Coastal Financial Corporation Announces First Quarter 2022 Results

First Quarter 2022 Highlights:

• Total assets increased $198.2 million, or 7.5%, to $2.83 billion for the quarter ended March 31, 2022, compared to $2.64 billion at December 31, 2021.
• Non-PPP loan growth of $283.8 million, or 17.3%, for the three months ended March 31, 2022, compared to the three months ended December 31, 2021.
  • CCBX loans increased $168.7 million, or 48.7%,
  • Community bank loans increased $115.1 million, or 8.9%, excluding PPP loan forgiveness/repayments
  • PPP loans decreased $64.3 million, or 57.5%
• Deposit growth of $212.7 million, or 9.0%, to $2.58 billion for the three months ended March 31, 2022, compared to $2.36 billion at December 31, 2021.
  • CCBX deposit growth of $183.2 million, or 25.6%
    • Additional $276.4 million in CCBX deposits transferred off balance sheet
  • Community bank deposit growth of $29.5 million, or 1.8%
• Total revenue increased $12.3 million, or 31.7% for the three months ended March 31, 2022, compared to December 31, 2021.
  • Total revenue excluding BaaS credit enhancements, BaaS fraud recovery and reimbursement of expenses* increased $4.9 million, or 17.3%, for the three months ended March 31, 2022, compared to December 31, 2021.
• Net income of $6.2 million, or $0.46 per diluted common share, for the three months ended March 31, 2022, compared to $7.3 million, or $0.57 per diluted common share for the three months ended December 31, 2021.

EVERETT, Wash., April 27, 2022 (GLOBE NEWSWIRE) -- Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), the holding company for Coastal Community Bank (the “Bank”), today reported unaudited financial results for the quarter ended March 31, 2022. Net income for the first quarter of 2022 was $6.2 million, or $0.46 per diluted common share, compared with net income of $7.3 million, or $0.57 per diluted common share, for the fourth quarter of 2021, and $6.0 million, or $0.49 per diluted common share, for the quarter ended March 31, 2021.

Total assets increased $198.2 million, or 7.5%, during the first quarter of 2022 to $2.83 billion, compared to $2.64 billion at December 31, 2021. Deposit growth was strong, increasing $212.7 million, or 9.0%, during the three months ended March 31, 2022. Non-PPP loan growth of $283.8 million, or 17.3%, for the three months ended March 31, 2022. Even with PPP loans decreasing $64.3 million, or 57.5% as a result of PPP loan forgiveness and repayments, total loans receivable increased $221.5 million during the three months ended March 31, 2022.

“Our CCBX segment, which provides Banking as a Service (“BaaS”), continues to grow, providing additional fee and interest income, and expenses. We are pleased with how this segment of the Company compliments the community bank services that our Bank was built upon. Through our CCBX segment we are able to extend our reach and provide banking products and services, through our CCBX partners, to a broader spectrum of consumers as well as small businesses. Working with our partners we are able to develop unique offerings for specific under-served or under-banked populations that would be difficult to achieve for a bank our size without these partnerships. We are very pleased with the deposit growth in CCBX during the quarter ended March 31, 2022, which increased $183.2 million, or 25.6%, to $899.5 million of as of March 31, 2022, not including an additional $276.4 million in CCBX deposits that are transferred off the balance sheet as of March 31, 2022. CCBX loans also increased during the first quarter of 2022, to $515.3 million as of March 31, 2022, compared to $346.6 million as of December 31, 2021, an increase of $168.7 million, or 48.7%. Our community bank segment continues to be a source of strength for the Company as well, with $115.1 million in loan growth, excluding PPP loan forgiveness/repayments, and $29.5 million in deposit growth during the first quarter of 2022,” stated Eric Sprink, the President and CEO of the Company and the Bank.

Results of Operations

The Company has two segments, both of which are included in the Bank: CCBX and the community bank. The CCBX segment includes our BaaS activities and the community bank segment includes all other banking activities. Net interest income was $29.3 million for the quarter ended March 31, 2022, an increase of $4.6 million, or 18.5%, from $24.7 million for the quarter ended December 31, 2021, and an increase of $12.0 million, or 69.0%, from $17.3 million for the quarter ended March 31, 2021. Yield on loans receivable was 6.80% for the three months ended March 31, 2022, compared to 5.92% for the three months ended December 31, 2021 and 4.51% for the three months ended March 31, 2021. The increase in net interest income compared to December 31, 2021 and March 31, 2021, was largely related to increased yield on loans resulting from growth in higher yielding loans, primarily in CCBX. Average loans receivable for the three months ended March 31, 2022 was $ 1.77 billion, compared to $1.68 billion for the three months ended December 31, 2021, and $1.64 billion for the three months ended March 31, 2021.

Interest and fees on loans totaled $29.6 million for the three months ended March 31, 2022 compared to $25.1 million and $18.2 million for the three months ended December 31, 2021 and March 31, 2021, respectively. Net non-PPP loan growth of $283.8 million, or 17.3%, during the quarter ended March 31, 2022, offset a decrease of $64.3 million in PPP loans that were forgiven or repaid, which resulted in the recognition of $2.3 million in net deferred fees on PPP loans. Part of our loan growth was in capital call lines, which increased $15.8 million, or 7.8%, during the quarter ended March 31, 2022. These loans bear a lower rate of interest, but have less credit risk due to the way the loans are structured compared to other commercial loans. The increase in interest and fees on loans for the quarter ended March 31, 2022, compared to March 31, 2021, was largely due to growth in higher yielding loans, and a decrease in low yielding PPP loans. As a result of the Federal Open Market Committee (“FOMC”) raising rates in mid-March 2022, interest rates on $473.6 million variable rate loans are affected, the impact of this increase in interest rates will be fully seen in future quarters.

As of March 31, 2022, there were $47.5 million in PPP loans, compared to $111.8 million as of December 31, 2021, and $543.8 million as of March 31, 2021. In the three months ended March 31, 2022, a total of $64.3 million in PPP loans were forgiven or repaid. Net deferred fees recognized on PPP loans contributed $2.3 million for the three months ended March 31, 2022, compared to $5.8 million for the three months ended December 31, 2021, and $3.2 million for the three months ended March 31, 2021.

As of March 31, 2022, $1.4 million in net deferred fees on PPP loans remains to be recognized in interest income in future periods along with interest earned on loans. Net deferred fees on PPP loans are earned over the life of the loan, as a yield adjustment in interest income. Forgiveness of principal, early paydowns and payoffs on PPP loans will increase interest income earned in those periods from the recognition of PPP deferred fees. PPP loans in rounds 1 and 2 were originated in 2020, and were predominately two year loans, and only $2.9 million of these loans remaining at March 31, 2022. PPP loans in round 3 were originated in 2021 and are all five-year loans, and $44.6 million of these loans remaining at March 31, 2022.

Interest income from interest earning deposits with other banks was $402,000 at March 31, 2022, an increase of $108,000 and $332,000 due primarily to higher balances compared to December 31, 2021, and March 31, 2021, respectively. The average balance of interest earning deposits with other banks for the three months ended March 31, 2022 was $843.9 million, compared to $751.8 million and $195.3 million for the three months ended December 31, 2021 and March 31, 2021, respectively. Additionally, the yield on these interest earning deposits with other banks increased three basis points and four basis points, compared to December 31, 2021 and March 31, 2021, respectively.

Interest expense was $874,000 for the quarter ended March 31, 2022, a $31,000 increase from the quarter ended December 31, 2021 and a $169,000 decrease from the quarter ended March 31, 2021. Interest expense on borrowed funds was $321,000 for the quarter ended March 31, 2022, compared to $327,000 and $383,000 for the quarters ended December 31, 2021 and March 31, 2021, respectively. Interest expense on borrowed funds decreased $6,000 compared to the three months ended December 31, 2021, partly because there were fewer days in this quarter than the previous quarter. Additionally, we paid off $25.0 million in Federal Home Loan Bank (“FHLB”) borrowings late in the quarter ended March 31, 2022. The borrowings were no longer needed, and there was no prepayment penalty for early repayment. The $62,000 decrease in interest expense on borrowed funds from the quarter ended March 31, 2021 is the result of a decrease in average PPPLF borrowings, which were paid off in full as of June 30, 2021, partially offset by an increase in interest expense related to subordinated debt, which increased during the quarter ended September 30, 2021. Interest expense on interest bearing deposits increased $37,000 for the quarter ended March 31, 2022, compared to December 31, 2021 as a result of the FOMC increasing rates 0.25% in mid-March 2022. In addition, as a result of the FOMC rate increase, $690.4 million in CCBX deposits that were not earning interest were reclassed to interest bearing deposits from noninterest bearing deposits. This reclassification occurred mid-March 2022, therefore the impact of this change will not be fully realized until next quarter. We anticipate additional rate increases in 2022, which will result in higher interest expense on interest bearing deposits. Interest expense on interest bearing deposits decreased $107,000 compared to March 31, 2021, because of management lowering interest rates in 2021 on interest bearing deposits resulting in lower interest rates on interest bearing deposits compared to March 31, 2021. Cost of deposits was 0.09% for the three months ended March 31, 2022 and December 31, 2021, and improved from 0.17%, a decrease of 47.2%, compared to the three months ended March 31, 2021.

Net interest margin was 4.45% for the three months ended March 31, 2022, compared to 3.95% and 3.76% for the three months ended December 31, 2021 and March 31, 2021, respectively. The increase in net interest margin compared to the three months ended December 31, 2021 and March 31, 2021, was largely a result of an increase in higher rate loans. Non-PPP loans increased $283.8 million and $682.3 million, compared to December 31, 2021 and March 31, 2021, respectively. Also contributing to the increase in net interest margin compared to the three months ended December 31, 2021 and March 31, 2021, was $92.1 million and $648.6 million increase in average interest earning deposits, respectively. These interest earning deposits earned an average rate of 19 basis points for the quarter ended March 31, 2022.

Cost of funds was 0.14% for the quarter ended March 31, 2022 which is unchanged from the quarter ended December 31, 2021 and decreased 10 basis points from the quarter ended March 31, 2021. The decreased cost of funds compared to March 31, 2021 is largely due to the increase in noninterest bearing low interest bearing CCBX deposits compared to the three months ended March 31, 2021. Cost of deposits for the quarter ended March 31, 2022 was 0.09%, which was unchanged from the quarter ended December 31, 2021, and a 8 basis point decrease, from 0.17% for the quarter ended March 31, 2021, largely due to an increase in noninterest bearing deposits and a lower interest rate environment. Deposit growth from CCBX in noninterest bearing and low interest bearing accounts contributed to the reduced cost of funds in conjunction with rate reductions on our community bank deposits. The recent 25 basis point increase in rates by the FOMC did not have a significant impact on the first quarter interest expense, but the impact of that change and the change on loan rates will be seen in future quarters. Noninterest bearing deposits decreased $517.9 million, or 38.2%, compared to the quarter ended December 31, 2021 due to a reclassification of $690.4 million in CCBX deposits from noninterest bearing to interest bearing, partially offset by an increase of $172.5 million in new deposits during the quarter. Noninterest bearing deposits increased $69.4 million, or 9.0%, compared to the quarter ended March 31, 2021 due to an increase of $759.8 million in deposits, partially offset by the aforementioned reclassification of $690.4 million in CCBX noninterest bearing deposits to interest bearing deposits. Market conditions for deposits continued to be competitive during the quarter ended March 31, 2022; however, historically we have been able to keep our cost of deposits down by increasing low interest bearing and noninterest bearing deposits and allowing high cost deposits to run-off when appropriate, replacing them with lower cost core deposits.

During the quarter ended March 31, 2022, total loans receivable increased by $221.5 million, to $1.96 billion, compared to $1.74 billion for the quarter ended December 31, 2021. Non-PPP loans increased $283.8 million, or 17.3%, for the quarter ended March 31, 2022, compared to the quarter ended December 31, 2021. PPP loans decreased $64.3 million as a result of forgiveness and repayments and totaled $47.5 million as of March 31, 2022 compared to $111.8 million as of December 31, 2021. Total loans receivable increased $197.5 million as of March 31, 2022, compared to the quarter ended March 31, 2021. Non-PPP loans increased $693.8 million, or 56.7%, for the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021. PPP loans decreased $496.4 million as a result of forgiveness and repayments, totaling $47.5 million as of March 31, 2022, compared to $543.8 million for the quarter ended March 31, 2021.

Total yield on loans receivable for the quarter ended March 31, 2022 was 6.80%, compared to 5.92% for the quarter ended December 31, 2021, and 4.51% for the quarter ended March 31, 2021. This increase in yield on loans receivable is largely attributed to an increase in higher rate consumer loans from CCBX partners. During the quarter ended March 31, 2022, CCBX loans outstanding increased $168.7 million, or 48.7%, with an average CCBX gross yield of 12.73% and community bank loans increased $50.8 million, or 3.6%, with an average yield of 5.16%. CCBX gross does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancement and servicing CCBX loans. Net BaaS loan income divided by average CCBX loans outstanding was 3.93% and is impacted by the $218.7 million in capital call lines that are priced at prime minus 0.50%.

Yield on loans receivable, excluding earned fees* approximated 6.17% for the quarter ended March 31, 2022, compared to 4.37% for the quarter ended December 31, 2021, and 3.53% for the quarter ended March 31, 2021 and were higher primarily due to the decline in PPP loans which have a 1.0% stated rate. Net deferred fees recognized on loans were $2.7 million (includes $2.3 million on PPP loans), $6.6 million (includes $5.8 million on PPP loans) and $4.0 million (includes $3.2 million on PPP loans) for the quarters ended March 31, 2022, December 31, 2021 and March 31, 2021, respectively.

Return on average assets (“ROA”) was 0.93% for the quarter ended March 31, 2022 compared to 1.14% and 1.28% for the quarters ended December 31, 2021 and March 31, 2021, respectively. ROA for the quarters ended March 31, 2022 and December 31, 2021, were impacted by increased demand deposits and cash on the balance sheet, which are lower yielding earning assets and produce a lower loan to deposit ratio, combined with increased costs related to the CCBX segment, which increase expenses, compared to the quarter ended March 31, 2021.

The PPP loans originated in the first and second rounds during 2020 and in the third round in 2021 have had a significant impact on our financial statements. As the remaining $47.5 million in PPP loans continue to paydown they will have less impact on our results in the future. Any estimated adjusted ratios that exclude the impact of this activity are non-GAAP measures. For more information about non-GAAP financial measures, please see the end of this earnings release.

The table below summarizes information about total PPP loans originated in 2020 and 2021.

As of March 31, 2022 there was $47.5 million in PPP loans, this includes $2.9 million from round 1 & 2 and $44.6 million from round 3. The table below summarizes key information about the remaining PPP loans originated in 2020 and 2021 as of the period indicated:

The following table shows the Company’s key performance ratios for the periods indicated. The table also includes ratios that were adjusted by removing the impact of the PPP loans as described above. The adjusted ratios are non-GAAP measures. For more information about non-GAAP financial measures, see the end of this earnings release.

Noninterest income was $22.0 million for the three months ended March 31, 2022, an increase of $7.8 million from $14.2 million for the three months ended December 31, 2021, and an increase of $19.0 million from $3.0 million for the three months ended March 31, 2021. The increase in noninterest income over the quarter ended December 31, 2021 was primarily due to an increase of $7.5 million in BaaS fees and a $602,000 increase in loan referral fees. The $7.5 million increase in BaaS fees included $4.0 million in BaaS fees – credit enhancements related to the allowance for loan losses and reserve for unfunded commitments, $3.4 million in BaaS fees – fraud recovery, and an increase of $102,000 in other BaaS fees (see “Appendix B” for more information on the accounting for BaaS allowance for loan losses, reserve for unfunded commitments, credit enhancements and fraud recovery). The $19.0 million increase in noninterest income over the quarter ended March 31, 2021 was primarily due to a $19.2 million increase in BaaS fees partially offset by a decrease of $130,000 in gain on sale of loans and $139,000 decrease in mortgage broker fees. The $19.2 million increase in BaaS fees included $13.1 million related to credit enhancements, $4.6 million related to fraud recovery and $1.5 million in other BaaS fees.

Our CCBX segment continues to grow, and now has 28 relationships, at varying stages, as of March 31, 2022. As of March 31, 2022, we had 20 active CCBX relationships, one relationship in friends and family/testing, five relationships in onboarding/implementation, two signed letters of intent and we believe we have a strong pipeline of potential new CCBX relationships. We are more selective in our new CCBX relationships and are focused on only selecting the relationships which are well-capitalized, are already established, and have experienced management teams.

The following table summarizes the average yield on loans receivable and cost of deposits for each segment for the periods indicated:

The following table illustrates the activity and growth in CCBX relationships for the periods presented and includes the addition of a large, established strategic partner and the removal of a smaller partner during the quarter ended March 31, 2022.

Total noninterest expense increased to $30.4 million for the three months ended March 31, 2022, compared to $21.1 million for the three months ended December 31, 2021 and $12.4 million for the three months ended March 31, 2021. Increase in noninterest expense for the quarter ended March 31, 2022, as compared to the quarter ended December 31, 2021, was primarily due to a $9.3 million increase in BaaS expense, $5.9 million of which is related to partner loan expense and $3.4 million of which is related to partner fraud expense. Partner loan expense represents the amount paid or payable to partners for credit enhancement and servicing CCBX loans. Partner fraud expense represents non-credit fraud losses on partner’s customer loan and deposit accounts, a portion of this expense is realized and a portion is estimated. Also contributing to the increase in noninterest expense compared to December 31, 2021 is a $544,000 increase in salaries and employee benefits which is related to the hiring in CCBX and additional staff for our ongoing growth initiatives. In the first quarter of 2022 compared to the fourth quarter of 2021, Federal Deposit Insurance Corporation (“FDIC”) assessments decreased $208,000, legal and professional fees decreased $243,000. The decrease in legal and professional expenses is related to fluctuating costs associated with CCBX contract reviews as well as the timing of legal and accounting work related to financial reporting.

The increased noninterest expenses for the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021 were largely due to an increase of $12.8 million in BaaS partner expense ($8.2 million of which is related to partner loan expense and $4.6 million of which is related to partner fraud expense), $3.4 million increase in salary and employee benefits related to hiring staff for CCBX and additional staff for our ongoing banking growth initiatives, $647,000 increase in other expenses, which includes $361,000 increase in provision for unfunded commitments, which is related to CCBX loans, $72,000 increase in operational/mobile losses, $64,000 increase in office supply and equipment expenses, and $50,000 increase in FRB and other bank service charges. Also contributing to the increase is a $568,000 increase in software licenses, maintenance and subscriptions, and a $409,000 increase in FDIC assessments. The increase in FDIC assessments is largely the result of an increase in deposits combined with other factors that impact the FDIC assessment calculation compared to the quarter ended March 31, 2021. The increase in software license, maintenance and subscription expenses increased as a result of implementing software that aids in the reporting of CCBX activities and monitoring of transactions that helps to automate and create other efficiencies in reporting.

The provision for income taxes was $1.7 million for the three months ended March 31, 2022, $1.6 million for the three months ended December 31, 2021 and $1.6 million for the first quarter of 2021. 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 1.0% for calculating the provision for state taxes.

Financial Condition

Total assets increased $198.2 million, or 7.5%, to $2.83 billion at March 31, 2022 compared to $2.64 billion at December 31, 2021. Interest earning deposits with other banks decreased $149.3 million, primarily a result of using such deposits to purchase $135.0 million in U.S. Treasury securities during the quarter ended March 31, 2022, partially offset by $35.0 million in US Treasury security maturities. Management decided to invest a portion of excess cash into two-year Treasury securities which yield 2.15%, compared to 0.38%, on overnight cash at the Federal Reserve. The Treasury securities will increase income compared to current overnight rates. Loans receivable increased $221.5 million even after experiencing $64.3 million in PPP loan forgiveness and paydowns during the quarter ended March 31, 2022. Total assets increased $804.4 million, or 39.6%, at March 31, 2022, compared to $2.03 billion at March 31, 2021. Interest earning deposits with other banks including the Federal Reserve increased $461.9 million primarily from increased deposits, loans receivable increased $197.5 million, and investment securities increased $113.3 million compared to March 31, 2021.

Total loans receivable increased $221.5 million to $1.96 billion at March 31, 2022, from $1.74 billion at December 31, 2021, and increased $197.5 million from $1.77 billion at March 31, 2021. The increase in loans receivable over the quarter ended December 31, 2021 was the result of $283.8 million in non-PPP loan growth partially offset by $64.3 million in PPP loan forgiveness and paydowns. The $283.8 million increase in non-PPP loans includes CCBX loan growth of $168.7 million, and community bank loan growth of $115.1 million, excluding PPP loan forgiveness/repayments, for the three months ended March 31, 2022. CCBX gross loans totaled $515.3 million at March 31, 2022 compared to $346.6 million at December 31, 2021 and $103.1 million at March 31, 2021. Total loans receivable as of March 31, 2022 is net of $6.8 million in net deferred origination fees, $1.4 million of which is attributed to PPP loans. Along with an increase in loans receivable as of March 31, 2022 compared to December 31, 2021, unused commitments also increased during the same period, with the unused commitments on capital call lines increasing $137.5 million to $553.5 million at March 31, 2022 compared to $416.0 million at December 31, 2021, which should translate into future loan growth as the commitments are utilized. The increase in loans receivable over the quarter ended March 31, 2021 includes growth of $682.3 million in non-PPP loans, partially offset by a $496.4 million decrease in PPP loans as of March 31, 2022. Non-PPP loan growth consists of $116.5 million in capital call lines, $95.9 million in commercial real estate loans, $103.5 million in construction, land and land development loans, $132.3 million in residential real estate loans, and $27.9 million in other commercial and industrial loans. Consumer loans increased $101.5 million over the quarter ended December 31, 2021 and $206.2 million over the quarter ended March 31, 2021, primarily due to growth in CCBX.

The following table summarizes the loan portfolio at the periods indicated.

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.

Total deposits increased $212.7 million, or 9.0%, to $2.58 billion at March 31, 2022 from $2.36 billion at December 31, 2021. The increase was due primarily to a $211.4 million increase in core deposits, which is primarily the result of growth in CCBX partners and expanding and growing banking relationships with new customers. Deposits in our CCBX segment increased $183.2 million, from $716.3 million at December 31, 2021, to $899.5 million at March 31, 2022. The deposits from our CCBX segment are predominately classified as noninterest bearing, or NOW and money market accounts, but a portion of such CCBX deposits may be classified as brokered deposits as a result of the relationship agreement. During the quarter ended March 31, 2022, noninterest bearing deposits decreased $517.9 million, or 38.2%, to $838.0 million from $1.36 billion at December 31, 2021, as a result of a $690.4 million reclassification of noninterest bearing CCBX deposits to interest bearing. This reclassification is because the current rate exceeds the minimum interest rate set in their respective program agreements, as a result of the recent 0.25% increase in interest rates by the FOMC. Excluding the reclassification, noninterest deposits increased $172.5 million in the three months ended March 31, 2022, compared to December 31, 2021. In the first quarter of 2022 compared to the fourth quarter of 2021, NOW and money market accounts increased $726.8 million, due in part to the CCBX reclassification combined with $36.4 million in growth, and savings accounts increased $2.4 million. BaaS-brokered deposits increased $4.4 million, or 6.2%, while time deposits decreased $3.1 million, or 7.1% in the first quarter of 2022 compared to the fourth quarter of 2021.

Total deposits increased $904.8 million, or 54.1%, to $2.58 billion at March 31, 2022 compared to $1.67 billion at March 31, 2021. Noninterest bearing deposits increased $69.4 million, or 9.0%, to $838.0 million at March 31, 2022 from $768.7 million at March 31, 2021. NOW and money market accounts increased $788.3 million, or 108.2%, to $1.52 billion at March 31, 2022, and savings accounts increased $12.4 million, or 13.3%, and BaaS-brokered deposits increased $49.5 million, or 193.6% while time deposits decreased $14.9 million, or 26.9%, in the first quarter of 2022 compared to the first quarter of 2021. Additionally, as of March 31, 2022 we have access to $276.4 million in CCBX customer deposits that are currently being transferred off the Bank’s balance sheet to other financial institutions on a daily basis. The Bank could retain these deposits for liquidity and funding purposes if needed. If a portion of these deposits are retained, they would be classified as brokered deposits, however if the entire available balance is retained, they would be non-brokered deposits. 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 at the periods indicated.

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

The FHLB allows us to borrow against our line of credit, which is collateralized by certain loans. During the quarter ended March 31, 2022, we repaid a total of $25.0 million in FHLB term advances. This included a $10.0 million advance that matures in March of 2023 and $15.0 million advance that matures in March 2025. We have sufficient liquidity for our current loan demand, and with no prepayment penalty for early repayment, management opted to repay these term advances and save the unnecessary interest expense. Although there are no immediate plans to borrow additional funds, FHLB borrowing capacity of $98.3 million was available under this arrangement as of March 31, 2022.

During the quarter ended March 31, 2022, the Company contributed $12.0 million in capital to the Bank. The Company has a cash balance of $11.2 million as of March 31, 2022. After deducting cash for general operating purposes, including debt repayment, for two years and for equity fund commitments, the Company could contribute $7.1 million more to the Bank if needed.

Total shareholders’ equity increased $6.7 million since December 31, 2021. The increase in shareholders’ equity was primarily due to $6.2 million in net earnings for the three months ended March 31, 2022.

Capital Ratios

The Company and the Bank remain well capitalized at March 31, 2022, as summarized in the following table.

Asset Quality

The total allowance for loan losses was $38.8 million and 1.97% of loans receivable at March 31, 2022 compared to $28.6 million and 1.64% at December 31, 2021 and $19.6 million and 1.11% at March 31, 2021. The allowance for loan loss allocated to the CCBX portfolio was $18.1 million and 3.52% of CCBX loans receivable at March 31, 2022, with $20.6 million of allowance for loan loss allocated to the community bank or 1.42% of total community bank loans receivable. At March 31, 2022, there was $47.5 million in PPP loans, which are 100% guaranteed by the SBA. Adjusted allowance for loan losses to loans receivable, excluding PPP loans* was 2.02% for the quarter ended March 31, 2022.

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

Provision for loan losses totaled $12.9 million for the three months ended March 31, 2022, $8.9 million for the three months ended December 31, 2021, and $357,000 for the three months ended March 31, 2021. Net charge-offs totaled $2.8 million for the quarter ended March 31, 2022, compared to $532,000 for the quarter ended December 31, 2021 and $9,000 for the quarter ended March 31, 2021. Net charge-offs are up due to CCBX partner loans.

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

The increase in the Company’s provision for loan losses during the quarter ended March 31, 2022, is largely related to the provision for CCBX partner loans. During the quarter ended March 31, 2022, a $12.6 million provision for loan losses was recorded for CCBX partner loans based on management’s analysis, compared to the $8.5 million provision for loan losses that was recorded for CCBX for the quarter ended December 31, 2021. The factors used in management’s analysis for community bank loan losses indicated that a provision for loan losses of $344,000 and $398,000 was needed for the quarters ended March 31, 2022 and December 31, 2021, respectively. The economic environment is continuously changing and has shown some signs of improvement from the ongoing vaccination of its population and increased re-opening of economic activities, tempered by increased inflation, global unrest, the war in Ukraine and a rise in new COVID-19 variants that have resulted in some economic uncertainty. The Company is not required to implement the provisions of the Current Expected Credit Loss accounting standard until January 1, 2023 and continues to account for the allowance for credit losses under the incurred loss model.

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

At March 31, 2022, our nonperforming assets were $2.3 million, or 0.08% of total assets, compared to $1.7 million, or 0.07%, of total assets, at December 31, 2021, and $661,000, or 0.03% of total assets, at March 31, 2021. These ratios are impacted by the increase in CCBX loans over 90 days delinquent that are covered by CCBX partner credit enhancements. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses. Under the agreement, the CCBX partner will reimburse the Bank for its loss/charge-off on these loans. Nonperforming assets increased $617,000 during the quarter ended March 31, 2022, compared to the quarter ended December 31, 2021, due to the addition of $655,000 in CCBX loans that are past due 90 days or more and still accruing combined with $37,000 less in community bank nonaccrual loans. There were no repossessed assets or other real estate owned at March 31, 2022. Our nonperforming loans to loans receivable ratio was 0.12% at March 31, 2022, compared to 0.10% at December 31, 2021, and 0.04% at March 31, 2021.

For the quarter ended March 31, 2022, we have not seen a significant change in our credit quality metrics, as demonstrated by the low level of community bank charge-offs and nonperforming loans. The long-term economic impact of the COVID-19 pandemic, political gridlock, global unrest, the war in Ukraine and trade issues remains unknown; however, the Company remains diligent in its efforts to communicate and proactively work with borrowers to help mitigate potential credit deterioration. For the quarter ended March 31, 2022, $2.8 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 loan losses. Agreements with our CCBX loan partners provide for a credit enhancement against losses.

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

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

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 $2.83 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 and digital financial service providers through its CCBX segment. To learn more about the Company visit www.coastalbank.com.

CCB-ER

Contact

Eric Sprink, President & 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)

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

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

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

COASTAL FINANCIAL CORPORATION
QUARTERLY STATISTICS
(Dollars in thousands, except share and per share data; unaudited)

Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.

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

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

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

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

Net BaaS loan income divided by average CCBX loans is a non-GAAP measure that includes the impact BaaS loan expense on net BaaS loan income and the gross yield on CCBX loans. The most directly comparable GAAP measure is (gross) yield on CCBX loans.

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