tiprankstipranks
Coastal Financial Corporation Announces Second Quarter 2023 Results
Press Releases

Coastal Financial Corporation Announces Second Quarter 2023 Results

Second Quarter 2023 Highlights:

  • Net income of $12.9 million, or $0.95 per diluted common share, for the three months ended June 30, 2023, compared to $12.4 million, or $0.91 per diluted common share for the three months ended March 31, 2023.
    • Return on average assets ("ROA") of 1.52% for the three months ended June 30, 2023.
    • Return on average equity ("ROE") of 19.53% for the three months ended June 30, 2023.
  • Total assets increased $84.3 million, or 2.4%, to $3.54 billion for the quarter ended June 30, 2023, compared to $3.45 billion at March 31, 2023.
  • Loan growth, net of deferred fees of $170.3 million, or 6.0%, to $3.01 billion for the quarter ended June 30, 2023.
    • CCBX loans increased $128.3 million, or 11.0%, to $1.29 billion.
    • Community bank loans increased $42.0 million, or 2.5%, to $1.71 billion.
  • Deposits increased $67.3 million, or 2.2%, to $3.16 billion for the quarter ended June 30, 2023.
    • CCBX deposit growth of $89.3 million, or 5.7%, to $1.65 billion.
      • Additional $9.9 million in CCBX deposits transferred off balance sheet.
    • Community bank deposits decreased $21.9 million, or 1.4%, to $1.51 billion.
      • Includes noninterest bearing deposits of $621.0 million or 41.1% of total community bank deposits
      • Community bank cost of deposits was 0.98%.
    • Uninsured deposits of $632.1 million, or 20.0% of total deposits as of June 30, 2023, compared to $768.3 million, or 24.8% of total deposits as of March 31, 2023.
  • Total revenue increased $17.1 million, or 16.5%, for the three months ended June 30, 2023, compared to the three months ended March 31, 2023
  • Total revenue excluding Banking as a Service ("BaaS") credit enhancements and BaaS fraud enhancements increased $8.9 million, or 15.0%, to $68.4 million for the three months ended June 30, 2023, compared to the three months ended March 31, 2023. (A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.)
  • Liquidity/Borrowings as of June 30, 2023:
    • Capacity to borrow up to $559.8 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 June 30, 2023 :
    • Available for sale ("AFS") investments of $98.2 million, compared to $98.0 million as of March 31, 2023, of which 99.7% are U.S. Treasuries, with a weighted average remaining duration of 8 months as of June 30, 2023.
    • Held to maturity ("HTM") investments of $12.6 million, of which 100% are U.S. Agency mortgage backed securities held for CRA purposes, with a fair value of $404,000 less than the carrying value and a weighted average remaining duration of 6.7 years as of June 30, 2023.

EVERETT, Wash., July 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 June 30, 2023. 

Quarterly net income for the second quarter of 2023 was $12.9 million, or $0.95 per diluted common share, compared with net income of $12.4 million, or $0.91 per diluted common share, for the first quarter of 2023, and $10.2 million, or $0.76 per diluted common share, for the quarter ended June 30, 2022. 

Total assets increased $84.3 million, or 2.4%, during the second quarter of 2023 to $3.54 billion, from $3.45 billion at March 31, 2023. Loan growth of $170.3 million, or 6.0%, during the three months ended June 30, 2023 to $3.01 billion, compared to $2.84 billion at March 31, 2023. Loan growth included CCBX loan growth of $128.3 million, or 11.0%, and an increase of $42.0 million, or 2.5% in community bank loans, which is net of $196,000 in PPP loan forgiveness/repayments. Deposits increased $67.3 million, or 2.2%, during the three months ended June 30, 2023 and included CCBX deposit growth of $89.3 million, or 5.7%, and a decrease in community bank deposits of $21.9 million, or 1.4%. The slight decrease in community bank deposits was a result of pricing disciplines as some customers sought higher rate products. Our cost of deposits for the community bank was 0.98% for the three months ended June 30, 2023, compared to 0.66% for the three months ended March 31, 2023.

“We saw solid deposit growth in the second quarter, with deposits increasing $67.3 million, or 2.2%, compared to March 31, 2023. Fully insured IntraFi network sweep deposits increased $146.0 million to $240.3 million as of June 30, 2023, compared to $94.3 million as of March 31, 2023. These fully insured sweep deposits allow our larger deposit customers to fully insure their deposits through a sweep to other banks. Loans receivable increased $170.3 million, or 6.0%, during the three months ended June 30, 2023.   We continue to monitor our liquidity position through diligent management of our liquid assets and liabilities as well as maintaining access to alternative sources of funds. As of June 30, 2023 we had $275.1 million in cash on the balance sheet and the capacity to borrow up to $559.8 million from Federal Home Loan Bank and the Federal Reserve Bank discount window, which we did not draw down at any point in the second quarter of 2023. Cash on the balance sheet and borrowing capacity totaled $834.8 million, which represented 26.4% of total deposits and exceeded our $632.1 million in uninsured deposits as of June 30, 2023.

We understand that there continues to be uncertainty and concern surrounding the current economic environment; and as such we work hard to ensure that we are serving our customers and shareholders in the best way possible. Building a company that we believe can withstand the challenges of our time, growing in strength and size, through thoughtful and strategic management of growth, resources and opportunities. Net income for the quarter ended June 30, 2023 was adversely impacted by elevated legal & professional fees which increased $1.6 million compared to the quarter ended March 31, 2023. Nearly all of the increase in professional fees is related to enhancing or expanding our CCBX business, which we view as a strategic priority, by further developing our risk management system to support growth of the CCBX business as well as evaluating new Fintech partnerships and acquisitions of technology platforms and related assets. We anticipate that our legal and professional fees will remain elevated through the third quarter of 2023 then start to decline as projects are completed and initiatives are achieved, with legal and professional fees leveling off to approximate first quarter 2023 levels by first quarter 2024. We continue to remain true to our "un-Bankey" roots by looking for and finding new opportunities to survive and thrive in the changing banking world, while still maintaining the 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 $62.4 million for the quarter ended June 30, 2023, an increase of $7.9 million, or 14.4%, from $54.5 million for the quarter ended March 31, 2023, and an increase of $22.5 million, or 56.3%, from $39.9 million for the quarter ended June 30, 2022.  Yield on loans receivable was 10.85% for the three months ended June 30, 2023, compared to 9.95% for the three months ended March 31, 2023 and 7.34% for the three months ended June 30, 2022.  The increase in net interest income compared to March 31, 2023 and June 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 June 30, 2023 was $2.97 billion, compared to $2.71 billion for the three months ended March 31, 2023, and $2.19 billion for the three months ended June 30, 2022.

Interest and fees on loans totaled $80.2 million for the three months ended June 30, 2023 compared to $66.4 million and $40.2 million for the three months ended March 31, 2023 and June 30, 2022, respectively.  Loan growth of $170.3 million, or 6.0%, during the quarter ended June 30, 2023 included a $128.3 million increase in CCBX loans. The increase in CCBX loans includes an increase of $95.3 million, or 12.7%, in consumer and other loans and an increase of $19.6 million, or 16.5%, in capital call lines as a result of normal balance fluctuations and business activities.  Capital call lines bear a lower rate of interest, but have less credit risk due to the way the loans are structured compared to other commercial loans.  The increase in interest and fees on loans for the quarter ended June 30, 2023, compared to March 31, 2023 and June 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 May 3, 2023. We continue to monitor the impact of these increases in interest rates.

Interest income from interest earning deposits with other banks was $2.7 million for the quarter ended June 30, 2023 a decrease of $419,000 compared to March 31, 2023 as a result of lower average balances, and an increase of $1.7 million compared to June 30, 2022 due to an increase in interest rates.  The average balance of interest earning deposits with other banks for the three months ended June 30, 2023 was $211.4 million, compared to $271.7 million and $499.9 million for the three months ended March 31, 2023 and June 30, 2022, respectively.  Interest earning deposits with other banks decreased as a result of increased loan demand compared to the three months ended March 31, 2023 and June 30, 2022.  Additionally, the average yield on these interest earning deposits with other banks increased to 5.08% for the quarter ended June 30, 2023, compared to 4.62% and 0.77% for the quarters ended March 31, 2023 and June 30, 2022, respectively.

Total interest expense was $21.3 million for the quarter ended June 30, 2023, a $5.7 million increase from the quarter ended March 31, 2023 and a $19.4 million increase from the quarter ended June 30, 2022. Interest expense on deposits was $20.7 million for the quarter ended June 30, 2023, compared to $1.7 million for the quarter ended June 30, 2022. Interest expense on interest bearing deposits increased $5.7 million for the quarter ended June 30, 2023, compared to the quarter ended March 31, 2023, and $19.0 million compared to the quarter ended June 30, 2022 as a result an increase in CCBX deposits that are tied to, and reprice when the FOMC raises rates just like our most of our CCBX loans which also reprice when the FOMC raises interest rates. Interest expense on borrowed funds was $661,000 for the quarter ended June 30, 2023, compared to $662,000 and $260,000 for the quarters ended March 31, 2023 and June 30, 2022, respectively. The $401,000 increase in interest expense on borrowed funds from the quarter ended June 30, 2022 is the result of an increase of $19.7 million in subordinated debt and an increase in interest rates.

Total cost of deposits was 2.72% for the three months ended June 30, 2023, compared to 2.13% for the three months ended March 31, 2023, and 0.25%, for the three months ended June 30, 2022. Community bank and CCBX cost of deposits were 0.98% and 4.42% respectively, for the three months ended June 30, 2023, compared to 0.66% and 3.89%, for the three months ended March 31, 2023, and 0.08% and 0.56% for the three months ended June 30, 2022. The increase in cost of deposits for the three months ended June 30, 2023 compared to the prior periods for both segments is a result of increased interest rates and increased interest bearing deposits at higher rates. 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 7.58% for the three months ended June 30, 2023, compared to 7.15% and 5.66% for the three months ended March 31, 2023 and June 30, 2022, respectively.  The increase in net interest margin compared to the three months ended March 31, 2023 and June 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 increased $170.3 million and $673.2 million, compared to March 31, 2023 and June 30, 2022, respectively.  Additionally, the Fed Funds interest rate increases has resulted in existing, variable rate loans repricing to higher interest rates.  Interest and fees on loans receivable increased $13.8 million, or 20.7%, to $80.2 million for the three months ended June 30, 2023, compared to $66.4 million for the three months ended March 31, 2023, and $40.2 million for the three months ended June 30, 2022.  Also contributing to the increase in net interest margin compared to the three months ended June 30, 2022, was a $1.7 million increase in interest on interest earning deposits.  These interest earning deposits earned an average rate of 5.08% for the quarter ended June 30, 2023, compared to 4.62% and 0.77% for the quarters ended March 31, 2023 and June 30, 2022, respectively.  Average investment securities increased $8.1 million to $110.3 million due to the purchase of $8.9 million in securities during the three months ended June 30, 2023 compared to the three months ended March 31, 2023, and decreased $10.9 million compared to the three months ended June 30, 2022. Interest on investment securities increased $100,000 for the three months ended June 30, 2023 compared to the three months ended March 31, 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 $90,000 compared to June 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 2.77% for the quarter ended June 30, 2023, an increase of 58 basis points from the quarter ended March 31, 2023 and an increase of 248 basis points from the quarter ended June 30, 2022. Cost of deposits for the quarter ended June 30, 2023 was 2.72%, compared to 2.13% for the quarter ended March 31, 2023, and 0.25% for the quarter ended June 30, 2022. The increased cost of funds and deposits compared to March 31, 2023 and June 30, 2022 was largely due to the increase in interest rates compared to the previous periods and growth in higher cost CCBX deposits compared to June 30, 2022.

During the quarter ended June 30, 2023, total loans receivable increased by $170.3 million, or 6.0%, to $3.01 billion, compared to $2.84 billion for the quarter ended March 31, 2023.  This increase consists of $128.3 million in CCBX loan growth and $42.0 million in community bank loan growth. Community bank loan growth is net of $196,000 in PPP loan forgiveness/repayments since March 31, 2023.  Total loans receivable as of June 30, 2023 increased $673.2 million compared to June 30, 2022.  This increase includes CCBX loan growth of $490.6 million and community bank loan growth of $182.6 million. Community bank loan growth is net of $12.8 million in PPP loan forgiveness/repayments since June 30, 2022.  During the quarter ended June 30, 2023, $88.6 million in CCBX loans were transferred into loans held for sale, with $80.0 million in loans sold during the quarter and $35.9 million remaining in loans held for sale as of June 30, 2023; compared to $27.3 million in loans held for sale as of March 31, 2023. 

Total yield on loans receivable for the quarter ended June 30, 2023 was 10.85%, compared to 9.95% for the quarter ended March 31, 2023, and 7.34% for the quarter ended June 30, 2022. This increase in yield on loans receivable is a combination of an overall increase in interest rates, repricing of variable rate loans as well as additional volume in higher rate consumer loans from CCBX partners.  During the quarter ended June 30, 2023, CCBX loans outstanding increased 11.0%, or $128.3 million, compared to March 31, 2023, with an average CCBX yield of 16.95% and community bank loans increased 2.5%, or $42.0 million, compared to the quarter ended March 31, 2023, with an average yield of 6.28%.   The yield on CCBX loans does not include the impact of BaaS loan expense.  BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and originating & servicing CCBX loans.  

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

  For the Three Months Ended   For the Six Months Ended
  June 30, 2023   March 31, 2023   June 30, 2022   June 30, 2023   June 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 6.28%   0.98%   5.97%   0.66%   5.04%   0.08%   6.13%   0.82%   5.10%   0.09%
CCBX(1) 16.95%   4.42%   16.09%   3.89%   12.35%   0.56%   16.56%   4.18%   12.48%   0.34%
Consolidated 10.85%   2.72%   9.95%   2.13%   7.34%   0.25%   10.42%   2.44%   7.10%   0.18%

(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 interest expense resulting in net BaaS loan income and the associated yield:

    For the Three Months Ended
    June 30, 2023   March 31, 2023   June 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   $ 53,632   16.95 %   $ 42,220   16.09 %   $ 21,281   12.35 %
Less: BaaS loan expense     22,033   6.96 %     17,554   6.69 %     12,229   7.10 %
Net BaaS loan income(1)   $ 31,599   9.98 %   $ 24,666   9.40 %   $ 9,052   5.25 %
Average BaaS Loans(3)   $ 1,269,406       $ 1,064,192       $ 691,294    

    For the Six Months Ended
    June 30, 2023   June 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   $ 95,851   16.56 %   $ 33,273   12.48 %
Less: BaaS loan expense     39,587   6.84 %     20,519   7.70 %
Net BaaS loan income(1)   $ 56,264   9.72 %   $ 12,754   4.78 %
Average BaaS Loans(3)   $ 1,167,366       $ 537,577    

(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 1.52% for the quarter ended June 30, 2023 compared to 1.58% and 1.41% for the quarters ended March 31, 2023 and June 30, 2022, respectively.  ROA for the quarter ended June 30, 2023, was down 0.06% as a result of higher expenses compared to March 31, 2023 and was up 0.11% due to increases in deposits, loans and overall higher interest rates on interest earning assets, compared to the quarter ended June 30, 2022.

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

    Three Months Ended   Six Months Ended
(unaudited)   June 30,
2023
  March 31,
2023
  December 31,
2022
  September 30,
2022
  June 30,
2022
  June 30,
2023
  June 30,
2022
                             
Return on average assets(1)   1.52 %   1.58 %   1.66 %   1.45 %   1.41 %   1.55 %   1.18 %
Return on average equity(1)   19.53 %   19.89 %   21.86 %   19.36 %   18.86 %   19.70 %   15.57 %
Yield on earnings assets(1)   10.18 %   9.19 %   8.47 %   7.38 %   5.94 %   9.70 %   5.28 %
Yield on loans receivable(1)   10.85 %   9.95 %   9.33 %   8.46 %   7.34 %   10.42 %   7.10 %
Cost of funds(1)   2.77 %   2.19 %   1.61 %   0.85 %   0.29 %   2.49 %   0.22 %
Cost of deposits(1)   2.72 %   2.13 %   1.56 %   0.82 %   0.25 %   2.44 %   0.18 %
Net interest margin(1)   7.58 %   7.15 %   6.96 %   6.58 %   5.66 %   7.37 %   5.08 %
Noninterest expense to average assets(1)   6.11 %   5.69 %   5.97 %   6.66 %   5.29 %   5.91 %   4.92 %
Noninterest income to average assets(1)   6.90 %   6.28 %   5.43 %   4.48 %   3.53 %   6.60 %   3.40 %
Efficiency ratio   42.92 %   43.03 %   48.94 %   61.12 %   58.38 %   42.97 %   58.80 %
Loans receivable to deposits(2)   96.23 %   92.55 %   93.25 %   89.92 %   88.77 %   96.23 %   88.77 %

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

Noninterest Income

The following table details noninterest income for the periods indicated:

  Three Months Ended
  June 30,   March 31,   June 30,
(dollars in thousands; unaudited) 2023   2023   2022
Deposit service charges and fees $ 989   $ 910   $ 988
Loan referral fees   682         208
Unrealized gain on equity securities, net   155     39    
Gain on sales of loans, net   23     123    
Other   234     299     396
Noninterest income, excluding BaaS program income and BaaS indemnification income   2,083     1,371     1,592
Servicing and other BaaS fees   895     948     1,159
Transaction fees   1,052     917     814
Interchange fees   975     789     628
Reimbursement of expenses   1,026     921     618
BaaS program income   3,948     3,575     3,219
BaaS credit enhancements   51,027     42,362     14,207
Baas fraud enhancements   1,537     1,999     6,474
BaaS indemnification income   52,564     44,361     20,681
Total BaaS income   56,512     47,936     23,900
Total noninterest income $ 58,595   $ 49,307   $ 25,492
                 

Noninterest income was $58.6 million for the three months ended June 30, 2023, an increase of $9.3 million from $49.3 million for the three months ended March 31, 2023, and an increase of $33.1 million from $25.5 million for the three months ended June 30, 2022.  The increase in noninterest income over the quarter ended March 31, 2023 was primarily due to an increase of $8.6 million in total BaaS income.  The $8.6 million increase in total BaaS income included a $8.7 million increase in BaaS credit enhancements related to the allowance for credit losses, a $462,000 decrease in BaaS fraud enhancements, and an increase of $373,000 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 $33.1 million increase in noninterest income over the quarter ended June 30, 2022 was primarily due to a $32.6 million increase in BaaS income. The $32.6 million increase in BaaS income included a $36.8 million increase in BaaS credit enhancements, a $4.9 million decrease in BaaS fraud enhancements and a $729,000 increase in BaaS program income.

Our CCBX segment continues to evolve, and we now have 22 relationships, at varying stages, as of June 30, 2023.  We continue to refine the criteria for CCBX partnerships and are exiting relationships where it makes sense and are focusing more on selecting larger and more established partners, with experienced management teams, existing customer bases and strong financial positions.

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

  As of
(unaudited) June 30, 2023 March 31, 2023 June 30, 2022
Active 18 18 23
Friends and family / testing 1 1 2
Implementation / onboarding 1 1 0
Signed letters of intent 1 4 4
Wind down – preparing to exit relationship 1 1 0
Total CCBX relationships 22 25 29
       

The following table details noninterest expense for the periods indicated:

Noninterest Expense

    Three Months Ended
    June 30,   March 31,   June 30,
(dollars in thousands; unaudited)   2023   2023   2022
Salaries and employee benefits   $ 16,309   $ 15,575   $ 12,238
Legal and professional expenses     4,645     3,062     1,002
Data processing and software licenses     1,972     1,840     1,546
Occupancy     1,143     1,219     1,083
Point of sale expense     814     753     409
Director and staff expenses     519     626     377
FDIC assessments     570     595     855
Excise taxes     531     455     564
Marketing     115     95     74
Other     1,722     890     1,318
Noninterest expense, excluding BaaS loan and BaaS fraud expense     28,340     25,110     19,466
BaaS loan expense     22,033     17,554     12,229
BaaS fraud expense     1,537     1,999     6,474
BaaS loan and fraud expense     23,570     19,553     18,703
Total noninterest expense   $ 51,910   $ 44,663   $ 38,169
                   

Total noninterest expense increased $7.2 million to $51.9 million for the three months ended June 30, 2023, compared to $44.7 million for the three months ended March 31, 2023 and increased $13.7 million from $38.2 million for the three months ended June 30, 2022. The increase in noninterest expense for the quarter ended June 30, 2023, as compared to the quarter ended March 31, 2023, was primarily due to a $4.0 million increase in BaaS expense (of which $4.5 million is related to an increase in partner loan expense partially offset by a decrease of $462,000 in partner fraud expense).  Partner loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, and originating & servicing CCBX loans. Partner fraud expense represents non-credit fraud losses on partner’s customer loan and deposit accounts. A portion of this expense is realized during the quarter during which the loss occurs, and a portion is estimated based on historical or other information from our partners.  Legal and professional fees increased $1.6 million for the quarter ended June 30, 2023, as compared to the quarter ended March 31, 2023 due to increased fees related to data and risk management, building out our infrastructure and increased consulting expenses for projects and enhanced monitoring. Additionally, there was a $734,000 increase in salaries and employee benefits related to hiring staff for CCBX and additional staff for our ongoing growth initiatives. We anticipate that our legal and professional fees will remain elevated through the third quarter of 2023 then start to decline as projects are completed and initiatives are achieved, with legal and professional fees leveling off to approximate first quarter 2023 levels by first quarter 2024.

The increase in noninterest expenses for the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 were largely due to an increase of $4.9 million in BaaS partner expense (of which $9.8 million is related to an increase in partner loan expense partially offset by a decrease of $4.9 million in partner fraud expense), $4.1 million increase in salary and employee benefits related to hiring staff for CCBX and additional staff for our ongoing growth initiatives and $3.6 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. Additionally, there was a $405,000 increase in point of sale expenses which is attributed to increased CCBX activity, and $404,000 increase in other operational losses.

Provision for Income Taxes

The provision for income taxes was $3.9 million for the three months ended June 30, 2023, $3.0 million for the three months ended March 31, 2023 and $2.9 million for the second quarter of 2022.  The provision for income taxes was higher for the three months ended June 30, 2023 compared to March 31, 2023 as a result of higher stock equity award deductions in the quarter ended March 31, 2023, which lowered the effective tax rate as well. 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 $84.3 million, or 2.4%, to $3.54 billion at June 30, 2023 compared to $3.45 billion at March 31, 2023.  The increase is primarily due to loans receivable increasing $170.3 million during the quarter ended June 30, 2023 partially offset by a $111.0 million decrease in interest earning deposits with other banks during the quarter ended June 30, 2023.  Additionally, there were $35.9 million in loans held for sale at June 30, 2023, compared to $27.3 million at March 31, 2023.  

Total assets increased $565.6 million, or 19.0%, at June 30, 2023, compared to $2.97 billion at June 30, 2022.  The increase is primarily due to loans receivable increasing $673.2 million, and an increase of $909,000 in investment securities and a $119.7 million decrease in interest earning deposits with other banks, resulting from increased loan demand and funds being shifted from interest earning deposits with other banks to loans, compared to June 30, 2022.

Loans Receivable

Total loans receivable increased $170.3 million to $3.01 billion at June 30, 2023, from $2.84 billion at March 31, 2023, and increased $673.2 million from $2.33 billion at June 30, 2022.  The increase in loans receivable over the quarter ended March 31, 2023 was the result of $128.3 million in CCBX loan growth and $42.0 million in community bank loan growth. Community bank loan growth is net of $196,000 in PPP loan forgiveness/repayments since March 31, 2023.  The change in loans receivable over the quarter ended June 30, 2022 includes CCBX loan growth of $490.6 million and $182.6 million in community bank loan growth as of June 30, 2023.  Community bank loan growth is net of $12.8 million in PPP loan forgiveness/repayments since June 30, 2022.

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

  As of June 30, 2023   As of March 31, 2023   As of June 30, 2022
(dollars in thousands; unaudited) Amount   Percent   Amount   Percent   Amount   Percent
Commercial and industrial loans:                      
PPP loans $ 3,595     0.1 %   $ 3,791     0.1 %   $ 16,398     0.7 %
Capital call lines   138,428     4.6       118,796     4.2       224,930     9.6  
All other commercial & industrial loans   211,806     7.0       203,751     7.2       160,636     6.9  
Total commercial and industrial loans:   353,829     11.7       326,338     11.5       401,964     17.2  
Real estate loans:                      
Construction, land and land development   186,706     6.2       206,635     7.3       225,512     9.6  
Residential real estate   463,179     15.4       455,507     16.0       326,661     14.0  
Commercial real estate   1,164,088     38.6       1,102,771     38.8       956,320     40.8  
Consumer and other loans   846,459     28.1       752,528     26.4       430,083     18.4  
Gross loans receivable   3,014,261     100.0 %     2,843,779     100.0 %     2,340,540     100.0 %
Net deferred origination fees – PPP loans   (60 )         (63 )         (396 )    
Net deferred origination fees – all other loans   (6,648 )         (6,512 )         (5,790 )    
Loans receivable $ 3,007,553         $ 2,837,204         $ 2,334,354      
Loan Yield(1)   10.85 %         9.95 %         7.34 %    

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

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

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

Community Bank   As of
    June 30, 2023   March 31, 2023   June 30, 2022
(dollars in thousands; unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total
Commercial and industrial loans:                        
PPP loans   $ 3,595     0.2 %   $ 3,791     0.2 %   $ 16,398     1.1 %
All other commercial & industrial loans     151,483     8.8       155,082     9.3       142,569     9.3  
Real estate loans:                        
Construction, land and land development loans     186,706     10.9       206,635     12.3       225,512     14.7  
Residential real estate loans     211,966     12.3       206,140     12.3       193,518     12.6  
Commercial real estate loans     1,164,088     67.7       1,102,771     65.7       956,320     62.1  
Consumer and other loans:                        
Other consumer and other loans     1,457     0.1       2,860     0.2       2,325     0.2  
Gross Community Bank loans receivable     1,719,295     100.0 %     1,677,279     100.0 %     1,536,642     100.0 %
Net deferred origination fees     (6,261 )         (6,265 )         (6,240 )    
Loans receivable   $ 1,713,034         $ 1,671,014         $ 1,530,402      
Loan Yield(1)     6.28 %         5.97 %         5.04 %    

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

 

CCBX   As of
    June 30, 2023   March 31, 2023   June 30, 2022
(dollars in thousands; unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total
Commercial and industrial loans:                        
Capital call lines   $ 138,428     10.7 %   $ 118,796     10.2 %   $ 224,930     28.0 %
All other commercial & industrial loans     60,323     4.7       48,669     4.1       18,067     2.2  
Real estate loans:                        
Residential real estate loans     251,213     19.4       249,367     21.4       133,143     16.5  
Consumer and other loans:                        
Credit cards     379,642     29.3       318,187     27.3       139,501     17.4  
Other consumer and other loans     465,360     35.9       431,481     37.0       288,257     35.9  
Gross CCBX loans receivable     1,294,966     100.0 %     1,166,500     100.0 %     803,898     100.0 %
Net deferred origination (fees) costs     (447 )         (310 )         54      
Loans receivable   $ 1,294,519         $ 1,166,190         $ 803,952      
Loan Yield – CCBX(1)(2)     16.95 %         16.09 %         12.35 %    

(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 $67.3 million, or 2.2%, to $3.16 billion at June 30, 2023 from $3.10 billion at March 31, 2023. The increase was due to a $69.6 million increase in core deposits, partially offset by a $2.2 million decrease in time deposits. BaaS-brokered deposits are now classified as NOW accounts due to a change in the relationship agreement with one of our partners. Deposits in our CCBX segment increased $89.3 million, from $1.56 billion at March 31, 2023, to $1.65 billion at June 30, 2023 and community bank deposits decreased $21.9 million from $1.53 billion at March 31, 2023, to $1.51 billion at June 30, 2023. The deposits from our CCBX segment are predominately classified as interest bearing, or NOW and money market accounts. During the quarter ended June 30, 2023, noninterest bearing deposits decreased $36.2 million, or 4.8%, to $725.6 million from $761.8 million at March 31, 2023. Community bank noninterest bearing deposits totaled $621.0 million or 41.1% of total community bank deposits and CCBX noninterest bearing deposits totaled $104.6 million, or 6.3% of total CCBX deposits. In the quarter ended June 30, 2023 compared to the quarter ended March 31, 2023, NOW and money market accounts increased $116.0 million, savings deposits decreased $10.3 million, and time deposits decreased $2.2 million. Included in total deposits is $240.3 million in IntraFi network NOW and money market sweep accounts as of June 30, 2023, which provides our larger deposit customers with fully insured deposits through a sweep to other banks. Uninsured deposits decreased to $632.1 million as of June 30, 2023, compared to $768.3 million as of March 31, 2023.

Total deposits increased $465.3 million, or 17.2%, to $3.16 billion at June 30, 2023 compared to $2.70 billion at June 30, 2022. The increase is largely the result of growth in CCBX deposits. Noninterest bearing deposits decreased $92.5 million, or 11.3%, to $725.6 million at June 30, 2023 from $818.1 million at June 30, 2022. NOW and money market accounts increased $662.8 million, or 39.9%, to $2.32 billion at June 30, 2023, and savings deposits decreased $17.5 million, or 16.4%, and time deposits decreased   $11.6 million, or 31.9%, in the second quarter of 2023 compared to the second 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 $275.2 million as of June 30, 2023, compared to $76.0 million as of June 30, 2022. These deposits increased as a result of sweeping them back on the balance sheet. Deposits in our CCBX segment increased $587.0 million, from $1.07 billion at June 30, 2022, to $1.65 billion at June 30, 2023 and community bank deposits decreased $121.7 million, from $1.63 billion at June 30, 2022, to $1.51 billion at June 30, 2023. The deposits from our CCBX segment are predominately classified as interest bearing, or NOW and money market accounts. Uninsured deposits decreased to $632.1 million as of June 30, 2023, compared to $812.1 million as of June 30, 2022.

Additionally, as of June 30, 2023 we have access to $9.9 million in CCBX customer deposits that are currently being transferred off the Bank’s balance sheet to other financial institutions on a daily basis. The Bank could retain these deposits for liquidity and funding purposes if needed. If a portion of these deposits are retained, they would be classified as NOW accounts. 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 June 30, 2023   As of March 31, 2023   As of June 30, 2022
(dollars in thousands; unaudited) Amount   Percent of
Total
Deposits
  Balance   Percent of
Total
Deposits
  Balance   Percent of
Total
Deposits
Demand, noninterest bearing $ 725,592     22.9 %   $ 761,800     24.6 %   $ 818,052     30.3 %
NOW and money market   2,323,164     73.5       2,207,121     71.3       1,660,315     61.6  
Savings   88,991     2.8       99,241     3.2       106,464     3.9  
Total core deposits   3,137,747     99.2       3,068,162     99.1       2,584,831     95.8  
Brokered deposits   1     0.0       1     0.0       76,001     2.8  
Time deposits less than $100,000   9,741     0.3       11,343     0.4       14,009     0.5  
Time deposits $100,000 and over   15,083     0.5       15,717     0.5       22,464     0.8  
Total $ 3,162,572     100.0 %   $ 3,095,223     100.0 %   $ 2,697,305     100.0 %
Cost of deposits(1)   2.72 %         2.13 %         0.25 %    

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

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

Community Bank   As of
    June 30, 2023   March 31, 2023   June 30, 2022
(dollars in thousands; unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total
Demand, noninterest bearing   $ 621,012     41.1 %   $ 664,452     43.4 %   $ 729,436     44.7 %
NOW and money market     778,475     51.6       743,548     48.6       759,704     46.6  
Savings     85,146     5.7       96,330     6.3       105,576     6.5  
Total core deposits     1,484,633     98.4       1,504,330     98.3       1,594,716     97.8  
Brokered deposits     1     0.0       1     0.0       1     0.0  
Time deposits less than $100,000     9,741     0.6       11,343     0.7       14,009     0.9  
Time deposits $100,000 and over     15,083     1.0       15,717     1.0       22,464     1.4  
Total Community Bank deposits   $ 1,509,458     100.0 %   $ 1,531,391     100.0 %   $ 1,631,190     100.0 %
Cost of deposits(1)     0.98 %         0.66 %         0.08 %    

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

  

CCBX   As of
    June 30, 2023   March 31, 2023   June 30, 2022
(dollars in thousands; unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total
Demand, noninterest bearing   $ 104,580     6.3 %   $ 97,348     6.2 %   $ 88,616     8.3 %
NOW and money market     1,544,689     93.5       1,463,573     93.6       900,611     84.5  
Savings     3,845     0.2       2,911     0.2       888     0.1  
Total core deposits     1,653,114     100.0       1,563,832     100.0       990,115     92.9  
BaaS-brokered deposits         0.0           0.0       76,000     7.1  
Total CCBX deposits   $ 1,653,114     100.0 %   $ 1,563,832     100.0 %   $ 1,066,115     100.0 %
Cost of deposits(1)     4.42 %         3.89 %         0.56 %    

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

Borrowings

As of June 30, 2023 the Company has the capacity to borrow up to a total of $559.8 million from the Federal Reserve Bank discount window and Federal Home Loan Bank, with no borrowings outstanding on these lines as of June 30, 2023.

Shareholders’ Equity

During the six months ended June 30, 2023, the Company contributed $15.0 million in capital to the Bank.  The Company had a cash balance of $6.8 million as of June 30, 2023, which is retained for general operating purposes, including debt repayment, and for funding $763,000 in commitments to bank technology funds.  

Total shareholders’ equity increased $13.9 million since March 31, 2023.  The increase in shareholders’ equity was primarily due to $12.9 million in net earnings, a $846,000 increase from the amortization of equity awards, combined with a decrease in the unrealized loss on available-for-sale securities of $125,000 and $22,000 increase from stock options being exercised during the three months ended June 30, 2023.

Capital Ratios

The Company and the Bank remained well capitalized at June 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)   9.16 %   8.16 %   5.00 %
Common Equity Tier 1 Capital (to risk-weighted assets)   9.52 %   8.36 %   6.50 %
Tier 1 Capital (to risk-weighted assets)   9.52 %   8.47 %   8.00 %
Total Capital (to risk-weighted assets)   10.80 %   11.12 %   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 $110.8 million and 3.68% of loans receivable at June 30, 2023 compared to $89.1 million and 3.14% at March 31, 2023 and $49.4 million and 2.11% at June 30, 2022. The allowance for credit loss allocated to the CCBX portfolio was $90.1 million and 6.96% of CCBX loans receivable at June 30, 2023, with $20.7 million of allowance for credit loss allocated to the community bank or 1.21% of total community bank loans receivable.

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

    As of June 30, 2023   As of March 31, 2023   As of June 30, 2022
(dollars in thousands; unaudited)   Community Bank   CCBX   Total   Community Bank   CCBX   Total   Community Bank   CCBX   Total
Loans receivable   $ 1,713,034     $ 1,294,519     $ 3,007,553     $ 1,671,014     $ 1,166,190     $ 2,837,204     $ 1,530,402     $ 803,952     $ 2,334,354  
Allowance for credit losses     (20,653 )     (90,109 )     (110,762 )     (20,708 )     (68,415 )     (89,123 )     (20,785 )     (28,573 )     (49,358 )
Allowance for credit losses to total loans receivable     1.21 %     6.96 %     3.68 %     1.24 %     5.87 %     3.14 %     1.36 %     3.55 %     2.11 %
                                                                         

Provision for credit losses – loans totaled $52.6 million for the three months ended June 30, 2023, $43.5 million for the three months ended March 31, 2023, and $14.1 million for the three months ended June 30, 2022. Net charge-offs totaled $31.0 million for the quarter ended June 30, 2023, compared to $32.3 million for the quarter ended March 31, 2023 and $3.5 million for the quarter ended June 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 $180.5 million loan portfolio. At June 30, 2023, our portion of this portfolio represented $18.0 million in loans.

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

    Three Months Ended
    June 30, 2023   March 31, 2023   June 30, 2022
(dollars in thousands; unaudited)   Community
Bank
  CCBX   Total   Community
Bank
  CCBX   Total   Community Bank   CCBX   Total
Gross charge-offs   $ 9     $ 32,290     $ 32,299     $ 50     $ 34,117     $ 34,167     $ 3     $ 3,539     $ 3,542  
Gross recoveries           (1,340 )     (1,340 )     (5 )     (1,860 )     (1,865 )     (36 )           (36 )
Net charge-offs   $ 9     $ 30,950     $ 30,959     $ 45     $ 32,257     $ 32,302     $ (33 )   $ 3,539     $ 3,506  
Net charge-offs to average loans(1)     %     9.78 %     4.19 %     0.01 %     12.29 %     4.84 %     (0.01 )%     2.05 %     0.64 %

(1)   Annualized calculations shown for periods presented.
     

The increase in the Company’s provision for credit losses – loans during the quarter ended June 30, 2023, is a result of loan growth in CCBX partner loans and to replenish reserves as a result of loan charge-off activity, which has resulted in increased charge-off rates impacting the allowance calculation. During the quarter ended June 30, 2023, a $52.6 million provision for credit losses – loans was recorded for CCBX partner loans based on management’s analysis, compared to the $43.1 million provision for credit losses – loans that was recorded for CCBX for the quarter ended March 31, 2023. 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 $180.5 million CCBX loan portfolio. At June 30, 2023, 10% of this portfolio represented $18.0 million in loans. The factors used in management’s analysis for community bank credit losses indicated that a small adjustment (recapture) of $47,000 and provision of $428,000 was needed for the quarters ended June 30, 2023 and March 31, 2023, respectively.

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

    Three Months Ended   Six Months Ended
(dollars in thousands; unaudited)   June 30, 2023   March 31, 2023   June 30, 2022   June 30, 2023   June 30, 2022
Community bank   $ (47 )   $ 428   $ 109   $ 381   $ 452
CCBX     52,645       43,116     13,985     95,761     26,584
Total provision expense   $ 52,598     $ 43,544   $ 14,094   $ 96,142   $ 27,036
                                 

At June 30, 2023, our nonperforming assets were $33.7 million, or 0.95% of total assets, compared to $31.5 million, or 0.91%, of total assets, at March 31, 2023, and $5.8 million, or 0.20% of total assets, at June 30, 2022. These ratios are impacted by CCBX loans over 90 days delinquent that are covered by CCBX partner credit enhancements. As of June 30, 2023, $25.2 million of the $26.3 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 $2.2 million during the quarter ended June 30, 2023, compared to the quarter ended March 31, 2023, due to a $1.8 million increase in CCBX loans that are past due 90 days or more and still accruing combined with a $417,000 increase 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 increased due to the addition of three loans partially offset by principal reductions. There were no repossessed assets or other real estate owned at June 30, 2023. Our nonperforming loans to loans receivable ratio was 1.12% at June 30, 2023, compared to 1.11% at March 31, 2023, and 0.25% at June 30, 2022.

For the quarter ended June 30, 2023, there were $9,000 of community bank net charge-offs and $7.4 million of nonperforming community bank loans. For the quarter ended June 30, 2023, $31.0 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 $180.5 million loan portfolio. At June 30, 2023, our portion of this portfolio represented $18.0 million in loans.

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

(dollars in thousands; unaudited) As of June 30,
2023
  As of March 31,
2023
  As of June 30,
2022
Nonaccrual loans:          
Commercial and industrial loans $ 5     $ 15     $ 111  
Real estate loans:          
Construction, land and land development   66       66       67  
Residential real estate   186             53  
Commercial real estate   7,142       6,901        
Total nonaccrual loans   7,399       6,982       231  
Accruing loans past due 90 days or more:          
Commercial & industrial loans   808       187       10  
Real estate loans:          
Residential real estate loans   1,722       946       123  
Consumer and other loans:          
Credit cards   18,306       17,772       1,283  
Other consumer and other loans   5,492       5,657       4,164  
Total accruing loans past due 90 days or more   26,328       24,562       5,580  
Total nonperforming loans   33,727       31,544       5,811  
Real estate owned                
Repossessed assets                
Modified loans for borrowers experiencing financial difficulty                
Total nonperforming assets $ 33,727     $ 31,544     $ 5,811  
Total nonaccrual loans to loans receivable   0.25 %     0.25 %     0.01 %
Total nonperforming loans to loans receivable   1.12 %     1.11 %     0.25 %
Total nonperforming assets to total assets   0.95 %     0.91 %     0.20 %
                       

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

Community Bank As of
(dollars in thousands; unaudited) June 30,
2023
  March 31,
2023
  June 30,
2022
Nonaccrual loans:          
Commercial and industrial loans $ 5   $ 15   $ 111
Real estate:          
Construction, land and land development   66     66     67
Residential real estate   186         53
Commercial real estate   7,142     6,901    
Total nonaccrual loans   7,399     6,982     231
Accruing loans past due 90 days or more:          
Total accruing loans past due 90 days or more          
Total nonperforming loans   7,399     6,982     231
Other real estate owned          
Repossessed assets          
Total nonperforming assets $ 7,399   $ 6,982   $ 231

CCBX As of
(dollars in thousands; unaudited) June 30,
2023
  March 31,
2023
  June 30,
2022
Nonaccrual loans $   $   $
Accruing loans past due 90 days or more:          
Commercial & industrial loans   808     187     10
Real estate loans:          
Residential real estate loans   1,722     946     123
Consumer and other loans:          
Credit cards   18,306     17,772     1,283
Other consumer and other loans   5,492     5,657     4,164
Total accruing loans past due 90 days or more   26,328     24,562     5,580
Total nonperforming loans   26,328     24,562     5,580
Other real estate owned          
Repossessed assets          
Total nonperforming assets $ 26,328   $ 24,562   $ 5,580
                 

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 $3.54 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
  June 30,
2023
  March 31,
2023
  June 30,
2022
Cash and due from banks $ 29,783     $ 37,676     $ 40,750  
Interest earning deposits with other banks   245,277       356,240       364,939  
Investment securities, available for sale, at fair value   98,167       97,999       108,560  
Investment securities, held to maturity, at amortized cost   12,563       3,705       1,261  
Other investments   12,037       11,346       10,379  
Loans held for sale   35,923       27,292       60,000  
Loans receivable   3,007,553       2,837,204       2,334,354  
Allowance for credit losses   (110,762 )     (89,123 )     (49,358 )
Total loans receivable, net   2,896,791       2,748,081       2,284,996  
CCBX credit enhancement asset   96,928       76,395       30,715  
CCBX receivable   19,113       13,681       4,114  
Premises and equipment, net   18,903       18,030       18,670  
Operating lease right-of-use assets   6,216       4,812       5,565  
Accrued interest receivable   21,581       19,321       12,430  
Bank-owned life insurance, net   12,873       12,761       12,485  
Deferred tax asset, net   25,764       20,527       11,709  
Other assets   3,364       3,167       3,149  
Total assets $ 3,535,283     $ 3,451,033     $ 2,969,722  
           
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES          
Deposits $ 3,162,572     $ 3,095,223     $ 2,697,305  
Subordinated debt, net   44,069       44,031       24,324  
Junior subordinated debentures, net   3,589       3,588       3,587  
Deferred compensation   547       582       680  
Accrued interest payable   766       874       330  
Operating lease liabilities   6,413       5,022       5,786  
CCBX payable   27,714       30,794       12,058  
Other liabilities   16,951       12,156       7,991  
Total liabilities   3,262,621       3,192,270       2,752,061  
           
SHAREHOLDERS’ EQUITY          
Common stock   128,315       127,447       123,226  
Retained earnings   146,029       133,123       95,779  
Accumulated other comprehensive loss, net of tax   (1,682 )     (1,807 )     (1,344 )
Total shareholders’ equity   272,662       258,763       217,661  
Total liabilities and shareholders’ equity $ 3,535,283     $ 3,451,033     $ 2,969,722  

COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)
 
  Three Months Ended
  June 30,
2023
  March 31,
2023
  June 30,
2022
INTEREST AND DIVIDEND INCOME          
Interest and fees on loans $ 80,199     $ 66,431   $ 40,166
Interest on interest earning deposits with other banks   2,678       3,097     956
Interest on investment securities   653       553     563
Dividends on other investments   156       30     134
Total interest income   83,686       70,111     41,819
INTEREST EXPENSE          
Interest on deposits   20,675       14,958     1,673
Interest on borrowed funds   661       662     260
Total interest expense   21,336       15,620     1,933
Net interest income   62,350       54,491     39,886
PROVISION FOR CREDIT LOSSES – LOANS   52,598       43,544     14,094
(RECAPTURE) PROVISION FOR UNFUNDED COMMITMENTS   (345 )     153    
Net interest income after provision for credit losses – loans and unfunded commitments   10,097       10,794     25,792
NONINTEREST INCOME          
Deposit service charges and fees   989       910     988
Loan referral fees   682           208
Gain on sales of loans, net   23       123    
Unrealized (loss) gain on equity securities, net   155       39    
Other income   234       299     396
Noninterest income, excluding BaaS program income and BaaS indemnification income   2,083       1,371     1,592
Servicing and other BaaS fees   895       948     1,159
Transaction fees   1,052       917     814
Interchange fees   975       789     628
Reimbursement of expenses   1,026       921     618
BaaS program income   3,948       3,575     3,219
BaaS credit enhancements   51,027       42,362     14,207
BaaS fraud enhancements   1,537       1,999     6,474
BaaS indemnification income   52,564       44,361     20,681
Total noninterest income   58,595       49,307     25,492
NONINTEREST EXPENSE          
Salaries and employee benefits   16,309       15,575     12,238
Occupancy   1,143       1,219     1,083
Data processing and software licenses   1,972       1,840     1,546
Legal and professional expenses   4,645       3,062     1,002
Point of sale expense   814       753     409
Excise taxes   531       455     564
Federal Deposit Insurance Corporation ("FDIC") assessments   570       595     855
Director and staff expenses   519       626     377
Marketing   115       95     74
Other expense   1,722       890     1,318
Noninterest expense, excluding BaaS loan and BaaS fraud expense   28,340       25,110     19,466
BaaS loan expense   22,033       17,554     12,229
BaaS fraud expense   1,537       1,999     6,474
BaaS loan and fraud expense   23,570       19,553     18,703
Total noninterest expense   51,910       44,663     38,169
Income before provision for income taxes   16,782       15,438     13,115
PROVISION FOR INCOME TAXES   3,876       3,047     2,939
NET INCOME $ 12,906     $ 12,391   $ 10,176
Basic earnings per common share $ 0.97     $ 0.94   $ 0.79
Diluted earnings per common share $ 0.95     $ 0.91   $ 0.76
Weighted average number of common shares outstanding:          
Basic   13,275,640       13,196,960     12,928,061
Diluted   13,597,763       13,609,491     13,442,013

COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)
 
  Six Months Ended
  June 30,
2023
  June 30,
2022
INTEREST AND DIVIDEND INCOME      
Interest and fees on loans $ 146,630     $ 69,798
Interest on interest earning deposits with other banks   5,775       1,358
Interest on investment securities   1,206       634
Dividends on other investments   186       171
Total interest income   153,797       71,961
INTEREST EXPENSE      
Interest on deposits   35,633       2,226
Interest on borrowed funds   1,323       581
Total interest expense   36,956       2,807
Net interest income   116,841       69,154
PROVISION FOR CREDIT LOSSES – LOANS   96,142       27,036
RECAPTURE FOR UNFUNDED COMMITMENTS   (192 )    
Net interest income after provision for credit losses – loans and unfunded commitments   20,891       42,118
NONINTEREST INCOME      
Deposit service charges and fees   1,899       1,872
Loan referral fees   682       810
Gain on sales of loans, net   146      
Unrealized (loss) gain on equity securities, net   194      
Other income   533       784
Noninterest income, excluding BaaS program income and BaaS indemnification income   3,454       3,466
Servicing and other BaaS fees   1,843       2,328
Transaction fees   1,969       1,307
Interchange fees   1,764       1,060
Reimbursement of expenses   1,947       990
BaaS program income   7,523       5,685
BaaS credit enhancements   93,389       27,282
BaaS fraud enhancements   3,536       11,045
BaaS indemnification income   96,925       38,327
Total noninterest income   107,902       47,478
NONINTEREST EXPENSE      
Salaries and employee benefits   31,884       23,323
Occupancy   2,362       2,219
Data processing and software licenses   3,812       3,050
Legal and professional expenses   7,707       1,710
Point of sale expense   1,567       657
Excise taxes   986       913
Federal Deposit Insurance Corporation ("FDIC") assessments   1,165       1,459
Director and staff expenses   1,145       721
Marketing   210       173
Other expense   2,612       2,795
Noninterest expense, excluding BaaS loan and BaaS fraud expense   53,450       37,020
BaaS loan expense   39,587       20,519
BaaS fraud expense   3,536       11,045
BaaS loan and fraud expense   43,123       31,564
Total noninterest expense   96,573       68,584
Income before provision for income taxes   32,220       21,012
PROVISION FOR INCOME TAXES   6,923       4,606
NET INCOME $ 25,297     $ 16,406
Basic earnings per common share $ 1.91     $ 1.27
Diluted earnings per common share $ 1.86     $ 1.22
Weighted average number of common shares outstanding:      
Basic   13,236,517       12,913,485
Diluted   13,603,594       13,458,706

COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – QUARTERLY
(Dollars in thousands; unaudited)
 
  For the Three Months Ended
  June 30, 2023   March 31, 2023   June 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 $ 211,369     $ 2,678   5.08 %   $ 271,700     $ 3,097   4.62 %   $ 499,918     $ 956   0.77 %
Investment securities, available for sale(2)   100,278       534   2.14       100,273       535   2.16       119,975       554   1.85  
Investment securities, held to maturity(2)   10,047       119   4.75       1,955       18   3.73       1,280       9   2.82  
Other investments   11,773       156   5.31       10,633       30   1.14       10,225       134   5.26  
Loans receivable(3)   2,965,287       80,199   10.85       2,708,177       66,431   9.95       2,194,761       40,166   7.34  
Total interest earning assets   3,298,754       83,686   10.18       3,092,738       70,111   9.19       2,826,159       41,819   5.94  
Noninterest earning assets:                                  
Allowance for credit losses   (87,713 )             (81,086 )             (46,354 )        
Other noninterest earning assets   194,747               172,161               115,788          
Total assets $ 3,405,788             $ 3,183,813             $ 2,895,593          
                                   
Liabilities and Shareholders’ Equity                                  
Interest bearing liabilities:                                  
Interest bearing deposits $ 2,326,702     $ 20,675   3.56 %   $ 2,070,217     $ 14,958   2.93 %   $ 1,792,119     $ 1,673   0.37 %
Subordinated debt   44,047       596   5.43       44,010       599   5.52       24,313       231   3.81  
Junior subordinated debentures   3,589       65   7.26       3,588       63   7.12       3,587       29   3.24  
Total interest bearing liabilities   2,374,338       21,336   3.60       2,117,815       15,620   2.99       1,820,019       1,933   0.43  
Noninterest bearing deposits   717,256               775,940               839,562          
Other liabilities   49,085               37,448               19,550          
Total shareholders’ equity   265,109               252,610               216,462          
Total liabilities and shareholders’ equity $ 3,405,788             $ 3,183,813             $ 2,895,593          
Net interest income     $ 62,350           $ 54,491           $ 39,886    
Interest rate spread         6.57 %           6.20 %           5.51 %
Net interest margin(4)         7.58 %           7.15 %           5.66 %

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

COASTAL FINANCIAL CORPORATION
SELECTED AVERAGE BALANCES, YIELDS, AND RATES – BY SEGMENT – QUARTERLY
(Dollars in thousands; unaudited)
 
  For the Three Months Ended
  June 30, 2023   March 31, 2023   June 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) $ 1,695,881   $ 26,567   6.28 %   $ 1,643,985   $ 24,211   5.97 %   $ 1,503,467   $ 18,885   5.04 %
Intrabank asset                           158,607     303   0.77  
Total interest earning assets   1,695,881     26,567   6.28       1,643,985     24,211   5.97       1,662,074     19,188   4.63  
Liabilities                                  
Interest bearing liabilities:                                
Interest bearing deposits   875,760     3,663   1.68 %     853,152     2,534   1.20 %     921,499     317   0.14 %
Intrabank liability   196,552     2,490   5.08       94,668     1,079   4.62              
Total interest bearing liabilities   1,072,312     6,153   2.30       947,820     3,613   1.55       921,499     317   0.14  
Noninterest bearing deposits   623,570             696,166             740,575        
Net interest income     $ 20,414           $ 20,598           $ 18,871    
Net interest margin(4)         4.83 % %         5.08 %           4.55 %
                                   
CCBX                                  
Assets                                  
Interest earning assets:                                  
Loans receivable(2)(4) $ 1,269,406   $ 53,632   16.95 %   $ 1,064,192   $ 42,220   16.09 %   $ 691,294   $ 21,281   12.35 %
Intrabank asset   275,222     3,487   5.08       232,647     2,652   4.62       278,312     532   0.77  
Total interest earning assets   1,544,628     57,119   14.83       1,296,839     44,872   14.03       969,606     21,813   9.02  
Liabilities                                  
Interest bearing liabilities:                            
Interest bearing deposits   1,450,942     17,012   4.70 %     1,217,065     12,424   4.14 %     870,620     1,356   0.62 %
Total interest bearing liabilities   1,450,942     17,012   4.70       1,217,065     12,424   4.14       870,620     1,356   0.62  
Noninterest bearing deposits   93,686             79,774             98,987        
Net interest income     $ 40,107           $ 32,448           $ 20,457    
Net interest margin(3)         10.41 %           10.15 %           8.46 %
Net interest margin, net of BaaS loan expense(5)         4.69 %           4.66 %           3.40 %

  For the Three Months Ended
  June 30, 2023   March 31, 2023   June 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 $ 211,369   $ 2,678   5.08 %   $ 271,700   $ 3,097   4.62 %   $ 499,918   $ 956   0.77 %
Investment securities, available for sale(6)   100,278     534   2.14       100,273     535   2.16       119,975     554   1.85  
Investment securities, held to maturity(6)   10,047     119   4.75       1,955     18   3.73       1,280     9   2.82  
Other investments   11,773     156   5.31       10,633     30   1.14       10,225     134   5.26  
Total interest earning assets   333,467     3,487   4.19 %     384,561     3,680   3.88 %     631,398     1,653   1.05 %
Liabilities                                  
Interest bearing liabilities:                                  
Subordinated debt   44,047     596   5.43 %     44,010     599   5.52 %     24,313     231   3.81 %
Junior subordinated debentures   3,589     65   7.26       3,588     63   7.12       3,587     29   3.24  
Intrabank liability, net(7)   78,670     997   5.08       137,979     1,573   4.62       436,919     835   0.77  
Total interest bearing liabilities   126,306     1,658   5.27       185,576     2,235   4.89       464,819     1,095   0.94  
Net interest income     $ 1,829           $ 1,445           $ 558    
Net interest margin(3)         2.20 %           1.52 %           0.35 %

(1)   Yields and costs are annualized.
(2)   Includes loans held for sale and nonaccrual loans.
(3)   Net interest margin represents net interest income divided by the average total interest earning assets.
(4)   CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and originating & servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release for the impact of BaaS loan expense on CCBX loan yield.
(5)   Net interest margin, net of BaaS loan expense includes the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, originating & servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release.
(6)   For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(7)   Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the table above.
     

COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – YEAR-TO-DATE
(Dollars in thousands; unaudited)
 
  For the Six Months Ended
  June 30, 2023   June 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 $ 241,368     $ 5,775   4.82 %   $ 670,974     $ 1,358   0.41 %
Investment securities, available for sale(2)   100,276       1,069   2.15       82,431       615   1.50  
Investment securities, held to maturity(2)   6,023       137   4.59       1,286       19   2.98  
Other investments   11,206       186   3.35       9,729       171   3.54  
Loans receivable(3)   2,837,442       146,630   10.42       1,982,700       69,798   7.10  
Total interest earning assets   3,196,315       153,797   9.70       2,747,120       71,961   5.28  
Noninterest earning assets:                      
Allowance for credit losses   (84,417 )             (38,554 )        
Other noninterest earning assets   183,516               104,159          
Total assets $ 3,295,414             $ 2,812,725          
                       
Liabilities and Shareholders’ Equity                      
Interest bearing liabilities:                      
Interest bearing deposits $ 2,199,168     $ 35,633   3.27 %   $ 1,463,875     $ 2,226   0.31 %
FHLB advances and borrowings                 12,154       69   1.14  
Subordinated debt   44,028       1,195   5.47       24,304       461   3.83  
Junior subordinated debentures   3,588       128   7.19       3,587       51   2.87  
Total interest bearing liabilities   2,246,784       36,956   3.32       1,503,920       2,807   0.38  
Noninterest bearing deposits   746,436               1,078,525          
Other liabilities   43,299               17,790          
Total shareholders’ equity   258,895               212,490          
Total liabilities and shareholders’ equity $ 3,295,414             $ 2,812,725          
Net interest income     $ 116,841           $ 69,154    
Interest rate spread         6.39 %           4.90 %
Net interest margin(4)         7.37 %           5.08 %

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

COASTAL FINANCIAL CORPORATION
SELECTED AVERAGE BALANCES, YIELDS, AND RATES – BY SEGMENT – YEAR-TO-DATE
(Dollars in thousands; unaudited)
 
    For the Six Months Ended
    June 30, 2023   June 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)   $ 1,670,076   $ 50,779   6.13 %   $ 1,445,123   $ 36,525   5.10 %
Intrabank asset                 213,207     431   0.41  
Total interest earning assets     1,670,076     50,779   6.13       1,658,330     36,956   4.49  
Liabilities                        
Interest bearing liabilities:                        
Interest bearing deposits     864,518     6,197   1.45 %     928,602     752   0.16 %
Intrabank liability     145,890     3,569   4.93              
Total interest bearing liabilities     1,010,408     9,766   1.95       928,602     752   0.16  
Noninterest bearing deposits     659,668             729,728        
Net interest income       $ 41,013           $ 36,204    
Interest rate spread           4.18 %           4.33 %
Net interest margin(3)           4.95 %           4.40 %
                         
CCBX                        
Assets                        
Interest earning assets:                        
Loans receivable(2)(4)   $ 1,167,366   $ 95,851   16.56 %   $ 537,577   $ 33,273   12.48 %
Intrabank asset     254,052     6,139   4.87       346,493     730   0.42  
Total interest earning assets     1,421,418     101,990   14.47       884,070     34,003   7.76  
Liabilities                        
Interest bearing liabilities:                        
Interest bearing deposits     1,334,650     29,436   4.45 %     535,273     1,474   0.56 %
Total interest bearing liabilities     1,334,650     29,436   4.45       535,273     1,474   0.56  
Noninterest bearing deposits     86,768             348,797        
Net interest income       $ 72,554           $ 32,529    
Interest rate spread           10.02 %           7.20 %
Interest rate spread, net of BaaS loan expense           3.18 %           (0.50 )%
Net interest margin(3)           10.29 %           7.42 %
Net interest margin, net of Baas loan expense(5)           4.68 %           2.74 %

    For the Six Months Ended
    June 30, 2023   June 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   $ 241,368   $ 5,775   4.82 %   $ 670,974   $ 1,358   0.41 %
Investment securities, available for sale(6)     100,276     1,069   2.15       82,431     615   1.50  
Investment securities, held to maturity(6)     6,023     137   4.59       1,286     19   2.98  
Other investments     11,206     186   3.35       9,729     171   3.54  
Total interest earning assets     358,873     7,167   4.03       764,420     2,163   0.57  
Liabilities                        
Interest bearing liabilities:                        
FHLB advances and borrowings           %     12,154     69   1.14 %
Subordinated debt     44,028     1,195   5.47       24,304     461   3.83  
Junior subordinated debentures     3,588     128   7.19       3,587     51   2.87  
Intrabank liability, net(7)     108,162     2,570   4.79       559,700     1,161   0.42  
Total interest bearing liabilities     155,778     3,893   5.04       599,745     1,742   0.59  
Net interest income       $ 3,274           $ 421    
Interest rate spread           (1.01) %           (0.02 )%
Net interest margin(3)           1.84 %           0.11 %

(1)   Yields and costs are annualized.
(2)   Includes loans held for sale and nonaccrual loans.
(3)   Net interest margin represents net interest income divided by the average total interest earning assets.
(4)   CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and originating & servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release for the impact of BaaS loan expense on CCBX loan yield.
(5)   Net interest margin, net of BaaS loan expense includes the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, originating & servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release.
(6)   For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(7)   Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the table above.  
     

COASTAL FINANCIAL CORPORATION
QUARTERLY STATISTICS
(Dollars in thousands, except share and per share data; unaudited)
 
  Three Months Ended
  June 30,
2023
  March 31,
2023
  December 31,
2022
  September 30,
2022
  June 30,
2022
Income Statement Data:                  
Interest and dividend income $ 83,686     $ 70,111     $ 65,030     $ 55,179     $ 41,819  
Interest expense   21,336       15,620       11,598       5,990       1,933  
Net interest income   62,350       54,491       53,432       49,189       39,886  
Provision for credit losses – loans   52,598       43,544       33,600       18,428       14,094  
(Recovery)Provision for unfunded commitments   (345 )     153                    
Net interest income after provision for credit losses – loans and unfunded commitments   10,097       10,794       19,832       30,761       25,792  
Noninterest income   58,595       49,307       42,815       34,391       25,492  
Noninterest expense   51,910       44,663       47,103       51,087       38,169  
Provision for income tax   3,876       3,047       2,426       2,964       2,939  
Net income   12,906       12,391       13,118       11,101       10,176  
                   
  As of and for the Three Month Period
  June 30,
2023
  March 31,
2023
  December 31,
2022
  September 30,
2022
  June 30,
2022
Balance Sheet Data:                  
Cash and cash equivalents $ 275,060     $ 393,916     $ 342,139     $ 410,728     $ 405,689  
Investment securities   110,730       101,704       98,353       98,871       109,821  
Loans held for sale   35,923       27,292             43,314       60,000  
Loans receivable   3,007,553       2,837,204       2,627,256       2,507,889       2,334,354  
Allowance for credit losses   (110,762 )     (89,123 )     (74,029 )     (59,282 )     (49,358 )
Total assets   3,535,283       3,451,033       3,144,467       3,133,741       2,969,722  
Interest bearing deposits   2,436,980       2,333,423       2,042,509       2,023,849       1,879,253  
Noninterest bearing deposits   725,592       761,800       775,012       813,217       818,052  
Core deposits(1)   3,137,747       3,068,162       2,686,528       2,727,830       2,584,831  
Total deposits   3,162,572       3,095,223       2,817,521       2,837,066       2,697,305  
Total borrowings   47,658       47,619       47,587       27,931       27,911  
Total shareholders’ equity   272,662       258,763       243,494       228,733       217,661  
                   
Share and Per Share Data(2):                  
Earnings per share – basic $ 0.97     $ 0.94     $ 1.01     $ 0.86     $ 0.79  
Earnings per share – diluted $ 0.95     $ 0.91     $ 0.96     $ 0.82     $ 0.76  
Dividends per share                            
Book value per share(3) $ 20.50     $ 19.48     $ 18.50     $ 17.66     $ 16.81  
Tangible book value per share(4) $ 20.50     $ 19.48     $ 18.50     $ 17.66     $ 16.81  
Weighted avg outstanding shares – basic   13,275,640       13,196,960       13,030,726       12,938,200       12,928,061  
Weighted avg outstanding shares – diluted   13,597,763       13,609,491       13,603,978       13,536,823       13,442,013  
Shares outstanding at end of period   13,300,809       13,281,533       13,161,147       12,954,573       12,948,623  
Stock options outstanding at end of period   357,999       360,119       438,103       644,334       655,844