COASTAL FINANCIAL CORP [CCB] Filings

10-Q 1 ck1437958-20220930.htm 10-Q ck1437958-20220930

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 September 30, 2022


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

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 x

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 November 2, 2022, there were 12,962,028 shares of the issuer’s common stock outstanding.

Table of Contents,

COASTAL FINANCIAL CORPORATION

Table of Contents


		Page No.
Part I. Financial Information

Item 1.	Condensed Consolidated Financial Statements (unaudited)	4

	Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)	5

	Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	6

	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	8

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (unaudited)	9

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (unaudited)	10

	Notes to Condensed Consolidated Financial Statements (unaudited)	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	36

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	88

Item 4.	Controls and Procedures	90

Part II. Other Information

Item 1.	Legal Proceedings	91

Item 1A.	Risk Factors	91

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	91

Item 3.	Defaults Upon Senior Securities	91

Item 4.	Mine Safety Disclosures	91

Item 5.	Other Information	91

Item 6.	Exhibits	91

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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, 2021 (“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 associated with the coronavirus, and variants thereof (“COVID-19”) pandemic, including the emergence of variant strains of the virus, particularly in the markets in which we operate and in which our loans are concentrated, including declines in housing markets, an increase in unemployment levels and slowdowns in economic growth; our expected future financial results; the overall health of the local and national real estate market; the credit risk associated with our loan portfolio, such as possible additional loan losses and impairment of collectability of loans as a result of the COVID-19 pandemic and policies and programs implemented by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), including its automatic loan forbearance provisions and the effects on our loan portfolio from our Paycheck Protection Program (“PPP”) lending activities, specifically with our commercial real estate loans; 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, including as a result of the COVID-19 pandemic, particularly in the markets in which we operate and in which our loans are concentrated; our ability to maintain an adequate level of allowance for loan 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; 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; the impact of benchmark interest rate reform in the U.S. and implementation of alternative reference rates, such as the Secured Overnight Financing Rate (“SOFR”), to the London Interbank Offered Rate (“LIBOR”); 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

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


ASSETS
	September 30, 2022		December 31, 2021
Cash and due from banks	$	37,482	$	14,496
Interest earning deposits with other banks (restricted cash of $0 at September 30, 2022 and December 31, 2021)	373,246		798,665
Investment securities, available for sale, at fair value	97,621		35,327
Investment securities, held to maturity, at amortized cost	1,250		1,296
Other investments	10,581		8,478
Loans held for sale	43,314		—
Loans receivable	2,507,889		1,742,735
Allowance for loan losses	(59,282)		(28,632)
Total loans receivable, net	2,448,607		1,714,103
CCBX receivable	54,373		9,978
Premises and equipment, net	18,467		17,219
Operating lease right-of-use assets	5,293		6,105
Accrued interest receivable	13,114		8,105
Bank-owned life insurance, net	12,576		12,254
Deferred tax asset, net	13,997		6,818
Other assets	3,820		2,673
Total assets	$	3,133,741	$	2,635,517

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits	$	2,837,066	$	2,363,787
Federal Home Loan Bank ("FHLB") advances	—		24,999
Subordinated debt
Principal amount $25,000 (less unamortized debt issuance costs of $657 and $712 ) at September 30, 2022 and December 31, 2021, respectively	24,343		24,288
Junior subordinated debentures
Principal amount $3,609 (less unamortized debt issuance costs of $21 and $23 at September 30, 2022 and December 31, 2021, respectively)	3,588		3,586
Deferred compensation	648		744
Accrued interest payable	153		357
Operating lease liabilities	5,514		6,320
Other liabilities	33,696		10,214
Total liabilities	2,905,008		2,434,295
SHAREHOLDERS’ EQUITY
Preferred stock, no par value:
Authorized: 25,000,000 shares at September 30, 2022 and December 31, 2021; issued and outstanding: zero shares at September 30, 2022 and December 31, 2021	—		—
Common stock, no par value:
Authorized: 300,000,000 shares at September 30, 2022 and December 31, 2021; 12,954,573 shares at September 30, 2022 issued and outstanding and 12,875,315 shares at December 31, 2021 issued and outstanding	123,944		121,845
Retained earnings	106,880		79,373
Accumulated other comprehensive (loss) income, net of tax	(2,091)		4
Total shareholders’ equity	228,733		201,222
Total liabilities and shareholders’ equity	$	3,133,741	$	2,635,517

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	52,328	$	19,383	$	122,126	$	56,978
Interest on interest earning deposits with other banks	2,273		170		3,631		314
Interest on investment securities	554		24		1,188		76
Dividends on other investments	24		31		195		169
Total interest income	55,179		19,608		127,140		57,537
INTEREST EXPENSE
Interest on deposits	5,717		523		7,943		1,811
Interest on borrowed funds	273		278		854		992
Total interest expense	5,990		801		8,797		2,803
Net interest income	49,189		18,807		118,343		54,734
PROVISION FOR LOAN LOSSES	18,428		255		45,464		973
Net interest income after provision for loan losses	30,761		18,552		72,879		53,761
NONINTEREST INCOME
Deposit service charges and fees	986		956		2,858		2,768
Loan referral fees	—		723		810		2,126
Gain on sales of loans, net	—		206		—		367
Mortgage broker fees	24		187		232		702
Unrealized (loss) gain on equity securities, net	(133)		1,472		(135)		1,472
Gain on sale of bank branch including deposits and loans, net	—		—		—		1,263
Other income	236		302		814		542
Noninterest income, excluding BaaS program income and BaaS indemnification income	1,113		3,846		4,579		9,240
Servicing and other BaaS fees	1,079		1,313		3,407		3,046
Transaction fees	940		146		2,247		264
Interchange fees	738		188		1,798		333
Reimbursement of expenses	885		333		1,875		709
BaaS program income	3,642		1,980		9,327		4,352
BaaS credit enhancements	17,928		10		45,210		10
BaaS fraud enhancements	11,708		296		22,753		296
BaaS indemnification income	29,636		306		67,963		306
Total noninterest income	34,391		6,132		81,869		13,898
NONINTEREST EXPENSE
Salaries and employee benefits	14,506		9,961		37,829		26,560
Occupancy	1,147		1,037		3,366		3,085
Data processing and software licenses	1,670		1,333		4,719		3,457
Legal and professional fees	2,251		796		3,961		2,182
Point of sale expense	742		212		1,399		475
Excise taxes	588		407		1,501		1,154
Federal Deposit Insurance Corporation ("FDIC") assessments	850		400		2,309		820
Director and staff expenses	475		274		1,196		812
Marketing	69		130		242		344
Other expense	1,522		865		4,318		2,419
Noninterest expense, excluding BaaS loan and BaaS fraud expense	23,820		15,415		60,840		41,308
BaaS loan expense	15,560		419		36,079		609
BaaS fraud expense	11,707		296		22,752		296
BaaS loan and fraud expense	27,267		715		58,831		905
Total noninterest expense	51,087		16,130		119,671		42,213

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Income before provision for income taxes	14,065		8,554		35,077		25,446
PROVISION FOR INCOME TAXES	2,964		1,870		7,570		5,731
NET INCOME	$	11,101	$	6,684	$	27,507	$	19,715
Basic earnings per common share	$	0.86	$	0.56	$	2.13	$	1.65
Diluted earnings per common share	$	0.82	$	0.54	$	2.04	$	1.58
Weighted average number of common shares outstanding:
Basic	12,938,200		11,999,899		12,921,814		11,982,009
Diluted	13,536,823		12,456,674		13,484,950		12,465,346

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
NET INCOME	$	11,101	$	6,684	$	27,507	$	19,715
OTHER COMPREHENSIVE LOSS, before tax
Securities available-for-sale
Unrealized holding (loss) income during the period	(946)		5		(2,652)		(35)
Income tax benefit related to unrealized holding loss	199		(1)		557		7
OTHER COMPREHENSIVE LOSS, net of tax	(747)		4		(2,095)		(28)
COMPREHENSIVE INCOME	$	10,354	$	6,688	$	25,412	$	19,687

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, June 30, 2021	12,007,669	$	88,699	$	65,399	$	2	$	154,100
Net income	—	—		6,684		—		6,684



Exercise of stock options	4,438	30		—		—		30
Stock-based compensation	—	268		—		—		268
Other comprehensive income, net of tax	—	—		—		4		4
BALANCE, September 30, 2021	12,012,107	$	88,997	$	72,083	$	6	$	161,086

BALANCE, December 31, 2020	11,954,327	$	87,815	$	52,368	$	34	$	140,217
Net income	—	—		19,715		—		19,715
Issuance of restricted stock awards	10,714	—		—		—		—
Vesting of restricted stock units	7,851	—		—		—		—
Exercise of stock options	39,215	280		—		—		280
Stock-based compensation	—	902		—		—		902
Other comprehensive loss, net of tax	—	—		—		(28)		(28)
BALANCE, September 30, 2021	12,012,107	$	88,997	$	72,083	$	6	$	161,086

BALANCE, June 30, 2022	12,948,623	$	123,226	$	95,779	$	(1,344)	$	217,661
Net income	—	—		11,101		—		11,101

Vesting of restricted stock units	500	—		—		—		—
Exercise of stock options	5,450	34		—		—		34
Stock-based compensation	—	684		—		—		684
Other comprehensive loss, net of tax	—	—		—		(747)		(747)
BALANCE, September 30, 2022	12,954,573	$	123,944	$	106,880	$	(2,091)	$	228,733

BALANCE, December 31, 2021	12,875,315	$	121,845	$	79,373	$	4	$	201,222
Net income	—	—		27,507		—		27,507
Issuance of restricted stock awards	10,396	—		—		—		—
Vesting of restricted stock units	27,137	—		—		—		—
Exercise of stock options	41,725	311		—		—		311
Stock-based compensation	—	1,788		—		—		1,788
Other comprehensive loss, net of tax	—	—		—		(2,095)		(2,095)
BALANCE, September 30, 2022	12,954,573	$	123,944	$	106,880	$	(2,091)	$	228,733

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)


	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	27,507	$	19,715
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	45,464		973
Depreciation and amortization	1,338		1,170
Loss on disposition of fixed assets	35		—
Decrease in operating lease right-of-use assets	812		789
Decrease in operating lease liabilities	(806)		(781)
Gain on sales of loans	—		(367)
Proceeds from sale of loans related to sale of bank branch	—		4,092
Net (premium amortization)/discount accretion on investment securities	(45)		21
Unrealized holding loss (gain) on equity investment	135		(1,472)
Stock-based compensation	1,788		902
Gain on sale of bank branch, including deposits and loans	—		(1,263)
Increase in bank-owned life insurance value	(269)		(212)
Deferred tax benefit	(6,623)		(1)
Net change in CCBX receivable	(44,395)		(472)
Net change in other assets and liabilities	17,082		189
Total adjustments	14,517		3,568
Net cash provided by operating activities	42,024		23,283
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in interest earning deposits with other banks	425,419		(493,851)
Purchase of investment securities available for sale	(134,912)		(57,495)
Change in other investments, net	(2,238)		(818)
Principal paydowns of investment securities available-for-sale	14		25
Principal paydowns of investment securities held-to-maturity	44		737
Maturities and calls of investment securities available-for-sale	70,000		45,000
Purchase of bank owned life insurance	(53)		(4,872)
Proceeds from sales of loans held for sale	84,878		—
Proceeds from sales of loan participations	10,300		915
Purchase of loans	(165,790)		—
Increase in loans receivable, net	(752,670)		(165,122)
Net cash transfer for branch sale	—		(19,980)
Purchases of premises and equipment, net	(2,621)		(2,188)
Net cash used by investing activities	(467,629)		(697,649)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW and money market, and savings	482,863		837,277
Net decrease in time deposits	(9,584)		(10,981)
Net repayment from long term FHLB borrowing	(24,999)		—
Increase from subordinated debt proceeds	—		24,263
Decrease from subordinated debt repayment	—		(10,000)
Net advances from Paycheck Protection Program Liquidity Facility	—		(153,716)
Proceeds from exercise of stock options	311		280
Net cash provided by financing activities	448,591		687,123
NET CHANGE IN CASH, DUE FROM BANKS AND RESTRICTED CASH	22,986		12,757
CASH, DUE FROM BANKS AND RESTRICTED CASH, beginning of year	14,496		18,965
CASH, DUE FROM BANKS AND RESTRICTED CASH, end of quarter	$	37,482	$	31,722
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES

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Interest paid	$	9,001	$	3,187
Income taxes paid	11,430		6,809
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Fair value adjustment of securities available-for-sale, gross	$	(2,095)	$	(35)
In conjunction with ASU 2016-02 as detailed in Note 6 to the Unaudited Consolidated Financial Statements, the following assets and liabilities were recognized:
Operating lease right-of-use assets	$	—	$	41
Operating lease liabilities	$	—	$	(41)
Non-cash investing and financing activities:
Transfer from loans to loans held for sale	$	128,193	$	—

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.

We are 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 two reportable segments: the community bank and CCBX. The primary focus of the community bank is on providing a wide range of banking products and services to consumers and small to medium-sized businesses, professionals, and individuals in the broader Puget Sound region in the state of Washington through its 14 branches in Snohomish, Island and King Counties, and through 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 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 area, 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 (the “Federal Reserve”) 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 14, 2022. Operating results for the three months and nine months ended September 30, 2022 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 loan 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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Accounting policy update– During the nine months ended September 30, 2022, the Company transferred $128.2 million in CCBX loans receivable to loans held for sale. These CCBX loans held for sale consist of the portion of CCBX partner loans that the Company intends to sell back to the originating CCBX partner at par. As of September 30, 2022 there were $43.3 million in CCBX partner loans held for sale recorded at par, compared to zero at December 31, 2021.

Community bank loans held-for-sale consist of the guaranteed portion of SBA loans and United States Department of Agriculture (“USDA”) loans the Company intends to sell after origination and are reflected at the lower of aggregate cost or fair value. Loans are generally sold with servicing of the sold portion retained by the Company when the sale of the loan occurs, the premium received is combined with the estimated present value of future cash flows on the related servicing asset and recorded as a gain on sale of loans in noninterest income. There were no community bank loans held for sale at September 30, 2022 or December 31, 2021.

Subsequent Events - The Company has evaluated events and transactions subsequent to September 30, 2022 for potential recognition or disclosure.

On November 1, 2022 the Company completed its private placement of $20.0 million in fixed-to-floating rate subordinated notes due November 1, 2032 (the “Notes”). The Notes will bear interest at a fixed annual rate of 7.00% for the first five years and will reset quarterly thereafter to the then-current three-month Secured Overnight Financing Rate ("SOFR") plus 290 basis points. The Company intends to use the net proceeds from the offering for general corporate purposes. The Company is entitled to redeem the Notes, in whole or in part, on any interest payment date on or after November 1, 2027, or at any time, in whole but not in part, upon certain other specified events prior to the Notes’ maturity on November 1, 2032.

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 Not Yet Effective

In September 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendment is effective for annual periods beginning after December 15, 2019 and interim period within those annual periods. The Company’s implementation of ASU 2016-13 will be effective January 1, 2023. The Company is actively assessing the data and the model needs and is evaluating the impact of adopting the amendment. The Company expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period, January 2023, in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. The actual magnitude of the change will be impacted by the growth, composition and performance of the loan portfolio and economic conditions at January 1, 2023.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

Table of Contents,

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU eliminates the accounting guidance for TDR loans by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the ASU requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. This ASU is effective upon adoption of ASU 2016-13. The Company is evaluating the impact this ASU will have on its financial position or results of operations.

Note 3 - Investment Securities

The amortized cost and fair values of investments in debt securities at the date indicated are as follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands; unaudited)
September 30, 2022
Available-for-sale
U.S. Treasury securities	$	99,960	$	—	$	(2,644)	$	97,316
U.S. Agency collateralized mortgage obligations	57		—		(3)		54
U.S. Agency residential mortgage-backed securities	1		—		—		1
Municipal bonds	250		—		—		250
Total available-for-sale securities	100,268		—		(2,647)		97,621
Held-to-maturity
U.S. Agency residential mortgage-backed securities	1,250		—		(118)		1,132
Total investment securities	$	101,518	$	—	$	(2,765)	$	98,753


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(dollars in thousands; unaudited)
December 31, 2021
Available-for-sale
U.S. Treasury securities	$	34,999	$	—	$	(1)	$	34,998
U.S. Agency collateralized mortgage obligations	68		2		—		70
U.S. Agency residential mortgage-backed securities	3		—		—		3
Municipal bonds	252		4		—		256
Total available-for-sale securities	35,322		6		(1)		35,327
Held-to-maturity
U.S. Agency residential mortgage-backed securities	1,296		52		—		1,348
Total investment securities	$	36,618	$	58	$	(1)	$	36,675

Table of Contents,

The amortized cost and fair value of debt securities at September 30, 2022, by contractual maturity, are shown below. 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. Mortgage-backed securities and collateralized mortgage obligations are shown separately, since they are not due at a single maturity date.


	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(dollars in thousands; unaudited)
September 30, 2022
Amounts maturing in
One year or less	$	—	$	—	$	—	$	—
After one year through five years	100,211		97,567

COASTAL FINANCIAL CORP [CCB] Filings
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]