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Coastal Financial Corporation Announces Third Quarter 2023 Results
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Coastal Financial Corporation Announces Third Quarter 2023 Results

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 %
Consolidated 10.84 %   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
Active 18 18 19
Friends and family / testing 1 1 2
Implementation / onboarding 1 1 0
Signed letters of intent 1 1 5
Wind down – preparing to exit relationship 1 1 3
Total CCBX relationships 22 22 29

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 Bank As 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

CCBX As 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