Coastal Financial Corporation Announces First Quarter 2022 Results

Everett, Washington, UNITED STATES


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.

  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 March 31, 2022
Loans outstanding $2,927 $44,540 $47,467 
Deferred fees, net  7  1,358 $1,365 


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:

  Outstanding PPP Loans 
  Original Loan Size 
  As of and for the Three Months Ended March 31, 2022 
  $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 $134 $367 $84 $1,578 $764 $2,927 
Round 3  2,133  2,963  13,492  25,952  -  44,540 
Total principal outstanding  2,267  3,330  13,576  27,530  764  47,467 
Net deferred fees outstanding                   
Round 1 & 2 $- $1 $1 $4 $1 $7 
Round 3  185  98  493  582  -  1,358 
Total net deferred fees outstanding $185 $99 $494 $586 $1 $1,365 
Number of loans:                   
Round 1 & 2  7  7  3  6  1  24 
Round 3  122  31  55  31  -  239 
Total loan count  129  38  58  37  1  263 
Percent of total  49.0% 14.5% 22.0% 14.1% 0.4% 100.0%
                    
Forgiveness/Payoffs/Paydowns in Three Months Ended March 31, 2022          
Dollars $4,960 $7,880 $18,827 $31,741 $938 $64,346 
Deferred fee recognized  394  286  768  811  9  2,268 


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 
(unaudited) March31,
2022
 December31,
2021
 September30,
2021
 June 30,
2021
 March31,
2021
 
                 
Return on average assets (1)  0.93% 1.14% 1.21% 1.36% 1.28%
Return on average equity (1)  12.12% 16.80% 16.77% 18.60% 16.84%
Yield on earnings assets (1)  4.58% 4.09% 3.63% 3.89% 3.99%
Yield on loans receivable (1)  6.80% 5.92% 4.57% 4.44% 4.51%
Yield on loans receivable,
excluding PPP loans (1)(2)
  6.52% 4.98% 4.53% 4.65% 4.78%
Yield on loans receivable,
excluding earned
fees (1)(2)
  6.17% 4.37% 3.74% 3.46% 3.53%
Yield on loans receivable,
excluding earned fees on
all loans and interest on PPP
loans, as adjusted (1)(2)
  6.41% 4.78% 4.36% 4.42% 4.52%
Cost of funds (1)  0.14% 0.14% 0.16% 0.20% 0.24%
Cost of deposits (1)  0.09% 0.09% 0.10% 0.14% 0.17%
Net interest margin (1)  4.45% 3.95% 3.48% 3.70% 3.76%
Noninterest expense to average
assets (1)
  4.52% 3.29% 2.91% 2.65% 2.62%
Efficiency ratio  59.34% 54.08% 64.68% 58.69% 60.85%
Loans receivable to deposits  76.24% 73.73% 76.71% 92.03% 105.68%
                 
(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 $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:

 For the Three Months Ended 
 March 31, 2022  December 31, 2021  March 31, 2021 
 Yield on Cost of  Yield on Cost of  Yield on Cost of 
 Loans Deposits  Loans Deposits  Loans Deposits 
Community Bank5.16% 0.11%  5.89% 0.12%  4.59% 0.18% 
CCBX - gross yield(1)12.73% 0.06%  6.13% 0.02%  2.50% 0.09% 
                     
(1) CCBX - gross yield 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. To determine net revenue (Net BaaS loan income) earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at Net BaaS loan income which can be compared to interest income on the Company’s community bank loans. 
                     
 For the Three Months Ended 
 March 31, 2022  December 31, 2021  March 31, 2021 
(Dollars in thousands)Interest / Expense Interest / expense divided by average CCBX loans  Interest / Expense Interest / expense divided by average CCBX loans  Interest / Expense Interest / expense divided by average CCBX loans 
BaaS loan interest income$11,992
  12.73
% $3,771
  6.13
% $412
  2.50%
Less: BaaS loan expense 8,290
  8.80
%  2,368
  3.85
%  90
  0.55%
Net BaaS loan income* 3,702
  3.93
%  1,403
  2.28
%  322
  1.95%
Average BaaS Loans 382,153
      244,038
      66,850
    


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.

 As of
 March 31, 2022December 31, 2021March 31, 2021
Active201910
Friends and family / testing11-
Implementation / onboarding555
Signed letters of intent236
Total CCBX relationships282821


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.

  As of 
  March 31, 2022  December 31, 2021  March 31, 2021 
(Dollars in thousands; unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                      
Commercial and industrial loans:                     
PPP loans $47,467  2.4% $111,813  6.4% $543,827  30.5%
Capital call lines  218,675  11.1   202,882  11.5   102,195  5.7 
All other commercial &
industrial loans
  128,181  6.5   104,365  6.0   100,252  5.5 
Real estate loans:                     
Construction, land and
land development loans
  208,108  10.6   183,594  10.5   104,596  5.9 
Residential real estate loans  268,716  13.6   204,389  11.7   136,417  7.7 
Commercial real estate loans  889,483  45.1   835,587  47.7   793,633  44.5 
Consumer and other loans  210,343  10.7   108,871  6.2   4,114  0.2 
Gross loans receivable  1,970,973  100.0%  1,751,501  100.0%  1,785,034  100.0%
Net deferred origination fees -
     PPP loans
  (1,365)     (3,633)     (14,279)   
Net deferred origination fees -
     Other loans
  (5,399)     (5,133)     (4,032)   
Loans receivable $1,964,209     $1,742,735     $1,766,723    
Loan Yield  6.80%     5.92%     4.51%   


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

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

Community Bank As of 
  March 31, 2022  December 31, 2021  March 31, 2021 
(Dollars in thousands; unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
Commercial and industrial loans:                     
PPP loans $47,467  3.3% $111,813  8.0% $543,827  32.3%
All other commercial & industrial loans  124,160  8.5   104,365  7.4   100,252  6.0 
Real estate loans:                     
Construction, land and land development loans  208,108  14.3   183,594  13.1   104,596  6.2 
Residential real estate loans  184,485  12.7   167,502  11.9   136,417  8.1 
Commercial real estate loans  889,483  61.1   835,587  59.5   793,633  47.2 
Consumer and other loans:                     
Other consumer and other loans  1,959  0.1   2,034  0.1   3,245  0.2 
Gross Community Bank loans receivable  1,455,662  100.0%  1,404,895  100.0%  1,681,970  100.0%
Net deferred origination fees  (6,842)     (8,835)     (18,345)   
Loans receivable $1,448,820     $1,396,060     $1,663,625    
Loan Yield  5.16%     5.89%     4.59%   


CCBX As of 
  March 31, 2022  December 31, 2021  March 31, 2021 
(Dollars in thousands; unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
Commercial and industrial loans:                     
Capital call lines $218,675  42.5% $202,882  58.6% $102,195  99.2%
All other commercial & industrial loans  4,021  0.8   -  0.0   -  0.0 
Real estate loans:                     
Residential real estate loans  84,231  16.3   36,887  10.6   -  0.0 
Consumer and other loans:                     
Credit cards  55,090  10.7   11,429  3.3   -  0.0 
Other consumer and other loans  153,294  29.7   95,408  27.5   869  0.8 
Gross CCBX loans receivable  515,311  100.0%  346,606  100.0%  103,064  100.0%
Net deferred origination costs  78      69      34    
Loans receivable $515,389     $346,675     $103,098    
Loan Yield - CCBX gross(1)  12.73%     6.13%     2.50%   
(1) CCBX gross yield 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. 


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.

  As of 
  March 31, 2022  December 31, 2021  March 31, 2021 
(Dollars in thousands, unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
                      
Demand, noninterest bearing $838,044  32.5% $1,355,908  57.4% $768,690  46.0%
NOW and money market  1,516,546  58.9   789,709  33.4   728,243  43.6 
Savings  106,364  4.1   103,956  4.4   93,917  5.6 
Total core deposits  2,460,954  95.5   2,249,573  95.2   1,590,850  95.2 
BaaS-brokered deposits  75,145  2.9   70,757  3.0   25,597  1.5 
Time deposits less than $250,000  29,200  1.2   31,057  1.3   38,986  2.3 
Time deposits $250,000 and over  11,171  0.4   12,400  0.5   16,282  1.0 
Total deposits $2,576,470  100.0% $2,363,787  100.0% $1,671,715  100.0%
Cost of deposits  0.09%     0.09%     0.17%   


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

Community Bank As of 
  March 31, 2022  December 31, 2021  March 31, 2021 
(Dollars in thousands, unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
Demand, noninterest bearing $724,723  43.2% $719,233  43.7% $658,997  43.0%
NOW and money market  805,858  48.1   780,884  47.4   725,825  47.4 
Savings  106,050  6.3   103,954  6.3   92,561  6.0 
Total core deposits  1,636,631  97.6   1,604,071  97.4   1,477,383  96.4 
Brokered deposits  2  0.0   1  0.0   1  0.0 
Time deposits less than $250,000  29,200  1.7   31,057  1.8   38,986  2.5 
Time deposits $250,000 and over  11,171  0.7   12,400  0.8   16,282  1.1 
Total Community Bank deposits $1,677,004  100.0% $1,647,529  100.0% $1,532,652  100.0%
Cost of deposits  0.11%     0.12%     0.18%   


CCBX As of 
  March 31, 2022  December 31, 2021  March 31, 2021 
(Dollars in thousands, unaudited) Balance % to Total  Balance % to Total  Balance % to Total 
Demand, noninterest bearing $113,321  12.6% $636,675  88.9% $109,693  78.9%
NOW and money market  710,688  79.0   8,825  1.2   2,418  1.7 
Savings  314  0.0   2  0.0   1,356  1.0 
Total core deposits  824,323  91.6   645,502  90.1   113,467  81.6 
BaaS-brokered deposits  75,143  8.4   70,756  9.9   25,596  18.4 
Total CCBX deposits $899,466  100.0% $716,258  100.0% $139,063  100.0%
Cost of deposits  0.06%     0.02%     0.09%   


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.

Capital Ratios:Coastal
Community
Bank
  Coastal
Financial
Corporation
  Financial
Institution
Basel III
Regulatory
Guidelines
 
(unaudited)           
Tier 1 leverage capital 8.10%  7.75%  5.00%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans(*) 8.35%  7.99%  N/A 
Common Equity Tier 1 risk-based capital 10.33%  9.71%  6.50%
Tier 1 risk-based capital 10.33%  9.88%  8.00%
Total risk-based capital 11.59%  12.30%  10.00%


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:

  As of 
  March 31, 2022 
(Dollars in thousands) Community Bank  CCBX  Total 
Loans receivable $1,448,820  $515,389  $1,964,209 
Allowance for loan losses  (20,643)  (18,127)  (38,770)
Allowance for loan losses to total loans receivable  1.42%  3.52%  1.97%


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:

  Three Months Ended 
  March 31, 2022 
(Dollars in thousands) Community Bank  CCBX  Total 
Gross charge-offs $4  $2,804  $2,808 
Gross recoveries  (4)  -   (4)
Net charge-offs $-  $2,804  $2,804 


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:

     
  Three Months Ended 
(Dollars in thousands) March 31, 2022 
Community bank $344 
CCBX  12,598 
Total provision expense $12,942 


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.

     As of 
  March 31, December 31, March 31, 
(Dollars in thousands, unaudited) 2022 2021 2021 
           
Nonaccrual loans:          
Commercial and industrial loans $130 $166 $488 
Real estate:          
Residential real estate  54  55  173 
Total nonaccrual loans  184  221  661 
           
Accruing loans past due 90 days or more:          
Total accruing loans past due 90 days or more  2,161  1,506  - 
Total nonperforming loans  2,345  1,727  661 
Other real estate owned  -  -  - 
Repossessed assets  -  -  - 
Total nonperforming assets $2,345 $1,727 $661 
Troubled debt restructurings, accruing  -  -  - 
Total nonperforming loans to loans receivable  0.12% 0.10% 0.04%
Total nonperforming assets to total assets  0.08% 0.07% 0.03%


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

Community Bank As of 
  March 31, December 31, March 31, 
(Dollars in thousands, unaudited) 2022 2021 2021 
           
Nonaccrual loans:          
Commercial and industrial loans $130 $166 $488 
Real estate:        - 
Residential real estate  54  55  173 
Total nonaccrual loans  184  221  661 
         - 
Accruing loans past due 90 days or more:  -  -  - 
Total accruing loans past due 90 days or more  -  -  - 
Total nonperforming loans  184  221  661 
Other real estate owned  -  -  - 
Repossessed assets  -  -  - 
Total nonperforming assets $184 $221 $661 
           
           
CCBX As of 
  March 31, December 31, March 31, 
(Dollars in thousands, unaudited) 2022 2021 2021 
           
Nonaccrual loans: $- $- $- 
           
Accruing loans past due 90 days or more:          
Total accruing loans past due 90 days or more  2,161  1,506  - 
Total nonperforming loans  2,161  1,506  - 
Other real estate owned  -  -  - 
Repossessed assets  -  -  - 
Total nonperforming assets $2,161 $1,506 $- 


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

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)

ASSETS 
  March 31,  December 31,  March 31, 
  2022  2021  2021 
Cash and due from banks $32,705  $14,496  $16,842 
Interest earning deposits with other banks  649,404   798,665   187,472 
Investment securities, available for sale, at fair value  134,891   35,327   20,378 
Investment securities, held to maturity, at amortized cost  1,286   1,296   2,515 
Other investments  9,931   8,478   6,829 
Loans receivable  1,964,209   1,742,735   1,766,723 
Allowance for loan losses  (38,770)  (28,632)  (19,610)
Total loans receivable, net  1,925,439   1,714,103   1,747,113 
Premises and equipment, net  18,135   17,219   17,194 
Operating lease right-of-use assets  5,836   6,105   6,900 
Accrued interest receivable  8,824   8,105   8,597 
Bank-owned life insurance, net  12,342   12,254   7,133 
Deferred tax asset, net  6,892   6,818   3,802 
Other assets  28,065   12,651   4,584 
Total assets $2,833,750  $2,635,517  $2,029,359 
             
LIABILITIES AND SHAREHOLDERS’ EQUITY 
LIABILITIES            
Deposits $2,576,470  $2,363,787  $1,671,715 
Federal Home Loan Bank advances  -   24,999   24,999 
Paycheck Protection Program Liquidity Facility  -   -   158,519 
Subordinated debt, net  24,306   24,288   9,996 
Junior subordinated debentures, net  3,587   3,586   3,585 
Deferred compensation  712   744   833 
Accrued interest payable  149   357   538 
Operating lease liabilities  6,054   6,320   7,105 
Other liabilities  14,552   10,214   5,330 
Total liabilities  2,625,830   2,434,295   1,882,620 
             
SHAREHOLDERS’ EQUITY            
Common stock  122,592   121,845   88,329 
Retained earnings  85,603   79,373   58,386 
Accumulated other comprehensive (loss) income, net of tax  (275)  4   24 
Total shareholders’ equity  207,920   201,222   146,739 
Total liabilities and shareholders’ equity $2,833,750  $2,635,517  $2,029,359 


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

 Three Months Ended 
 March 31,
  December 31,
  March 31, 
 2022
  2021
  2021 
INTEREST AND DIVIDEND INCOME           
Interest and fees on loans$29,632  $25,134  $18,230 
Interest on interest earning deposits with other banks 402   294   70 
Interest on investment securities 71   3   28 
Dividends on other investments 37   115   30 
Total interest and dividend income 30,142   25,546   18,358 
INTEREST EXPENSE           
Interest on deposits 553   516   660 
Interest on borrowed funds 321   327   383 
Total interest expense 874   843   1,043 
Net interest income 29,268   24,703   17,315 
PROVISION FOR LOAN LOSSES 12,942   8,942   357 
Net interest income after provision for loan losses 16,326   15,761   16,958 
NONINTEREST INCOME           
BaaS fees 20,112   12,649   948 
Unrealized holding (loss) gain on equity securities, net -   (3 ) - 
Deposit service charges and fees 884   930   863 
Loan referral fees 602   -   597 
Gain on sales of loans, net -   29   130 
Mortgage broker fees 123   218   262 
Other income 265   397   184 
Total noninterest income 21,986   14,220   2,984 
NONINTEREST EXPENSE           
Salaries and employee benefits 11,085   10,541   7,686 
Occupancy 1,136   1,043   1,058 
Software licenses, maintenance and subscriptions 1,052   983   484 
Legal and professional fees 708   951   760 
Data processing 809   767   697 
BaaS expense 12,861   3,577   90 
Excise taxes 349   435   359 
Federal Deposit Insurance Corporation assessments 604   812   195 
Director and staff expenses 344   393   220 
Marketing 99   107   82 
Other expense 1,368   1,441   721 
Total noninterest expense 30,415   21,050   12,352 
Income before provision for income taxes 7,897   8,931   7,590 
PROVISION FOR INCOME TAXES 1,667   1,641   1,572 
NET INCOME$6,230  $7,290  $6,018 
            
Basic earnings per common share$0.48  $0.60  $0.50 
Diluted earnings per common share$0.46  $0.57  $0.49 
Weighted average number of common shares outstanding:           
Basic 12,898,746   12,144,452   11,960,772 
Diluted 13,475,337   12,701,464   12,393,493 


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

   
 March 31, 2022  December 31, 2021  March 31, 2021 
 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$843,931 $402  0.19% $751,805 $294  0.16% $195,308 $70  0.15%
Investment securities (1) 45,762  71  0.63   37,024  3  0.03   24,185  28  0.47 
Other investments 9,227  37  1.63   8,411  115  5.42   6,080  30  2.00 
Loans receivable (2) 1,768,283  29,632  6.80   1,683,310  25,134  5.92   1,640,108  18,230  4.51 
Total interest earning assets 2,667,203  30,142  4.58   2,480,550  25,546  4.09   1,865,681  18,358  3.99 
Noninterest earning assets:                             
Allowance for loan losses (30,668)        (20,242)        (19,391)      
Other noninterest earning assets 92,401         76,343         65,912       
Total assets$2,728,936        $2,536,651        $1,912,202       
                              
Liabilities and Shareholders’ Equity 
Interest bearing liabilities:                             
Interest bearing deposits$1,131,984 $553  0.20% $962,128 $516  0.21% $856,111 $660  0.31%
Subordinated debt, net 24,295  230  3.84   24,276  234  3.82   9,994  145  5.88 
Junior subordinated debentures, net 3,586  22  2.49   3,586  21  2.32   3,585  21  2.38 
PPPLF borrowings -  -  0.00   -  -  0.00   170,376  147  0.35 
FHLB advances and other borrowings 24,443  69  1.14   25,000  72  1.14   24,999  70  1.14 
Total interest bearing liabilities 1,184,308  874  0.30   1,014,990  843  0.33   1,065,065  1,043  0.40 
Noninterest bearing deposits 1,320,144         1,336,161         690,465       
Other liabilities 16,009         13,308         11,778       
Total shareholders' equity 208,475         172,192         144,894       
Total liabilities and                             
shareholders' equity$2,728,936        $2,536,651        $1,912,202       
Net interest income   $29,268        $24,703        $17,315    
Interest rate spread       4.28%        3.76%        3.59%
Net interest margin (3)       4.45%        3.95%        3.76%
                              
(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
SELECTED AVERAGE BALANCES, YIELDS, AND RATES – BY SEGMENT
(Dollars in thousands; unaudited)

   
 March 31, 2022  December 31, 2021  March 31, 2021 
 Average Interest & Yield /  Average Interest & Yield /  Average Interest & Yield / 
 Balance Dividends Cost (2)  Balance Dividends Cost (2)  Balance Dividends Cost (2) 
Community Bank                             
Assets                             
Loans receivable (1)$1,386,130 $17,640  5.16% $1,439,272 $21,363  5.89% $1,573,258 $17,818  4.59%
Liabilities 
Interest bearing deposits 935,784  435  0.19   920,125  483  0.21   826,471  638  0.31 
Noninterest bearing deposits 718,760         715,267         625,876       
                              
CCBX                             
Assets                             
Loans receivable (1)(3)$382,153 $11,992  12.73% $244,038 $3,771  6.13% $66,850 $412  2.50%
Liabilities 
Interest bearing deposits 196,200  118  0.24   42,003  33  0.31   29,640  22  0.30 
Noninterest bearing deposits 601,384         620,894         64,589       
                              
(1) Includes nonaccrual loans. 
(2) Yields and costs are annualized. 
(3) CCBX gross yield 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. 


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

 Three Months Ended 
 March 31, December 31, September 30, June 30, March 31, 
 2022 2021 2021 2021 2021 
Income Statement Data:               
Interest and dividend income$30,142 $25,546 $19,608 $19,571 $18,358 
Interest expense 874  843  801  959  1,043 
Net interest income 29,268  24,703  18,807  18,612  17,315 
Provision for loan losses 12,942  8,942  255  361  357 
Net interest income after               
provision for loan losses 16,326  15,761  18,552  18,251  16,958 
Noninterest income 21,986  14,220  6,132  4,782  2,984 
Noninterest expense 30,415  21,050  16,130  13,731  12,352 
Provision for income tax 1,667  1,641  1,870  2,289  1,572 
Net income 6,230  7,290  6,684  7,013  6,018 
 As of and for the Three Month Period 
   
 March 31, December 31, September 30, June 30, March 31, 
 2022 2021 2021 2021 2021 
Balance Sheet Data:               
Cash and cash equivalents$682,109 $813,161 $669,725 $282,889 $204,314 
Investment securities 136,177  36,623  34,924  27,442  22,893 
Loans receivable 1,964,209  1,742,735  1,705,682  1,658,149  1,766,723 
Allowance for loan losses (38,770) (28,632) (20,222) (19,966) (19,610)
Total assets 2,833,750  2,635,517  2,451,568  2,007,138  2,029,359 
Interest bearing deposits 1,738,426  1,007,879  927,097  913,782  903,025 
Noninterest bearing deposits 838,044  1,355,908  1,296,443  887,896  768,690 
Core deposits (1) 2,460,954  2,249,573  2,148,445  1,724,134  1,590,850 
Total deposits 2,576,470  2,363,787  2,223,540  1,801,678  1,671,715 
Total borrowings 27,893  52,873  52,854  38,584  197,099 
Total shareholders’ equity 207,920  201,222  161,086  154,100  146,739 
                
Share and Per Share Data (2):               
Earnings per share – basic$0.48 $0.60 $0.56 $0.59 $0.50 
Earnings per share – diluted$0.46 $0.57 $0.54 $0.56 $0.49 
Dividends per share -  -  -  -  - 
Book value per share (3)$16.08 $15.63 $13.41 $12.83 $12.24 
Tangible book value per share (4)$16.08 $15.63 $13.41 $12.83 $12.24 
Weighted avg outstanding shares – basic 12,898,746  12,144,452  11,999,899  11,984,927  11,960,772 
Weighted avg outstanding shares – diluted 13,475,337  12,701,464  12,456,674  12,459,467  12,393,493 
Shares outstanding at end of period 12,928,548  12,875,315  12,012,107  12,007,669  11,988,636 
Stock options outstanding at end of period 666,774  694,519  710,182  714,620  728,492 
                
See footnotes on following page               
                
 As of and for the Three Month Period 
   
 March 31, December 31, September 30, June 30, March 31, 
 2022 2021 2021 2021 2021 
Credit Quality Data:               
Nonperforming assets (5) to total assets 0.08% 0.07% 0.03% 0.03% 0.03%
Nonperforming assets (5) to loans receivable and OREO 0.12% 0.10% 0.04% 0.04% 0.04%
Nonperforming loans (5) to total loans receivable 0.12% 0.10% 0.04% 0.04% 0.04%
Allowance for loan losses to nonperforming loans 1654.0% 1657.9% 2732.7% 3081.2% 2966.7%
Allowance for loan losses to total loans receivable 1.97% 1.64% 1.19% 1.20% 1.11%
Adjusted allowance for loan losses to loans receivable, excluding PPP loans (6) 2.02% 1.75% 1.40% 1.57% 1.59%
Gross charge-offs$2,808 $579 $31 $12 $18 
Gross recoveries$4 $47 $32 $7 $9 
Net charge-offs to average loans (7) 0.64% 0.13% 0.00% 0.00% 0.00%
Credit enhancement recovery (8)$2,804 $363 $18 $4 $- 
                
Capital Ratios (9):               
Tier 1 leverage capital 7.75% 8.07% 7.48% 8.00% 8.62%
Common equity Tier 1 risk-based capital 9.71% 11.06% 9.94% 10.92% 10.89%
Tier 1 risk-based capital 9.88% 11.26% 10.15% 11.16% 11.15%
Total risk-based capital 12.30% 13.89% 12.95% 13.12% 13.15%
                
(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) 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). This is the amount of CCBX incurred losses that were recorded and are covered by the partner’s credit enhancement. 
(9) 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 
(Dollars in thousands, unaudited) March 31,
2022
 December31,
2021
 March 31,
2021
 
Revenue excluding BaaS credit enhancements, BaaS fraud recovery and reimbursement of expenses: 
Total net interest income $29,268 $24,703 $17,315 
Total noninterest income  21,986  14,220  2,984 
Total Revenue $51,254 $38,923 $20,299 
Less: BaaS credit enhancements  (13,075) (9,076) - 
Less: BaaS fraud recovery  (4,571) (1,209) - 
Less: Reimbursement of expenses  (372) (295) (183)
Total revenue excluding BaaS credit enhancements, BaaS fraud recovery and reimbursement of expenses $33,236 $28,343 $20,116 


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.

  As of and for the Three Months Ended 
(Dollars in thousands, unaudited) March 31,
2022
 December 31,
2021
 March31,
2021
 
Net BaaS loan income divided by average CCBX loans: 
Total average CCBX loans receivable $382,153 $244,038 $66,850 
Interest and earned fee income on CCBX loans  11,992  3,771  412 
Less: loan expense on CCBX loans  (8,290) (2,368) (90)
Net BaaS loan income $3,702 $1,403 $322 
Net BaaS loan income divided by average
  CCBX loans
  3.93% 2.28% 1.95%
CCBX gross loan yield  12.73% 6.13% 2.50%


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 
(Dollars in thousands, unaudited) March 31,
2022
 December 31,
2021
 September 30,
2021
 June 30,
2021
 March31,
2021
 
Yield on loans receivable, excluding earned fees : 
Total average loans receivable $1,768,283 $1,683,310 $1,681,069 $1,750,825 $1,640,108 
Interest and earned fee income on loans  29,632  25,134  19,383  19,365  18,230 
Less: earned fee income on all loans  (2,729) (6,572) (3,533) (4,274) (3,974)
Adjusted interest income on loans $26,903 $18,562 $15,850 $15,091 $14,256 
Yield on loans receivable  6.80% 5.92% 4.57% 4.44% 4.51%
Yield on loans receivable, excluding earned fees:  6.17% 4.37% 3.74% 3.46% 3.53%
Yield on loans receivable, excluding earned fees on all loans and interest on PPP loans (1):  6.41% 4.78% 4.36% 4.42% 4.52%
(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 
(Dollars in thousands, unaudited) March 31,
2022
 December 31,
2021
 March 31,
2021
 
Adjusted allowance for loan losses to loans receivable, excluding PPP loans: 
Total loans, net of deferred fees $1,964,209 $1,742,735 $1,766,723 
Less: PPP loans  (47,467) (111,813) (543,827)
Less: net deferred fees on PPP loans  1,365  3,633  14,279 
Adjusted loans, net of deferred fees $1,918,106 $1,634,555 $1,237,175 
Allowance for loan losses $(38,770)$(28,632)$(19,610)
Allowance for loan losses to loans receivable  1.97% 1.64% 1.11%
Adjusted allowance for loan losses to loans receivable, excluding PPP loans  2.02% 1.75% 1.59%
Yield on loans receivable, excluding PPP loans:    
Total average loans receivable $1,768,283 $1,683,310 $1,640,108 
Less: average PPP loans  (79,828) (186,267) (475,941)
Plus: average deferred fees on PPP loans  2,453  6,370  10,788 
Adjusted total average loans receivable $1,690,908 $1,503,413 $1,174,955 
Interest income on loans $29,632 $25,134 $18,230 
Less: interest and deferred fee income recognized on PPP loans  (2,460) (6,245) (4,378)
Adjusted interest income on loans $27,172 $18,889 $13,852 
Yield on loans receivable  6.80% 5.92% 4.51%
Yield on loans receivable, excluding PPP loans:  6.52% 4.98% 4.78%
Yield on loans receivable, excluding earned fees on all loans and interest on PPP loans: 
Total average loans receivable $1,768,283 $1,683,310 $1,640,108 
Less: average PPP loans  (79,828) (186,267) (475,941)
Plus: average deferred fees on PPP loans $2,453 $6,370 $10,788 
Adjusted total average loans receivable $1,690,908 $1,503,413 $1,174,955 
Interest and earned fee income on loans $29,632 $25,134 $18,230 
Less: earned fee income on all loans $(2,729)$(6,572)$(3,974)
Less: interest income on PPP loans  (192) (461) (1,169)
Adjusted interest income on loans $26,711 $18,101 $13,087 
Yield on loans receivable  6.80% 5.92% 4.51%
Yield on loans receivable, excluding earned fees on all loans (1):  6.17% 4.37% 3.53%
Yield on loans receivable, excluding earned fees on all loans and interest on PPP loans:  6.41% 4.78% 4.52%
(1) Non-GAAP measure - see previous table of "Non-GAAP Financial Measures" for more information. 


(Dollars in thousands, unaudited) As of
March 31, 2022
 As of
December 31, 2021
 As of
March 31, 2021
 
Adjusted Tier 1 leverage capital ratio, excluding PPP loans: 
Company:          
Tier 1 capital $211,580 $204,585 $150,055 
Average assets for the leverage capital ratio $2,728,833 $2,536,512 $1,741,666 
Less: Average PPP loans  (79,828) (186,267) (475,941)
Plus: Average PPPLF borrowings  -  -  170,376 
Adjusted average assets for the leverage capital ratio $2,649,005 $2,350,245 $1,436,101 
Tier 1 leverage capital ratio  7.75% 8.07% 8.62%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans  7.99% 8.70% 10.45%
Bank:          
Tier 1 capital $220,829 $201,783 $153,844 
Average assets for the leverage capital ratio $2,725,606 $2,533,749 $1,740,660 
Less: Average PPP loans  (79,828) (186,267) (475,941)
Plus: Average PPPLF borrowings  -  -  170,376 
Adjusted average assets for the leverage capital ratio $2,645,778 $2,347,482 $1,435,095 
Tier 1 leverage capital ratio  8.10% 7.96% 8.84%
Adjusted Tier 1 leverage capital ratio, excluding PPP loans  8.35% 8.60% 10.72%


APPENDIX A -

As of March 31, 2022

Industry Concentration

We have a diversified loan portfolio, representing a wide variety of industries. Three of our largest categories of loans are commercial real estate, commercial and industrial, and construction, land and land development loans. Together they represent $1.44 billion in outstanding loan balances, or 75.1% of total gross loans outstanding, excluding PPP loans of $47.5 million. When combined with $1.54 billion in unused commitments the total of these three categories is $2.22 billion, or 64.2% of total outstanding loans and loan commitments, excluding PPP loans.

Commercial real estate loans represent the largest segment of our loans, comprising 46.2% of our total balance of outstanding loans, excluding PPP loans, as of March 31, 2022. Unused commitments to extend credit represents an additional $28.9 million, and the combined total exposure in commercial real estate loans represents $918.4 million, or 26.6% 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 March 31, 2022:

(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 $166,442  $3,372  $169,814   4.9% $2,280   73 
Hotel/Motel  137,907   228   138,135   4.0   5,108   27 
Office  93,849   4,401   98,250   2.8   929   101 
Warehouse  71,630   102   71,732   2.1   1,462   49 
Convenience Store  72,309   7,125   79,434   2.3   1,808   40 
Mixed use  74,357   4,411   78,768   2.3   855   87 
Retail  78,587   2,435   81,022   2.3   914   86 
Manufacturing  38,719   2,007   40,726   1.2   1,106   35 
Mini Storage  32,617   400   33,017   1.0   2,330   14 
Groups < 1.4% of total  123,066   4,392   127,458   3.7   1,483   83 
Total $889,483  $28,873  $918,356   26.6% $1,495   595 


Commercial and industrial loans
comprise 18.0% of our total balance of outstanding loans, excluding PPP loans, as of March 31, 2022. Unused commitments to extend credit represents an additional $630.1 million, and the combined total exposure in commercial and industrial loans represents $976.9 million, or 28.2% of our total outstanding loans and loan commitments, excluding PPP loans. Included in commercial and industrial loans is $218.7 million in outstanding capital call lines, with an additional $553.5 million in available loan commitments, which is provided to venture capital firms through one of our CCBX BaaS clients. These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards and the underwriting is reviewed by the Bank on every line.

The following table summarizes our exposure by industry, excluding PPP loans, for our commercial and industrial loan portfolio as of March 31, 2022:

(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 $218,675  $553,534  $772,209   22.3% $1,508   145 
Construction/Contractor
Services
  19,401   29,847   49,248   1.4   115   168 
Financial Institutions  35,150   -   35,150   1.0   3,906   9 
Manufacturing  13,129   5,436   18,565   0.5   208   63 
Medical / Dental /
Other Care
  12,928   5,436   18,364   0.5   249   52 
Family and Social Services  7,057   2,987   10,044   0.3   504   14 
Groups < 0.40% of total  40,516   32,808   73,324   2.2   151   268 
Total $346,856  $630,048  $976,904   28.2% $482   719 


Construction, land and land development loans
comprise 10.8% of our total balance of outstanding loans, excluding PPP loans, as of March 31, 2022. Unused commitments to extend credit represents an additional $116.8 million, and the combined total exposure in construction, land and land development loans represents $324.9 million, or 9.4% 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 March 31, 2022:

(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 $105,023  $80,282  $185,305   5.4% $4,039   26 
Residential construction  30,229   20,530   50,759   1.5   720   42 
Undeveloped land loans  38,233   3,440   41,673   1.2   2,941   13 
Developed land loans  18,723   7,140   25,863   0.7   535   35 
Land development  15,900   5,382   21,282   0.6   757   21 
Total $208,108  $116,774  $324,882   9.4% $1,519   137 


APPENDIX B -

As of March 31, 2022

CCBX – BaaS Reporting Information

During the quarter ended March 31, 2022, $13.1 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 provided by the partner 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) in recognition of the CCBX partner legal commitment to cover losses. 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. Many CCBX partners also pledge a cash reserve account at the Bank which the Bank can collect from when losses occur that is then replenished by the partner on a regular interval. Although many agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by absorbing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligations beyond their cash reserve account then the bank would be exposed to additional loan losses, as a result of this counterparty risk.

For CCBX partner loans the Bank records contractual interest earned from the borrower on loans in interest income, adjusted for origination costs which are paid or payable to the CCBX partner. BaaS loan expense represents the amount paid or payable to partners for credit enhancement and servicing CCBX loans. To determine net revenue (Net BaaS loan income) earned from CCBX loan relationships, one takes BaaS loan interest income and deducts BaaS loan expense to arrive at Net BaaS loan income which can be compared to interest income on the Company’s community bank loans.

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 
  March 31,  December 31,  March 31, 
(Dollars in thousands) 2021  2021  2021 
BaaS loan interest income $11,992  $3,771  $412 
Less: BaaS loan expense  8,290   2,368   90 
Net BaaS loan income  3,702   1,403   322 
Net BaaS loan income divided by average BaaS loans  3.93%  2.28%  1.95%


The addition of new CCBX partners has resulted in increases in direct fees, expenses and interest for the quarter ended March 31, 2022 compared to the quarters ended December 31, 2021 and March 31, 2021. 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 
  March 31,  December 31,  March 31, 
(Dollars in thousands) 2022  2021  2021 
Loan interest income $11,992  $3,771  $412 
Total BaaS interest income $11,992  $3,771  $412 
Interest expense Three Months Ended 
  March 31,  December 31,  March 31, 
(Dollars in thousands) 2022  2021  2021 
BaaS interest expense $118  $34  $22 
Total BaaS interest expense $118  $34  $22 


Noninterest income Three Months Ended 
  March 31,  December 31,  March 31, 
(Dollars in thousands) 2022  2021  2021 
Program income:            
Servicing and other BaaS fees $1,169  $1,421 (1)$584 
Transaction fees  493   280   146 
Interchange fees  432   368   35 
Total program income  2,094   2,069   765 
Reimbursements and guarantees:            
Credit enhancement recovery  13,075   9,076   - 
Fraud recovery  4,571   1,209   - 
Reimbursement of expenses  372   295   183 
Total reimbursements and guarantees  18,018   10,580   183 
Total BaaS fees $20,112  $12,649  $948 
(1) Includes one-time, nonrecurring lump-sum fees of $197,000 from two partners. 


Noninterest expense Three Months Ended 
  March 31,  December 31,  March 31, 
(Dollars in thousands) 2022  2021  2021 
BaaS loan expense $8,290  $2,368  $90 
BaaS fraud expense  4,571   1,209   - 
Total BaaS expense $12,861  $3,577  $90