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Coastal Financial Corporation Announces Third Quarter 2023 Results

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Coastal Financial Corporation reports unaudited financial results for the third quarter of 2023. Net income of $10.3 million, or $0.75 per diluted common share. Total assets increased by $145.0 million, or 4.1%. Total loans decreased by $40.5 million, or 1.3%. Deposits increased by $127.1 million, or 4.0%.
Positive
  • Coastal Financial Corporation reported a net income of $10.3 million for the third quarter of 2023, showing a decrease from the previous quarter. Total assets increased by $145.0 million, indicating growth. Deposits also saw a significant increase of $127.1 million.
Negative
  • Total loans decreased by $40.5 million during the third quarter of 2023, which could negatively impact the company's revenue and profitability.

Third Quarter 2023 Highlights:

  • Net income of $10.3 million, or $0.75 per diluted common share, for the three months ended September 30, 2023, compared to $12.9 million, or $0.95 per diluted common share for the three months ended June 30, 2023.
    • Return on average assets ("ROA") of 1.13% for the three months ended September 30, 2023.
    • Return on average equity ("ROE") of 14.60% for the three months ended September 30, 2023.
  • Total assets increased $145.0 million, or 4.1%, to $3.68 billion for the quarter ended September 30, 2023, compared to $3.54 billion at June 30, 2023.
  • Total loans, net of deferred fees decreased $40.5 million, or 1.3%, to $2.97 billion for the quarter ended September 30, 2023 as management sold loans as part of our strategy to reduce risk, optimize the CCBX loan portfolio and strengthen the balance sheet through enhanced credit standards.
    • Community bank loans increased $71.6 million, or 4.2%, to $1.78 billion.
    • CCBX loans decreased $112.1 million, or 8.7%, to $1.18 billion.
      • $320.9 million in CCBX loans were sold.
  • Deposits increased $127.1 million, or 4.0%, to $3.29 billion for the quarter ended September 30, 2023.
    • CCBX deposit growth of $99.1 million, or 6.0%, to $1.75 billion.
      • CCBX deposit growth is net of an additional $51.9 million in CCBX deposits that were transferred off balance sheet for increased FDIC insurance coverage.
    • Community bank deposits increased $28.0 million, or 1.9%, to $1.54 billion.
      • Includes noninterest bearing deposits of $584.0 million or 38.0% of total community bank deposits
      • Community bank cost of deposits was 1.31%.
    • Uninsured deposits of $599.0 million, or 18.2% of total deposits as of September 30, 2023, compared to $632.1 million, or 20.0% of total deposits as of June 30, 2023.
  • Liquidity/Borrowings as of September 30, 2023:
    • Capacity to borrow up to $577.9 million from Federal Home Loan Bank and the Federal Reserve Bank discount window with no borrowings taken under these facilities since the first quarter of 2022.
  • Investment Portfolio as of September 30, 2023 :
    • Available for sale ("AFS") investments of $98.9 million, compared to $98.2 million as of June 30, 2023, of which 99.7% are U.S. Treasuries, with a weighted average remaining duration of 5 months as of September 30, 2023.
    • Held to maturity ("HTM") investments of $42.6 million, of which 100% are U.S. Agency mortgage backed securities held for CRA purposes. The carrying value of the HTM investments is $1.7 million more than the fair value, the weighted average remaining life is 18.6 years as of September 30, 2023 and the weighted average yield is 5.00% for the quarter ended September 30, 2023.

EVERETT, Wash., Oct. 27, 2023 (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 September 30, 2023. 

Quarterly net income for the third quarter of 2023 was $10.3 million, or $0.75 per diluted common share, compared with net income of $12.9 million, or $0.95 per diluted common share, for the second quarter of 2023, and $11.1 million, or $0.82 per diluted common share, for the quarter ended September 30, 2022. 

Total assets increased $145.0 million, or 4.1%, during the third quarter of 2023 to $3.68 billion, from $3.54 billion at June 30, 2023. Total loans, net of deferred fees decreased $40.5 million, or 1.3%, during the three months ended September 30, 2023 to $2.97 billion, compared to $3.01 billion at June 30, 2023. Community bank loans increased $71.6 million, or 4.2%, and offset a $112.1 million decrease in CCBX loans. We continue to monitor and manage the CCBX loan portfolio, and sold $320.9 million in CCBX loans during the quarter ended September 30, 2023. We intentionally reduced the CCBX other consumer and other loans portfolio in an effort to strengthen our balance sheet. We currently expect to sell additional loans in the coming months as we continue working to optimize our CCBX portfolio through new partners, products and building on our existing relationships. Deposits increased $127.1 million, or 4.0%, during the three months ended September 30, 2023. CCBX deposits grew $99.1 million, or 6.0%. Community bank deposits increased $28.0 million, or 1.9%. Our cost of deposits for the community bank was 1.31% for the three months ended September 30, 2023, compared to 0.98% for the three months ended June 30, 2023.

We saw solid deposit growth in the third quarter, with deposits increasing $127.1 million, or 4.0%, compared to June 30, 2023. Fully insured IntraFi network reciprocal deposits increased $56.1 million to $296.4 million as of September 30, 2023, compared to $240.3 million as of June 30, 2023. These fully insured reciprocal deposits allow our larger deposit customers to fully insure their deposits through a reciprocal agreement with other banks. Loans receivable was deliberately decreased $40.5 million, or 1.3%, during the three months ended September 30, 2023 as part of our plan to optimize and strengthen the balance sheet. 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 September 30, 2023, we had $474.9 million in cash on the balance sheet and the capacity to borrow up to $577.9 million from Federal Home Loan Bank and the Federal Reserve Bank discount window,with no borrowings taken under these facilities since the first quarter of 2022. Cash on the balance sheet and borrowing capacity totaled $1.05 billion, which represented 32.0% of total deposits and exceeded our $599.0 million in uninsured deposits as of September 30, 2023.

"At Coastal we pride ourselves on being proactive in how we serve our customers, manage risk and position the Bank for shareholders. We continue to focus on our BaaS business by concentrating on working with larger partners and optimizing our CCBX loan portfolio so we can grow and advance our presence in the BaaS space. Over the last two years we have deliberately reduced the number of partners that we work with, focusing on larger partners and companies. We are being more intentional in our selection of products and partnerships that best serve our customers and shareholders in order to achieve our long term profitability objective. We only want to work with the best and quite frankly, our expertise and strength has attracted a more established partner set which we are leaning into. During the quarter ended September 30, 2023 we started the process of optimizing our CCBX loan portfolio by selling higher yielding loans that have a greater potential for credit deterioration. As we work to optimize our CCBX loan portfolio through enhanced credit standards, we expect lower earnings in the short term with lower loan yields and compressed margins but we continue to focus on strengthening the portfolio with new loans that we believe will provide for long term stability and profitability. For us to continue to grow and succeed, we cannot be static. We can always be better. We will continue to look for opportunities to grow our Company and will focus on the long term, holding down deposits costs when possible and managing expense through efficient use of technology. We will work to do all that while keeping our un-Bankey community bank mentality and feel," stated Eric Sprink, the CEO of the Company and the Bank.

Results of Operations Overview

The Company has one main subsidiary, the Bank which consists of three segments: CCBX, the community bank and treasury & administration. The CCBX segment includes 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 $62.2 million for the quarter ended September 30, 2023, a decrease of $121,000, or 0.2%, from $62.4 million for the quarter ended June 30, 2023, and an increase of $13.0 million, or 26.5%, from $49.2 million for the quarter ended September 30, 2022.  Yield on loans receivable was 10.84% for the three months ended September 30, 2023, compared to 10.85% for the three months ended June 30, 2023 and 8.46% for the three months ended September 30, 2022.  Cost of deposits was 3.14% for the three months ended September 30, 2023, compared to 2.72% for the three months ended June 30, 2023 and 0.82% for the three months ended September 30, 2022. The decrease in net interest income compared to June 30, 2023, was a result of increased interest expense due to an increase in average interest bearing deposits and an increase in cost of deposits as a result of higher interest rates. The increase in net interest income compared to September 30, 2022 was largely related to increased yield on loans resulting from higher interest rates and growth in higher yielding loans, primarily from CCBX. Total average loans receivable for the three months ended September 30, 2023 was $3.06 billion, compared to $2.97 billion for the three months ended June 30, 2023, and $2.45 billion for the three months ended September 30, 2022.

Interest and fees on loans totaled $83.7 million for the three months ended September 30, 2023 compared to $80.2 million and $52.3 million for the three months ended June 30, 2023 and September 30, 2022, respectively.  Total loans, net of deferred fees decreased $40.5 million, or 1.3%, during the quarter ended September 30, 2023, which included a $112.1 million decrease in CCBX loans partially offset by an increase of $72.3 million in community bank loans. The decrease in CCBX loans includes a decrease of $87.0 million, or 10.3%, in consumer and other loans and a decrease of $24.3 million, or 17.5%, 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 $320.9 million in CCBX loans during the quarter ended September 30, 2023. We repositioned ourselves by reducing our CCBX consumer installment loans in an effort to optimize our loan portfolio and we will work to continue growing the CCBX portfolio in future quarters with loans that have lower potential risk of credit deterioration and are more aligned with our long term objectives. The increase in interest and fees on loans for the quarter ended September 30, 2023, compared to June 30, 2023 and September 30, 2022, was largely due to growth in higher yielding loans and increased interest rates.  As a result of the Federal Open Market Committee (“FOMC”) raising the target Federal Funds rate 0.25% during the quarter, interest rates on our existing variable rate loans were affected, as are the rates on new loans. The FOMC last raised the target Federal Funds rate 0.25% on July 26, 2023. We continue to monitor the impact of these increases in interest rates.

Interest income from interest earning deposits with other banks was $3.9 million for the quarter ended September 30, 2023 an increase of $1.2 million compared to June 30, 2023 and an increase of $1.6 million compared to September 30, 2022 primarily due to an increase in interest rates.  The average balance of interest earning deposits with other banks for the three months ended September 30, 2023 was $285.6 million, compared to $211.4 million and $397.6 million for the three months ended June 30, 2023 and September 30, 2022, respectively.  The average yield on these interest earning deposits with other banks increased to 5.40% for the quarter ended September 30, 2023, compared to 5.08% and 2.27% for the quarters ended June 30, 2023 and September 30, 2022, respectively.

Total interest expense was $26.1 million for the quarter ended September 30, 2023, a $4.8 million increase from the quarter ended June 30, 2023 and a $20.1 million increase from the quarter ended September 30, 2022. Interest expense on deposits was $25.5 million for the quarter ended September 30, 2023, compared to $20.7 million for the quarter ended June 30, 2023 and $5.7 million for the quarter ended September 30, 2022. Interest expense on interest bearing deposits increased $4.8 million for the quarter ended September 30, 2023, compared to the quarter ended June 30, 2023, and $19.7 million compared to the quarter ended September 30, 2022 as a result 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 $651,000 for the quarter ended September 30, 2023, compared to $661,000 and $273,000 for the quarters ended June 30, 2023 and September 30, 2022, respectively. The $378,000 increase in interest expense on borrowed funds from the quarter ended September 30, 2022 is the result of an increase of $19.8 million in subordinated debt and an increase in interest rates.

Total cost of deposits was 3.14% for the three months ended September 30, 2023, compared to 2.72% for the three months ended June 30, 2023, and 0.82%, for the three months ended September 30, 2022. Community bank and CCBX cost of deposits were 1.31% and 4.80% respectively, for the three months ended September 30, 2023, compared to 0.98% and 4.42%, for the three months ended June 30, 2023, and 0.16% and 1.79% for the three months ended September 30, 2022. The increase in cost of deposits for the three months ended September 30, 2023 compared to the prior periods for both segments is a result of increased interest rates. While we continue working to hold down deposit costs, any additional FOMC interest rate increases will increase our cost of deposits and result in higher interest expense on interest bearing deposits.

Net Interest Margin

Net interest margin was 7.10% for the three months ended September 30, 2023, compared to 7.58% and 6.58% for the three months ended June 30, 2023 and September 30, 2022, respectively.  The decrease in net interest margin compared to the three months ended June 30, 2023 was largely due to an increase in cost of deposits and selling higher yielding consumer loans. Higher interest rates on interest bearing deposits compressed net interest margin as a result of our decision to increase our rates to rival our competitors raising rates and CCBX deposit pricing being tied to the Fed Funds rate. Additionally, the actions we took in an effort to strengthen the balance sheet by selling higher risk and higher yielding loans during the quarter ended September 30, 2023 will continue to impact net interest margin in future quarters. The increase in net interest margin compared to the three months ended September 30, 2022 was largely a result of increased volume and an increase in higher interest rates on new loans and on existing variable rate loans as they reprice.  Loans receivable decreased $40.5 million and increased $459.1 million, compared to June 30, 2023 and September 30, 2022, respectively.  Additionally, the Fed Funds interest rate increases have resulted in existing, variable rate loans repricing to higher interest rates.  Interest and fees on loans receivable increased $3.5 million, or 4.3%, to $83.7 million for the three months ended September 30, 2023, compared to $80.2 million for the three months ended June 30, 2023, and $52.3 million for the three months ended September 30, 2022.  Also contributing to the increase in net interest margin compared to the three months ended September 30, 2022, was a $1.6 million increase in interest on interest earning deposits.  These interest earning deposits earned an average rate of 5.40% for the quarter ended September 30, 2023, compared to 5.08% and 2.27% for the quarters ended June 30, 2023 and September 30, 2022, respectively.  Average investment securities increased $7.7 million to $118.0 million due to the purchase of $30.1 million in securities during the three months ended September 30, 2023 compared to the three months ended June 30, 2023, and increased $14.3 million compared to the three months ended September 30, 2022. Interest on investment securities increased $113,000 for the three months ended September 30, 2023 compared to the three months ended June 30, 2023 as a result of the increase in average outstanding balance coupled with increased yield, which also positively impacted net interest margin. Interest on investment securities increased $212,000 compared to September 30, 2022, 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 3.18% for the quarter ended September 30, 2023, an increase of 41 basis points from the quarter ended June 30, 2023 and an increase of 233 basis points from the quarter ended September 30, 2022. Cost of deposits for the quarter ended September 30, 2023 was 3.14%, compared to 2.72% for the quarter ended June 30, 2023, and 0.82% for the quarter ended September 30, 2022. The increased cost of funds and deposits compared to June 30, 2023 and September 30, 2022 was due to the increase in interest rates compared to the previous periods and growth in higher cost CCBX deposits compared to September 30, 2022.

During the quarter ended September 30, 2023, total loans receivable decreased by $40.5 million, or 1.3%, to $2.97 billion, compared to $3.01 billion for the quarter ended June 30, 2023.  This decrease consists of a $112.1 million decrease in CCBX loans partially offset by $71.6 million in community bank loan growth. CCBX loans were sold in an effort to strengthen the loan portfolio and we will work to continue growing the CCBX portfolio with enhanced credit standards and lower potential for future credit deterioration. Total loans receivable as of September 30, 2023 increased $459.1 million compared to September 30, 2022.  This increase includes community bank loan growth of $192.3 million and an increase in CCBX loans of $266.8 million. During the quarter ended September 30, 2023, $320.9 million in loans were sold during the quarter and no loans were held for sale as of September 30, 2023; compared to $35.9 million in loans held for sale as of June 30, 2023. 

Total yield on loans receivable for the quarter ended September 30, 2023 was 10.84%, compared to 10.85% for the quarter ended June 30, 2023, and 8.46% for the quarter ended September 30, 2022. This slight decrease in yield on loans receivable compared to the quarter ended June 30, 2023 is a combination of an overall increase in interest rates, repricing of variable rate loans as well as change in mix of CCBX partner loans.  During the quarter ended September 30, 2023, community bank loans increased 4.2%, or $71.6 million, compared to the quarter ended June 30, 2023, with an average yield of 6.20% and CCBX loans outstanding decreased 8.7%, or $112.1 million, compared to June 30, 2023, with an average CCBX yield of 17.05%. 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 Nine Months Ended
 September 30, 2023 June 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022
 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		6.20% 1.31% 6.28% 0.98% 5.31% 0.16% 6.15% 0.99% 5.17% 0.11%
CCBX (1)17.05% 4.80% 16.95% 4.42% 13.96% 1.79% 16.74% 4.41% 13.16% 0.91%
Consolidated10.84% 3.14% 10.85% 2.72% 8.46% 0.82% 10.57% 2.69% 7.63% 0.41%

(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
  September 30, 2023 June 30, 2023 September 30, 2022
(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 $56,279 17.05% $53,632 16.95% $31,449 13.96%
Less: BaaS loan expense  23,003 6.97%  22,033 6.96%  15,560 6.91%
Net BaaS loan income(1) $33,276 10.08% $31,599 9.99% $15,889 7.05%
Average BaaS Loans(3) $1,309,380   $1,269,406   $893,655  


  For the Nine Months Ended
  September 30, 2023 September 30, 2022
(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 $152,131 16.74% $64,721 13.16%
Less: BaaS loan expense  62,590 6.89%  36,079 7.34%
Net BaaS loan income(1) $89,541 9.85% $28,642 5.82%
Average BaaS Loans(3) $1,215,224   $657,574  

(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 1.13% for the quarter ended September 30, 2023 compared to 1.52% and 1.45% for the quarters ended June 30, 2023 and September 30, 2022, respectively.  ROA for the quarter ended September 30, 2023, was down 0.39% and 0.32%, respectively, as a result of lower margin and higher expenses compared to June 30, 2023 and September 30, 2022.

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

  Three Months Ended Nine Months Ended
(unaudited) September 30,
2023		 June 30,
2023		 March 31,
2023		 December 31,
2022		 September 30,
2022		 September 30,
2023		 September 30,
2022
               
Return on average assets(1) 1.13% 1.52% 1.58% 1.66% 1.45% 1.40% 1.27%
Return on average equity(1) 14.60% 19.53% 19.89% 21.86% 19.36% 17.90% 16.90%
Yield on earnings assets(1) 10.08% 10.18% 9.19% 8.47% 7.38% 9.84% 6.03%
Yield on loans receivable(1) 10.84% 10.85% 9.95% 9.33% 8.46% 10.57% 7.63%
Cost of funds(1) 3.18% 2.77% 2.19% 1.61% 0.85% 2.73% 0.44%
Cost of deposits(1) 3.14% 2.72% 2.13% 1.56% 0.82% 2.69% 0.41%
Net interest margin(1) 7.10% 7.58% 7.15% 6.96% 6.58% 7.27% 5.61%
Noninterest expense to average assets(1) 6.23% 6.11% 5.69% 5.97% 6.66% 6.02% 5.54%
Noninterest income to average assets(1) 3.81% 6.90% 6.28% 5.43% 4.48% 5.61% 3.79%
Efficiency ratio 58.36% 42.92% 43.03% 48.94% 61.12% 47.60% 59.77%
Loans receivable to deposits(2) 90.19% 96.23% 92.55% 93.25% 89.92% 90.19% 89.92%

(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
 September 30, June 30, September 30,
(dollars in thousands; unaudited) 2023  2023  2022 
Deposit service charges and fees$998 $989 $986 
Loan referral fees 1  682  — 
Unrealized gain on equity securities, net 5  155  (133)
Gain on sales of loans, net 107  23  — 
Other 291  234  260 
Noninterest income, excluding BaaS program income and BaaS indemnification income 1,402  2,083  1,113 
Servicing and other BaaS fees 997  895  1,079 
Transaction fees 1,036  1,052  940 
Interchange fees 1,216  975  738 
Reimbursement of expenses 1,152  1,026  885 
BaaS program income 4,401  3,948  3,642 
BaaS credit enhancements 25,926  51,027  17,928 
Baas fraud enhancements 2,850  1,537  11,708 
BaaS indemnification income 28,776  52,564  29,636 
Total BaaS income 33,177  56,512  33,278 
Total noninterest income$34,579 $58,595 $34,391 

Noninterest income was $34.6 million for the three months ended September 30, 2023, a decrease of $24.0 million from $58.6 million for the three months ended June 30, 2023, and an increase of $188,000 from $34.4 million for the three months ended September 30, 2022.  The decrease in noninterest income over the quarter ended June 30, 2023 was primarily due to a decrease of $23.3 million in total BaaS income. The $23.3 million decrease in total BaaS income included a $25.1 million decrease in BaaS credit enhancements related to the allowance for credit losses, a $1.3 million increase in BaaS fraud enhancements, and an increase of $453,000 in BaaS program income. The increase in BaaS program income is largely the result of higher transaction and interchange fees (see “Appendix B” for more information on the accounting for BaaS allowance for credit losses and credit and fraud enhancements). The $188,000 increase in noninterest income over the quarter ended September 30, 2022 was primarily due to a $138,000 increase in gain on sale of equity securities and $107,000 increase in gain on sale of loans partially offset by a $101,000 decrease in BaaS income. The $101,000 decrease in BaaS income included a $8.0 million increase in BaaS credit enhancements, a $8.9 million decrease in BaaS fraud enhancements and a $759,000 increase in BaaS program income. The decrease in BaaS credit enhancement compared to the prior period is a result of lower CCBX loan balances increased underwriting standards and change in mix of CCBX loans.

Our CCBX segment continues to evolve, and we now have 22 relationships, at varying stages, as of September 30, 2023.  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. The sale of $320.9 million in CCBX loans during the quarter ended September 30, 2023 is part of our strategy to strengthen the balance sheet and lower the overall potential credit risk in our loan portfolio. We expect net interest margin will tighten as higher quality loans yield less than higher risk loans and we also expect the size of our CCBX loan portfolio will be smaller than in previous quarters while we work to grow the portfolio with loans that are subject to increased underwriting standards. We expect this process to take 2 to 3 quarters. At the same time we will be focused on increasing our efficiency and using technology to reduce future expense growth.

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

 As of
(unaudited)September 30,
2023		June 30,
2023		September 30,
2022
Active181819
Friends and family / testing112
Implementation / onboarding110
Signed letters of intent115
Wind down - preparing to exit relationship113
Total CCBX relationships222229

The following table details noninterest expense for the periods indicated:

Noninterest Expense

  Three Months Ended
  September 30, June 30, September 30,
(dollars in thousands; unaudited)  2023  2023  2022
Salaries and employee benefits $18,087 $16,309 $14,506
Legal and professional expenses  4,447  4,645  2,251
Data processing and software licenses  2,366  1,972  1,670
Occupancy  1,224  1,143  1,147
Point of sale expense  1,068  814  742
Director and staff expenses  529  519  475
FDIC assessments  694  570  850
Excise taxes  541  531  588
Marketing  169  115  69
Other  1,523  1,722  1,522
Noninterest expense, excluding BaaS loan and BaaS fraud expense  30,648  28,340  23,820
BaaS loan expense  23,003  22,033  15,560
BaaS fraud expense  2,850  1,537  11,707
BaaS loan and fraud expense  25,853  23,570  27,267
Total noninterest expense $56,501 $51,910 $51,087

Total noninterest expense increased $4.6 million to $56.5 million for the three months ended September 30, 2023, compared to $51.9 million for the three months ended June 30, 2023 and increased $5.4 million from $51.1 million for the three months ended September 30, 2022. The increase in noninterest expense for the quarter ended September 30, 2023, as compared to the quarter ended June 30, 2023, was primarily due to a $2.3 million increase in BaaS expense (of which $1.0 million is related to an increase in BaaS loan expense and $1.3 million is due to an increase in BaaS fraud expense) and a $1.8 million increase in salaries and employee benefits. 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.  The $1.8 million increase in salaries and employee benefits is related to the full quarter effect of hiring staff for our ongoing growth initiatives. Salaries and benefits included one time expenses of $494,000 as part of our initiative to manage costs going forward. Additionally, data processing and software licenses increased $394,000 as a result of enhancements in technology.

The increase in noninterest expenses for the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022 were largely due to a decrease of $1.4 million in BaaS partner expense (of which $7.4 million is related to an increase in BaaS loan expense offset by a decrease of $8.9 million in BaaS fraud expense), $3.6 million increase in salary and employee benefits related to hiring staff for CCBX and additional staff for our ongoing growth initiatives and $2.2 million increase in legal and professional fees due to increased fees related to data and risk management, building out our infrastructure and increased consulting expenses for projects and enhanced monitoring. We anticipate that our legal and professional fees will decline as projects have been completed and initiatives are achieved, with legal and professional fees leveling off to approximate first quarter 2023 levels staring in fourth quarter 2023. Additionally, there was a $696,000 increase in data processing and software licenses due to enhancements in technology and a $326,000 increase in point of sale expenses which is attributed to increased CCBX activity.

Provision for Income Taxes

The provision for income taxes was $2.8 million for the three months ended September 30, 2023, $3.9 million for the three months ended June 30, 2023 and $3.0 million for the third quarter of 2022. The provision for income taxes was lower for the three months ended September 30, 2023 compared to June 30, 2023 as a result of lower taxable income. 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 taxes.

Financial Condition Overview

Total assets increased $145.0 million, or 4.1%, to $3.68 billion at September 30, 2023 compared to $3.54 billion at June 30, 2023. The increase is primarily due to $199.7 million increase in interest earning deposits with other banks partially offset by loans receivable decreasing $40.5 million. We deliberately decreased loans as part of our strategy to optimize our CCBX portfolio and strengthen the balance sheet through enhanced credit standards. Additionally, there were no loans held for sale at September 30, 2023, compared to $35.9 million at June 30, 2023.  

Total assets increased $546.5 million, or 17.4%, at September 30, 2023, compared to $3.13 billion at September 30, 2022.  The increase is primarily due to loans receivable increasing $459.1 million, and an increase of $42.6 million in investment securities and a $71.7 million increase in interest earning deposits with other banks compared to September 30, 2022.

Loans Receivable

Total loans receivable decreased $40.5 million to $2.97 billion at September 30, 2023, from $3.01 billion at June 30, 2023, and increased $459.1 million from $2.51 billion at September 30, 2022. The decrease in loans receivable over the quarter ended June 30, 2023 was the result of a decease of $112.1 million in CCBX loans from loan sales to optimize our CCBX loan portfolio and a $71.6 million increase in community bank loans. We continue to monitor and manage the CCBX loan portfolio, and sold $320.9 million in CCBX loans during the quarter ended September 30, 2023. CCBX other consumer and other loans were reduced by $148.4 million to $317.0 million at September 30, 2023 from $465.4 million at June 30, 2023 as part of our optimizing strategy to strengthen the balance sheet. The change in loans receivable over the quarter ended September 30, 2022 includes CCBX loan growth of $266.8 million and community bank loan growth of $192.3 million as of September 30, 2023.  

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

 As of September 30, 2023 As of June 30, 2023 As of September 30, 2022
(dollars in thousands; unaudited)Amount Percent Amount Percent Amount Percent
Commercial and industrial loans:           
PPP loans$3,310  0.1% $3,595  0.1% $5,794  0.2%
Capital call lines 114,174  3.8   138,428  4.6   174,311  6.9 
All other commercial & industrial loans 213,791  7.2   211,806  7.0   159,823  6.4 
Total commercial and industrial loans: 331,275  11.1   353,829  11.7   339,928  13.5 
Real estate loans:           
Construction, land and land development 167,686  5.6   186,706  6.2   224,188  8.9 
Residential real estate 477,147  16.1   463,179  15.4   402,781  16.0 
Commercial real estate 1,237,849  41.6   1,164,088  38.6   1,024,067  40.7 
Consumer and other loans 760,463  25.6   846,459  28.1   523,536  20.9 
Gross loans receivable 2,974,420  100.0%  3,014,261  100.0%  2,514,500  100.0%
Net deferred origination fees - PPP loans (52)    (60)    (111)  
Net deferred origination fees - all other loans (7,333)    (6,648)    (6,500)  
Loans receivable$2,967,035    $3,007,553    $2,507,889   
Loan Yield(1) 10.84%    10.85%    8.46%  

(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
  September 30, 2023 June 30, 2023 September 30, 2022
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Commercial and industrial loans:            
PPP loans $3,310  0.2% $3,595  0.2% $5,794  0.4%
All other commercial & industrial loans  154,922  8.6   151,483  8.8   143,808  9.0 
Real estate loans:            
Construction, land and land development loans  167,686  9.4   186,706  10.9   224,188  14.0 
Residential real estate loans  225,372  12.6   211,966  12.3   198,871  12.5 
Commercial real estate loans  1,237,849  69.1   1,164,088  67.7   1,024,067  64.0 
Consumer and other loans:            
Other consumer and other loans  2,483  0.1   1,457  0.1   2,220  0.1 
Gross Community Bank loans receivable  1,791,622  100.0%  1,719,295  100.0%  1,598,948  100.0%
Net deferred origination fees  (6,961)    (6,261)    (6,628)  
Loans receivable $1,784,661    $1,713,034    $1,592,320   
Loan Yield(1)  6.20%    6.28%    5.31%  

(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
  September 30, 2023 June 30, 2023 September 30, 2022
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Commercial and industrial loans:            
Capital call lines $114,174  9.6% $138,428  10.7% $174,311  19.0%
All other commercial & industrial loans  58,869  5.0   60,323  4.7   16,015  1.8 
Real estate loans:            
Residential real estate loans  251,775  21.3   251,213  19.4   203,910  22.3 
Consumer and other loans:            
Credit cards  440,993  37.3   379,642  29.3   216,995  23.7 
Other consumer and other loans  316,987  26.8   465,360  35.9   304,321  33.2 
Gross CCBX loans receivable  1,182,798  100.0%  1,294,966  100.0%  915,552  100.0%
Net deferred origination (fees) costs  (424)    (447)    17   
Loans receivable $1,182,374    $1,294,519    $915,569   
Loan Yield - CCBX(1)(2)  17.05%    16.95%    13.96%  
             

(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 $127.1 million, or 4.0%, to $3.29 billion at September 30, 2023 from $3.16 billion at June 30, 2023. The increase was due to a $131.3 million increase in core deposits, partially offset by a $4.2 million decrease in time deposits. Deposits in our CCBX segment increased $99.1 million, from $1.65 billion at June 30, 2023, to $1.75 billion at September 30, 2023 and community bank deposits increased $28.0 million from $1.51 billion at June 30, 2023, to $1.54 billion at September 30, 2023. The deposits from our CCBX segment are predominately classified as interest bearing, or NOW and money market accounts. During the quarter ended September 30, 2023, noninterest bearing deposits decreased $73.8 million, or 10.2%, to $651.8 million from $725.6 million at June 30, 2023. Community bank noninterest bearing deposits totaled $584.0 million or 38.0% of total community bank deposits and CCBX noninterest bearing deposits totaled $67.8 million, or 3.9% of total CCBX deposits. In the quarter ended September 30, 2023 compared to the quarter ended June 30, 2023, NOW and money market accounts increased $209.5 million, savings deposits decreased $4.4 million, and time deposits decreased $4.2 million. Included in total deposits is $296.4 million in IntraFi network reciprocal NOW and money market accounts as of September 30, 2023, which provides our larger deposit customers with fully insured deposits through a reciprocal agreement with other banks. Uninsured deposits decreased to $599.0 million as of September 30, 2023, compared to $632.1 million as of June 30, 2023.

Total deposits increased $452.6 million, or 16.0%, to $3.29 billion at September 30, 2023 compared to $2.84 billion at September 30, 2022. The increase is largely the result of growth in CCBX deposits. Noninterest bearing deposits decreased $161.4 million, or 19.9%, to $651.8 million at September 30, 2023 from $813.2 million at September 30, 2022 as a result of customer movement from noninterest to interest bearing accounts. NOW and money market accounts increased $725.6 million, or 40.2%, to $2.53 billion at September 30, 2023, and savings deposits decreased $22.9 million, or 21.3%, and time deposits decreased  $13.3 million, or 39.1%, in the third quarter of 2023 compared to the third quarter of 2022 and includes BaaS-brokered deposits that are now classified as NOW accounts included in core deposits due to a change in the relationship agreement with one of our partners and these deposits increased to $269.2 million as of September 30, 2023, compared to $75.4 million as of September 30, 2022. Deposits in our CCBX segment increased $550.0 million, from $1.20 billion at September 30, 2022, to $1.75 billion at September 30, 2023 and community bank deposits decreased $97.3 million, from $1.63 billion at September 30, 2022, to $1.54 billion at September 30, 2023. The deposits from our CCBX segment are predominately classified as interest bearing, or NOW and money market accounts. Uninsured deposits decreased to $599.0 million as of September 30, 2023, compared to $867.7 million as of September 30, 2022.

Additionally, as of September 30, 2023 $51.9 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.

 As of September 30, 2023 As of June 30, 2023 As of September 30, 2022
(dollars in thousands; unaudited)Amount Percent of
Total
Deposits		 Balance Percent of
Total
Deposits		 Balance Percent of
Total
Deposits
Demand, noninterest bearing$651,786  19.8% $725,592  22.9% $813,217  28.7%
NOW and money market 2,532,668  77.0   2,323,164  73.5   1,807,105  63.7 
Savings 84,628  2.6   88,991  2.8   107,508  3.8 
Total core deposits 3,269,082  99.4   3,137,747  99.2   2,727,830  96.2 
Brokered deposits 1  0.0   1  0.0   75,363  2.6 
Time deposits less than $100,000 8,635  0.2   9,741  0.3   13,296  0.5 
Time deposits $100,000 and over 11,982  0.4   15,083  0.5   20,577  0.7 
Total$3,289,700  100.0% $3,162,572  100.0% $2,837,066  100.0%
Cost of deposits(1) 3.14%    2.72%    0.82%  

(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
  September 30, 2023 June 30, 2023 September 30, 2022
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Demand, noninterest bearing $584,004  38.0% $621,012  41.1% $746,516  45.6%
NOW and money market  852,747  55.5   778,475  51.6   748,347  45.8 
Savings  80,099  5.2   85,146  5.7   106,059  6.5 
Total core deposits  1,516,850  98.7   1,484,633  98.4   1,600,922  97.9 
Brokered deposits  1  0.0   1  0.0   1  0.0 
Time deposits less than $100,000  8,635  0.5   9,741  0.6   13,296  0.8 
Time deposits $100,000 and over  11,982  0.8   15,083  1.0   20,577  1.3 
Total Community Bank deposits $1,537,468  100.0% $1,509,458  100.0% $1,634,796  100.0%
Cost of deposits(1)  1.31%    0.98%    0.16%  

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

CCBX As of
  September 30, 2023 June 30, 2023 September 30, 2022
(dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total
Demand, noninterest bearing $67,782  3.9% $104,580  6.3% $66,701  5.5%
NOW and money market  1,679,921  95.9   1,544,689  93.5   1,058,758  88.1 
Savings  4,529  0.2   3,845  0.2   1,449  0.1 
Total core deposits  1,752,232  100.0   1,653,114  100.0   1,126,908  93.7 
BaaS-brokered deposits  —  0.0   —  0.0   75,362  6.3 
Total CCBX deposits $1,752,232  100.0% $1,653,114  100.0% $1,202,270  100.0%
Cost of deposits(1)  4.80%    4.42%    1.79%  

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

Borrowings

As of September 30, 2023 the Company had the capacity to borrow up to a total of $577.9 million from the Federal Reserve Bank discount window and Federal Home Loan Bank, with no borrowings outstanding on these lines as of September 30, 2023.

Shareholders’ Equity

During the nine months ended September 30, 2023, the Company contributed $15.0 million in capital to the Bank.  The Company had a cash balance of $6.5 million as of September 30, 2023, which is retained for general operating purposes, including debt repayment, and for funding $713,000 in commitments to bank technology funds.  

Total shareholders’ equity increased $11.8 million since June 30, 2023.  The increase in shareholders’ equity was primarily due to $10.3 million in net earnings, a $918,000 increase from the amortization of equity awards, combined with a decrease in the unrealized loss on available-for-sale securities of $589,000 during the three months ended September 30, 2023.

Capital Ratios

The Company and the Bank remained well capitalized at September 30, 2023, 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) 8.99% 8.03% 5.00%
Common Equity Tier 1 Capital (to risk-weighted assets) 10.20% 8.99% 6.50%
Tier 1 Capital (to risk-weighted assets) 10.20% 9.10% 8.00%
Total Capital (to risk-weighted assets) 11.47% 11.79% 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

Effective January 1, 2023 the Company implemented the CECL allowance model which calculates reserves over the life of the loan and is largely driven by portfolio characteristics, economic outlook, and other key methodology assumptions versus the incurred loss model, which is what we were previously using. As a result of implementing CECL, there was a one-time adjustment to the 2023 opening allowance balance of $3.9 million. The day 1 CECL adjustment for community bank loans included a reduction of $310,000 to the community bank allowance driven by the reversal of the unallocated balance and a reduction of $340,000 related to the community bank unfunded commitment reserve also driven by the reversal of the unallocated balance. This was offset by an increase to the CCBX allowance for $4.2 million. With the mirror image approach accounting related to the contingent receivable for CCBX partner loans, there was a CECL day 1 increase to the indemnification asset in the amount of $4.5 million. Net, the day 1 impact to retained earnings for the Bank’s transition to CECL was an increase of $954,000, excluding the impact of income taxes.

The total allowance for credit losses was $101.1 million and 3.41% of loans receivable at September 30, 2023 compared to $110.8 million and 3.68% at June 30, 2023 and $59.3 million and 2.36% at September 30, 2022. The allowance for credit loss allocated to the CCBX portfolio was $79.8 million and 6.75% of CCBX loans receivable at September 30, 2023, with $21.3 million of allowance for credit loss allocated to the community bank or 1.19% 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 September 30, 2023 As of June 30, 2023 As of September 30, 2022
(dollars in thousands; unaudited) Community Bank CCBX Total Community Bank CCBX Total Community Bank CCBX Total
Loans receivable $1,784,661  $1,182,374  $2,967,035  $1,713,034  $1,294,519  $3,007,553  $1,592,320  $915,569  $2,507,889 
Allowance for
credit losses		  (21,316)  (79,769)  (101,085)  (20,653)  (90,109)  (110,762)  (20,139)  (39,143)  (59,282)
Allowance for
credit losses to
total loans
receivable		  1.19%  6.75%  3.41%  1.21%  6.96%  3.68%  1.26%  4.28%  2.36%

Provision for credit losses - loans totaled $27.2 million for the three months ended September 30, 2023, $52.6 million for the three months ended June 30, 2023, and $18.4 million for the three months ended September 30, 2022. Net charge-offs totaled $36.8 million for the quarter ended September 30, 2023, compared to $31.0 million for the quarter ended June 30, 2023 and $8.5 million for the quarter ended September 30, 2022. Net charge-offs increased primarily due to CCBX partner loans. CCBX partner agreements provide for a credit enhancement that covers the net-charge-offs on CCBX loans and negative deposit accounts, except in accordance with the program agreement for one partner where the Company is responsible for credit losses on approximately 10% of a $231.9 million loan portfolio. At September 30, 2023, our portion of this portfolio represented $23.2 million in loans.

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

  Three Months Ended
  September 30, 2023 June 30, 2023 September 30, 2022
(dollars in thousands; unaudited) Community Bank CCBX Total Community Bank CCBX Total Community Bank CCBX Total
Gross charge-offs $3  $37,023  $37,026  $9  $32,290  $32,299  $411  $8,102  $8,513 
Gross recoveries  (3)  (189)  (192)  —   (1,340)  (1,340)  (3)  (6)  (9)
Net charge-offs $—  $36,834  $36,834  $9  $30,950  $30,959  $408  $8,096  $8,504 
Net charge-offs to
average loans(1)		  0.00%  11.16%  4.77%  0.00%  9.78%  4.19%  0.10%  3.59%  1.38%

(1) Annualized calculations shown for periods presented.

The decrease in the Company’s provision for credit losses - loans during the quarter ended September 30, 2023, is a result of a decrease in CCBX loans receivable. During the quarter ended September 30, 2023, a $26.5 million provision for credit losses - loans was recorded for CCBX partner loans based on management’s analysis, compared to the $52.6 million provision for credit losses - loans that was recorded for CCBX for the quarter ended June 30, 2023, as a result of a decrease 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. 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 obligations then the bank could be exposed to additional credit losses. Management regularly evaluates and manages this counterparty risk. The Company is responsible for credit losses on approximately 10% of a $231.9 million CCBX loan portfolio. At September 30, 2023, 10% of this portfolio represented $23.2 million in loans. The factors used in management’s analysis for community bank credit losses indicated that a provision of $664,000 and was needed for the quarter ended September 30, 2023 and a small adjustment (recapture) of $47,000 and $238,000 was needed for the quarters ended June 30, 2023 and September 30, 2022, respectively.

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

  Three Months Ended Nine Months Ended
(dollars in thousands; unaudited) September 30,
2023		 June 30,
2023		 September 30,
2022		 September 30,
2023		 September 30,
2022
Community bank $664 $(47) $(238) $1,045 $214
CCBX  26,493  52,645   18,666   122,254  45,250
Total provision expense $27,157 $52,598  $18,428  $123,299 $45,464

At September 30, 2023, our nonperforming assets were $43.5 million, or 1.18% of total assets, compared to $33.7 million, or 0.95%, of total assets, at June 30, 2023, and $22.9 million, or 0.73% of total assets, at September 30, 2022. These ratios are impacted by CCBX loans over 90 days delinquent that are covered by CCBX partner credit enhancements. As of September 30, 2023, $34.7 million of the $36.2 million in nonperforming CCBX loans were covered by CCBX partner credit enhancements. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by indemnifying or reimbursing incurred losses. Under the agreement, CCBX partners will indemnify or reimburse the Bank for its loss/charge-off on these loans. Nonperforming assets increased $9.8 million during the quarter ended September 30, 2023, compared to the quarter ended June 30, 2023, due to a $9.9 million increase in CCBX loans that are past due 90 days or more and still accruing combined with a $76,000 decrease in community bank nonaccrual loans. As a result of the type of loans (primarily consumer loans) originated through our CCBX partners we anticipate that balances 90 days past due or more and still accruing will increase as those 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. Community bank nonaccrual loans decreased due to principal reductions. There were no repossessed assets or other real estate owned at September 30, 2023. Our nonperforming loans to loans receivable ratio was 1.47% at September 30, 2023, compared to 1.12% at June 30, 2023, and 0.91% at September 30, 2022.

For the quarter ended September 30, 2023, there were zero community bank net charge-offs and $7.3 million nonperforming community bank loans, including a multifamily loan for $6.9 million which we believe is currently well secured. For the quarter ended September 30, 2023, $36.8 million in net charge-offs were recorded on CCBX loans. These loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses. The Company is responsible for credit losses on approximately 10% of a $231.9 million loan portfolio. At September 30, 2023, our portion of this portfolio represented $23.2 million in loans.

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

(dollars in thousands; unaudited)As of September
30, 2023		 As of June 30,
2023		 As of September
30, 2022
Nonaccrual loans:     
Commercial and industrial loans$2  $5  $94 
Real estate loans:     
Construction, land and land development —   66   66 
Residential real estate 176   186   — 
Commercial real estate 7,145   7,142   6,901 
Total nonaccrual loans 7,323   7,399   7,061 
Accruing loans past due 90 days or more:     
Commercial & industrial loans 1,387   808   138 
Real estate loans:     
Residential real estate loans 1,462   1,722   638 
Consumer and other loans:     
Credit cards 24,807   18,306   4,777 
Other consumer and other loans 8,561   5,492   10,268 
Total accruing loans past due 90 days or more 36,217   26,328   15,821 
Total nonperforming loans 43,540   33,727   22,882 
Real estate owned —   —   — 
Repossessed assets —   —   — 
Modified loans for borrowers experiencing financial difficulty —   —   — 
Total nonperforming assets$43,540  $33,727  $22,882 
Total nonaccrual loans to loans receivable 0.25%  0.25%  0.28%
Total nonperforming loans to loans receivable 1.47%  1.12%  0.91%
Total nonperforming assets to total assets 1.18%  0.95%  0.73%

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

Community BankAs of
(dollars in thousands; unaudited)September 30,
2023		 June 30,
2023		 September 30,
2022
Nonaccrual loans:     
Commercial and industrial loans$2 $5 $94
Real estate:     
Construction, land and land development —  66  66
Residential real estate 176  186  —
Commercial real estate 7,145  7,142  6,901
Total nonaccrual loans 7,323  7,399  7,061
Accruing loans past due 90 days or more:     
Total accruing loans past due 90 days or more —  —  —
Total nonperforming loans 7,323  7,399  7,061
Other real estate owned —  —  —
Repossessed assets —  —  —
Total nonperforming assets$7,323 $7,399 $7,061


CCBXAs of
(dollars in thousands; unaudited)September 30,
2023		 June 30,
2023		 September 30,
2022
Nonaccrual loans$— $— $—
Accruing loans past due 90 days or more:     
Commercial & industrial loans 1,387  808  138
Real estate loans:     
Residential real estate loans 1,462  1,722  638
Consumer and other loans:     
Credit cards 24,807  18,306  4,777
Other consumer and other loans 8,561  5,492  10,268
Total accruing loans past due 90 days or more 36,217  26,328  15,821
Total nonperforming loans 36,217  26,328  15,821
Other real estate owned —  —  —
Repossessed assets —  —  —
Total nonperforming assets$36,217 $26,328 $15,821

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 $3.68 billion Bank provides service through 14 branches in Snohomish, Island, and King Counties, the Internet and its mobile banking application. The Bank provides banking as a service to broker-dealers, digital financial service providers, companies and brands that want to provide financial services to their customers through the Bank's CCBX segment. To learn more about the Company visit www.coastalbank.com.

CCB-ER

Contact

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

Forward-Looking Statements

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

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

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

ASSETS
 September 30,
2023		 June 30,
2023		 September 30,
2022
Cash and due from banks$29,984  $29,783  $37,482 
Interest earning deposits with other banks 444,962   245,277   373,246 
Investment securities, available for sale, at fair value 98,939   98,167   97,621 
Investment securities, held to maturity, at amortized cost 42,550   12,563   1,250 
Other investments 11,898   12,037   10,581 
Loans held for sale —   35,923   43,314 
Loans receivable 2,967,035   3,007,553   2,507,889 
Allowance for credit losses (101,085)  (110,762)  (59,282)
Total loans receivable, net 2,865,950   2,896,791   2,448,607 
CCBX credit enhancement asset 91,867   96,928   48,228 
CCBX receivable 13,847   19,113   6,145 
Premises and equipment, net 20,543   18,903   18,467 
Operating lease right-of-use assets 6,126   6,216   5,293 
Accrued interest receivable 22,208   21,581   13,114 
Bank-owned life insurance, net 12,970   12,873   12,576 
Deferred tax asset, net 4,404   25,764   13,997 
Other assets 14,020   3,364   3,820 
Total assets$3,680,268  $3,535,283  $3,133,741 
      
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES     
Deposits$3,289,700  $3,162,572  $2,837,066 
Subordinated debt, net 44,106   44,069   24,343 
Junior subordinated debentures, net 3,589   3,589   3,588 
Deferred compensation 513   547   648 
Accrued interest payable 1,056   766   153 
Operating lease liabilities 6,321   6,413   5,514 
CCBX payable 40,233   27,714   15,191 
Other liabilities 10,300   16,951   18,505 
Total liabilities 3,395,818   3,262,621   2,905,008 
      
SHAREHOLDERS’ EQUITY     
Common stock 129,244   128,315   123,944 
Retained earnings 156,299   146,029   106,880 
Accumulated other comprehensive loss, net of tax (1,093)  (1,682)  (2,091)
Total shareholders’ equity 284,450   272,662   228,733 
Total liabilities and shareholders’ equity$3,680,268  $3,535,283  $3,133,741 


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

 Three Months Ended
 September 30,
2023		 June 30,
2023		 September 30,
2022
INTEREST AND DIVIDEND INCOME     
Interest and fees on loans$83,652 $80,199  $52,328 
Interest on interest earning deposits with other banks 3,884  2,678   2,273 
Interest on investment securities 766  653   554 
Dividends on other investments 29  156   24 
Total interest income 88,331  83,686   55,179 
INTEREST EXPENSE     
Interest on deposits 25,451  20,675   5,717 
Interest on borrowed funds 651  661   273 
Total interest expense 26,102  21,336   5,990 
Net interest income 62,229  62,350   49,189 
PROVISION FOR CREDIT LOSSES - LOANS 27,157  52,598   18,428 
PROVISION (RECAPTURE) FOR UNFUNDED COMMITMENTS 96  (345)  — 
Net interest income after provision for credit losses - loans
and unfunded commitments		 34,976  10,097   30,761 
NONINTEREST INCOME     
Deposit service charges and fees 998  989   986 
Loan referral fees 1  682   — 
Gain on sales of loans, net 107  23   — 
Unrealized (loss) gain on equity securities, net 5  155   (133)
Other income 291  234   260 
Noninterest income, excluding BaaS program income and BaaS indemnification income 1,402  2,083   1,113 
Servicing and other BaaS fees 997  895   1,079 
Transaction fees 1,036  1,052   940 
Interchange fees 1,216  975   738 
Reimbursement of expenses 1,152  1,026   885 
BaaS program income 4,401  3,948   3,642 
BaaS credit enhancements 25,926  51,027   17,928 
BaaS fraud enhancements 2,850  1,537   11,708 
BaaS indemnification income 28,776  52,564   29,636 
Total noninterest income 34,579  58,595   34,391 
NONINTEREST EXPENSE     
Salaries and employee benefits 18,087  16,309   14,506 
Occupancy 1,224  1,143   1,147 
Data processing and software licenses 2,366  1,972   1,670 
Legal and professional expenses 4,447  4,645   2,251 
Point of sale expense 1,068  814   742 
Excise taxes 541  531   588 
Federal Deposit Insurance Corporation ("FDIC") assessments 694  570   850 
Director and staff expenses 529  519   475 
Marketing 169  115   69 
Other expense 1,523  1,722   1,522 
Noninterest expense, excluding BaaS loan and BaaS fraud expense 30,648  28,340   23,820 
BaaS loan expense 23,003  22,033   15,560 
BaaS fraud expense 2,850  1,537   11,707 
BaaS loan and fraud expense 25,853  23,570   27,267 
Total noninterest expense 56,501  51,910   51,087 
Income before provision for income taxes 13,054  16,782   14,065 
PROVISION FOR INCOME TAXES 2,784  3,876   2,964 
NET INCOME$10,270 $12,906  $11,101 
Basic earnings per common share$0.77 $0.97  $0.86 
Diluted earnings per common share$0.75 $0.95  $0.82 
Weighted average number of common shares outstanding:     
Basic 13,285,974  13,275,640   12,938,200 
Diluted 13,675,833  13,597,763   13,536,823 


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

 Nine Months Ended
 September 30,
2023		 September 30,
2022
INTEREST AND DIVIDEND INCOME   
Interest and fees on loans$230,282  $122,126 
Interest on interest earning deposits with other banks 9,659   3,631 
Interest on investment securities 1,972   1,188 
Dividends on other investments 215   195 
Total interest income 242,128   127,140 
INTEREST EXPENSE   
Interest on deposits 61,084   7,943 
Interest on borrowed funds 1,974   854 
Total interest expense 63,058   8,797 
Net interest income 179,070   118,343 
PROVISION FOR CREDIT LOSSES - LOANS 123,299   45,464 
PROVISION (RECAPTURE) FOR UNFUNDED COMMITMENTS (96)  — 
Net interest income after provision for credit losses - loans
and unfunded commitments		 55,867   72,879 
NONINTEREST INCOME   
Deposit service charges and fees 2,897   2,858 
Loan referral fees 683   810 
Gain on sales of loans, net 253   — 
Unrealized (loss) gain on equity securities, net 199   (135)
Other income 824   1,046 
Noninterest income, excluding BaaS program income and BaaS indemnification income 4,856   4,579 
Servicing and other BaaS fees 2,840   3,407 
Transaction fees 3,005   2,247 
Interchange fees 2,980   1,798 
Reimbursement of expenses 3,099   1,875 
BaaS program income 11,924   9,327 
BaaS credit enhancements 119,315   45,210 
BaaS fraud enhancements 6,386   22,753 
BaaS indemnification income 125,701   67,963 
Total noninterest income 142,481   81,869 
NONINTEREST EXPENSE   
Salaries and employee benefits 49,971   37,829 
Occupancy 3,586   3,366 
Data processing and software licenses 6,178   4,719 
Legal and professional expenses 12,154   3,961 
Point of sale expense 2,635   1,399 
Excise taxes 1,527   1,501 
Federal Deposit Insurance Corporation ("FDIC") assessments 1,859   2,309 
Director and staff expenses 1,674   1,196 
Marketing 379   242 
Other expense 4,135   4,318 
Noninterest expense, excluding BaaS loan and BaaS fraud expense 84,098   60,840 
BaaS loan expense 62,590   36,079 
BaaS fraud expense 6,386   22,752 
BaaS loan and fraud expense 68,976   58,831 
Total noninterest expense 153,074   119,671 
Income before provision for income taxes 45,274   35,077 
PROVISION FOR INCOME TAXES 9,707   7,570 
NET INCOME$35,567  $27,507 
Basic earnings per common share$2.68  $2.13 
Diluted earnings per common share$2.61  $2.04 
Weighted average number of common shares outstanding:   
Basic 13,253,184   12,921,814 
Diluted 13,627,939   13,484,950 


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

 For the Three Months Ended
 September 30, 2023 June 30, 2023 September 30, 2022
 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		$285,596  $3,884 5.40% $211,369  $2,678 5.08% $397,621  $2,273 2.27%
Investment securities, available for sale(2) 100,283   543 2.15   100,278   534 2.14   102,438   545 2.11 
Investment securities, held to maturity(2) 17,703   223 5.00   10,047   119 4.75   1,257   9 2.84 
Other investments 11,943   29 0.96   11,773   156 5.31   10,520   24 0.91 
Loans receivable(3) 3,062,214   83,652 10.84   2,965,287   80,199 10.85   2,452,815   52,328 8.46 
Total interest earning assets 3,477,739   88,331 10.08   3,298,754   83,686 10.18   2,964,651   55,179 7.38 
Noninterest earning assets:                 
Allowance for credit losses (100,329)      (87,713)      (51,259)    
Other noninterest earning assets 220,750       194,747       128,816     
Total assets$3,598,160      $3,405,788      $3,042,208     
                  
Liabilities and Shareholders’ Equity                 
Interest bearing liabilities:                 
Interest bearing deposits$2,515,093  $25,451 4.01% $2,326,702  $20,675 3.56% $1,953,170  $5,717 1.16%
Subordinated debt 44,084   580 5.22   44,047   596 5.43   24,331   234 3.82 
Junior subordinated debentures 3,589   71 7.85   3,589   65 7.26   3,587   39 4.31 
Total interest bearing liabilities 2,562,766   26,102 4.04   2,374,338   21,336 3.60   1,981,088   5,990 1.20 
Noninterest bearing deposits 698,532       717,256       807,952     
Other liabilities 57,865       49,085       25,662     
Total shareholders' equity 278,997       265,109       227,506     
Total liabilities and shareholders' equity$3,598,160      $3,405,788      $3,042,208     
Net interest income  $62,229     $62,350     $49,189  
Interest rate spread    6.04%     6.58%     6.18%
Net interest margin(4)    7.10%     7.58%     6.58%

(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
 September 30, 2023 June 30, 2023 September 30, 2022
(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)$1,752,834 $27,373 6.20% $1,695,881 $26,567 6.28% $1,559,160 $20,879 5.31%
Intrabank asset —  — —   —  — —   77,217  441 2.27 
Total interest earning
assets		 1,752,834  27,373 6.20   1,695,881  26,567 6.28   1,636,377  21,320 5.17 
Liabilities                 
Interest bearing liabilities:                
Interest bearing
deposits		 920,707  5,067 2.18%  875,760  3,663 1.68%  901,339  642 0.28%
Intrabank liability 223,221  3,036 5.40   196,552  2,490 5.08   —  — — 
Total interest bearing
liabilities		 1,143,928  8,103 2.81   1,072,312  6,153 2.30   901,339  642 0.28 
Noninterest bearing
deposits		 608,906      623,570      735,038    
Net interest income  $19,270     $20,414     $20,678  
Net interest margin(3)    4.36%     4.83%     5.01%
                  
CCBX                 
Assets                 
Interest earning assets:                 
Loans receivable(2)(4)$1,309,380 $56,279 17.05% $1,269,406 $53,632 16.95% $893,655 $31,449 13.96%
Intrabank asset 374,632  5,095 5.40   275,222  3,487 5.08   231,090  1,321 2.27 
Total interest earning
assets		 1,684,012  61,374 14.46   1,544,628  57,119 14.83   1,124,745  32,770 11.56 
Liabilities                 
Interest bearing liabilities:              
Interest bearing
deposits		 1,594,386  20,384 5.07%  1,450,942  17,012 4.70%  1,051,831  5,075 1.91%
Total interest bearing
liabilities		 1,594,386  20,384 5.07   1,450,942  17,012 4.70   1,051,831  5,075 1.91 
Noninterest bearing
deposits		 89,626      93,686      72,914    
Net interest income  $40,990     $40,107     $27,695  
Net interest margin(3)    9.66%     10.41%     9.77%
Net interest margin, net
of Baas loan expense(5)		    4.24%     4.69%     4.28%


 For the Three Months Ended
 September 30, 2023 June 30, 2023 September 30, 2022
(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		$285,596 $3,884 5.40% $211,369 $2,678 5.08% $397,621 $2,273 2.27%
Investment securities,
available for sale(6)		 100,283  543 2.15   100,278  534 2.14   102,438  545 2.11 
Investment securities,
held to maturity(6)		 17,703  223 5.00   10,047  119 4.75   1,257  9 2.84 
Other investments 11,943  29 0.96   11,773  156 5.31   10,520  24 0.91 
Total interest
earning assets		 415,525  4,679 4.47%  333,467— 3,487 4.19%  511,836  2,851 2.21%
Liabilities                 
Interest bearing
liabilities:		                 
Subordinated debt 44,084  580 5.22%  44,047  596 5.43%  24,331  234 3.82%
Junior subordinated
debentures		 3,589  71 7.85   3,589  65 7.26   3,587  39 4.31 
Intrabank liability, net(7) 151,411  2,059 5.40   78,670  997 5.08   308,307  1,762 2.27 
Total interest
bearing liabilities		 199,084  2,710 5.40   126,306  1,658 5.27   336,225  2,035 2.40 
Net interest income  $1,969     $1,829     $816  
Net interest margin(3)    1.88%     2.20%     0.63%

(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 Nine Months Ended
 September 30, 2023 September 30, 2022
(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		$256,272  $9,659 5.04% $578,855  $3,631 0.84%
Investment securities, available for sale(2) 100,278   1,612 2.15   89,173   1,160 1.74 
Investment securities, held to maturity(2) 9,959   360 4.83   1,276   28 2.93 
Other investments 11,455   215 2.51   9,996   195 2.61 
Loans receivable(3) 2,913,189   230,282 10.57   2,141,127   122,126 7.63 
Total interest earning assets 3,291,153   242,128 9.84   2,820,427   127,140 6.03 
Noninterest earning assets:           
Allowance for credit losses (89,780)      (42,836)    
Other noninterest earning assets 196,065       112,468     
Total assets$3,397,438      $2,890,059     
            
Liabilities and Shareholders’ Equity           
Interest bearing liabilities:           
Interest bearing deposits$2,305,634  $61,084 3.54% $1,628,765  $7,943 0.65%
FHLB advances and borrowings —   — —   8,058   69 1.14 
Subordinated debt 44,047   1,775 5.39   24,313   695 3.82 
Junior subordinated debentures 3,589   199 7.41   3,587   90 3.35 
Total interest bearing liabilities 2,353,270   63,058 3.58   1,664,723   8,797 0.71 
Noninterest bearing deposits 730,292       987,343     
Other liabilities 48,206       20,442     
Total shareholders' equity 265,670       217,551     
Total liabilities and shareholders' equity$3,397,438      $2,890,059     
Net interest income  $179,070     $118,343  
Interest rate spread    6.26%     5.32%
Net interest margin(4)    7.27%     5.61%

(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 Nine Months Ended
  September 30, 2023 September 30, 2022
(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) $1,697,965 $78,151 6.15% $1,483,553 $57,405 5.17%
Intrabank asset  —  — —   167,379  872 0.70 
Total interest earning assets  1,697,965  78,151 6.15   1,650,932  58,277 4.72 
Liabilities            
Interest bearing liabilities:            
Interest bearing deposits  883,454  11,264 1.70%  919,415  1,394 0.20%
Intrabank liability  171,950  6,605 5.14   —  — — 
Total interest bearing liabilities  1,055,404  17,869 2.26   919,415  1,394 0.20 
Noninterest bearing deposits  642,561      731,517    
Net interest income   $60,282     $56,883  
Net interest margin(3)     4.75%     4.61%
             
CCBX            
Assets            
Interest earning assets:            
Loans receivable(2)(4) $1,215,224 $152,131 16.74% $657,574 $64,721 13.16%
Intrabank asset  294,687  11,234 5.10   307,602  2,051 0.89 
Total interest earning assets  1,509,911  163,365 14.47   965,176  66,772 9.25 
Liabilities            
Interest bearing liabilities:            
Interest bearing deposits  1,422,180  49,820 4.68%  709,350  6,549 1.23%
Total interest bearing liabilities  1,422,180  49,820 4.68   709,350  6,549 1.23 
Noninterest bearing deposits  87,731      255,826    
Net interest income   $113,545     $60,223  
Net interest margin(3)     10.05%     8.34%
Net interest margin, net of
Baas loan expense(5)		     4.51%     3.34%


  For the Nine Months Ended
  September 30, 2023 September 30, 2022
(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		 $256,272 $9,659 5.04% $578,855 $3,631 0.84%
Investment securities, available for
sale(6)		  100,278  1,612 2.15   89,173  1,160 1.74 
Investment securities, held to
maturity(6)		  9,959  360 4.83   1,276  28 2.93 
Other investments  11,455  215 2.51   9,996  195 2.61 
Total interest earning assets  377,964  11,846 4.19   679,300  5,014 0.99 
Liabilities            
Interest bearing liabilities:            
FHLB advances and borrowings  —  — —%  8,058  69 1.14%
Subordinated debt  44,047  1,775 5.39   24,313  695 3.82 
Junior subordinated debentures  3,589  199 7.41   3,587  90 3.35 
Intrabank liability, net(7)  122,737  4,629 5.04   474,981  2,923 0.82 
Total interest bearing liabilities  170,373  6,603 5.18   510,939  3,777 0.99 
Net interest income   $5,243     $1,237  
Net interest margin(3)     1.85%     0.24%

(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
 September 30,
2023		 June 30,
2023		 March 31,
2023		 December 31,
2022		 September 30,
2022
Income Statement Data:         
Interest and dividend income$88,331  $83,686  $70,111  $65,030  $55,179 
Interest expense 26,102   21,336   15,620   11,598   5,990 
Net interest income 62,229   62,350   54,491   53,432   49,189 
Provision for credit losses - loans 27,157   52,598   43,544   33,600   18,428 
Provision (recovery) for unfunded commitments 96   (345)  153   —   — 
Net interest income after
provision for credit losses - loans and
unfunded commitments		 34,976   10,097   10,794   19,832   30,761 
Noninterest income 34,579   58,595   49,307   42,815   34,391 
Noninterest expense 56,501   51,910   44,663   47,103   51,087 
Provision for income tax 2,784   3,876   3,047   2,426   2,964 
Net income 10,270   12,906   12,391   13,118   11,101 
          
 As of and for the Three Month Period
 September 30,
2023		 June 30,
2023		 March 31,
2023		 December 31,
2022		 September 30,
2022
Balance Sheet Data:         
Cash and cash equivalents$474,946  $275,060  $393,916  $342,139  $410,728 
Investment securities 141,489   110,730   101,704   98,353   98,871 
Loans held for sale —   35,923   27,292   —   43,314 
Loans receivable 2,967,035   3,007,553   2,837,204   2,627,256   2,507,889 
Allowance for credit losses (101,085)  (110,762)  (89,123)  (74,029)  (59,282)
Total assets 3,680,268   3,535,283   3,451,033   3,144,467   3,133,741 
Interest bearing deposits 2,637,914   2,436,980   2,333,423   2,042,509   2,023,849 
Noninterest bearing deposits 651,786   725,592   761,800   775,012   813,217 
Core deposits(1) 3,269,082   3,137,747   3,068,162   2,686,528   2,727,830 
Total deposits 3,289,700   3,162,572   3,095,223   2,817,521   2,837,066 
Total borrowings 47,695   47,658   47,619   47,587   27,931 
Total shareholders’ equity 284,450   272,662   258,763   243,494   228,733 
          
Share and Per Share Data(2):         
Earnings per share – basic$0.77  $0.97  $0.94  $1.01  $0.86 
Earnings per share – diluted$0.75  $0.95  $0.91  $0.96  $0.82 
Dividends per share —   —   —   —   — 
Book value per share(3)$21.38  $20.50  $19.48  $18.50  $17.66 
Tangible book value per share(4)$21.38  $20.50  $19.48  $18.50  $17.66 
Weighted avg outstanding shares – basic 13,285,974   13,275,640   13,196,960   13,030,726   12,938,200 
Weighted avg outstanding shares – diluted 13,675,833   13,597,763   13,609,491   13,603,978   13,536,823 
Shares outstanding at end of period 13,302,449   13,300,809   13,281,533   13,161,147   12,954,573 
Stock options outstanding at end of period 356,359   357,999   360,119   438,103   644,334 


 As of and for the Three Month Period
 September 30,
2023		 June 30,
2023		 March 31,
2023		 December 31,
2022		 September 30,
2022
Credit Quality Data:         
Nonperforming assets(5)to total assets 1.18%  0.95%  0.91%  1.06%  0.73%
Nonperforming assets(5)to loans receivable and OREO 1.47%  1.12%  1.11%  1.26%  0.91%
Nonperforming loans(5)to total loans receivable 1.47%  1.12%  1.11%  1.26%  0.91%
Allowance for credit losses to nonperforming loans 232.2%  328.4%  282.5%  224.4%  259.1%
Allowance for credit losses to total loans receivable 3.41%  3.68%  3.14%  2.82%  2.36%
Gross charge-offs$37,026  $32,299  $34,167  $18,886  $8,513 
Gross recoveries$192  $1,340  $1,865  $33  $9 
Net charge-offs to average loans(6) 4.77%  4.19%  4.84%  2.87%  1.38%
          
Capital Ratios(7):         
Tier 1 leverage capital 8.03%  8.16%  8.29%  7.97%  7.70%
Common equity Tier 1 risk-based capital 8.99%  8.36%  8.61%  8.92%  8.49%
Tier 1 risk-based capital 9.10%  8.47%  8.73%  9.04%  8.62%
Total risk-based capital 11.79%  11.12%  11.49%  11.94%  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.
(7)  Capital ratios are for the Company, Coastal Financial Corporation.  

Non-GAAP Financial Measures

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

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

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

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

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

  As of and for the Three Months Ended As of and for the Nine Months Ended
(dollars in thousands, unaudited) September 30,
2023		 June 30,
2023		 September 30,
2022		 September 30,
2023		 September 30,
2022
Revenue excluding BaaS credit enhancements and BaaS fraud enhancements:    
Total net interest income $62,229  $62,350  $49,189  $179,070  $118,343 
Total noninterest income  34,579   58,595   34,391   142,481   81,869 
Total Revenue $96,808  $120,945  $83,580  $321,551  $200,212 
Less: BaaS credit enhancements  (25,926)  (51,027)  (17,928)  (119,315)  (45,210)
Less: BaaS fraud enhancements  (2,850)  (1,537)  (11,708)  (6,386)  (22,753)
Total revenue excluding BaaS credit enhancements and BaaS fraud enhancements $68,032  $68,381  $53,944  $195,850  $132,249 

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

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.

The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense on net interest income and net interest margin.

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 Nine Months Ended
(dollars in thousands; unaudited) September 30,
2023		 June 30,
2023		 September 30,
2022		 September 30,
2023		 September 30,
2022
Net BaaS loan income divided by average CCBX loans:    
CCBX loan yield (GAAP)(1)  17.05%  16.95%  13.96%  16.74%  13.16%
Total average CCBX loans receivable $1,309,380  $1,269,406  $893,655  $1,215,224  $657,574 
Interest and earned fee income on CCBX loans (GAAP)  56,279   53,632   31,449   152,131   64,721 
BaaS loan expense  (23,003)  (22,033)  (15,560)  (62,590)  (36,079)
Net BaaS loan income $33,276  $31,599  $15,889  $89,541  $28,642 
Net BaaS loan income divided by average CCBX loans(1)  10.08%  9.99%  7.05%  9.85%  5.82%
Net interest margin, net of BaaS loan expense:        
CCBX interest margin(1)  9.66%  10.41%  9.77%  10.05%  8.34%
CCBX earning assets  1,684,012   1,544,628   1,124,745   1,509,911   965,176 
Net interest income  40,990   40,107   27,695   113,545   60,223 
Less: BaaS loan expense  (23,003)  (22,033)  (15,560)  (62,590)  (36,079)
Net interest income, net of BaaS
loan expense		 $17,987  $18,074  $12,135  $50,955  $24,144 
Net interest margin,
net of BaaS loan expense(1)		  4.24%  4.69%  4.28%  4.51%  3.34%

(1) Annualized calculations for periods presented.

APPENDIX A -
As of September 30, 2023

Industry Concentration

We have a diversified loan portfolio, representing a wide variety of industries. Our major categories of loans are commercial real estate, consumer and other loans, residential real estate, commercial and industrial, and construction, land and land development loans. Together they represent $2.97 billion in outstanding loan balances. When combined with $2.35 billion in unused commitments the total of these categories is $5.33 billion.

Commercial real estate loans represent the largest segment of our loans, comprising 41.6% of our total balance of outstanding loans as of September 30, 2023. Unused commitments to extend credit represents an additional $31.8 million, and the combined total in commercial real estate loans represents $1.27 billion, or 23.8% 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 September 30, 2023:

(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 $333,685 $10,653 $344,338 6.5% $3,178 105
Hotel/Motel  164,501  1,328  165,829 3.1   6,327 26
Convenience Store  118,821  1,286  120,107 2.2   2,085 57
Mixed use  90,423  2,666  93,089 1.7   1,064 85
Warehouse  108,568  2,203  110,771 2.1   1,939 56
Office  85,214  3,469  88,683 1.7   926 92
Retail  96,287  675  96,962 1.8   953 101
Mini Storage  60,387  2,942  63,329 1.2   3,019 20
Strip Mall  45,657  —  45,657 0.9   5,707 8
Manufacturing  38,038  1,800  39,838 0.7   1,153 33
Groups < 0.70% of total  96,268  4,772  101,040 1.9   1,174 82
Total $1,237,849 $31,794 $1,269,643 23.8% $1,861 665

Consumer loans comprise 25.6% of our total balance of outstanding loans as of September 30, 2023. Unused commitments to extend credit represents an additional $1.00 billion, and the combined total in consumer and other loans represents $1.76 billion, or 33.1% 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 $1,400. CCBX consumer loans are underwritten to CCBX credit standards and underwriting of these loans is regularly tested.

The following table summarizes our loan commitment by industry for our consumer and other loan portfolio as of September 30, 2023:

(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 $440,993 $1,000,320 $1,441,313 27.1% $1.6 279,714
Installment loans  310,719  —  310,719 5.8   1.5 213,011
Lines of credit  3,934  1,689  5,623 0.1   0.1 39,614
Other loans  2,334  —  2,334 0.1   0.1 17,577
Community bank consumer loans
Installment loans  1,232  —  1,232 0.0   51.3 24
Lines of credit  150  573  723 0.0   3.7 41
Other loans  1,101  —  1,101 0.0   3.6 309
Total $760,463 $1,002,582 $1,763,045 33.1% $1.4 550,290

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

Residential real estate loans comprise 16.1% of our total balance of outstanding loans as of September 30, 2023. Unused commitments to extend credit represents an additional $477.2 million, and the combined total in residential real estate loans represents $954.4 million, or 17.9% 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 September 30, 2023:

(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 $251,775 $429,893 $681,668 12.8% $24 10,384
Community bank residential real estate loans
Closed end, secured by first liens  194,696  3,740  198,436 3.7   620 314
Home equity line of credit  21,342  41,943  63,285 1.2   100 214
Closed end, second liens  9,334  1,667  11,001 0.2   301 31
Total $477,147 $477,243 $954,390 17.9% $44 10,943

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

Commercial and industrial loans comprise 11.1% of our total balance of outstanding loans as of September 30, 2023. Unused commitments to extend credit represents an additional $706.5 million, and the combined total in commercial and industrial loans represents $1.04 billion, or 19.5% of our total outstanding loans and loan commitments. Included in commercial and industrial loans is $114.2 million in outstanding capital call lines, with an additional $630.7 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 line.

The following table summarizes our loan commitment by industry for our commercial and industrial loan portfolio as of September 30, 2023:

(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
Capital Call Lines $114,174 $630,668 $744,842 14.0% $723 158
Retail  58,586  6,131  64,717 1.2   19 3,063
Construction/Contractor Services  24,988  25,743  50,731 1.0   134 186
Financial Institutions  48,648  —  48,648 0.9   4,054 12
Medical / Dental / Other Care  19,249  8,045  27,294 0.5   802 24
Manufacturing  8,479  5,093  13,572 0.3   193 44
Groups < 0.30% of total  57,151  30,776  87,927 1.6   107 534
Total $331,275 $706,456 $1,037,731 19.5% $82 4,021

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

Construction, land and land development loans comprise 5.6% of our total balance of outstanding loans as of September 30, 2023. Unused commitments to extend credit represents an additional $133.7 million, and the combined total in construction, land and land development loans represents $301.4 million, or 5.7% 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 September 30, 2023:

(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 $91,396 $106,144 $197,540 3.7% $5,376 17
Undeveloped land loans  8,310  6,281  14,591 0.3   554 15
Residential construction  33,971  13,095  47,066 0.9   1,415 24
Developed land loans  21,369  3,732  25,101 0.5   763 28
Land development  12,640  4,443  17,083 0.3   843 15
Total $167,686 $133,695 $301,381 5.7% $1,694 99

Exposure and and risk in our construction, land and land development portfolio is lower in the current period compared to previous periods as demonstrated by the declining outstanding balance for the periods indicated in the following table:

  Outstanding Balance as of
(dollars in thousands; unaudited) September 30,
2023		 June 30,
2023		 March 31,
2023		 December 31,
2022		 September 30,
2022
Commercial construction $91,396 $78,079`$97,987 $100,714 $109,874
Residential construction  33,971  35,032  32,268  32,879  38,795
Undeveloped land loans  8,310  42,530  41,951  44,578  41,373
Developed land loans  21,369  18,735  19,130  20,167  19,436
Land development  12,640  12,330  15,299  15,717  14,710
Total $167,686 $186,706 $206,635 $214,055 $224,188

We have portfolio limits with our each of our partners to manage loan concentration risk, liquidity risk, and counter-party partner risk. For example, as of September 30, 2023, capital call lines outstanding balance totaled $114.2 million, and while commitments totaled $630.7 million the commitments are limited to a maximum of $350.0 million by agreement with the partner.

APPENDIX B -
As of September 30, 2023

CCBX – BaaS Reporting Information

During the quarter ended September 30, 2023, $25.9 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. 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 obligations to replenish their cash reserve account then the bank would be exposed to additional loan and deposit losses, as a result of this counterparty risk. If a CCBX partner does not replenish their cash reserve account then the Bank can declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit and fraud enhancements. The Bank would write-off any remaining credit enhancement asset from the CCBX partner not covered by the cash pledge account but would retain the full yield and any fee income on the loan going forward, and BaaS loan expense for that CCBX partner would cease once default occurred and payments to the CCBX partner were stopped.

For CCBX partner loans the Bank records contractual interest earned from the borrower on loans in interest income, adjusted for origination costs which are paid or payable to the CCBX partner. BaaS loan expense represents the amount paid or payable to partners for credit 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 Nine Months Ended
(dollars in thousands; unaudited) September 30,
2023		 June 30,
2023		 September 30,
2022		 September 30,
2023		 September 30,
2022
Yield on loans(1)  17.05%  16.95%  13.96%  16.74%  13.16%
BaaS loan interest income $56,279  $53,632  $31,449  $152,131  $64,721 
Less: BaaS loan expense  23,003   22,033   15,560   62,590   36,079 
Net BaaS loan income(2)  33,276   31,599   15,889   89,541   28,642 
Net BaaS loan income divided by average BaaS loans(1)(2)  10.08%  9.99%  7.05%  9.85%  5.82%

(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.

Increased interest rates and growth in CCBX loans and deposits has resulted in increases in interest income and expense for the quarter ended September 30, 2023 compared to the quarters ended June 30, 2023 and September 30, 2022. 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 Nine Months Ended
(dollars in thousands; unaudited) September 30,
2023		 June 30,
2023		 September 30,
2022		 September 30,
2023		 September 30,
2022
Loan interest income $56,279 $53,632 $31,449 $152,131 $64,721
Total BaaS interest income $56,279 $53,632 $31,449 $152,131 $64,721


Interest expense Three Months Ended Nine Months Ended
(dollars in thousands; unaudited) September 30,
2023		 June 30,
2023		 September 30,
2022		 September 30,
2023		 September 30,
2022
BaaS interest expense $20,384 $17,012 $5,075 $49,820 $6,549
Total BaaS interest expense $20,384 $17,012 $5,075 $49,820 $6,549


BaaS income Three Months Ended Nine Months Ended
(dollars in thousands; unaudited) September 30,
2023		 June 30,
2023		 September 30,
2022		 September 30,
2023		 September 30,
2022
BaaS program income:          
Servicing and other BaaS fees $997 $895 $1,079 $2,840 $3,407
Transaction fees  1,036  1,052  940  3,005  2,247
Interchange fees  1,216  975  738  2,980  1,798
Reimbursement of expenses  1,152  1,026  885  3,099  1,875
BaaS program income  4,401  3,948  3,642  11,924  9,327
BaaS indemnification income:          
BaaS credit enhancements  25,926  51,027  17,928  119,315  45,210
BaaS fraud enhancements  2,850  1,537  11,708  6,386  22,753
BaaS indemnification income  28,776  52,564  29,636  125,701  67,963
Total BaaS income $33,177 $56,512 $33,278 $137,625 $77,290


BaaS loan and fraud expense: Three Months Ended Nine Months Ended
(dollars in thousands; unaudited) September 30,
2023		 June 30,
2023		 September 30,
2022		 September 30,
2023		 September 30,
2022
BaaS loan expense $23,003 $22,033 $15,560 $62,590 $36,079
BaaS fraud expense  2,850  1,537  11,707  6,386  22,752
Total BaaS loan and fraud expense $25,853 $23,570 $27,267 $68,976 $58,831


FAQ

What was Coastal Financial Corporation's net income for the third quarter of 2023?

Coastal Financial Corporation reported a net income of $10.3 million for the third quarter of 2023.

How much did total assets increase by during the third quarter of 2023?

Total assets increased by $145.0 million, or 4.1%, during the third quarter of 2023.

Did deposits increase or decrease during the third quarter of 2023?

Deposits increased by $127.1 million, or 4.0%, during the third quarter of 2023.

What happened to total loans during the third quarter of 2023?

Total loans decreased by $40.5 million, or 1.3%, during the third quarter of 2023.

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