Fourth Quarter 2022 Highlights:
- Quarterly net income of $13.1 million, or $0.96 per diluted common share, for the three months ended December 31, 2022, compared to $11.1 million, or $0.82 per diluted common share for the three months ended September 30, 2022.
- Total assets increased $10.7 million, or 0.3%, to $3.14 billion for the quarter ended December 31, 2022, compared to $3.13 billion at September 30, 2022.
- Loan growth of $119.4 million, or 4.8%, to $2.63 billion for the three months ended December 31, 2022.
- CCBX loans increased $96.9 million, or 10.6%, to $1.0 billion.
- Community bank loans increased $22.4 million, or 1.4%, to $1.61 billion.
- PPP loans decreased $1.1 million, or 18.9%, to $4.7 million.
- Deposits decreased $19.5 million, or 0.7%, to $2.82 billion for the three months ended December 31, 2022.
- CCBX deposit growth of $77.0 million, or 6.4%, to $1.28 billion.
- Additional $225.0 million in CCBX deposits transferred off balance sheet.
- Community bank deposits decreased $96.6 million, or 5.9%, to $1.54 billion and community bank cost of deposits was 0.37%.
- CCBX deposit growth of $77.0 million, or 6.4%, to $1.28 billion.
- Total revenue increased $12.7 million, or 15.2%, for the three months ended December 31, 2022, compared to September 30, 2022.
- Total revenue excluding BaaS credit enhancements and BaaS fraud enhancements(*) increased $4.3 million, or 8.0%, to $58.3 million for the three months ended December 31, 2022.
- On November 1, 2022 the Company completed its private placement of $20.0 million in fixed-to-floating rate subordinated notes due November 1, 2032; the intention is to use net proceeds from the offering for general corporate purposes.
2022 Highlights:
- Total assets increased $509.0 million, or 19.3%, to $3.14 billion for the year ended December 31, 2022, compared to $2.64 billion at December 31, 2021.
- Total deposits increased $453.7 million, or 19.2%, to $2.82 billion for the year ended December 31, 2022, compared to $2.36 billion at December 31, 2021.
- CCBX deposits increased $563.0 million, or 78.6%, during the year ended December 31, 2022.
- Community bank deposits decreased $109.3 million, or 6.6%, during the year ended December 31, 2022
- Loan growth of $884.5 million, or 50.8%, to $2.63 billion for the year ended December 31, 2022, compared to $1.74 billion for the year ended December 31, 2021.
- CCBX loans increased $665.8 million, or 192.1%.
- Community bank loans increased $218.7 million, or 15.7%.
- PPP loans decreased $107.1 million, or 95.8%, to $4.7 million.
- Net income increased $13.6 million, or 50.4%, to $40.6 million for the year ended December 31, 2022, or $3.01 per diluted common share, compared to $27.0 million, or $2.16 per diluted common share, for the year ended December 31, 2021.
- Total revenue increased $57.3 million, or 147.3% for the year ended December 31, 2022, compared to the year ended December 31, 2021.
- Total revenue excluding BaaS credit enhancements and BaaS fraud enhancements(*) increased $29.6 million, or 103.5%, to $190.5 million for the year ended December 31, 2022, compared to $97.0 million for the year ended December 31, 2021.
- Loan losses (net charge-offs) for the year ended December 31, 2022:
- Community bank: $32,000.
- Holding Company: $350,000.
- CCBX: $33.3 million; $33.1 million covered by credit enhancements.
EVERETT, Wash., Jan. 27, 2023 (GLOBE NEWSWIRE) -- Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), the holding company for Coastal Community Bank (the “Bank”), today reported unaudited financial results for the quarter ended December31, 2022. Quarterly net income for the fourth quarter of 2022 was $13.1 million, or $0.96 per diluted common share, compared with net income of $11.1 million, or $0.82 per diluted common share, for the third quarter of 2022, and $7.3 million, or $0.57 per diluted common share, for the quarter ended December 31, 2021.
Total assets increased $10.7 million, or 0.3%, during the fourth quarter of 2022 to $3.14 billion, from $3.13 billion at September 30, 2022. Loan growth of $119.4 million, or 4.8%, during the three months ended December 31, 2022 to $2.63 billion, compared to $2.51 billion at September 30, 2022 . Loan growth included CCBX loan growth of $96.9 million, or 10.6%, and an increase of $22.4 million, or 1.4% in community bank loans, which is net of $1.1 million in PPP loan forgiveness/repayments. Deposits decreased $19.5 million, or 0.7%, during the three months ended December 31, 2022 and included CCBX deposit growth of $77.0 million, or 6.4%, and a decrease in community bank deposits of $96.6 million, or 5.9%.
“Loans increased $119.4 million, or 4.8%, in the three months ended December 31, 2022, with $96.9 million of that growth in our CCBX segment, which provides Banking as a Service (“BaaS”). Our CCBX segment has grown to $1.0 billion in loans receivable, or 38.5% of total loans receivable, and our community bank loans have grown to $1.6 billion in loans receivable, as of December 31, 2022. Additionally, we sold excess loans back to our partners to help partners manage credit and interest rate risk. During the quarter ended December 31, 2022 we allowed some community bank deposits to run off in order to manage our our deposit costs, resulting in deposits decreasing $19.5 million, or 0.7%, during the three months ended December 31, 2022. Community bank cost of deposits was 0.37% for the quarter ended December 31, 2022. For the quarter ended December 31, 2022 we had net income of $13.1 million, an increase of $2.0 million, or 18.2%, over the quarter ended September 30, 2022.
“We are so proud to have recently received the Everett Herald Readers Choice Best of Snohomish County in three categories; Best Place to Work, Best Mortgage, and Best Bank. This recognition reflects our strong commitment to our community bank roots. We are also pleased that Coastal World, www.coastalworld.com, an immersive 3D web platform that promotes, educates and informs visitors about digital banking solutions through our fintech partners is garnering recognition, and was awarded site of the day and site of the month from three major outlets and was nominated as site of the year as well,” stated Eric Sprink, the CEO of the Company and the Bank.
Results of Operations Overview
The Company has one main subsidiary, the Bank which consists of two segments: CCBX and the community bank. The CCBX segment includes our BaaS activities and the community bank segment includes all other banking activities. Net interest income was $53.4 million for the quarter ended December 31, 2022, an increase of $4.2 million, or 8.6%, from $49.2 million for the quarter ended September 30, 2022, and an increase of $28.7 million, or 116.3%, from $24.7 million for the quarter ended December 31, 2021. Yield on loans receivable was 9.33% for the three months ended December 31, 2022, compared to 8.46% for the three months ended September 30, 2022 and 5.92% for the three months ended December 31, 2021. The increase in net interest income compared to September 30, 2022 and December 31, 2021, was largely related to increased yield on loans resulting from higher interest rates and growth in higher yielding loans, primarily from CCBX. Total average loans receivable for the three months ended December 31, 2022 was $2.60 billion, compared to $2.45 billion for the three months ended September 30, 2022, and $1.68 billion for the three months ended December 31, 2021.
Interest and fees on loans totaled $61.2 million for the three months ended December 31, 2022 compared to $52.3 million and $25.1 million for the three months ended September 30, 2022 and December 31, 2021, respectively. Loan growth of $119.4 million, or 4.8%, during the quarter ended December 31, 2022 included $96.9 million increase in CCBX loans; this includes capital call lines, which decreased $28.3 million, or 16.2%, during the quarter ended December 31, 2022, compared to the quarter ended September 30, 2022. Capital call lines bear a lower rate of interest, but have less credit risk due to the way the loans are structured compared to other commercial loans. The increase in interest and fees on loans for the quarter ended December 31, 2022, compared to September 30, 2022 and December 31, 2021, was largely due to growth in higher yielding loans and increased interest rates. As a result of the Federal Open Market Committee (“FOMC”) raising the target Federal Funds rate 4.25% in 2022, interest rates on our existing variable rate loans are affected, as are the rates on new loans. We continue to monitor the impact of these increases in interest rates. The FOMC last raised the target Federal Funds rate 0.50% on December 14, 2022.
Interest income from interest earning deposits with other banks was $3.1 million at December 31, 2022, an increase of $824,000 compared to September 30, 2022, and an increase of $2.8 million compared to December 31, 2021 due to an increase in interest rates. The average balance of interest earning deposits with other banks for the three months ended December 31, 2022 was $329.4 million, compared to $397.6 million and $751.8 million for the three months ended September 30, 2022 and December 31, 2021, respectively. Interest earning deposits with other banks decreased as a result of increased loan demand and decreased deposits compared to the three months ended September 30, 2022. Interest earning deposits with other banks decreased as a result of increased loan demand compared to the three months ended December 31, 2021. Additionally, the average yield on these interest earning deposits with other banks increased to 3.73% for the quarter ended December 31, 2022, compared to 2.27% and 0.16% for the quarters ended September 30, 2022 and December 31, 2021, respectively.
Interest expense was $11.6 million for the quarter ended December 31, 2022, a $5.3 million increase from the quarter ended September 30, 2022 and a $10.8 million increase from the quarter ended December 31, 2021. Interest expense on borrowed funds was $537,000 for the quarter ended December 31, 2022, compared to $273,000 and $327,000 for the quarters ended September 30, 2022 and December 31, 2021, respectively. Interest expense on borrowed funds increased $264,000 compared to the three months ended September 30, 2022, as a result of an increase of $20.0 million in subordinated debt, which closed on November 1, 2022, combined with the increase in interest rates. The $210,000 increase in interest expense on borrowed funds from the quarter ended December 31, 2021 is the result of an increase in interest rates partially offset by a decrease in Federal Home Loan Bank borrowings, which were paid off in the first quarter of 2022. Interest expense on interest bearing deposits increased $5.3 million for the quarter ended December 31, 2022, compared to the quarter ended September 30, 2022, and $10.5 million compared to the quarter ended December 31, 2021 as a result an increase in CCBX deposits that are tied to and reprice when the FOMC raises rates, just like our CCBX loans which also reprice when the FOMC raises interest rates. Additionally, as a result of the interest rate increases, a significant portion of CCBX deposits that were not earning interest were reclassified to interest bearing deposits from noninterest bearing deposits during the first and second quarters of 2022, which also contributed to the increase in interest expense compared to December 31, 2021. These CCBX deposits were reclassified because the current interest rate exceeded the minimum interest rate set in their respective program agreements, as a result of the first and second quarter 2022 interest rate increases. We do not expect additional CCBX deposits will be reclassified as a result of future rate increases.
Total cost of deposits was 1.56% for the three months ended December 31, 2022, 0.82% for the three months ended September 30, 2022, and 0.09%, for the three months ended December 31, 2021. Community bank and CCBX cost of deposits were 0.37% and 3.13% respectively, for the three months ended December 31, 2022, compared to 0.16% and 1.79%, for the three months ended September 30, 2022, and 0.12% and 0.02% for the three months ended December 31, 2021. The increase in cost of deposits for the three months ended December 31, 2022 compared to the prior periods for both segments is a result of increased interest rates. Also impacting CCBX cost of deposits was the reclassification of deposits from noninterest bearing to interest bearing in the first two quarters of 2022. Any additional interest rate increases will increase our cost of deposits and result in higher interest expense on interest bearing deposits.
Net Interest Margin
Net interest margin was 6.96% for the three months ended December 31, 2022, compared to 6.58% and 3.95% for the three months ended September 30, 2022 and December 31, 2021, respectively. The increase in net interest margin compared to the three months ended September 30, 2022 and December 31, 2021, was largely a result of increased volume and an increase in higher interest rates on new loans and on existing variable rate loans as they reprice. Loans receivable increased $119.4 million and $884.5 million, compared to September 30, 2022 and December 31, 2021, respectively. Additionally, the Fed Funds interest rate increases have resulted in existing, variable rate loans repricing to higher interest rates. Interest on loans receivable increased $8.9 million, or 17.0%, to $61.2 million for the three months ended December 31, 2022, compared to $52.3 million for the three months ended September 30, 2022, and $25.1 million for the three months ended December 31, 2021. Also contributing to the increase in net interest margin compared to the three months ended September 30, 2022 and December 31, 2021, was $824,000 and $2.8 million increase in interest on interest earning deposits, respectively. These interest earning deposits earned an average rate of 3.73% for the quarter ended December 31, 2022, compared to 2.27% and 0.16% for the quarters ended September 30, 2022 and December 31, 2021, respectively. Average investment securities decreased $2.2 million to $101.5 million for the three months ended December 31, 2022 compared to the three months ended September 30, 2022, and increased $64.5 million compared to the three months ended December 31, 2021. Interest on investment securities increased $3,000 for the three months ended December 31, 2022 compared to the three months ended September 30, 2022. Investment securities increased $554,000 compared to December 31, 2021, as a result of the increase in average outstanding balance coupled with increased yield, which also positively impacted net interest margin. These increases in interest income were partially offset by increases in interest expense on interest bearing deposits, as previously discussed.
Cost of funds was 1.61% for the quarter ended December 31, 2022, an increase of 76 basis points from the quarter ended September 30, 2022 and an increase of 147 basis points from the quarter ended December 31, 2021. Cost of deposits for the quarter ended December 31, 2022 was 1.56%, compared to 0.82% for the quarter ended September 30, 2022, and 0.09% for the quarter ended December 31, 2021. The increased cost of funds and deposits compared to September 30, 2022 and December 31, 2021 was largely due to the increase in interest rates compared to the previous periods and growth in deposits compared to December 31, 2021.
During the quarter ended December 31, 2022, total loans receivable increased by $119.4 million, or 4.8%, to $2.63 billion, compared to $2.51 billion for the quarter ended September 30, 2022. The increase consists of $96.9 million in CCBX loan growth and $22.4 million in community bank loan growth. Community bank loan growth is net of $1.1 million in PPP loan forgiveness/repayments. Total loans receivable grew $884.5 million as of December 31, 2022, compared to the quarter ended December 31, 2021. This increase includes CCBX loan growth of $665.8 million and community bank loan growth of $218.7 million. Community bank loan growth is net of $107.1 million in PPP loan forgiveness/repayments as of December 31, 2022 compared to December 31, 2021. During the quarter ended December 31, 2022, $24.4 million in CCBX loans were transferred into loans held for sale, with $67.7 million in loans sold during the quarter and no loans remaining in loans held for sale as of December 31, 2022; compared to $43.3 million held for sale as of September 30, 2022.
Total yield on loans receivable for the quarter ended December 31, 2022 was 9.33%, compared 8.46% for the quarter ended September 30, 2022, and 5.92% for the quarter ended December 31, 2021. This increase in yield on loans receivable is a combination of an overall increase in interest rates, repricing of variable rate loans as well as additional volume in higher rate consumer loans from CCBX partners. During the quarter ended December 31, 2022, CCBX loans outstanding increased 10.6%, or $96.9 million, compared to September 30, 2022, with an average CCBX yield of 15.20% and community bank loans increased 1.4%, or $22.4 million, September 30, 2022, with an average yield of 5.70%. The yield on CCBX loans does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. Net BaaS loan income(*) divided by average CCBX loans outstanding was 8.33% for the quarter ended December 31, 2022 and was impacted by the $28.3 million decline in capital call lines during the quarter that are priced at prime minus 0.50%.
The following table summarizes the average yield on loans receivable and cost of deposits for each segment for the periods indicated:
| For the Three Months Ended | For the Twelve Months Ended | ||||||||||||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Yield on Loans | Cost of Deposits | Yield on Loans | Cost of Deposits | Yield on Loans | Cost of Deposits | Yield on Loans | Cost of Deposits | Yield on Loans | Cost of Deposits | ||||||||||||||||||||
| Community Bank | 5.70 | % | 0.37 | % | 5.31 | % | 0.16 | % | 5.89 | % | 0.12 | % | 5.32 | % | 0.18 | % | 4.90 | % | 0.14 | % | |||||||||
| CCBX (1) | 15.20 | % | 3.13 | % | 13.96 | % | 1.79 | % | 6.13 | % | 0.02 | % | 13.85 | % | 1.57 | % | 4.46 | % | 0.03 | % | |||||||||
| Consolidated | 9.33 | % | 1.56 | % | 8.46 | % | 0.82 | % | 5.92 | % | 0.09 | % | 8.12 | % | 0.71 | % | 4.86 | % | 0.12 | % | |||||||||
| (1) | CCBX yield on loans does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit and fraud enhancements and servicing CCBX loans. To determine Net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at Net BaaS loan income which can be compared to interest income on the Company’s community bank loans. |
The following tables illustrates how BaaS loan interest income is affected by BaaS loan interest expense resulting in net BaaS loan income and the associated yield:
| For the Three Months Ended | ||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||||||||||||
| (dollars in thousands, unaudited) | Income / Expense | Income / expense divided by average CCBX loans (2) | Income / Expense | Income / expense divided by average CCBX loans(2) | Income / Expense | Income / expense divided by average CCBX loans (2) | ||||||||||||
| BaaS loan interest income | $ | 38,086 | 15.20 | % | $ | 31,449 | 13.96 | % | $ | 3,771 | 6.13 | % | ||||||
| Less: BaaS loan expense | 17,215 | 6.87 | % | 15,560 | 6.91 | % | 2,368 | 3.85 | % | |||||||||
| Net BaaS loan income (1) | $ | 20,871 | 8.33 | % | $ | 15,889 | 7.05 | % | $ | 1,403 | 2.28 | % | ||||||
| Average BaaS Loans | $ | 994,080 | $ | 893,655 | $ | 244,038 | ||||||||||||
| For the Twelve Months Ended | ||||||||||||
| December 31, 2022 | December 31, 2021 | |||||||||||
| (dollars in thousands; unaudited) | Income / Expense | Income / expense divided by average CCBX loans | Income / Expense | Income / expense divided by average CCBX loans | ||||||||
| BaaS loan interest income | $ | 102,808 | 13.85 | % | $ | 6,532 | 4.46 | % | ||||
| Less: BaaS loan expense | 53,294 | 7.18 | % | 2,976 | 2.03 | % | ||||||
| Net BaaS loan income (1) | $ | 49,514 | 6.67 | % | $ | 3,556 | 2.43 | % | ||||
| Average BaaS Loans | $ | 742,392 | $ | 146,304 | ||||||||
(1) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.
(2) Annualized calculations shown for quarterly periods presented.
The following table illustrates the net BaaS loan income spread for the periods indicated:
| For the Three Months Ended | |||||||||
| (unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||
| Net BaaS loan income (1)(2) | 8.33 | % | 7.05 | % | 2.28 | % | |||
| CCBX cost of deposits(2) | 3.13 | % | 1.79 | % | 0.02 | % | |||
| Net BaaS loan income interest rate spread (1) | 5.20 | % | 5.26 | % | 2.26 | % | |||
| For the Twelve Months Ended | ||||||
| (unaudited) | December 31, 2022 | December 31, 2021 | ||||
| Net BaaS loan income (1) | 6.67 | % | 2.43 | % | ||
| CCBX cost of deposits | 1.57 | % | 0.03 | % | ||
| Net BaaS loan income interest rate spread (1) | 5.10 | % | 2.40 | % | ||
(1) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.
(2) Annualized calculations shown for quarterly periods presented.
Key Performance Ratios
Return on average assets (“ROA”) was 1.66% for the quarter ended December 31, 2022 compared to 1.45% and 1.14% for the quarters ended September 30, 2022 and December 31, 2021, respectively. ROA for the quarter ended December 31, 2022, was impacted by an increase in loan volume and overall higher interest rates on interest earning assets, compared to the quarters ended September 30, 2022 and December 31, 2021.
The following table shows the Company’s key performance ratios for the periods indicated.
| Three Months Ended | Twelve Months Ended | ||||||||||||||||||||
| (unaudited) | December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | ||||||||||||||
| Return on average assets (1) | 1.66 | % | 1.45 | % | 1.41 | % | 0.93 | % | 1.14 | % | 1.38 | % | 1.24 | % | |||||||
| Return on average equity (1) | 21.86 | % | 19.36 | % | 18.86 | % | 12.12 | % | 16.80 | % | 18.24 | % | 17.24 | % | |||||||
| Yield on earnings assets (1) | 8.47 | % | 7.38 | % | 5.94 | % | 4.58 | % | 4.09 | % | 6.68 | % | 3.90 | % | |||||||
| Yield on loans receivable (1) | 9.33 | % | 8.46 | % | 7.34 | % | 6.80 | % | 5.92 | % | 8.12 | % | 4.86 | % | |||||||
| Cost of funds (1) | 1.61 | % | 0.85 | % | 0.29 | % | 0.14 | % | 0.14 | % | 0.75 | % | 0.18 | % | |||||||
| Cost of deposits (1) | 1.56 | % | 0.82 | % | 0.25 | % | 0.09 | % | 0.09 | % | 0.71 | % | 0.12 | % | |||||||
| Net interest margin (1) | 6.96 | % | 6.58 | % | 5.66 | % | 4.45 | % | 3.95 | % | 5.97 | % | 3.73 | % | |||||||
| Noninterest expense to average assets (1) | 5.97 | % | 6.66 | % | 5.29 | % | 4.52 | % | 3.29 | % | 5.65 | % | 2.90 | % | |||||||
| Noninterest income to average assets (1) | 5.43 | % | 4.48 | % | 3.53 | % | 3.27 | % | 2.22 | % | 4.23 | % | 1.29 | % | |||||||
| Efficiency ratio | 48.94 | % | 61.12 | % | 58.38 | % | 59.34 | % | 54.08 | % | 56.26 | % | 58.82 | % | |||||||
| Loans receivable to deposits (2) | 93.25 | % | 89.92 | % | 86.54 | % | 76.24 | % | 73.73 | % | 93.25 | % | 73.73 | % | |||||||
(1) Annualized calculations shown for quarterly periods presented.
(2) Includes loans held for sale.
The following table details noninterest income for the periods indicated:
Noninterest Income
| Three Months Ended | |||||||||||
| December 31, | September 30, | December 31, | |||||||||
| (dollars in thousands; unaudited) | 2022 | 2022 | 2021 | ||||||||
| Deposit service charges and fees | $ | 946 | $ | 986 | $ | 930 | |||||
| Mortgage broker fees | 25 | 24 | 218 | ||||||||
| Unrealized (loss) gain on equity securities, net | (18 | ) | (133 | ) | (3 | ) | |||||
| Gain on sales of loans, net | — | — | 29 | ||||||||
| Other | 273 | 236 | 397 | ||||||||
| Noninterest income, excluding BaaS program income and BaaS indemnification income | 1,226 | 1,113 | 1,571 | ||||||||
| Servicing and other BaaS fees | 1,001 | 1,079 | 1,421 | ||||||||
| Transaction fees | 964 | 940 | 280 | ||||||||
| Interchange fees | 785 | 738 | 368 | ||||||||
| Reimbursement of expenses | 857 | 885 | 295 | ||||||||
| BaaS program income | 3,607 | 3,642 | 2,364 | ||||||||
| BaaS credit enhancements | 31,164 | 17,928 | 9,076 | ||||||||
| Baas fraud enhancements | 6,818 | 11,708 | 1,209 | ||||||||
| BaaS indemnification income | 37,982 | 29,636 | 10,285 | ||||||||
| Total noninterest income | $ | 42,815 | $ | 34,391 | $ | 14,220 | |||||
Noninterest income was $42.8 million for the three months ended December 31, 2022, an increase of $8.4 million from $34.4 million for the three months ended September 30, 2022, and an increase of $28.6 million from $14.2 million for the three months ended December 31, 2021. The increase in noninterest income over the quarter ended September 30, 2022 was primarily due to an increase of $8.3 million in BaaS income. The $8.3 million increase in BaaS income included a $13.2 million increase in BaaS credit enhancements related to the allowance for loan losses and reserve for unfunded commitments, a $4.9 million decrease in BaaS fraud enhancements, and a decrease of $35,000 in BaaS program income (see “Appendix B” for more information on the accounting for BaaS allowance for loan losses, reserve for unfunded commitments and credit and fraud enhancements). The $28.6 million increase in noninterest income over the quarter ended December 31, 2021 was primarily due to a $28.9 million increase in BaaS income. The $28.9 million increase in BaaS income included a $22.1 million increase in BaaS credit enhancements, a $5.6 million increase in BaaS fraud enhancements and a $1.2 million increase in other BaaS program income.
Our CCBX segment continues to evolve, and we now have 27 relationships, at varying stages, as of December 31, 2022. We continue to refine the criteria for CCBX partnerships and are exiting relationships where it makes sense for both parties and are focusing more on selecting larger and more established partners, with experienced management teams, existing customer bases and strong financial positions.
The following table illustrates the activity and evolution in CCBX relationships for the periods presented. During the quarter ended December 31, 2022, a couple partners wound down their CCBX programs; these programs were not material in terms of income and sources of funds or loans.
| As of | |||
| (unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 |
| Active | 19 | 19 | 19 |
| Friends and family / testing | 1 | 2 | 1 |
| Implementation / onboarding | 0 | 0 | 5 |
| Signed letters of intent | 5 | 5 | 3 |
| Wind down - preparing to exit relationship | 2 | 3 | 0 |
| Total CCBX relationships | 27 | 29 | 28 |
Noninterest Expense
The following table details noninterest expense for the periods indicated:
| Three Months Ended | |||||||||
| December 31, | September 30, | December 31, | |||||||
| (dollars in thousands; unaudited) | 2022 | 2022 | 2021 | ||||||
| Salaries and employee benefits | $ | 14,399 | $ | 14,506 | $ | 10,541 | |||
| Legal and professional fees | 2,799 | 2,251 | 951 | ||||||
| Data processing and software licenses | 1,768 | 1,670 | 1,494 | ||||||
| Occupancy | 1,182 | 1,147 | 1,043 | ||||||
| Point of sale expense | 710 | 742 | 195 | ||||||
| FDIC assessments | 550 | 850 | 812 | ||||||
| Director and staff expenses | 515 | 475 | 393 | ||||||
| Marketing | 109 | 69 | 107 | ||||||
| Excise taxes | 702 | 588 | 435 | ||||||
| Other | 335 | 1,522 | 1,502 | ||||||
| Noninterest expense, excluding BaaS loan and BaaS fraud expense | 23,069 | 23,820 | 17,473 | ||||||
| BaaS loan expense | 17,215 | 15,560 | 2,368 | ||||||
| BaaS fraud expense | 6,819 | 11,707 | 1,209 | ||||||
| BaaS loan and fraud expense | 24,034 | 27,267 | 3,577 | ||||||
| Total noninterest expense | $ | 47,103 | $ | 51,087 | $ | 21,050 | |||
Total noninterest expense decreased to $47.1 million for the three months ended December 31, 2022, compared to $51.1 million for the three months ended September 30, 2022 and increased from $21.1 million for the three months ended December 31, 2021. The decrease in noninterest expense for the quarter ended December 31, 2022, as compared to the quarter ended September 30, 2022, was primarily due to a $3.2 million decrease in BaaS expense (of which $4.9 million is related to a decrease in partner fraud expense partially offset by an increase of $1.7 million in partner loan expense). Partner loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, and servicing CCBX loans. Partner fraud expense represents non-credit fraud losses on partner’s customer loan and deposit accounts, a portion of this expense is realized during the quarter, and a portion is estimated based on historical or other information from our partners. Also contributing to the decrease in noninterest expense compared to September 30, 2022 is a $1.2 million decrease in other expenses, which is related to reduction in the unfunded commitment reserve of $1.1 million.
The increase in noninterest expenses for the quarter ended December 31, 2022 compared to the quarter ended December 31, 2021 were largely due to an increase of $20.5 million in BaaS partner expense ($14.8 million of which is related to partner loan expense and $5.6 million of which is related to partner fraud expense), $3.9 million increase in salary and employee benefits related to hiring staff for CCBX and additional staff for our ongoing growth initiatives and $1.8 million increase in legal and professional fees due to increased fees related to data and risk management, and increased consulting expenses for projects and enhanced monitoring. Additionally, there was a $515,000 increase in point of sale expenses which is attributed to increased CCBX activity. Partially offsetting the increase in noninterest expense compared to December 31, 2021 is a $1.2 million decrease in other expenses, which is related to reduction in the unfunded commitment reserve of $1.5 million.
The provision for income taxes was $2.4 million for the three months ended December 31, 2022, $3.0 million for the three months ended September 30, 2022 and $1.6 million for the fourth quarter of 2021. The Company is subject to various state taxes that are assessed as CCBX activities and employees expand into other states, which has increased the overall tax rate used in calculating the provision for income taxes in the current and future periods. The effective tax rate was lower for the three months ended December 31, 2022 due to an update in the state apportionment of the revenues in the states in which we operate combined with tax benefits that resulted from the exercise of stock awards. The Company uses a federal statutory tax rate of 21.0% as a basis for calculating provision for federal income taxes and 2.62% for calculating the provision for state taxes.
Financial Condition Overview
Total assets increased $10.7 million, or 0.3%, to $3.14 billion at December 31, 2022 compared to $3.13 billion at September 30, 2022. The increase is primarily due to loans receivable increasing $119.4 million during the quarter ended December 31, 2022. Partially offsetting the increase in loans for the quarter ended December 31, 2022 was a $63.8 million decrease in interest earning deposits with other banks, resulting from increased loan demand and decreased customer deposits. Additionally, there were no loans held for sale at December 31, 2022, a decrease of $43.3 million, compared to the quarter ended September 30, 2022.
Total assets increased $509.0 million, or 19.3%, at December 31, 2022, compared to $2.64 billion at December 31, 2021. The increase is primarily due to loans receivable increasing $884.5 million, and an increase of $61.7 million in investment securities. Partially offsetting the increase is a $489.2 million decrease in interest earning deposits with other banks, resulting from increased loan demand and funds being shifted from interest earning deposits with other banks to loans, compared to December 31, 2021.
Loans Receivable
Total loans receivable increased $119.4 million to $2.63 billion at December 31, 2022, from $2.51 billion at September 30, 2022, and increased $884.5 million from $1.74 billion at December 31, 2021. The increase in loans receivable over the quarter ended September 30, 2022 was the result of $96.9 million in CCBX loan growth and $22.4 million in community bank loan growth. Community bank loan growth is net of $1.1 million in PPP loan forgiveness/repayments compared to the quarter ended September 30, 2022. The change in loans receivable over the quarter ended December 31, 2021 includes CCBX loan growth of $665.8 million and $218.7 million in community bank loan growth as of December 31, 2022. Community bank loan growth is net of $107.1 million in PPP loan forgiveness and paydowns since December 31, 2021.
The following table summarizes the loan portfolio at the period indicated:
| As of December 31, 2022 | As of September 30, 2022 | As of December 31, 2021 | ||||||||||||||||||
| (dollars in thousands; unaudited) | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||
| Commercial and industrial loans: | ||||||||||||||||||||
| PPP loans | $ | 4,699 | 0.2 | % | $ | 5,794 | 0.2 | % | $ | 111,813 | 6.4 | % | ||||||||
| Capital call lines | 146,029 | 5.5 | 174,311 | 6.9 | 202,882 | 11.5 | ||||||||||||||
| All other commercial & industrial loans | 161,900 | 6.1 | 159,823 | 6.4 | 104,365 | 6.0 | ||||||||||||||
| Total commercial and industrial loans: | 312,628 | 11.8 | 339,928 | 13.5 | 419,060 | 23.9 | ||||||||||||||
| Real estate loans: | ||||||||||||||||||||
| Construction, land and land development | 214,055 | 8.1 | 224,188 | 8.9 | 183,594 | 10.5 | ||||||||||||||
| Residential real estate | 449,157 | 17.1 | 402,781 | 16.0 | 204,389 | 11.7 | ||||||||||||||
| Commercial real estate | 1,048,752 | 39.8 | 1,024,067 | 40.7 | 835,587 | 47.7 | ||||||||||||||
| Consumer and other loans | 608,771 | 23.2 | 523,536 | 20.9 | 108,871 | 6.2 | ||||||||||||||
| Gross loans receivable | 2,633,363 | 100.0 | % | 2,514,500 | 100.0 | % | 1,751,501 | 100.0 | % | |||||||||||
| Net deferred origination fees - PPP loans | (82 | ) | (111 | ) | (3,633 | ) | ||||||||||||||
| Net deferred origination fees - all other loans | (6,025 | ) | (6,500 | ) | (5,133 | ) | ||||||||||||||
| Loans receivable | $ | 2,627,256 | $ | 2,507,889 | $ | 1,742,735 | ||||||||||||||
| Loan Yield (1) | 9.33 | % | 8.46 | % | 5.92 | % | ||||||||||||||
(1) Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.
Please see Appendix A for additional loan portfolio detail regarding industry concentrations.
The following tables detail the community bank and CCBX loans which are included in the total loan portfolio table above.
| Community Bank | As of | ||||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||||||||||||
| (dollars in thousands; unaudited) | Balance | % to Total | Balance | % to Total | Balance | % to Total | |||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||||||
| PPP loans | $ | 4,699 | 0.3 | % | $ | 5,794 | 0.4 | % | $ | 111,813 | 8.0 | % | |||||||||
| All other commercial & industrial loans | 146,982 | 9.1 | 143,808 | 9.0 | 104,365 | 7.4 | |||||||||||||||
| Real estate loans: | |||||||||||||||||||||
| Construction, land and land development loans | 214,055 | 13.2 | 224,188 | 14.0 | 183,594 | 13.1 | |||||||||||||||
| Residential real estate loans | 204,581 | 12.6 | 198,871 | 12.5 | 167,502 | 11.9 | |||||||||||||||
| Commercial real estate loans | 1,048,752 | 64.7 | 1,024,067 | 64.0 | 835,587 | 59.5 | |||||||||||||||
| Consumer and other loans: | |||||||||||||||||||||
| Other consumer and other loans | 1,725 | 0.1 | 2,220 | 0.1 | 2,034 | 0.1 | |||||||||||||||
| Gross Community Bank loans receivable | 1,620,794 | 100.0 | % | 1,598,948 | 100.0 | % | 1,404,895 | 100.0 | % | ||||||||||||
| Net deferred origination fees | (6,042 | ) | (6,628 | ) | (8,835 | ) | |||||||||||||||
| Loans receivable | $ | 1,614,752 | $ | 1,592,320 | $ | 1,396,060 | |||||||||||||||
| Loan Yield(1) | 5.70 | % | 5.31 | % | 5.89 | % | |||||||||||||||
(1) Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.
| CCBX | As of | ||||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||||||||||||
| (dollars in thousands; unaudited) | Balance | % to Total | Balance | % to Total | Balance | % to Total | |||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||||||
| Capital call lines | $ | 146,029 | 14.4 | % | $ | 174,311 | 19.0 | % | $ | 202,882 | 58.6 | % | |||||||||
| All other commercial & industrial loans | 14,918 | 1.5 | 16,015 | 1.8 | — | 0.0 | |||||||||||||||
| Real estate loans: | |||||||||||||||||||||
| Residential real estate loans | 244,576 | 24.2 | 203,910 | 22.3 | 36,887 | 10.6 | |||||||||||||||
| Consumer and other loans: | |||||||||||||||||||||
| Credit cards | 279,644 | 27.6 | 216,995 | 23.7 | 11,429 | 3.3 | |||||||||||||||
| Other consumer and other loans | 327,402 | 32.3 | 304,321 | 33.2 | 95,408 | 27.5 | |||||||||||||||
| Gross CCBX loans receivable | 1,012,569 | 100.0 | % | 915,552 | 100.0 | % | 346,606 | 100.0 | % | ||||||||||||
| Net deferred origination (fees) costs | (65 | ) | 17 | 69 | |||||||||||||||||
| Loans receivable | $ | 1,012,504 | $ | 915,569 | $ | 346,675 | |||||||||||||||
| Loan Yield - CCBX (1)(2) | 15.20 | % | 13.96 | % | 6.13 | % | |||||||||||||||
| (1) | CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release for the impact of BaaS loan expense on CCBX loan yield. |
| (2) | Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans. |
Deposits
Total deposits decreased $19.5 million, or 0.7%, to $2.82 billion at December 31, 2022 from $2.84 billion at September 30, 2022. The decrease was due to a $41.3 million decrease in core deposits, combined with a $4.4 million decrease in time deposits, partially offset by a $26.2 million increase in BaaS-brokered deposits. We believe our decrease in deposits is primarily the result of significantly higher deposit rates being offered by competitors and depositors investing in the market. Deposits in our CCBX segment increased $77.0 million, from $1.20 billion at September 30, 2022, to $1.28 billion at December 31, 2022 and community bank deposits decreased $96.6 million to $1.54 billion at December 31, 2022. The deposits from our CCBX segment are predominately classified as interest bearing, or NOW and money market accounts, but a portion of such CCBX deposits may be classified as brokered deposits as a result of the relationship agreement. During the quarter ended December 31, 2022, noninterest bearing deposits decreased $38.2 million, or 4.7%, to $775.0 million from $813.2 million at September 30, 2022. In the quarter ended December 31, 2022 compared to the quarter ended September 30, 2022, NOW and money market accounts decreased $2.7 million, savings deposits decreased $391,000, and time deposits decreased $4.4 million. Partially offsetting those decreases is an increase of $26.2 million in BaaS-brokered deposits.
Total deposits increased $453.7 million, or 19.2%, to $2.82 billion at December 31, 2022 compared to $2.36 billion at December 31, 2021. The increase is largely the result of growth in CCBX deposits. Noninterest bearing deposits decreased $580.9 million, or 42.8%, to $775.0 million at December 31, 2022 from $1.4 billion at December 31, 2021. NOW and money market accounts increased $1.01 billion, or 128.5%, to $1.80 billion at December 31, 2022, and savings accounts increased $3.2 million, or 3.0%, and BaaS-brokered deposits increased $30.8 million, or 43.5% while time deposits decreased $14.0 million, or 32.2%, in the fourth quarter of 2022 compared to the fourth quarter of 2021. Additionally, as of December 31, 2022 we have access to $225.0 million in CCBX customer deposits that are currently being transferred off the Bank’s balance sheet to other financial institutions on a daily basis. The Bank could retain these deposits for liquidity and funding purposes if needed. If a portion of these deposits are retained, they would be classified as brokered deposits, however if the entire available balance is retained, they would be non-brokered deposits. Efforts to retain and grow core deposits are evidenced by the high ratios in these categories when compared to total deposits.
The following table summarizes the deposit portfolio for the periods indicated.
| As of December 31, 2022 | As of September 30, 2022 | As of December 31, 2021 | ||||||||||||||||||
| (dollars in thousands; unaudited) | Amount | Percent of Total Deposits | Balance | Percent of Total Deposits | Balance | Percent of Total Deposits | ||||||||||||||
| Demand, noninterest bearing | $ | 775,012 | 27.5 | % | $ | 813,217 | 28.7 | % | $ | 1,355,908 | 57.4 | % | ||||||||
| NOW and money market | 1,804,399 | 64.0 | 1,807,105 | 63.7 | 789,709 | 33.4 | ||||||||||||||
| Savings | 107,117 | 3.8 | 107,508 | 3.8 | 103,956 | 4.4 | ||||||||||||||
| Total core deposits | 2,686,528 | 95.3 | 2,727,830 | 96.2 | 2,249,573 | 95.2 | ||||||||||||||
| BaaS-brokered deposits | 101,546 | 3.6 | 75,363 | 2.6 | 70,757 | 3.0 | ||||||||||||||
| Time deposits less than $100,000 | 12,596 | 0.5 | 13,296 | 0.5 | 14,961 | 0.6 | ||||||||||||||
| Time deposits $100,000 and over | 16,851 | 0.6 | 20,577 | 0.7 | 28,496 | 1.2 | ||||||||||||||
| Total | $ | 2,817,521 | 100.0 | % | $ | 2,837,066 | 100.0 | % | $ | 2,363,787 | 100.0 | % | ||||||||
| Cost of Deposits (1) | 1.56 | % | 0.82 | % | 0.09 | % | ||||||||||||||
(1) Cost of deposits is annualized for the three months ended for each period presented.
The following tables detail the community bank and CCBX deposits which are included in the total deposit portfolio table above.
| Community Bank | As of | ||||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||||||||||||
| (dollars in thousands; unaudited) | Balance | % to Total | Balance | % to Total | Balance | % to Total | |||||||||||||||
| Demand, noninterest bearing | $ | 694,179 | 45.2 | % | $ | 746,516 | 45.7 | % | $ | 719,233 | 43.7 | % | |||||||||
| NOW and money market | 709,490 | 46.1 | 748,347 | 45.8 | 780,884 | 47.4 | |||||||||||||||
| Savings | 105,101 | 6.8 | 106,059 | 6.4 | 103,954 | 6.3 | |||||||||||||||
| Total core deposits | 1,508,770 | 98.1 | 1,600,922 | 97.9 | 1,604,071 | 97.4 | |||||||||||||||
| Brokered deposits | 1 | 0.0 | 1 | 0.0 | 1 | 0.0 | |||||||||||||||
| Time deposits less than $100,000 | 12,596 | 0.8 | 13,296 | 0.8 | 14,961 | 0.9 | |||||||||||||||
| Time deposits $100,000 and over | 16,851 | 1.1 | 20,577 | 1.3 | 28,496 | 1.7 | |||||||||||||||
| Total Community Bank deposits | $ | 1,538,218 | 100.0 | % | $ | 1,634,796 | 100.0 | % | $ | 1,647,529 | 100.0 | % | |||||||||
| Cost of deposits(1) | 0.37 | % | 0.16 | % | 0.12 | % | |||||||||||||||
(1) Cost of deposits is annualized for the three months ended for each period presented.
| CCBX | As of | ||||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||||||||||||
| (dollars in thousands; unaudited) | Balance | % to Total | Balance | % to Total | Balance | % to Total | |||||||||||||||
| Demand, noninterest bearing | $ | 80,833 | 6.3 | % | $ | 66,701 | 5.5 | % | $ | 636,675 | 88.9 | % | |||||||||
| NOW and money market | 1,094,909 | 85.6 | 1,058,758 | 88.1 | 8,825 | 1.2 | |||||||||||||||
| Savings | 2,016 | 0.2 | 1,449 | 0.1 | 2 | — | |||||||||||||||
| Total core deposits | 1,177,758 | 92.1 | 1,126,908 | 93.7 | 645,502 | 90.1 | |||||||||||||||
| BaaS-brokered deposits | 101,545 | 7.9 | 75,362 | 6.3 | 70,756 | 9.9 | |||||||||||||||
| Total CCBX deposits | $ | 1,279,303 | 100.0 | % | $ | 1,202,270 | 100.0 | % | $ | 716,258 | 100.0 | % | |||||||||
| Cost of deposits (1) | 3.13 | % | 1.79 | % | 0.02 | % | |||||||||||||||
(1) Cost of deposits is annualized for the three months ended for each period presented.
Borrowings
On November 1, 2022, the Company completed its private placement of $20.0 million in fixed-to-floating rate subordinated notes due November 1, 2032 (the “Notes”). The Notes bear interest at a fixed annual rate of 7.00% for the first five years and will reset quarterly thereafter to the then-current three-month Secured Overnight Financing Rate ("SOFR") plus 290 basis points. The Company may redeem the Notes, in whole or in part, on any interest payment date on or after November 1, 2027, or at any time, in whole but not in part, upon certain other specified events prior to the Notes’ maturity on November 1, 2032.
Shareholders’ Equity
During the twelve months ended December 31, 2022, the Company contributed $21.0 million in capital to the Bank. The Company has a cash balance of $22.9 million as of December 31, 2022, which is retained for general operating purposes, including debt repayment, and for funding $988,000 in commitments to bank technology funds.
Total shareholders’ equity increased $14.8 million since September 30, 2022. The increase in shareholders’ equity was primarily due to $13.1 million in net earnings and $1.2 million increase from stock options being exercised for the three months ended December 31, 2022.
Capital Ratios
The Company and the Bank remain well capitalized at December 31, 2022, as summarized in the following table.
| (unaudited) | Coastal Community Bank | Coastal Financial Corporation | Financial Institution Basel III Regulatory Guidelines | ||||||
| Tier 1 leverage capital | 8.56 | % | 7.97 | % | 5.00 | % | |||
| Common Equity Tier 1 risk-based capital | 9.77 | % | 8.95 | % | 6.50 | % | |||
| Tier 1 risk-based capital | 9.77 | % | 9.08 | % | 8.00 | % | |||
| Total risk-based capital | 11.04 | % | 11.99 | % | 10.00 | % | |||
Asset Quality
The total allowance for loan losses was $74.0 million and 2.82% of loans receivable at December 31, 2022 compared to $59.3 million and 2.36% at September 30, 2022 and $28.6 million and 1.64% at December 31, 2021. The allowance for loan loss allocated to the CCBX portfolio was $53.4 million and 5.27% of CCBX loans receivable at December 31, 2022, with $20.6 million of allowance for loan loss allocated to the community bank or 1.28% of total community bank loans receivable.
The following table details the allocation of the allowance for loan loss as of the period indicated:
| As of December 31, 2022 | As of September 30, 2022 | As of December 31, 2021 | ||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Community Bank | CCBX | Total | Community Bank | CCBX | Total | Community Bank | CCBX | Total | |||||||||||||||||||||||||||
| Loans receivable | $ | 1,614,751 | $ | 1,012,505 | $ | 2,627,256 | $ | 1,592,320 | $ | 915,569 | $ | 2,507,889 | $ | 1,396,060 | $ | 346,675 | $ | 1,742,735 | ||||||||||||||||||
| Allowance for loan losses | (20,636 | ) | (53,393 | ) | (74,029 | ) | (20,139 | ) | (39,143 | ) | (59,282 | ) | (20,299 | ) | (8,333 | ) | (28,632 | ) | ||||||||||||||||||
| Allowance for loan losses to total loans receivable | 1.28 | % | 5.27 | % | 2.82 | % | 1.26 | % | 4.28 | % | 2.36 | % | 1.45 | % | 2.40 | % | 1.64 | % | ||||||||||||||||||
Provision for loan losses totaled $33.6 million for the three months ended December 31, 2022, $18.4 million for the three months ended September 30, 2022, and $8.9 million for the three months ended December 31, 2021. Net charge-offs totaled $18.9 million for the quarter ended December 31, 2022, compared to $8.5 million for the quarter ended September 30, 2022 and $532,000 for the quarter ended December 31, 2021. Net charge-offs increased due to CCBX partner loans and the reclassification and charge-off of negative deposit accounts. CCBX partner agreements provide for a credit enhancement that covers the net-charge-offs on CCBX loans and negative deposit accounts, except in accordance with the program agreement for one partner where the Company is responsible for credit losses on approximately 10% of a $114.5 million loan portfolio. At December 31, 2022, 10% of this portfolio represented $11.5 million in loans.
The following table details net charge-offs for the core bank and CCBX for the period indicated:
| Three Months Ended | ||||||||||||||||||||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Community Bank | CCBX | Total | Community Bank | CCBX | Total | Community Bank | CCBX | Total | |||||||||||||||||||||||||||
| Gross charge-offs | $ | 10 | $ | 18,876 | $ | 18,886 | $ | 411 | $ | 8,102 | $ | 8,513 | $ | 215 | $ | 364 | $ | 579 | ||||||||||||||||||
| Gross recoveries | (3 | ) | (30 | ) | (33 | ) | (3 | ) | (6 | ) | (9 | ) | (47 | ) | — | (47 | ) | |||||||||||||||||||
| Net charge-offs | $ | 7 | $ | 18,846 | $ | 18,853 | $ | 408 | $ | 8,096 | $ | 8,504 | $ | 168 | $ | 364 | $ | 532 | ||||||||||||||||||
| Net charge-offs to average loans (1) | — | % | 7.52 | % | 2.87 | % | 0.10 | % | 3.59 | % | 1.38 | % | 0.05 | % | 0.59 | % | 0.13 | % | ||||||||||||||||||
The increase in the Company’s provision for loan losses during the quarter ended December 31, 2022, is largely related to the provision for loan growth in CCBX partner loans. During the quarter ended December 31, 2022, a $33.1 million provision for loan losses was recorded for CCBX partner loans based on management’s analysis, compared to the $18.7 million provision for loan losses that was recorded for CCBX for the quarter ended September 30, 2022. CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for loan losses. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses. In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans and reclassified negative deposit accounts. When the provision for CCBX loan losses and provision for unfunded commitments is recorded, a receivable is also recorded on the balance sheet through noninterest income (BaaS credit enhancements). Incurred losses are recorded in the allowance for loan losses. The receivable is relieved when credit enhancement recoveries are received from the CCBX partner. Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by absorbing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligations then the bank would be exposed to additional loan losses, as a result of this counterparty risk. The factors used in management’s analysis for community bank loan losses indicated that a provision of $504,000 and recapture/adjustment for loan losses of $238,000 was needed for the quarters ended December 31, 2022 and September 30, 2022, respectively. In accordance with the program agreement and for this CCBX partner only, the Company is responsible for credit losses on approximately 10% of a $114.5 million loan portfolio. At December 31, 2022, 10% of this portfolio represented $11.5 million in loans. The partner is responsible for credit losses on approximately 90% of this portfolio and for fraud losses on 100% of this portfolio. The Company earns 100% of the revenue on the aforementioned $11.5 million of loans. The economic environment is continuously changing, due to increased inflation, global unrest, the war in Ukraine, political environment, trade issues that may impact the provision and therefore the allowance. The Company is not required to implement the provisions of the Current Expected Credit Loss ("CECL") accounting standard until January 1, 2023 and continues to account for the allowance for credit losses under the incurred loss model. The Company is on track with its migration and adoption plan for CECL.
The following table details the provision expense for the community bank and CCBX for the period indicated:
| Three Months Ended | Twelve Months Ended | |||||||||||||||
| (dollars in thousands; unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||
| Community bank | $ | 504 | $ | (238 | ) | $ | 243 | $ | 719 | $ | 1,275 | |||||
| CCBX | 33,096 | 18,666 | 8,699 | 78,345 | 8,640 | |||||||||||
| Total provision expense | $ | 33,600 | $ | 18,428 | $ | 8,942 | $ | 79,064 | $ | 9,915 | ||||||
At December 31, 2022, our nonperforming assets were $33.2 million, or 1.06% of total assets, compared to $22.9 million, or 0.73%, of total assets, at September 30, 2022, and $1.7 million, or 0.07% of total assets, at December 31, 2021. These ratios are impacted by the increase in CCBX loans over 90 days delinquent that are covered by CCBX partner credit enhancements. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses. Under the agreement, the CCBX partner will reimburse the Bank for its loss/charge-off on these loans. Nonperforming assets increased $10.3 million during the quarter ended December 31, 2022, compared to the quarter ended September 30, 2022, due to the addition of $10.3 million in CCBX loans that are past due 90 days or more and still accruing combined with $19,000 more in community bank nonaccrual loans. As a result of the type of loans (primarily consumer loans) originated through our CCBX partners we anticipate that balances 90 days past due or more and still accruing will increase as those loans grow. Installment/closed-end and revolving/open-end consumer loans originated through CCBX lending partners will continue to accrue interest until 120 and 180 days past due, respectively and are reported as substandard, 90 days or more days past due and still accruing. Community bank nonaccrual loans increased with the addition of one new nonaccrual loan partially offset by other nonaccrual principal reductions/charge-offs. There were no repossessed assets or other real estate owned at December 31, 2022. Our nonperforming loans to loans receivable ratio was 1.26% at December 31, 2022, compared to 0.91% at September 30, 2022, and 0.10% at December 31, 2021.
For the quarter ended December 31, 2022, there were $7,000 of community bank net charge-offs and $7.1 million of nonperforming community bank loans. The $6.9 million nonaccrual balance in commercial real estate loans shown below consists of one loan, is well secured with an original loan to value of 62%, and an updated loan to value of 75% as of January 2023. Management anticipates this loan being resolved in the first half of 2023. For the quarter ended December 31, 2022, $18.8 million in net charge-offs were recorded on CCBX loans. These loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for loan losses. In accordance with the program agreement and for this CCBX partner only, the Company is responsible for credit losses on approximately 10% of a $114.5 million loan portfolio. At December 31, 2022, 10% of this portfolio represented $11.5 million in loans. The partner is responsible for credit losses on approximately 90% of this portfolio and for fraud losses on 100% of this portfolio.
The following table details the Company’s nonperforming assets for the periods indicated.
| (dollars in thousands; unaudited) | As of December 31, 2022 | As of September 30, 2022 | As of December 31, 2021 | ||||||||
| Nonaccrual loans: | |||||||||||
| Commercial and industrial loans | $ | 113 | $ | 94 | $ | 166 | |||||
| Real estate loans: | |||||||||||
| Construction, land and land development | 66 | 66 | — | ||||||||
| Residential real estate | — | — | 55 | ||||||||
| Commercial real estate | 6,901 | 6,901 | — | ||||||||
| Total nonaccrual loans | 7,080 | 7,061 | 221 | ||||||||
| Accruing loans past due 90 days or more: | |||||||||||
| Commercial & industrial loans | 404 | 138 | — | ||||||||
| Real estate loans: | |||||||||||
| Residential real estate loans | 876 | 638 | 39 | ||||||||
| Consumer and other loans: | |||||||||||
| Credit cards | 10,570 | 4,777 | 155 | ||||||||
| Other consumer and other loans | 14,245 | 10,268 | 1,312 | ||||||||
| Total accruing loans past due 90 days or more | 26,095 | 15,821 | 1,506 | ||||||||
| Total nonperforming loans | 33,175 | 22,882 | 1,727 | ||||||||
| Real estate owned | — | — | — | ||||||||
| Repossessed assets | — | — | — | ||||||||
| Troubled debt restructurings, accruing | — | — | — | ||||||||
| Total nonperforming assets | $ | 33,175 | $ | 22,882 | $ | 1,727 | |||||
| Total nonaccrual loans to loans receivable | 0.27 | % | 0.28 | % | 0.01 | % | |||||
| Total nonperforming loans to loans receivable | 1.26 | % | 0.91 | % | 0.10 | % | |||||
| Total nonperforming assets to total assets | 1.06 | % | 0.73 | % | 0.07 | % | |||||
The following tables detail the community bank and CCBX nonperforming assets which are included in the total nonperforming assets table above.
| Community Bank | As of | |||||||
| (dollars in thousands; unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||
| Nonaccrual loans: | ||||||||
| Commercial and industrial loans | $ | 113 | $ | 94 | $ | 166 | ||
| Real estate: | ||||||||
| Construction, land and land development | 66 | 66 | — | |||||
| Residential real estate | — | — | 55 | |||||
| Commercial real estate | 6,901 | 6,901 | — | |||||
| Total nonaccrual loans | 7,080 | 7,061 | 221 | |||||
| — | ||||||||
| Accruing loans past due 90 days or more: | ||||||||
| Total accruing loans past due 90 days or more | — | — | — | |||||
| Total nonperforming loans | 7,080 | 7,061 | 221 | |||||
| Other real estate owned | — | — | — | |||||
| Repossessed assets | — | — | — | |||||
| Total nonperforming assets | $ | 7,080 | $ | 7,061 | $ | 221 | ||
| CCBX | As of | |||||||
| (dollars in thousands; unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||
| Nonaccrual loans | $ | — | $ | — | $ | — | ||
| Accruing loans past due 90 days or more: | ||||||||
| Commercial & industrial loans | 404 | 138 | — | |||||
| Real estate loans: | ||||||||
| Residential real estate loans | 876 | 638 | 39 | |||||
| Consumer and other loans: | ||||||||
| Credit cards | 10,570 | 4,777 | 155 | |||||
| Other consumer and other loans | 14,245 | 10,268 | 1,312 | |||||
| Total accruing loans past due 90 days or more | 26,095 | 15,821 | 1,506 | |||||
| Total nonperforming loans | 26,095 | 15,821 | 1,506 | |||||
| Other real estate owned | — | — | — | |||||
| Repossessed assets | — | — | — | |||||
| Total nonperforming assets | $ | 26,095 | $ | 15,821 | $ | 1,506 | ||
* A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.
About Coastal Financial
Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), is an Everett, Washington based bank holding company whose wholly owned subsidiaries are Coastal Community Bank (“Bank”) and Arlington Olympic LLC. The $3.14 billion Bank provides service through 14 branches in Snohomish, Island, and King Counties, the Internet and its mobile banking application. The Bank provides banking as a service to broker-dealers, digital financial service providers, companies and brands that want to provide financial services to their customers through the Bank's CCBX segment. To learn more about the Company visit www.coastalbank.com.
CCB-ER
Contact
Eric Sprink, Chief Executive Officer, (425) 357-3659
Joel Edwards, Executive Vice President & Chief Financial Officer, (425) 357-3687
Forward-Looking Statements
This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Any or all of the forward-looking statements in this earnings release may turn out to be inaccurate. The inclusion of or reference to forward-looking information in this earnings release should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of risks, uncertainties and assumptions that are difficult to predict. Factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, the risks and uncertainties discussed under “Risk Factors” in our Annual Report on Form 10-K for the most recent period filed, our Quarterly Report on Form 10-Q for the most recent quarter, and in any of our subsequent filings with the Securities and Exchange Commission.
If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. You are cautioned not to place undue reliance on forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law.
COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands; unaudited)
| ASSETS | |||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||
| Cash and due from banks | $ | 32,722 | $ | 37,482 | $ | 14,496 | |||||
| Interest earning deposits with other banks | 309,417 | 373,246 | 798,665 | ||||||||
| Investment securities, available for sale, at fair value | 97,317 | 97,621 | 35,327 | ||||||||
| Investment securities, held to maturity, at amortized cost | 1,036 | 1,250 | 1,296 | ||||||||
| Other investments | 10,555 | 10,581 | 8,478 | ||||||||
| Loans held for sale | — | 43,314 | — | ||||||||
| Loans receivable | 2,627,256 | 2,507,889 | 1,742,735 | ||||||||
| Allowance for loan losses | (74,029 | ) | (59,282 | ) | (28,632 | ) | |||||
| Total loans receivable, net | 2,553,227 | 2,448,607 | 1,714,103 | ||||||||
| CCBX credit enhancement asset | 53,377 | 48,228 | 8,712 | ||||||||
| CCBX receivable | 10,416 | 6,145 | 1,266 | ||||||||
| Premises and equipment, net | 18,213 | 18,467 | 17,219 | ||||||||
| Operating lease right-of-use assets | 5,018 | 5,293 | 6,105 | ||||||||
| Accrued interest receivable | 17,815 | 13,114 | 8,105 | ||||||||
| Bank-owned life insurance, net | 12,667 | 12,576 | 12,254 | ||||||||
| Deferred tax asset, net | 18,458 | 13,997 | 6,818 | ||||||||
| Other assets | 4,229 | 3,820 | 2,673 | ||||||||
| Total assets | $ | 3,144,467 | $ | 3,133,741 | $ | 2,635,517 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| LIABILITIES | |||||||||||
| Deposits | $ | 2,817,521 | $ | 2,837,066 | $ | 2,363,787 | |||||
| Federal Home Loan Bank ("FHLB") advances | — | — | 24,999 | ||||||||
| Subordinated debt, net | 43,999 | 24,343 | 24,288 | ||||||||
| Junior subordinated debentures, net | 3,588 | 3,588 | 3,586 | ||||||||
| Deferred compensation | 616 | 648 | 744 | ||||||||
| Accrued interest payable | 684 | 153 | 357 | ||||||||
| Operating lease liabilities | 5,234 | 5,514 | 6,320 | ||||||||
| Other liabilities | 29,331 | 33,696 | 10,214 | ||||||||
| Total liabilities | 2,900,973 | 2,905,008 | 2,434,295 | ||||||||
| SHAREHOLDERS’ EQUITY | |||||||||||
| Common stock | 125,830 | 123,944 | 121,845 | ||||||||
| Retained earnings | 119,998 | 106,880 | 79,373 | ||||||||
| Accumulated other comprehensive (loss) income, net of tax | (2,334 | ) | (2,091 | ) | 4 | ||||||
| Total shareholders’ equity | 243,494 | 228,733 | 201,222 | ||||||||
| Total liabilities and shareholders’ equity | $ | 3,144,467 | $ | 3,133,741 | $ | 2,635,517 | |||||
COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)
| Three Months Ended | |||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | |||||||||
| INTEREST AND DIVIDEND INCOME | |||||||||||
| Interest and fees on loans | $ | 61,226 | $ | 52,328 | $ | 25,134 | |||||
| Interest on interest earning deposits with other banks | 3,097 | 2,273 | 294 | ||||||||
| Interest on investment securities | 557 | 554 | 3 | ||||||||
| Dividends on other investments | 150 | 24 | 115 | ||||||||
| Total interest income | 65,030 | 55,179 | 25,546 | ||||||||
| INTEREST EXPENSE | |||||||||||
| Interest on deposits | 11,061 | 5,717 | 516 | ||||||||
| Interest on borrowed funds | 537 | 273 | 327 | ||||||||
| Total interest expense | 11,598 | 5,990 | 843 | ||||||||
| Net interest income | 53,432 | 49,189 | 24,703 | ||||||||
| PROVISION FOR LOAN LOSSES | 33,600 | 18,428 | 8,942 | ||||||||
| Net interest income after provision for loan losses | 19,832 | 30,761 | 15,761 | ||||||||
| NONINTEREST INCOME | |||||||||||
| Deposit service charges and fees | 946 | 986 | 930 | ||||||||
| Gain on sales of loans, net | — | — | 29 | ||||||||
| Mortgage broker fees | 25 | 24 | 218 | ||||||||
| Unrealized (loss) gain on equity securities, net | (18 | ) | (133 | ) | (3 | ) | |||||
| Other income | 273 | 236 | 397 | ||||||||
| Noninterest income, excluding BaaS program income and BaaS indemnification income | 1,226 | 1,113 | 1,571 | ||||||||
| Servicing and other BaaS fees | 1,001 | 1,079 | 1,421 | ||||||||
| Transaction fees | 964 | 940 | 280 | ||||||||
| Interchange fees | 785 | 738 | 368 | ||||||||
| Reimbursement of expenses | 857 | 885 | 295 | ||||||||
| BaaS program income | 3,607 | 3,642 | 2,364 | ||||||||
| BaaS credit enhancements | 31,164 | 17,928 | 9,076 | ||||||||
| BaaS fraud enhancements | 6,818 | 11,708 | 1,209 | ||||||||
| BaaS indemnification income | 37,982 | 29,636 | 10,285 | ||||||||
| Total noninterest income | 42,815 | 34,391 | 14,220 | ||||||||
| NONINTEREST EXPENSE | |||||||||||
| Salaries and employee benefits | 14,399 | 14,506 | 10,541 | ||||||||
| Occupancy | 1,182 | 1,147 | 1,043 | ||||||||
| Data processing and software licenses | 1,768 | 1,670 | 1,494 | ||||||||
| Legal and professional fees | 2,799 | 2,251 | 951 | ||||||||
| Point of sale expense | 710 | 742 | 195 | ||||||||
| Excise taxes | 702 | 588 | 435 | ||||||||
| Federal Deposit Insurance Corporation ("FDIC") assessments | 550 | 850 | 812 | ||||||||
| Director and staff expenses | 515 | 475 | 393 | ||||||||
| Marketing | 109 | 69 | 107 | ||||||||
| Other expense | 335 | 1,522 | 1,502 | ||||||||
| Noninterest expense, excluding BaaS loan and BaaS fraud expense | 23,069 | 23,820 | 17,473 | ||||||||
| BaaS loan expense | 17,215 | 15,560 | 2,368 | ||||||||
| BaaS fraud expense | 6,819 | 11,707 | 1,209 | ||||||||
| BaaS loan and fraud expense | 24,034 | 27,267 | 3,577 | ||||||||
| Total noninterest expense | 47,103 | 51,087 | 21,050 | ||||||||
| Income before provision for income taxes | 15,544 | 14,065 | 8,931 | ||||||||
| PROVISION FOR INCOME TAXES | 2,426 | 2,964 | 1,641 | ||||||||
| NET INCOME | $ | 13,118 | $ | 11,101 | $ | 7,290 | |||||
| Basic earnings per common share | $ | 1.01 | $ | 0.86 | $ | 0.60 | |||||
| Diluted earnings per common share | $ | 0.96 | $ | 0.82 | $ | 0.57 | |||||
| Weighted average number of common shares outstanding: | |||||||||||
| Basic | 13,030,726 | 12,938,200 | 12,144,452 | ||||||||
| Diluted | 13,603,978 | 13,536,823 | 12,701,464 | ||||||||
COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)
| Twelve Months Ended | ||||||
| December 31, 2022 | December 31, 2021 | |||||
| INTEREST AND DIVIDEND INCOME | ||||||
| Interest and fees on loans | $ | 183,352 | $ | 82,112 | ||
| Interest on interest earning deposits with other banks | 6,728 | 608 | ||||
| Interest on investment securities | 1,745 | 79 | ||||
| Dividends on other investments | 345 | 284 | ||||
| Total interest income | 192,170 | 83,083 | ||||
| INTEREST EXPENSE | ||||||
| Interest on deposits | 19,004 | 2,327 | ||||
| Interest on borrowed funds | 1,391 | 1,319 | ||||
| Total interest expense | 20,395 | 3,646 | ||||
| Net interest income | 171,775 | 79,437 | ||||
| PROVISION FOR LOAN LOSSES | 79,064 | 9,915 | ||||
| Net interest income after provision for loan losses | 92,711 | 69,522 | ||||
| NONINTEREST INCOME | ||||||
| Deposit service charges and fees | 3,804 | 3,698 | ||||
| Loan referral fees | 810 | 2,126 | ||||
| Gain on sales of loans, net | — | 396 | ||||
| Mortgage broker fees | 257 | 920 | ||||
| Unrealized (loss) gain on equity securities, net | (153 | ) | 1,469 | |||
| Gain on sale of bank branch including deposits and loans, net | — | 1,263 | ||||
| Other income | 1,087 | 939 | ||||
| Noninterest income, excluding BaaS program income and BaaS indemnification income | 5,805 | 10,811 | ||||
| Servicing and other BaaS fees | 4,408 | 4,467 | ||||
| Transaction fees | 3,211 | 544 | ||||
| Interchange fees | 2,583 | 701 | ||||
| Reimbursement of expenses | 2,732 | 1,004 | ||||
| BaaS program income | 12,934 | 6,716 | ||||
| BaaS credit enhancements | 76,374 | 9,086 | ||||
| BaaS fraud enhancements | 29,571 | 1,505 | ||||
| BaaS indemnification income | 105,945 | 10,591 | ||||
| Total noninterest income | 124,684 | 28,118 | ||||
| NONINTEREST EXPENSE | ||||||
| Salaries and employee benefits | 52,228 | 37,101 | ||||
| Occupancy | 4,548 | 4,128 | ||||
| Data processing and software licenses | 6,487 | 4,951 | ||||
| Legal and professional fees | 6,760 | 3,133 | ||||
| Point of sale expense | 2,109 | 671 | ||||
| Excise taxes | 2,204 | 1,589 | ||||
| Federal Deposit Insurance Corporation ("FDIC") assessments | 2,859 | 1,632 | ||||
| Director and staff expenses | 1,711 | 1,205 | ||||
| Marketing | 351 | 451 | ||||
| Other expense | 4,652 | 3,921 | ||||
| Noninterest expense, excluding BaaS loan and BaaS fraud expense | 83,909 | 58,782 | ||||
| BaaS loan expense | 53,294 | 2,976 | ||||
| BaaS fraud expense | 29,571 | 1,505 | ||||
| BaaS loan and fraud expense | 82,865 | 4,481 | ||||
| Total noninterest expense | 166,774 | 63,263 | ||||
| Income before provision for income taxes | 50,621 | 34,377 | ||||
| PROVISION FOR INCOME TAXES | 9,996 | 7,372 | ||||
| NET INCOME | $ | 40,625 | $ | 27,005 | ||
| Basic earnings per common share | $ | 3.14 | $ | 2.25 | ||
| Diluted earnings per common share | $ | 3.01 | $ | 2.16 | ||
| Weighted average number of common shares outstanding: | ||||||
| Basic | 12,949,266 | 12,022,954 | ||||
| Diluted | 13,514,952 | 12,521,426 | ||||
COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – QUARTERLY
(Dollars in thousands; unaudited)
| For the Three Months Ended | ||||||||||||||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||
| Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||
| Interest earning assets: | ||||||||||||||||||||||||||||||
| Interest earning deposits | $ | 329,354 | $ | 3,097 | 3.73 | % | $ | 397,621 | $ | 2,273 | 2.27 | % | $ | 751,805 | $ | 294 | 0.16 | % | ||||||||||||
| Investment securities, available for sale (2) | 100,269 | 550 | 2.18 | 102,438 | 545 | 2.11 | 35,517 | 5 | 0.06 | |||||||||||||||||||||
| Investment securities, held to maturity (2) | 1,235 | 7 | 2.25 | 1,257 | 9 | 2.84 | 1,507 | (2 | ) | (0.53 | ) | |||||||||||||||||||
| Other investments | 10,592 | 150 | 5.62 | 10,520 | 24 | 0.91 | 8,411 | 115 | 5.42 | |||||||||||||||||||||
| Loans receivable (3) | 2,603,962 | 61,226 | 9.33 | 2,452,815 | 52,328 | 8.46 | 1,683,310 | 25,134 | 5.92 | |||||||||||||||||||||
| Total interest earning assets | 3,045,412 | 65,030 | 8.47 | 2,964,651 | 55,179 | 7.38 | 2,480,550 | 25,546 | 4.09 | |||||||||||||||||||||
| Noninterest earning assets: | ||||||||||||||||||||||||||||||
| Allowance for loan losses | (58,440 | ) | (51,259 | ) | (20,242 | ) | ||||||||||||||||||||||||
| Other noninterest earning assets | 141,624 | 128,816 | 76,343 | |||||||||||||||||||||||||||
| Total assets | $ | 3,128,596 | $ | 3,042,208 | $ | 2,536,651 | ||||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 2,006,679 | $ | 11,061 | 2.19 | % | $ | 1,953,170 | $ | 5,717 | 1.16 | % | $ | 962,128 | $ | 516 | 0.21 | % | ||||||||||||
| FHLB advances and borrowings | 5 | — | — | — | — | — | 25,000 | 72 | 1.14 | |||||||||||||||||||||
| Subordinated debt | 37,455 | 484 | 5.13 | 24,331 | 234 | 3.82 | 24,276 | 234 | 3.82 | |||||||||||||||||||||
| Junior subordinated debentures | 3,588 | 53 | 5.86 | 3,587 | 39 | 4.31 | 3,586 | 21 | 2.32 | |||||||||||||||||||||
| Total interest bearing liabilities | 2,047,727 | 11,598 | 2.25 | 1,981,088 | 5,990 | 1.20 | 1,014,990 | 843 | 0.33 | |||||||||||||||||||||
| Noninterest bearing deposits | 807,794 | 807,952 | 1,336,161 | |||||||||||||||||||||||||||
| Other liabilities | 34,944 | 25,662 | 13,308 | |||||||||||||||||||||||||||
| Total shareholders' equity | 238,131 | 227,506 | 172,192 | |||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 3,128,596 | $ | 3,042,208 | $ | 2,536,651 | ||||||||||||||||||||||||
| Net interest income | $ | 53,432 | $ | 49,189 | $ | 24,703 | ||||||||||||||||||||||||
| Interest rate spread | 6.22 | % | 6.18 | % | 3.76 | % | ||||||||||||||||||||||||
| Net interest margin (4) | 6.96 | % | 6.58 | % | 3.95 | % | ||||||||||||||||||||||||
| (1) | Yields and costs are annualized. |
| (2) | For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts. |
| (3) | Includes loans held for sale and nonaccrual loans. |
| (4) | Net interest margin represents net interest income divided by the average total interest earning assets. |
COASTAL FINANCIAL CORPORATION
SELECTED AVERAGE BALANCES, YIELDS, AND RATES – BY SEGMENT - QUARTERLY
(Dollars in thousands; unaudited)
| For the Three Months Ended | ||||||||||||||||||||||||||
| December 31, 2022 | September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||
| (dollars in thousands, unaudited) | Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | |||||||||||||||||
| Community Bank | ||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Loans receivable (2) | $ | 1,609,882 | $ | 23,140 | 5.70 | % | $ | 1,559,160 | $ | 20,879 | 5.31 | % | $ | 1,439,272 | $ | 21,363 | 5.89 | % | ||||||||
| Liabilities | ||||||||||||||||||||||||||
| Interest bearing deposits | 864,001 | 1,502 | 0.69 | 901,339 | 642 | 0.28 | 920,125 | 482 | 0.21 | |||||||||||||||||
| Noninterest bearing deposits | 737,812 | 735,038 | 715,267 | |||||||||||||||||||||||
| Total deposits | 1,601,813 | 1,502 | 0.37 | 1,636,377 | 642 | 0.16 | 1,635,392 | 482 | 0.12 | |||||||||||||||||
| Interest rate spread | 5.33 | % | 5.16 | % | 5.77 | % | ||||||||||||||||||||
| CCBX | ||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Loans receivable (2)(3) | $ | 994,080 | $ | 38,086 | 15.20 | % | $ | 893,655 | $ | 31,449 | 13.96 | % | $ | 244,038 | $ | 3,771 | 6.13 | % | ||||||||
| Liabilities | ||||||||||||||||||||||||||
| Interest bearing deposits | 1,142,678 | 9,559 | 3.32 | 1,051,831 | 5,075 | 1.91 | 42,003 | 34 | 0.32 | |||||||||||||||||
| Noninterest bearing deposits | 69,982 | 72,914 | 620,894 | |||||||||||||||||||||||
| Total deposits | 1,212,660 | 9,559 | 3.13 | 1,124,745 | 5,075 | 1.79 | 662,897 | 34 | 0.02 | |||||||||||||||||
| Interest rate spread | 12.07 | % | 12.17 | % | 6.11 | % | ||||||||||||||||||||
| Net Baas loan income | ||||||||||||||||||||||||||
| interest rate spread (4) | 5.20 | % | 5.26 | % | 2.26 | % | ||||||||||||||||||||
| (1) | Yields and costs are annualized. |
| (2) | Includes loans held for sale and nonaccrual loans. |
| (3) | CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans. |
| (4) | A reconciliation of non-GAAP measures are set forth at the end of this earnings release. |
COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – YEAR-TO-DATE
(Dollars in thousands; unaudited)
| For the Twelve Months Ended | |||||||||||||||||||
| December 31, 2022 | December 31, 2021 | ||||||||||||||||||
| (dollars in thousands; unaudited) | Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | |||||||||||||
| Assets | |||||||||||||||||||
| Interest earning assets: | |||||||||||||||||||
| Interest earning deposits | $ | 515,967 | $ | 6,728 | 1.30 | % | $ | 402,081 | $ | 608 | 0.15 | % | |||||||
| Investment securities, available for sale (2) | 91,970 | 1,710 | 1.86 | 27,908 | 49 | 0.18 | |||||||||||||
| Investment securities, held to maturity (2) | 1,266 | 35 | 2.76 | 2,137 | 30 | 1.40 | |||||||||||||
| Other investments | 10,146 | 345 | 3.40 | 7,052 | 284 | 4.03 | |||||||||||||
| Loans receivable (3) | 2,257,787 | 183,352 | 8.12 | 1,688,925 | 82,112 | 4.86 | |||||||||||||
| Total interest earning assets | 2,877,136 | 192,170 | 6.68 | 2,128,103 | 83,083 | 3.90 | |||||||||||||
| Noninterest earning assets: | |||||||||||||||||||
| Allowance for loan losses | (46,769 | ) | (19,870 | ) | |||||||||||||||
| Other noninterest earning assets | 119,817 | 74,088 | |||||||||||||||||
| Total assets | $ | 2,950,184 | $ | 2,182,321 | |||||||||||||||
| Liabilities and Shareholders’ Equity | |||||||||||||||||||
| Interest bearing liabilities: | |||||||||||||||||||
| Interest bearing deposits | $ | 1,724,020 | $ | 19,004 | 1.10 | % | $ | 910,106 | $ | 2,327 | 0.26 | % | |||||||
| PPPLF borrowings | — | — | 0.00 | 68,699 | 240 | 0.35 | |||||||||||||
| FHLB advances and borrowings | 6,029 | 69 | 1.14 | 24,999 | 284 | 1.14 | |||||||||||||
| Subordinated debt | 27,626 | 1,179 | 4.27 | 15,379 | 711 | 4.62 | |||||||||||||
| Junior subordinated debentures | 3,587 | 143 | 3.99 | 3,585 | 84 | 2.34 | |||||||||||||
| Total interest bearing liabilities | 1,761,262 | 20,395 | 1.16 | 1,022,768 | 3,646 | 0.36 | |||||||||||||
| Noninterest bearing deposits | 942,087 | 989,945 | |||||||||||||||||
| Other liabilities | 24,097 | 12,926 | |||||||||||||||||
| Total shareholders' equity | 222,738 | 156,682 | |||||||||||||||||
| Total liabilities and shareholders' equity | $ | 2,950,184 | $ | 2,182,321 | |||||||||||||||
| Net interest income | $ | 171,775 | $ | 79,437 | |||||||||||||||
| Interest rate spread | 5.52 | % | 3.54 | % | |||||||||||||||
| Net interest margin (4) | 5.97 | % | 3.73 | % | |||||||||||||||
| (1) | Yields and costs are annualized. |
| (2) | For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts. |
| (3) | Includes loans held for sale and nonaccrual loans. |
| (4) | Net interest margin represents net interest income divided by the average total interest earning assets. |
COASTAL FINANCIAL CORPORATION
SELECTED AVERAGE BALANCES, YIELDS, AND RATES – BY SEGMENT – YEAR-TO-DATE
(Dollars in thousands; unaudited)
| For the Twelve Months Ended | ||||||||||||||||||
| December 31, 2022 | December 31, 2021 | |||||||||||||||||
| (dollars in thousands; unaudited) | Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | ||||||||||||
| Community Bank | ||||||||||||||||||
| Assets | ||||||||||||||||||
| Loans receivable (2) | $ | 1,515,395 | $ | 80,544 | 5.32 | % | $ | 1,542,621 | $ | 75,580 | 4.90 | % | ||||||
| Liabilities | ||||||||||||||||||
| Interest bearing deposits | 905,447 | 2,896 | 0.32 | 877,389 | 2,228 | 0.25 | ||||||||||||
| Noninterest bearing deposits | 733,104 | 674,509 | ||||||||||||||||
| Total deposits | $ | 1,638,551 | $ | 2,896 | 0.18 | $ | 1,551,898 | $ | 2,228 | 0.14 | ||||||||
| Interest rate spread | 5.14 | % | 4.76 | % | ||||||||||||||
| CCBX | ||||||||||||||||||
| Assets | ||||||||||||||||||
| Loans receivable (2)(3) | $ | 742,392 | $ | 102,808 | 13.85 | % | $ | 146,304 | $ | 6,532 | 4.46 | % | ||||||
| Liabilities | ||||||||||||||||||
| Interest bearing deposits | 818,573 | 16,108 | 1.97 | 32,717 | 99 | 0.30 | ||||||||||||
| Noninterest bearing deposits | 208,983 | 315,436 | ||||||||||||||||
| Total deposits | $ | 1,027,556 | $ | 16,108 | 1.57 | $ | 348,153 | $ | 99 | 0.03 | ||||||||
| Interest rate spread | 12.28 | % | 4.43 | % | ||||||||||||||
| Net BaaS loan income interest rate spread (4) | 5.10 | % | 2.40 | % | ||||||||||||||
| (1) | Yields and costs are annualized. |
| (2) | Includes loans held for sale and nonaccrual loans. |
| (3) | CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans. |
| (4) | A reconciliation of non-GAAP measures are set forth at the end of this earnings release. |
COASTAL FINANCIAL CORPORATION
QUARTERLY STATISTICS
(Dollars in thousands, except share and per share data; unaudited)
| Three Months Ended | |||||||||||||||||||
| December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | December 31, 2021 | |||||||||||||||
| Income Statement Data: | |||||||||||||||||||
| Interest and dividend income | $ | 65,030 | $ | 55,179 | $ | 41,819 | $ | 30,142 | $ | 25,546 | |||||||||
| Interest expense | 11,598 | 5,990 | 1,933 | 874 | 843 | ||||||||||||||
| Net interest income | 53,432 | 49,189 | 39,886 | 29,268 | 24,703 | ||||||||||||||
| Provision for loan losses | 33,600 | 18,428 | 14,094 | 12,942 | 8,942 | ||||||||||||||
| Net interest income after provision for loan losses | 19,832 | 30,761 | 25,792 | 16,326 | 15,761 | ||||||||||||||
| Noninterest income | 42,815 | 34,391 | 25,492 | 21,986 | 14,220 | ||||||||||||||
| Noninterest expense | 47,103 | 51,087 | 38,169 | 30,415 | 21,050 | ||||||||||||||
| Provision for income tax | 2,426 | 2,964 | 2,939 | 1,667 | 1,641 | ||||||||||||||
| Net income | 13,118 | 11,101 | 10,176 | 6,230 | 7,290 | ||||||||||||||
| As of and for the Three Month Period | |||||||||||||||||||
| December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | December 31, 2021 | |||||||||||||||
| Balance Sheet Data: | |||||||||||||||||||
| Cash and cash equivalents | $ | 342,139 | $ | 410,728 | $ | 405,689 | $ | 682,109 | $ | 813,161 | |||||||||
| Investment securities | 98,353 | 98,871 | 109,821 | 136,177 | 36,623 | ||||||||||||||
| Loans held for sale | — | 43,314 | 60,000 | — | — | ||||||||||||||
| Loans receivable | 2,627,256 | 2,507,889 | 2,334,354 | 1,964,209 | 1,742,735 | ||||||||||||||
| Allowance for loan losses | (74,029 | ) | (59,282 | ) | (49,358 | ) | (38,770 | ) | (28,632 | ) | |||||||||
| Total assets | 3,144,467 | 3,133,741 | 2,969,722 | 2,833,750 | 2,635,517 | ||||||||||||||
| Interest bearing deposits | 2,042,509 | 2,023,849 | 1,879,253 | 1,738,426 | 1,007,879 | ||||||||||||||
| Noninterest bearing deposits | 775,012 | 813,217 | 818,052 | 838,044 | 1,355,908 | ||||||||||||||
| Core deposits (1) | 2,686,528 | 2,727,830 | 2,584,831 | 2,460,954 | 2,249,573 | ||||||||||||||
| Total deposits | 2,817,521 | 2,837,066 | 2,697,305 | 2,576,470 | 2,363,787 | ||||||||||||||
| Total borrowings | 47,587 | 27,931 | 27,911 | 27,893 | 52,873 | ||||||||||||||
| Total shareholders’ equity | 243,494 | 228,733 | 217,661 | 207,920 | 201,222 | ||||||||||||||
| Share and Per Share Data (2): | |||||||||||||||||||
| Earnings per share – basic | $ | 1.01 | $ | 0.86 | $ | 0.79 | $ | 0.48 | $ | 0.60 | |||||||||
| Earnings per share – diluted | $ | 0.96 | $ | 0.82 | $ | 0.76 | $ | 0.46 | $ | 0.57 | |||||||||
| Dividends per share | — | — | — | — | — | ||||||||||||||
| Book value per share (3) | $ | 18.50 | $ | 17.66 | $ | 16.81 | $ | 16.08 | $ | 15.63 | |||||||||
| Tangible book value per share (4) | $ | 18.50 | $ | 17.66 | $ | 16.81 | $ | 16.08 | $ | 15.63 | |||||||||
| Weighted avg outstanding shares – basic | 13,030,726 | 12,938,200 | 12,928,061 | 12,898,746 | 12,144,452 | ||||||||||||||
| Weighted avg outstanding shares – diluted | 13,603,978 | 13,536,823 | 13,442,013 | 13,475,337 | 12,701,464 | ||||||||||||||
| Shares outstanding at end of period | 13,161,147 | 12,954,573 | 12,948,623 | 12,928,548 | 12,875,315 | ||||||||||||||
| Stock options outstanding at end of period | 438,103 | 644,334 | 655,844 | 666,774 | 694,519 | ||||||||||||||
See footnotes on following page
| As of and for the Three Month Period | |||||||||||||||||||
| December 31, 2022 | September 30, 2022 | June 30, 2022 | March 31, 2022 | December 31, 2021 | |||||||||||||||
| Credit Quality Data: | |||||||||||||||||||
| Nonperforming assets (5) to total assets | 1.06 | % | 0.73 | % | 0.09 | % | 0.08 | % | 0.07 | % | |||||||||
| Nonperforming assets (5) to loans receivable and OREO | 1.26 | % | 0.91 | % | 0.11 | % | 0.12 | % | 0.10 | % | |||||||||
| Nonperforming loans (5) to total loans receivable | 1.26 | % | 0.91 | % | 0.11 | % | 0.12 | % | 0.10 | % | |||||||||
| Allowance for loan losses to nonperforming loans | 224.4 | % | 259.1 | % | 849.4 | % | 1653.3 | % | 1657.9 | % | |||||||||
| Allowance for loan losses to total loans receivable | 2.82 | % | 2.36 | % | 2.11 | % | 1.97 | % | 1.64 | % | |||||||||
| Gross charge-offs | $ | 18,886 | $ | 8,513 | $ | 3,542 | $ | 2,808 | $ | 579 | |||||||||
| Gross recoveries | $ | 33 | $ | 9 | $ | 36 | $ | 4 | $ | 47 | |||||||||
| Net charge-offs to average loans (6) | 2.87 | % | 1.38 | % | 0.64 | % | 0.64 | % | 0.13 | % | |||||||||
| Capital Ratios (7): | |||||||||||||||||||
| Tier 1 leverage capital | 7.97 | % | 7.70 | % | 7.68 | % | 7.75 | % | 8.07 | % | |||||||||
| Common equity Tier 1 risk-based capital | 8.95 | % | 8.49 | % | 8.51 | % | 9.71 | % | 11.06 | % | |||||||||
| Tier 1 risk-based capital | 9.08 | % | 8.62 | % | 8.65 | % | 9.88 | % | 11.26 | % | |||||||||
| Total risk-based capital | 11.99 | % | 10.80 | % | 10.88 | % | 12.30 | % | 13.89 | % | |||||||||
| (1) | Core deposits are defined as all deposits excluding brokered and all time deposits. |
| (2) | Share and per share amounts are based on total actual or average common shares outstanding, as applicable. |
| (3) | We calculate book value per share as total shareholders’ equity at the end of the relevant period divided by the outstanding number of our common shares at the end of each period. |
| (4) | Tangible book value per share is a non-GAAP financial measure. We calculate tangible book value per share as total shareholders’ equity at the end of the relevant period, less goodwill and other intangible assets, divided by the outstanding number of our common shares at the end of each period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets as of any of the dates indicated. As a result, tangible book value per share is the same as book value per share as of each of the dates indicated. |
| (5) | Nonperforming assets and nonperforming loans include loans 90+ days past due and accruing interest. |
| (6) | Annualized calculations. |
| (7) | Capital ratios are for the Company, Coastal Financial Corporation. |
Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance.
However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.
The following non-GAAP measure is presented to illustrate the impact of BaaS credit enhancements and BaaS fraud enhancements on total revenue.
Revenue excluding BaaS credit enhancements and BaaS fraud enhancements is a non-GAAP measure that excludes the impact of BaaS credit enhancements and BaaS fraud enhancements on revenue. The most directly comparable GAAP measure is revenue.
Reconciliations of the GAAP and non-GAAP measures are presented below.
| As of and for the Three Months Ended | As of and for the Twelve Months Ended | |||||||||||||||||||
| (dollars in thousands, unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||||
| Revenue excluding BaaS credit enhancements and BaaS fraud enhancements: | ||||||||||||||||||||
| Total net interest income | $ | 53,432 | $ | 49,189 | $ | 24,703 | $ | 171,775 | $ | 79,437 | ||||||||||
| Total noninterest income | 42,815 | 34,391 | 14,220 | 124,684 | 28,118 | |||||||||||||||
| Total Revenue | $ | 96,247 | $ | 83,580 | $ | 38,923 | $ | 296,459 | $ | 107,555 | ||||||||||
| Less: BaaS credit enhancements | (31,164 | ) | (17,928 | ) | (9,076 | ) | (76,374 | ) | (9,086 | ) | ||||||||||
| Less: BaaS fraud enhancements | (6,818 | ) | (11,708 | ) | (1,209 | ) | (29,571 | ) | (1,505 | ) | ||||||||||
| Total revenue excluding BaaS credit enhancements and BaaS fraud enhancements | $ | 58,265 | $ | 53,944 | $ | 28,638 | $ | 190,514 | $ | 96,964 | ||||||||||
The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense on net loan income, yield on CCBX loans and interest rate spread.
Net BaaS loan income divided by average CCBX loans is a non-GAAP measure that includes the impact BaaS loan expense on net BaaS loan income and the yield on CCBX loans. The most directly comparable GAAP measure is yield on CCBX loans.
Net BaaS loan interest income interest rate spread is a non-GAAP measure that includes the impact of BaaS loan expense on interest rate spread. The most directly comparable GAAP measure is interest rate spread.
Reconciliations of the GAAP and non-GAAP measures are presented below.
| As of and for the Three Months Ended | As of and for the Twelve Months Ended | |||||||||||||||||||
| (dollars in thousands; unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||||
| Net BaaS loan income divided by average CCBX loans: | ||||||||||||||||||||
| CCBX loan yield (GAAP) | 15.20 | % | 13.96 | % | 6.13 | % | 13.85 | % | 4.46 | % | ||||||||||
| Total average CCBX loans receivable | $ | 994,080 | $ | 893,655 | $ | 244,038 | $ | 742,392 | $ | 146,304 | ||||||||||
| Interest and earned fee income on CCBX loans (GAAP) | 38,086 | 31,449 | 3,771 | 102,808 | 6,532 | |||||||||||||||
| Less: loan expense on CCBX loans | (17,215 | ) | (15,560 | ) | (2,368 | ) | (53,294 | ) | (2,976 | ) | ||||||||||
| Net BaaS loan income | $ | 20,871 | $ | 15,889 | $ | 1,403 | $ | 49,514 | $ | 3,556 | ||||||||||
| Net BaaS loan income divided by average CCBX loans | 8.33 | % | 7.05 | % | 2.28 | % | 6.67 | % | 2.43 | % | ||||||||||
| Net BaaS loan income interest rate spread: | ||||||||||||||||||||
| CCBX interest rate spread (GAAP) | 12.07 | % | 12.17 | % | 6.11 | % | 12.28 | % | 4.43 | % | ||||||||||
| Net BaaS loan income divided by average CCBX loans | 8.33 | % | 7.05 | % | 2.28 | % | 6.67 | % | 2.43 | % | ||||||||||
| CCBX cost of funds | 3.13 | % | 1.79 | % | 0.02 | % | 1.57 | % | 0.03 | % | ||||||||||
| Net BaaS loan income interest rate spread | 5.20 | % | 5.26 | % | 2.26 | % | 5.10 | % | 2.40 | % | ||||||||||
APPENDIX A -
As of December 31, 2022
Industry Concentration
We have a diversified loan portfolio, representing a wide variety of industries. Our major categories of loans are commercial real estate, consumer and other loans, residential real estate, commercial and industrial, and construction, land and land development loans. Together they represent $2.63 billion in outstanding loan balances. When combined with $2.29 billion in unused commitments the total of these categories is $4.92 billion.
Commercial real estate loans represent the largest segment of our loans, comprising 39.8% of our total balance of outstanding loans as of December 31, 2022. Unused commitments to extend credit represents an additional $35.8 million, and the combined total exposure in commercial real estate loans represents $1.08 billion, or 22.0% of our total outstanding loans and loan commitments.
The following table summarizes our exposure by industry for our commercial real estate portfolio as of December 31, 2022:
| (dollars in thousands; unaudited) | Outstanding Balance | Available Loan Commitments | Total Exposure | % of Total Loans (Outstanding Balance & Available Commitment) | Average Loan Balance | Number of Loans | |||||||||||
| Apartments | $ | 215,371 | $ | 5,912 | $ | 221,283 | 4.5 | % | $ | 2,564 | 84 | ||||||
| Hotel/Motel | 160,938 | 4,101 | 165,039 | 3.4 | 5,961 | 27 | |||||||||||
| Office | 101,205 | 3,744 | 104,949 | 2.1 | 1,043 | 97 | |||||||||||
| Retail | 82,257 | 4,116 | 86,373 | 1.8 | 904 | 91 | |||||||||||
| Convenience Store | 91,075 | 4,336 | 95,411 | 1.9 | 1,786 | 51 | |||||||||||
| Mixed use | 83,640 | 4,632 | 88,272 | 1.8 | 950 | 88 | |||||||||||
| Warehouse | 77,716 | 1,862 | 79,578 | 1.6 | 1,439 | 54 | |||||||||||
| Manufacturing | 38,694 | 1,780 | 40,474 | 0.8 | 1,138 | 34 | |||||||||||
| Strip Mall | 45,873 | — | 45,873 | 0.9 | 5,734 | 8 | |||||||||||
| Mini Storage | 47,380 | 1,287 | 48,667 | 1.0 | 2,961 | 16 | |||||||||||
| Groups < 0.70% of total | 104,603 | 4,005 | 108,608 | 2.2 | 1,260 | 83 | |||||||||||
| Total | $ | 1,048,752 | $ | 35,775 | $ | 1,084,527 | 22.0 | % | $ | 1,657 | 633 | ||||||
Consumer loans comprise 23.2% of our total balance of outstanding loans as of December 31, 2022. Unused commitments to extend credit represents an additional $812.2 million, and the combined total exposure in consumer and other loans represents $1.42 billion, or 28.9% of our total outstanding loans and loan commitments. As illustrated in the table below, our CCBX partners bring in a large number of mostly smaller dollar loans, resulting in an average consumer loan of just $1,400. CCBX consumer loans are underwritten to CCBX credit standards and underwriting of these loans is regularly tested.
The following table summarizes our exposure by industry for our consumer and other loan portfolio as of December 31, 2022:
| (dollars in thousands; unaudited) | Outstanding Balance | Available Loan Commitments | Total Exposure (1) | % of Total Loans (Outstanding Balance & Available Commitment) | Average Loan Balance | Number of Loans | |||||||||||
| CCBX consumer loans | |||||||||||||||||
| Installment loans | $ | 320,017 | $ | — | $ | 320,017 | 6.5 | % | $ | 1.5 | 211,547 | ||||||
| Credit cards | 279,644 | 810,419 | 1,090,063 | 22.1 | 1.5 | 189,642 | |||||||||||
| Lines of credit | 4,822 | 689 | 5,511 | 0.1 | 0.3 | 14,349 | |||||||||||
| Other loans | 2,563 | — | 2,563 | 0.1 | 0.1 | 17,987 | |||||||||||
| Community bank consumer loans | |||||||||||||||||
| Lines of credit | 162 | 1,116 | 1,278 | 0.0 | 3.4 | 47 | |||||||||||
| Installment loans | 1,351 | — | 1,351 | 0.1 | 42.2 | 32 | |||||||||||
| Other loans | 212 | — | 212 | 0.0 | 0.6 | 332 | |||||||||||
| Total | $ | 608,771 | $ | 812,224 | $ | 1,420,995 | 28.9 | % | $ | 1.4 | 433,936 | ||||||
(1) Total exposure on CCBX loans is subject to portfolio maximum limits.
Residential real estate loans comprise 17.1% of our total balance of outstanding loans as of December 31, 2022. Unused commitments to extend credit represents an additional $442.2 million, and the combined total exposure in residential real estate loans represents $891.4 million, or 18.1% of our total outstanding loans and loan commitments.
The following table summarizes our exposure by industry for our commercial and industrial loan portfolio as of December 31, 2022:
| (dollars in thousands; unaudited) | Outstanding Balance | Available Loan Commitments | Total Exposure(1) | % of Total Loans (Outstanding Balance & Available Commitment) | Average Loan Balance | Number of Loans | |||||||||||
| CCBX residential real estate loans | |||||||||||||||||
| Home equity line of credit | $ | 244,576 | $ | 396,652 | $ | 641,228 | 13.0 | % | $ | 28 | 8,607 | ||||||
| Community bank residential real estate loans | |||||||||||||||||
| Closed end, secured by first liens | 178,901 | 4,625 | 183,526 | 3.7 | 604 | 296 | |||||||||||
| Home equity line of credit | 15,853 | 39,005 | 54,858 | 1.2 | 79 | 200 | |||||||||||
| Closed end, second liens | 9,827 | 1,912 | 11,739 | 0.2 | 351 | 28 | |||||||||||
| Total | $ | 449,157 | $ | 442,194 | $ | 891,351 | 18.1 | % | $ | 49 | 9,131 | ||||||
(1) Total exposure on CCBX loans is subject to portfolio maximum limits.
Commercial and industrial loans comprise 11.8% of our total balance of outstanding loans as of December 31, 2022. Unused commitments to extend credit represents an additional $856.6 million, and the combined total exposure in commercial and industrial loans represents $1.17 billion, or 23.8% of our total outstanding loans and loan commitments. Included in commercial and industrial loans is $146.0 million in outstanding capital call lines, with an additional $772.7 million in available loan commitments, which is provided to venture capital firms through one of our CCBX BaaS clients. These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards and the underwriting is reviewed by the Bank on every line.
The following table summarizes our exposure by industry for our commercial and industrial loan portfolio as of December 31, 2022:
| (dollars in thousands; unaudited) | Outstanding Balance | Available Loan Commitments | Total Exposure | % of Total Loans (Outstanding Balance & Available Commitment) | Average Loan Balance | Number of Loans | |||||||||||
| Capital Call Lines (1) | $ | 146,029 | $ | 772,732 | $ | 918,761 | 18.7 | % | $ | 859 | 170 | ||||||
| Construction/Contractor Services | 20,714 | 32,508 | 53,222 | 1.1 | 114 | 181 | |||||||||||
| Financial Institutions | 45,149 | — | 45,149 | 0.9 | 4,104 | 11 | |||||||||||
| Manufacturing | 13,341 | 4,854 | 18,195 | 0.4 | 222 | 60 | |||||||||||
| Medical / Dental / Other Care | 21,790 | 2,464 | 24,254 | 0.5 | 726 | 30 | |||||||||||
| Retail | 15,991 | 6,245 | 22,236 | 0.4 | 26 | 623 | |||||||||||
| Groups < 0.30% of total | 49,614 | 37,811 | 87,425 | 1.8 | 163 | 305 | |||||||||||
| Total | $ | 312,628 | $ | 856,614 | $ | 1,169,242 | 23.8 | % | $ | 227 | 1,380 | ||||||
(1) Total exposure on CCBX loans is subject to portfolio maximum limits.
Construction, land and land development loans comprise 8.1% of our total balance of outstanding loans as of December 31, 2022. Unused commitments to extend credit represents an additional $142.5 million, and the combined total exposure in construction, land and land development loans represents $356.6 million, or 7.2% of our total outstanding loans and loan commitments.
The following table details our exposure for our construction, land and land development portfolio as of December 31, 2022:
| (dollars in thousands; unaudited) | Outstanding Balance | Available Loan Commitments | Total Exposure | % of Total Loans (Outstanding Balance & Available Commitment) | Average Loan Balance | Number of Loans | |||||||||||
| Commercial construction | $ | 100,714 | $ | 100,647 | $ | 201,361 | 4.1 | % | $ | 4,196 | 24 | ||||||
| Residential construction | 32,879 | 26,708 | 59,587 | 1.2 | 865 | 38 | |||||||||||
| Undeveloped land loans | 44,578 | 7,653 | 52,231 | 1.1 | 2,972 | 15 | |||||||||||
| Developed land loans | 20,167 | 4,315 | 24,482 | 0.5 | 672 | 30 | |||||||||||
| Land development | 15,717 | 3,219 | 18,936 | 0.3 | 827 | 19 | |||||||||||
| Total | $ | 214,055 | $ | 142,542 | $ | 356,597 | 7.2 | % | $ | 1,699 | 126 | ||||||
APPENDIX B -
As of December 31, 2022
CCBX – BaaS Reporting Information
During the quarter ended December 31, 2022, $31.2 million was recorded in BaaS credit enhancements related to the provision for loan losses and reserve for unfunded commitments for CCBX partner loans and negative deposit accounts. Agreements with our CCBX partners provide for a credit enhancement provided by the partner which protects the Bank by absorbing incurred losses. In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans and negative deposit accounts. When the provision for loan losses and provision for unfunded commitments is recorded, a receivable is also recorded on the balance sheet through noninterest income (BaaS credit enhancements) in recognition of the CCBX partner legal commitment to cover losses. The receivable is relieved as credit enhancement recoveries are received from the CCBX partner. Agreements with our CCBX partners also provide protection to the Bank from fraud by absorbing incurred fraud losses. Partner fraud includes noncredit fraud losses on loans and deposits originated through partners. Fraud losses are recorded when incurred as losses in noninterest expense, and the enhancement received from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement. CCBX partners also pledge a cash reserve account at the Bank which the Bank can collect from when losses occur that is then replenished by the partner on a regular interval. Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by absorbing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligations to replenish their cash reserve account then the bank would be exposed to additional loan and deposit losses, as a result of this counterparty risk. If a CCBX partner does not replenish their cash reserve account then the Bank can declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. The Bank would write-off any remaining receivable from the CCBX partner but would retain the full yield on the loan going forward, and BaaS loan expense would decrease once default occurred and payments to the CCBX partner were stopped.
For CCBX partner loans the Bank records contractual interest earned from the borrower on loans in interest income, adjusted for origination costs which are paid or payable to the CCBX partner. BaaS loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans. To determine net revenue (Net BaaS loan income) earned from CCBX loan relationships, the Bank takes BaaS loan interest income and deducts BaaS loan expense to arrive at Net BaaS loan income(1) which can be compared to interest income on the Company’s community bank loans.
The following table illustrates how CCBX partner loan income and expenses are recorded in the financial statements:
| Loan income and related loan expense | Three Months Ended | Twelve Months Ended | ||||||||||||||||||
| (dollars in thousands; unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | |||||||||||||||
| Yield on loans (2) | 15.20 | % | 13.96 | % | 6.13 | % | 13.85 | % | 4.46 | % | ||||||||||
| BaaS loan interest income | $ | 38,086 | $ | 31,449 | $ | 3,771 | $ | 102,808 | $ | 6,532 | ||||||||||
| Less: BaaS loan expense | 17,215 | 15,560 | 2,368 | 53,294 | 2,976 | |||||||||||||||
| Net BaaS loan income (1) | 20,871 | 15,889 | 1,403 | 49,514 | 3,556 | |||||||||||||||
| Net BaaS loan income divided by average BaaS loans (1) | 8.33 | % | 7.05 | % | 2.28 | % | 6.67 | % | 2.43 | % | ||||||||||
(1) A reconciliation of the non-GAAP measures are set forth in the preceding section of this earnings release.
(2) Annualized calculation for quarterly periods shown.
The addition of new CCBX partners and increased activity has resulted in increases in interest, direct fees and expenses for the quarter ended December 31, 2022 compared to the quarters ended September 30, 2022 and December 31, 2021. The following tables are a summary of the interest components, direct fees, and expenses of BaaS for the periods indicated and are not inclusive of all income and expense related to BaaS.
| Interest income | Three Months Ended | Twelve Months Ended | |||||||||||||
| (dollars in thousands; unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | ||||||||||
| Loan interest income | $ | 38,086 | $ | 31,449 | $ | 3,771 | $ | 102,808 | $ | 6,532 | |||||
| Total BaaS interest income | $ | 38,086 | $ | 31,449 | $ | 3,771 | $ | 102,808 | $ | 6,532 | |||||
| Interest expense | Three Months Ended | Twelve Months Ended | |||||||||||||
| (dollars in thousands; unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | ||||||||||
| BaaS interest expense | $ | 9,559 | $ | 5,075 | $ | 34 | $ | 16,108 | $ | 99 | |||||
| Total BaaS interest expense | $ | 9,559 | $ | 5,075 | $ | 34 | $ | 16,108 | $ | 99 | |||||
| BaaS income | Three Months Ended | Twelve Months Ended | |||||||||||||
| (dollars in thousands; unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | ||||||||||
| Program income: | |||||||||||||||
| Servicing and other BaaS fees | $ | 1,001 | $ | 1,079 | $ | 1,421 | $ | 4,408 | $ | 4,467 | |||||
| Transaction fees | 964 | 940 | 280 | 3,211 | 544 | ||||||||||
| Interchange fees | 785 | 738 | 368 | 2,583 | 701 | ||||||||||
| Reimbursement of expenses | 857 | 885 | 295 | 2,732 | 1,004 | ||||||||||
| Program income | 3,607 | 3,642 | 2,364 | 12,934 | 6,716 | ||||||||||
| Indemnification income: | |||||||||||||||
| Credit enhancements | 31,164 | 17,928 | 9,076 | 76,374 | 9,086 | ||||||||||
| Fraud enhancements | 6,818 | 11,708 | 1,209 | 29,571 | 1,505 | ||||||||||
| Indemnification income | 37,982 | 29,636 | 10,285 | 105,945 | 10,591 | ||||||||||
| Total BaaS income | $ | 41,589 | $ | 33,278 | $ | 12,649 | $ | 118,879 | $ | 17,307 | |||||
| BaaS loan and fraud expense | Three Months Ended | Twelve Months Ended | |||||||||||||
| (dollars in thousands; unaudited) | December 31, 2022 | September 30, 2022 | December 31, 2021 | December 31, 2022 | December 31, 2021 | ||||||||||
| BaaS loan expense | $ | 17,215 | $ | 15,560 | $ | 2,368 | $ | 53,294 | $ | 2,976 | |||||
| BaaS fraud expense | 6,819 | 11,707 | 1,209 | 29,571 | 1,505 | ||||||||||
| Total BaaS loan and fraud expense | $ | 24,034 | $ | 27,267 | $ | 3,577 | $ | 82,865 | $ | 4,481 | |||||
(1) A reconciliation of the non-GAAP measures are set forth in the preceding section of this earnings release.
