Coastal Financial Corporation Announces Fourth Quarter and Year End 2021 Results

Everett, Washington, UNITED STATES


Fourth Quarter 2021 Highlights:

  • Non-PPP loan growth of $186.8 million, or 12.9%, for three months ended December 31, 2021, compared to the three months ended September 30, 2021.
    • CCBX loans increased $156.5 million, or 82.3%,
    • Community bank loans increased $30.3 million, or 2.4%, excluding PPP loans
    • PPP loans decreased $155.5 million, or 58.2%
  • Deposit growth of $140.2 million, or 6.3%, to $2.36 billion for the three months ended December 31, 2021, compared to $2.22 billion for the three months ended September 30, 2021.
    • CCBX deposit growth of $109.1 million, or 18.0%
      • Additional $252.4 million in CCBX deposits transferred off balance sheet
    • Community bank deposit growth of $31.2 million, or 1.9%
  • Successful public offering of common stock closed on December 17, 2021, with gross proceeds of $34.5 million, accretive to book value.
  • Net income increased $606,000, or 9.1%, to $7.3 million for the quarter ended December 31, 2021, or $0.57 per diluted common share, compared to $6.7 million, or $0.54 per common diluted share, for the quarter ended September 30, 2021.

2021 Highlights:

  • Total assets increased $869.4 million, or 49.2%, to $2.64 billion for the year ended December 31, 2021, compared to $1.77 billion at December 31, 2020.
  • Total deposits increased $942.5 million, or 66.3%, to $2.36 billion for the year ended December 31, 2021, compared to $1.42 billion at December 31, 2020.
    • CCBX deposits increased $647.6 million during the year ended December 31, 2021.
  • Loan growth of $195.6 million, or 12.6%, to $1.74 billion for the year ended December 31, 2021, compared to $1.55 billion for the year ended December 31, 2020.
    • CCBX loans increased $281.0 million, or 428.2%
    • Community bank loans increased $168.2 million, or 15.0%, excluding PPP loans
    • PPP loans decreased $254.0 million, or 69.4%
    • Net deferred fees on loan receivable decreased $429,000, or 4.7%
  • Net income increased $11.9 million, or 78.3%, to $27.0 million for the year ended December 31, 2021, or $2.16 per diluted common share, compared to $15.1 million, or $1.24 per diluted common share, for the year ended December 31, 2020.
  • CCBX relationships increased by 13, or 86.7%, to 28 relationships as of December 31, 2021, compared to 15 relationships as of December 31, 2020.

EVERETT, Wash., Jan. 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 and year ended December 31, 2021. Net income for the fourth quarter of 2021 was $7.3 million, or $0.57 per diluted common share, compared with net income of $6.7 million, or $0.54 per diluted common share, for the third quarter of 2021, and $4.7 million, or $0.38 per diluted common share, for the quarter ended December 31, 2020.  

Total assets increased $183.9 million, or 7.5%, during the fourth quarter of 2021 to $2.64 billion, compared to $2.45 billion at September 30, 2021. Deposit growth was strong, increasing $140.2 million, or 6.3%, during the three months ended December 31, 2021. Non-PPP loan growth of $186.8 million, or 12.9%, for the three months ended December 31, 2021. Even with PPP loans decreasing $155.5 million, or 58.2% as a result of PPP loan forgiveness and repayments, total loans receivable increased $37.1 million during the three months ended December 31, 2021.

“We had tremendous interest and success with our public offering of common stock during the fourth quarter of 2021. The offering closed on December 17, 2021, with gross proceeds of $34.5 million, before deducting underwriting discounts and offering expenses. These proceeds will help support investment and growth opportunities for the Company and Bank. Revenue was robust in 2021, with total revenue of $107.6 million for the year ended December 31, 2021, compared to $65.6 million for the year ended December 31, 2020. Total revenue excluding BaaS credit enhancements, BaaS fraud recovery and reimbursement of expenses* increased $31.0 million, or 47.7%, to $96.0 million during the year ended December 31, 2021, compared to $65.0 million for the year ended December 31, 2020. Our CCBX division, which provides Banking as a Service (“BaaS”), had significant relationship growth in 2021, with 28 relationships at December 31, 2021, an increase of 13 relationships compared to December 31, 2020.   CCBX generates additional fee and interest income, and expenses, for the Company by providing BaaS to broker dealers and digital financial service providers who offer their clients these banking services. We are very pleased with the deposit growth in CCBX during the year, which increased $647.6 million, or 942.8%, to $716.3 million of as of December 31, 2021, not including an additional $252.4 million in CCBX deposits that are transferred off the balance sheet as of December 31, 2021. CCBX loans also increased dramatically during 2021, to $346.6 million as of December 31, 2021, compared to $65.6 million as of December 31, 2020, an increase of $281.0 million, or 428.2%,” stated Eric Sprink, the President and CEO of the Company and the Bank.

Results of Operations

Net interest income was $24.7 million for the quarter ended December 31, 2021, an increase of $5.9 million, or 31.4%, from $18.8 million for the quarter ended September 30, 2021, and an increase of $7.8 million, or 45.9%, from $16.9 million for the quarter ended December 31, 2020.   Yield on loans receivable was 5.92% for the three months ended December 31, 2021, compared to 4.57% for the three months ended September 30, 2021 and 4.64% for the three months ended December 31, 2020. The increase in net interest income compared to September 30, 2021 and December 31, 2020, was largely related to net deferred fee income recognized on forgiven or repaid PPP loans as well as increased yield on loans resulting from loan growth and a decrease in lower yielding PPP loans. Average loans receivable for the three months ended December 31, 2021 and September 30, 2021, was $1.68 billion, compared to $1.53 billion for the three months ended December 31, 2020.

Interest and fees on loans totaled $25.1 million for the three months ended December 31, 2021 compared to $19.4 million and $17.9 million for the three months ended September 30, 2021 and December 31, 2020, respectively. Net non-PPP loan growth of $186.8 million, or 12.9%, during the quarter ended December 31, 2021, offset a decrease of $155.5 million in PPP loans that were forgiven or repaid, which resulted in the recognition of $5.8 million in net deferred fees on PPP loans. Capital call lines increased $41.4 million, or 25.7%, during the quarter ended December 31, 2021. 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 December 31, 2021, compared to December 31, 2020, was largely due to $5.8 million in net deferred fees recognized on forgiven or repaid PPP loans during the quarter ended December 31, 2021, compared to $2.8 million during the quarter ended December 31, 2020.

As of December 31, 2021, there were $111.8 million in PPP loans, compared to $267.3 million as of September 30, 2021, and $365.8 million as of December 31, 2020. In the three months ended December 31, 2021, a total of $155.5 million in PPP loans were forgiven or repaid. Net deferred fees recognized on PPP loans contributed $5.8 million for the three months ended December 31, 2021, compared to $2.9 million for the three months ended September 30, 2021, and $2.8 million for the three months ended December 31, 2020. 

As of December 31, 2021, $3.6 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 one and two were originated in 2020, and were predominately two year loans, with $4.3 million of these loans remaining at December 31, 2021. PPP loans in round three were originated in 2021 and are all five-year loans, with $107.5 million of these loans remaining at December 31, 2021.

Interest income from interest earning deposits with other banks was $294,000 at December 31, 2021, an increase of $124,000 and $218,000 due to higher balances compared to September 30, 2021, and December 31, 2020, respectively. The average balance of interest earning deposits with other banks for the three months ended December 31, 2021 was $751.8 million, compared to $419.7 million and $166.7 million for the three months ended September 30, 2021 and December 31, 2020, respectively.

Interest expense was $843,000 for the quarter ended December 31, 2021, a $42,000 increase from the quarter ended September 30, 2021 and a $322,000 decrease from the quarter ended December 31, 2020. Interest expense on borrowed funds was $327,000 for the quarter ended December 31, 2021, compared to $278,000 and $407,000 for the quarters ended September 30, 2021 and December 31, 2020, respectively. Interest expense on borrowed funds increased $49,000 compared to the three months ended September 30, 2021as a result of an increase in subordinated debt outstanding. Although the increase in subordinated debt occurred during the quarter ended September 30, 2021, the increased balance occurred midway through the quarter, therefore the three months ended December 31, 2021 reflects the increase in expense for a full quarter. The $80,000 decrease in interest expense on borrowed funds from the quarter ended December 31, 2020 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 subordinated debt interest expense as a result of the increased outstanding balance. Interest expense on interest bearing deposits decreased despite an increase of $42.3 million and $153.8 million in average interest bearing deposits for the quarter ended December 31, 2021 over the quarters ended September 30, 2021 and December 31, 2020, respectively, as a result of management lowering deposit interest rates and a continued low interest rate environment. This contributed to improved cost of deposits for the three months ended December 31, 2021, which decreased 15.0% and 58.7% when compared to the three months ended September 30, 2021 and December 31, 2020, respectively.

Net interest margin was 3.95% for the three months ended December 31, 2021, compared to 3.48% and 3.89% for the three months ended September 30, 2021 and December 31, 2020, respectively. The increase in net interest margin compared to the three months ended September 30, 2021, was largely a result of $5.8 million in net deferred fees recognized on PPP loans compared to $2.9 million for the three months ended September 30, 2021. Contributing to the decrease in net interest margin compared to the three months ended December 31, 2020, was $751.8 million in average interest earning deposits as of December 31, 2021, a $585.1 million increase compared to the quarter ended December 31, 2020. These interest earning deposits earned an average rate of 16 basis points for the quarter ended December 31, 2021.

Cost of funds decreased two basis points in the quarter ended December 31, 2021 to 0.14%, compared to the quarter ended September 30, 2021 and decreased 15 basis points from the quarter ended December 31, 2020. Cost of deposits for the quarter ended December 31, 2021 was 0.09%, a decrease of one basis point, from 0.10% for the quarter ended September 30, 2021, and a 13 basis point decrease, from 0.22% for the quarter ended December 31, 2020, largely due to an increase in noninterest bearing deposits and a lower 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. Noninterest bearing deposits increased $59.5 million, or 4.6%, and $763.6 million, or 128.9%, compared to the quarters ended September 30, 2021, and December 31, 2020, respectively. Market conditions for deposits continued to be competitive during the quarter ended December 31, 2021; however, 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, lowering deposit rates and replacing them with lower cost core deposits.  

During the quarter ended December 31, 2021, total loans receivable increased by $37.1 million, to $1.74 billion, compared to $1.71 billion for the quarter ended September 30, 2021. Non-PPP loans increased $186.8 million, or 12.9%, for the quarter ended December 31, 2021, compared to the quarter ended September 30, 2021. PPP loans decreased $155.5 million as a result of forgiveness and repayments and totaled $111.8 million as of December 31, 2021 compared to $267.3 million as of September 30, 2021.

Total yield on loans receivable for the quarter ended December 31, 2021 was 5.92%, compared to 4.57% for the quarter ended September 30, 2021, and 4.64% for the quarter ended December 31, 2020. This increase in yield on loans receivable is attributed to an increase in deferred fees recognized on PPP loans forgiven and repaid and a decrease in the outstanding balance of PPP loans that have a stated rate of 1.0% which is combined with the recognition of net deferred fees on PPP loans that are forgiven or repaid. Additionally, new non-PPP loans bear a higher average interest rate than the stated 1.0% PPP loans they are replacing.

Yield on loans receivable, excluding earned fees* approximated 4.37% for the quarter ended December 31, 2021, compared to 3.74% for the quarter ended September 30, 2021, and 3.66% for the quarter ended December 31, 2020 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 $6.6 million (includes $5.8 million on PPP loans), $3.5 million (includes $2.9 million on PPP loans) and $3.8 million (includes $2.8 million on PPP loans) for the quarters ended December 31, 2021, September 30, 2021 and December 31, 2020, respectively.

Return on average assets (“ROA”) was 1.14% for the quarter ended December 31, 2021 compared to 1.21% and 1.04% for the quarters ended September 30, 2021 and December 31, 2020, respectively. ROA for the quarter ended December 31, 2021 was 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.   ROA for the quarter ended December 31, 2020 was impacted by increased provision for loan losses, which reduced earnings, due to the economic uncertainties of the COVID-19 pandemic and loan growth.

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 PPP loans continue to paydown they will impact 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.

  Total PPP Loan Origination 
  Round 1 & 2
2020
 Round 3
2021
 Total 
(Dollars in thousands; unaudited)          
Loans Originated $452,846 $311,012 $763,858 
Deferred fees, net  12,933  13,334 $26,267 
Outstanding loans and deferred fees as of December 31, 2021 
Loans outstanding $4,306 $107,507 $111,813 
Deferred fees, net  36  3,597 $3,633 
           

As of December 31, 2021 there was $111.8 million in PPP loans, this includes $4.3 million from round 1 & 2 and $107.5 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:

  Outstanding PPP Loans 
  Original Loan Size 
  As of and for the Three Months Ended December 31, 2021 
  $0.00 -
$50,000.00
 $50,0000.01 -
$150,000.00
 $150,000.01 -
$350,000.00
 $350,000.01 -
$2,000,000.00
 > 2,000,000.01 Totals 
(Dollars in thousands; unaudited)             
Principal outstanding:                   
Round 1 & 2 $302 $459 $342 $1,501 $1,702 $4,306 
Round 3  6,925  10,751  32,061  57,770    107,507 
Total principal outstanding  7,227  11,210  32,403  59,271  1,702  111,813 
Net deferred fees outstanding                   
Round 1 & 2 $4 $5 $5 $11 $11 $36 
Round 3  575  380  1,257  1,384  -  3,596 
Total net deferred fees outstanding $579 $385 $1,262 $1,395 $11 $3,632 
Number of loans:                   
Round 1 & 2  14  8  4  5  3  34 
Round 3  381  116  140  73  -  710 
Total loan count  395  124  144  78  3  744 
Percent of total  53.1% 16.7% 19.3% 10.5% 0.4% 100.0%
                    
Forgiveness/Payoffs/Paydowns in Three Months Ended December 31, 2021          
Dollars $17,549 $30,346 $29,476 $68,048 $10,046 $155,465 
Deferred fee recognized  1,519  1,169  1280  1,769  47  5,784 
                    

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.

  Three Months Ended  Year ended 
(unaudited) December 31,
2021
 September 30,
2021
 June 30,
2021
 March 31,
2021
 December 31,
2020
  December 31,
2021
 December 31,
2020
 
                        
Return on average assets (1)  1.14% 1.21% 1.36% 1.28% 1.04%  1.24% 0.98%
Return on average equity (1)  16.80% 16.77% 18.60% 16.84% 13.36%  17.24% 11.44%
Yield on earnings assets (1)  4.09% 3.63% 3.89% 3.99% 4.16%  3.90% 4.21%
Yield on loans receivable (1)  5.92% 4.57% 4.44% 4.51% 4.64%  4.86% 4.64%
Yield on loans receivable, excluding PPP loans (1)(2)  4.98% 4.53% 4.65% 4.78% 5.00%  4.77% 4.99%
Yield on loans receivable, excluding earned fees (1)(2)  4.37% 3.74% 3.46% 3.53% 3.66%  3.78% 3.96%
Yield on loans receivable, excluding earned fees on all loans and interest on PPP loans, as adjusted (1)(2)  4.78% 4.36% 4.42% 4.52% 4.65%  4.55% 4.80%
Cost of funds (1)  0.14% 0.16% 0.20% 0.24% 0.29%  0.18% 0.40%
Cost of deposits (1)  0.09% 0.10% 0.14% 0.17% 0.22%  0.12% 0.35%
Net interest margin (1)  3.95% 3.48% 3.70% 3.76% 3.89%  3.73% 3.83%
Noninterest expense to average assets (1)  3.29% 2.91% 2.65% 2.62% 2.35%  2.90% 2.47%
Efficiency ratio  54.08% 64.68% 58.69% 60.85% 55.26%  58.82% 58.14%
Loans receivable to deposits  73.73% 76.71% 92.03% 105.68% 108.85%  73.73% 108.85%
                        
(1) Annualized calculations shown for quarterly periods presented.        
(2) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release. 
  

Noninterest income was $14.2 million for the three months ended December 31, 2021, an increase of $8.1 million from $6.1 million for the three months ended September 30, 2021, and an increase of $12.2 million from $2.0 million for the three months ended December 31, 2020. The increase in noninterest income over the quarter ended September 30, 2021 was due to an increase of $9.1 million in BaaS fees – credit enhancements related to the allowance for loan losses and reserve for unfunded commitments, $913,000 in BaaS fees – fraud recovery, and an increase of $385,000 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), partially offset by the absence of a $1.5 million unrealized holding gain on an equity investment that occurred during the quarter ended September 30, 2021, and a $723,000 decrease in loan referral fees. The $12.2 million increase in noninterest income over the quarter ended December 31, 2020 was primarily due to a $11.9 million increase in BaaS fees ($9.1 million related to credit enhancements, $1.2 million related to fraud recovery and $1.6 million in other BaaS fees), $224,000 more in other income primarily due to an increase of $121,000 in SBA servicing fees, partially offset by the absence of a $400,000 unrealized loss on an equity investment that occurred during the quarter ended December 31, 2020 and a $423,000 decrease in loan referral fees. Interchange income from BaaS partners for the quarter ended December 31, 2021 was $368,000, compared to $188,000 and $10,000, as of September 30, 2021 and December 31, 2020, respectively.

Our CCBX division continues to grow, and now has 28 relationships, at varying stages, as of December 31, 2021, compared to 26 CCBX relationships at September 30, 2021 and 15 CCBX relationships at December 31, 2020, respectively. As of December 31, 2021, we had 19 active CCBX relationships, one relationship in friends and family/testing, five relationships in onboarding/implementation, three signed letters of intent and we believe we have a strong pipeline of potential new CCBX relationships.

The following table illustrates the activity and growth in CCBX for the periods presented:

 As of
 December 31, 2021September 30, 2021 December 31, 2020
Active1916 6
Friends and family / testing1- 2
Implementation / onboarding57 3
Signed letters of intent33 4
Total CCBX relationships2826 15
 

Total noninterest expense increased to $21.1 million for the three months ended December 31, 2021, compared to $16.1 million for the three months ended September 30, 2021 and $10.5 million for the three months ended December 31, 2020. Increase in noninterest expense for the quarter ended December 31, 2021, as compared to the quarter ended September 30, 2021, was primarily due to a $2.9 million increase in BaaS expense, $1.9 million of which is related to partner loan expense and $912,000 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. Also contributing to the increase in noninterest expense compared to September 30, 2021 is a $609,000 increase in other expenses, which includes a $293,000 higher reserve for unfunded commitment expense, a $168,000 increase in operational losses, and a $118,000 increase in donations. The increase in donations was largely due to community-based contributions. Salaries and employee benefits also increased $580,000 compared to September 30, 2021, which is related to the hiring in CCBX and additional staff for our ongoing growth initiatives. In the fourth quarter of 2021 compared to the third quarter of 2021, Federal Deposit Insurance Corporation (“FDIC”) assessments increased $412,000, software license, maintenance and subscription expenses increased $166,000 and legal and professional fees increased $155,000. 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 September 30, 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 increase in legal and professional expenses is associated with CCBX division expenses and higher costs associated with legal and accounting work related to financial reporting.

The increased noninterest expenses for the quarter ended December 31, 2021 compared to the quarter ended December 31, 2020 were largely due to a $4.1 million increase in salary and employee benefits related to hiring staff for CCBX and additional staff for our ongoing banking growth initiatives, an increase of $3.5 million in BaaS partner expense ($2.3 million of which is related to partner loan expense and $1.2 million of which is related to partner fraud expense), and a $854,000 increase in other expense (which includes a $318,000 increase in unfunded commitment expense, a $154,000 increase in donations, largely due to community-based contributions, and a $139,000 increase in operational losses).   Also contributing to the increase in expenses compared to December 31, 2020 is a $582,000 increase in FDIC assessments, a $581,000 increase in software licenses, maintenance and subscriptions, and a $367,000 increase in legal and professional fees. 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 December 31, 2020. 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 increase in legal and professional expenses is associated with CCBX division expenses and higher costs associated with legal and accounting work related to financial reporting.

The provision for income taxes was $1.7 million for the three months ended December 31, 2021, $1.9 million for the three months ended September 30, 2021 and $1.2 million for the fourth quarter of 2020. The Company is subject to various state taxes that are assessed as CCBX activities 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 0.9% for calculating the provision for state taxes.

Financial Condition

Total assets increased $183.9 million, or 7.5%, to $2.64 billion at December 31, 2021 compared to $2.45 billion at September 30, 2021. Interest earning deposits with other banks increased $160.7 million, primarily a result of increased CCBX deposits during the quarter ended December 31, 2021. Loans receivable increased $37.1 million even after experiencing $155.5 million in PPP loan forgiveness and paydowns during the quarter ended December 31, 2021. Total assets increased $869.4 million, or 49.2%, at December 31, 2021, compared to $1.77 billion at December 31, 2020. Interest earning deposits with other banks including the Federal Reserve increased $654.5 million primarily from increased deposits, and loans receivable increased $195.6 million, compared to December 31, 2020.

Total loans receivable increased $37.1 million to $1.74 billion at December 31, 2021, from $1.71 billion at September 30, 2021, and increased $195.6 million from $1.55 billion at December 31, 2020. The increase in loans receivable over the quarter ended September 30, 2021 was the result of $186.8 million in non-PPP loan growth partially offset by $155.5 million in PPP loan forgiveness and paydowns. The $186.8 million increase in non-PPP loans includes CCBX loan growth of $156.5 million, and community bank loan growth of $30.3 million, excluding PPP loans, for the three months ended December 31, 2021. The Company is developing 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. CCBX loans totaled $346.6 million at December 31, 2021 compared to $190.1 million at September 30, 2021 and $65.6 million at December 31, 2020. Total loans receivable as of December 31, 2021 is net of $8.8 million in net deferred origination fees, $3.6 million of which is attributed to PPP loans. Deferred fees on PPP loans are earned over the life of the loan. Loans that were originated in 2020 are primarily two year loans with some being 5 year loans with $4.3 million of these loans remaining as of December 31, 2021, and all PPP loans originated in 2021 have five year maturities, with $107.5 million of these loans remaining as of December 31, 2021. Along with an increase in loans receivable as of December 31, 2021 compared to September 30, 2021, unused commitments also increased during the same period, with the unused commitments on capital call lines increasing $68.6 million to $416.0 million at December 31, 2021 compared to $347.4 million at September 30, 2021, which should translate into future loan growth as the commitments are utilized.   The increase in loans receivable over the quarter ended December 31, 2020 includes growth of $449.2 million in non-PPP loans, partially offset by a $254.0 million decrease in PPP loans as of December 31, 2021. Non-PPP loan growth consists of $137.3 million in capital call lines, $60.7 million in commercial real estate loans, $89.2 million in construction, land and land development loans, $60.5 million in residential real estate loans, and a decrease of $3.4 million in other commercial and industrial loans. Consumer loans increased $91.7 million over the quarter ended September 30, 2021 and $105.0 million over the quarter ended December 31, 2020, primarily due to growth in CCBX.

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

  As of 
  December 31, 2021  September 30, 2021  December 31, 2020 
(Dollars in thousands; unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                      
Commercial and industrial loans:                     
PPP loans $111,813  6.4% $267,278  15.5% $365,842  23.5%
Capital call lines  202,882  11.5   161,457  9.4   65,559  4.2 
All other commercial & industrial loans  104,365  6.0   108,120  6.3   107,799  6.9 
Real estate loans:                     
Construction, land and land development loans  183,594  10.5   158,710  9.2   94,423  6.1 
Residential real estate loans  204,389  11.7   170,167  9.9   143,869  9.2 
Commercial real estate loans  835,587  47.7   837,342  48.7   774,925  49.8 
Consumer and other loans  108,871  6.2   17,140  1.0   3,916  0.3 
Gross loans receivable  1,751,501  100.0%  1,720,214  100.0%  1,556,333  100.0%
Net deferred origination fees - PPP loans  (3,633)     (9,417)     (5,803)   
Net deferred origination fees - Other loans  (5,133)     (5,115)     (3,392)   
Loans receivable $1,742,735     $1,705,682     $1,547,138    
 

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

The following table details the CCBX loans which are included in the total loan portfolio table above.

  As of 
  December 31, 2021  September 30, 2021  December 31, 2020 
(Dollars in thousands; unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                      
Commercial and industrial loans:                     
Capital call lines $202,882  58.6% $161,457  84.9% $65,559  99.9%
Real estate loans:                     
Residential real estate loans  36,887  10.6   14,039  7.4  $  0.0%
Consumer and other loans:                     
Credit cards  11,429  3.3   1,711  0.9   9  0.0 
Other consumer and other loans  95,408  27.5   12,937  6.8   58  0.1 
Gross CCBX loans receivable  346,606  100.0%  190,144  100.0%  65,626  100.0%
 

Total deposits increased $140.2 million, or 6.3%, to $2.36 billion at December 31, 2021 from $2.22 billion at September 30, 2021. The increase was due primarily to a $101.1 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 division increased $109.1 million, from $607.2 million at September 30, 2021, to $716.3 million at December 31, 2021. The deposits from our CCBX division 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. Currently, the majority of CCBX deposits are noninterest bearing, however, as the Federal Reserve Open Market Committee raises interest rates, a majority of these accounts will bear interest and be reclassified to interest bearing deposits once rates exceed the minimum interest rate set in their respective program agreements and begin to earn interest. During the quarter ended December 31, 2021, noninterest bearing deposits increased $59.5 million, or 4.6%, to $1.36 billion from $1.30 billion at September 30, 2021. Included in the increase in noninterest bearing deposits is an increase in CCBX division deposits of $62.7 million for the quarter ended December 31, 2021. In the fourth quarter of 2021 compared to the third quarter of 2021, NOW and money market accounts increased $33.9 million, and savings accounts increased $7.8 million. BaaS-brokered deposits increased $42.4 million, or 149.2%, while time deposits decreased $3.2 million, or 6.9% in the fourth quarter of 2021 compared to the third quarter of 2021.

Total deposits increased $942.5 million, or 66.3%, to $2.36 billion at December 31, 2021 compared to $1.42 billion at December 31, 2020. Noninterest bearing deposits increased $763.6 million, or 128.9%, to $1.36 billion at December 31, 2021 from $592.3 million at December 31, 2020. NOW and money market accounts increased $131.4 million, or 20.0%, to $789.7 million at December 31, 2021, and savings accounts increased $26.3 million, or 33.9%, and BaaS-brokered deposits increased $37.3 million, or 111.3% while time deposits decreased $16.2 million, or 27.1%, in the fourth quarter of 2021 compared to the fourth quarter of 2020. The overall increase in deposits was achieved despite a decrease of $25.6 million in total deposits due to the sale of our Freeland branch which included deposits as compared to December 31, 2020 deposits which included Freeland branch deposits. Additionally, as of December 31, 2021 we have access to $252.4 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.

  As of 
  December 31, 2021  September 30, 2021  December 31, 2020 
(Dollars in thousands, unaudited) Balance % to
Total
  Balance % to
Total
  Balance % to
Total
 
                      
Demand, noninterest bearing $1,355,908  57.4% $1,296,443  58.3% $592,261  41.7%
NOW and money market  789,709  33.4   755,810  34.0   658,323  46.3 
Savings  103,956  4.4   96,192  4.3   77,611  5.4 
Total core deposits  2,249,573  95.2   2,148,445  96.6   1,328,195  93.4 
BaaS-brokered deposits  70,757  3.0   28,396  1.3   33,482  2.4 
Time deposits less than $250,000  31,057  1.3   32,937  1.5   41,145  2.9 
Time deposits $250,000 and over  12,400  0.5   13,762  0.6   18,485  1.3 
Total deposits $2,363,787  100.0% $2,223,540  100.0% $1,421,307  100.0%
 

The following table details the CCBX deposits which are included in the total deposit portfolio table above.

  As of 
  December 31, 2021  September 30, 2021  December 31, 2020 
(Dollars in thousands, unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                      
Demand, noninterest bearing $636,675  88.9% $573,985  94.5% $30,144  43.9%
Interest bearing  8,827  1.2   4,837  0.8   5,062  7.4 
Total core deposits  645,502  90.1   578,822  95.3   35,206  51.3 
BaaS-brokered deposits  70,756  9.9   28,395  4.7   33,481  48.7 
Total CCBX deposits $716,258  100.0% $607,217  100.0% $68,687  100.0%
 

The Federal Home Loan Bank (“FHLB”) allows us to borrow against our line of credit, which is collateralized by certain loans. As of December 31, 2021, we borrowed a total of $25.0 million in FHLB term advances. This includes a $10.0 million advance that matures in March of 2023 and $15.0 million advance that matures in March 2025.   These advances provide an alternative and stable source of funding for loan demand. Although there are no immediate plans to borrow additional funds, additional FHLB borrowing capacity of $76.3 million was available under this arrangement as of December 31, 2021.

During the quarter ended December 31, 2021, the Company completed a public offering of 851,853 shares of its common stock at a price to the public of $40.50 per share. Gross proceeds from the offering of $34.5 million, before deducting underwriting discounts and offering expenses, will be used for general corporate purposes, including, without limitation, to support investment opportunities and the Bank’s growth. A total of $15.0 million of those proceeds was contributed to the Bank, and the balance of the amount was retained in cash at the Company level.

Total shareholders’ equity increased $40.1 million since September 30, 2021. The increase in shareholders’ equity was primarily due to proceeds from the public offering described above and $7.3 million in net earnings for the three months ended December 31, 2021.

Capital Ratios

The Company and the Bank remain well capitalized at December 31, 2021, as summarized in the following table.  

Capital Ratios:Coastal
Community
Bank
  Coastal
Financial
Corporation
  Financial
Institution
Basel III
Regulatory
Guidelines
 
(unaudited)           
Tier 1 leverage capital 7.96%  8.07%  5.00%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans (1) 8.60%  8.70%  5.00%
Common Equity Tier 1 risk-based capital 11.12%  11.06%  6.50%
Tier 1 risk-based capital 11.12%  11.26%  8.00%
Total risk-based capital 12.38%  13.89%  10.00%
(1) A reconciliation of the non-GAAP measure is set forth at the end of this earnings release. 
  

Asset Quality

The total allowance for loan losses was $28.6 million and 1.64% of loans receivable at December 31, 2021 compared to $20.2 million and 1.19% at September 30, 2021 and $19.3 million and 1.25% at December 31, 2020. The allowance for loan loss allocated to the CCBX portfolio was $8.0 million and 2.30% of CCBX loan receivable at December 31, 2021, with $20.7 million of allowance for loan loss allocated to the community bank or 1.48% of total community bank loans receivable. At December 31, 2021, there was $111.8 million in PPP loans, which are 100% guaranteed by the SBA. Adjusted allowance for loan losses to loans receivable, excluding PPP loans* was 1.75% for the quarter ended December 31, 2021.

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

  As of 
  December 31, 2021 
(Dollars in thousands) Community Bank  CCBX  Total 
Loans receivable $1,396,061  $346,674  $1,742,735 
Allowance for loan losses  (20,670)  (7,962)  (28,632)
Allowance for loan losses to total loans receivable  1.48%  2.30%  1.64%

Provision for loan losses totaled $8.9 million for the three months ended December 31, 2021, $255,000 for the three months ended September 30, 2021, and $2.6 million for the three months ended December 31, 2020. Net charge-offs totaled $532,000 for the quarter ended December 31, 2021, compared to net recoveries of $1,000 for the quarter ended September 30, 2021 and net charge-offs of $384,000 for the quarter ended December 31, 2020.

          
*A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.
 

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

  Three Months Ended 
  December 31, 2021 
(Dollars in thousands) Community Bank  CCBX  Total 
Gross charge-offs $215  $364  $579 
Gross recoveries  (47)  -   (47)
Net charge-offs $168  $364  $532 

The increase in the Company’s provision for loan losses during the quarter ended December 31, 2021, is largely related to the provision for CCBX partner loans. Beginning with and during the quarter ended December 31, 2021, a $8.3 million provision for loan losses was recorded for CCBX partner loans based on management’s analysis. The factors used in management’s analysis for community bank loan losses indicated that a provision for loan losses of $243,000 and $255,000 was needed for the quarters ended December 31, 2021 and September 30, 2021, respectively. The economic environment is continuously changing and has shown some signs of improvement, with the United States implementing stimulus packages, ongoing vaccination of its population and increased re-opening of economic activities, tempered by increased inflation, 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:

     
  Three Months Ended 
(Dollars in thousands) December 31, 2021 
Community bank $243 
CCBX  8,699 
Total provision expense $8,942 

At December 31, 2021, our nonperforming assets were $1.7 million, or 0.07% of total assets, compared to $740,000, or 0.03%, of total assets, at September 30, 2021, and $712,000, or 0.04% of total assets, at December 31, 2020. Nonperforming assets increased $987,000 during the quarter ended December 31, 2021, compared to the quarter ended September 30, 2021, due to an increase of $1.4 million in CCBX loans that are past due 90 days or more and still accruing interest partially offset by a decrease of $396,000 in nonaccrual loans.   There were no repossessed assets or other real estate owned at December 31, 2021. Our nonperforming loans to loans receivable ratio was 0.10% at December 31, 2021, compared to 0.04% at September 30, 2021, and 0.05% at December 31, 2020.

For the quarter ended December 31, 2021, 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, 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 December 31, 2021 $364,000 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.

  As of 
  December 31, September 30, December 31, 
(Dollars in thousands, unaudited) 2021 2021 2020 
           
Nonaccrual loans:          
Commercial and industrial loans $166 $561 $537 
Real estate:          
Construction, land and land development  -  -  - 
Residential real estate  55  56  175 
Commercial real estate  -  -  - 
Total nonaccrual loans  221  617  712 
           
Accruing loans past due 90 days or more:          
Total accruing loans past due 90 days or more  1,506  123  - 
Total nonperforming loans  1,727  740  712 
Other real estate owned  -  -  - 
Repossessed assets  -  -  - 
Total nonperforming assets $1,727 $740 $712 
Troubled debt restructurings, accruing  -  -  - 
Total nonperforming loans to loans receivable  0.10% 0.04% 0.05%
Total nonperforming assets to total assets  0.07% 0.03% 0.04%

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 $2.64 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 Division. To learn more about Coastal 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)

ASSETS 
  December 31,  September 30,  December 31, 
  2021  2021  2020 
Cash and due from banks $14,496  $31,722  $18,965 
Interest earning deposits with other banks  798,665   638,003   144,152 
Investment securities, available for sale, at fair value  35,327   32,838   20,399 
Investment securities, held to maturity, at amortized cost  1,296   2,086   2,848 
Other investments  8,478   8,349   6,059 
Loans receivable  1,742,735   1,705,682   1,547,138 
Allowance for loan losses  (28,632)  (20,222)  (19,262)
Total loans receivable, net  1,714,103   1,685,460   1,527,876 
Premises and equipment, net  17,219   17,231   17,108 
Operating lease right-of-use assets  6,105   6,372   7,120 
Accrued interest receivable  8,105   7,549   8,616 
Bank-owned life insurance, net  12,254   12,166   7,082 
Deferred tax asset, net  6,818   3,807   3,799 
Other assets  12,651   5,985   2,098 
Total assets $2,635,517  $2,451,568  $1,766,122 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY 
LIABILITIES            
Deposits $2,363,787  $2,223,540  $1,421,307 
Federal Home Loan Bank advances  24,999   24,999   24,999 
Paycheck Protection Program Liquidity Facility  -   -   153,716 
Subordinated debt, net  24,288   24,269   9,993 
Junior subordinated debentures, net  3,586   3,586   3,584 
Deferred compensation  744   774   863 
Accrued interest payable  357   147   531 
Operating lease liabilities  6,320   6,583   7,323 
Other liabilities  10,214   6,584   3,589 
Total liabilities  2,434,295   2,290,482   1,625,905 
             
SHAREHOLDERS’ EQUITY            
Common stock  121,845   88,997   87,815 
Retained earnings  79,373   72,083   52,368 
Accumulated other comprehensive income, net of tax  4   6   34 
Total shareholders’ equity  201,222   161,086   140,217 
Total liabilities and shareholders’ equity $2,635,517  $2,451,568  $1,766,122 
  
  

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

 Three Months Ended 
 December 31, September 30, December 31, 
 2021 2021 2020 
INTEREST AND DIVIDEND INCOME         
Interest and fees on loans$25,134 $19,383 $17,885 
Interest on interest earning deposits with other banks 294  170  76 
Interest on investment securities 3  24  31 
Dividends on other investments 115  31  106 
Total interest and dividend income 25,546  19,608  18,098 
INTEREST EXPENSE         
Interest on deposits 516  523  758 
Interest on borrowed funds 327  278  407 
Total interest expense 843  801  1,165 
Net interest income 24,703  18,807  16,933 
PROVISION FOR LOAN LOSSES 8,942  255  2,600 
Net interest income after provision for loan losses 15,761  18,552  14,333 
NONINTEREST INCOME         
BaaS fees 12,649  2,286  735 
Unrealized holding (loss) gain on equity securities, net (3) 1,472  (400)
Deposit service charges and fees 930  956  867 
Loan referral fees -  723  423 
Gain on sales of loans, net 29  206  35 
Mortgage broker fees 218  187  216 
Other income 397  302  173 
Total noninterest income 14,220  6,132  2,049 
NONINTEREST EXPENSE         
Salaries and employee benefits 10,541  9,961  6,433 
Occupancy 1,043  1,037  1,026 
Software licenses, maintenance and subscriptions 983  817  402 
Legal and professional fees 951  796  584 
Data processing 767  761  599 
BaaS expense 3,577  715  103 
Excise taxes 435  407  301 
Federal Deposit Insurance Corporation assessments 812  400  230 
Director and staff expenses 393  274  187 
Marketing 107  130  37 
Other expense 1,441  832  587 
Total noninterest expense 21,050  16,130  10,489 
Income before provision for income taxes 8,931  8,554  5,893 
PROVISION FOR INCOME TAXES 1,641  1,870  1,232 
NET INCOME$7,290 $6,684 $4,661 
          
Basic earnings per common share$0.60 $0.56 $0.39 
Diluted earnings per common share$0.57 $0.54 $0.38 
Weighted average number of common shares outstanding:         
Basic 12,144,452  11,999,899  11,936,289 
Diluted 12,701,464  12,456,674  12,280,191 
          
          

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

       
 Year ended 
 December 31, December 31, 
 2021 2020 
INTEREST AND DIVIDEND INCOME      
Interest and fees on loans$82,112 $61,910 
Interest on interest earning deposits with other banks 608  663 
Interest on investment securities 79  230 
Dividends on other investments 284  235 
Total interest and dividend income 83,083  63,038 
INTEREST EXPENSE      
Interest on deposits 2,327  4,288 
Interest on borrowed funds 1,319  1,364 
Total interest expense 3,646  5,652 
Net interest income 79,437  57,386 
PROVISION FOR LOAN LOSSES 9,915  8,308 
Net interest income after provision for loan losses 69,522  49,078 
NONINTEREST INCOME      
BaaS fees 17,307  2,365 
Unrealized holding gain (loss) on equity securities, net 1,469  (400)
Deposit service charges and fees 3,698  3,091 
Loan referral fees 2,126  1,726 
Gain on sales of loans, net 396  82 
Mortgage broker fees 920  655 
Gain on sale of branch 1,263  - 
Other 939  663 
Total noninterest income 28,118  8,182 
NONINTEREST EXPENSE      
Salaries and employee benefits 37,101  23,302 
Occupancy 4,128  3,977 
Software licenses, maintenance and subscriptions 2,827  1,320 
Legal and professional fees 3,133  1,762 
Data processing 2,959  2,348 
BaaS expense 4,481  294 
Excise taxes 1,589  1,057 
Federal Deposit Insurance Corporation assessments 1,632  522 
Director and staff expenses 1,205  800 
Marketing 451  317 
Other 3,757  2,420 
Total noninterest expense 63,263  38,119 
Income before provision for income taxes 34,377  19,141 
PROVISION FOR INCOME TAXES 7,372  3,995 
NET INCOME$27,005 $15,146 
       
Basic earnings per common share$2.25 $1.27 
Diluted earnings per common share$2.16 $1.24 
Weighted average number of common shares outstanding:      
Basic 12,022,954  11,920,735 
Diluted 12,521,426  12,209,371 
       
       

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

   
 December 31, 2021  September 30, 2021  December 31, 2020 
 Average Interest & Yield /  Average Interest & Yield /  Average Interest & Yield / 
 Balance Dividends Cost (4)  Balance Dividends Cost (4)  Balance Dividends Cost (4) 
Assets                             
Interest earning assets:                             
Interest earning deposits$751,805 $294  0.16% $419,715 $170  0.16% $166,744 $76  0.18%
Investment securities (1) 37,024  3  0.03   33,788  24  0.28   23,730  31  0.52 
Other investments 8,411  115  5.42   6,859  31  1.79   6,124  106  6.89 
Loans receivable (2) 1,683,310  25,134  5.92   1,681,069  19,383  4.57   1,533,533  17,885  4.64 
Total interest earning assets 2,480,550  25,546  4.09   2,141,431  19,608  3.63   1,730,131  18,098  4.16 
Noninterest earning assets:                             
Allowance for loan losses (20,242)        (20,102)        (17,767)      
Other noninterest earning assets 76,343         77,221         62,359       
Total assets$2,536,651        $2,198,550        $1,774,723       
                              
Liabilities and Shareholders’ Equity 
Interest bearing liabilities:                             
Interest bearing deposits$962,128 $516  0.21% $919,792 $523  0.23% $808,351 $758  0.37%
Subordinated debt, net 24,276  234  3.82   17,073  185  4.30   9,991  148  5.89 
Junior subordinated debentures, net 3,586  21  2.32   3,586  21  2.32   3,584  22  2.44 
PPPLF borrowings -  -  0.00   -  -  0.00   188,222  166  0.35 
FHLB advances and other borrowings 25,000  72  1.14   24,999  72  1.14   25,001  71  1.13 
Total interest bearing liabilities 1,014,990  843  0.33   965,450  801  0.33   1,035,149  1,165  0.45 
Noninterest bearing deposits 1,336,161         1,061,311         588,764       
Other liabilities 13,308         13,705         11,968       
Total shareholders' equity 172,192         158,084         138,842       
Total liabilities and                             
shareholders' equity$2,536,651        $2,198,550        $1,774,723       
Net interest income   $24,703        $18,807        $16,933    
Interest rate spread       3.76%        3.30%        3.71%
Net interest margin (3)       3.95%        3.48%        3.89%
                              
(1) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts. 
(2) Includes nonaccrual loans. 
(3) Net interest margin represents net interest income divided by the average total interest earning assets. 
(4) Yields and costs are annualized. 
  
  

COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – YEAR-TO-DATE
(Dollars in thousands; unaudited)

 For the Year Ended 
 December 31, 2021  December 31, 2020 
 Average Interest & Yield /  Average Interest & Yield / 
 Balance Dividends Cost  Balance Dividends Cost 
Assets                   
Interest earning assets:                   
Interest earning deposits$402,081 $608  0.15% $133,951 $663  0.49%
Investment securities (1) 30,045  79  0.26   24,120  230  0.95 
Other Investments 7,052  284  4.03   5,608  235  4.19 
Loans receivable (2) 1,688,925  82,112  4.86   1,333,028  61,910  4.64 
Total interest earning assets 2,128,103  83,083  3.90  $1,496,707 $63,038  4.21 
Noninterest earning assets:                   
Allowance for loan losses (19,870)        (14,686)      
Other noninterest earning assets 74,088         58,970       
Total assets$2,182,321        $1,540,991       
                    
Liabilities and Shareholders’ Equity                   
Interest bearing liabilities:                   
Interest bearing deposits$910,106 $2,327  0.26% $724,279 $4,288  0.59%
Subordinated debt, net 15,379  711  4.62   9,986  589  5.90 
Junior subordinated debentures, net 3,585  84  2.34   3,584  105  2.93 
PPPLF borrowings 68,699  240  0.35   124,068  435  0.35 
FHLB advances and other borrowings 24,999  284  1.14   20,736  235  1.13 
Total interest bearing liabilities 1,022,768  3,646  0.36  $882,653 $5,652  0.64 
Noninterest bearing deposits 989,945         513,550       
Other liabilities 12,926         12,445       
Total shareholders' equity 156,682         132,343       
                    
Total liabilities and shareholders' equity$2,182,321        $1,540,991       
Net interest income   $79,437        $57,386    
Interest rate spread       3.54%        3.57%
Net interest margin (3)       3.73%        3.83%
                    
(1) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts. 
(2) Includes nonaccrual loans. 
(3) Net interest margin represents net interest income divided by the average total interest earning assets. 
  
  

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

 Three Months Ended 
 December 31, September 30, June 30, March 31, December 31, 
 2021 2021 2021 2021 2020 
Income Statement Data:               
Interest and dividend income$25,546 $19,608 $19,571 $18,358 $18,098 
Interest expense 843  801  959  1,043  1,165 
Net interest income 24,703  18,807  18,612  17,315  16,933 
Provision for loan losses 8,942  255  361  357  2,600 
Net interest income after provision for loan losses 15,761  18,552  18,251  16,958  14,333 
Noninterest income 14,220  6,132  4,782  2,984  2,049 
Noninterest expense 21,050  16,130  13,731  12,352  10,489 
Provision for income tax 1,641  1,870  2,289  1,572  1,232 
Net income 7,290  6,684  7,013  6,018  4,661 
 
As of and for the Three Month Period
 
   
 December 31, September 30, June 30, March 31, December 31, 
 2021 2021 2021 2021 2020 
Balance Sheet Data:               
Cash and cash equivalents$813,161 $669,725 $282,889 $204,314 $163,117 
Investment securities 36,623  34,924  27,442  22,893  23,247 
Loans receivable 1,742,735  1,705,682  1,658,149  1,766,723  1,547,138 
Allowance for loan losses (28,632) (20,222) (19,966) (19,610) (19,262)
Total assets 2,635,517  2,451,568  2,007,138  2,029,359  1,766,122 
Interest bearing deposits 1,007,879  927,097  913,782  903,025  829,046 
Noninterest bearing deposits 1,355,908  1,296,443  887,896  768,690  592,261 
Core deposits (1) 2,249,573  2,148,445  1,724,134  1,590,850  1,328,195 
Total deposits 2,363,787  2,223,540  1,801,678  1,671,715  1,421,307 
Total borrowings 52,873  52,854  38,584  197,099  192,292 
Total shareholders’ equity 201,222  161,086  154,100  146,739  140,217 
                
Share and Per Share Data (2):               
Earnings per share – basic$0.60 $0.56 $0.59 $0.50 $0.39 
Earnings per share – diluted$0.57 $0.54 $0.56 $0.49 $0.38 
Dividends per share -  -  -  -  - 
Book value per share (3)$15.63 $13.41 $12.83 $12.24 $11.73 
Tangible book value per share (4)$15.63 $13.41 $12.83 $12.24 $11.73 
Weighted avg outstanding shares – basic 12,144,452  11,999,899  11,984,927  11,960,772  11,936,289 
Weighted avg outstanding shares – diluted 12,701,464  12,456,674  12,459,467  12,393,493  12,280,191 
Shares outstanding at end of period 12,875,315  12,012,107  12,007,669  11,988,636  11,954,327 
Stock options outstanding at end of period 694,519  710,182  714,620  728,492  749,397 
                
See footnotes on following page               
                
                
 As of and for the Three Month Period 
 December 31, September 30, June 30, March 31, December 31, 
 2021 2021 2021 2021 2020 
Credit Quality Data:               
Nonperforming assets (5) to total assets 0.07% 0.03% 0.03% 0.03% 0.04%
Nonperforming assets (5) to loans receivable and OREO 0.10% 0.04% 0.04% 0.04% 0.05%
Nonperforming loans (5) to total loans receivable 0.10% 0.04% 0.04% 0.04% 0.05%
Allowance for loan losses to nonperforming loans 1657.9% 2732.7% 3081.2% 2966.7% 2705.3%
Allowance for loan losses to total loans receivable 1.64% 1.19% 1.20% 1.11% 1.25%
Allowance for loan losses to loans receivable, as adjusted (6) 1.75% 1.40% 1.57% 1.59% 1.62%
Gross charge-offs$579 $31 $12 $18 $386 
Gross recoveries$47 $32 $7 $9 $2 
Net charge-offs to average loans (7) 0.13% 0.00% 0.00% 0.00% 0.10%
                
Capital Ratios (8):               
Tier 1 leverage capital 8.07% 7.48% 8.00% 8.62% 9.05%
Common equity Tier 1 risk-based capital 11.06% 9.94% 10.92% 10.89% 11.27%
Tier 1 risk-based capital 11.26% 10.15% 11.16% 11.15% 11.55%
Total risk-based capital 13.89% 12.95% 13.12% 13.15% 13.61%
                
(1) Core deposits are defined as all deposits excluding brokered and all time deposits. 
(2) Share and per share amounts are based on total common shares outstanding. 
(3) We calculate book value per share as total shareholders’ equity at the end of the relevant period divided by the outstanding number of our common shares at the end of each period. 
(4) Tangible book value per share is a non-GAAP financial measure. We calculate tangible book value per share as total shareholders’ equity at the end of the relevant period, less goodwill and other intangible assets, divided by the outstanding number of our common shares at the end of each period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets as of any of the dates indicated. As a result, tangible book value per share is the same as book value per share as of each of the dates indicated. 
(5) Nonperforming assets and nonperforming loans include loans 90+ days past due and accruing interest. 
(6) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release. 
(7) Annualized calculations.               
(8) Capital ratios are for the Company, Coastal Financial Corporation. 
  

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.

  As of and for the Three Months Ended  As of and for the
Years Ended
 
(Dollars in thousands, unaudited) December 31,
2021
 September 30,
2021
 December 31,
2020
  December 31,
2021
 December 31,
2020
 
Revenue excluding BaaS credit enhancements, BaaS fraud recovery and reimbursement of expenses: 
Total net interest income $24,703 $18,807 $16,933  $79,437 $57,386 
Total noninterest income  14,220  6,132  2,049   28,118  8,182 
Total Revenue $38,923 $24,939 $18,982  $107,555 $65,568 
Less: BaaS credit enhancements  (9,076) (10) -   (9,086) - 
Less: Baas fraud recovery  (1,209) (296) -   (1,505) - 
Less: Reimbursement of expenses  (295) (333) (158)  (1,004) (593)
Total revenue excluding BaaS credit enhancements, BaaS fraud recovery and reimbursement of expenses $28,343 $24,300 $18,824  $95,960 $64,975 
 

The following non-GAAP measure is presented to illustrate the impact of loan fees on contractual loan yield.

Yield on loans receivable, excluding earned fees is a non-GAAP measure that excludes the impact of earned loan fees on the contractual interest rate yield. The most directly comparable GAAP measure is yield on loans.

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

  As of and for the Three Months Ended  As of and for the
Years Ended
 
(Dollars in thousands, unaudited) December 31,
2021
 September 30,
2021
 June 30,
2021
 March 31,
2021
 December 31,
2020
  December 31,
2021
 December 31,
2020
 
Yield on loans receivable, excluding earned fees :        
Total average loans receivable $1,683,310 $1,681,069 $1,750,825 $1,640,108 $1,533,533  $1,688,925 $1,333,028 
Interest and earned fee income on loans  25,134  19,383  19,365  18,230  17,885   82,112  61,910 
Less: earned fee income on all loans  (6,572) (3,533) (4,274) (3,974) (3,765)  (18,354) (9,065)
Adjusted interest income on loans $18,562 $15,850 $15,091 $14,256 $14,120  $63,758 $52,845 
Yield on loans receivable  5.92% 4.57% 4.44% 4.51% 4.64%  4.86% 4.64%
Yield on loans receivable, excluding earned fees:  4.37% 3.74% 3.46% 3.53% 3.66%  3.78% 3.96%
Yield on loans receivable, excluding earned fees on all loans and interest on PPP loans (1):  4.78% 4.36% 4.42% 4.52% 4.65%  4.56% 4.80%
(1) Non-GAAP measure - see next table of "Non-GAAP Financial Measures" for more information. 
  

The following non-GAAP financial measures are presented to illustrate and identify the impact of PPP loans on loans receivable related measures. By removing these items and showing what the results would have been without them, we are providing investors with the information to better compare results with periods that did not have these items. These measures include the following:

Adjusted allowance for loan losses to loans receivable is a non-GAAP measure that excludes the impact of PPP loans on balance sheet. The most directly comparable GAAP measure is allowance for loan losses to loans receivable.

Yield on loans receivable, excluding PPP loans is a non-GAAP measure that excludes the impact of PPP loans on balance sheet and income statement. The most directly comparable GAAP measure is yield on loans.

Yield on loans receivable, excluding earned fees on all loans and interest on PPP loans is a non-GAAP measure that excludes the impact of earned fees and PPP loans on the balance sheet and income statement. The most directly comparable GAAP measure is yield on loans.

Adjusted Tier 1 leverage capital ratio, excluding PPP loans is a non-GAAP measure that excludes the impact of PPP loans on balance sheet. The most directly comparable GAAP measure is Tier 1 leverage capital ratio.

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

  As of and for the Three Months Ended  As of and for the Year Ended 
(Dollars in thousands, unaudited) December
31,
2021
 September
30,
2021
 December
31,
2020
  December
31,
2021
 December
31,
2020
 
Adjusted allowance for loan losses to loans receivable, excluding PPP loans:        
Total loans, net of deferred fees $1,742,735 $1,705,682 $1,547,138  $1,742,735 $1,547,138 
Less: PPP loans  (111,813) (267,278) (365,842)  (111,813) (365,842)
Less: net deferred fees on PPP loans  3,633  9,417  5,803   3,633  5,803 
Adjusted loans, net of deferred fees $1,634,554 $1,447,821 $1,187,099  $1,634,554 $1,187,099 
Allowance for loan losses $(28,632)$(20,222)$(19,262) $(28,632)$(19,262)
Allowance for loan losses to loans receivable  1.64% 1.19% 1.25%  1.64% 1.25%
Adjusted allowance for loan losses to loans receivable, excluding PPP loans  1.75% 1.40% 1.62%  1.75% 1.62%
Yield on loans receivable, excluding PPP loans:           
Total average loans receivable $1,683,310 $1,681,069 $1,533,533  $1,688,925 $1,333,028 
Less: average PPP loans  (186,267) (322,595) (424,290)  (372,842) (302,685)
Plus: average deferred fees on PPP loans  6,370  11,639  7,385   4,306  6,432 
Adjusted total average loans receivable $1,503,413 $1,370,113 $1,116,628  $1,320,389 $1,036,775 
Interest income on loans $25,134 $19,383 $17,885  $82,112 $61,910 
Less: interest and deferred fee income recognized on PPP loans  (6,245) (3,744) (3,847)  (19,188) (10,172)
Adjusted interest income on loans $18,889 $15,639 $14,038  $62,924 $51,738 
Yield on loans receivable  5.92% 4.57% 4.64%  4.86% 4.64%
Yield on loans receivable, excluding PPP loans:  4.98% 4.53% 5.00%  4.77% 4.99%
Yield on loans receivable, excluding earned fees on all loans and interest on PPP loans:        
Total average loans receivable $1,683,310 $1,681,069 $1,533,533  $1,688,925 $1,333,028 
Less: average PPP loans  (186,267) (322,595) (424,290)  (372,842) (302,685)
Plus: average deferred fees on PPP loans $6,370 $11,639 $7,385  $4,306 $6,432 
Adjusted total average loans receivable $1,503,413 $1,370,113 $1,116,628  $1,320,389 $1,036,775 
Interest and earned fee income on loans $25,134 $19,383 $17,885  $82,112 $61,910 
Less: earned fee income on all loans $(6,572)$(3,533)$(3,762) $(18,353)$(9,065)
Less: interest income on PPP loans  (461) (796) (1,064)  (3,683) (3,030)
Adjusted interest income on loans $18,101 $15,054 $13,059  $60,076 $49,815 
Yield on loans receivable  5.92% 4.57% 4.64%  4.86% 4.64%
Yield on loans receivable, excluding earned fees on all loans (1):  4.37% 3.74% 3.66%  3.78% 3.96%
Yield on loans receivable, excluding earned fees on all loans and interest on PPP loans:  4.78% 4.36% 4.65%  4.55% 4.80%
(1) Non-GAAP measure - see previous table of "Non-GAAP Financial Measures" for more information. 
  


(Dollars in thousands, unaudited) As of
December 31, 2021
 As of
September 30, 2021
 As of
December 31, 2020
 
Adjusted Tier 1 leverage capital ratio, excluding PPP loans:    
Company:          
Tier 1 capital $204,585 $164,437 $143,532 
Average assets for the leverage capital ratio $2,536,512 $2,198,406 $1,586,350 
Less: Average PPP loans  (186,267) (322,595) (424,290)
Plus: Average PPPLF borrowings  -  -  188,222 
Adjusted average assets for the leverage capital ratio $2,350,245 $1,875,811 $1,350,282 
Tier 1 leverage capital ratio  8.07% 7.48% 9.05%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans  8.70% 8.77% 10.63%
Bank:          
Tier 1 capital $201,783 $178,857 $147,262 
Average assets for the leverage capital ratio $2,533,749 $2,197,276 $1,585,514 
Less: Average PPP loans  (186,267) (322,595) (424,290)
Plus: Average PPPLF borrowings  -  -  188,222 
Adjusted average assets for the leverage capital ratio $2,347,482 $1,874,681 $1,349,446 
Tier 1 leverage capital ratio  7.96% 8.14% 9.29%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans  8.60% 9.54% 10.91%
           
           

APPENDIX A -
As of December 31, 2021

Industry Concentration

We have a diversified loan portfolio, representing a wide variety of industries. Three of our largest categories of our loans are commercial real estate, commercial and industrial, and construction, land and land development loans. Together they represent $1.33 billion in outstanding loan balances, or 80.9% of total gross loans outstanding, excluding PPP loans of $111.8 million. When combined with $909.6 million in unused commitments the total of these three categories is $1.97 billion, or 77.3% of total outstanding loans and loan commitments.

Commercial real estate loans represent the largest segment of our loans, comprising 51.0% of our total balance of outstanding loans, excluding PPP loans, as of December 31, 2021. Unused commitments to extend credit represents an additional $23.2 million, the combined total exposure in commercial real estate loans represents $858.8 million, or 33.8% of our total outstanding loans and loan commitments, excluding PPP loans.

The following table summarizes our exposure by industry for our commercial real estate portfolio as of December 31, 2021:

(Dollars in thousands, unaudited) Outstanding
Balance
  Available Loan
Commitments
  Total Exposure  % of Total
Loans

(Outstanding
Balance &
Available
Commitment)
  Average Loan
Balance
  Number
of Loans
 
Apartments $155,079  $3,827  $158,906   6.2% $2,096   74 
Hotel/Motel  115,878   228   116,106   4.6   4,457   26 
Office  91,370   3,623   94,993   3.7   942   97 
Warehouse  76,453   4,085   80,538   3.2   1,499   51 
Convenience Store  79,249   1,093   80,342   3.2   1,843   43 
Mixed use  70,713   3,894   74,607   2.9   852   83 
Retail  68,886   2,582   71,468   2.8   840   82 
Manufacturing  36,855   600   37,455   1.5   1,152   32 
Mini Storage  35,041   204   35,245   1.4   2,336   15 
Groups < 1.4% of total  106,063   3,112   109,175   4.3   1,326   80 
Total $835,587  $23,248  $858,835   33.8% $1,433   583 
 

Commercial and industrial loans comprise 18.7% of our total balance of outstanding loans, excluding PPP loans, as of December 31, 2021. Unused commitments to extend credit represents an additional $486.8 million, the combined total exposure in commercial and industrial loans represents $794.1 million, or 31.2% of our total outstanding loans and loan commitments, excluding PPP loans.

The following table summarizes our exposure by industry, excluding PPP loans, for our commercial and industrial loan portfolio as of December 31, 2021:

(Dollars in thousands, unaudited) Outstanding
Balance
  Available Loan
Commitments
  Total Exposure  % of Total
Loans

(Outstanding
Balance &
Available
Commitment)
  Average Loan
Balance
  Number of
Loans
 
Capital Call Lines $202,882  $415,956  $618,838   24.3% $1,649   123 
Construction/Contractor Services  16,475   33,810   50,285   2.0   102   161 
Financial Institutions  20,150   -   20,150   0.8   3,358   6 
Manufacturing  13,369   4,857   18,226   0.7   243   55 
Medical / Dental / Other Care  12,203   4,045   16,248   0.6   200   61 
Family and Social Services  7,175   2,490   9,665   0.4   478   15 
Groups < 0.40% of total  34,993   25,646   60,639   2.4   124   282 
Total $307,247  $486,804  $794,051   31.2% $437   703 

Construction, land and land development loans comprise 11.2% of our total balance of outstanding loans, excluding PPP loans, as of December 31, 2021. Unused commitments to extend credit represents an additional $134.3 million, the combined total exposure in construction, land and land development loans represents $317.9 million, or 12.5% of our total outstanding loans and loan commitments, excluding PPP loans.

The following table details our exposure for our construction, land and land development portfolio as of December 31, 2021:

(Dollars in thousands, unaudited) Outstanding
Balance
    Available Loan
Commitments
  Total Exposure  % of Total
Loans

(Outstanding
Balance &
Available
Commitment)
  Average Loan
Balance
  Number
of
Loans
 
Commercial construction $82,816    $100,302  $183,118   7.2% $2,958   28 
Residential construction  28,865     19,638   48,503   1.9   722   40 
Undeveloped land loans  37,817     3,440   41,257   1.6   2,701   14 
Developed land loans  20,457     7,836   28,293   1.1   568   36 
Land development  13,639     3,069   16,708   0.7   758   18 
Total $183,594    $134,285  $317,879   12.5% $1,350   136 
 
 

APPENDIX B -
As of December 31, 2021

CCBX – BaaS Reporting Information

Beginning with and during the quarter ended December 31, 2021, $8.7 million was recorded in BaaS fees - credit enhancements related to the provision for loan losses and reserve for unfunded commitments for CCBX partner loans. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses. In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans. When the provision for loan losses and provision for unfunded commitments is recorded, a recovery receivable is also recorded on the balance sheet through noninterest income (BaaS fees -credit enhancement). Incurred losses are recorded in the allowance for loan losses, and as the credit enhancement recoveries are received from the CCBX partner, the recovery receivable is relieved. Agreements with our CCBX partners also provide protection to the Bank from fraud by absorbing incurred fraud losses. Fraud losses are recorded when incurred as losses in noninterest expense, and the recovery received from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement.

The following table illustrates the impact of the of the CCBX provision for loan losses, unfunded commitments expense and fraud losses on the income statement for the period indicated:

  Three Months Ended 
Income Statement December 31, 
Noninterest income:    
BaaS fees - credit enhancement - CCBX partner loans $9,076 
BaaS fees - fraud recovery - CCBX partner loans  1,209 
Total noninterest income:  10,285 
Provision for loan losses:    
Provision for loan losses - CCBX partner loans  8,699 
Noninterest expense:    
BaaS expense - fraud expense - CCBX partner loans  1,209 
Unfunded commitment expense - CCBX partner loans  377 
Total provision for loan losses and noninterest expense:  10,285 
Net income statement impact $- 

The following table illustrates the impact of the of the CCBX allowance for loan losses, reserve for unfunded commitments and recovery receivable on the balance sheet for the period indicated:

  As of 
(Dollars in thousands, unaudited) December 31, 2021 
Balance sheet    
Assets:    
Allowance for loan losses - CCBX partner loans $(8,335)
Recovery receivable - CCBX partner loans  8,712 
Total assets:  377 
Liabilities:    
Reserve for unfunded commitments - CCBX partner loans  377 
Total liabilities:  377 
Net balance sheet impact $- 

For CCBX partner loans the Bank records contractual interest earned from the borrower in BaaS loan interest income, less a small loan origination cost which is paid or payable to the partner. BaaS loan expense represents the amount paid or payable to partners for credit enhancement and servicing CCBX loans.

The following table illustrates how CCBX partner loan income and expenses are recorded in the financial statements:

Loan income and related loan expense Three Months Ended      Year Ended     
  December 31,  Increase  December 31,  Increase 
(Dollars in thousands) 2021  2020  (Decrease)  2021  2020  (Decrease) 
BaaS loan interest income $3,771  $284  $3,487  $6,532  $731  $5,801 
Less: BaaS loan expense  2,368   103   2,265   2,976   294   2,682 
Net BaaS loan income  1,403   181   1,222   3,556   437   3,119 

The following tables are a summary of the direct fees, expenses and interest components of BaaS for the periods indicated and are not inclusive of all income and expense related to BaaS.

Interest income Three Months Ended      Year Ended     
  December 31,  Increase  December 31,  Increase 
(Dollars in thousands) 2021  2020  (Decrease)  2021  2020  (Decrease) 
Loan interest income $3,771  $284  $3,487  $6,532  $731  $5,801 
Total BaaS interest income $3,771  $284  $3,487  $6,532  $731  $5,801 


Interest expense Three Months      Year Ended     
  December 31,  Increase  December 31,  Increase 
(Dollars in thousands) 2021  2020  (Decrease)  2021  2020  (Decrease) 
BaaS interest expense $34  $23  $11  $99  $178  $(79)
Total BaaS interest expense $34  $23  $11  $99  $178  $(79)


Noninterest income Three Months Ended      Year Ended     
  December 31,  Increase  December 31,  Increase 
(Dollars in thousands) 2021  2020  (Decrease)  2021  2020  (Decrease) 
Program income:                        
Servicing and other BaaS fees $1,701  $567  $1,134  $5,011  $1,758  $3,253 
Interchange  368   10   358   701   14   687 
Total program income  2,069   577   1,492   5,712   1,772   3,940 
Reimbursements and guarantees:                        
Credit enhancement recovery  9,076   -   9,076   9,086   -   9,086 
Fraud recovery  1,209   -   1,209   1,505   -   1,505 
Reimbursement of expenses  295   158   137   1,004   593   411 
Total reimbursements and guarantees  10,580   158   10,422   11,595   593   11,002 
Total BaaS fees $12,649  $735  $11,914  $17,307  $2,365  $14,942 


Noninterest expense Three Months Ended      Year Ended     
  December 31,  Increase  December 31,  Increase 
(Dollars in thousands) 2021  2020  (Decrease)  2021  2020  (Decrease) 
BaaS loan expense $2,368  $103  $2,265  $2,976  $294  $2,682 
BaaS fraud expense  1,209   -   1,209   1,505   -   1,505 
Total BaaS expense $3,577  $103  $3,474  $4,481  $294  $4,187