stal Financial (CCB) - 2025 Q1 - Quarterly Results

First Quarter 2025 Results Overview 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 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][3] Key Strategic Highlights and Outlook 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][15][20] - Investments for growth continue, with a focus on compliance and operational risk for new CCBX programs, anticipating future revenue and earnings[3][13] - The company remains fully indemnified against fraud and 98.8% indemnified against credit risk with its CCBX partners[3] - 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][18] - 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][16][17] Consolidated Financial Performance 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 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 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 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 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] - 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][30] - NIM, net of BaaS loan expense, was 4.28% in Q1 2025, up 12 bps QoQ and 26 bps YoY[30][31] - 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] 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 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] Noninterest Expense 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] 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 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] - The overall tax rate has increased due to various state taxes as CCBX activities and employees expand into other states[41] Segment Performance The CCBX segment demonstrated significant growth in loans and deposits, while the Community Bank segment maintained stable loan and deposit levels CCBX Segment Performance 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 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] - 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] CCBX Loan Portfolio 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][21] - CCBX loan yield increased by 0.07% QoQ to 16.88% for Q1 2025[21][22] - 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][48] CCBX Deposit Portfolio 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] - Cost of CCBX deposits decreased by 18 bps QoQ to 4.01% for Q1 2025[23] - $406.3 million in CCBX deposits were transferred off-balance sheet for FDIC insurance and sweep purposes in Q1 2025[23] Community Bank Segment Performance 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 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] - Community Bank loan yield remained stable at 6.53% QoQ for Q1 2025[27][33] Community Bank Deposit Portfolio 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] - 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][33] Financial Condition and Capital Total assets grew to $4.34 billion, with the company and bank remaining well-capitalized and maintaining strong liquidity Financial Condition Overview 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] - 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] - 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] Capital Ratios 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][46] Liquidity and Uninsured Deposits 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] - 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] - Uninsured deposits were $558.8 million as of March 31, 2025, compared to $543.0 million as of December 31, 2024[44] Asset Quality 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 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] Net Charge-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][52] - 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][52] Nonperforming Assets 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][55] - $54.1 million of the $56.2 million in nonperforming CCBX loans were covered by CCBX partner credit enhancements[53] Loan Portfolio Industry Concentration (Appendix A) 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 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] - Total unused commitments to extend credit were $2.14 billion, bringing the combined total of outstanding loans and commitments to $5.67 billion[85][92] - Commercial real estate loans (38.0%) and consumer loans (34.5%) represent the largest segments of the outstanding loan portfolio[86][88] Commercial Real Estate Loans 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] Consumer and Other Loans 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] - The average consumer loan balance is $1,000, reflecting a large number of smaller dollar loans from CCBX partners[88] Residential Real Estate Loans 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] - CCBX home equity lines of credit are limited to a $375.0 million portfolio maximum[91] Commercial and Industrial Loans 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] - Capital call lines, provided through one of the CCBX BaaS clients, have a portfolio maximum of $350.0 million[92][93] Construction, Land and Land Development Loans 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] - Exposure and risk in the construction, land and land development portfolio increased compared to recent periods[96] Commitments to Extend Credit and Portfolio Limits 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] - 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] BaaS Reporting Information (Appendix B) 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 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] - 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] - 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] BaaS Loan Income and Expense 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] - 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][102] Summary of BaaS Interest and Noninterest Components 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] Non-GAAP Financial Measures 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 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] - These non-GAAP measures are supplemental and not a substitute for an analysis based on GAAP measures[74] - 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][78][79] Reconciliations of GAAP and Non-GAAP Measures 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 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 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] - Its wholly-owned subsidiary, Coastal Community Bank, operates through three segments: CCBX (banking as a service), the community bank, and treasury & administration[14][60] - The Bank provides service through 14 branches in Snohomish, Island, and King Counties, the Internet, and its mobile banking application[60] Forward-Looking Statements 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] - These statements are subject to risks, uncertainties, and assumptions that are difficult to predict and could cause actual results to differ materially[62] - 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]