Core Insights - Coastal Financial Corporation has appointed four new executives to enhance its leadership team, focusing on growth in digital banking and community initiatives [1][7] - The new executives include Ryan Hall as Chief Product Officer, Michael Costigan as Chief Commercial Officer, Freddy Rivas as Chief Credit Officer, and Chris Morgan as Chief Information Security Officer, each bringing significant industry experience [2][3] Executive Profiles - Ryan Hall has a strong background in product strategy and innovation, previously leading product development at SoFi Bank and working with The Boston Consulting Group [3] - Michael Costigan comes from OnePay, where he was instrumental in raising $40 million in Series B funding and expanding customer growth channels [4] - Freddy Rivas has over 20 years of experience in commercial banking, most recently serving as Chief Risk Officer at Santander, focusing on credit policy and portfolio management [5] - Chris Morgan previously scaled the security function at Even Responsible Finance and OnePay, and has experience with national security programs at the Federal Reserve System [6] Company Overview - Coastal Financial Corporation is based in Everett, Washington, with total assets of $4.48 billion and operates 14 branches across Snohomish, Island, and King Counties [7]

FORM 10-Q Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark one) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2025 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number: 001-38589 COASTAL FINANCIAL CORPORATION (Exact name of registrant as specified in it ...

Core Insights - Coastal Financial Corporation (CCB) reported quarterly earnings of $0.71 per share, missing the Zacks Consensus Estimate of $0.87 per share, and down from $0.84 per share a year ago, representing an earnings surprise of -18.39% [1] - The company posted revenues of $119.43 million for the quarter ended June 2025, missing the Zacks Consensus Estimate by 18.81%, and down from $136.15 million year-over-year [2] - Coastal Financial shares have increased by approximately 19.5% since the beginning of the year, outperforming the S&P 500's gain of 8.6% [3] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $1.17 on revenues of $156.6 million, and for the current fiscal year, it is $3.67 on revenues of $608.1 million [7] - The estimate revisions trend for Coastal Financial was mixed ahead of the earnings release, resulting in a Zacks Rank 3 (Hold) for the stock, indicating expected performance in line with the market [6] Industry Context - The Zacks Industry Rank for Banks - West is currently in the top 35% of over 250 Zacks industries, suggesting that the industry outlook can significantly impact stock performance [8]

[Executive Summary](index=1&type=section&id=Executive%20Summary) Coastal Financial Corporation reported Q2 2025 net income of **$11.0 million** (**$0.71** diluted EPS), up QoQ but down YoY [Second Quarter 2025 Financial Performance](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Performance) Q2 2025 net income reached **$11.0 million** (**$0.71** diluted EPS), showing QoQ growth but a YoY decline Net Income and Diluted EPS (USD millions) | Metric | Q2 2025 (USD millions) | Q1 2025 (USD millions) | Q2 2024 (USD millions) | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | | Net Income | $11.0 | $9.7 | $11.6 | | Diluted EPS | $0.71 | $0.63 | $0.84 | [Management Discussion and Strategic Outlook](index=1&type=section&id=Management%20Discussion%20and%20Strategic%20Outlook) Management highlighted lower credit loss provisions, stable noninterest expenses, and CCBX fee income growth, driven by strategic investments and partnership expansion - **Lower provision for credit losses** in Q2 2025 due to improved CCBX portfolio performance and focus on originating higher quality CCBX loans, leading to lower historical loss factors[2](index=2&type=chunk) - Noninterest expenses were relatively flat QoQ, driven by continued onboarding and implementation costs for CCBX partnerships and technology investments, deemed crucial for long-term success and scalability[2](index=2&type=chunk) - Achieved **$122.3 million** in quality deposit growth during Q2 2025[2](index=2&type=chunk) - CCBX program fee income, excluding nonrecurring revenue, increased **8.2%** compared to the prior quarter[2](index=2&type=chunk) - As of June 30, 2025, CCBX had two partners in testing, two in implementation/onboarding, and five signed letters of intent, with an active pipeline for new partners and products[3](index=3&type=chunk) - Total noninterest expense increased **1.2%** QoQ to **$72.8 million**, mainly due to higher data processing and software costs, partially offset by lower legal and professional expenses; expense growth is expected to moderate in H2 2025 as new programs generate revenue[3](index=3&type=chunk) - Average deposits increased **$221.6 million** (**6.0%**) QoQ to **$3.93 billion**, primarily from CCBX partner programs and a new deposit partner[3](index=3&type=chunk) - Sold **$1.30 billion** of loans, mostly credit card receivables, during Q2 2025, while retaining a portion of fee income; off-balance sheet credit cards with fee earning potential increased by **76,803** QoQ and **286,146** YoY[3](index=3&type=chunk) [Financial Highlights](index=2&type=section&id=Financial%20Highlights) Key financial metrics show QoQ improvements in net income and assets, alongside shifts in credit quality and capital ratios [Key Operating Metrics](index=2&type=section&id=Key%20Operating%20Metrics) Key operating metrics show QoQ increases in net income, EPS, assets, and deposits, with a slight rise in nonperforming assets Income Statement Data (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------------ | :------------ | :------------- | :------------ | | Net interest income | $76,737 | $76,062 | $66,172 | | Provision for credit losses | $32,211 | $55,781 | $62,325 | | Noninterest income | $42,693 | $63,477 | $69,138 | | Noninterest expense | $72,832 | $71,989 | $57,964 | | Net income | $11,028 | $9,730 | $11,596 | Balance Sheet Data (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------------ | :------------ | :------------- | :------------ | | Total assets | $4,480,559 | $4,339,282 | $3,959,549 | | Total deposits | $3,913,571 | $3,791,229 | $3,543,432 | | Total shareholders' equity | $461,709 | $449,917 | $316,693 | Share and Per Share Data (USD) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------------ | :------------ | :------------- | :------------ | | Earnings per share – diluted | $0.71 | $0.63 | $0.84 | | Book value per share | $30.59 | $29.98 | $23.54 | Credit Quality Data | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------------- | :------------ | :------------- | :------------ | | Nonperforming assets to total assets | 1.36 % | 1.30 % | 1.34 % | | Allowance for credit losses to nonperforming loans | 270.7 % | 325.0 % | 279.9 % | | Net charge-offs to average loans | 5.54 % | 5.57 % | 6.54 % | Capital Ratios (Company) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------------ | :------------ | :------------- | :------------ | | Tier 1 leverage capital | 10.39 % | 10.67 % | 8.31 % | | Common equity Tier 1 risk-based capital | 12.32 % | 12.13 % | 9.03 % | | Total risk-based capital | 14.90 % | 14.73 % | 11.70 % | [Key Performance Ratios](index=3&type=section&id=Key%20Performance%20Ratios) ROA increased QoQ but decreased YoY due to higher expenses, while yields declined and the efficiency ratio rose significantly - **Return on average assets (ROA)** increased to **0.99%** in Q2 2025 from **0.93%** in Q1 2025, but decreased from **1.21%** in Q2 2024[8](index=8&type=chunk) - Noninterest expenses were slightly higher QoQ due to continued investments in growth, technology, and risk management, partially offset by lower legal and professional expenses; YoY, expenses were higher due to increases in salaries, data processing, software, and legal/professional fees[8](index=8&type=chunk) - **Yield on earning assets** decreased **0.40%** QoQ to **9.92%**, and **yield on loans receivable** decreased **0.22%** QoQ to **11.11%**, mainly due to a decrease in CCBX loan yield and a **49.6%** increase in lower-rate capital call lines[9](index=9&type=chunk)[12](index=12&type=chunk) - Average loans receivable increased **$56.1 million** QoQ, despite selling **$1.30 billion** in CCBX loans[9](index=9&type=chunk) - **Efficiency ratio** increased to **60.98%** in Q2 2025 from **51.59%** in Q1 2025, and **noninterest income to average assets** decreased to **3.82%** from **6.06%**; this volatility was driven by a higher-quality CCBX loan mix, which reduced credit enhancement requirements and provision expense, impacting noninterest income[10](index=10&type=chunk)[12](index=12&type=chunk) - Q2 2025 results included a net **$439,000 loss on equity securities** due to the re-valuation of a privately held equity stake[10](index=10&type=chunk) Key Performance Ratios | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------------ | :------------ | :------------- | :------------ | | Return on average assets | 0.99 % | 0.93 % | 1.21 % | | Return on average equity | 9.72 % | 8.91 % | 15.22 % | | Yield on earnings assets | 9.92 % | 10.32 % | 10.49 % | | Yield on loans receivable | 11.11 % | 11.33 % | 11.22 % | | Cost of funds | 3.13 % | 3.11 % | 3.60 % | | Net interest margin | 7.06 % | 7.48 % | 7.12 % | | Efficiency ratio | 60.98 % | 51.59 % | 42.84 % | [Segment Performance Update](index=4&type=section&id=Segment%20Performance%20Update) The CCBX segment expanded partnerships and managed its loan portfolio, while the Community Bank segment saw stable loan and deposit trends [CCBX Segment](index=4&type=section&id=CCBX%20Segment) CCBX expanded relationships and product offerings, focusing on strategic partnerships, loan sales, and deposit growth - The CCBX segment has **29 relationships** at varying stages as of June 30, 2025, including two partners in testing, two in implementation/onboarding, and five signed Letters of Intent (LOI)[15](index=15&type=chunk) - Strategy involves refining criteria for CCBX partnerships, exploring relationships with larger and more established partners, and exiting relationships that no longer align with the company's approach[15](index=15&type=chunk) - Expanding product offerings with existing CCBX partners and cultivating new relationships to grow the customer base with modest regulatory risk[16](index=16&type=chunk) - Continued strategy of selling loans to balance partner and lending limits, manage the loan portfolio, and generate off-balance sheet fee income from sold credit card loans[16](index=16&type=chunk) - Deposit sweep capability allows for better liquidity and deposit program management; **$478.7 million** in deposits were swept off-balance sheet for FDIC insurance and liquidity purposes at June 30, 2025[17](index=17&type=chunk)[28](index=28&type=chunk) - Robinhood entered production testing for deposit products, and Dave finalized production testing in Q2, poised for beta launch, expected to diversify and grow deposits[17](index=17&type=chunk) [CCBX Relationships and Strategy](index=4&type=section&id=CCBX%20Relationships%20and%20Strategy) CCBX is expanding its partner ecosystem, focusing on larger partners and diversified product offerings to manage risk and grow revenue CCBX Relationships Evolution | Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------- | :------------ | :------------- | :------------ | | Active | 20 | 19 | 19 | | Friends and family / testing| 2 | 2 | 1 | | Implementation / onboarding | 2 | 3 | 1 | | Signed letters of intent | 5 | 1 | 0 | | Total CCBX relationships | 29 | 25 | 21 | [CCBX Loan Portfolio](index=5&type=section&id=CCBX%20Loan%20Portfolio) CCBX loans grew **1.8%** to **$1.68 billion** despite **$1.30 billion** in sales, driven by capital call lines, though loan yield decreased - CCBX loans increased **$29.5 million** (**1.8%**) to **$1.68 billion**, despite selling **$1.30 billion** in loans during Q2 2025[19](index=19&type=chunk) CCBX Loan Portfolio (USD thousands) | Loan Type | June 30, 2025 Balance | % to Total | March 31, 2025 Balance | % to Total | June 30, 2024 Balance | % to Total | | :------------------------------ | :-------------------- | :--------- | :--------------------- | :--------- | :-------------------- | :--------- | | Commercial and industrial loans: Capital call lines | $199,675 | 11.9 % | $133,466 | 8.1 % | $109,133 | 7.7 % | | Residential real estate loans | $234,786 | 14.0 | $285,355 | 17.3 | $287,950 | 20.4 | | Credit cards | $533,925 | 31.8 | $532,775 | 32.2 | $549,241 | 39.0 | | Other consumer and other loans | $686,321 | 40.7 | $670,026 | 40.6 | $422,136 | 29.9 | | Gross CCBX loans receivable | $1,680,849 | 100.0 % | $1,651,324 | 100.0 % | $1,410,217 | 100.0 % | | Loan Yield - CCBX | 16.22 % | | 16.88 % | | 17.75 % | | - Capital call lines increased **$66.2 million** (**49.6%**) QoQ, while residential real estate loans decreased **$50.6 million** (**17.7%**)[21](index=21&type=chunk) - CCBX loan yield decreased **0.67%** QoQ due to the increase in lower-rate capital call lines and overall loan mix[21](index=21&type=chunk) - The company sold **$1.30 billion** in CCBX loans in Q2 2025, up from **$744.6 million** in Q1 2025, as part of a strategy to optimize loan portfolio earnings and generate off-balance sheet fee income[21](index=21&type=chunk) [CCBX Deposit Portfolio](index=7&type=section&id=CCBX%20Deposit%20Portfolio) CCBX deposits increased **4.1%** to **$2.36 billion**, excluding off-balance sheet sweeps, with a slight QoQ decrease in deposit cost CCBX Deposit Portfolio (USD thousands) | Deposit Type | June 30, 2025 Balance | % to Total | March 31, 2025 Balance | % to Total | June 30, 2024 Balance | % to Total | | :------------------------------ | :-------------------- | :--------- | :--------------------- | :--------- | :-------------------- | :--------- | | Demand, noninterest bearing | $60,448 | 2.6 % | $58,416 | 2.6 % | $62,234 | 3.0 % | | Interest bearing demand and money market | $2,231,159 | 94.5 | $2,145,608 | 94.6 | $1,989,105 | 96.7 | | Savings | $51,523 | 2.2 | $16,625 | 0.7 | $5,150 | 0.3 | | Total CCBX deposits | $2,360,143 | 100.0 % | $2,267,008 | 100.0 % | $2,056,489 | 100.0 % | | Cost of deposits | 3.96 % | | 4.01 % | | 4.92 % | | - CCBX deposits increased **$93.1 million** (**4.1%**) to **$2.36 billion** in Q2 2025[28](index=28&type=chunk) - The **cost of CCBX deposits** decreased to **3.96%** in Q2 2025 from **4.01%** in Q1 2025[28](index=28&type=chunk) [Community Bank Segment](index=7&type=section&id=Community%20Bank%20Segment) The community bank segment saw a slight decrease in net loans, driven by commercial real estate, with modest deposit growth and stable costs [Community Bank Loan Portfolio](index=7&type=section&id=Community%20Bank%20Loan%20Portfolio) Community bank net loans decreased **0.3%** to **$1.86 billion**, primarily due to commercial real estate, partially offset by construction loan growth - Community bank net loans decreased **$6.5 million** (**0.3%**) to **$1.86 billion** in Q2 2025[29](index=29&type=chunk) Community Bank Loan Portfolio (USD thousands) | Loan Type | June 30, 2025 Balance | % to Total | March 31, 2025 Balance | % to Total | June 30, 2024 Balance | % to Total | | :------------------------------ | :-------------------- | :--------- | :--------------------- | :--------- | :-------------------- | :--------- | | Commercial and industrial loans | $149,926 | 8.0 % | $149,104 | 8.0 % | $144,436 | 7.5 % | | Construction, land and land development loans | $194,150 | 10.4 | $166,551 | 8.9 | $173,064 | 9.0 | | Residential real estate loans | $198,844 | 10.7 | $202,920 | 10.8 | $229,639 | 12.0 | | Commercial real estate loans | $1,310,882 | 70.2 | $1,340,647 | 71.6 | $1,357,979 | 70.8 | | Gross Community Bank loans receivable | $1,866,032 | 100.0 % | $1,872,548 | 100.0 % | $1,919,338 | 100.0 % | | Loan Yield | 6.53 % | | 6.53 % | | 6.52 % | | - Commercial real estate loans decreased **$29.8 million**, partially offset by a **$27.6 million** increase in construction, land, and land development loans[30](index=30&type=chunk) [Community Bank Deposit Portfolio](index=8&type=section&id=Community%20Bank%20Deposit%20Portfolio) Community bank deposits grew **1.9%** to **$1.55 billion**, maintaining a stable **1.77%** cost, with noninterest-bearing deposits as a key component Community Bank Deposit Portfolio (USD thousands) | Deposit Type | June 30, 2025 Balance | % to Total | March 31, 2025 Balance | % to Total | June 30, 2024 Balance | % to Total | | :------------------------------ | :-------------------- | :--------- | :--------------------- | :--------- | :-------------------- | :--------- | | Demand, noninterest bearing | $494,907 | 31.9 % | $481,214 | 31.5 % | $531,555 | 35.7 % | | Interest bearing demand and money market | $545,655 | 35.1 | $560,416 | 36.8 | $876,668 | 59.0 | | Savings | $57,933 | 3.7 | $59,493 | 3.9 | $63,627 | 4.3 | | Total Community Bank deposits | $1,553,428 | 100.0 % | $1,524,221 | 100.0 % | $1,486,943 | 100.0 % | | Cost of deposits | 1.77 % | | 1.76 % | | 1.77 % | | - Community bank deposits increased **$29.2 million** (**1.9%**) to **$1.55 billion** in Q2 2025[31](index=31&type=chunk) - Noninterest bearing deposits accounted for **$494.9 million** (**31.9%**) of total community bank deposits, contributing to a stable cost of deposits at **1.77%**[31](index=31&type=chunk) [Detailed Financial Discussion](index=8&type=section&id=Detailed%20Financial%20Discussion) This section details net interest income, noninterest income, expenses, and tax provisions, highlighting key drivers and quarterly changes [Net Interest Income and Margin](index=8&type=section&id=Net%20Interest%20Income%20and%20Margin) Net interest income increased QoQ and YoY, but net interest margin decreased QoQ due to lower loan yields from capital call lines - Net interest income was **$76.7 million** in Q2 2025, an increase of **$675,000** (**0.9%**) QoQ and **$10.6 million** (**16.0%**) YoY[32](index=32&type=chunk) - **Net interest margin** was **7.06%** in Q2 2025, down from **7.48%** in Q1 2025, primarily due to a decrease in loan yield; net interest margin, net of BaaS loan expense, was **4.07%** in Q2 2025, down from **4.28%** in Q1 2025[33](index=33&type=chunk)[35](index=35&type=chunk) - The **$66.2 million** (**49.6%**) growth in lower-rate capital call lines, which have less credit risk, contributed to the decrease in net interest margin[33](index=33&type=chunk) - Interest and fees on loans receivable increased **$720,000** (**0.7%**) QoQ to **$98.9 million** due to loan growth, and **$8.0 million** (**8.8%**) YoY due to increased outstanding balances[34](index=34&type=chunk) Consolidated Net Interest Margin and Loan Yield (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :---------------------------------------------- | :------------ | :------------- | :------------ | | Net interest margin (GAAP) | 7.06 % | 7.48 % | 7.12 % | | Net interest income (GAAP) | $76,737 | $76,062 | $66,172 | | Less: BaaS loan expense | ($32,483) | ($32,507) | ($29,011) | | Net interest income, net of BaaS loan expense | $44,254 | $43,555 | $37,161 | | Net interest margin, net of BaaS loan expense | 4.07 % | 4.28 % | 4.00 % | | Loan yield (GAAP) | 11.11 % | 11.33 % | 11.22 % | | Interest and earned fee income on loans (GAAP) | $98,867 | $98,147 | $90,879 | | BaaS loan expense | ($32,483) | ($32,507) | ($29,011) | | Net loan income | $66,384 | $65,640 | $61,868 | | Loan income, net of BaaS loan expense, divided by average loans | 7.46 % | 7.58 % | 7.64 % | - **Cost of funds** was **3.13%** in Q2 2025, up **2 basis points** QoQ but down **47 basis points** YoY; **cost of deposits** was **3.10%**, up from **3.08%** QoQ but down from **3.58%** YoY, largely due to reductions in the Fed funds rate in 2024[36](index=36&type=chunk) Average Yield on Loans and Cost of Deposits by Segment | Segment | June 30, 2025 Yield on Loans | June 30, 2025 Cost of Deposits | March 31, 2025 Yield on Loans | March 31, 2025 Cost of Deposits | June 30, 2024 Yield on Loans | June 30, 2024 Cost of Deposits | | :-------------- | :--------------------------- | :----------------------------- | :---------------------------- | :------------------------------ | :--------------------------- | :----------------------------- | | Community Bank | 6.53% | 1.77% | 6.53% | 1.76% | 6.52% | 1.77% | | CCBX | 16.22% | 3.96% | 16.88% | 4.01% | 17.75% | 4.92% | | Consolidated | 11.11% | 3.10% | 11.33% | 3.08% | 11.22% | 3.58% | [Noninterest Income](index=10&type=section&id=Noninterest%20Income) Noninterest income significantly decreased QoQ and YoY, mainly due to reduced BaaS credit enhancements reflecting improved CCBX portfolio quality - Noninterest income was **$42.7 million** in Q2 2025, a decrease of **$20.8 million** QoQ and **$26.4 million** YoY[38](index=38&type=chunk)[39](index=39&type=chunk) - The QoQ decrease was primarily due to a **$20.6 million decrease in total BaaS income**, which included a **$22.4 million decrease in BaaS credit enhancements**; this decrease in credit enhancements is linked to improved CCBX portfolio performance and a focus on higher quality loans, leading to lower historical loss factors and a favorable impact on provision for credit losses[38](index=38&type=chunk) - Partially offsetting the decrease was a **$1.0 million increase in BaaS program income** (including **$504,000** in nonrecurring revenue) and an **$811,000 increase in BaaS fraud enhancements**[38](index=38&type=chunk) - The YoY decrease was mainly due to a **$28.5 million decrease in BaaS credit and fraud enhancements**, again reflecting improved CCBX loan portfolio performance, partially offset by a **$2.0 million increase in BaaS program income**[39](index=39&type=chunk) - Q2 2025 noninterest income also included a net **$439,000 loss on equity securities** from the re-valuation of a privately held equity stake[38](index=38&type=chunk) [Noninterest Expense](index=10&type=section&id=Noninterest%20Expense) Total noninterest expense increased QoQ and YoY, driven by technology, risk management, and CCBX growth investments, with some expenses reimbursed - Total noninterest expense increased **$843,000** to **$72.8 million** in Q2 2025, compared to **$72.0 million** in Q1 2025, and increased **$14.9 million** from **$58.0 million** in Q2 2024[40](index=40&type=chunk)[41](index=41&type=chunk) - QoQ increase was primarily due to a **$659,000 increase in data processing and software licenses**, an **$811,000 increase in BaaS fraud expense**, and a **$74,000 increase in legal and professional fees**, partially offset by decreases in other expenses, occupancy, salaries, and BaaS loan expense[41](index=41&type=chunk) - YoY increase was largely due to a **$4.4 million increase in salary and employee benefits**, a **$1.6 million increase in data processing and software licenses**, a **$2.7 million increase in legal and professional expenses**, a **$3.5 million increase in BaaS loan expense**, and a **$1.0 million increase in BaaS fraud expense**, all related to company growth and technology/risk management investments[42](index=42&type=chunk) - BaaS loan expense represents amounts paid to partners for credit/fraud enhancements and originating/servicing CCBX loans; BaaS fraud expense covers non-credit fraud losses on partner customer accounts[41](index=41&type=chunk) Noninterest Expense, Net of BaaS Related Items (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :---------------------------------------------- | :------------ | :------------- | :------------ | | Total noninterest expense (GAAP) | $72,832 | $71,989 | $57,964 | | Less: BaaS loan expense | ($32,483) | ($32,507) | ($29,011) | | Less: BaaS fraud expense | ($2,804) | ($1,993) | ($1,784) | | Less: Reimbursement of expenses (BaaS) | ($646) | ($1,026) | ($857) | | Noninterest expense, net of BaaS loan expense, BaaS fraud expense and reimbursement of expenses (BaaS) | $36,899 | $36,463 | $26,312 | [Provision for Income Taxes](index=11&type=section&id=Provision%20for%20Income%20Taxes) Provision for income taxes increased QoQ to **$3.4 million** due to higher net income and increased state tax rates, remaining flat YoY in dollar terms - Provision for income taxes was **$3.4 million** in Q2 2025, up from **$2.0 million** in Q1 2025, and comparable to **$3.4 million** in Q2 2024[44](index=44&type=chunk) - The QoQ increase was due to higher net income and an increase in state income tax rates, partially offset by the deductibility of certain equity awards[44](index=44&type=chunk) - The overall tax rate increased due to the expansion of CCBX activities and employees into other states, with a specific increase in California's tax laws impacting the state rate[45](index=45&type=chunk) [Financial Condition and Asset Quality](index=11&type=section&id=Financial%20Condition%20and%20Asset%20Quality) This section reviews the company's financial condition, capital adequacy, asset quality, and allowance for credit losses [Financial Condition Overview](index=11&type=section&id=Financial%20Condition%20Overview) Total assets increased **3.3%** QoQ to **$4.48 billion**, driven by cash and loans, with strong liquidity and increased shareholders' equity - Total assets increased **$141.3 million** (**3.3%**) to **$4.48 billion** at June 30, 2025, compared to **$4.34 billion** at March 31, 2025[46](index=46&type=chunk) - The increase in assets was primarily comprised of a **$95.5 million increase in cash and interest-bearing deposits**, a **$23.0 million increase in loans receivable**, and an **$18.3 million increase in loans held for sale**[46](index=46&type=chunk) - Total loans receivable increased to **$3.54 billion** at June 30, 2025, from **$3.52 billion** at March 31, 2025[46](index=46&type=chunk) - As of June 30, 2025, the company had **$719.8 million in cash** and an additional borrowing capacity of **$642.7 million** from the Federal Reserve Bank discount window and Federal Home Loan Bank, plus **$50.0 million** from a correspondent bank, with no outstanding borrowings on these lines[47](index=47&type=chunk) - Uninsured deposits were **$579.9 million** as of June 30, 2025, up from **$558.8 million** at March 31, 2025[48](index=48&type=chunk) - Total shareholders' equity increased **$11.8 million** QoQ, primarily due to **$11.0 million in net earnings** and a **$764,000 increase in common stock outstanding** from equity awards[49](index=49&type=chunk) [Capital Ratios](index=12&type=section&id=Capital%20Ratios) Both Coastal Financial Corporation and Coastal Community Bank remained well-capitalized, exceeding all minimum regulatory capital requirements Capital Ratios (June 30, 2025) | Metric | Coastal Community Bank | Coastal Financial Corporation | Minimum Well Capitalized Ratios | | :-------------------------------------- | :--------------------- | :---------------------------- | :------------------------------ | | Tier 1 Leverage Capital (to average assets) | 10.33 % | 10.39 % | 5.00 % | | Common Equity Tier 1 Capital (to risk-weighted assets) | 12.36 % | 12.32 % | 6.50 % | | Tier 1 Capital (to risk-weighted assets) | 12.36 % | 12.41 % | 8.00 % | | Total Capital (to risk-weighted assets) | 13.65 % | 14.90 % | 10.00 % | [Asset Quality and Allowance for Credit Losses](index=12&type=section&id=Asset%20Quality%20and%20Allowance%20for%20Credit%20Losses) Allowance for credit losses decreased QoQ but increased YoY, with CCBX provision significantly down due to improved portfolio quality - **Allowance for credit losses** was **$164.8 million** (**4.65%** of loans receivable) at June 30, 2025, down from **$183.2 million** (**5.21%**) at March 31, 2025, but up from **$148.9 million** (**4.48%**) at June 30, 2024[51](index=51&type=chunk) - The allowance for credit loss allocated to the CCBX portfolio was **$145.9 million** (**8.68%** of CCBX loans receivable), while **$18.9 million** (**1.02%** of total community bank loans receivable) was allocated to the community bank[51](index=51&type=chunk)[52](index=52&type=chunk) - **Net charge-offs** totaled **$49.3 million** in Q2 2025, compared to **$48.2 million** in Q1 2025 and **$53.0 million** in Q2 2024; net charge-offs as a percent of average loans decreased to **5.54%** QoQ[52](index=52&type=chunk) - CCBX partner agreements provide credit enhancements covering net charge-offs on CCBX loans and negative deposit accounts, except for a **5% responsibility** on a **$296.3 million portfolio** (**$19.8 million** at June 30, 2025)[52](index=52&type=chunk) Net Charge-offs by Segment (USD thousands) | Segment | June 30, 2025 Net Charge-offs | March 31, 2025 Net Charge-offs | June 30, 2024 Net Charge-offs | | :-------------- | :---------------------------- | :----------------------------- | :---------------------------- | | Community Bank | $9 | ($3) | ($2) | | CCBX | $49,304 | $48,203 | $52,955 | | Total | $49,313 | $48,200 | $52,953 | | Net charge-offs to average loans (CCBX) | 11.71 % | 11.99 % | 15.63 % | - **Provision for credit losses for CCBX partner loans** was **$31.0 million** in Q2 2025, significantly down from **$54.3 million** in Q1 2025, due to improved CCBX portfolio performance and a focus on higher quality originations[54](index=54&type=chunk) - The community bank recorded a **provision recapture of $47,000** in Q2 2025, compared to a provision of **$65,000** in Q1 2025, due to a lower outstanding balance in its loan portfolio[56](index=56&type=chunk) Provision Expense/(Recapture) by Segment (USD thousands) | Segment | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------- | :------------ | :------------- | :------------ | | Community bank | ($47) | $65 | ($341) | | CCBX | $30,976 | $54,319 | $62,231 | | Total provision expense | $30,929 | $54,384 | $61,890 | [Nonperforming Assets](index=14&type=section&id=Nonperforming%20Assets) Nonperforming assets increased QoQ and YoY to **$60.9 million** (**1.36%** of total assets), driven by both segments, with CCBX loans largely covered - Nonperforming assets were **$60.9 million** (**1.36%** of total assets) at June 30, 2025, up from **$56.4 million** (**1.30%**) at March 31, 2025, and **$53.2 million** (**1.34%**) at June 30, 2024[58](index=58&type=chunk) - Of the **$57.0 million** in nonperforming CCBX loans, **$55.3 million** were covered by CCBX partner credit enhancements[58](index=58&type=chunk) - Community bank nonperforming loans increased **$3.7 million** to **$3.8 million**, and CCBX nonperforming loans increased **$847,000** to **$57.0 million** QoQ[60](index=60&type=chunk) - The increase in CCBX nonperforming loans was due to a **$4.2 million increase in nonaccrual loans**, partially offset by a **$3.4 million decrease in CCBX loans past due 90 days or more** and still accruing interest[60](index=60&type=chunk) - The **nonperforming loans to loans receivable ratio** was **1.72%** at June 30, 2025, compared to **1.60%** at March 31, 2025, and **1.60%** at June 30, 2024[60](index=60&type=chunk) Consolidated Nonperforming Assets (USD thousands) | Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------------- | :------------ | :------------- | :------------ | | Total nonaccrual loans | $28,233 | $20,359 | $7,944 | | Total accruing loans past due 90 days or more | $32,634 | $36,008 | $45,244 | | Total nonperforming loans | $60,867 | $56,367 | $53,188 | | Total nonperforming assets | $60,867 | $56,367 | $53,188 | | Total nonperforming assets to total assets | 1.36 % | 1.30 % | 1.34 % | CCBX Nonperforming Assets (USD thousands) | Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------------- | :------------ | :------------- | :------------ | | Total nonaccrual loans | $24,391 | $20,170 | $0 | | Total accruing loans past due 90 days or more | $32,634 | $36,008 | $45,244 | | Total nonperforming loans | $57,025 | $56,178 | $45,244 | | Total CCBX nonperforming assets to total consolidated assets | 1.27 % | 1.29 % | 1.14 % | Community Bank Nonperforming Assets (USD thousands) | Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------------- | :------------ | :------------- | :------------ | | Total nonaccrual loans | $3,842 | $189 | $7,944 | | Total accruing loans past due 90 days or more | $0 | $0 | $0 | | Total nonperforming loans | $3,842 | $189 | $7,944 | | Total community bank nonperforming assets to total consolidated assets | 0.09 % | 0.00 % | 0.20 % | [Company Information](index=17&type=section&id=Company%20Information) This section provides an overview of Coastal Financial Corporation and its cautionary statements regarding forward-looking information [About Coastal Financial Corporation](index=17&type=section&id=About%20Coastal%20Financial%20Corporation) Coastal Financial Corporation, an Everett, WA-based bank holding company, operates Coastal Community Bank (**$4.48 billion** assets) and its CCBX BaaS segment - Coastal Financial Corporation (Nasdaq: CCB) is an Everett, Washington-based bank holding company[65](index=65&type=chunk) - Its wholly-owned subsidiaries are Coastal Community Bank and Arlington Olympic LLC[65](index=65&type=chunk) - The Bank has **$4.48 billion in assets** and operates through 14 branches in Snohomish, Island, and King Counties, as well as via the Internet and mobile banking[65](index=65&type=chunk) - The CCBX segment provides banking as a service (BaaS) to digital financial service providers, companies, and brands[65](index=65&type=chunk) [Forward-Looking Statements](index=18&type=section&id=Forward-Looking%20Statements) This section contains cautionary statements about forward-looking information, noting that actual results may differ due to risks and uncertainties - The earnings release contains forward-looking statements reflecting current views on future events and financial performance[67](index=67&type=chunk) - Actual results could differ materially from anticipated outcomes due to difficult-to-predict risks, uncertainties, and assumptions[67](index=67&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements, and the company undertakes no obligation to update them, except as required by law[68](index=68&type=chunk) [Condensed Consolidated Financial Statements](index=19&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents the condensed consolidated statements of financial condition and income for the reported periods [Condensed Consolidated Statements of Financial Condition](index=19&type=section&id=Condensed%20Consolidated%20Statements%20of%20Financial%20Condition) The consolidated balance sheet shows increased total assets, driven by cash and loans, with higher liabilities from deposits and modest equity growth Condensed Consolidated Statements of Financial Condition (USD thousands) | ASSETS | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------------- | :------------ | :------------- | :------------ | | Cash and due from banks | $29,546 | $43,467 | $59,995 | | Interest earning deposits with other banks | $690,213 | $580,835 | $427,250 | | Loans held for sale | $60,474 | $42,132 | $0 | | Loans receivable | $3,540,330 | $3,517,359 | $3,321,813 | | Allowance for credit losses | ($164,794) | ($183,178) | ($148,878) | | Total assets | $4,480,559 | $4,339,282 | $3,959,549 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | Deposits | $3,913,571 | $3,791,229 | $3,543,432 | | Total liabilities | $4,018,850 | $3,889,365 | $3,642,856 | | Total shareholders' equity | $461,709 | $449,917 | $316,693 | [Condensed Consolidated Statements of Income](index=20&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) The consolidated income statement shows increased net interest income, decreased noninterest income, and a substantial QoQ reduction in credit loss provision Condensed Consolidated Statements of Income (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :-------------------------------------- | :------------ | :------------- | :------------ | | Total interest income | $107,797 | $104,907 | $97,422 | | Total interest expense | $31,060 | $28,845 | $31,250 | | Net interest income | $76,737 | $76,062 | $66,172 | | Provision for credit losses | $32,211 | $55,781 | $62,325 | | Total noninterest income | $42,693 | $63,477 | $69,138 | | Total noninterest expense | $72,832 | $71,989 | $57,964 | | Provision for income taxes | $3,359 | $2,039 | $3,425 | | NET INCOME | $11,028 | $9,730 | $11,596 | | Diluted earnings per common share | $0.71 | $0.63 | $0.84 | [Average Balances, Yields, and Rates](index=22&type=section&id=Average%20Balances%2C%20Yields%2C%20and%20Rates) This section details consolidated and segment-specific average balances, yields, and rates for assets and liabilities [Consolidated Average Balances, Yields, and Rates](index=22&type=section&id=Consolidated%20Average%20Balances%2C%20Yields%2C%20and%20Rates) Consolidated average interest-earning assets increased QoQ, but yield decreased, while cost of interest-bearing liabilities slightly rose, leading to a lower net interest margin Consolidated Average Balances, Yields, and Rates (USD thousands) | Metric | June 30, 2025 Average Balance | June 30, 2025 Yield/Cost | March 31, 2025 Average Balance | March 31, 2025 Yield/Cost | June 30, 2024 Average Balance | June 30, 2024 Yield/Cost | | :-------------------------------------- | :---------------------------- | :----------------------- | :----------------------------- | :------------------------ | :---------------------------- | :----------------------- | | Total interest earning assets | $4,356,591 | 9.92 % | $4,124,065 | 10.32 % | $3,736,579 | 10.49 % | | Loans receivable | $3,567,823 | 11.11 % | $3,511,724 | 11.33 % | $3,258,042 | 11.22 % | | Total interest bearing liabilities | $3,417,514 | 3.65 % | $3,214,285 | 3.64 % | $2,904,010 | 4.33 % | | Interest bearing deposits | $3,369,574 | 3.62 % | $3,166,384 | 3.61 % | $2,854,575 | 4.31 % | | Net interest income | | | | | | | | Net interest margin | | 7.06 % | | 7.48 % | | 7.12 % | [Segment-Specific Average Balances, Yields, and Rates](index=24&type=section&id=Segment-Specific%20Average%20Balances%2C%20Yields%2C%20and%20Rates) Community Bank maintained stable yields and costs, while CCBX saw decreased loan yield and net interest margin due to loan mix changes Community Bank Average Balances, Yields, and Rates (USD thousands) | Metric | June 30, 2025 Average Balance | June 30, 2025 Yield/Cost | March 31, 2025 Average Balance | March 31, 2025 Yield/Cost | June 30, 2024 Average Balance | June 30, 2024 Yield/Cost | | :-------------------------------------- | :---------------------------- | :----------------------- | :----------------------------- | :------------------------ | :---------------------------- | :----------------------- | | Loans receivable | $1,879,331 | 6.53 % | $1,881,636 | 6.53 % | $1,895,699 | 6.52 % | | Interest bearing deposits | $1,048,506 | 2.59 % | $1,045,971 | 2.56 % | $938,033 | 2.77 % | | Net interest income | | $20,028 | | $19,779 | | $18,446 | | Net interest margin | | 4.27 % | | 4.26 % | | 3.91 % | CCBX Average Balances, Yields, and Rates (USD thousands) | Metric | June 30, 2025 Average Balance | June 30, 2025 Yield/Cost | March 31, 2025 Average Balance | March 31, 2025 Yield/Cost | June 30, 2024 Average Balance | June 30, 2024 Yield/Cost | | :-------------------------------------- | :---------------------------- | :----------------------- | :----------------------------- | :------------------------ | :---------------------------- | :----------------------- | | Loans receivable | $1,688,492 | 16.22 % | $1,630,088 | 16.88 % | $1,362,343 | 17.75 % | | Interest bearing deposits | $2,321,068 | 4.08 % | $2,120,413 | 4.13 % | $1,916,542 | 5.06 % | | Net interest income | | $52,472 | | $52,359 | | $44,318 | | Net interest margin | | 8.79 % | | 9.72 % | | 9.03 % | | Net interest margin, net of BaaS loan expense | | 3.35 % | | 3.68 % | | 3.12 % | Treasury & Administration Average Balances, Yields, and Rates (USD thousands) | Metric | June 30, 2025 Average Balance | June 30, 2025 Yield/Cost | March 31, 2025 Average Balance | March 31, 2025 Yield/Cost | June 30, 2024 Average Balance | June 30, 2024 Yield/Cost | | :-------------------------------------- | :---------------------------- | :----------------------- | :----------------------------- | :------------------------ | :---------------------------- | :----------------------- | | Total interest earning assets | $788,768 | 4.54 % | $612,341 | 4.48 % | $478,537 | 5.50 % | | Total interest bearing liabilities | $411,865 | 4.57 % | $246,345 | 4.67 % | $230,629 | 5.47 % | | Net interest income | | $4,237 | | $3,924 | | $3,408 | | Net interest margin | | 2.15 % | | 2.60 % | | 2.86 % | [Non-GAAP Financial Measures](index=24&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures, providing supplementary insights into operational performance [Introduction and Definitions](index=26&type=section&id=Introduction%20and%20Definitions) Non-GAAP measures are defined to provide supplementary insights into operational performance, particularly regarding BaaS loan and fraud expense impacts - Non-GAAP financial measures are used to provide supplemental information on operational performance and enhance investor understanding, but are not substitutes for GAAP measures[78](index=78&type=chunk)[79](index=79&type=chunk) - Non-GAAP measures presented illustrate the impact of BaaS loan expense on net loan income and yield on loans (including CCBX loans), and on net interest income and net interest margin (including CCBX net interest margin)[80](index=80&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) - Another non-GAAP measure shows noninterest expense, net of BaaS loan expense, BaaS fraud expense, and reimbursement of expenses (BaaS), to clarify the impact of CCBX partner-reimbursed expenses[87](index=87&type=chunk) [Reconciliations](index=27&type=section&id=Reconciliations) Reconciliations detail adjustments for BaaS loan and fraud expenses and reimbursements to derive adjusted net loan income, net interest income, and noninterest expense CCBX Non-GAAP Reconciliations (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :---------------------------------------------- | :------------ | :------------- | :------------ | | CCBX loan yield (GAAP) | 16.22 % | 16.88 % | 17.75 % | | Net BaaS loan income | $35,781 | $35,348 | $31,127 | | Net BaaS loan income divided by average CCBX loans | 8.50 % | 8.79 % | 9.19 % | | CCBX net interest margin (GAAP) | 8.79 % | 9.72 % | 9.03 % | | Net interest income, net of BaaS loan expense | $19,989 | $19,852 | $15,307 | | CCBX net interest margin, net of BaaS loan expense | 3.35 % | 3.68 % | 3.12 % | Consolidated Non-GAAP Reconciliations (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :---------------------------------------------- | :------------ | :------------- | :------------ | | Net interest margin (GAAP) | 7.06 % | 7.48 % | 7.12 % | | Net interest income, net of BaaS loan expense | $44,254 | $43,555 | $37,161 | | Net interest margin, net of BaaS loan expense | 4.07 % | 4.28 % | 4.00 % | | Loan yield (GAAP) | 11.11 % | 11.33 % | 11.22 % | | Net loan income | $66,384 | $65,640 | $61,868 | | Loan income, net of BaaS loan expense, divided by average loans | 7.46 % | 7.58 % | 7.64 % | Noninterest Expense, Net of BaaS Related Items Reconciliation (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :---------------------------------------------- | :------------ | :------------- | :------------ | | Noninterest expense (GAAP) | $72,832 | $71,989 | $57,964 | | Less: BaaS loan expense | ($32,483) | ($32,507) | ($29,011) | | Less: BaaS fraud expense | ($2,804) | ($1,993) | ($1,784) | | Less: Reimbursement of expenses | ($646) | ($1,026) | ($857) | | Noninterest expense, net of BaaS loan expense, BaaS fraud expense and reimbursement of expenses | $36,899 | $36,463 | $26,312 | [Appendix A - Industry Concentration](index=28&type=section&id=Appendix%20A%20-%20Industry%20Concentration) This appendix details the company's loan portfolio by industry, including outstanding balances and unused commitments [Overview of Loan Portfolio](index=28&type=section&id=Overview%20of%20Loan%20Portfolio) The company maintains a diversified **$3.55 billion** loan portfolio with **$1.93 billion** in unused commitments, led by commercial real estate - The company has a diversified loan portfolio totaling **$3.55 billion** in outstanding balances across commercial real estate, consumer and other loans, residential real estate, commercial and industrial, and construction, land and land development loans[90](index=90&type=chunk) - Total outstanding loans and unused commitments combined amount to **$5.48 billion**[90](index=90&type=chunk) [Commercial Real Estate Loans](index=28&type=section&id=Commercial%20Real%20Estate%20Loans) Commercial real estate loans are the largest segment at **37.0%** of outstanding loans, totaling **$1.34 billion** with commitments, led by apartments - Commercial real estate loans represent **37.0%** of total outstanding loans, with a combined total of **$1.34 billion** including **$30.1 million** in unused commitments[91](index=91&type=chunk) Commercial Real Estate Loan Commitment by Industry (June 30, 2025, USD thousands) | Industry | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans (Combined) | | :---------------- | :------------------ | :------------------------- | :----------------------------------------------- | :-------------------------- | | Apartments | $362,315 | $2,889 | $365,204 | 6.7 % | | Hotel/Motel | $154,877 | $1,073 | $155,950 | 2.8 | | Convenience Store | $135,118 | $546 | $135,664 | 2.5 | | Office | $119,622 | $6,666 | $126,288 | 2.3 | | Warehouse | $102,688 | $0 | $102,688 | 1.9 | | Total | $1,310,882 | $30,077 | $1,340,959 | 24.5 % | [Consumer and Other Loans](index=29&type=section&id=Consumer%20and%20Other%20Loans) Consumer loans represent **34.7%** of outstanding loans, totaling **$1.98 billion** with commitments, primarily CCBX credit cards and installment loans - Consumer loans comprise **34.7%** of total outstanding loans, with a combined total of **$1.98 billion** including **$746.8 million** in unused commitments[91](index=91&type=chunk) - CCBX partners contribute a large number of mostly smaller dollar consumer loans, resulting in an average consumer loan balance of **$900**[91](index=91&type=chunk) Consumer and Other Loan Commitment by Industry (June 30, 2025, USD thousands) | Loan Type | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans (Combined) | | :------------------------ | :------------------ | :------------------------- | :----------------------------------------------- | :-------------------------- | | CCBX consumer loans: Credit cards | $533,925 | $702,611 | $1,236,536 | 22.6 % | | CCBX consumer loans: Installment loans | $671,089 | $30,817 | $701,906 | 12.8 | | Community bank consumer loans: Other loans | $11,314 | $13,000 | $24,314 | 0.4 | | Total | $1,232,476 | $746,783 | $1,979,259 | 36.1 % | [Residential Real Estate Loans](index=29&type=section&id=Residential%20Real%20Estate%20Loans) Residential real estate loans are **12.2%** of outstanding loans, totaling **$991.3 million** with commitments, largely driven by CCBX home equity lines - Residential real estate loans comprise **12.2%** of total outstanding loans, with a combined total of **$991.3 million** including **$557.7 million** in unused commitments[92](index=92&type=chunk) Residential Real Estate Loan Commitment by Industry (June 30, 2025, USD thousands) | Loan Type | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans (Combined) | | :------------------------ | :------------------ | :------------------------- | :----------------------------------------------- | :-------------------------- | | CCBX residential real estate loans: Home equity line of credit | $234,786 | $509,297 | $744,083 | 13.6 % | | Community bank residential real estate loans: Closed end, secured by first liens | $162,205 | $1,064 | $163,269 | 3.0 | | Total | $433,630 | $557,704 | $991,334 | 18.1 % | [Commercial and Industrial Loans](index=29&type=section&id=Commercial%20and%20Industrial%20Loans) C&I loans are **10.6%** of outstanding loans, totaling **$903.6 million** with commitments, significantly comprising CCBX capital call lines - Commercial and industrial loans comprise **10.6%** of total outstanding loans, with a combined total of **$903.6 million** including **$527.8 million** in unused commitments[93](index=93&type=chunk) - Included are **$199.7 million** in outstanding capital call lines (with **$438.4 million** in available commitments, limited to a **$350.0 million portfolio maximum**), provided to venture capital firms through a CCBX BaaS client[93](index=93&type=chunk) Commercial and Industrial Loan Commitment by Industry (June 30, 2025, USD thousands) | Loan Type | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans (Combined) | | :------------------------ | :------------------ | :------------------------- | :----------------------------------------------- | :-------------------------- | | CCBX C&I loans: Capital call lines | $199,675 | $438,391 | $638,066 | 11.6 % | | CCBX C&I loans: Retail and other loans | $26,142 | $23,001 | $49,143 | 0.9 | | Community bank C&I loans: Construction/Contractor services | $30,449 | $32,173 | $62,622 | 1.1 | | Community bank C&I loans: Financial institutions | $51,768 | $0 | $51,768 | 0.9 | | Total | $375,743 | $527,817 | $903,560 | 16.5 % | [Construction, Land and Land Development Loans](index=30&type=section&id=Construction%2C%20Land%20and%20Land%20Development%20Loans) Construction, land, and land development loans are **5.5%** of outstanding loans, totaling **$264.2 million** with commitments, with increased commercial construction exposure - Construction, land and land development loans comprise **5.5%** of total outstanding loans, with a combined total of **$264.2 million** including **$70.0 million** in unused commitments[94](index=94&type=chunk) Construction, Land and Land Development Loan Commitment (June 30, 2025, USD thousands) | Loan Type | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans (Combined) | | :------------------------ | :------------------ | :------------------------- | :----------------------------------------------- | :-------------------------- | | Commercial construction | $104,078 | $48,309 | $152,387 | 2.8 % | | Residential construction | $39,831 | $17,340 | $57,171 | 1.0 | | Developed land loans | $22,875 | $604 | $23,479 | 0.4 | | Undeveloped land loans | $20,067 | $748 | $20,815 | 0.4 | | Land development | $7,299 | $3,048 | $10,347 | 0.2 | | Total | $194,150 | $70,049 | $264,199 | 4.8 % | Outstanding Balance of Construction, Land and Land Development Portfolio (USD thousands) | Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------ | :------------ | :------------- | :------------ | | Commercial construction | $104,078 | $96,716 | $110,372 | | Residential construction | $39,831 | $39,375 | $34,652 | | Undeveloped land loans | $20,067 | $16,684 | $8,372 | | Developed land loans | $22,875 | $7,788 | $13,954 | | Land development | $7,299 | $5,988 | $5,714 | | Total | $194,150 | $166,551 | $173,064 | [Commitments to Extend Credit and CCBX Portfolio Limits](index=31&type=section&id=Commitments%20to%20Extend%20Credit%20and%20CCBX%20Portfolio%20Limits) Total commitments to extend credit reached **$1.93 billion**, managed by CCBX partner and portfolio limits to control concentration and counter-party risk - Total commitments to extend credit were **$1.93 billion** at June 30, 2025, but actual customer usage is not anticipated to reach this amount due to CCBX partner and portfolio limits[96](index=96&type=chunk)[97](index=97&type=chunk) - The company manages loan concentration, liquidity, and counter-party risk through individual CCBX partner portfolio limits, with penalties for breaches[97](index=97&type=chunk) Consolidated Commitments to Extend Credit (June 30, 2025, USD thousands) | Category | As of June 30, 2025 | | :-------------------------------------- | :------------------ | | Commercial and industrial loans | $89,426 | | Commercial and industrial loans - capital call lines | $438,391 | | Construction – commercial real estate loans | $52,709 | | Construction – residential real estate loans | $17,340 | | Residential real estate loans | $557,704 | | Commercial real estate loans | $30,077 | | Credit cards | $702,611 | | Consumer and other loans | $44,172 | | Total commitments to extend credit | $1,932,430 | CCBX Portfolio Maximums and Related Available Commitments (June 30, 2025, USD thousands) | Loan Type | Balance | Maximum Portfolio Size | Available Commitments | | :-------------------------------------- | :---------- | :--------------------- | :-------------------- | | Capital call lines | $199,675 | $350,000 | $438,391 | | Home equity lines of credit | $234,786 | $375,000 | $509,297 | | Credit cards - total | $533,925 | $850,000 | $702,611 | | Installment loans - total | $671,089 | $1,818,619 | $30,817 | | Gross CCBX loans receivable | $1,680,849 | $3,870,000 | $1,704,131 | [Appendix B - CCBX – BaaS Reporting Information](index=33&type=section&id=Appendix%20B%20-%20CCBX%20%E2%80%93%20BaaS%20Reporting%20Information) This appendix details the accounting treatment for CCBX BaaS credit and fraud enhancements, loan income, and related expenses [Credit and Fraud Enhancements Accounting](index=33&type=section&id=Credit%20and%20Fraud%20Enhancements%20Accounting) BaaS credit enhancements are noninterest income, fraud losses and reimbursements net to zero, with counterparty risk managed via partner agreements - BaaS credit enhancements of **$31.3 million** were recorded in Q2 2025, related to the provision for credit losses and unfunded commitments for CCBX partner loans and negative deposit accounts[102](index=102&type=chunk) - Credit enhancement assets are recorded on the balance sheet through noninterest income (BaaS credit enhancements) in recognition of partner legal commitments to indemnify or reimburse losses[102](index=102&type=chunk) - BaaS fraud losses are recorded as noninterest expense, and partner reimbursements are recorded in noninterest income, resulting in a net zero impact on the income statement[102](index=102&type=chunk) - Counterparty risk is managed through partner agreements and cash reserve accounts, which partners replenish regularly; failure to replenish could expose the Bank to additional losses[102](index=102&type=chunk) [CCBX Loan Income and Expense Accounting](index=33&type=section&id=CCBX%20Loan%20Income%20and%20Expense%20Accounting) CCBX loan interest income is adjusted for origination costs and BaaS loan expense to derive net income, with a focus on higher quality loan originations - Contractual interest earned from borrowers on CCBX partner loans is recorded in interest income, adjusted for origination costs[103](index=103&type=chunk) - BaaS loan expense represents amounts paid or payable to partners for credit and fraud enhancements and originating & servicing CCBX loans[103](index=103&type=chunk) - Net BaaS loan income is calculated by deducting BaaS loan expense from BaaS loan interest income, providing a comparable metric to community bank loan interest income[103](index=103&type=chunk) CCBX Partner Loan Income and Expenses (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :---------------------------------------------- | :------------ | :------------- | :------------ | | Yield on loans | 16.22 % | 16.88 % | 17.75 % | | BaaS loan interest income | $68,264 | $67,855 | $60,138 | | Less: BaaS loan expense | ($32,483) | ($32,507) | ($29,011) | | Net BaaS loan income | $35,781 | $35,348 | $31,127 | | Net BaaS loan income divided by average BaaS loans | 8.50 % | 8.79 % | 9.19 % | - The strategy is to optimize the CCBX loan portfolio and strengthen the balance sheet by originating higher quality new loans with enhanced credit standards, which tend to have lower stated rates and expected losses[106](index=106&type=chunk) [Summary of BaaS Interest Components, Fees, and Expenses](index=34&type=section&id=Summary%20of%20BaaS%20Interest%20Components%2C%20Fees%2C%20and%20Expenses) BaaS interest income and program fees increased, while indemnification income decreased due to improved portfolio performance, with substantial loan and fraud expenses BaaS Interest Income (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------ | :------------ | :------------- | :------------ | | Loan interest income| $68,264 | $67,855 | $60,138 | | Total BaaS interest income | $68,264 | $67,855 | $60,138 | BaaS Interest Expense (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------ | :------------ | :------------- | :------------ | | BaaS interest expense | $23,617 | $21,581 | $24,119 | | Total BaaS interest expense | $23,617 | $21,581 | $24,119 | Total Noninterest BaaS Income (USD thousands) | Category | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------ | :------------ | :------------- | :------------ | | Servicing and other BaaS fees | $1,539 | $1,419 | $1,525 | | Transaction and interchange fees | $5,109 | $3,833 | $2,934 | | Reimbursement of expenses | $646 | $1,026 | $857 | | Total BaaS program income | $7,294 | $6,278 | $5,316 | | BaaS credit enhancements | $31,268 | $53,648 | $60,826 | | BaaS fraud enhancements | $2,804 | $1,993 | $1,784 | | BaaS indemnification income | $34,072 | $55,641 | $62,610 | | Total noninterest BaaS income | $41,366 | $61,919 | $67,926 | - Servicing and other BaaS fees increased **$120,000** QoQ, and transaction and interchange fees increased **$1.3 million** QoQ, including **$504,000** in nonrecurring revenue[109](index=109&type=chunk) Total BaaS Loan and Fraud Expense (USD thousands) | Metric | June 30, 2025 | March 31, 2025 | June 30, 2024 | | :------------------------ | :------------ | :------------- | :------------ | | BaaS loan expense | $32,483 | $32,507 | $29,011 | | BaaS fraud expense | $2,804 | $1,993 | $1,784 | | Total BaaS loan and fraud expense | $35,287 | $34,500 | $30,795 |

EVERETT, Wash., July 29, 2025 (GLOBE NEWSWIRE) -- Coastal Financial Corporation (Nasdaq: CCB) (the "Company", "Coastal", "we", "our", or "us"), the holding company for Coastal Community Bank (the "Bank"), through which it operates a community-focused bank segment ("community bank") with an industry leading banking as a service ("BaaS") segment ("CCBX"), today reported unaudited financial results for the quarter ended June 30, 2025, including net income of $11.0 million, or $0.71 per diluted common share, co ...

Core Viewpoint - Canada Carbon Inc. has received all necessary permits to initiate its third drilling campaign at the Asbury Graphite Property, which is expected to enhance its resource estimates and support a pre-feasibility study by the end of 2025 [1][4][6]. Group 1: Drilling Campaign Details - The upcoming drilling campaign aims to complete up to 5,200 meters of core drilling across a 5-kilometer mineralization trend at Asbury [2]. - This campaign will add to previous drilling efforts from 2022 and 2023, bringing the total core samples to over 10,000 meters, which will aid in de-risking the project [2][4]. - The company plans to utilize the data from this campaign to update its NI 43-101 resource report and complete a pre-feasibility study by December 31, 2025 [4]. Group 2: Resource Estimates and Historical Context - The maiden resource estimate reported an inferred resource of 4.14 million tons (Mt) with an average grade of 3.05% carbon grade (Cg), using a cut-off grade of 1.0% Cg [4]. - Asbury was previously an operational graphite mining project from 1974 to 1988, producing high-quality concentrate [7]. Group 3: Stakeholder Engagement - The company has engaged with local stakeholders, including the municipality of Notre-Dame-du-Laus and the Kitigan Zibi Anishinaabeg community, to discuss the project and incorporate feedback [5]. Group 4: Management Commentary - The CEO of Canada Carbon expressed confidence in the drilling campaign, stating it will validate assumptions regarding mineralization at Asbury and contribute positively to the local economy [6][7].

Core Points - Canada Carbon Inc. has been granted a 30-day extension to close its non-brokered private placement of up to 35,000,000 units at a price of $0.02 per unit, aiming for aggregate gross proceeds of up to $700,000 [1] - Each unit consists of one common share and one common share purchase warrant, with the warrant allowing the holder to acquire one common share at a price of $0.06 for 60 months [1] - The closing of the offering is subject to regulatory approvals, including the approval of the TSX Venture Exchange [2] Financial Details - The offering proceeds will be utilized for corporate and general working capital purposes [2] - A finder's fee may be paid to eligible parties, consisting of a cash fee equal to 8% of the gross proceeds and finder's warrants equal to 8% of the units issued [3] Regulatory Information - All securities issued will be subject to a hold period of four months plus a day from the date of issuance [2] - The securities have not been registered under the U.S. Securities Act and cannot be offered or sold in the United States unless registered or exempt [4]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark one) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number: 001-38589 COASTAL FINANCIAL CORPORATION (Exact name of registrant as specified in i ...

Coastal Financial Corporation (CCB) came out with quarterly earnings of $0.63 per share, missing the Zacks Consensus Estimate of $0.93 per share. This compares to earnings of $0.67 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -32.26%. A quarter ago, it was expected that this company would post earnings of $1.03 per share when it actually produced earnings of $0.94, delivering a surprise of -8.74%.Over the last four quarters ...

[First Quarter 2025 Results Overview](index=1&type=section&id=1.%20First%20Quarter%202025%20Results%20Overview) Coastal Financial Corporation reported **net income of $9.7 million** for Q1 2025, driven by strong deposit growth and BaaS program fee income, despite elevated expenses [Executive Summary](index=1&type=section&id=1.1.%20Executive%20Summary) Coastal Financial Corporation reported net income of **$9.7 million**, or **$0.63** per diluted common share, for Q1 2025, reflecting a decrease from Q4 2024 but an increase from Q1 2024 Key Financial Highlights (Q1 2025 vs. Prior Periods) | Metric | Q1 2025 | Q4 2024 | Q1 2024 | | :----- | :------ | :------ | :------ | | Net Income | $9.7 million | $13.4 million | $6.8 million | | Diluted EPS | $0.63 | $0.94 | $0.50 | | Total Deposit Growth (QoQ) | $205.9 million (+5.7%) | - | - | | CCBX Program Fee Income (QoQ) | $6.3 million (+13.0%) | - | - | | CCBX Program Fee Income (YoY) | - | - | +55.2% | - Elevated expenses in Q1 2025 were due to onboarding and implementation costs of new CCBX partnerships and products, and investments in technology[2](index=2&type=chunk)[3](index=3&type=chunk) [Key Strategic Highlights and Outlook](index=1&type=section&id=1.2.%20Key%20Strategic%20Highlights%20and%20Outlook) The company continues to invest in CCBX growth, with a robust pipeline of new partners and products, focusing on compliance, operational risk, and expanding product offerings - CCBX segment has **25 relationships** as of March 31, 2025, including 2 partners in testing, 3 in implementation/onboarding, and 1 signed LOI, with a robust pipeline for 2025 and 2026[3](index=3&type=chunk)[15](index=15&type=chunk)[20](index=20&type=chunk) - Investments for growth continue, with a focus on compliance and operational risk for new CCBX programs, anticipating future revenue and earnings[3](index=3&type=chunk)[13](index=13&type=chunk) - The company remains fully indemnified against fraud and **98.8% indemnified** against credit risk with its CCBX partners[3](index=3&type=chunk) - Launched the T-Mobile deposit program on April 1, 2025, and expects to launch new RobinHood deposit products in the second half of 2025 to increase deposits and manage liquidity[3](index=3&type=chunk)[18](index=18&type=chunk) - Continued strategy of selling loans (e.g., **$744.6 million** in Q1 2025) to balance partner and lending limits, manage the loan portfolio, and generate off-balance sheet fee income[3](index=3&type=chunk)[16](index=16&type=chunk)[17](index=17&type=chunk) [Consolidated Financial Performance](index=2&type=section&id=2.%20Consolidated%20Financial%20Performance) The company's Q1 2025 net income was **$9.7 million**, influenced by increased net interest income, higher credit loss provisions, and noninterest expenses [Income Statement Data](index=2&type=section&id=2.1.%20Income%20Statement%20Data) Net income for Q1 2025 was **$9.7 million**, a decrease from $13.4 million in Q4 2024, but an increase from $6.8 million in Q1 2024, influenced by higher net interest income, increased provision for credit losses, and noninterest expenses Consolidated Income Statement Data (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | QoQ Change | YoY Change | | :---------------------------------- | :------------- | :---------------- | :------------- | :--------- | :--------- | | Interest and dividend income | $104,907 | $102,448 | $91,742 | +2.40% | +14.35% | | Interest expense | $28,845 | $30,071 | $29,536 | -4.08% | -2.34% | | Net interest income | $76,062 | $72,377 | $62,206 | +5.10% | +22.28% | | Provision for credit losses | $55,781 | $61,867 | $83,158 | -9.99% | -32.92% | | Noninterest income | $63,477 | $74,100 | $86,176 | -14.33% | -26.34% | | Noninterest expense | $71,989 | $67,411 | $56,509 | +6.79% | +27.40% | | Provision for income tax | $2,039 | $3,832 | $1,915 | -46.79% | +6.48% | | Net income | $9,730 | $13,367 | $6,800 | -27.22% | +43.09% | | Diluted earnings per common share | $0.63 | $0.94 | $0.50 | -32.98% | +26.00% | [Balance Sheet Data](index=2&type=section&id=2.2.%20Balance%20Sheet%20Data) Total assets increased by 5.3% QoQ to **$4.34 billion** at March 31, 2025, driven by increases in cash and loans receivable, while total deposits grew by 5.7% QoQ to **$3.79 billion**, largely due to CCBX partner programs Consolidated Balance Sheet Data (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | QoQ Change | YoY Change | | :-------------------------- | :------------- | :---------------- | :------------- | :--------- | :--------- | | Cash and cash equivalents | $624,302 | $452,513 | $515,128 | +37.98% | +21.19% | | Loans receivable | $3,517,359 | $3,486,565 | $3,195,101 | +0.88% | +10.08% | | Allowance for credit losses | $(183,178) | $(176,994) | $(139,941) | +3.49% | +30.90% | | Total assets | $4,339,282 | $4,121,208 | $3,863,062 | +5.29% | +12.32% | | Total deposits | $3,791,229 | $3,585,332 | $3,462,979 | +5.74% | +9.48% | | Total shareholders' equity | $449,917 | $438,704 | $303,709 | +2.56% | +48.14% | [Key Performance Ratios](index=3&type=section&id=2.3.%20Key%20Performance%20Ratios) Return on average assets (ROA) decreased QoQ to **0.93%** but increased YoY, while return on average equity (ROE) decreased QoQ to **8.91%**, and the efficiency ratio increased to **51.59%** Consolidated Key Performance Ratios | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | QoQ Change (bps) | YoY Change (bps) | | :-------------------------- | :------------- | :---------------- | :------------- | :--------------- | :--------------- | | Return on average assets | 0.93 % | 1.30 % | 0.73 % | -37 | +20 | | Return on average equity | 8.91 % | 14.90 % | 9.21 % | -599 | -30 | | Yield on earnings assets | 10.32 % | 10.24 % | 10.21 % | +8 | +11 | | Yield on loans receivable | 11.33 % | 11.12 % | 11.01 % | +21 | +32 | | Cost of funds | 3.11 % | 3.24 % | 3.52 % | -13 | -41 | | Cost of deposits | 3.08 % | 3.21 % | 3.49 % | -13 | -41 | | Net interest margin | 7.48 % | 7.23 % | 6.92 % | +25 | +56 | | Noninterest expense to average assets | 6.87 % | 6.54 % | 6.10 % | +33 | +77 | | Efficiency ratio | 51.59 % | 46.02 % | 38.08 % | +557 | +1351 | [Net Interest Income and Margin](index=8&type=section&id=2.4.%20Net%20Interest%20Income%20and%20Margin) Net interest income increased by 5.1% QoQ to **$76.1 million**, driven by higher average loans, increased loan yield, and lower cost of funds, improving Net Interest Margin (NIM) to **7.48%** - Net interest income increased by **$3.7 million (5.1%)** QoQ to **$76.1 million**, and by **$13.9 million (22.3%)** YoY, driven by increased average loans, higher loan yield, and lower cost of funds[29](index=29&type=chunk) - Net interest margin (NIM) was **7.48%** in Q1 2025, up **25 bps** QoQ and **56 bps** YoY, primarily due to higher loan yield and lower cost of deposits[12](index=12&type=chunk)[30](index=30&type=chunk) - NIM, net of BaaS loan expense, was **4.28%** in Q1 2025, up **12 bps** QoQ and **26 bps** YoY[30](index=30&type=chunk)[31](index=31&type=chunk) - Cost of funds decreased by **13 bps** QoQ to **3.11%**, and cost of deposits decreased by **13 bps** QoQ to **3.08%**, largely due to recent reductions in the Fed funds rate[32](index=32&type=chunk) Yield on Loans and Cost of Deposits by Segment (Q1 2025) | Segment | Yield on Loans | Cost of Deposits | | :------------ | :------------- | :--------------- | | Community Bank | 6.53% | 1.76% | | CCBX | 16.88% | 4.01% | | Consolidated | 11.33% | 3.08% | [Noninterest Income](index=10&type=section&id=2.5.%20Noninterest%20Income) Total noninterest income decreased by **$10.6 million** QoQ to **$63.5 million**, primarily due to a decrease in BaaS credit and fraud enhancements, partially offset by an increase in BaaS program income Consolidated Noninterest Income (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | QoQ Change | YoY Change | | :-------------------------- | :------------- | :---------------- | :------------- | :--------- | :--------- | | Total noninterest income | $63,477 | $74,100 | $86,176 | -14.33% | -26.34% | | BaaS credit enhancements | $53,648 | $62,097 | $79,808 | -13.61% | -32.78% | | BaaS fraud enhancements | $1,993 | $5,043 | $923 | -60.48% | +115.93% | | BaaS program income | $6,278 | $5,554 | $4,046 | +13.04% | +55.17% | - The QoQ decrease in noninterest income was primarily due to an **$8.4 million** decrease in BaaS credit enhancements and a **$3.1 million** decrease in BaaS fraud enhancements, partially offset by a **$724,000** increase in BaaS program income[34](index=34&type=chunk) [Noninterest Expense](index=10&type=section&id=2.6.%20Noninterest%20Expense) Total noninterest expense increased by **$4.6 million** QoQ to **$72.0 million**, driven by higher salaries, legal fees, and BaaS loan expense, reflecting continued investments in growth and risk management Consolidated Noninterest Expense (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | QoQ Change | YoY Change | | :-------------------------- | :------------- | :---------------- | :------------- | :--------- | :--------- | | Total noninterest expense | $71,989 | $67,411 | $56,509 | +6.79% | +27.40% | | Salaries and employee benefits | $21,532 | $17,994 | $17,984 | +19.66% | +19.73% | | Legal and professional expenses | $6,488 | $4,606 | $3,672 | +40.86% | +76.68% | | BaaS loan expense | $32,507 | $30,720 | $26,107 | +5.82% | +24.51% | | BaaS fraud expense | $1,993 | $5,043 | $923 | -60.48% | +115.93% | - Legal and professional fees were elevated in Q1 2025 due to compliance, BSA, audit, legal, and project work for new partners, with similar levels expected in Q2 2025 before returning to historical levels in Q3 2025[9](index=9&type=chunk) Noninterest Expense, Net of BaaS Related Items (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | | :------------------------------------------------------------------------------------------------ | :------------- | :---------------- | :------------- | | Total noninterest expense (GAAP) | $71,989 | $67,411 | $56,509 | | Less: BaaS loan expense | $32,507 | $30,720 | $26,107 | | Less: BaaS fraud expense | $1,993 | $5,043 | $923 | | Less: Reimbursement of expenses (BaaS) | $1,026 | $812 | $254 | | Noninterest expense, net of BaaS loan expense, BaaS fraud expense and reimbursement of expenses | $36,463 | $30,836 | $29,225 | [Provision for Income Taxes](index=11&type=section&id=2.7.%20Provision%20for%20Income%20Taxes) The provision for income taxes was **$2.0 million** in Q1 2025, lower than Q4 2024 due to equity award deductibility but higher than Q1 2024 due to increased net income, with the overall tax rate rising from CCBX expansion Provision for Income Taxes (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | QoQ Change | YoY Change | | :-------------------------- | :------------- | :---------------- | :------------- | :--------- | :--------- | | Provision for income tax | $2,039 | $3,832 | $1,915 | -46.79% | +6.48% | - The QoQ decrease in tax provision was due to the deductibility of certain equity awards, while the YoY increase was primarily due to higher net income[40](index=40&type=chunk) - The overall tax rate has increased due to various state taxes as CCBX activities and employees expand into other states[41](index=41&type=chunk) [Segment Performance](index=4&type=section&id=3.%20Segment%20Performance) The CCBX segment demonstrated significant growth in loans and deposits, while the Community Bank segment maintained stable loan and deposit levels [CCBX Segment Performance](index=4&type=section&id=3.1.%20CCBX%20Segment%20Performance) The CCBX segment continues to grow and evolve, with **25 relationships** as of March 31, 2025, and increased loans by **2.9%** QoQ to **$1.65 billion** and deposits by **9.8%** QoQ to **$2.27 billion** [CCBX Relationships and Strategic Focus](index=4&type=section&id=3.1.1.%20CCBX%20Relationships%20and%20Strategic%20Focus) As of March 31, 2025, CCBX had **25 relationships**, including new partners in testing and implementation, with a strategy to cultivate new relationships with established partners and expand product offerings while managing risk CCBX Relationships Status | Status | March 31, 2025 | December 31, 2024 | March 31, 2024 | | :------------------------ | :------------- | :---------------- | :------------- | | Active | 19 | 19 | 19 | | Friends and family / testing | 2 | 1 | 1 | | Implementation / onboarding | 3 | 1 | 1 | | Signed letters of intent | 1 | 3 | 0 | | Total CCBX relationships | 25 | 24 | 21 | - CCBX is refining partnership criteria, exploring relationships with larger, more established partners with experienced management teams, existing customer bases, and strong financial positions[15](index=15&type=chunk) - The company continues to expand product offerings with existing CCBX partners, aiming to cultivate new relationships that align with long-term goals and manage regulatory risk[16](index=16&type=chunk) [CCBX Loan Portfolio](index=5&type=section&id=3.1.2.%20CCBX%20Loan%20Portfolio) CCBX loans increased by **$47.2 million (2.9%)** QoQ to **$1.65 billion**, despite significant loan sales, with a diversified portfolio and a slight increase in loan yield to **16.88%** CCBX Loan Portfolio (Dollars in thousands) | Loan Category | March 31, 2025 Balance | % to Total | December 31, 2024 Balance | % to Total | March 31, 2024 Balance | % to Total | | :-------------------------- | :--------------------- | :--------- | :------------------------ | :--------- | :--------------------- | :--------- | | Capital call lines | $133,466 | 8.1% | $109,017 | 6.8% | $135,671 | 10.3% | | Residential real estate loans | $285,355 | 17.3% | $267,707 | 16.7% | $265,148 | 20.2% | | Credit cards | $532,775 | 32.2% | $528,554 | 33.0% | $505,706 | 38.6% | | Other consumer and other loans | $670,026 | 40.6% | $664,780 | 41.4% | $358,528 | 27.3% | | Gross CCBX loans receivable | $1,651,324 | 100.0% | $1,604,019 | 100.0% | $1,312,213 | 100.0% | - CCBX loans increased by **$47.2 million (2.9%)** QoQ to **$1.65 billion**, despite selling **$744.6 million** in loans during Q1 2025[20](index=20&type=chunk)[21](index=21&type=chunk) - CCBX loan yield increased by **0.07%** QoQ to **16.88%** for Q1 2025[21](index=21&type=chunk)[22](index=22&type=chunk) - The portion of one CCBX partner's portfolio for which the company is responsible for losses decreased from **10%** to **5%** as of April 1, 2024, representing **$19.9 million** in loans at March 31, 2025[20](index=20&type=chunk)[48](index=48&type=chunk) [CCBX Deposit Portfolio](index=6&type=section&id=3.1.3.%20CCBX%20Deposit%20Portfolio) CCBX deposits increased by **$202.9 million (9.8%)** QoQ to **$2.27 billion**, with interest-bearing demand and money market accounts forming the largest portion, and the cost of deposits decreasing to **4.01%** CCBX Deposit Portfolio (Dollars in thousands) | Deposit Category | March 31, 2025 Balance | % to Total | December 31, 2024 Balance | % to Total | March 31, 2024 Balance | % to Total | | :----------------------------------- | :--------------------- | :--------- | :------------------------ | :--------- | :--------------------- | :--------- | | Demand, noninterest bearing | $58,416 | 2.6% | $55,686 | 2.7% | $58,669 | 2.9% | | Interest bearing demand and money market | $2,145,608 | 94.6% | $1,958,459 | 94.9% | $1,964,942 | 96.8% | | Savings | $16,625 | 0.7% | $5,710 | 0.3% | $5,338 | 0.3% | | Total CCBX deposits | $2,267,008 | 100.0% | $2,064,088 | 100.0% | $2,028,949 | 100.0% | - CCBX deposits increased by **$202.9 million (9.8%)** QoQ to **$2.27 billion**[23](index=23&type=chunk) - Cost of CCBX deposits decreased by **18 bps** QoQ to **4.01%** for Q1 2025[23](index=23&type=chunk) - **$406.3 million** in CCBX deposits were transferred off-balance sheet for FDIC insurance and sweep purposes in Q1 2025[23](index=23&type=chunk) [Community Bank Segment Performance](index=6&type=section&id=3.2.%20Community%20Bank%20Segment%20Performance) The community bank segment experienced a slight decrease in net loans by **$16.5 million (0.9%)** QoQ to **$1.87 billion**, while deposits increased marginally by **$3.0 million (0.2%)** QoQ to **$1.52 billion** with a decreased cost of deposits [Community Bank Loan Portfolio](index=8&type=section&id=3.2.1.%20Community%20Bank%20Loan%20Portfolio) Community bank net loans decreased by **$16.5 million (0.9%)** QoQ to **$1.87 billion**, with commercial real estate loans as the largest category and a stable loan yield of **6.53%** Community Bank Loan Portfolio (Dollars in thousands) | Loan Category | March 31, 2025 Balance | % to Total | December 31, 2024 Balance | % to Total | March 31, 2024 Balance | % to Total | | :------------------------------------------ | :--------------------- | :--------- | :------------------------ | :--------- | :--------------------- | :--------- | | Commercial and industrial loans | $149,104 | 8.0% | $150,395 | 8.0% | $154,395 | 8.2% | | Construction, land and land development loans | $166,551 | 8.9% | $148,198 | 7.8% | $160,862 | 8.5% | | Residential real estate loans | $202,920 | 10.8% | $202,064 | 10.7% | $231,157 | 12.2% | | Commercial real estate loans | $1,340,647 | 71.6% | $1,374,801 | 72.8% | $1,342,489 | 71.0% | | Gross Community Bank loans receivable | $1,872,548 | 100.0% | $1,889,000 | 100.0% | $1,890,350 | 100.0% | - Community bank net loans decreased by **$16.5 million (0.9%)** QoQ to **$1.87 billion**[24](index=24&type=chunk) - Community Bank loan yield remained stable at **6.53%** QoQ for Q1 2025[27](index=27&type=chunk)[33](index=33&type=chunk) [Community Bank Deposit Portfolio](index=8&type=section&id=3.2.2.%20Community%20Bank%20Deposit%20Portfolio) Community bank deposits increased slightly by **$3.0 million (0.2%)** QoQ to **$1.52 billion**, with noninterest-bearing demand deposits representing 31.5% and the cost of deposits decreasing to **1.76%** Community Bank Deposit Portfolio (Dollars in thousands) | Deposit Category | March 31, 2025 Balance | % to Total | December 31, 2024 Balance | % to Total | March 31, 2024 Balance | % to Total | | :--------------------------------------------- | :--------------------- | :--------- | :------------------------ | :--------- | :--------------------- | :--------- | | Demand, noninterest bearing | $481,214 | 31.5% | $471,838 | 31.0% | $515,443 | 35.9% | | Interest bearing demand and money market | $560,416 | 36.8% | $570,625 | 37.5% | $834,725 | 58.2% | | Savings | $59,493 | 3.9% | $61,116 | 4.0% | $68,747 | 4.8% | | Total Community Bank deposits | $1,524,221 | 100.0% | $1,521,244 | 100.0% | $1,434,030 | 100.0% | - Community bank deposits increased by **$3.0 million (0.2%)** QoQ to **$1.52 billion**[28](index=28&type=chunk) - Cost of Community Bank deposits decreased by **10 bps** QoQ to **1.76%** for Q1 2025, largely due to decreases in the Fed funds rate[28](index=28&type=chunk)[33](index=33&type=chunk) [Financial Condition and Capital](index=11&type=section&id=4.%20Financial%20Condition%20and%20Capital) Total assets grew to **$4.34 billion**, with the company and bank remaining well-capitalized and maintaining strong liquidity [Financial Condition Overview](index=11&type=section&id=4.1.%20Financial%20Condition%20Overview) Total assets increased by **$218.1 million (5.3%)** QoQ to **$4.34 billion** at March 31, 2025, primarily due to increased cash and loans receivable, while total shareholders' equity grew by **$11.2 million** - Total assets increased by **$218.1 million (5.3%)** QoQ to **$4.34 billion** at March 31, 2025[42](index=42&type=chunk) - The increase in total assets was primarily comprised of a **$171.8 million** increase in cash and a **$30.8 million** increase in loans receivable[42](index=42&type=chunk) - Total shareholders' equity increased by **$11.2 million** QoQ, primarily due to **$9.7 million** in net earnings and **$1.5 million** from equity awards exercised[45](index=45&type=chunk) [Capital Ratios](index=3&type=section&id=4.2.%20Capital%20Ratios) Both Coastal Financial Corporation and Coastal Community Bank remained well-capitalized at March 31, 2025, exceeding all minimum regulatory requirements, with the company's Tier 1 leverage capital at **10.67%** and Common Equity Tier 1 risk-based capital at **12.13%** Capital Ratios (as of March 31, 2025) | Capital Ratio | Company | Bank | Minimum Well Capitalized Ratios | | :-------------------------------- | :------ | :--- | :------------------------------ | | Tier 1 leverage capital | 10.67 % | 10.57 % | 5.00 % | | Common equity Tier 1 risk-based capital | 12.13 % | 12.12 % | 6.50 % | | Tier 1 risk-based capital | 12.22 % | 12.12 % | 8.00 % | | Total risk-based capital | 14.73 % | 13.42 % | 10.00 % | - Both the Company and the Bank remained well capitalized at March 31, 2025, exceeding all minimum regulatory requirements[45](index=45&type=chunk)[46](index=46&type=chunk) [Liquidity and Uninsured Deposits](index=11&type=section&id=4.3.%20Liquidity%20and%20Uninsured%20Deposits) As of March 31, 2025, the company had **$624.3 million** in cash and **$662.4 million** in additional borrowing capacity, with uninsured deposits totaling **$558.8 million** - Cash on hand was **$624.3 million** as of March 31, 2025[43](index=43&type=chunk) - The company had an additional borrowing capacity of **$662.4 million** from the Federal Reserve Bank discount window and Federal Home Loan Bank, plus **$50.0 million** from a correspondent bank, with no outstanding borrowings[43](index=43&type=chunk) - Uninsured deposits were **$558.8 million** as of March 31, 2025, compared to **$543.0 million** as of December 31, 2024[44](index=44&type=chunk) [Asset Quality](index=3&type=section&id=5.%20Asset%20Quality) Asset quality metrics show an increased allowance for credit losses, primarily in the CCBX portfolio, with a decrease in net charge-offs and nonperforming assets [Allowance for Credit Losses](index=3&type=section&id=5.1.%20Allowance%20for%20Credit%20Losses) The total allowance for credit losses (ACL) increased to **$183.2 million**, representing **5.21%** of loans receivable, with the majority allocated to the CCBX portfolio reflecting higher expected losses Allowance for Credit Losses (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | | :------------------------------------------ | :------------- | :---------------- | :------------- | | Total allowance for credit losses | $183,178 | $176,994 | $139,941 | | ACL to total loans receivable | 5.21 % | 5.08 % | 4.38 % | | ACL allocated to CCBX | $164,186 | $158,070 | $118,557 | | ACL to CCBX loans receivable | 9.95 % | 9.86 % | 9.04 % | | ACL allocated to Community Bank | $18,992 | $18,924 | $21,384 | | ACL to Community Bank loans receivable | 1.02 % | 1.00 % | 1.14 % | - CCBX partner agreements provide credit enhancements that cover net charge-offs on CCBX loans and negative deposit accounts, indemnifying or reimbursing incurred losses, except for a **5%** portion of one partner's portfolio (**$19.9 million**)[48](index=48&type=chunk) [Net Charge-offs](index=3&type=section&id=5.2.%20Net%20Charge-offs) Net charge-offs decreased to **$48.2 million** in Q1 2025 from **$56.4 million** in Q4 2024, with the vast majority recorded on CCBX loans, reflecting their higher expected losses Net Charge-offs (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | QoQ Change | YoY Change | | :-------------------------- | :------------- | :---------------- | :------------- | :--------- | :--------- | | Total Net charge-offs | $48,200 | $56,362 | $56,958 | -14.5% | -15.4% | | Net charge-offs to average loans | 5.57 % | 6.56 % | 7.30 % | -99 bps | -173 bps | | CCBX Net charge-offs | $48,203 | $56,226 | $56,947 | -14.27% | -15.35% | | Community Bank Net charge-offs | $(3) | $136 | $11 | -102.21% | -127.27% | - A **$54.3 million** provision for credit losses was recorded for CCBX partner loans in Q1 2025, reflecting the higher level of expected losses in this portfolio[49](index=49&type=chunk)[52](index=52&type=chunk) - The community bank recorded a provision of **$65,000** in Q1 2025 due to a change in the mix of its loan portfolio and growth in construction loans, compared to a provision recapture in prior quarters[51](index=51&type=chunk)[52](index=52&type=chunk) [Nonperforming Assets](index=13&type=section&id=5.3.%20Nonperforming%20Assets) Nonperforming assets (NPA) decreased by **$6.3 million** QoQ to **$56.4 million**, representing **1.30%** of total assets, primarily due to a reduction in CCBX loans 90 days or more past due, with most covered by partner credit enhancements Consolidated Nonperforming Assets (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | QoQ Change | YoY Change | | :------------------------------------------ | :------------- | :---------------- | :------------- | :--------- | :--------- | | Total nonperforming assets | $56,367 | $62,656 | $54,866 | -10.0% | +2.7% | | Nonperforming assets to total assets | 1.30 % | 1.52 % | 1.42 % | -22 bps | -12 bps | | Total nonperforming loans | $56,367 | $62,656 | $54,866 | -10.0% | +2.7% | | Nonperforming loans to total loans receivable | 1.60 % | 1.80 % | 1.72 % | -20 bps | -12 bps | | CCBX nonperforming loans | $56,178 | $62,556 | $46,923 | -10.19% | +19.72% | | Community Bank nonperforming loans | $189 | $100 | $7,943 | +89.0% | -97.62% | - Nonperforming assets decreased by **$6.3 million** QoQ, primarily due to a **$7.1 million** decrease in CCBX loans 90 days or more past due and still accruing[54](index=54&type=chunk)[55](index=55&type=chunk) - **$54.1 million** of the **$56.2 million** in nonperforming CCBX loans were covered by CCBX partner credit enhancements[53](index=53&type=chunk) [Loan Portfolio Industry Concentration (Appendix A)](index=28&type=section&id=6.%20Loan%20Portfolio%20Industry%20Concentration%20(Appendix%20A)) The company's **$3.52 billion loan portfolio** is diversified across commercial real estate, consumer, and residential real estate, with significant unused commitments [Overview of Loan Portfolio and Commitments](index=28&type=section&id=6.1.%20Overview%20of%20Loan%20Portfolio%20and%20Commitments) The company maintains a diversified loan portfolio totaling **$3.52 billion** in outstanding balances, with total exposure reaching **$5.67 billion** when combined with **$2.14 billion** in unused commitments - Total outstanding loan balances were **$3.52 billion** as of March 31, 2025[85](index=85&type=chunk) - Total unused commitments to extend credit were **$2.14 billion**, bringing the combined total of outstanding loans and commitments to **$5.67 billion**[85](index=85&type=chunk)[92](index=92&type=chunk) - Commercial real estate loans (**38.0%**) and consumer loans (**34.5%**) represent the largest segments of the outstanding loan portfolio[86](index=86&type=chunk)[88](index=88&type=chunk) [Commercial Real Estate Loans](index=28&type=section&id=6.2.%20Commercial%20Real%20Estate%20Loans) Commercial real estate loans are the largest segment, comprising **38.0%** of total outstanding loans (**$1.34 billion**) and **24.2%** of total outstanding loans and commitments (**$1.37 billion**), with apartments as the largest sub-category Commercial Real Estate Loan Portfolio (Dollars in thousands, as of March 31, 2025) | Industry | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans & Commitments | | :---------------- | :------------------ | :------------------------- | :----------------------------------------------- | :----------------------------- | | Apartments | $392,740 | $4,488 | $397,228 | 7.0% | | Hotel/Motel | $149,859 | $61 | $149,920 | 2.6% | | Convenience Store | $138,838 | $561 | $139,399 | 2.5% | | Office | $121,346 | $7,183 | $128,529 | 2.3% | | Total | $1,340,647 | $29,401 | $1,370,048 | 24.2% | - Commercial real estate loans represent **38.0%** of total outstanding loans and **24.2%** of total outstanding loans and loan commitments[86](index=86&type=chunk) [Consumer and Other Loans](index=28&type=section&id=6.3.%20Consumer%20and%20Other%20Loans) Consumer loans represent **34.5%** of total outstanding loans (**$1.22 billion**) and **37.5%** of total outstanding loans and commitments (**$2.13 billion**), primarily driven by CCBX credit cards and installment loans with an average balance of **$1,000** Consumer and Other Loan Portfolio (Dollars in thousands, as of March 31, 2025) | Loan Category | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans & Commitments | | :-------------------------- | :------------------ | :------------------------- | :----------------------------------------------- | :----------------------------- | | CCBX Credit cards | $532,775 | $868,969 | $1,401,744 | 24.7% | | CCBX Installment loans | $654,844 | $29,027 | $683,871 | 12.1% | | Total | $1,216,127 | $910,758 | $2,126,885 | 37.5% | - Consumer loans comprise **34.5%** of total outstanding loans and **37.5%** of total outstanding loans and loan commitments[88](index=88&type=chunk) - The average consumer loan balance is **$1,000**, reflecting a large number of smaller dollar loans from CCBX partners[88](index=88&type=chunk) [Residential Real Estate Loans](index=29&type=section&id=6.4.%20Residential%20Real%20Estate%20Loans) Residential real estate loans comprise **13.9%** of total outstanding loans (**$488.3 million**) and **18.0%** of total outstanding loans and commitments (**$1.02 billion**), with CCBX home equity lines of credit as the largest component Residential Real Estate Loan Portfolio (Dollars in thousands, as of March 31, 2025) | Loan Category | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans & Commitments | | :------------------------------------- | :------------------ | :------------------------- | :----------------------------------------------- | :----------------------------- | | CCBX Home equity line of credit | $285,355 | $481,778 | $767,133 | 13.5% | | Community bank Closed end, first liens | $164,284 | $1,649 | $165,933 | 3.0% | | Total | $488,275 | $529,335 | $1,017,610 | 18.0% | - Residential real estate loans comprise **13.9%** of total outstanding loans and **18.0%** of total outstanding loans and loan commitments[90](index=90&type=chunk) - CCBX home equity lines of credit are limited to a **$375.0 million** portfolio maximum[91](index=91&type=chunk) [Commercial and Industrial Loans](index=29&type=section&id=6.5.%20Commercial%20and%20Industrial%20Loans) Commercial and industrial (C&I) loans represent **8.9%** of total outstanding loans (**$312.3 million**) and **16.1%** of total outstanding loans and commitments (**$913.2 million**), with capital call lines as a significant component Commercial and Industrial Loan Portfolio (Dollars in thousands, as of March 31, 2025) | Loan Category | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans & Commitments | | :--------------------------------------------- | :------------------ | :------------------------- | :----------------------------------------------- | :----------------------------- | | CCBX Capital Call Lines | $133,466 | $514,864 | $648,330 | 11.4% | | CCBX Retail and other loans | $29,702 | $21,736 | $51,438 | 0.9% | | Community bank Financial Institutions | $48,648 | — | $48,648 | 0.9% | | Total | $312,272 | $600,972 | $913,244 | 16.1% | - Commercial and industrial loans comprise **8.9%** of total outstanding loans and **16.1%** of total outstanding loans and loan commitments[92](index=92&type=chunk) - Capital call lines, provided through one of the CCBX BaaS clients, have a portfolio maximum of **$350.0 million**[92](index=92&type=chunk)[93](index=93&type=chunk) [Construction, Land and Land Development Loans](index=30&type=section&id=6.6.%20Construction,%20Land%20and%20Land%20Development%20Loans) Construction, land and land development loans comprise **4.7%** of total outstanding loans (**$166.6 million**) and **4.2%** of total outstanding loans and commitments (**$239.0 million**), with commercial construction as the largest sub-category Construction, Land and Land Development Loan Portfolio (Dollars in thousands, as of March 31, 2025) | Loan Category | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans & Commitments | | :-------------------------- | :------------------ | :------------------------- | :----------------------------------------------- | :----------------------------- | | Commercial construction | $96,716 | $41,654 | $138,370 | 2.4% | | Residential construction | $39,375 | $22,253 | $61,628 | 1.1% | | Undeveloped land loans | $16,684 | $4,185 | $20,869 | 0.4% | | Total | $166,551 | $72,476 | $239,027 | 4.2% | - Construction, land and land development loans comprise **4.7%** of total outstanding loans and **4.2%** of total outstanding loans and loan commitments[94](index=94&type=chunk) - Exposure and risk in the construction, land and land development portfolio increased compared to recent periods[96](index=96&type=chunk) [Commitments to Extend Credit and Portfolio Limits](index=31&type=section&id=6.7.%20Commitments%20to%20Extend%20Credit%20and%20Portfolio%20Limits) Total commitments to extend credit were **$2.14 billion** at March 31, 2025, with the company managing loan concentration and counter-party risk through individual CCBX partner portfolio maximum limits Outstanding Commitments to Extend Credit (Dollars in thousands, as of March 31, 2025) | Commitment Type | Amount | | :------------------------------------------ | :----- | | Commercial and industrial loans | $86,108 | | Commercial and industrial loans - capital call lines | $514,864 | | Construction – commercial real estate loans | $50,221 | | Construction – residential real estate loans | $22,255 | | Residential real estate loans | $529,335 | | Commercial real estate loans | $29,401 | | Credit cards | $868,969 | | Consumer and other loans | $41,789 | | Total commitments to extend credit | $2,142,942 | - The company has individual CCBX partner portfolio limits to manage loan concentration, liquidity, and counter-party risk[93](index=93&type=chunk) - If a CCBX partner exceeds their individual limit, it is a breach of contract, allowing the Bank to impose penalties or choose not to fund the loan[93](index=93&type=chunk) [BaaS Reporting Information (Appendix B)](index=33&type=section&id=7.%20BaaS%20Reporting%20Information%20(Appendix%20B)) BaaS accounting practices for credit and fraud enhancements ensure a net zero income statement impact, with growing BaaS loan income and expenses [BaaS Credit and Fraud Enhancements Accounting](index=33&type=section&id=7.1.%20BaaS%20Credit%20and%20Fraud%20Enhancements%20Accounting) The company records a provision for expected losses on CCBX loans and negative deposit accounts, recognizing a credit enhancement asset through noninterest income due to partner indemnification, with fraud losses and reimbursements resulting in a net zero income statement impact - A provision for expected losses on CCBX loans and negative deposit accounts is recorded, with a corresponding credit enhancement asset recognized through noninterest income (BaaS credit enhancements) due to partner indemnification[97](index=97&type=chunk) - Fraud losses are recorded as noninterest expense, and partner reimbursements are recorded in noninterest income, resulting in a net zero impact on the income statement[97](index=97&type=chunk) - The Bank is exposed to additional credit and deposit losses if a CCBX partner is unable to fulfill their contracted indemnification obligations, and management regularly evaluates this counterparty risk[97](index=97&type=chunk) [BaaS Loan Income and Expense](index=33&type=section&id=7.2.%20BaaS%20Loan%20Income%20and%20Expense) BaaS loan interest income increased in Q1 2025 due to growth in average CCBX loans receivable, while BaaS loan expense also increased, resulting in a net BaaS loan income divided by average BaaS loans of **8.79%** BaaS Loan Income and Expense (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | | :------------------------------------------ | :------------- | :---------------- | :------------- | | BaaS loan interest income | $67,855 | $64,532 | $55,839 | | Less: BaaS loan expense | $32,507 | $30,720 | $26,107 | | Net BaaS loan income | $35,348 | $33,812 | $29,732 | | Net BaaS loan income divided by average BaaS loans | 8.79 % | 8.81 % | 9.45 % | - An increase in average CCBX loans receivable resulted in increased BaaS loan interest income during Q1 2025[101](index=101&type=chunk) - The company is optimizing its CCBX loan portfolio by originating higher quality new loans with enhanced credit standards, which have lower stated rates and expected losses[101](index=101&type=chunk)[102](index=102&type=chunk) [Summary of BaaS Interest and Noninterest Components](index=34&type=section&id=7.3.%20Summary%20of%20BaaS%20Interest%20and%20Noninterest%20Components) Total BaaS interest income was **$67.9 million**, and total BaaS interest expense was **$21.6 million** in Q1 2025, with total noninterest BaaS income at **$61.9 million** and total BaaS loan and fraud expense at **$34.5 million** Summary of BaaS Interest and Noninterest Components (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | | :-------------------------- | :------------- | :---------------- | :------------- | | Total BaaS interest income | $67,855 | $64,532 | $55,839 | | Total BaaS interest expense | $21,581 | $22,243 | $22,854 | | Total BaaS program income | $6,278 | $5,554 | $4,046 | | Total BaaS indemnification income | $55,641 | $67,140 | $80,731 | | Total noninterest BaaS income | $61,919 | $72,694 | $84,777 | | Total BaaS loan and fraud expense | $34,500 | $35,763 | $27,030 | - Servicing and other BaaS fees increased when new partners are onboarded, then decrease as transaction and interchange fees increase with growing partner activity and exceed minimum fees[104](index=104&type=chunk) [Non-GAAP Financial Measures](index=24&type=section&id=8.%20Non-GAAP%20Financial%20Measures) The company utilizes non-GAAP financial measures to provide supplemental information on operational performance, offering enhanced understanding beyond GAAP measures [Explanation of Non-GAAP Measures](index=24&type=section&id=8.1.%20Explanation%20of%20Non-GAAP%20Measures) The company uses non-GAAP financial measures to provide supplemental information on operational performance, including loan income net of BaaS loan expense and net interest income net of BaaS loan expense, which are not substitutes for GAAP but offer enhanced understanding - Non-GAAP financial measures are used to provide meaningful supplemental information regarding operational performance and enhance investors' overall understanding[73](index=73&type=chunk) - These non-GAAP measures are supplemental and not a substitute for an analysis based on GAAP measures[74](index=74&type=chunk) - Key non-GAAP measures include: Loan income, net of BaaS loan expense, divided by average loans; Net BaaS loan income divided by average CCBX loans; Net interest income, net of BaaS loan expense; and CCBX net interest margin, net of BaaS loan expense[75](index=75&type=chunk)[78](index=78&type=chunk)[79](index=79&type=chunk) [Reconciliations of GAAP and Non-GAAP Measures](index=26&type=section&id=8.2.%20Reconciliations%20of%20GAAP%20and%20Non-GAAP%20Measures) Reconciliations are provided for various GAAP and non-GAAP measures to illustrate the impact of BaaS loan expense on loan income, yield on loans, net interest income, and net interest margin, as well as the impact of BaaS loan and fraud expenses on noninterest expense Consolidated Net Interest Margin, Net of BaaS Loan Expense (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | | :------------------------------------------ | :------------- | :---------------- | :------------- | | Net interest margin (GAAP) | 7.48 % | 7.23 % | 6.92 % | | Net interest income (GAAP) | $76,062 | $72,377 | $62,206 | | Less: BaaS loan expense | $(32,507) | $(30,720) | $(26,107) | | Net interest income, net of BaaS loan expense | $43,555 | $41,657 | $36,099 | | Net interest margin, net of BaaS loan expense | 4.28 % | 4.16 % | 4.02 % | Consolidated Loan Income, Net of BaaS Loan Expense, Divided by Average Loans (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | | :---------------------------------------------------------- | :------------- | :---------------- | :------------- | | Loan yield (GAAP) | 11.33 % | 11.12 % | 11.01 % | | Total average loans receivable | $3,511,724 | $3,419,476 | $3,137,271 | | Interest and earned fee income on loans (GAAP) | $98,147 | $95,575 | $85,891 | | BaaS loan expense | $(32,507) | $(30,720) | $(26,107) | | Net loan income | $65,640 | $64,855 | $59,784 | | Loan income, net of BaaS loan expense, divided by average loans | 7.58 % | 7.55 % | 7.66 % | Noninterest Expense, Net of BaaS Loan Expense, BaaS Fraud Expense and Reimbursement of Expenses (Dollars in thousands) | Metric | March 31, 2025 | December 31, 2024 | March 31, 2024 | | :------------------------------------------------------------------------------------------------ | :------------- | :---------------- | :------------- | | Noninterest expense (GAAP) | $71,989 | $67,411 | $56,509 | | Less: BaaS loan expense | $32,507 | $30,720 | $26,107 | | Less: BaaS fraud expense | $1,993 | $5,043 | $923 | | Less: Reimbursement of expenses | $1,026 | $812 | $254 | | Noninterest expense, net of BaaS loan expense, BaaS fraud expense and reimbursement of expenses | $36,463 | $30,836 | $29,225 | [Company Information and Forward-Looking Statements](index=16&type=section&id=9.%20Company%20Information%20and%20Forward-Looking%20Statements) Coastal Financial Corporation, a bank holding company, operates through its community bank and CCBX segments, providing forward-looking statements subject to inherent risks [About Coastal Financial Corporation](index=16&type=section&id=9.1.%20About%20Coastal%20Financial%20Corporation) Coastal Financial Corporation (Nasdaq: CCB) is an Everett, Washington-based bank holding company, with its subsidiary Coastal Community Bank operating through CCBX, community bank, and treasury & administration segments, serving customers via branches, online, and mobile banking - Coastal Financial Corporation (Nasdaq: CCB) is an Everett, Washington-based bank holding company[60](index=60&type=chunk) - Its wholly-owned subsidiary, Coastal Community Bank, operates through three segments: CCBX (banking as a service), the community bank, and treasury & administration[14](index=14&type=chunk)[60](index=60&type=chunk) - The Bank provides service through 14 branches in Snohomish, Island, and King Counties, the Internet, and its mobile banking application[60](index=60&type=chunk) [Forward-Looking Statements](index=18&type=section&id=9.2.%20Forward-Looking%20Statements) The earnings release contains forward-looking statements regarding future events and financial performance, which are subject to risks, uncertainties, and assumptions that could cause actual results to differ materially - This earnings release contains forward-looking statements reflecting current views on future events and financial performance[62](index=62&type=chunk) - These statements are subject to risks, uncertainties, and assumptions that are difficult to predict and could cause actual results to differ materially[62](index=62&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements, and the company undertakes no obligation to update or revise them, except as required by law[63](index=63&type=chunk)