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Coastal Financial Corporation Announces Third Quarter 2023 Results
المصدر: Nasdaq GlobeNewswire / 27 أكتوبر 2023 08:25:30 America/Chicago
Third Quarter 2023 Highlights:
- Net income of $10.3 million, or $0.75 per diluted common share, for the three months ended September 30, 2023, compared to $12.9 million, or $0.95 per diluted common share for the three months ended June 30, 2023.
- Return on average assets ("ROA") of 1.13% for the three months ended September 30, 2023.
- Return on average equity ("ROE") of 14.60% for the three months ended September 30, 2023.
- Total assets increased $145.0 million, or 4.1%, to $3.68 billion for the quarter ended September 30, 2023, compared to $3.54 billion at June 30, 2023.
- Total loans, net of deferred fees decreased $40.5 million, or 1.3%, to $2.97 billion for the quarter ended September 30, 2023 as management sold loans as part of our strategy to reduce risk, optimize the CCBX loan portfolio and strengthen the balance sheet through enhanced credit standards.
- Community bank loans increased $71.6 million, or 4.2%, to $1.78 billion.
- CCBX loans decreased $112.1 million, or 8.7%, to $1.18 billion.
- $320.9 million in CCBX loans were sold.
- Deposits increased $127.1 million, or 4.0%, to $3.29 billion for the quarter ended September 30, 2023.
- CCBX deposit growth of $99.1 million, or 6.0%, to $1.75 billion.
- CCBX deposit growth is net of an additional $51.9 million in CCBX deposits that were transferred off balance sheet for increased FDIC insurance coverage.
- Community bank deposits increased $28.0 million, or 1.9%, to $1.54 billion.
- Includes noninterest bearing deposits of $584.0 million or 38.0% of total community bank deposits
- Community bank cost of deposits was 1.31%.
- Uninsured deposits of $599.0 million, or 18.2% of total deposits as of September 30, 2023, compared to $632.1 million, or 20.0% of total deposits as of June 30, 2023.
- CCBX deposit growth of $99.1 million, or 6.0%, to $1.75 billion.
- Liquidity/Borrowings as of September 30, 2023:
- Capacity to borrow up to $577.9 million from Federal Home Loan Bank and the Federal Reserve Bank discount window with no borrowings taken under these facilities since the first quarter of 2022.
- Investment Portfolio as of September 30, 2023 :
- Available for sale ("AFS") investments of $98.9 million, compared to $98.2 million as of June 30, 2023, of which 99.7% are U.S. Treasuries, with a weighted average remaining duration of 5 months as of September 30, 2023.
- Held to maturity ("HTM") investments of $42.6 million, of which 100% are U.S. Agency mortgage backed securities held for CRA purposes. The carrying value of the HTM investments is $1.7 million more than the fair value, the weighted average remaining life is 18.6 years as of September 30, 2023 and the weighted average yield is 5.00% for the quarter ended September 30, 2023.
EVERETT, Wash., Oct. 27, 2023 (GLOBE NEWSWIRE) -- Coastal Financial Corporation (Nasdaq: CCB) (the “Company”, "Coastal", "we", "our", or "us"), the holding company for Coastal Community Bank (the “Bank”), today reported unaudited financial results for the quarter ended September 30, 2023.
Quarterly net income for the third quarter of 2023 was $10.3 million, or $0.75 per diluted common share, compared with net income of $12.9 million, or $0.95 per diluted common share, for the second quarter of 2023, and $11.1 million, or $0.82 per diluted common share, for the quarter ended September 30, 2022.
Total assets increased $145.0 million, or 4.1%, during the third quarter of 2023 to $3.68 billion, from $3.54 billion at June 30, 2023. Total loans, net of deferred fees decreased $40.5 million, or 1.3%, during the three months ended September 30, 2023 to $2.97 billion, compared to $3.01 billion at June 30, 2023. Community bank loans increased $71.6 million, or 4.2%, and offset a $112.1 million decrease in CCBX loans. We continue to monitor and manage the CCBX loan portfolio, and sold $320.9 million in CCBX loans during the quarter ended September 30, 2023. We intentionally reduced the CCBX other consumer and other loans portfolio in an effort to strengthen our balance sheet. We currently expect to sell additional loans in the coming months as we continue working to optimize our CCBX portfolio through new partners, products and building on our existing relationships. Deposits increased $127.1 million, or 4.0%, during the three months ended September 30, 2023. CCBX deposits grew $99.1 million, or 6.0%. Community bank deposits increased $28.0 million, or 1.9%. Our cost of deposits for the community bank was 1.31% for the three months ended September 30, 2023, compared to 0.98% for the three months ended June 30, 2023.
We saw solid deposit growth in the third quarter, with deposits increasing $127.1 million, or 4.0%, compared to June 30, 2023. Fully insured IntraFi network reciprocal deposits increased $56.1 million to $296.4 million as of September 30, 2023, compared to $240.3 million as of June 30, 2023. These fully insured reciprocal deposits allow our larger deposit customers to fully insure their deposits through a reciprocal agreement with other banks. Loans receivable was deliberately decreased $40.5 million, or 1.3%, during the three months ended September 30, 2023 as part of our plan to optimize and strengthen the balance sheet. We continue to monitor our liquidity position through diligent management of our liquid assets and liabilities as well as maintaining access to alternative sources of funds. As of September 30, 2023, we had $474.9 million in cash on the balance sheet and the capacity to borrow up to $577.9 million from Federal Home Loan Bank and the Federal Reserve Bank discount window,with no borrowings taken under these facilities since the first quarter of 2022. Cash on the balance sheet and borrowing capacity totaled $1.05 billion, which represented 32.0% of total deposits and exceeded our $599.0 million in uninsured deposits as of September 30, 2023.
"At Coastal we pride ourselves on being proactive in how we serve our customers, manage risk and position the Bank for shareholders. We continue to focus on our BaaS business by concentrating on working with larger partners and optimizing our CCBX loan portfolio so we can grow and advance our presence in the BaaS space. Over the last two years we have deliberately reduced the number of partners that we work with, focusing on larger partners and companies. We are being more intentional in our selection of products and partnerships that best serve our customers and shareholders in order to achieve our long term profitability objective. We only want to work with the best and quite frankly, our expertise and strength has attracted a more established partner set which we are leaning into. During the quarter ended September 30, 2023 we started the process of optimizing our CCBX loan portfolio by selling higher yielding loans that have a greater potential for credit deterioration. As we work to optimize our CCBX loan portfolio through enhanced credit standards, we expect lower earnings in the short term with lower loan yields and compressed margins but we continue to focus on strengthening the portfolio with new loans that we believe will provide for long term stability and profitability. For us to continue to grow and succeed, we cannot be static. We can always be better. We will continue to look for opportunities to grow our Company and will focus on the long term, holding down deposits costs when possible and managing expense through efficient use of technology. We will work to do all that while keeping our un-Bankey community bank mentality and feel," 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 three segments: CCBX, the community bank and treasury & administration. The CCBX segment includes our BaaS activities, the community bank segment includes all community banking activities, and the treasury & administration segment includes treasury management, overall administration and all other aspects of the Company. Net interest income was $62.2 million for the quarter ended September 30, 2023, a decrease of $121,000, or 0.2%, from $62.4 million for the quarter ended June 30, 2023, and an increase of $13.0 million, or 26.5%, from $49.2 million for the quarter ended September 30, 2022. Yield on loans receivable was 10.84% for the three months ended September 30, 2023, compared to 10.85% for the three months ended June 30, 2023 and 8.46% for the three months ended September 30, 2022. Cost of deposits was 3.14% for the three months ended September 30, 2023, compared to 2.72% for the three months ended June 30, 2023 and 0.82% for the three months ended September 30, 2022. The decrease in net interest income compared to June 30, 2023, was a result of increased interest expense due to an increase in average interest bearing deposits and an increase in cost of deposits as a result of higher interest rates. The increase in net interest income compared to September 30, 2022 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 September 30, 2023 was $3.06 billion, compared to $2.97 billion for the three months ended June 30, 2023, and $2.45 billion for the three months ended September 30, 2022.
Interest and fees on loans totaled $83.7 million for the three months ended September 30, 2023 compared to $80.2 million and $52.3 million for the three months ended June 30, 2023 and September 30, 2022, respectively. Total loans, net of deferred fees decreased $40.5 million, or 1.3%, during the quarter ended September 30, 2023, which included a $112.1 million decrease in CCBX loans partially offset by an increase of $72.3 million in community bank loans. The decrease in CCBX loans includes a decrease of $87.0 million, or 10.3%, in consumer and other loans and a decrease of $24.3 million, or 17.5%, in capital call lines as a result of normal balance fluctuations and business activities. We continue to monitor and manage the CCBX loan portfolio, and sold $320.9 million in CCBX loans during the quarter ended September 30, 2023. We repositioned ourselves by reducing our CCBX consumer installment loans in an effort to optimize our loan portfolio and we will work to continue growing the CCBX portfolio in future quarters with loans that have lower potential risk of credit deterioration and are more aligned with our long term objectives. The increase in interest and fees on loans for the quarter ended September 30, 2023, compared to June 30, 2023 and September 30, 2022, 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 0.25% during the quarter, interest rates on our existing variable rate loans were affected, as are the rates on new loans. The FOMC last raised the target Federal Funds rate 0.25% on July 26, 2023. We continue to monitor the impact of these increases in interest rates.
Interest income from interest earning deposits with other banks was $3.9 million for the quarter ended September 30, 2023 an increase of $1.2 million compared to June 30, 2023 and an increase of $1.6 million compared to September 30, 2022 primarily due to an increase in interest rates. The average balance of interest earning deposits with other banks for the three months ended September 30, 2023 was $285.6 million, compared to $211.4 million and $397.6 million for the three months ended June 30, 2023 and September 30, 2022, respectively. The average yield on these interest earning deposits with other banks increased to 5.40% for the quarter ended September 30, 2023, compared to 5.08% and 2.27% for the quarters ended June 30, 2023 and September 30, 2022, respectively.
Total interest expense was $26.1 million for the quarter ended September 30, 2023, a $4.8 million increase from the quarter ended June 30, 2023 and a $20.1 million increase from the quarter ended September 30, 2022. Interest expense on deposits was $25.5 million for the quarter ended September 30, 2023, compared to $20.7 million for the quarter ended June 30, 2023 and $5.7 million for the quarter ended September 30, 2022. Interest expense on interest bearing deposits increased $4.8 million for the quarter ended September 30, 2023, compared to the quarter ended June 30, 2023, and $19.7 million compared to the quarter ended September 30, 2022 as a result an increase in CCBX deposits that are tied to, and reprice when the FOMC raises rates. Similarly, most of our CCBX loans also reprice when the FOMC raises interest rates. Interest expense on borrowed funds was $651,000 for the quarter ended September 30, 2023, compared to $661,000 and $273,000 for the quarters ended June 30, 2023 and September 30, 2022, respectively. The $378,000 increase in interest expense on borrowed funds from the quarter ended September 30, 2022 is the result of an increase of $19.8 million in subordinated debt and an increase in interest rates.
Total cost of deposits was 3.14% for the three months ended September 30, 2023, compared to 2.72% for the three months ended June 30, 2023, and 0.82%, for the three months ended September 30, 2022. Community bank and CCBX cost of deposits were 1.31% and 4.80% respectively, for the three months ended September 30, 2023, compared to 0.98% and 4.42%, for the three months ended June 30, 2023, and 0.16% and 1.79% for the three months ended September 30, 2022. The increase in cost of deposits for the three months ended September 30, 2023 compared to the prior periods for both segments is a result of increased interest rates. While we continue working to hold down deposit costs, any additional FOMC 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 7.10% for the three months ended September 30, 2023, compared to 7.58% and 6.58% for the three months ended June 30, 2023 and September 30, 2022, respectively. The decrease in net interest margin compared to the three months ended June 30, 2023 was largely due to an increase in cost of deposits and selling higher yielding consumer loans. Higher interest rates on interest bearing deposits compressed net interest margin as a result of our decision to increase our rates to rival our competitors raising rates and CCBX deposit pricing being tied to the Fed Funds rate. Additionally, the actions we took in an effort to strengthen the balance sheet by selling higher risk and higher yielding loans during the quarter ended September 30, 2023 will continue to impact net interest margin in future quarters. The increase in net interest margin compared to the three months ended September 30, 2022 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 decreased $40.5 million and increased $459.1 million, compared to June 30, 2023 and September 30, 2022, respectively. Additionally, the Fed Funds interest rate increases have resulted in existing, variable rate loans repricing to higher interest rates. Interest and fees on loans receivable increased $3.5 million, or 4.3%, to $83.7 million for the three months ended September 30, 2023, compared to $80.2 million for the three months ended June 30, 2023, and $52.3 million for the three months ended September 30, 2022. Also contributing to the increase in net interest margin compared to the three months ended September 30, 2022, was a $1.6 million increase in interest on interest earning deposits. These interest earning deposits earned an average rate of 5.40% for the quarter ended September 30, 2023, compared to 5.08% and 2.27% for the quarters ended June 30, 2023 and September 30, 2022, respectively. Average investment securities increased $7.7 million to $118.0 million due to the purchase of $30.1 million in securities during the three months ended September 30, 2023 compared to the three months ended June 30, 2023, and increased $14.3 million compared to the three months ended September 30, 2022. Interest on investment securities increased $113,000 for the three months ended September 30, 2023 compared to the three months ended June 30, 2023 as a result of the increase in average outstanding balance coupled with increased yield, which also positively impacted net interest margin. Interest on investment securities increased $212,000 compared to September 30, 2022, as a result of increased yield. These increases in interest income were partially offset by increases in interest expense on interest bearing deposits, as previously discussed.
Cost of funds was 3.18% for the quarter ended September 30, 2023, an increase of 41 basis points from the quarter ended June 30, 2023 and an increase of 233 basis points from the quarter ended September 30, 2022. Cost of deposits for the quarter ended September 30, 2023 was 3.14%, compared to 2.72% for the quarter ended June 30, 2023, and 0.82% for the quarter ended September 30, 2022. The increased cost of funds and deposits compared to June 30, 2023 and September 30, 2022 was due to the increase in interest rates compared to the previous periods and growth in higher cost CCBX deposits compared to September 30, 2022.
During the quarter ended September 30, 2023, total loans receivable decreased by $40.5 million, or 1.3%, to $2.97 billion, compared to $3.01 billion for the quarter ended June 30, 2023. This decrease consists of a $112.1 million decrease in CCBX loans partially offset by $71.6 million in community bank loan growth. CCBX loans were sold in an effort to strengthen the loan portfolio and we will work to continue growing the CCBX portfolio with enhanced credit standards and lower potential for future credit deterioration. Total loans receivable as of September 30, 2023 increased $459.1 million compared to September 30, 2022. This increase includes community bank loan growth of $192.3 million and an increase in CCBX loans of $266.8 million. During the quarter ended September 30, 2023, $320.9 million in loans were sold during the quarter and no loans were held for sale as of September 30, 2023; compared to $35.9 million in loans held for sale as of June 30, 2023.
Total yield on loans receivable for the quarter ended September 30, 2023 was 10.84%, compared to 10.85% for the quarter ended June 30, 2023, and 8.46% for the quarter ended September 30, 2022. This slight decrease in yield on loans receivable compared to the quarter ended June 30, 2023 is a combination of an overall increase in interest rates, repricing of variable rate loans as well as change in mix of CCBX partner loans. During the quarter ended September 30, 2023, community bank loans increased 4.2%, or $71.6 million, compared to the quarter ended June 30, 2023, with an average yield of 6.20% and CCBX loans outstanding decreased 8.7%, or $112.1 million, compared to June 30, 2023, with an average CCBX yield of 17.05%. 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 originating & servicing CCBX loans.
The following table summarizes the average yield on loans receivable and cost of deposits for our community bank and CCBX segments for the periods indicated:
For the Three Months Ended For the Nine Months Ended September 30, 2023 June 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Yield on
Loans (2)Cost of
Deposits (2)Yield on
Loans (2)Cost of
Deposits (2)Yield on
Loans (2)Cost of
Deposits (2)Yield on
Loans (2)Cost of
Deposits (2)Yield on
Loans (2)Cost of
Deposits (2)Community
Bank6.20 % 1.31 % 6.28 % 0.98 % 5.31 % 0.16 % 6.15 % 0.99 % 5.17 % 0.11 % CCBX (1) 17.05 % 4.80 % 16.95 % 4.42 % 13.96 % 1.79 % 16.74 % 4.41 % 13.16 % 0.91 % Consolidated 10.84 % 3.14 % 10.85 % 2.72 % 8.46 % 0.82 % 10.57 % 2.69 % 7.63 % 0.41 % (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 originating & 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. 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) Annualized calculations for periods shown.The following tables illustrates how BaaS loan interest income is affected by BaaS loan expense resulting in net BaaS loan income and the associated yield:
For the Three Months Ended September 30, 2023 June 30, 2023 September 30, 2022 (dollars in thousands, unaudited) Income /
ExpenseIncome /
expense divided
by average
CCBX loans(2)Income /
ExpenseIncome/ expense
divided by
average CCBX
loans(2)Income /
ExpenseIncome /
expense divided
by average
CCBX loans(2)BaaS loan interest income $ 56,279 17.05 % $ 53,632 16.95 % $ 31,449 13.96 % Less: BaaS loan expense 23,003 6.97 % 22,033 6.96 % 15,560 6.91 % Net BaaS loan income(1) $ 33,276 10.08 % $ 31,599 9.99 % $ 15,889 7.05 % Average BaaS Loans(3) $ 1,309,380 $ 1,269,406 $ 893,655 For the Nine Months Ended September 30, 2023 September 30, 2022 (dollars in thousands; unaudited) Income /
ExpenseIncome / expense
divided by
average CCBX
loans(2)Income /
ExpenseIncome / expense
divided by
average CCBX
loans(2)BaaS loan interest income $ 152,131 16.74 % $ 64,721 13.16 % Less: BaaS loan expense 62,590 6.89 % 36,079 7.34 % Net BaaS loan income(1) $ 89,541 9.85 % $ 28,642 5.82 % Average BaaS Loans(3) $ 1,215,224 $ 657,574 (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.
(3) Includes loans held for sale.Key Performance Ratios
ROA was 1.13% for the quarter ended September 30, 2023 compared to 1.52% and 1.45% for the quarters ended June 30, 2023 and September 30, 2022, respectively. ROA for the quarter ended September 30, 2023, was down 0.39% and 0.32%, respectively, as a result of lower margin and higher expenses compared to June 30, 2023 and September 30, 2022.
The following table shows the Company’s key performance ratios for the periods indicated.
Three Months Ended Nine Months Ended (unaudited) September 30,
2023June 30,
2023March 31,
2023December 31,
2022September 30,
2022September 30,
2023September 30,
2022Return on average assets(1) 1.13 % 1.52 % 1.58 % 1.66 % 1.45 % 1.40 % 1.27 % Return on average equity(1) 14.60 % 19.53 % 19.89 % 21.86 % 19.36 % 17.90 % 16.90 % Yield on earnings assets(1) 10.08 % 10.18 % 9.19 % 8.47 % 7.38 % 9.84 % 6.03 % Yield on loans receivable(1) 10.84 % 10.85 % 9.95 % 9.33 % 8.46 % 10.57 % 7.63 % Cost of funds(1) 3.18 % 2.77 % 2.19 % 1.61 % 0.85 % 2.73 % 0.44 % Cost of deposits(1) 3.14 % 2.72 % 2.13 % 1.56 % 0.82 % 2.69 % 0.41 % Net interest margin(1) 7.10 % 7.58 % 7.15 % 6.96 % 6.58 % 7.27 % 5.61 % Noninterest expense to average assets(1) 6.23 % 6.11 % 5.69 % 5.97 % 6.66 % 6.02 % 5.54 % Noninterest income to average assets(1) 3.81 % 6.90 % 6.28 % 5.43 % 4.48 % 5.61 % 3.79 % Efficiency ratio 58.36 % 42.92 % 43.03 % 48.94 % 61.12 % 47.60 % 59.77 % Loans receivable to deposits(2) 90.19 % 96.23 % 92.55 % 93.25 % 89.92 % 90.19 % 89.92 % (1) Annualized calculations shown for quarterly periods presented.
(2) Includes loans held for sale.Noninterest Income
The following table details noninterest income for the periods indicated:
Three Months Ended September 30, June 30, September 30, (dollars in thousands; unaudited) 2023 2023 2022 Deposit service charges and fees $ 998 $ 989 $ 986 Loan referral fees 1 682 — Unrealized gain on equity securities, net 5 155 (133 ) Gain on sales of loans, net 107 23 — Other 291 234 260 Noninterest income, excluding BaaS program income and BaaS indemnification income 1,402 2,083 1,113 Servicing and other BaaS fees 997 895 1,079 Transaction fees 1,036 1,052 940 Interchange fees 1,216 975 738 Reimbursement of expenses 1,152 1,026 885 BaaS program income 4,401 3,948 3,642 BaaS credit enhancements 25,926 51,027 17,928 Baas fraud enhancements 2,850 1,537 11,708 BaaS indemnification income 28,776 52,564 29,636 Total BaaS income 33,177 56,512 33,278 Total noninterest income $ 34,579 $ 58,595 $ 34,391 Noninterest income was $34.6 million for the three months ended September 30, 2023, a decrease of $24.0 million from $58.6 million for the three months ended June 30, 2023, and an increase of $188,000 from $34.4 million for the three months ended September 30, 2022. The decrease in noninterest income over the quarter ended June 30, 2023 was primarily due to a decrease of $23.3 million in total BaaS income. The $23.3 million decrease in total BaaS income included a $25.1 million decrease in BaaS credit enhancements related to the allowance for credit losses, a $1.3 million increase in BaaS fraud enhancements, and an increase of $453,000 in BaaS program income. The increase in BaaS program income is largely the result of higher transaction and interchange fees (see “Appendix B” for more information on the accounting for BaaS allowance for credit losses and credit and fraud enhancements). The $188,000 increase in noninterest income over the quarter ended September 30, 2022 was primarily due to a $138,000 increase in gain on sale of equity securities and $107,000 increase in gain on sale of loans partially offset by a $101,000 decrease in BaaS income. The $101,000 decrease in BaaS income included a $8.0 million increase in BaaS credit enhancements, a $8.9 million decrease in BaaS fraud enhancements and a $759,000 increase in BaaS program income. The decrease in BaaS credit enhancement compared to the prior period is a result of lower CCBX loan balances increased underwriting standards and change in mix of CCBX loans.
Our CCBX segment continues to evolve, and we now have 22 relationships, at varying stages, as of September 30, 2023. We continue to refine the criteria for CCBX partnerships and are exiting relationships where it makes sense and are focusing on larger more established partners, with experienced management teams, existing customer bases and strong financial positions. The sale of $320.9 million in CCBX loans during the quarter ended September 30, 2023 is part of our strategy to strengthen the balance sheet and lower the overall potential credit risk in our loan portfolio. We expect net interest margin will tighten as higher quality loans yield less than higher risk loans and we also expect the size of our CCBX loan portfolio will be smaller than in previous quarters while we work to grow the portfolio with loans that are subject to increased underwriting standards. We expect this process to take 2 to 3 quarters. At the same time we will be focused on increasing our efficiency and using technology to reduce future expense growth.
The following table illustrates the activity and evolution in CCBX relationships for the periods presented.
As of (unaudited) September 30,
2023June 30,
2023September 30,
2022Active 18 18 19 Friends and family / testing 1 1 2 Implementation / onboarding 1 1 0 Signed letters of intent 1 1 5 Wind down - preparing to exit relationship 1 1 3 Total CCBX relationships 22 22 29 The following table details noninterest expense for the periods indicated:
Noninterest Expense
Three Months Ended September 30, June 30, September 30, (dollars in thousands; unaudited) 2023 2023 2022 Salaries and employee benefits $ 18,087 $ 16,309 $ 14,506 Legal and professional expenses 4,447 4,645 2,251 Data processing and software licenses 2,366 1,972 1,670 Occupancy 1,224 1,143 1,147 Point of sale expense 1,068 814 742 Director and staff expenses 529 519 475 FDIC assessments 694 570 850 Excise taxes 541 531 588 Marketing 169 115 69 Other 1,523 1,722 1,522 Noninterest expense, excluding BaaS loan and BaaS fraud expense 30,648 28,340 23,820 BaaS loan expense 23,003 22,033 15,560 BaaS fraud expense 2,850 1,537 11,707 BaaS loan and fraud expense 25,853 23,570 27,267 Total noninterest expense $ 56,501 $ 51,910 $ 51,087 Total noninterest expense increased $4.6 million to $56.5 million for the three months ended September 30, 2023, compared to $51.9 million for the three months ended June 30, 2023 and increased $5.4 million from $51.1 million for the three months ended September 30, 2022. The increase in noninterest expense for the quarter ended September 30, 2023, as compared to the quarter ended June 30, 2023, was primarily due to a $2.3 million increase in BaaS expense (of which $1.0 million is related to an increase in BaaS loan expense and $1.3 million is due to an increase in BaaS fraud expense) and a $1.8 million increase in salaries and employee benefits. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, and originating & servicing CCBX loans. BaaS 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 during which the loss occurs, and a portion is estimated based on historical or other information from our partners. The $1.8 million increase in salaries and employee benefits is related to the full quarter effect of hiring staff for our ongoing growth initiatives. Salaries and benefits included one time expenses of $494,000 as part of our initiative to manage costs going forward. Additionally, data processing and software licenses increased $394,000 as a result of enhancements in technology.
The increase in noninterest expenses for the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022 were largely due to a decrease of $1.4 million in BaaS partner expense (of which $7.4 million is related to an increase in BaaS loan expense offset by a decrease of $8.9 million in BaaS fraud expense), $3.6 million increase in salary and employee benefits related to hiring staff for CCBX and additional staff for our ongoing growth initiatives and $2.2 million increase in legal and professional fees due to increased fees related to data and risk management, building out our infrastructure and increased consulting expenses for projects and enhanced monitoring. We anticipate that our legal and professional fees will decline as projects have been completed and initiatives are achieved, with legal and professional fees leveling off to approximate first quarter 2023 levels staring in fourth quarter 2023. Additionally, there was a $696,000 increase in data processing and software licenses due to enhancements in technology and a $326,000 increase in point of sale expenses which is attributed to increased CCBX activity.
Provision for Income Taxes
The provision for income taxes was $2.8 million for the three months ended September 30, 2023, $3.9 million for the three months ended June 30, 2023 and $3.0 million for the third quarter of 2022. The provision for income taxes was lower for the three months ended September 30, 2023 compared to June 30, 2023 as a result of lower taxable income. The Company is subject to various state taxes that are assessed as CCBX activities and employees expand into other states, which has increased the overall tax rate used in calculating the provision for income taxes in the current and future periods. The Company uses a federal statutory tax rate of 21.0% as a basis for calculating provision for federal income taxes and 2.62% for calculating the provision for state taxes.
Financial Condition Overview
Total assets increased $145.0 million, or 4.1%, to $3.68 billion at September 30, 2023 compared to $3.54 billion at June 30, 2023. The increase is primarily due to $199.7 million increase in interest earning deposits with other banks partially offset by loans receivable decreasing $40.5 million. We deliberately decreased loans as part of our strategy to optimize our CCBX portfolio and strengthen the balance sheet through enhanced credit standards. Additionally, there were no loans held for sale at September 30, 2023, compared to $35.9 million at June 30, 2023.
Total assets increased $546.5 million, or 17.4%, at September 30, 2023, compared to $3.13 billion at September 30, 2022. The increase is primarily due to loans receivable increasing $459.1 million, and an increase of $42.6 million in investment securities and a $71.7 million increase in interest earning deposits with other banks compared to September 30, 2022.
Loans Receivable
Total loans receivable decreased $40.5 million to $2.97 billion at September 30, 2023, from $3.01 billion at June 30, 2023, and increased $459.1 million from $2.51 billion at September 30, 2022. The decrease in loans receivable over the quarter ended June 30, 2023 was the result of a decease of $112.1 million in CCBX loans from loan sales to optimize our CCBX loan portfolio and a $71.6 million increase in community bank loans. We continue to monitor and manage the CCBX loan portfolio, and sold $320.9 million in CCBX loans during the quarter ended September 30, 2023. CCBX other consumer and other loans were reduced by $148.4 million to $317.0 million at September 30, 2023 from $465.4 million at June 30, 2023 as part of our optimizing strategy to strengthen the balance sheet. The change in loans receivable over the quarter ended September 30, 2022 includes CCBX loan growth of $266.8 million and community bank loan growth of $192.3 million as of September 30, 2023.
The following table summarizes the loan portfolio at the period indicated:
As of September 30, 2023 As of June 30, 2023 As of September 30, 2022 (dollars in thousands; unaudited) Amount Percent Amount Percent Amount Percent Commercial and industrial loans: PPP loans $ 3,310 0.1 % $ 3,595 0.1 % $ 5,794 0.2 % Capital call lines 114,174 3.8 138,428 4.6 174,311 6.9 All other commercial & industrial loans 213,791 7.2 211,806 7.0 159,823 6.4 Total commercial and industrial loans: 331,275 11.1 353,829 11.7 339,928 13.5 Real estate loans: Construction, land and land development 167,686 5.6 186,706 6.2 224,188 8.9 Residential real estate 477,147 16.1 463,179 15.4 402,781 16.0 Commercial real estate 1,237,849 41.6 1,164,088 38.6 1,024,067 40.7 Consumer and other loans 760,463 25.6 846,459 28.1 523,536 20.9 Gross loans receivable 2,974,420 100.0 % 3,014,261 100.0 % 2,514,500 100.0 % Net deferred origination fees - PPP loans (52 ) (60 ) (111 ) Net deferred origination fees - all other loans (7,333 ) (6,648 ) (6,500 ) Loans receivable $ 2,967,035 $ 3,007,553 $ 2,507,889 Loan Yield(1) 10.84 % 10.85 % 8.46 % (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 September 30, 2023 June 30, 2023 September 30, 2022 (dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total Commercial and industrial loans: PPP loans $ 3,310 0.2 % $ 3,595 0.2 % $ 5,794 0.4 % All other commercial & industrial loans 154,922 8.6 151,483 8.8 143,808 9.0 Real estate loans: Construction, land and land development loans 167,686 9.4 186,706 10.9 224,188 14.0 Residential real estate loans 225,372 12.6 211,966 12.3 198,871 12.5 Commercial real estate loans 1,237,849 69.1 1,164,088 67.7 1,024,067 64.0 Consumer and other loans: Other consumer and other loans 2,483 0.1 1,457 0.1 2,220 0.1 Gross Community Bank loans receivable 1,791,622 100.0 % 1,719,295 100.0 % 1,598,948 100.0 % Net deferred origination fees (6,961 ) (6,261 ) (6,628 ) Loans receivable $ 1,784,661 $ 1,713,034 $ 1,592,320 Loan Yield(1) 6.20 % 6.28 % 5.31 % (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 September 30, 2023 June 30, 2023 September 30, 2022 (dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total Commercial and industrial loans: Capital call lines $ 114,174 9.6 % $ 138,428 10.7 % $ 174,311 19.0 % All other commercial & industrial loans 58,869 5.0 60,323 4.7 16,015 1.8 Real estate loans: Residential real estate loans 251,775 21.3 251,213 19.4 203,910 22.3 Consumer and other loans: Credit cards 440,993 37.3 379,642 29.3 216,995 23.7 Other consumer and other loans 316,987 26.8 465,360 35.9 304,321 33.2 Gross CCBX loans receivable 1,182,798 100.0 % 1,294,966 100.0 % 915,552 100.0 % Net deferred origination (fees) costs (424 ) (447 ) 17 Loans receivable $ 1,182,374 $ 1,294,519 $ 915,569 Loan Yield - CCBX(1)(2) 17.05 % 16.95 % 13.96 % (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 originating & 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 increased $127.1 million, or 4.0%, to $3.29 billion at September 30, 2023 from $3.16 billion at June 30, 2023. The increase was due to a $131.3 million increase in core deposits, partially offset by a $4.2 million decrease in time deposits. Deposits in our CCBX segment increased $99.1 million, from $1.65 billion at June 30, 2023, to $1.75 billion at September 30, 2023 and community bank deposits increased $28.0 million from $1.51 billion at June 30, 2023, to $1.54 billion at September 30, 2023. The deposits from our CCBX segment are predominately classified as interest bearing, or NOW and money market accounts. During the quarter ended September 30, 2023, noninterest bearing deposits decreased $73.8 million, or 10.2%, to $651.8 million from $725.6 million at June 30, 2023. Community bank noninterest bearing deposits totaled $584.0 million or 38.0% of total community bank deposits and CCBX noninterest bearing deposits totaled $67.8 million, or 3.9% of total CCBX deposits. In the quarter ended September 30, 2023 compared to the quarter ended June 30, 2023, NOW and money market accounts increased $209.5 million, savings deposits decreased $4.4 million, and time deposits decreased $4.2 million. Included in total deposits is $296.4 million in IntraFi network reciprocal NOW and money market accounts as of September 30, 2023, which provides our larger deposit customers with fully insured deposits through a reciprocal agreement with other banks. Uninsured deposits decreased to $599.0 million as of September 30, 2023, compared to $632.1 million as of June 30, 2023.
Total deposits increased $452.6 million, or 16.0%, to $3.29 billion at September 30, 2023 compared to $2.84 billion at September 30, 2022. The increase is largely the result of growth in CCBX deposits. Noninterest bearing deposits decreased $161.4 million, or 19.9%, to $651.8 million at September 30, 2023 from $813.2 million at September 30, 2022 as a result of customer movement from noninterest to interest bearing accounts. NOW and money market accounts increased $725.6 million, or 40.2%, to $2.53 billion at September 30, 2023, and savings deposits decreased $22.9 million, or 21.3%, and time deposits decreased $13.3 million, or 39.1%, in the third quarter of 2023 compared to the third quarter of 2022 and includes BaaS-brokered deposits that are now classified as NOW accounts included in core deposits due to a change in the relationship agreement with one of our partners and these deposits increased to $269.2 million as of September 30, 2023, compared to $75.4 million as of September 30, 2022. Deposits in our CCBX segment increased $550.0 million, from $1.20 billion at September 30, 2022, to $1.75 billion at September 30, 2023 and community bank deposits decreased $97.3 million, from $1.63 billion at September 30, 2022, to $1.54 billion at September 30, 2023. The deposits from our CCBX segment are predominately classified as interest bearing, or NOW and money market accounts. Uninsured deposits decreased to $599.0 million as of September 30, 2023, compared to $867.7 million as of September 30, 2022.
Additionally, as of September 30, 2023 $51.9 million in CCBX customer deposits were transferred off the Bank’s balance sheet to other financial institutions on a daily basis for additional FDIC insurance coverage. 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 September 30, 2023 As of June 30, 2023 As of September 30, 2022 (dollars in thousands; unaudited) Amount Percent of
Total
DepositsBalance Percent of
Total
DepositsBalance Percent of
Total
DepositsDemand, noninterest bearing $ 651,786 19.8 % $ 725,592 22.9 % $ 813,217 28.7 % NOW and money market 2,532,668 77.0 2,323,164 73.5 1,807,105 63.7 Savings 84,628 2.6 88,991 2.8 107,508 3.8 Total core deposits 3,269,082 99.4 3,137,747 99.2 2,727,830 96.2 Brokered deposits 1 0.0 1 0.0 75,363 2.6 Time deposits less than $100,000 8,635 0.2 9,741 0.3 13,296 0.5 Time deposits $100,000 and over 11,982 0.4 15,083 0.5 20,577 0.7 Total $ 3,289,700 100.0 % $ 3,162,572 100.0 % $ 2,837,066 100.0 % Cost of deposits(1) 3.14 % 2.72 % 0.82 % (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 September 30, 2023 June 30, 2023 September 30, 2022 (dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total Demand, noninterest bearing $ 584,004 38.0 % $ 621,012 41.1 % $ 746,516 45.6 % NOW and money market 852,747 55.5 778,475 51.6 748,347 45.8 Savings 80,099 5.2 85,146 5.7 106,059 6.5 Total core deposits 1,516,850 98.7 1,484,633 98.4 1,600,922 97.9 Brokered deposits 1 0.0 1 0.0 1 0.0 Time deposits less than $100,000 8,635 0.5 9,741 0.6 13,296 0.8 Time deposits $100,000 and over 11,982 0.8 15,083 1.0 20,577 1.3 Total Community Bank deposits $ 1,537,468 100.0 % $ 1,509,458 100.0 % $ 1,634,796 100.0 % Cost of deposits(1) 1.31 % 0.98 % 0.16 % (1) Cost of deposits is annualized for the three months ended for each period presented.
CCBX As of September 30, 2023 June 30, 2023 September 30, 2022 (dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total Demand, noninterest bearing $ 67,782 3.9 % $ 104,580 6.3 % $ 66,701 5.5 % NOW and money market 1,679,921 95.9 1,544,689 93.5 1,058,758 88.1 Savings 4,529 0.2 3,845 0.2 1,449 0.1 Total core deposits 1,752,232 100.0 1,653,114 100.0 1,126,908 93.7 BaaS-brokered deposits — 0.0 — 0.0 75,362 6.3 Total CCBX deposits $ 1,752,232 100.0 % $ 1,653,114 100.0 % $ 1,202,270 100.0 % Cost of deposits(1) 4.80 % 4.42 % 1.79 % (1) Cost of deposits is annualized for the three months ended for each period presented.
Borrowings
As of September 30, 2023 the Company had the capacity to borrow up to a total of $577.9 million from the Federal Reserve Bank discount window and Federal Home Loan Bank, with no borrowings outstanding on these lines as of September 30, 2023.
Shareholders’ Equity
During the nine months ended September 30, 2023, the Company contributed $15.0 million in capital to the Bank. The Company had a cash balance of $6.5 million as of September 30, 2023, which is retained for general operating purposes, including debt repayment, and for funding $713,000 in commitments to bank technology funds.
Total shareholders’ equity increased $11.8 million since June 30, 2023. The increase in shareholders’ equity was primarily due to $10.3 million in net earnings, a $918,000 increase from the amortization of equity awards, combined with a decrease in the unrealized loss on available-for-sale securities of $589,000 during the three months ended September 30, 2023.
Capital Ratios
The Company and the Bank remained well capitalized at September 30, 2023, as summarized in the following table.
(unaudited) Coastal
Community
BankCoastal
Financial
CorporationMinimum Well
Capitalized
Ratios under
Prompt
Corrective
Action(1)Tier 1 Leverage Capital (to average assets) 8.99 % 8.03 % 5.00 % Common Equity Tier 1 Capital (to risk-weighted assets) 10.20 % 8.99 % 6.50 % Tier 1 Capital (to risk-weighted assets) 10.20 % 9.10 % 8.00 % Total Capital (to risk-weighted assets) 11.47 % 11.79 % 10.00 % (1) Presents the minimum capital ratios for an insured depository institution, such as the Bank, to be considered well capitalized under the Prompt Corrective Action framework. The minimum requirements for the Company to be considered well capitalized under Regulation Y include to maintain, on a consolidated basis, a total risk-based capital ratio of 10.0 percent or greater and a tier 1 risk-based capital ratio of 6.0 percent or greater.
Asset Quality
Effective January 1, 2023 the Company implemented the CECL allowance model which calculates reserves over the life of the loan and is largely driven by portfolio characteristics, economic outlook, and other key methodology assumptions versus the incurred loss model, which is what we were previously using. As a result of implementing CECL, there was a one-time adjustment to the 2023 opening allowance balance of $3.9 million. The day 1 CECL adjustment for community bank loans included a reduction of $310,000 to the community bank allowance driven by the reversal of the unallocated balance and a reduction of $340,000 related to the community bank unfunded commitment reserve also driven by the reversal of the unallocated balance. This was offset by an increase to the CCBX allowance for $4.2 million. With the mirror image approach accounting related to the contingent receivable for CCBX partner loans, there was a CECL day 1 increase to the indemnification asset in the amount of $4.5 million. Net, the day 1 impact to retained earnings for the Bank’s transition to CECL was an increase of $954,000, excluding the impact of income taxes.
The total allowance for credit losses was $101.1 million and 3.41% of loans receivable at September 30, 2023 compared to $110.8 million and 3.68% at June 30, 2023 and $59.3 million and 2.36% at September 30, 2022. The allowance for credit loss allocated to the CCBX portfolio was $79.8 million and 6.75% of CCBX loans receivable at September 30, 2023, with $21.3 million of allowance for credit loss allocated to the community bank or 1.19% of total community bank loans receivable.
The following table details the allocation of the allowance for credit loss as of the period indicated:
As of September 30, 2023 As of June 30, 2023 As of September 30, 2022 (dollars in thousands; unaudited) Community Bank CCBX Total Community Bank CCBX Total Community Bank CCBX Total Loans receivable $ 1,784,661 $ 1,182,374 $ 2,967,035 $ 1,713,034 $ 1,294,519 $ 3,007,553 $ 1,592,320 $ 915,569 $ 2,507,889 Allowance for
credit losses(21,316 ) (79,769 ) (101,085 ) (20,653 ) (90,109 ) (110,762 ) (20,139 ) (39,143 ) (59,282 ) Allowance for
credit losses to
total loans
receivable1.19 % 6.75 % 3.41 % 1.21 % 6.96 % 3.68 % 1.26 % 4.28 % 2.36 % Provision for credit losses - loans totaled $27.2 million for the three months ended September 30, 2023, $52.6 million for the three months ended June 30, 2023, and $18.4 million for the three months ended September 30, 2022. Net charge-offs totaled $36.8 million for the quarter ended September 30, 2023, compared to $31.0 million for the quarter ended June 30, 2023 and $8.5 million for the quarter ended September 30, 2022. Net charge-offs increased primarily due to CCBX partner loans. 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 $231.9 million loan portfolio. At September 30, 2023, our portion of this portfolio represented $23.2 million in loans.
The following table details net charge-offs for the core bank and CCBX for the period indicated:
Three Months Ended September 30, 2023 June 30, 2023 September 30, 2022 (dollars in thousands; unaudited) Community Bank CCBX Total Community Bank CCBX Total Community Bank CCBX Total Gross charge-offs $ 3 $ 37,023 $ 37,026 $ 9 $ 32,290 $ 32,299 $ 411 $ 8,102 $ 8,513 Gross recoveries (3 ) (189 ) (192 ) — (1,340 ) (1,340 ) (3 ) (6 ) (9 ) Net charge-offs $ — $ 36,834 $ 36,834 $ 9 $ 30,950 $ 30,959 $ 408 $ 8,096 $ 8,504 Net charge-offs to
average loans(1)0.00 % 11.16 % 4.77 % 0.00 % 9.78 % 4.19 % 0.10 % 3.59 % 1.38 % (1) Annualized calculations shown for periods presented.
The decrease in the Company’s provision for credit losses - loans during the quarter ended September 30, 2023, is a result of a decrease in CCBX loans receivable. During the quarter ended September 30, 2023, a $26.5 million provision for credit losses - loans was recorded for CCBX partner loans based on management’s analysis, compared to the $52.6 million provision for credit losses - loans that was recorded for CCBX for the quarter ended June 30, 2023, as a result of a decrease in CCBX loans receivable. CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by indemnifying or reimbursing incurred losses. In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans and reclassified negative deposit accounts. When the provision for CCBX credit losses and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements). Expected losses are recorded in the allowance for credit losses. The credit enhancement asset is relieved when credit enhancement recoveries are received from the CCBX partner. CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by indemnifying or reimbursing incurred credit and fraud losses. If our partner is unable to fulfill their contracted obligations then the bank could be exposed to additional credit losses. Management regularly evaluates and manages this counterparty risk. The Company is responsible for credit losses on approximately 10% of a $231.9 million CCBX loan portfolio. At September 30, 2023, 10% of this portfolio represented $23.2 million in loans. The factors used in management’s analysis for community bank credit losses indicated that a provision of $664,000 and was needed for the quarter ended September 30, 2023 and a small adjustment (recapture) of $47,000 and $238,000 was needed for the quarters ended June 30, 2023 and September 30, 2022, respectively.
The following table details the provision expense for the community bank and CCBX for the period indicated:
Three Months Ended Nine Months Ended (dollars in thousands; unaudited) September 30,
2023June 30,
2023September 30,
2022September 30,
2023September 30,
2022Community bank $ 664 $ (47 ) $ (238 ) $ 1,045 $ 214 CCBX 26,493 52,645 18,666 122,254 45,250 Total provision expense $ 27,157 $ 52,598 $ 18,428 $ 123,299 $ 45,464 At September 30, 2023, our nonperforming assets were $43.5 million, or 1.18% of total assets, compared to $33.7 million, or 0.95%, of total assets, at June 30, 2023, and $22.9 million, or 0.73% of total assets, at September 30, 2022. These ratios are impacted by CCBX loans over 90 days delinquent that are covered by CCBX partner credit enhancements. As of September 30, 2023, $34.7 million of the $36.2 million in nonperforming CCBX loans were covered by CCBX partner credit enhancements. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by indemnifying or reimbursing incurred losses. Under the agreement, CCBX partners will indemnify or reimburse the Bank for its loss/charge-off on these loans. Nonperforming assets increased $9.8 million during the quarter ended September 30, 2023, compared to the quarter ended June 30, 2023, due to a $9.9 million increase in CCBX loans that are past due 90 days or more and still accruing combined with a $76,000 decrease 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 loan portfolios 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 decreased due to principal reductions. There were no repossessed assets or other real estate owned at September 30, 2023. Our nonperforming loans to loans receivable ratio was 1.47% at September 30, 2023, compared to 1.12% at June 30, 2023, and 0.91% at September 30, 2022.
For the quarter ended September 30, 2023, there were zero community bank net charge-offs and $7.3 million nonperforming community bank loans, including a multifamily loan for $6.9 million which we believe is currently well secured. For the quarter ended September 30, 2023, $36.8 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 credit losses. The Company is responsible for credit losses on approximately 10% of a $231.9 million loan portfolio. At September 30, 2023, our portion of this portfolio represented $23.2 million in loans.
The following table details the Company’s nonperforming assets for the periods indicated.
(dollars in thousands; unaudited) As of September
30, 2023As of June 30,
2023As of September
30, 2022Nonaccrual loans: Commercial and industrial loans $ 2 $ 5 $ 94 Real estate loans: Construction, land and land development — 66 66 Residential real estate 176 186 — Commercial real estate 7,145 7,142 6,901 Total nonaccrual loans 7,323 7,399 7,061 Accruing loans past due 90 days or more: Commercial & industrial loans 1,387 808 138 Real estate loans: Residential real estate loans 1,462 1,722 638 Consumer and other loans: Credit cards 24,807 18,306 4,777 Other consumer and other loans 8,561 5,492 10,268 Total accruing loans past due 90 days or more 36,217 26,328 15,821 Total nonperforming loans 43,540 33,727 22,882 Real estate owned — — — Repossessed assets — — — Modified loans for borrowers experiencing financial difficulty — — — Total nonperforming assets $ 43,540 $ 33,727 $ 22,882 Total nonaccrual loans to loans receivable 0.25 % 0.25 % 0.28 % Total nonperforming loans to loans receivable 1.47 % 1.12 % 0.91 % Total nonperforming assets to total assets 1.18 % 0.95 % 0.73 % 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) September 30,
2023June 30,
2023September 30,
2022Nonaccrual loans: Commercial and industrial loans $ 2 $ 5 $ 94 Real estate: Construction, land and land development — 66 66 Residential real estate 176 186 — Commercial real estate 7,145 7,142 6,901 Total nonaccrual loans 7,323 7,399 7,061 Accruing loans past due 90 days or more: Total accruing loans past due 90 days or more — — — Total nonperforming loans 7,323 7,399 7,061 Other real estate owned — — — Repossessed assets — — — Total nonperforming assets $ 7,323 $ 7,399 $ 7,061 CCBX As of (dollars in thousands; unaudited) September 30,
2023June 30,
2023September 30,
2022Nonaccrual loans $ — $ — $ — Accruing loans past due 90 days or more: Commercial & industrial loans 1,387 808 138 Real estate loans: Residential real estate loans 1,462 1,722 638 Consumer and other loans: Credit cards 24,807 18,306 4,777 Other consumer and other loans 8,561 5,492 10,268 Total accruing loans past due 90 days or more 36,217 26,328 15,821 Total nonperforming loans 36,217 26,328 15,821 Other real estate owned — — — Repossessed assets — — — Total nonperforming assets $ 36,217 $ 26,328 $ 15,821 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 $3.68 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) 357-3687Forward-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 September 30,
2023June 30,
2023September 30,
2022Cash and due from banks $ 29,984 $ 29,783 $ 37,482 Interest earning deposits with other banks 444,962 245,277 373,246 Investment securities, available for sale, at fair value 98,939 98,167 97,621 Investment securities, held to maturity, at amortized cost 42,550 12,563 1,250 Other investments 11,898 12,037 10,581 Loans held for sale — 35,923 43,314 Loans receivable 2,967,035 3,007,553 2,507,889 Allowance for credit losses (101,085 ) (110,762 ) (59,282 ) Total loans receivable, net 2,865,950 2,896,791 2,448,607 CCBX credit enhancement asset 91,867 96,928 48,228 CCBX receivable 13,847 19,113 6,145 Premises and equipment, net 20,543 18,903 18,467 Operating lease right-of-use assets 6,126 6,216 5,293 Accrued interest receivable 22,208 21,581 13,114 Bank-owned life insurance, net 12,970 12,873 12,576 Deferred tax asset, net 4,404 25,764 13,997 Other assets 14,020 3,364 3,820 Total assets $ 3,680,268 $ 3,535,283 $ 3,133,741 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES Deposits $ 3,289,700 $ 3,162,572 $ 2,837,066 Subordinated debt, net 44,106 44,069 24,343 Junior subordinated debentures, net 3,589 3,589 3,588 Deferred compensation 513 547 648 Accrued interest payable 1,056 766 153 Operating lease liabilities 6,321 6,413 5,514 CCBX payable 40,233 27,714 15,191 Other liabilities 10,300 16,951 18,505 Total liabilities 3,395,818 3,262,621 2,905,008 SHAREHOLDERS’ EQUITY Common stock 129,244 128,315 123,944 Retained earnings 156,299 146,029 106,880 Accumulated other comprehensive loss, net of tax (1,093 ) (1,682 ) (2,091 ) Total shareholders’ equity 284,450 272,662 228,733 Total liabilities and shareholders’ equity $ 3,680,268 $ 3,535,283 $ 3,133,741 COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)Three Months Ended September 30,
2023June 30,
2023September 30,
2022INTEREST AND DIVIDEND INCOME Interest and fees on loans $ 83,652 $ 80,199 $ 52,328 Interest on interest earning deposits with other banks 3,884 2,678 2,273 Interest on investment securities 766 653 554 Dividends on other investments 29 156 24 Total interest income 88,331 83,686 55,179 INTEREST EXPENSE Interest on deposits 25,451 20,675 5,717 Interest on borrowed funds 651 661 273 Total interest expense 26,102 21,336 5,990 Net interest income 62,229 62,350 49,189 PROVISION FOR CREDIT LOSSES - LOANS 27,157 52,598 18,428 PROVISION (RECAPTURE) FOR UNFUNDED COMMITMENTS 96 (345 ) — Net interest income after provision for credit losses - loans
and unfunded commitments34,976 10,097 30,761 NONINTEREST INCOME Deposit service charges and fees 998 989 986 Loan referral fees 1 682 — Gain on sales of loans, net 107 23 — Unrealized (loss) gain on equity securities, net 5 155 (133 ) Other income 291 234 260 Noninterest income, excluding BaaS program income and BaaS indemnification income 1,402 2,083 1,113 Servicing and other BaaS fees 997 895 1,079 Transaction fees 1,036 1,052 940 Interchange fees 1,216 975 738 Reimbursement of expenses 1,152 1,026 885 BaaS program income 4,401 3,948 3,642 BaaS credit enhancements 25,926 51,027 17,928 BaaS fraud enhancements 2,850 1,537 11,708 BaaS indemnification income 28,776 52,564 29,636 Total noninterest income 34,579 58,595 34,391 NONINTEREST EXPENSE Salaries and employee benefits 18,087 16,309 14,506 Occupancy 1,224 1,143 1,147 Data processing and software licenses 2,366 1,972 1,670 Legal and professional expenses 4,447 4,645 2,251 Point of sale expense 1,068 814 742 Excise taxes 541 531 588 Federal Deposit Insurance Corporation ("FDIC") assessments 694 570 850 Director and staff expenses 529 519 475 Marketing 169 115 69 Other expense 1,523 1,722 1,522 Noninterest expense, excluding BaaS loan and BaaS fraud expense 30,648 28,340 23,820 BaaS loan expense 23,003 22,033 15,560 BaaS fraud expense 2,850 1,537 11,707 BaaS loan and fraud expense 25,853 23,570 27,267 Total noninterest expense 56,501 51,910 51,087 Income before provision for income taxes 13,054 16,782 14,065 PROVISION FOR INCOME TAXES 2,784 3,876 2,964 NET INCOME $ 10,270 $ 12,906 $ 11,101 Basic earnings per common share $ 0.77 $ 0.97 $ 0.86 Diluted earnings per common share $ 0.75 $ 0.95 $ 0.82 Weighted average number of common shares outstanding: Basic 13,285,974 13,275,640 12,938,200 Diluted 13,675,833 13,597,763 13,536,823 COASTAL FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts; unaudited)Nine Months Ended September 30,
2023September 30,
2022INTEREST AND DIVIDEND INCOME Interest and fees on loans $ 230,282 $ 122,126 Interest on interest earning deposits with other banks 9,659 3,631 Interest on investment securities 1,972 1,188 Dividends on other investments 215 195 Total interest income 242,128 127,140 INTEREST EXPENSE Interest on deposits 61,084 7,943 Interest on borrowed funds 1,974 854 Total interest expense 63,058 8,797 Net interest income 179,070 118,343 PROVISION FOR CREDIT LOSSES - LOANS 123,299 45,464 PROVISION (RECAPTURE) FOR UNFUNDED COMMITMENTS (96 ) — Net interest income after provision for credit losses - loans
and unfunded commitments55,867 72,879 NONINTEREST INCOME Deposit service charges and fees 2,897 2,858 Loan referral fees 683 810 Gain on sales of loans, net 253 — Unrealized (loss) gain on equity securities, net 199 (135 ) Other income 824 1,046 Noninterest income, excluding BaaS program income and BaaS indemnification income 4,856 4,579 Servicing and other BaaS fees 2,840 3,407 Transaction fees 3,005 2,247 Interchange fees 2,980 1,798 Reimbursement of expenses 3,099 1,875 BaaS program income 11,924 9,327 BaaS credit enhancements 119,315 45,210 BaaS fraud enhancements 6,386 22,753 BaaS indemnification income 125,701 67,963 Total noninterest income 142,481 81,869 NONINTEREST EXPENSE Salaries and employee benefits 49,971 37,829 Occupancy 3,586 3,366 Data processing and software licenses 6,178 4,719 Legal and professional expenses 12,154 3,961 Point of sale expense 2,635 1,399 Excise taxes 1,527 1,501 Federal Deposit Insurance Corporation ("FDIC") assessments 1,859 2,309 Director and staff expenses 1,674 1,196 Marketing 379 242 Other expense 4,135 4,318 Noninterest expense, excluding BaaS loan and BaaS fraud expense 84,098 60,840 BaaS loan expense 62,590 36,079 BaaS fraud expense 6,386 22,752 BaaS loan and fraud expense 68,976 58,831 Total noninterest expense 153,074 119,671 Income before provision for income taxes 45,274 35,077 PROVISION FOR INCOME TAXES 9,707 7,570 NET INCOME $ 35,567 $ 27,507 Basic earnings per common share $ 2.68 $ 2.13 Diluted earnings per common share $ 2.61 $ 2.04 Weighted average number of common shares outstanding: Basic 13,253,184 12,921,814 Diluted 13,627,939 13,484,950 COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – QUARTERLY
(Dollars in thousands; unaudited)For the Three Months Ended September 30, 2023 June 30, 2023 September 30, 2022 Average
BalanceInterest &
DividendsYield /
Cost(1)Average
BalanceInterest &
DividendsYield /
Cost(1)Average
BalanceInterest &
DividendsYield /
Cost(1)Assets Interest earning assets: Interest earning deposits with
other banks$ 285,596 $ 3,884 5.40 % $ 211,369 $ 2,678 5.08 % $ 397,621 $ 2,273 2.27 % Investment securities, available for sale(2) 100,283 543 2.15 100,278 534 2.14 102,438 545 2.11 Investment securities, held to maturity(2) 17,703 223 5.00 10,047 119 4.75 1,257 9 2.84 Other investments 11,943 29 0.96 11,773 156 5.31 10,520 24 0.91 Loans receivable(3) 3,062,214 83,652 10.84 2,965,287 80,199 10.85 2,452,815 52,328 8.46 Total interest earning assets 3,477,739 88,331 10.08 3,298,754 83,686 10.18 2,964,651 55,179 7.38 Noninterest earning assets: Allowance for credit losses (100,329 ) (87,713 ) (51,259 ) Other noninterest earning assets 220,750 194,747 128,816 Total assets $ 3,598,160 $ 3,405,788 $ 3,042,208 Liabilities and Shareholders’ Equity Interest bearing liabilities: Interest bearing deposits $ 2,515,093 $ 25,451 4.01 % $ 2,326,702 $ 20,675 3.56 % $ 1,953,170 $ 5,717 1.16 % Subordinated debt 44,084 580 5.22 44,047 596 5.43 24,331 234 3.82 Junior subordinated debentures 3,589 71 7.85 3,589 65 7.26 3,587 39 4.31 Total interest bearing liabilities 2,562,766 26,102 4.04 2,374,338 21,336 3.60 1,981,088 5,990 1.20 Noninterest bearing deposits 698,532 717,256 807,952 Other liabilities 57,865 49,085 25,662 Total shareholders' equity 278,997 265,109 227,506 Total liabilities and shareholders' equity $ 3,598,160 $ 3,405,788 $ 3,042,208 Net interest income $ 62,229 $ 62,350 $ 49,189 Interest rate spread 6.04 % 6.58 % 6.18 % Net interest margin(4) 7.10 % 7.58 % 6.58 % (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 September 30, 2023 June 30, 2023 September 30, 2022 (dollars in thousands, unaudited) Average
BalanceInterest &
DividendsYield /
Cost(1)Average
BalanceInterest &
DividendsYield /
Cost(1)Average
BalanceInterest &
DividendsYield /
Cost(1)Community Bank Assets Interest earning assets: Loans receivable(2) $ 1,752,834 $ 27,373 6.20 % $ 1,695,881 $ 26,567 6.28 % $ 1,559,160 $ 20,879 5.31 % Intrabank asset — — — — — — 77,217 441 2.27 Total interest earning
assets1,752,834 27,373 6.20 1,695,881 26,567 6.28 1,636,377 21,320 5.17 Liabilities Interest bearing liabilities: Interest bearing
deposits920,707 5,067 2.18 % 875,760 3,663 1.68 % 901,339 642 0.28 % Intrabank liability 223,221 3,036 5.40 196,552 2,490 5.08 — — — Total interest bearing
liabilities1,143,928 8,103 2.81 1,072,312 6,153 2.30 901,339 642 0.28 Noninterest bearing
deposits608,906 623,570 735,038 Net interest income $ 19,270 $ 20,414 $ 20,678 Net interest margin(3) 4.36 % 4.83 % 5.01 % CCBX Assets Interest earning assets: Loans receivable(2)(4) $ 1,309,380 $ 56,279 17.05 % $ 1,269,406 $ 53,632 16.95 % $ 893,655 $ 31,449 13.96 % Intrabank asset 374,632 5,095 5.40 275,222 3,487 5.08 231,090 1,321 2.27 Total interest earning
assets1,684,012 61,374 14.46 1,544,628 57,119 14.83 1,124,745 32,770 11.56 Liabilities Interest bearing liabilities: Interest bearing
deposits1,594,386 20,384 5.07 % 1,450,942 17,012 4.70 % 1,051,831 5,075 1.91 % Total interest bearing
liabilities1,594,386 20,384 5.07 1,450,942 17,012 4.70 1,051,831 5,075 1.91 Noninterest bearing
deposits89,626 93,686 72,914 Net interest income $ 40,990 $ 40,107 $ 27,695 Net interest margin(3) 9.66 % 10.41 % 9.77 % Net interest margin, net
of Baas loan expense(5)4.24 % 4.69 % 4.28 % For the Three Months Ended September 30, 2023 June 30, 2023 September 30, 2022 (dollars in thousands, unaudited) Average
BalanceInterest &
DividendsYield /
Cost(1)Average
BalanceInterest &
DividendsYield /
Cost(1)Average
BalanceInterest &
DividendsYield /
Cost(1)Treasury & Administration Assets Interest earning assets: Interest earning
deposits with
other banks$ 285,596 $ 3,884 5.40 % $ 211,369 $ 2,678 5.08 % $ 397,621 $ 2,273 2.27 % Investment securities,
available for sale(6)100,283 543 2.15 100,278 534 2.14 102,438 545 2.11 Investment securities,
held to maturity(6)17,703 223 5.00 10,047 119 4.75 1,257 9 2.84 Other investments 11,943 29 0.96 11,773 156 5.31 10,520 24 0.91 Total interest
earning assets415,525 4,679 4.47 % 333,467 — 3,487 4.19 % 511,836 2,851 2.21 % Liabilities Interest bearing
liabilities:Subordinated debt 44,084 580 5.22 % 44,047 596 5.43 % 24,331 234 3.82 % Junior subordinated
debentures3,589 71 7.85 3,589 65 7.26 3,587 39 4.31 Intrabank liability, net(7) 151,411 2,059 5.40 78,670 997 5.08 308,307 1,762 2.27 Total interest
bearing liabilities199,084 2,710 5.40 126,306 1,658 5.27 336,225 2,035 2.40 Net interest income $ 1,969 $ 1,829 $ 816 Net interest margin(3) 1.88 % 2.20 % 0.63 % (1) Yields and costs are annualized.
(2) Includes loans held for sale and nonaccrual loans.
(3) Net interest margin represents net interest income divided by the average total interest earning assets.
(4) 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, fraud enhancements and originating & 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.
(5) Net interest margin, net of BaaS loan expense includes the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, originating & servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release.
(6) 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.
(7) Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the table above.COASTAL FINANCIAL CORPORATION
AVERAGE BALANCES, YIELDS, AND RATES – YEAR-TO-DATE
(Dollars in thousands; unaudited)For the Nine Months Ended September 30, 2023 September 30, 2022 (dollars in thousands; unaudited) Average
BalanceInterest &
DividendsYield /
Cost(1)Average
BalanceInterest &
DividendsYield /
Cost(1)Assets Interest earning assets: Interest earning deposits with
other banks$ 256,272 $ 9,659 5.04 % $ 578,855 $ 3,631 0.84 % Investment securities, available for sale(2) 100,278 1,612 2.15 89,173 1,160 1.74 Investment securities, held to maturity(2) 9,959 360 4.83 1,276 28 2.93 Other investments 11,455 215 2.51 9,996 195 2.61 Loans receivable(3) 2,913,189 230,282 10.57 2,141,127 122,126 7.63 Total interest earning assets 3,291,153 242,128 9.84 2,820,427 127,140 6.03 Noninterest earning assets: Allowance for credit losses (89,780 ) (42,836 ) Other noninterest earning assets 196,065 112,468 Total assets $ 3,397,438 $ 2,890,059 Liabilities and Shareholders’ Equity Interest bearing liabilities: Interest bearing deposits $ 2,305,634 $ 61,084 3.54 % $ 1,628,765 $ 7,943 0.65 % FHLB advances and borrowings — — — 8,058 69 1.14 Subordinated debt 44,047 1,775 5.39 24,313 695 3.82 Junior subordinated debentures 3,589 199 7.41 3,587 90 3.35 Total interest bearing liabilities 2,353,270 63,058 3.58 1,664,723 8,797 0.71 Noninterest bearing deposits 730,292 987,343 Other liabilities 48,206 20,442 Total shareholders' equity 265,670 217,551 Total liabilities and shareholders' equity $ 3,397,438 $ 2,890,059 Net interest income $ 179,070 $ 118,343 Interest rate spread 6.26 % 5.32 % Net interest margin(4) 7.27 % 5.61 % (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 Nine Months Ended September 30, 2023 September 30, 2022 (dollars in thousands; unaudited) Average
BalanceInterest &
DividendsYield /
Cost(1)Average
BalanceInterest &
DividendsYield /
Cost(1)Community Bank Assets Interest earning assets: Loans receivable(2) $ 1,697,965 $ 78,151 6.15 % $ 1,483,553 $ 57,405 5.17 % Intrabank asset — — — 167,379 872 0.70 Total interest earning assets 1,697,965 78,151 6.15 1,650,932 58,277 4.72 Liabilities Interest bearing liabilities: Interest bearing deposits 883,454 11,264 1.70 % 919,415 1,394 0.20 % Intrabank liability 171,950 6,605 5.14 — — — Total interest bearing liabilities 1,055,404 17,869 2.26 919,415 1,394 0.20 Noninterest bearing deposits 642,561 731,517 Net interest income $ 60,282 $ 56,883 Net interest margin(3) 4.75 % 4.61 % CCBX Assets Interest earning assets: Loans receivable(2)(4) $ 1,215,224 $ 152,131 16.74 % $ 657,574 $ 64,721 13.16 % Intrabank asset 294,687 11,234 5.10 307,602 2,051 0.89 Total interest earning assets 1,509,911 163,365 14.47 965,176 66,772 9.25 Liabilities Interest bearing liabilities: Interest bearing deposits 1,422,180 49,820 4.68 % 709,350 6,549 1.23 % Total interest bearing liabilities 1,422,180 49,820 4.68 709,350 6,549 1.23 Noninterest bearing deposits 87,731 255,826 Net interest income $ 113,545 $ 60,223 Net interest margin(3) 10.05 % 8.34 % Net interest margin, net of
Baas loan expense(5)4.51 % 3.34 % For the Nine Months Ended September 30, 2023 September 30, 2022 (dollars in thousands; unaudited) Average
BalanceInterest &
DividendsYield /
Cost(1)Average
BalanceInterest &
DividendsYield /
Cost(1)Treasury & Administration Assets Interest earning assets: Interest earning deposits with
other banks$ 256,272 $ 9,659 5.04 % $ 578,855 $ 3,631 0.84 % Investment securities, available for
sale(6)100,278 1,612 2.15 89,173 1,160 1.74 Investment securities, held to
maturity(6)9,959 360 4.83 1,276 28 2.93 Other investments 11,455 215 2.51 9,996 195 2.61 Total interest earning assets 377,964 11,846 4.19 679,300 5,014 0.99 Liabilities Interest bearing liabilities: FHLB advances and borrowings — — — % 8,058 69 1.14 % Subordinated debt 44,047 1,775 5.39 24,313 695 3.82 Junior subordinated debentures 3,589 199 7.41 3,587 90 3.35 Intrabank liability, net(7) 122,737 4,629 5.04 474,981 2,923 0.82 Total interest bearing liabilities 170,373 6,603 5.18 510,939 3,777 0.99 Net interest income $ 5,243 $ 1,237 Net interest margin(3) 1.85 % 0.24 % (1) Yields and costs are annualized.
(2) Includes loans held for sale and nonaccrual loans.
(3) Net interest margin represents net interest income divided by the average total interest earning assets.
(4) 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, fraud enhancements and originating & 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.
(5) Net interest margin, net of BaaS loan expense includes the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, originating & servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release.
(6) 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.
(7) Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the table above.COASTAL FINANCIAL CORPORATION
QUARTERLY STATISTICS
(Dollars in thousands, except share and per share data; unaudited)Three Months Ended September 30,
2023June 30,
2023March 31,
2023December 31,
2022September 30,
2022Income Statement Data: Interest and dividend income $ 88,331 $ 83,686 $ 70,111 $ 65,030 $ 55,179 Interest expense 26,102 21,336 15,620 11,598 5,990 Net interest income 62,229 62,350 54,491 53,432 49,189 Provision for credit losses - loans 27,157 52,598 43,544 33,600 18,428 Provision (recovery) for unfunded commitments 96 (345 ) 153 — — Net interest income after
provision for credit losses - loans and
unfunded commitments34,976 10,097 10,794 19,832 30,761 Noninterest income 34,579 58,595 49,307 42,815 34,391 Noninterest expense 56,501 51,910 44,663 47,103 51,087 Provision for income tax 2,784 3,876 3,047 2,426 2,964 Net income 10,270 12,906 12,391 13,118 11,101 As of and for the Three Month Period September 30,
2023June 30,
2023March 31,
2023December 31,
2022September 30,
2022Balance Sheet Data: Cash and cash equivalents $ 474,946 $ 275,060 $ 393,916 $ 342,139 $ 410,728 Investment securities 141,489 110,730 101,704 98,353 98,871 Loans held for sale — 35,923 27,292 — 43,314 Loans receivable 2,967,035 3,007,553 2,837,204 2,627,256 2,507,889 Allowance for credit losses (101,085 ) (110,762 ) (89,123 ) (74,029 ) (59,282 ) Total assets 3,680,268 3,535,283 3,451,033 3,144,467 3,133,741 Interest bearing deposits 2,637,914 2,436,980 2,333,423 2,042,509 2,023,849 Noninterest bearing deposits 651,786 725,592 761,800 775,012 813,217 Core deposits(1) 3,269,082 3,137,747 3,068,162 2,686,528 2,727,830 Total deposits 3,289,700 3,162,572 3,095,223 2,817,521 2,837,066 Total borrowings 47,695 47,658 47,619 47,587 27,931 Total shareholders’ equity 284,450 272,662 258,763 243,494 228,733 Share and Per Share Data(2): Earnings per share – basic $ 0.77 $ 0.97 $ 0.94 $ 1.01 $ 0.86 Earnings per share – diluted $ 0.75 $ 0.95 $ 0.91 $ 0.96 $ 0.82 Dividends per share — — — — — Book value per share(3) $ 21.38 $ 20.50 $ 19.48 $ 18.50 $ 17.66 Tangible book value per share(4) $ 21.38 $ 20.50 $ 19.48 $ 18.50 $ 17.66 Weighted avg outstanding shares – basic 13,285,974 13,275,640 13,196,960 13,030,726 12,938,200 Weighted avg outstanding shares – diluted 13,675,833 13,597,763 13,609,491 13,603,978 13,536,823 Shares outstanding at end of period 13,302,449 13,300,809 13,281,533 13,161,147 12,954,573 Stock options outstanding at end of period 356,359 357,999 360,119 438,103 644,334 As of and for the Three Month Period September 30,
2023June 30,
2023March 31,
2023December 31,
2022September 30,
2022Credit Quality Data: Nonperforming assets(5)to total assets 1.18 % 0.95 % 0.91 % 1.06 % 0.73 % Nonperforming assets(5)to loans receivable and OREO 1.47 % 1.12 % 1.11 % 1.26 % 0.91 % Nonperforming loans(5)to total loans receivable 1.47 % 1.12 % 1.11 % 1.26 % 0.91 % Allowance for credit losses to nonperforming loans 232.2 % 328.4 % 282.5 % 224.4 % 259.1 % Allowance for credit losses to total loans receivable 3.41 % 3.68 % 3.14 % 2.82 % 2.36 % Gross charge-offs $ 37,026 $ 32,299 $ 34,167 $ 18,886 $ 8,513 Gross recoveries $ 192 $ 1,340 $ 1,865 $ 33 $ 9 Net charge-offs to average loans(6) 4.77 % 4.19 % 4.84 % 2.87 % 1.38 % Capital Ratios(7): Tier 1 leverage capital 8.03 % 8.16 % 8.29 % 7.97 % 7.70 % Common equity Tier 1 risk-based capital 8.99 % 8.36 % 8.61 % 8.92 % 8.49 % Tier 1 risk-based capital 9.10 % 8.47 % 8.73 % 9.04 % 8.62 % Total risk-based capital 11.79 % 11.12 % 11.49 % 11.94 % 10.80 % (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 Nine Months Ended (dollars in thousands, unaudited) September 30,
2023June 30,
2023September 30,
2022September 30,
2023September 30,
2022Revenue excluding BaaS credit enhancements and BaaS fraud enhancements: Total net interest income $ 62,229 $ 62,350 $ 49,189 $ 179,070 $ 118,343 Total noninterest income 34,579 58,595 34,391 142,481 81,869 Total Revenue $ 96,808 $ 120,945 $ 83,580 $ 321,551 $ 200,212 Less: BaaS credit enhancements (25,926 ) (51,027 ) (17,928 ) (119,315 ) (45,210 ) Less: BaaS fraud enhancements (2,850 ) (1,537 ) (11,708 ) (6,386 ) (22,753 ) Total revenue excluding BaaS credit enhancements and BaaS fraud enhancements $ 68,032 $ 68,381 $ 53,944 $ 195,850 $ 132,249 The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense on net loan income and yield on CCBX loans.
Net BaaS loan income divided by average CCBX loans is a non-GAAP measure that includes the impact BaaS loan expense on net BaaS loan income and the yield on CCBX loans. The most directly comparable GAAP measure is yield on CCBX loans.
The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense on net interest income and net interest margin.
Net interest income net of BaaS loan expense is a non-GAAP measure that includes the impact BaaS loan expense on net interest income. The most directly comparable GAAP measure is net interest income.
Net interest margin, net of BaaS loan expense is a non-GAAP measure that includes the impact of BaaS loan expense on net interest rate margin. The most directly comparable GAAP measure is net interest margin.
Reconciliations of the GAAP and non-GAAP measures are presented below.
As of and for the Three Months Ended As of and for the Nine Months Ended (dollars in thousands; unaudited) September 30,
2023June 30,
2023September 30,
2022September 30,
2023September 30,
2022Net BaaS loan income divided by average CCBX loans: CCBX loan yield (GAAP)(1) 17.05 % 16.95 % 13.96 % 16.74 % 13.16 % Total average CCBX loans receivable $ 1,309,380 $ 1,269,406 $ 893,655 $ 1,215,224 $ 657,574 Interest and earned fee income on CCBX loans (GAAP) 56,279 53,632 31,449 152,131 64,721 BaaS loan expense (23,003 ) (22,033 ) (15,560 ) (62,590 ) (36,079 ) Net BaaS loan income $ 33,276 $ 31,599 $ 15,889 $ 89,541 $ 28,642 Net BaaS loan income divided by average CCBX loans(1) 10.08 % 9.99 % 7.05 % 9.85 % 5.82 % Net interest margin, net of BaaS loan expense: CCBX interest margin(1) 9.66 % 10.41 % 9.77 % 10.05 % 8.34 % CCBX earning assets 1,684,012 1,544,628 1,124,745 1,509,911 965,176 Net interest income 40,990 40,107 27,695 113,545 60,223 Less: BaaS loan expense (23,003 ) (22,033 ) (15,560 ) (62,590 ) (36,079 ) Net interest income, net of BaaS
loan expense$ 17,987 $ 18,074 $ 12,135 $ 50,955 $ 24,144 Net interest margin,
net of BaaS loan expense(1)4.24 % 4.69 % 4.28 % 4.51 % 3.34 % (1) Annualized calculations for periods presented.
APPENDIX A -
As of September 30, 2023Industry 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 $2.97 billion in outstanding loan balances. When combined with $2.35 billion in unused commitments the total of these categories is $5.33 billion.
Commercial real estate loans represent the largest segment of our loans, comprising 41.6% of our total balance of outstanding loans as of September 30, 2023. Unused commitments to extend credit represents an additional $31.8 million, and the combined total in commercial real estate loans represents $1.27 billion, or 23.8% of our total outstanding loans and loan commitments.
The following table summarizes our loan commitment by industry for our commercial real estate portfolio as of September 30, 2023:
(dollars in thousands; unaudited) Outstanding Balance Available
Loan CommitmentsTotal
Outstanding
Balance &
Available Commitment% of Total
Loans
(Outstanding
Balance &
Available Commitment)Average Loan Balance Number of Loans Apartments $ 333,685 $ 10,653 $ 344,338 6.5 % $ 3,178 105 Hotel/Motel 164,501 1,328 165,829 3.1 6,327 26 Convenience Store 118,821 1,286 120,107 2.2 2,085 57 Mixed use 90,423 2,666 93,089 1.7 1,064 85 Warehouse 108,568 2,203 110,771 2.1 1,939 56 Office 85,214 3,469 88,683 1.7 926 92 Retail 96,287 675 96,962 1.8 953 101 Mini Storage 60,387 2,942 63,329 1.2 3,019 20 Strip Mall 45,657 — 45,657 0.9 5,707 8 Manufacturing 38,038 1,800 39,838 0.7 1,153 33 Groups < 0.70% of total 96,268 4,772 101,040 1.9 1,174 82 Total $ 1,237,849 $ 31,794 $ 1,269,643 23.8 % $ 1,861 665 Consumer loans comprise 25.6% of our total balance of outstanding loans as of September 30, 2023. Unused commitments to extend credit represents an additional $1.00 billion, and the combined total in consumer and other loans represents $1.76 billion, or 33.1% 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 balance 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 loan commitment by industry for our consumer and other loan portfolio as of September 30, 2023:
(dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments Total
Outstanding
Balance &
Available Commitment(1)% of Total Loans
(Outstanding Balance &
Available Commitment)Average Loan Balance Number of Loans CCBX consumer loans Credit cards $ 440,993 $ 1,000,320 $ 1,441,313 27.1 % $ 1.6 279,714 Installment loans 310,719 — 310,719 5.8 1.5 213,011 Lines of credit 3,934 1,689 5,623 0.1 0.1 39,614 Other loans 2,334 — 2,334 0.1 0.1 17,577 Community bank consumer loans Installment loans 1,232 — 1,232 0.0 51.3 24 Lines of credit 150 573 723 0.0 3.7 41 Other loans 1,101 — 1,101 0.0 3.6 309 Total $ 760,463 $ 1,002,582 $ 1,763,045 33.1 % $ 1.4 550,290 (1) Total exposure on CCBX loans is subject to portfolio maximum limits
Residential real estate loans comprise 16.1% of our total balance of outstanding loans as of September 30, 2023. Unused commitments to extend credit represents an additional $477.2 million, and the combined total in residential real estate loans represents $954.4 million, or 17.9% of our total outstanding loans and loan commitments.
The following table summarizes our loan commitment by industry for our residential real estate loan portfolio as of September 30, 2023:
(dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments Total
Outstanding
Balance &
Available Commitment(1)% of Total Loans
(Outstanding Balance &
Available Commitment)Average Loan Balance Number of Loans CCBX residential real estate loans Home equity line of credit $ 251,775 $ 429,893 $ 681,668 12.8 % $ 24 10,384 Community bank residential real estate loans Closed end, secured by first liens 194,696 3,740 198,436 3.7 620 314 Home equity line of credit 21,342 41,943 63,285 1.2 100 214 Closed end, second liens 9,334 1,667 11,001 0.2 301 31 Total $ 477,147 $ 477,243 $ 954,390 17.9 % $ 44 10,943 (1) Total exposure on CCBX loans is subject to portfolio maximum limits.
Commercial and industrial loans comprise 11.1% of our total balance of outstanding loans as of September 30, 2023. Unused commitments to extend credit represents an additional $706.5 million, and the combined total in commercial and industrial loans represents $1.04 billion, or 19.5% of our total outstanding loans and loan commitments. Included in commercial and industrial loans is $114.2 million in outstanding capital call lines, with an additional $630.7 million in available loan commitments which is limited to a $350.0 million portfolio maximum. Capital call lines are 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 loan commitment by industry for our commercial and industrial loan portfolio as of September 30, 2023:
(dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments Total
Outstanding
Balance &
Available Commitment(1)% of Total Loans
(Outstanding Balance &
Available Commitment)Average Loan Balance Number of Loans Capital Call Lines $ 114,174 $ 630,668 $ 744,842 14.0 % $ 723 158 Retail 58,586 6,131 64,717 1.2 19 3,063 Construction/Contractor Services 24,988 25,743 50,731 1.0 134 186 Financial Institutions 48,648 — 48,648 0.9 4,054 12 Medical / Dental / Other Care 19,249 8,045 27,294 0.5 802 24 Manufacturing 8,479 5,093 13,572 0.3 193 44 Groups < 0.30% of total 57,151 30,776 87,927 1.6 107 534 Total $ 331,275 $ 706,456 $ 1,037,731 19.5 % $ 82 4,021 (1) Total exposure on CCBX loans is subject to portfolio maximum limits.
Construction, land and land development loans comprise 5.6% of our total balance of outstanding loans as of September 30, 2023. Unused commitments to extend credit represents an additional $133.7 million, and the combined total in construction, land and land development loans represents $301.4 million, or 5.7% of our total outstanding loans and loan commitments.
The following table details our loan commitment for our construction, land and land development portfolio as of September 30, 2023:
(dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments Total
Outstanding
Balance &
Available Commitment% of Total Loans
(Outstanding Balance &
Available Commitment)Average Loan Balance Number of Loans Commercial construction $ 91,396 $ 106,144 $ 197,540 3.7 % $ 5,376 17 Undeveloped land loans 8,310 6,281 14,591 0.3 554 15 Residential construction 33,971 13,095 47,066 0.9 1,415 24 Developed land loans 21,369 3,732 25,101 0.5 763 28 Land development 12,640 4,443 17,083 0.3 843 15 Total $ 167,686 $ 133,695 $ 301,381 5.7 % $ 1,694 99 Exposure and and risk in our construction, land and land development portfolio is lower in the current period compared to previous periods as demonstrated by the declining outstanding balance for the periods indicated in the following table:
Outstanding Balance as of (dollars in thousands; unaudited) September 30,
2023June 30,
2023March 31,
2023December 31,
2022September 30,
2022Commercial construction $ 91,396 $ 78,079 ` $ 97,987 $ 100,714 $ 109,874 Residential construction 33,971 35,032 32,268 32,879 38,795 Undeveloped land loans 8,310 42,530 41,951 44,578 41,373 Developed land loans 21,369 18,735 19,130 20,167 19,436 Land development 12,640 12,330 15,299 15,717 14,710 Total $ 167,686 $ 186,706 $ 206,635 $ 214,055 $ 224,188 We have portfolio limits with our each of our partners to manage loan concentration risk, liquidity risk, and counter-party partner risk. For example, as of September 30, 2023, capital call lines outstanding balance totaled $114.2 million, and while commitments totaled $630.7 million the commitments are limited to a maximum of $350.0 million by agreement with the partner.
APPENDIX B -
As of September 30, 2023CCBX – BaaS Reporting Information
During the quarter ended September 30, 2023, $25.9 million was recorded in BaaS credit enhancements related to the provision for credit losses - loans 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 indemnifying or reimbursing incurred losses. In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans, unfunded commitments and negative deposit accounts. When the provision for credit losses - loans and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements) in recognition of the CCBX partner legal commitment to indemnify or reimburse losses. The credit enhancement asset is relieved as credit enhancement payments and recoveries are received from the CCBX partner or taken from the partner's cash reserve account. Agreements with our CCBX partners also provide protection to the Bank from fraud by indemnifying or reimbursing incurred fraud losses. BaaS 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 indemnifying or reimbursing 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 and fraud enhancements. The Bank would write-off any remaining credit enhancement asset from the CCBX partner not covered by the cash pledge account but would retain the full yield and any fee income on the loan going forward, and BaaS loan expense for that CCBX partner would cease 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 and fraud enhancements and originating & 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 (A reconciliation of the non-GAAP measures are set forth in the preceding section of this earnings release.) 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 Nine Months Ended (dollars in thousands; unaudited) September 30,
2023June 30,
2023September 30,
2022September 30,
2023September 30,
2022Yield on loans(1) 17.05 % 16.95 % 13.96 % 16.74 % 13.16 % BaaS loan interest income $ 56,279 $ 53,632 $ 31,449 $ 152,131 $ 64,721 Less: BaaS loan expense 23,003 22,033 15,560 62,590 36,079 Net BaaS loan income(2) 33,276 31,599 15,889 89,541 28,642 Net BaaS loan income divided by average BaaS loans(1)(2) 10.08 % 9.99 % 7.05 % 9.85 % 5.82 % (1) Annualized calculation for quarterly periods shown.
(2) A reconciliation of the non-GAAP measures are set forth in the preceding section of this earnings release.Increased interest rates and growth in CCBX loans and deposits has resulted in increases in interest income and expense for the quarter ended September 30, 2023 compared to the quarters ended June 30, 2023 and September 30, 2022. 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 Nine Months Ended (dollars in thousands; unaudited) September 30,
2023June 30,
2023September 30,
2022September 30,
2023September 30,
2022Loan interest income $ 56,279 $ 53,632 $ 31,449 $ 152,131 $ 64,721 Total BaaS interest income $ 56,279 $ 53,632 $ 31,449 $ 152,131 $ 64,721 Interest expense Three Months Ended Nine Months Ended (dollars in thousands; unaudited) September 30,
2023June 30,
2023September 30,
2022September 30,
2023September 30,
2022BaaS interest expense $ 20,384 $ 17,012 $ 5,075 $ 49,820 $ 6,549 Total BaaS interest expense $ 20,384 $ 17,012 $ 5,075 $ 49,820 $ 6,549 BaaS income Three Months Ended Nine Months Ended (dollars in thousands; unaudited) September 30,
2023June 30,
2023September 30,
2022September 30,
2023September 30,
2022BaaS program income: Servicing and other BaaS fees $ 997 $ 895 $ 1,079 $ 2,840 $ 3,407 Transaction fees 1,036 1,052 940 3,005 2,247 Interchange fees 1,216 975 738 2,980 1,798 Reimbursement of expenses 1,152 1,026 885 3,099 1,875 BaaS program income 4,401 3,948 3,642 11,924 9,327 BaaS indemnification income: BaaS credit enhancements 25,926 51,027 17,928 119,315 45,210 BaaS fraud enhancements 2,850 1,537 11,708 6,386 22,753 BaaS indemnification income 28,776 52,564 29,636 125,701 67,963 Total BaaS income $ 33,177 $ 56,512 $ 33,278 $ 137,625 $ 77,290 BaaS loan and fraud expense: Three Months Ended Nine Months Ended (dollars in thousands; unaudited) September 30,
2023June 30,
2023September 30,
2022September 30,
2023September 30,
2022BaaS loan expense $ 23,003 $ 22,033 $ 15,560 $ 62,590 $ 36,079 BaaS fraud expense 2,850 1,537 11,707 6,386 22,752 Total BaaS loan and fraud expense $ 25,853 $ 23,570 $ 27,267 $ 68,976 $ 58,831
- Net income of $10.3 million, or $0.75 per diluted common share, for the three months ended September 30, 2023, compared to $12.9 million, or $0.95 per diluted common share for the three months ended June 30, 2023.