First Quarter 2024 Highlights: Net income of $6.8 million, or $0.50 per diluted common share, for the three months ended March 31, 2024, compared to $9.0 million, or $0.66 per diluted common share for the three months ended December 31, 2023 Return on average assets ("ROA") of 0.73% for the three months ended March 31, 2024, compared to 0.97% for the three months ended December 31, 2023. Return on average equity ("ROE") of 9.21% for the three months ended March 31, 2024 compared to 12.35% for the three months ended December 31, 2023. Net interest margin of 6.78% for the quarter ended March 31, 2024, compared to 6.61% for the quarter ended December 31, 2023. Continued investment in technology to build and enhance the BaaS infrastructure, increase automation, enhance operational efficiency and productivity requires significant upfront expense, but is necessary for long-term success. Decrease in net income driven by $2.3 million in unanticipated expenses, net of income tax, (more information is provided on these expenses later in this earnings release). Total assets increased $111.9 million, or 3.0%, to $3.87 billion for the quarter ended March 31, 2024, compared to $3.75 billion at December 31, 2023. Total loans, net of deferred fees increased $173.5 million, or 5.7%, to $3.20 billion for the quarter ended March 31, 2024 compared to the quarter ended December 31, 2023. Community bank loans increased $53.1 million, or 2.9%, to $1.88 billion. CCBX loans increased $120.3 million, or 10.1%, to $1.32 billion. Enhanced credit standards on new CCBX loan originations. Effective April 1, 2024, exposure was reduced from 10% to 5% on the CCBX portfolio that the Company is responsible for losses on.    Total of $100.5 million CCBX loans sold during the quarter ended March 31, 2024 as management continued to sell loans as part of our strategy to reduce risk, optimize the CCBX loan portfolio and strengthen our balance sheet through enhanced credit standards. Deposits increased $102.6 million, or 3.1%, to $3.46 billion for the quarter ended March 31, 2024. CCBX deposit growth of $166.2 million, or 8.9%, to $2.03 billion. CCBX deposit growth excludes the $92.2 million in CCBX deposits that were transferred off balance sheet for increased Federal Deposit Insurance Corporation ("FDIC") insurance coverage purposes, compared to $69.4 million for the quarter ended December 31, 2023. Amounts in excess of FDIC insurance coverage are transferred, using a third party facilitator/vendor sweep product, to participating financial institutions. Community bank deposits decreased $63.6 million, or 4.2%, to $1.43 billion. We focus on growing and retaining less costly core deposits by not globally matching increases in rates on interest bearing deposits by our competitors and letting higher rate deposits run-off; additional exception pricing tactics were added as a strategy at the end of the first quarter of 2024 to retain and more effectively compete in the market. Includes noninterest bearing deposits of $515.4 million or 35.9% of total community bank deposits. Community bank cost of deposits was 1.66% compared to 1.57% for the quarter ended December 31, 2023. Uninsured deposits of $495.6 million, or 14.3% of total deposits as of March 31, 2024, compared to $558.6 million, or 16.6% of total deposits as of December 31, 2023. Liquidity/Borrowings as of March 31, 2024: Capacity to borrow up to $659.5 million from Federal Home Loan Bank and the Federal Reserve Bank discount window with only minimal borrowings, taken once to test the lines, under these facilities since the first quarter of 2022 and no borrowings on these lines at March 31, 2024. Investment Portfolio as of March 31, 2024: Available for sale ("AFS") investments of $41,000 at March 31, 2024, compared to $99.5 million as of December 31, 2023, $100.0 million in AFS U.S. Treasury securities matured during the quarter ended March 31, 2024. Held to maturity ("HTM") investments of $50.0 million, of which 100% are U.S. Agency mortgage backed securities held for CRA purposes. The market value of the HTM investments is $299,000 less than the carrying value, the weighted average remaining life is 14.6 years as of March 31, 2024 and the weighted average yield is 5.46% for the quarter ended March 31, 2024. EVERETT, Wash., April 29, 2024 (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 March 31, 2024.  Quarterly net income for the first quarter of 2024 was $6.8 million, or $0.50 per diluted common share, compared with net income of $9.0 million, or $0.66 per diluted common share, for the fourth quarter of 2023, and $12.4 million, or $0.91 per diluted common share, for the quarter ended March 31, 2023. The decrease in net income for the quarter ended March 31, 2024 was largely due to a number of unanticipated expenses incurred during the quarter. The following non-GAAP measure is presented to illustrate the impact of certain unanticipated expenses on net income, which is the most directly comparable GAAP measure.   Three Months Ended Non-GAAP Reconciliation of Unanticipated Expenses March 31, 2024 (dollars in thousands; unaudited) Actual Unanticipated Expenses Adjusted Net interest income $ 60,936   $ —   $ 60,936   Provision for credit losses   (83,158 )   (1,096 )   (82,062 ) Noninterest income   86,955     —     86,955   Noninterest expense(1)   (56,018 )   (1,915 )   (54,103 ) Income before provision for income tax   8,715     (3,010 )   11,725   Provision for income tax   (1,915 )   662     (2,577 ) Net income $ 6,800   $ (2,348 ) $ 9,148   (1) Detail of unanticipated noninterest expenses shown in table above: Unanticipated noninterest expense:   Audit and accounting services $ 849 Contract termination fee   600 Operational loss   122 Employment realignment costs   343 Total unanticipated noninterest expense items $ 1,915 Total assets increased $111.9 million, or 3.0%, during the first quarter of 2024 to $3.87 billion, from $3.75 billion at December 31, 2023. Total loans, net of deferred fees increased $173.5 million, or 5.7%, during the three months ended March 31, 2024 to $3.20 billion, compared to $3.03 billion at December 31, 2023. Community bank loans increased $53.1 million, or 2.9%, and CCBX loans increased $120.3 million, or 10.1%. CCBX loan growth is net of $100.5 million in CCBX loans sold during the quarter ended March 31, 2024. We continue to monitor and actively manage the CCBX loan portfolio, and will continue to sell CCBX loans in the coming months as we work to strengthen the balance sheet by optimizing our CCBX portfolio through higher quality originations, loan sales, new products and building on our existing relationships. Deposits increased $102.6 million, or 3.1%, during the three months ended March 31, 2024. CCBX deposits grew $166.2 million, or 8.9%. Community bank deposits decreased $63.6 million, or 4.2%, as a result of managing our deposit rates during the quarter and letting some of our higher rate deposits run-off. Our cost of deposits for the community bank still increased as a result of higher rates and competitors offering and maintaining higher deposit rate offers during the quarter, increasing to 1.66% for the three months ended March 31, 2024, compared to 1.57% for the three months ended December 31, 2023. We saw solid deposit growth in the first quarter, with deposits increasing $102.6 million, or 3.1%, compared to December 31, 2023. Fully insured IntraFi network reciprocal deposits decreased $3.4 million to $336.8 million as of March 31, 2024, compared to $340.1 million as of December 31, 2023. These fully insured reciprocal deposits allow our larger deposit customers to fully insure their deposits through a reciprocal agreement with other banks. 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 March 31, 2024, we had $515.1 million in cash on the balance sheet and the capacity to borrow up to $659.5 million from Federal Home Loan Bank and the Federal Reserve Bank discount window, and an additional $50.0 million from a correspondent bank, with no borrowings, except minimal amounts to test the lines, under these facilities since the first quarter of 2022. Cash on the balance sheet and total borrowing capacity totaled $1.17 billion, which represented 33.9% of total deposits and exceeded our $495.6 million in uninsured deposits as of March 31, 2024. "In the current economic climate, banks and Banking-as-a-Service ("BaaS") providers are facing significant challenges. However, I am pleased to share that our Company is weathering these difficulties and continuing to grow and build for a strong future. Despite the uncertain times, we have managed to sustain our growth trajectory, improve our credit quality and position ourselves to be a premier BaaS service provider in the future. We have been proactive in adapting to these challenging circumstances. We have implemented and are enhancing our robust risk management practices, closely monitoring our loan portfolios and enhancing our credit standards for CCBX loans while building and enhancing our existing compliance AML/BSA, risk and internal control processes. These steps are designed to mitigate potential compliance and credit risks, safeguard the quality of our assets and continue to grow. Additionally, a primary initiative for us is to invest in technology designed to increase automation and enhance operational efficiency, productivity and cost structure, however, this requires significant upfront expense. This includes the costs associated with acquiring and implementing advanced technologies, addressing risks timely when they appear, training employees, and integrating new systems into existing infrastructure. We believe investing in automation for the future is crucial for us to stay ahead in an increasingly competitive landscape. By streamlining processes, reducing labor costs, and improving overall efficiency, we expect automation to make our business more scalable and better able to manage expenses in the future. This investment in technology and the challenges from the economic environment impacted net income for the quarter ended March 31, 2024 and we expect that this strategy will continue to impact earnings in the short term, but we believe we are positioning ourselves for long term success," 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 $60.9 million for the quarter ended March 31, 2024, an increase of $1.3 million, or 2.1%, from $59.7 million for the quarter ended December 31, 2023, and an increase of $6.4 million, or 11.8%, from $54.5 million for the quarter ended March 31, 2023.  Yield on loans receivable was 10.85% for the three months ended March 31, 2024, compared to 10.71% for the three months ended December 31, 2023 and 9.95% for the three months ended March 31, 2023.  Cost of deposits was 3.49% for the three months ended March 31, 2024, compared to 3.36% for the three months ended December 31, 2023 and 2.13% for the three months ended March 31, 2023. The increase in net interest income compared to December 31, 2023, was a result of increased interest income due to an increase in average loans receivable partially offset by an increase in cost of deposits as a result of higher interest rates and competitive pressures. The increase in net interest income compared to March 31, 2023 was largely related to increased yield on loans resulting from higher interest rates and growth in higher yielding loans.  Total average loans receivable for the three months ended March 31, 2024 was $3.14 billion, compared to $3.01 billion for the three months ended December 31, 2023, and $2.71 billion for the three months ended March 31, 2023. Interest and fees on loans totaled $84.6 million for the three months ended March 31, 2024 compared to $81.2 million and $66.4 million for the three months ended December 31, 2023 and March 31, 2023, respectively.  Total loans, net of deferred fees increased $173.5 million, or 5.7%, during the quarter ended March 31, 2024, which included a $120.3 million increase in CCBX loans and an increase of $53.2 million in community bank loans. The increase in CCBX loans includes an increase of $52.3 million, or 6.4%, in consumer and other loans and an increase of $48.2 million, or 55.1%, 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 $100.5 million in CCBX loans during the quarter ended March 31, 2024 to reduce credit exposure in certain loan categories and manage credit risk. We continue to reposition ourselves by managing CCBX credit and concentration levels in an effort to optimize our loan portfolio and we will 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 compared to the quarter ended December 31, 2023 was largely due to loan growth. The increase compared to the quarter ended March 31, 2023 was largely due to growth in higher yielding loans and increased interest rates.  The FOMC has increased rates 1.00% since December 31, 2022 and last raised the target Federal Funds rate 0.25% on July 26, 2023. Interest income from interest earning deposits with other banks was $4.8 million for the quarter ended March 31, 2024 a decrease of $907,000 compared to December 31, 2023 due to a decrease in average balance and an increase of $1.7 million compared to March 31, 2023 due to an increase in average balance and higher interest rates.  The average balance of interest earning deposits with other banks for the three months ended March 31, 2024 was $350.9 million, compared to $413.1 million and $271.7 million for the three months ended December 31, 2023 and March 31, 2023, respectively.  The average yield on these interest earning deposits with other banks increased to 5.48% for the quarter ended March 31, 2024, compared to 5.46% and 4.62% for the quarters ended December 31, 2023 and March 31, 2023, respectively. Total interest expense was $29.5 million for the quarter ended March 31, 2024, a $1.0 million increase from the quarter ended December 31, 2023 and a $13.9 million increase from the quarter ended March 31, 2023. Interest expense on deposits was $28.9 million for the quarter ended March 31, 2024, compared to $27.9 million for the quarter ended December 31, 2023 and $15.0 million for the quarter ended March 31, 2023. Interest expense on interest bearing deposits increased $1.0 million for the quarter ended March 31, 2024, compared to the quarter ended December 31, 2023, and $13.9 million compared to the quarter ended March 31, 2023 as a result of 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 $669,000 for the quarter ended March 31, 2024, compared to $670,000 and $662,000 for the quarters ended December 31, 2023 and March 31, 2023, respectively. The $7,000 increase in interest expense on borrowed funds from the quarter ended March 31, 2023 is the result of an increase in interest rates. Total cost of deposits was 3.49% for the three months ended March 31, 2024, compared to 3.36% for the three months ended December 31, 2023, and 2.13%, for the three months ended March 31, 2023. Community bank and CCBX cost of deposits were 1.66% and 4.93% respectively, for the three months ended March 31, 2024, compared to 1.57% and 4.90%, for the three months ended December 31, 2023, and 0.66% and 3.89% for the three months ended March 31, 2023. The increase in cost of deposits for the three months ended March 31, 2024 compared to the prior periods for both segments is a result of the continued higher interest rate environment. While we continue working to hold down deposit costs, the higher interest rate environment has impacted our cost of deposits and resulted in higher interest expense on interest bearing deposits as we work to retain and grow our community bank deposits and CCBX deposits continue to grow as a percent of total deposits. Net Interest Margin Net interest margin was 6.78% for the three months ended March 31, 2024, compared to 6.61% and 7.15% for the three months ended December 31, 2023 and March 31, 2023, respectively.  The increase in net interest margin compared to the three months ended December 31, 2023 was primarily due to higher loan yields and the decrease compared to March 31, 2023 was largely due to an increase in cost of deposits. Increases in rates on interest bearing deposits by our competitors and the growth in higher cost CCBX deposits contributed to an overall increase in interest expense on interest bearing deposits. Additionally, the actions we took in an effort to strengthen our balance sheet by selling higher risk and higher yielding loans or letting such loans mature during the quarters ended September 30, 2023, December 31, 2023 and March 31, 2024 will continue to impact net interest margin in future quarters. Interest and fees on loans receivable increased $3.5 million, or 4.3%, to $84.6 million for the three months ended March 31, 2024, compared to $81.2 million for the three months ended December 31, 2023, and increased $18.2 million, or 27.4%, compared to $66.4 million for the three months ended March 31, 2023, due to an increase in outstanding balances and higher interest rates.  Compared to the three months ended March 31, 2023, there was a $1.7 million increase in interest on interest earning deposits held at other financial institutions.  These interest earning deposits earned an average rate of 5.48% for the quarter ended March 31, 2024, compared to 5.46% and 4.62% for the quarters ended December 31, 2023 and March 31, 2023, respectively.  Average investment securities decreased $34.3 million to $115.4 million compared to the three months ended December 31, 2023 and increased $13.1 million compared to the three months ended March 31, 2023 as a result of $100.0 million in AFS U.S. Treasury securities that matured during the quarter ended March 31, 2024. Interest on investment securities decreased $191,000 for the three months ended March 31, 2024 compared to the three months ended December 31, 2023 as a result of the maturing Treasury securities. Interest on total investment securities increased $481,000 compared to March 31, 2023, as a result of increased yield and outstanding balance.  These increases in interest income were partially offset by increases in interest expense on interest bearing deposits, as previously discussed. Cost of funds was 3.52% for the quarter ended March 31, 2024, an increase of 13 basis points from the quarter ended December 31, 2023 and an increase of 133 basis points from the quarter ended March 31, 2023. Cost of deposits for the quarter ended March 31, 2024 was 3.49%, compared to 3.36% for the quarter ended December 31, 2023, and 2.13% for the quarter ended March 31, 2023. The increased cost of funds and deposits compared to December 31, 2023 and March 31, 2023 was due to the increase in interest rates compared to the previous periods and growth in higher rate CCBX deposits. During the quarter ended March 31, 2024, total loans receivable increased by $173.5 million, or 5.7%, to $3.20 billion, compared to $3.03 billion for the quarter ended December 31, 2023.  This increase consists of a $120.3 million increase in CCBX loans and $53.1 million in community bank loan growth. Total loans receivable as of March 31, 2024 increased $362.4 million compared to March 31, 2023.  This increase includes community bank loan growth of $212.3 million and an increase in CCBX loans of $150.1 million. During the quarter ended March 31, 2024, $100.5 million in CCBX loans were sold and $797,000 in loans were held for sale as of March 31, 2024, and no loans were held for sale at December 31, 2023 or March 31, 2023.  Total yield on loans receivable for the quarter ended March 31, 2024 was 10.85%, compared to 10.71% for the quarter ended December 31, 2023, and 9.95% for the quarter ended March 31, 2023. During the quarter ended March 31, 2024, community bank loans increased 2.9%, or $53.1 million, compared to the quarter ended December 31, 2023, with an average yield of 6.46% and CCBX loans outstanding increased 10.1%, or $120.3 million, compared to December 31, 2023, with an average CCBX yield of 17.34%. 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   March 31, 2024   December 31, 2023   March 31, 2023   Yield onLoans (2)   Cost ofDeposits (2)   Yield onLoans (2)   Cost ofDeposits (2)   Yield onLoans (2)   Cost ofDeposits (2) Community Bank 6.46%   1.66%   6.32%   1.57%   5.97%   0.66% CCBX (1) 17.34%   4.93%   17.36%   4.90%   16.09%   3.89% Consolidated 10.85%   3.49%   10.71%   3.36%   9.95%   2.13% (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     March 31, 2024   December 31, 2023   March 31, 2023 (dollars in thousands, unaudited)   Income / Expense   Income / expense divided by average CCBX loans (2)   Income / Expense   Income / expense divided byaverage CCBX loans(2)   Income / Expense   Income / expense divided by average CCBX loans (2) BaaS loan interest income   $ 54,569   17.34 %   $ 52,327   17.36 %   $ 42,220   16.09 % Less: BaaS loan expense     24,837   7.89 %     24,310   8.06 %     17,554   6.69 % Net BaaS loan income (1)   $ 29,732   9.45 %   $ 28,017   9.30 %   $ 24,666   9.40 % Average BaaS Loans(3)   $ 1,265,857       $ 1,196,137       $ 1,064,192     (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 0.73% for the quarter ended March 31, 2024 compared to 0.97% and 1.58% for the quarters ended December 31, 2023 and March 31, 2023, respectively.  ROA for the quarter ended March 31, 2024, was down 0.24% and 0.84%, respectively, as a result of lower margin compared to December 31, 2023 and March 31, 2023. Noninterest expenses were higher for the quarter ended March 31, 2024 compared to the quarters ended December 31, 2023 and March 31, 2023 due to increased salaries and employee benefits, investments in technology, and higher legal and professional expenses. There were a number of unanticipated expenses incurred in the quarter ended March 31, 2024 which impacted earnings. These expenses are detailed at the beginning of this earnings release. The following table shows the Company's key performance ratios for the periods indicated.       Three Months Ended (unaudited)   March 31,2024   December 31,2023   September 30,2023   June 30,2023   March 31,2023                       Return on average assets (1)   0.73 %   0.97 %   1.13 %   1.52 %   1.58 % Return on average equity (1)   9.21 %   12.35 %   14.60 %   19.53 %   19.89 % Yield on earnings assets (1)   10.07 %   9.77 %   10.08 %   10.18 %   9.19 % Yield on loans receivable (1)   10.85 %   10.71 %   10.84 %   10.85 %   9.95 % Cost of funds (1)   3.52 %   3.39 %   3.18 %   2.77 %   2.19 % Cost of deposits (1)   3.49 %   3.36 %   3.14 %   2.72 %   2.13 % Net interest margin (1)   6.78 %   6.61 %   7.10 %   7.58 %   7.15 % Noninterest expense to average assets (1)   6.04 %   5.56 %   6.23 %   6.11 %   5.69 % Noninterest income to average assets (1)   9.38 %   6.95 %   3.81 %   6.90 %   6.28 % Efficiency ratio   37.88 %   41.58 %   58.36 %   42.92 %   43.03 % Loans receivable to deposits (2)   92.42 %   90.05 %   90.19 %   96.23 %   92.55 % (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   March 31,   December 31,   March 31, (dollars in thousands; unaudited)   2024     2023     2023 Deposit service charges and fees $ 908   $ 957   $ 910 Loan referral fees   168     —     — Unrealized gain (loss) on equity securities, net   15     80     39 Gain on sales of loans, net   —     —     123 Other   308     60     299 Noninterest income, excluding BaaS program income and BaaS indemnification income   1,399     1,097     1,371 Servicing and other BaaS fees   1,131     1,015     948 Transaction fees   1,122     1,006     917 Interchange fees   1,539     1,272     789 Reimbursement of expenses   1,033     1,076     921 BaaS program income   4,825     4,369     3,575 BaaS credit enhancements   79,808     58,449     42,362 Baas fraud enhancements   923     779     1,999 BaaS indemnification income   80,731     59,228     44,361 Total BaaS income   85,556     63,597     47,936 Total noninterest income $ 86,955   $ 64,694   $ 49,307 Noninterest income was $87.0 million for the three months ended March 31, 2024, an increase of $22.3 million from $64.7 million for the three months ended December 31, 2023, and an increase of $37.6 million from $49.3 million for the three months ended March 31, 2023.  The increase in noninterest income over the quarter ended December 31, 2023 was primarily due to an increase of $22.0 million in total BaaS income.  The $22.0 million increase in total BaaS income included a $21.4 million increase in BaaS credit enhancements related to the provision for credit losses, a $144,000 increase in BaaS fraud enhancements, and an increase of $456,000 in BaaS program income. The increase in BaaS program income is largely due to higher servicing and other BaaS fees, transaction fees and interchange fees (see "Appendix B" for more information on the accounting for BaaS allowance for credit losses and credit and fraud enhancements). Additionally, loan referral fees increased $168,000 and other income increased $248,000 primarily due to an increase in bank owned life insurance earnings in comparison to lower earnings that resulted from a policy change in the quarter ended December 31, 2023 which depressed earnings. The $37.6 million increase in noninterest income over the quarter ended March 31, 2023 was primarily due to a $36.4 million increase in BaaS credit and fraud enhancements, an increase of $1.3 million in BaaS program income, an increase of $168,000 in loan referral fees, partially offset by a decrease of $123,000 in gain on sale of loans. Our CCBX segment continues to evolve, and we have 21 relationships, at varying stages, as of March 31, 2024.  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 CCBX loans during the quarters ended September 30, 2023, December 31, 2023 and March 31, 2024 are part of our strategy to strengthen the balance sheet, reduce credit exposure in certain loan categories and lower the overall potential credit risk in our loan portfolio. These sales resulted in a tighter interest margin in the quarter ended March 31, 2024, as higher quality loans yield less than higher risk loans. The size of our CCBX loan portfolio increased during the quarter ended March 31, 2024 and we expect it to continue increasing as we work to grow the portfolio with loans that are subject to increased underwriting standards. Coastal worked with One and Robinhood to launch two new lending products in Q1 that can reach wide, established customer bases. One launched its offering of point-of-sale installment loans through Walmart. These loans, which can be offered with customer friendly pricing and payment features similar to so-called "Buy Now Pay Later" products, are fully disclosed and offered as standard credit products, avoiding concerns raised with respect to more typical Buy Now Pay Later offerings. Likewise, Robinhood Credit launched a new credit card that will be marketed to Robinhood's customers. The following table illustrates the activity and evolution in CCBX relationships for the periods presented.   As of (unaudited) March 31, 2024 December 31, 2023 March 31, 2023 Active 19 19 18 Friends and family / testing 1 1 1 Implementation / onboarding 1 1 1 Signed letters of intent 0 0 4 Wind down - active but preparing to exit relationship 0 0 1 Total CCBX relationships 21 21 25 The following table details noninterest expense for the periods indicated: Noninterest Expense     Three Months Ended     March 31,   December 31,   March 31, (dollars in thousands; unaudited)     2024     2023     2023 Salaries and employee benefits   $ 17,984   $ 16,490   $ 15,575 Legal and professional expenses     3,672     2,649     3,062 Data processing and software licenses     2,892     2,417     1,840 Occupancy     1,518     1,340     1,219 Point of sale expense     869     899     753 Director and staff expenses     400     478     626 FDIC assessments     683     665     595 Excise taxes     320     449     455 Marketing     53     138     95 Other     1,867     1,089     890 Noninterest expense, excluding BaaS loan and BaaS fraud expense     30,258     26,614     25,110 BaaS loan expense     24,837     24,310     17,554 BaaS fraud expense     923     779     1,999 BaaS loan and fraud expense     25,760     25,089     19,553 Total noninterest expense   $ 56,018   $ 51,703   $ 44,663 Total noninterest expense increased $4.3 million to $56.0 million for the three months ended March 31, 2024, compared to $51.7 million for the three months ended December 31, 2023, and increased $11.4 million from $44.7 million for the three months ended March 31, 2023. The increase in noninterest expense for the quarter ended March 31, 2024, as compared to the quarter ended December 31, 2023, was primarily due to a $671,000 increase in BaaS expense (including a $144,000 increase in BaaS fraud expense an a $527,000 increase in BaaS loan expense), a $1.5 million increase in salaries and employee benefits, a $1.0 million increase in legal and professional expenses, which includes $849,000 in audit and accounting service expenses that were unanticipated, and a $778,000 increase in other expenses largely due to exit costs associated with terminating our relationship with a fraud/compliance vendor of $600,000 and an operational loss of $122,000, which are detailed at the beginning of this earnings release. 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.  Legal and professional fees were higher in the three months ended March 31, 2024 due to increased fees related to data and risk management, building out our infrastructure and increased consulting expenses for projects and enhanced monitoring. The $1.5 million increase in salaries and employee benefits included $343,000 in one time expenses related to additional expense related to retirements and our initiative to manage costs going forward which increased expenses in this period. The increase in noninterest expenses for the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023 were largely due to an increase of $6.2 million in BaaS partner expense (including a $7.3 million increase in BaaS loan expense offset by a decrease of $1.1 million in BaaS fraud expense), $2.4 million increase in salary and employee benefits related to hiring staff for CCBX and additional staff for our ongoing growth initiatives. Additionally, there was a $977,000 increase in other expenses primarily due to unanticipated expenses from exit costs associated with a fraud/compliance vendor of $600,000 and an operational loss of $122,000 which are detailed at the beginning of this earnings release, and a $1.1 million increase in data processing and software licenses due to enhancements in technology and a $116,000 increase in point of sale expenses which is attributed to increased CCBX activity. Provision for Income Taxes The provision for income taxes was $1.9 million for the three months ended March 31, 2024, $2.8 million for the three months ended December 31, 2023 and $3.0 million for the first quarter of 2023.  The income tax provision was lower for the three months ended March 31, 2024 compared to the quarter ended December 31, 2023 and March 31, 2023 primarily due to lower net 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 $111.9 million, or 3.0%, to $3.87 billion at March 31, 2024 compared to $3.75 billion at December 31, 2023.  The increase is primarily due to a $173.5 million increase in loans receivable combined with a $88,000 increase in other assets and $30.6 million increase in interest earning deposits held at other banks, partially offset by a $99.5 million decrease in AFS securities as such securities matured, $22.3 million increase in the allowance for credit losses and a $29.4 million increase in the credit enhancement asset. During the quarter ended March 31, 2024, we sold $100.5 million in CCBX loans as part of our strategy to optimize our CCBX portfolio, reduce credit exposure in certain loan categories and strengthen the balance sheet by replacing loans sold with higher credit quality originated loans with enhanced credit standards, compared to $125.1 million sold during the quarter ended December 31, 2023. There were $797,000 loans held for sale at March 31, 2024 and no loans held for sale as of December 31, 2023.   Total assets increased $414.2 million, or 12.0%, to $3.87 billion at March 31, 2024, compared to $3.45 billion at March 31, 2023.  The increase is primarily due to loans receivable increasing $362.4 million, a $126.1 million increase in interest earning deposits with other banks, partially offset by an increase of $29.4 million in the credit enhancement asset and a decrease of $51.6 million in investment securities compared to March 31, 2023. Loans Receivable Total loans receivable increased $173.5 million to $3.20 billion at March 31, 2024, from $3.03 billion at December 31, 2023, and increased $362.4 million from $2.84 billion at March 31, 2023.  The increase in loans receivable over the quarter ended December 31, 2023 was the result of an increase of $120.3 million in CCBX loans as we work to build back this portfolio with new loans, subject to enhanced credit standards, following several periods of shrinking this portfolio to optimize our balance sheet, and a $53.1 million increase in community bank loans. We continue to monitor and manage the CCBX loan portfolio, and sold $100.5 million in CCBX loans during the quarter ended March 31, 2024 as part of our plan to optimize and strengthen the balance sheet and reduce and manage credit risk. The change in loans receivable over the quarter ended March 31, 2023 includes CCBX loan growth of $150.1 million and community bank loan growth of $212.3 million as of March 31, 2024.   The following table summarizes the loan portfolio at the period indicated: Consolidated As of March 31, 2024   As of December 31, 2023   As of March 31, 2023 (dollars in thousands; unaudited) Amount   Percent   Amount   Percent   Amount   Percent Commercial and industrial loans:                       Capital call lines $ 135,671     4.2 %   $ 87,494     2.9 %   $ 118,796     4.2 % All other commercial & industrial loans   201,555     6.3       203,800     6.7       207,542     7.3   Total commercial and industrial loans:   337,226     10.5       291,294     9.6       326,338     11.5   Real estate loans:                       Construction, land and land development   160,862     5.0       157,100     5.2       206,635     7.3   Residential real estate   496,305     15.5       463,426     15.3       455,507     16.0   Commercial real estate   1,342,489     41.9       1,303,533     43.0       1,102,771     38.8   Consumer and other loans   870,134     27.1       818,039     26.9       752,528     26.4   Gross loans receivable   3,207,016     100.0 %     3,033,392     100.0 %     2,843,779     100.0 % Net deferred origination fees   (7,462 )         (7,300 )         (6,575 )     Loans receivable $ 3,199,554         $ 3,026,092         $ 2,837,204       Loan Yield (1)   10.85 %         10.71 %         9.95 %     (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     March 31, 2024   December 31, 2023   March 31, 2023 (dollars in thousands; unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total Commercial and industrial loans   $ 154,395     8.2 %   $ 149,502     8.2 %   $ 158,873     9.5 % Real estate loans:                         Construction, land and land development loans     160,862     8.5       157,100     8.5       206,635     12.3   Residential real estate loans     231,157     12.2       225,391     12.3       206,140     12.3   Commercial real estate loans     1,342,489     71.0       1,303,533     70.9       1,102,771     65.7   Consumer and other loans:                         Other consumer and other loans     1,447     0.1       1,628     0.1       2,860     0.2   Gross Community Bank loans receivable     1,890,350     100.0 %     1,837,154     100.0 %     1,677,279     100.0 % Net deferred origination fees     (7,068 )         (7,000 )         (6,265 )     Loans receivable   $ 1,883,282         $ 1,830,154         $ 1,671,014       Loan Yield(1)     6.46 %         6.32 %         5.97 %     (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     March 31, 2024   December 31, 2023   March 31, 2023 (dollars in thousands; unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total Commercial and industrial loans:                         Capital call lines   $ 135,671     10.3 %   $ 87,494     7.3 %   $ 118,796     10.2 % All other commercial & industrial loans     47,160     3.6       54,298     4.5       48,669     4.1   Real estate loans:                         Residential real estate loans     265,148     20.1       238,035     19.9       249,367     21.4   Consumer and other loans:                         Credit cards     505,706     38.4       505,837     42.3       318,187     27.3   Other consumer and other loans     362,981     27.6       310,574     26.0       431,481     37.0   Gross CCBX loans receivable     1,316,666     100.0 %     1,196,238     100.0 %     1,166,500     100.0 % Net deferred origination (fees) costs     (394 )         (300 )         (310 )     Loans receivable   $ 1,316,272         $ 1,195,938         $ 1,166,190       Loan Yield - CCBX (1)(2)     17.34 %         17.36 %         16.09 %                               (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. DepositsTotal deposits increased $102.6 million, or 3.1%, to $3.46 billion at March 31, 2024 from $3.36 billion at December 31, 2023. The increase was due to a $105.9 million increase in core deposits, partially offset by a $3.2 million decrease in time deposits. Deposits in our CCBX segment increased $166.2 million, from $1.86 billion at December 31, 2023, to $2.03 billion at March 31, 2024 and community bank deposits decreased $63.6 million from $1.50 billion at December 31, 2023, to $1.43 billion at March 31, 2024. The decrease in community bank deposits is a result of managing our deposit rates during the quarter and letting some of our higher rate deposits run-off. We are comfortable with our pricing discipline and letting some of the higher rate community bank deposits run-off because we believe that we have adequate funding access through our CCBX deposits, and despite the generally higher cost of deposits, these CCBX deposits are typically less costly than raising our rates to meet competitors' rates, brokered funds or borrowing rates. We are working to retain and grow our community bank deposits and will continue to do so in future quarters when interest rates are lower and customers are less rate sensitive. CCBX deposits continue to grow as a percent of total deposits. The deposits from our CCBX segment are predominately classified as interest bearing demand and money market accounts. During the quarter ended March 31, 2024, noninterest bearing deposits decreased $51.1 million, or 8.2%, to $574.1 million from $625.2 million at December 31, 2023. Community bank noninterest bearing deposits totaled $515.4 million or 35.9% of total community bank deposits and CCBX noninterest bearing deposits totaled $58.7 million, or 2.9% of total CCBX deposits. In the quarter ended March 31, 2024 compared to the quarter ended December 31, 2023, interest bearing demand and money market accounts increased $159.4 million, savings deposits decreased $2.5 million, and time deposits decreased $3.2 million. Included in total deposits is $336.8 million in IntraFi network reciprocal interest bearing demand and money market accounts as of March 31, 2024, which provides our larger deposit customers with fully insured deposits through a reciprocal agreement with other banks. Uninsured deposits decreased to $495.6 million as of March 31, 2024, compared to $558.6 million as of December 31, 2023. Total deposits increased $367.8 million, or 11.9%, to $3.46 billion at March 31, 2024 compared to $3.10 billion at March 31, 2023. The increase is largely the result of growth in CCBX deposits. Noninterest bearing deposits decreased $187.7 million, or 24.6%, to $574.1 million at March 31, 2024 from $761.8 million at March 31, 2023 as a result of customer movement from noninterest to interest bearing accounts. Interest bearing demand and money market accounts increased $592.5 million, or 26.8%, to $2.80 billion at March 31, 2024, and savings deposits decreased $25.2 million, or 25.3%, and time deposits decreased   $11.9 million, or 44.1%, in the first quarter of 2024 compared to the first quarter of 2023. Deposits in our CCBX segment increased $465.1 million, from $1.56 billion at March 31, 2023, to $2.03 billion at March 31, 2024 and community bank deposits decreased $97.4 million, from $1.53 billion at March 31, 2023, to $1.43 billion at March 31, 2024. The deposits from our CCBX segment are predominately classified as interest bearing demand and money market accounts. Uninsured deposits decreased to $495.6 million as of March 31, 2024, compared to $768.3 million as of March 31, 2023 primarily as a result of increased usage of our cash sweep and exchange services to other banks for increased FDIC insurance coverage as described below. Additionally, as of March 31, 2024, $92.2 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. Consolidated As of March 31, 2024   As of December 31, 2023   As of March 31, 2023 (dollars in thousands; unaudited) Amount   Percent of TotalDeposits   Balance   Percent of TotalDeposits   Balance   Percent of TotalDeposits Demand, noninterest bearing $ 574,112     16.6 %   $ 625,202     18.6 %   $ 761,800     24.6 % Interest bearing demand and money market   2,799,667     80.9       2,640,240     78.6       2,207,121     71.3   Savings   74,085     2.1       76,562     2.3       99,241     3.2   Total core deposits   3,447,864     99.6       3,342,004     99.5       3,068,162     99.1   Brokered deposits   1     0.0       1     0.0       1     —   Time deposits less than $100,000   7,199     0.2       8,109     0.2       11,343     0.4   Time deposits $100,000 and over   7,915     0.2       10,249     0.3       15,717     0.5   Total $ 3,462,979     100.0 %   $ 3,360,363     100.0 %   $ 3,095,223     100.0 % Cost of deposits (1)   3.49 %         3.36 %         2.13 %     (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     March 31, 2024   December 31, 2023   March 31, 2023 (dollars in thousands; unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total Demand, noninterest bearing   $ 515,443     35.9 %   $ 561,572     37.5 %   $ 664,452     43.4 % Interest bearing demand and money market     834,725     58.2       846,072     56.5       743,548     48.6   Savings     68,747     4.8       71,598     4.8       96,330     6.3   Total core deposits     1,418,915     98.9       1,479,242     98.8       1,504,330     98.3   Brokered deposits     1     0.0       1     0.0       1     0.0   Time deposits less than $100,000     7,199     0.5       8,109     0.5       11,343     0.7   Time deposits $100,000 and over     7,915     0.6       10,249     0.7       15,717     1.0   Total Community Bank deposits   $ 1,434,030     100.0 %   $ 1,497,601     100.0 %   $ 1,531,391     100.0 % Cost of deposits(1)     1.66 %         1.57 %         0.66 %     (1)  Cost of deposits is annualized for the three months ended for each period presented. CCBX   As of     March 31, 2024   December 31, 2023   March 31, 2023 (dollars in thousands; unaudited)   Balance   % to Total   Balance   % to Total   Balance   % to Total Demand, noninterest bearing   $ 58,669     2.9 %   $ 63,630     3.4 %   $ 97,348     6.2 % Interest bearing demand and money market     1,964,942     96.8       1,794,168     96.3       1,463,573     93.6   Savings     5,338     0.3       4,964     0.3       2,911     0.2   Total core deposits     2,028,949     100.0       1,862,762     100.0       1,563,832     100.0   BaaS-brokered deposits     —     0.0       —     0.0       —     —   Total CCBX deposits   $ 2,028,949     100.0 %   $ 1,862,762     100.0 %   $ 1,563,832     100.0 % Cost of deposits (1)     4.93 %         4.90 %         3.89 %     (1)  Cost of deposits is annualized for the three months ended for each period presented. Borrowings As of March 31, 2024, the Company had the capacity to borrow up to a total of $659.5 million from the Federal Reserve Bank discount window and Federal Home Loan Bank, and an additional $50.0 million from a correspondent bank, with no borrowings outstanding on these lines as of March 31, 2024. Shareholders' Equity The Company had a cash balance of $5.3 million as of March 31, 2024, which is retained for general operating purposes, including debt repayment, and for funding $643,000 in commitments to bank technology funds.   Total shareholders' equity increased $8.7 million since December 31, 2023.  The increase in shareholders' equity was primarily due to $6.8 million in net earnings, combined with a decrease in the unrealized loss on available-for-sale securities of $467,000 during the three months ended March 31, 2024. Capital Ratios The Company and the Bank remained well capitalized at March 31, 2024, as summarized in the following table. (unaudited)   Coastal Community Bank   Coastal Financial Corporation