024 March 31, 2024 June 30, 2023
(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                  
Interest earning assets:                  
Loans receivable (2) $1,895,699 $30,741 6.52% $1,871,414 $30,052 6.46% $1,695,881 $26,567 6.28%
Total interest earning assets  1,895,699  30,741 6.52   1,871,414  30,052 6.46   1,695,881  26,567 6.28 
Liabilities                  
Interest bearing liabilities:                   
Interest bearing deposits  938,033  6,459 2.77%  922,340  6,013 2.62%  875,760  3,663 1.68%
Intrabank liability  429,452  5,836 5.47   410,993  5,599 5.48   196,552  2,490 5.08 
Total interest bearing liabilities  1,367,485  12,295 3.62   1,333,333  11,612 3.50   1,072,312  6,153 2.30 
Noninterest bearing deposits  528,214      538,081      623,570    
Net interest income   $18,446     $18,440     $20,414  
Net interest margin(3)     3.91%     3.96%     4.83%
                   
CCBX                  
Assets                  
Interest earning assets:                  
Loans receivable (2)(4) $1,362,343 $60,203 17.77% $1,265,857 $54,569 17.34% $1,269,406 $53,632 16.95%
Intrabank asset  610,646  8,299 5.47   598,299  8,151 5.48   275,222  3,487 5.08 
Total interest earning assets  1,972,989  68,502 13.96   1,864,156  62,720 13.53   1,544,628  57,119 14.83 
Liabilities                  
Interest bearing liabilities:                    
Interest bearing deposits  1,916,542  24,119 5.06%  1,806,544  22,854 5.09%  1,450,942  17,012 4.70%
Total interest bearing liabilities  1,916,542  24,119 5.06   1,806,544  22,854 5.09   1,450,942  17,012 4.70 
Noninterest bearing deposits  56,447      57,612      93,686    
Net interest income   $44,383     $39,866     $40,107  
Net interest margin(3)     9.05%     8.60%     10.41%
Net interest margin, net of Baas loan expense (5)     3.12%     3.24%     4.69%
                      


  For the Three Months Ended
  June 30, 2024 March 31, 2024 June 30, 2023
(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)
Treasury & Administration              
Assets                  
Interest earning assets:                  
Interest earning deposits with other banks $418,165 $5,683 5.47% $350,868 $4,780 5.48% $211,369 $2,678 5.08%
Investment securities, available for sale (6)  43  — 3.13   64,878  349 2.16   100,278  534 2.14 
Investment securities, held to maturity (6)  49,737  686 5.55   50,490  685 5.46   10,047  119 4.75 
Other investments  10,592  174 6.61   10,262  37 1.45   11,773  156 5.31 
Total interest earning assets  478,537  6,543 5.50%  476,498— 5,851 4.94%  333,467  3,487 4.19%
Liabilities                  
Interest bearing liabilities:                  
FHLB advances and borrowings $1,648 $3 0.73%  5  — 5.43%  —  — —%
Subordinated debt  44,197  598 5.44%  44,159  598 5.45%  44,047  596 5.43%
Junior subordinated debentures  3,590  71 7.95   3,590  71 7.95   3,589  65 7.26 
Intrabank liability, net (7)  181,194  2,463 5.47   187,306  2,552 5.48   78,670  997 5.08 
Total interest bearing liabilities  230,629  3,135 5.47   235,060  3,221 5.51   126,306  1,658 5.27 
Net interest income   $3,408     $2,630     $1,829  
Net interest margin(3)     2.86%     2.22%     2.20%

(1)   Yields and costs are annualized. 
(2)   Includes loans held for sale and nonaccrual loans. 
(3)   Net interest margin represents net interest income divided by the average total interest earning assets. 
(4)   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, fraud enhancements and originating & 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. 
(5)   Net interest margin, net of BaaS loan expense includes the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, originating & servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release. 
(6)   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. 
(7)   Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the table above.

 
COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – YEAR-TO-DATE
(Dollars in thousands; unaudited)
 
  For the Six Months Ended
  June 30, 2024 June 30, 2023
(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 with other banks $384,517  $10,463 5.47% $241,368  $5,775 4.82%
Investment securities, available for sale (2)  32,460   349 2.16   100,276   1,069 2.15 
Investment securities, held to maturity (2)  50,114   1,371 5.50   6,023   137 4.59 
Other investments  10,427   211 4.07   11,206   186 3.35 
Loans receivable (3)  3,197,656   175,565 11.04   2,837,442   146,630 10.42 
Total interest earning assets  3,675,174   187,959 10.28   3,196,315   153,797 9.70 
Noninterest earning assets:            
Allowance for credit losses  (126,729)      (84,417)    
Other noninterest earning assets  242,321       183,516     
Total assets $3,790,766      $3,295,414     
             
Liabilities and Shareholders’ Equity            
Interest bearing liabilities:            
Interest bearing deposits $2,791,729  $59,445 4.28% $2,199,168  $35,633 3.27%
FHLB advances and other borrowings  827   3 0.73   —   — — 
Subordinated debt  44,178   1,196 5.44   44,028   1,195 5.47 
Junior subordinated debentures  3,590   142 7.95   3,588   128 7.19 
Total interest bearing liabilities  2,840,324   60,786 4.30   2,246,784   36,956 3.32 
Noninterest bearing deposits  590,177       746,436     
Other liabilities  58,548       43,299     
Total shareholders' equity  301,718       258,895     
Total liabilities and shareholders' equity $3,790,767      $3,295,414     
Net interest income   $127,173     $116,841  
Interest rate spread     5.98%     6.39%
Net interest margin (4)     6.96%     7.37%

(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 Six Months Ended
  June 30, 2024 June 30, 2023
(dollars in thousands; unaudited) Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)		 Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)
Community Bank            
Assets            
Interest earning assets:            
Loans receivable (2) $1,883,557 $60,793 6.49% $1,670,076 $50,779 6.13%
Total interest earning assets  1,883,557  60,793 6.49   1,670,076  50,779 6.13 
Liabilities            
Interest bearing liabilities:            
Interest bearing deposits  930,186  12,472 2.70%  864,518  6,197 1.45%
Intrabank liability  420,224  11,435 5.47   145,890  3,569 4.93 
Total interest bearing liabilities  1,350,410  23,907 3.56   1,010,408  9,766 1.95 
Noninterest bearing deposits  533,147      659,668    
Net interest income   $36,886     $41,013  
Net interest margin(3)     3.94%     4.95%
             
CCBX            
Assets            
Interest earning assets:            
Loans receivable (2)(4) $1,314,099 $114,772 17.56% $1,167,366 $95,851 16.56%
Intrabank asset  604,474  16,450 5.47   254,052  6,139 4.87 
Total interest earning assets  1,918,573  131,222 13.75   1,421,418  101,990 14.47 
Liabilities            
Interest bearing liabilities:            
Interest bearing deposits  1,861,543  46,973 5.07%  1,334,650  29,436 4.45%
Total interest bearing liabilities  1,861,543  46,973 5.07   1,334,650  29,436 4.45 
Noninterest bearing deposits  57,030      86,768    
Net interest income   $84,249     $72,554  
Net interest margin(3)     8.83%     10.29%
Net interest margin, net of Baas loan expense (5)     3.18%     4.68%
               


  For the Six Months Ended
  June 30, 2024 June 30, 2023
(dollars in thousands; unaudited) Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)		 Average
Balance		 Interest &
Dividends		 Yield /
Cost (1)
Treasury & Administration            
Assets            
Interest earning assets:            
Interest earning deposits with other banks $384,517 $10,463 5.47% $241,368 $5,775 4.82%
Investment securities, available for sale (6)  32,460  349 2.16   100,276  1,069 2.15 
Investment securities, held to maturity (6)  50,114  1,371 5.50   6,023  137 4.59 
Other investments  10,427  211 4.07   11,206  186 3.35 
Total interest earning assets  477,518  12,394 5.22   358,873  7,167 4.03 
Liabilities            
Interest bearing liabilities:            
FHLB advances and borrowings  827  3 0.73%  —  — —%
Subordinated debt  44,178  1,196 5.44   44,028  1,195 5.47 
Junior subordinated debentures  3,590  142 7.95   3,588  128 7.19 
Intrabank liability, net (7)  184,250  5,015 5.47   108,162  2,570 4.79 
Total interest bearing liabilities  232,845  6,356 5.49   155,778  3,893 5.04 
Net interest income   $6,038     $3,274  
Net interest margin(3)     2.54%     1.84%

(1) Yields and costs are annualized. 
(2) Includes loans held for sale and nonaccrual loans. 
(3) Net interest margin represents net interest income divided by the average total interest earning assets. 
(4) 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, fraud enhancements and originating & 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. 
(5) Net interest margin, net of BaaS loan expense includes the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, originating & servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release. 
(6) 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. 
(7) Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the table above.   

 
COASTAL FINANCIAL CORPORATION
QUARTERLY STATISTICS
(Dollars in thousands, except share and per share data; unaudited)
 
  Three Months Ended
  June 30,
2024		 March 31,
2024		 December 31,
2023		 September 30,
2023		 June 30,
2023
Income Statement Data:          
Interest and dividend income $97,487  $90,472  $88,243  $88,331  $83,686 
Interest expense  31,250   29,536   28,586   26,102   21,336 
Net interest income  66,237   60,936   59,657   62,229   62,350 
Provision for credit losses  62,325   83,158   60,789   27,253   52,253 
Net interest (expense)/ income after provision for credit losses  3,912   (22,222)  (1,132)  34,976   10,097 
Noninterest income  69,918   86,955   64,694   34,579   58,595 
Noninterest expense  58,809   56,018   51,703   56,501   51,910 
Provision for income tax  3,425   1,915   2,847   2,784   3,876 
Net income  11,596   6,800   9,012   10,270   12,906 
           
  As of and for the Three Month Period
  June 30,
2024		 March 31,
2024		 December 31,
2023		 September 30,
2023		 June 30,
2023
Balance Sheet Data:          
Cash and cash equivalents $487,245  $515,128  $483,128  $474,946  $275,060 
Investment securities  49,213   50,090   150,364   141,489   110,730 
Loans held for sale  —   797   —   —   35,923 
Loans receivable  3,326,460   3,199,554   3,026,092   2,967,035   3,007,553 
Allowance for credit losses  (147,914)  (139,258)  (116,958)  (101,085)  (110,762)
Total assets  3,961,546   3,865,258   3,753,366   3,678,265   3,535,283 
Interest bearing deposits  2,949,643   2,888,867   2,735,161   2,637,914   2,436,980 
Noninterest bearing deposits  593,789   574,112   625,202   651,786   725,592 
Core deposits (1)  3,528,339   3,447,864   3,342,004   3,269,082   3,137,747 
Total deposits  3,543,432   3,462,979   3,360,363   3,289,700   3,162,572 
Total borrowings  47,810   47,771   47,734   47,695   47,658 
Total shareholders’ equity  316,693   303,709   294,978   284,450   272,662 
           
Share and Per Share Data (2):          
Earnings per share – basic $0.86  $0.51  $0.68  $0.77  $0.97 
Earnings per share – diluted $0.84  $0.50  $0.66  $0.75  $0.95 
Dividends per share  —   —   —   —   — 
Book value per share (3) $23.54  $22.65  $22.17  $21.38  $20.50 
Tangible book value per share (4) $23.54  $22.65  $22.17  $21.38  $20.50 
Weighted avg outstanding shares – basic  13,412,667   13,340,997   13,286,828   13,285,974   13,275,640 
Weighted avg outstanding shares – diluted  13,736,508   13,676,917   13,676,513   13,675,833   13,597,763 
Shares outstanding at end of period  13,453,805   13,407,320   13,304,339   13,302,449   13,300,809 
Stock options outstanding at end of period  286,119   309,069   354,969   356,359   357,999 

See footnotes on following page

  As of and for the Three Month Period
  June 30,
2024		 March 31,
2024		 December 31,
2023		 September 30,
2023		 June 30,
2023
Credit Quality Data:          
Nonperforming assets (5) to total assets  1.34%  1.42%  1.43%  1.18%  0.95%
Nonperforming assets (5) to loans receivable and OREO  1.60%  1.71%  1.78%  1.47%  1.12%
Nonperforming loans (5) to total loans receivable  1.60%  1.71%  1.78%  1.47%  1.12%
Allowance for credit losses to nonperforming loans  278.1%  253.8%  217.2%  232.2%  328.4%
Allowance for credit losses to total loans receivable  4.45%  4.35%  3.86%  3.41%  3.68%
Gross charge-offs $55,207  $58,994  $47,652  $37,879  $32,299 
Gross recoveries $1,973  $1,776  $2,781  $1,045  $1,340 
Net charge-offs to average loans (6)  6.57%  7.34%  5.92%  4.77%  4.19%
           
Capital Ratios:          
Company          
Tier 1 leverage capital  8.31%  8.24%  8.10%  8.03%  8.16%
Common equity Tier 1 risk-based capital  9.03%  8.98%  9.10%  9.00%  8.36%
Tier 1 risk-based capital  9.13%  9.08%  9.20%  9.11%  8.47%
Total risk-based capital  11.70%  11.70%  11.87%  11.80%  11.12%
Bank          
Tier 1 leverage capital  9.24%  9.19%  9.06%  8.99%  9.16%
Common equity Tier 1 risk-based capital  10.15%  10.14%  10.30%  10.21%  9.52%
Tier 1 risk-based capital  10.15%  10.14%  10.30%  10.21%  9.52%
Total risk-based capital  11.44%  11.43%  11.58%  11.48%  10.80%

(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. 

Non-GAAP Financial Measures

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

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

The following non-GAAP measures are presented to illustrate the impact of BaaS loan expense on net loan income and yield on CCBX loans and the impact of BaaS loan expense on net interest income and net interest margin.

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

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

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

  As of and for the Three Months Ended  As of and for the Six Months Ended
(dollars in thousands; unaudited) June 30,
2024		 March 31,
2024		 June 30,
2023		 June 30,
2024		 June 30,
2023
Net BaaS loan income divided by average CCBX loans:    
CCBX loan yield (GAAP)(1)  17.77%  17.34%  16.95%  17.56%  16.56%
Total average CCBX loans receivable $1,362,343  $1,265,857  $1,269,406  $1,314,099  $1,167,366 
Interest and earned fee income on CCBX loans (GAAP)  60,203   54,569   53,632   114,772   95,851 
BaaS loan expense  (29,076)  (24,837)  (22,033)  (53,913)  (39,587)
Net BaaS loan income $31,127  $29,732  $31,599  $60,859  $56,264 
Net BaaS loan income divided by average CCBX loans (1)  9.19%  9.45%  9.98%  9.31%  9.72%
Net interest margin, net of BaaS loan expense:            
CCBX interest margin (1)  9.05%  8.60%  10.41%  8.83%  10.29%
CCBX earning assets  1,972,989   1,864,156   1,544,628   1,918,573   1,421,418 
Net interest income  44,383   39,866   40,107   84,249   72,554 
Less: BaaS loan expense  (29,076)  (24,837)  (22,033)  (53,913)  (39,587)
Net interest income, net of BaaS loan expense $15,307  $15,029  $18,074  $30,336  $32,967 
CCBX net interest margin, net of BaaS loan expense (1)  3.12%  3.24%  4.69%  3.18%  4.68%

(1) Annualized calculations for periods presented.

APPENDIX A -
As of June 30, 2024

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 $3.33 billion in outstanding loan balances. When combined with $2.81 billion in unused commitments the total of these categories is $6.15 billion.

Commercial real estate loans represent the largest segment of our loans, comprising 40.7% of our total balance of outstanding loans as of June 30, 2024. Unused commitments to extend credit represents an additional $50.5 million, and the combined total in commercial real estate loans represents $1.41 billion, or 22.9% of our total outstanding loans and loan commitments.

The following table summarizes our loan commitment by industry for our commercial real estate portfolio as of June 30, 2024:

(dollars in thousands; unaudited) Outstanding
Balance		 Available
Loan
Commitments		 Total
Outstanding
Balance &
Available
Commitment		 % of Total
Loans
(Outstanding
Balance &
Available
Commitment)		 Average
Loan
Balance		 Number of
Loans
Apartments $356,303 $6,339 $362,642 5.9% $3,426 104
Hotel/Motel  168,659  592  169,251 2.8   6,746 25
Convenience Store  143,007  885  143,892 2.3   2,307 62
Office  124,462  8,177  132,639 2.2   1,383 90
Warehouse  117,498  2,000  119,498 1.9   1,958 60
Retail  104,936  644  105,580 1.7   999 105
Mixed use  92,480  8,236  100,716 1.6   1,075 86
Mini Storage  79,728  18,998  98,726 1.6   3,322 24
Strip Mall  44,260  —  44,260 0.7   6,323 7
Manufacturing  34,837  1,200  36,037 0.6   1,201 29
Groups < 0.70% of total  91,809  3,415  95,224 1.6   1,120 82
Total $1,357,979 $50,486 $1,408,465 22.9% $2,015 674
                  

Consumer loans comprise 29.7% of our total balance of outstanding loans as of June 30, 2024. Unused commitments to extend credit represents an additional $1.53 billion, and the combined total in consumer and other loans represents $2.52 billion, or 40.9% 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 balance of just $1,100. CCBX consumer loans are underwritten to CCBX credit standards and underwriting of these loans is regularly tested, including quarterly testing for partners with portfolio balances greater than $10.0 million.

The following table summarizes our loan commitment by industry for our consumer and other loan portfolio as of June 30, 2024:

(dollars in thousands; unaudited) Outstanding
Balance		 Available Loan
Commitments		 Total
Outstanding
Balance &
Available
Commitment (1)		 % of Total Loans
(Outstanding
Balance &
Available
Commitment)		 Average Loan
Balance		 Number of
Loans
CCBX consumer loans
Credit cards $549,241 $1,517,881 $2,067,122 33.6% $1.6 352,248
Installment loans  418,358  900  419,258 6.8   1.0 404,850
Lines of credit  7,568  6,990  14,558 0.3   — 159,987
Other loans  883  —  883 0.0   0.1 8,163
Community bank consumer loans                 
Installment loans  1,256  —  1,256 0.0   59.8 21
Lines of credit  215  343  558 0.0   6.1 35
Other loans  12,749  —  12,749 0.2   39.8 320
Total $990,270 $1,526,114 $2,516,384 40.9% $1.1 925,624

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

Residential real estate loans comprise 15.5% of our total balance of outstanding loans as of June 30, 2024. Unused commitments to extend credit represents an additional $524.5 million, and the combined total in residential real estate loans represents $1.04 billion, or 17.0% of our total outstanding loans and loan commitments.

The following table summarizes our loan commitment by industry for our residential real estate loan portfolio as of June 30, 2024:

(dollars in thousands; unaudited) Outstanding
Balance		 Available Loan
Commitments		 Total
Outstanding
Balance &
Available
Commitment (1)		 % of Total Loans
(Outstanding
Balance &
Available
Commitment)		 Average Loan
Balance		 Number of
Loans
CCBX residential real estate loans
Home equity line of credit $287,950 $474,603 $762,553 12.4% $25 11,514
Community bank residential real estate loans
Closed end, secured by first liens  193,976  2,959  196,935 3.2   606 320
Home equity line of credit  26,639  46,091  72,730 1.2   113 236
Closed end, second liens  9,024  885  9,909 0.2   291 31
Total $517,589 $524,538 $1,042,127 17.0% $43 12,101

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

Commercial and industrial loans comprise 8.9% of our total balance of outstanding loans as of June 30, 2024. Unused commitments to extend credit represents an additional $620.6 million, and the combined total in commercial and industrial loans represents $915.9 million, or 14.9% of our total outstanding loans and loan commitments. Included in commercial and industrial loans is $109.1 million in outstanding capital call lines, with an additional $515.0 million in available loan commitments which is limited to a $350.0 million portfolio maximum. Capital call lines are 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 capital call line.

The following table summarizes our loan commitment by industry for our commercial and industrial loan portfolio as of June 30, 2024:

(dollars in thousands; unaudited) Outstanding
Balance		 Available Loan
Commitments		 Total
Outstanding
Balance &
Available
Commitment (1)		 % of Total Loans
(Outstanding
Balance &
Available
Commitment)		 Average Loan
Balance		 Number of
Loans
Consolidated C&I loans
Capital Call Lines $        109,133         $        515,045         $        624,178                 10.2        % $        774         141
Construction/Contractor Services          26,467                  36,818                  63,285                 1.0                   136         195
Financial Institutions          48,648                  —                  48,648                 0.8                   4,054         12
Retail          38,720                  6,015                  44,735                 0.7                   16         2,448
Manufacturing          6,844                  5,332                  12,176                 0.2                   159         43
Medical / Dental / Other Care          9,053                  1,126                  10,179                 0.2                   604         15
Groups < 0.20% of total          56,435                  56,261                  112,696                 1.8                   55         1,026
Total $        295,300         $        620,597         $        915,897                 14.9        % $        76         3,880

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

Construction, land and land development loans comprise 5.2% of our total balance of outstanding loans as of June 30, 2024. Unused commitments to extend credit represents an additional $90.1 million, and the combined total in construction, land and land development loans represents $263.2 million, or 4.3% of our total outstanding loans and loan commitments.

The following table details our loan commitment for our construction, land and land development portfolio as of June 30, 2024:

(dollars in thousands; unaudited) Outstanding
Balance		 Available Loan
Commitments		 Total
Outstanding
Balance &
Available
Commitment		 % of Total
Loans
(Outstanding
Balance &
Available
Commitment)		 Average Loan
Balance		 Number of
Loans
Commercial construction $110,372 $60,912 $171,284 2.8% $7,358 15
Residential construction  34,652  23,805  58,457 1.0   1,824 19
Developed land loans  13,954  1,269  15,223 0.2   734 19
Undeveloped land loans  8,372  3,760  12,132 0.2   558 15
Land development  5,714  345  6,059 0.1   571 10
Total $173,064 $90,091 $263,155 4.3% $2,219 78
                  

Exposure and risk in our construction, land and land development portfolio is somewhat higher in the current period compared to previous periods as indicated in the following table:

  Outstanding Balance as of
(dollars in thousands; unaudited) June 30,
2024		 March 31,
2024		 December 31,
2023		 September 30,
2023		 June 30,
2023
Commercial construction $110,372 $102,099 $81,489 $91,396 $78,079
Residential construction  34,652  28,751  34,213  33,971  35,032
Undeveloped land loans  8,372  8,190  7,890  8,310  42,530
Developed land loans  13,954  14,307  20,515  21,369  18,735
Land development  5,714  7,515  12,993  12,640  12,330
Total $173,064 $160,862 $157,100 $167,686 $186,706


Commitments to extend credit total $2.81 billion at June 30, 2024, however we do not anticipate our customers using the $2.81 billion that is showing as available.

The following table presents outstanding commitments to extend credit as of June 30, 2024:

Consolidated  
(dollars in thousands; unaudited) As of June 30,
2024
Commitments to extend credit:  
Commercial and industrial loans $105,552
Commercial and industrial loans - capital call lines  515,045
Construction – commercial real estate loans  65,941
Construction – residential real estate loans  24,150
Residential real estate loans  524,538
Commercial real estate loans  50,486
Credit cards  1,517,881
Consumer and other loans  8,233
Total commitments to extend credit $2,811,826


We have individual CCBX partner portfolio limits with our each of our partners to manage loan concentration risk, liquidity risk, and counter-party partner risk. For example, as of June 30, 2024, capital call lines outstanding balance totaled $109.1 million, and while commitments totaled $515.0 million the commitments are limited to a maximum of $350.0 million by agreement with the partner. If a CCBX partner goes over their individual limit, it would be a breach of their contract and the Bank may impose penalties and would not be required to fund the loan.

See the table below for CCBX portfolio maximums and related available commitments:

CCBX        
(dollars in thousands; unaudited) Balance Percent of CCBX
loans receivable		Available
Commitments (1)		 Maximum Portfolio
Size 		Cash
Reserve/Pledge
Account Amount (2)
Commercial and industrial loans:      
Capital call lines $109,133  7.7%$515,045 $350,000$—
All other commercial & industrial loans  41,731  3.0  14,404  293,901 524
Real estate loans:        
Home equity lines of credit (3)  287,950  20.4  474,603  375,000 34,155
Consumer and other loans:      
Credit cards - cash secured  151    —   —
Credit cards - unsecured  549,090    1,517,881   29,219
Credit cards - total  549,241  38.7  1,517,881  782,024 29,219
Installment loans - cash secured  100,698    900   —
Installment loans - unsecured  317,660    —   1,400
Installment loans - total  418,358  29.6  900  1,501,381 1,400
Other consumer and other loans  8,451  0.6  6,990  127,694 420
Gross CCBX loans receivable  1,414,864  100.0% 2,529,823  3,430,000$65,718
Net deferred origination fees  (438)      
Loans receivable $1,414,426       

(1) Remaining commitment available, net of outstanding balance.
(2) Balances are as of July 5, 2024.
(3) These home equity lines of credit are secured by residential real estate and are accessed by using a credit card, but are classified as 1-4 family residential properties per regulatory guidelines.

APPENDIX B -
As of June 30, 2024

CCBX – BaaS Reporting Information

During the quarter ended June 30, 2024, $60.8 million was recorded in BaaS credit enhancements related to the provision for credit losses - loans 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 indemnifying or reimbursing incurred losses. In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans, unfunded commitments and negative deposit accounts. When the provision for credit losses - loans and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements) in recognition of the CCBX partner legal commitment to indemnify or reimburse losses. The credit enhancement asset is relieved as credit enhancement payments and recoveries are received from the CCBX partner or taken from the partner's cash reserve account. Agreements with our CCBX partners also provide protection to the Bank from fraud by indemnifying or reimbursing incurred fraud losses. BaaS 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. Many 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 indemnifying or reimbursing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligation then the bank would be exposed to additional loan and deposit losses if the cash flows on the loans were not sufficient to fund the reimbursement of loan losses, as a result of this counterparty risk. If a CCBX partner does not replenish their cash reserve account the Bank may consider an alternative plan for funding the cash reserve. This may involve the possibility of adjusting the funding amounts or timelines to better align with the partner's specific situation. If a mutually agreeable funding plan is not agreed to, the Bank could declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. The Bank would evaluate any remaining credit enhancement asset from the CCBX partner in the event the partner failed to determine if a write-off is appropriate. If a write-off occurs, the Bank would retain the full yield and any fee income on the loan portfolio going forward, and our BaaS loan expense would decrease once default occurred and payments to the CCBX partner were stopped.

The Bank records contractual interest earned from the borrower on CCBX partner 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 and fraud enhancements and originating & 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 (A reconciliation of the non-GAAP measures are set forth in the preceding section of this earnings release.) 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 Six Months Ended
(dollars in thousands; unaudited) June 30,
2024		 March 31,
2024		 June 30,
2023		 June 30,
2024		 June 30,
2023
Yield on loans (1)  17.77%  17.34%  16.95%  17.56%  16.56%
BaaS loan interest income $60,203  $54,569  $53,632  $114,772  $95,851 
Less: BaaS loan expense  29,076   24,837   22,033   53,913   39,587 
Net BaaS loan income (2)  31,127   29,732   31,599   60,859   56,264 
Net BaaS loan income divided by average BaaS loans (1)(2)  9.19%  9.45%  9.98%  9.31%  9.72%

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

An increase in CCBX loans receivable resulted in increased interest income on CCBX loans during the quarter ended June 30, 2024 compared to the quarter ended March 31, 2024. The increase in CCBX loans receivable was primarily due to growth in the CCBX loan portfolio as part of our strategy to optimize the CCBX loan portfolio and strengthen our balance sheet through originating higher quality new loans and enhanced credit standards. Increased interest rates and growth in CCBX loans and deposits has resulted in increases in interest income and expense for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023.

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 Six Months Ended
(dollars in thousands; unaudited) June 30,
2024		 March 31,
2024		 June 30,
2023		 June 30,
2024		 June 30,
2023
Loan interest income $60,203 $54,569 $53,632 $114,772 $95,851
Total BaaS interest income $60,203 $54,569 $53,632 $114,772 $95,851


Interest expense Three Months Ended Six Months Ended
(dollars in thousands; unaudited) June 30,
2024		 March 31,
2024		 June 30,
2023		 June 30,
2024		 June 30,
2023
BaaS interest expense $24,119 $22,854 $17,012 $46,973 $29,436
Total BaaS interest expense $24,119 $22,854 $17,012 $46,973 $29,436


BaaS income Three Months Ended Six Months Ended
(dollars in thousands; unaudited) June 30,
2024		 March 31,
2024		 June 30,
2023		 June 30,
2024		 June 30,
2023
BaaS program income:          
Servicing and other BaaS fees $1,525 $1,131 $895 $2,656 $1,843
Transaction fees  1,309  1,122  1,052  2,431  1,969
Interchange fees  1,625  1,539  975  3,164  1,764
Reimbursement of expenses  1,637  1,033  1,026  2,670  1,947
BaaS program income  6,096  4,825  3,948  10,921  7,523
BaaS indemnification income:          
BaaS credit enhancements  60,826  79,808  51,027  140,634  93,389
BaaS fraud enhancements  1,784  923  1,537  2,707  3,536
BaaS indemnification income  62,610  80,731  52,564  143,341  96,925
Total noninterest BaaS income $68,706 $85,556 $56,512 $154,262 $104,448


BaaS loan and fraud expense: Three Months Ended Six Months Ended
(dollars in thousands; unaudited) June 30,
2024		 March 31,
2024		 June 30,
2023		 June 30,
2024		 June 30,
2023
BaaS loan expense $29,076 $24,837 $22,033 $53,913 $39,587
BaaS fraud expense  1,784  923  1,537  2,707  3,536
Total BaaS loan and fraud expense $30,860 $25,760 $23,570 $56,620 $43,123

FAQ

What was Coastal Financial's net income for Q2 2024?

Coastal Financial reported a net income of $11.6 million for Q2 2024.

How much did Coastal Financial's total assets increase in Q2 2024?

Total assets increased by $96.3 million to $3.96 billion in Q2 2024.

What is the net interest margin for Coastal Financial in Q2 2024?

The net interest margin for Q2 2024 was 7.13%.

How much did Coastal Financial's deposits grow in Q2 2024?

Deposits grew by $80.5 million to $3.54 billion in Q2 2024.

What was the return on average equity (ROE) for Q2 2024?

The return on average equity (ROE) was 15.22% for Q2 2024.

What was the yield on loans for Coastal Financial in Q2 2024?

The yield on loans was 11.23% for Q2 2024.

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