COASTAL FINANCIAL CORP [CCB] Filings

10-Q 1 ck1437958-20240630.htm 10-Q ck1437958-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to _______________

Commission file number: 001-38589

COASTAL FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)


Washington			56-2392007
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

5415 Evergreen Way, Everett, Washington			98203
(Address of principal executive offices)			(Zip Code)


(425) 257-9000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

_________________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, no par value per share	CCB	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and emerging growth company in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	o	Accelerated Filer	x
Non-Accelerated Filer	o	Smaller Reporting Company	o
		Emerging Growth Company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of August 1, 2024, there were 13,456,333 shares of the issuer’s common stock outstanding.

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COASTAL FINANCIAL CORPORATION

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		Page No.
Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements (unaudited)	4

	Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 (unaudited)	4

	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	5

	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	7

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023 (unaudited)	8

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (unaudited)	9

	Notes to Condensed Consolidated Financial Statements (unaudited)	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	105

Item 4.	Controls and Procedures	107

Part II. Other Information

Item 1.	Legal Proceedings	108

Item 1A.	Risk Factors	108

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	108

Item 3.	Defaults Upon Senior Securities	108

Item 4.	Mine Safety Disclosures	108

Item 5.	Other Information	108

Item 6.	Exhibits	109

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Forward-Looking Statements

This report may contain 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. All forward-looking statements, expressed or implied, included herewith are expressly qualified in their entirety by the cautionary statements contained or referred to herein. The inclusion of forward-looking information in this report 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.

Factors that may affect our results are disclosed in “Item 1A. Risk Factors” in Part II of this report and in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (“Form 10-K”). Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed include, but are not limited to, the following: the difficult market conditions and unfavorable economic conditions and uncertainties in the markets in which we operate and in which our loans are concentrated, including declines in housing markets as a result of global macroeconomic and geopolitical events, an increase in unemployment levels and slowdowns in economic growth; our expected future financial results; our ability to successfully execute on our strategy for our CCBX segment, CCBX partnerships and our efforts to optimize and strengthen our CCBX balance sheet; the overall health of the local and national real estate market; the impacts related to or resulting from bank failures and other economic and industry volatility, including potential increased regulatory requirements and costs and potential impacts to macroeconomic conditions; the credit risk associated with our loan portfolio, our level of nonperforming assets and the costs associated with resolving problem loans; business and economic conditions generally and in the financial services industry, nationally and within our market area, particularly in the markets in which we operate and in which our loans are concentrated; the impact on the Company’s operations due to epidemic illnesses, natural or man-made disasters, such as earthquakes, tsunamis, wildfires and flooding, the effects of regional or national civil unrest, wars and acts of terrorism, and political developments that may disrupt or increase volatility in securities or otherwise affect economic conditions; our ability to maintain an adequate level of allowance for credit losses; our ability to successfully manage liquidity risk; our ability to implement our growth strategy and manage costs effectively; the composition of our senior leadership team and our ability to attract and retain key personnel; our ability to raise additional capital to implement our business plan; changes in market interest rates and impacts of such changes on our profits and business; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; interruptions involving our information technology and telecommunications systems or third-party servicers; our ability to maintain our reputation; increased competition in the financial services industry; regulatory guidance on commercial lending concentrations; our relationship with broker-dealers and digital financial service providers; the effectiveness of our risk management framework; the costs and obligations associated with being a publicly traded company and other unanticipated costs that we may experience; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes and economic stimulus programs; and other changes in banking, securities and tax laws and regulations, and their application by our regulators; the impact on our operations due to epidemic illnesses, natural or man-made disasters, such as wildfires, the effects of regional or national civil unrest, and political developments that may disrupt or increase volatility in securities or otherwise affect economic conditions; fluctuations in the value of the securities held in our securities portfolio; governmental monetary and fiscal policies; material weaknesses in our internal control over financial reporting; and our success at managing the risks involved in the foregoing items.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. 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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(dollars in thousands)


ASSETS
	June 30, 2024		December 31, 2023
Cash and due from banks	$	59,995	$	31,345
Interest earning deposits with other banks (restricted cash of $0 at June 30, 2024 and December 31, 2023)	427,250		451,783
Investment securities, available for sale, at fair value	39		99,504
Investment securities, held to maturity, at amortized cost	49,174		50,860
Other investments	10,664		10,227

Loans receivable	3,326,460		3,026,092
Allowance for credit losses	(147,914)		(116,958)
Total loans receivable, net	3,178,546		2,909,134
CCBX credit enhancement asset	143,485		107,921
CCBX receivable	11,520		9,088
Premises and equipment, net	24,526		22,090
Lease right-of-use assets	5,635		5,932
Accrued interest receivable	23,617		26,819
Bank-owned life insurance, net	13,132		12,870
Deferred tax asset, net	2,221		3,806
Other assets	11,742		11,987
Total assets	$	3,961,546	$	3,753,366

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits	$	3,543,432	$	3,360,363

Subordinated debt, net
Principal amount $45,000 (less unamortized debt issuance costs of $781 and $856) at June 30, 2024 and December 31, 2023, respectively	44,219		44,144
Junior subordinated debentures, net
Principal amount $3,609 (less unamortized debt issuance costs of $18 at June 30, 2024 and December 31, 2023)	3,591		3,590
Deferred compensation	405		479
Accrued interest payable	999		892
Lease liabilities	5,821		6,124
CCBX payable	34,536		33,651
Other liabilities	11,850		9,145
Total liabilities	3,644,853		3,458,388
SHAREHOLDERS’ EQUITY
Preferred stock, no par value:
Authorized: 25,000,000 shares at June 30, 2024 and December 31, 2023; issued and outstanding: zero shares at June 30, 2024 and December 31, 2023	—		—
Common stock, no par value:
Authorized: 300,000,000 shares at June 30, 2024 and December 31, 2023; 13,453,805 shares at June 30, 2024 issued and outstanding and 13,304,339 shares at December 31, 2023 issued and outstanding	132,989		130,136
Retained earnings	183,706		165,311
Accumulated other comprehensive loss, net of tax	(2)		(469)
Total shareholders’ equity	316,693		294,978
Total liabilities and shareholders’ equity	$	3,961,546	$	3,753,366

See accompanying Notes to Condensed Consolidated Financial Statements.

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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(dollars in thousands, except for per share data)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	90,944	$	80,199	$	175,565	$	146,630
Interest on interest earning deposits with other banks	5,683		2,678		10,463		5,775
Interest on investment securities	686		653		1,720		1,206
Dividends on other investments	174		156		211		186
Total interest income	97,487		83,686		187,959		153,797
INTEREST EXPENSE
Interest on deposits	30,578		20,675		59,445		35,633
Interest on borrowed funds	672		661		1,341		1,323
Total interest expense	31,250		21,336		60,786		36,956
Net interest income	66,237		62,350		127,173		116,841
PROVISION FOR CREDIT LOSSES	62,325		52,253		145,483		95,950
Net interest income/(expense) after provision for credit losses	3,912		10,097		(18,310)		20,891
NONINTEREST INCOME
Deposit service charges and fees	946		989		1,854		1,899
Loan referral fees	—		682		168		682
Gain on sales of loans, net	—		23		—		146

Unrealized gain (loss) on equity securities, net	9		155		24		194

Other income	257		234		565		533
Noninterest income, excluding BaaS program income and BaaS indemnification income	1,212		2,083		2,611		3,454
Servicing and other BaaS fees	1,525		895		2,656		1,843
Transaction fees	1,309		1,052		2,431		1,969
Interchange fees	1,625		975		3,164		1,764
Reimbursement of expenses	1,637		1,026		2,670		1,947
BaaS program income	6,096		3,948		10,921		7,523
BaaS credit enhancements	60,826		51,027		140,634		93,389
BaaS fraud enhancements	1,784		1,537		2,707		3,536
BaaS indemnification income	62,610		52,564		143,341		96,925
Total noninterest income	69,918		58,595		156,873		107,902
NONINTEREST EXPENSE
Salaries and employee benefits	17,005		16,309		34,989		31,884
Occupancy	1,686		1,143		3,204		2,362
Data processing and software licenses	2,924		1,972		5,816		3,812
Legal and professional expenses	3,631		4,645		7,303		7,707
Point of sale expense	852		814		1,721		1,567
Excise taxes	(706)		531		(386)		986
Federal Deposit Insurance Corporation ("FDIC") assessments	690		570		1,373		1,165
Director and staff expenses	470		519		870		1,145
Marketing	14		115		67		210
Other expense	1,383		1,722		3,250		2,612
Noninterest expense, excluding BaaS loan and BaaS fraud expense	27,949		28,340		58,207		53,450
BaaS loan expense	29,076		22,033		53,913		39,587
BaaS fraud expense	1,784		1,537		2,707		3,536
BaaS loan and fraud expense	30,860		23,570		56,620		43,123
Total noninterest expense	58,809		51,910		114,827		96,573
Income before provision for income taxes	15,021		16,782		23,736		32,220
PROVISION FOR INCOME TAXES	3,425		3,876		5,340		6,923

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NET INCOME	$	11,596	$	12,906	$	18,396	$	25,297
Basic earnings per common share	$	0.86	$	0.97	$	1.38	$	1.91
Diluted earnings per common share	$	0.84	$	0.95	$	1.34	$	1.86
Weighted average number of common shares outstanding:
Basic	13,412,667		13,275,640		13,376,832		13,236,517
Diluted	13,736,508		13,597,763		13,706,713		13,603,594

See accompanying Notes to Condensed Consolidated Financial Statements.

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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(dollars in thousands)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
NET INCOME	$	11,596	$	12,906	$	18,396	$	25,297
OTHER COMPREHENSIVE INCOME (LOSS), before tax
Securities available-for-sale
Unrealized holding income during the period	1		163		535		841
Income tax expense related to unrealized holding gain/loss	(1)		(38)		(69)		(189)
OTHER COMPREHENSIVE INCOME, net of tax	—		125		466		652
COMPREHENSIVE INCOME	$	11,596	$	13,031	$	18,862	$	25,949

See accompanying Notes to Condensed Consolidated Financial Statements.

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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
(dollars in thousands)


	Shares of Common Stock		Amount of Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
BALANCE, March 31, 2023	13,281,533		$	127,447	$	133,123	$	(1,807)	$	258,763
Net income	—		—		12,906		—		12,906

Issuance of restricted stock awards	13,538		—		—		—		—
Vesting of restricted stock units	3,618		—		—		—		—

Exercise of stock options	2,120		22		—		—		22
Stock-based compensation	—		846		—		—		846
Other comprehensive loss, net of tax	—		—		—		125		125
BALANCE, June 30, 2023	13,300,809		$	128,315	$	146,029	$	(1,682)	$	272,662

BALANCE, December 31, 2022	13,161,147		$	125,830	$	119,998	$	(2,334)	$	243,494
Net income	—		—		25,297		—		25,297
Adjustment to retained earnings; adoption of ASU 2016- 13	—	0	—		734		—		734
Issuance of restricted stock awards	13,538		—		—		—		—
Vesting of restricted stock units	46,020		—		—		—		—
Exercise of stock options	80,104		589		—		—		589
Stock-based compensation	—		1,896		—		—		1,896
Other comprehensive loss, net of tax	—		—		—		652		652
BALANCE, June 30, 2023	13,300,809		$	128,315	$	146,029	$	(1,682)	$	272,662

BALANCE, March 31, 2024	13,407,320		$	131,601	$	172,110	$	(2)	$	303,709
Net income	—		—		11,596		—		11,596
Issuance of restricted stock awards	16,698		—		—		—		—
Vesting of restricted stock units	7,237		—		—		—		—
Exercise of stock options	22,550		289		—		—		289
Stock-based compensation	—		1,099		—		—		1,099
Other comprehensive income, net of tax	—		—		—		—		—
BALANCE, June 30, 2024	13,453,805		$	132,989	$	183,706	$	(2)	$	316,693

BALANCE, December 31, 2023	13,304,339		$	130,136	$	165,310	$	(468)	$	294,978

Net income	—		—		18,396		—		18,396
Issuance of restricted stock awards	16,698		—		—		—		—
Vesting of restricted stock units	65,078		—		—		—		—
Exercise of stock options	67,690		574		—		—		574
Stock-based compensation	—		2,279		—		—		2,279
Other comprehensive income, net of tax	—		—		—		466		466
BALANCE, June 30, 2024	13,453,805		$	132,989	$	183,706	$	(2)	$	316,693

See accompanying Notes to Condensed Consolidated Financial Statements.

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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(dollars in thousands)


	Six Months Ended June 30,
	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	18,396	$	25,297
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	145,483		96,142
Depreciation and amortization	1,965		956
Loss on disposition of fixed assets	—		23
Increase in operating lease right-of-use assets	419		461
Increase in operating lease liabilities	(425)		(480)
Gain on sales of loans	—		(146)

Net amortization (accretion) on investment securities	3		(13)
Unrealized holding (gain) loss on equity investment	(24)		(194)
Stock-based compensation	2,279		1,897

Increase in bank-owned life insurance value	(244)		(188)
Deferred tax benefit (expense)	1,516		(7,714)
Net change in CCBX receivable	(2,432)		(8,697)
Net change in CCBX credit enhancement asset	(35,564)		(39,086)
Net change in CCBX payable	885		7,295
Net change in other assets and liabilities	2,194		5,562
Total adjustments	116,055		55,818
Net cash provided by operating activities	134,451		81,115
CASH FLOWS FROM INVESTING ACTIVITIES


Purchase of investment securities held for investment	—		(11,576)
Change in other investments, net	(413)		(1,288)
Principal paydowns of investment securities available-for-sale	4		4
Principal paydowns of investment securities held-to-maturity	1,679		48
Maturities and calls of investment securities available-for-sale	100,000		—
Purchase of bank owned life insurance	(18)		(18)
Proceeds from sales of loans held for sale	255,672		154,061

Purchase of loans	(20,705)		(47,886)
Increase in loans receivable, net	(645,787)		(585,510)

Purchases of premises and equipment, net	(4,408)		(1,669)
Net cash used by investing activities	(313,976)		(493,834)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, money market, and savings	186,334		349,674
Net decrease in time deposits	(3,266)		(4,623)




Proceeds from exercise of stock options	574		589
Net cash provided by financing activities	183,642		345,640
NET CHANGE IN CASH, DUE FROM BANKS AND RESTRICTED CASH	4,117		(67,079)
CASH, DUE FROM BANKS AND RESTRICTED CASH, beginning of year	483,128		342,139
CASH, DUE FROM BANKS AND RESTRICTED CASH, end of quarter	$	487,245	$	275,060
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES
Interest paid	$	60,679	$	36,874
Income taxes paid	3,628		5,195
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Fair value adjustment of securities available-for-sale, gross	$	535	$	841

Lease liabilities arising from obtaining right-of-use assets	$	122	$	1,659
Non-cash investing and financing activities:
Transfer from loans to loans held for sale	$	255,672	$	189,838
Adjustment to retained earnings - adoption of ASU 2016-13, net of deferred tax	$	—	$	(734)

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See accompanying Notes to Condensed Consolidated Financial Statements.

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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Description of Business and Summary of Significant Accounting Policies

Nature of operations - Coastal Financial Corporation (“Corporation” or “Company”) is a registered bank holding company whose wholly owned subsidiaries are Coastal Community Bank (“Bank”) and Arlington Olympic LLC (“LLC”). The Company is a Washington state corporation that was organized in 2003. The Bank was incorporated and commenced operations in 1997 and is a Washington state-chartered commercial bank that is a member bank of the Federal Reserve system. Arlington Olympic LLC was formed in 2019 and owns the Company’s Arlington branch site, which the Bank leases from the LLC.

The Company operates through the Bank and is headquartered in Everett, Washington, which by population is the largest city in, and the county seat of, Snohomish County. The Company’s business is conducted through three reportable segments: The community bank, CCBX and treasury & administration. The community bank offers a full range of banking services to small and medium-sized businesses, professionals, and individuals throughout the greater Puget Sound region through its 14 branches in Snohomish, Island and King Counties, the Internet, and its mobile banking application. The CCBX segment provides Banking as a Service (“BaaS”) that allows our broker dealers and digital financial service partners to offer their customers banking services. Through CCBX’s partners the Company is able to offer banking services and products across the nation. The treasury & administration segment includes treasury management, overall administration and all other aspects of the Company.

The Bank’s deposits are insured in whole or in part by the Federal Deposit Insurance Corporation (“FDIC”). The community bank’s loans and deposits are primarily within the greater Puget Sound region, while CCBX loans and deposits are dependent upon the partner’s market. The Bank’s primary funding source is deposits from customers. The Bank is subject to regulation and supervision by the Board of Governors of the Federal Reserve System and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has regulatory and supervisory authority over the Company.

Financial statement presentation - The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim reporting requirements and with instructions to Form 10-Q and Article 10 of Regulation S-X, and therefore do not include all the information and notes included in the annual consolidated financial statements in conformity with GAAP. These interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual report on Form 10-K as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 15, 2024. Operating results for the three and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the entire year.

Amounts presented in the consolidated financial statements and footnote tables are rounded and presented in thousands of dollars except per-share amounts, which are presented in dollars. In the narrative footnote discussion, amounts are rounded to thousands and presented in dollars.

In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying consolidated financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation.

Principles of consolidation - The consolidated financial statements include the accounts of the Company, the Bank and the LLC. All significant intercompany accounts have been eliminated in consolidation.

Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that its critical accounting policies include determining the allowance for credit losses, the valuation of the Company’s deferred tax assets, and fair value of financial instruments. Actual results could differ significantly from those estimates.

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Subsequent Events - The Company has evaluated events and transactions subsequent to June 30, 2024 for potential recognition or disclosure.

Reclassifications - Certain amounts reported in prior quarters' consolidated financial statements may have been reclassified to conform to the current presentation with no effect on stockholders’ equity or net income.

Note 2 - Recent accounting standards

Recent Accounting Guidance

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to provide financial statement users with more disaggregated expense information about a public entity’s reportable segments. The ASU addresses the concern that more segment information is needed, including allowing the disclosure of multiple measures of segment profit or loss, requiring the disclosure of significant segment expenses, and requiring the qualitative disclosure of other segment items.This ASU is effective for all entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.We are currently evaluating the impact of this ASU on our reporting.

Note 3 - Investment Securities

The following table summarizes the amortized cost, fair value, and allowance for credit losses and the corresponding amounts of gross unrealized gains and losses of available-for-sale securities recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses of held-to-maturity securities:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses
	(dollars in thousands; unaudited)
June 30, 2024
Available-for-sale

U.S. Agency collateralized mortgage obligations	$	41	$	—	$	(2)	$	39	$	—


Total available-for-sale securities	41		—		(2)		39		—

Held-to-maturity
U.S. Agency residential mortgage-backed securities	49,174		137		(785)		48,526		—

Total investment securities	$	49,215	$	137	$	(787)	$	48,565	$	—

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	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Allowance for Credit Losses
	(dollars in thousands; unaudited)
December 31, 2023
Available-for-sale
U.S. Treasury securities	$	99,996	$	—	$	(535)	$	99,461	$	—

U.S. Agency collateralized mortgage obligations	45		—		(2)		43		—


Total available-for-sale securities	100,041		—		(537)		99,504		—
Held-to-maturity
U.S. Agency residential mortgage-backed securities	50,860		467		(286)		51,041		—
Total investment securities	$	150,901	$	467	$	(823)	$	150,545	$	—

Accrued interest on available-for-sale securities was less than $1,000 and $718,000 at June 30, 2024 and December 31, 2023, respectively, accrued interest on held-to-maturity securities was $227,000 and $234,000 at June 30, 2024 and December 31, 2023, respectively. Accrued interest on securities is excluded from the balances in the preceding table of securities receivable, and is included in accrued interest receivable on the Company's consolidated balance sheets.

The amortized cost and fair value of debt securities at June 30, 2024, by contractual maturity, are shown below. Currently, the portfolio consists of mortgage-backed securities and collateralized mortgage obligations which are not due at a single maturity date. Expected maturities will differ from contractual maturities because issuers or the underlying borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(dollars in thousands; unaudited)
June 30, 2024




U.S. Agency residential mortgage-backed securities and collateralized mortgage obligations	41		39		49,174		48,526
	$	41	$	39	$	49,174	$	48,526

Investments in debt securities with an amortized cost of $20.8 million at June 30, 2024 and $21.8 million as of December 31, 2023, were pledged to secure public deposits and for other purposes as required or permitted by law and an additional $24.3 million and $25.0 million in securities were pledged for borrowing lines at June 30, 2024 and December 31, 2023, respectively.

During the six months ended June 30, 2024, two securities matured, consisting of a total of $100.0 million in AFS U.S. Treasury securities. During the six months ended June 30, 2024, no securities were purchased.

There were no sales of securities during the six months ended June 30, 2024 or 2023.

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There were sixteen securities with a $787,000 unrealized loss as of June 30, 2024. There were nine securities in an unrealized loss position as of December 31, 2023. The following table shows the investments’ gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position for which an allowance for credit losses has not been recorded:


	Less Than 12 Months				12 Months or Greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(dollars in thousands; unaudited)
June 30, 2024
Available-for-sale

U.S. Agency collateralized mortgage obligations	$	—	$	—	$	39	$	2	$	39	$	2


Total available-for-sale securities	—		—		39		2		39		2
Held-to-maturity
U.S. Agency residential mortgage-backed securities	28,671		262		11,184		523		39,855		785
Total investment securities	$	28,671	$	262	$	11,223	$	525	$	39,894	$	787

Management has evaluated the above securities and does not believe that any individual unrealized loss as of June 30, 2024, will be recognized into income. Unrealized losses have not been recognized into income because management does not intend to sell and does not expect it will be required to sell the investments. The decline is largely due to changes in market conditions and interest rates, rather than credit quality. The fair value is expected to recover as the underlying securities in the portfolio approach maturity date and market conditions improve. Management believes there is a high probability of collecting all contractual amounts due, because all of the securities in the portfolio are backed by government agencies or government sponsored enterprises. However, a recovery in value may not occur for some time, if at all, and may be delayed for greater than the one year time horizon or perhaps even until maturity. Based on management's analysis no allowance for credit losses was required on these securities.

Note 4 - Loans and Allowance for Credit Losses

During the six months ended June 30, 2024, $255.7 million in CCBX loans were transferred to loans held for sale, with $255.7 million in loans sold. The Company sells CCBX loans to manage loan portfolio size by partner and by loan category, with such limits established and documented in the relevant partner agreement. There were no loans held for sale as of June 30, 2024 and December 31, 2023.

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The composition of the loan portfolio is as follows as of the periods indicated:


	June 30,		December 31,
	2024		2023
	(dollars in thousands; unaudited)
Community Bank
Commercial and industrial loans	$	144,436	$	149,502
Real estate loans:
Construction, land and land development loans	173,064		157,100
Residential real estate loans	229,639		225,391
Commercial real estate loans	1,357,979		1,303,533
Consumer and other loans:
Other consumer and other loans	14,220		1,628
Gross Community Bank loans receivable	1,919,338		1,837,154
CCBX
Commercial and industrial loans:
Capital call lines	$	109,133	$	87,494
All other commercial & industrial loans	41,731		54,298
Real estate loans:
Residential real estate loans	287,950		238,035
Consumer and other loans:
Credit cards	549,241		505,837
Other consumer and other loans	426,809		310,574
Gross CCBX loans receivable	1,414,864		1,196,238
Total gross loans receivable	3,334,202		3,033,392
Net deferred origination fees and premiums	(7,742)		(7,300)
Loans receivable	$	3,326,460	$	3,026,092

Accrued interest on loans, which is excluded from the balances in the preceding table of loans receivable, was $23.1 million and $25.6 million at June 30, 2024 and December 31, 2023, respectively, and was included in accrued interest receivable on the Company's consolidated balance sheets.

Included in commercial and industrial loans as of June 30, 2024 and December 31, 2023, is $109.1 million and $87.5 million, respectively in capital call lines, provided to venture capital firms through one of our BaaS clients. These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards by our BaaS client and the underwriting is reviewed by the Bank on every line/loan. Also included in commercial and industrial loans are Paycheck Protection Program (“PPP”) loans of $2.7 million at June 30, 2024 and $3.0 million at December 31, 2023. PPP loans are 100% guaranteed by the Small Business Administration (“SBA”).

Consumer and other loans includes overdrafts of $894,000 and $2.8 million at June 30, 2024 and December 31, 2023, respectively. Community bank overdrafts were $11,000 and $255,000 at June 30, 2024 and December 31, 2023, respectively and CCBX overdrafts were $883,000 and $2.5 million at June 30, 2024 and December 31, 2023.

The Company has pledged loans totaling $952.8 million at June 30, 2024 and $982.2 million at December 31, 2023, for borrowing lines at the FHLB and FRB. Additional loans were pledged during the first six months of 2023 and continues to be pledged to increase and maintain the borrowing capacity of the Bank in the event of a liquidity crisis.

The balance of SBA and United States Department of Agriculture ("USDA") loans and participations sold and serviced for others totaled $5.8 million and $8.7 million at June 30, 2024 and December 31, 2023, respectively.

The gross balance of Main Street Lending Program (“MSLP”) loans participated and serviced for others, totaled $52.1 million at June 30, 2024 and $53.4 million at December 31, 2023, with $2.7 million in MSLP loans on the balance sheet

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and included in commercial and industrial loans at June 30, 2024 compared to $2.8 million at December 31, 2023. Servicing is retained on the gross balance.

The Company, through the community bank, at times purchases individual loans at fair value as of the acquisition date. The Company held purchased loans with remaining balances that totaled $6.2 million and $8.1 million as of June 30, 2024 and December 31, 2023, respectively. Unamortized premiums on these loans totaled $

COASTAL FINANCIAL CORP [CCB] Filings
10-Q	[2024-08-08]
10-Q	[2024-05-09]
10-K	[2024-03-15]
10-Q	[2023-11-08]
10-Q	[2023-08-08]
10-Q	[2023-05-10]
10-K	[2023-03-16]
10-Q	[2022-11-09]
10-Q	[2022-08-05]
10-Q	[2022-05-06]
10-K	[2022-03-14]
10-Q	[2021-11-08]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-03-12]
10-Q	[2020-11-06]
10-Q	[2020-08-07]
10-Q	[2020-05-08]
10-K	[2020-03-12]
10-Q	[2019-11-12]
10-Q	[2019-08-12]
10-Q	[2019-05-13]
10-K	[2019-03-28]
10-Q	[2018-11-13]
10-Q	[2018-08-31]
S-1	[2018-06-19]