Apex Trader Funding (ATF) - News
Coastal Financial Corporation Announces Second Quarter 2024 Results
Second Quarter 2024 Highlights:
Net income of $11.6 million, or $0.84 per diluted common share, for the three months ended June 30, 2024, compared to $6.8 million, or $0.50 per diluted common share, for the three months ended March 31, 2024.
Return on average assets ("ROA") of 1.21% for the three months ended June 30, 2024, compared to 0.73% for the three months ended March 31, 2024.
Return on average equity ("ROE") of 15.22% for the three months ended June 30, 2024 compared to 9.21% for the three months ended March 31, 2024.
Net interest margin increased to 7.13% for the quarter ended June 30, 2024, compared to 6.78% for the quarter ended March 31, 2024.
Yield on loans receivable increased 0.38% to 11.23% for the quarter ended June 30, 2024, compared to 10.85% for the quarter ended March 31, 2024.
Cost of deposits increased 0.09% to 3.58% for the quarter ended June 30, 2024, compared to 3.49% for the quarter ended March 31, 2024.
Total assets increased $96.3 million, or 2.5%, to $3.96 billion for the quarter ended June 30, 2024, compared to $3.87 billion at March 31, 2024.
Total loans, net of deferred fees increased $126.9 million, or 4.0%, to $3.33 billion for the quarter ended June 30, 2024 compared to the quarter ended March 31, 2024.
Community bank loans increased $28.8 million, or 1.5%, to $1.91 billion.
CCBX loans increased $98.1 million, or 7.4%, to $1.41 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 $155.2 million in CCBX loans sold during the quarter ended June 30, 2024. The Company will continue to sell loans as part of our strategy to reduce risk, optimize the CCBX loan portfolio, maintain strong credit quality, and manage portfolio and partner limits.
Deposits increased $80.5 million, or 2.3%, to $3.54 billion for the quarter ended June 30, 2024.
CCBX deposit growth of $27.5 million, or 1.4%, to $2.06 billion.
CCBX deposit growth excludes the $117.7 million in CCBX deposits that were transferred off balance sheet for increased Federal Deposit Insurance Corporation ("FDIC") insurance coverage purposes, compared to $92.2 million for the quarter ended March 31, 2024. Amounts in excess of FDIC insurance coverage are transferred, using a third party facilitator/vendor sweep product, to participating financial institutions.
Community bank deposits increased $52.9 million, or 3.7%, to $1.49 billion, after two quarters of declining balances.
Includes noninterest bearing deposits of $531.6 million or 35.7% of total community bank deposits.
Community bank cost of deposits was 1.77% compared to 1.66% for the quarter ended March 31, 2024.
Uninsured deposits of $532.9 million, or 15.0% of total deposits as of June 30, 2024, compared to $495.6 million, or 14.3% of total deposits as of March 31, 2024.
We have taken steps to ensure our balance sheet is well positioned to handle upcoming expected interest rate changes and continue to improve our position in a declining interest rate environment for the quarters ended March 31, 2024 and June 30, 2024 compared to the quarter ended December 31, 2023.
Liquidity/Borrowings as of June 30, 2024:
Capacity to borrow up to $650.1 million from Federal Home Loan Bank and the Federal Reserve Bank discount window with no borrowings on these lines at June 30, 2024 and only minimal borrowings, taken to test the lines, under these facilities since the first quarter of 2022.
EVERETT, Wash., July 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 June 30, 2024.
Quarterly net income for the second quarter of 2024 was $11.6 million, or $0.84 per diluted common share, compared with net income of $6.8 million, or $0.50 per diluted common share, for the first quarter of 2024, and $12.9 million, or $0.95 per diluted common share, for the quarter ended June 30, 2023.
Total assets increased $96.3 million, or 2.5%, during the second quarter of 2024 to $3.96 billion, from $3.87 billion at March 31, 2024. Total loans, net of deferred fees increased $126.9 million, or 4.0%, during the three months ended June 30, 2024 to $3.33 billion, compared to $3.20 billion at March 31, 2024. CCBX loans increased $98.1 million, or 7.4%, primarily as a result of a $107.4 million increase in consumer and other loans, partially offset by a decrease of $26.5 million in capital call lines, as a result of normal fluctuations. CCBX loan growth is net of $155.2 million in CCBX loans sold during the quarter ended June 30, 2024. We will continue to sell loans back to our CCBX partners, pursuant to the applicable partner agreement, as part of our strategy to reduce risk, optimize the CCBX loan portfolio, maintain strong credit quality, and manage portfolio and partner limits.
We saw solid deposit growth in the second quarter, with deposits increasing $80.5 million, or 2.3%, compared to March 31, 2024. CCBX deposits grew $27.5 million, or 1.4%. Community bank deposits increased $52.9 million, or 3.7%, after two consecutive quarters of declining balances primarily as a result of letting some of our higher rate deposits run-off during those quarters. Fully insured IntraFi network reciprocal deposits increased $15.5 million to $352.3 million as of June 30, 2024, compared to $336.8 million as of March 31, 2024. 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 June 30, 2024, we had $487.2 million in cash on the balance sheet and the capacity to borrow up to $650.1 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 occurring, except minimal amounts borrowed to test the lines, under these facilities since the first quarter of 2022. Cash on the balance sheet and total borrowing capacity totaled $1.19 billion, which represented 33.5% of total deposits and exceeded our $532.9 million in uninsured deposits as of June 30, 2024.
"We are happy to report that we have experienced robust loan growth of $126.9 million for the quarter ended June 30, 2024. This growth can be attributed to our strong relationships with existing CCBX partners and successful efforts to attract new community bank borrowers. We are pleased to report that we are maintaining our strong credit quality, and our portfolio is performing as expected. This is a testament to our diligent risk management practices and proactive measures to optimize our loan portfolio.
We have taken steps to manage our balance sheet and we believe it is well positioned to handle upcoming expected interest rate changes. This involves carefully managing our interest rate risk exposure and implementing strategies to mitigate any adverse impacts on our financial performance from interest rate changes. By closely monitoring market trends and leveraging our expertise in financial analysis, we believe we are well positioned to adapt to changing interest rate environments.
In late 2023 and early 2024, we took proactive measures to enhance the credit quality of our CCBX loans by selling higher rate and higher risk loans. This strategic decision, although it resulted in a short-term reduction in income, is expected to result in long-term stability and success. By focusing on the quality of our loan portfolio, we believe that we are well positioned to achieve our goals and deliver sustainable financial performance in the future.
We believe our organization's strong credit quality, neutral to slightly liability sensitive balance sheet, robust loan and deposit growth, and proactive risk management measures demonstrate our commitment to maintaining a solid financial position. We remain confident in our ability to navigate changing market conditions and achieve long-term success in the BaaS and community bank space," stated Eric Sprink, the CEO of the Company and the Bank.
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 all of 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 $66.2 million for the quarter ended June 30, 2024, an increase of $5.3 million, or 8.7%, from $60.9 million for the quarter ended March 31, 2024, and an increase of $3.9 million, or 6.2%, from $62.4 million for the quarter ended June 30, 2023. Yield on loans receivable was 11.23% for the three months ended June 30, 2024, compared to 10.85% for the three months ended March 31, 2024 and June 30, 2023. Cost of deposits was 3.58% for the three months ended June 30, 2024, compared to 3.49% for the three months ended March 31, 2024 and 2.72% for the three months ended June 30, 2023. The increase in net interest income compared to March 31, 2024, 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 deposit portfolio composition and competitive pressures. The increase in net interest income compared to June 30, 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 June 30, 2024 was $3.26 billion, compared to $3.14 billion for the three months ended March 31, 2024, and $2.97 billion for the three months ended June 30, 2023.
Interest and fees on loans totaled $90.9 million for the three months ended June 30, 2024 compared to $84.6 million and $80.2 million for the three months ended March 31, 2024 and June 30, 2023, respectively. Total loans, net of deferred fees increased $126.9 million, or 4.0%, during the quarter ended June 30, 2024, which included a $98.1 million increase in CCBX loans and an increase of $28.8 million in community bank loans. The increase in CCBX loans includes an increase of $107.4 million, or 12.4%, in consumer and other loans, $22.8 million increase in residential real estate loans and a decrease of $26.5 million, or 19.6%, 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 $155.2 million in CCBX loans during the quarter ended June 30, 2024 to reduce credit exposure in certain loan categories and manage credit risk, compared to sales of $100.5 million in the quarter ended March 31, 2024. We continue to reposition ourselves by managing CCBX credit and concentration levels in an effort to optimize our loan portfolio. The increase in interest and fees on loans compared to the quarter ended March 31, 2024 was largely due to loan growth in higher yielding loans. The increase compared to the quarter ended June 30, 2023 was also largely due to growth in higher yielding loans. The FOMC has increased rates 0.25% since June 30, 2023 and last raised the target Federal Funds rate 0.25% on July 26, 2023. Loans have been repricing at these higher rates for almost a year.
Interest income from interest earning deposits with other banks was $5.7 million for the quarter ended June 30, 2024, an increase of $903,000 compared to March 31, 2024, due to an increase in average balance and an increase of $3.0 million compared to June 30, 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 June 30, 2024 was $418.2 million, compared to $350.9 million and $211.4 million for the three months ended March 31, 2024 and June 30, 2023, respectively. The average yield on these interest earning deposits with other banks decreased nominally to 5.47% for the quarter ended June 30, 2024, compared to 5.48% for the quarter ended March 31, 2024 and increased from 5.08% in the quarter ended June 30, 2023.
Total interest expense was $31.3 million for the quarter ended June 30, 2024, a $1.7 million increase from the quarter ended March 31, 2024 and a $9.9 million increase from the quarter ended June 30, 2023. Interest expense on deposits was $30.6 million for the quarter ended June 30, 2024, compared to $28.9 million for the quarter ended March 31, 2024 and $20.7 million for the quarter ended June 30, 2023. Interest expense on interest bearing deposits increased $1.7 million for the quarter ended June 30, 2024, compared to the quarter ended March 31, 2024, and $9.9 million compared to the quarter ended June 30, 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 $672,000 for the quarter ended June 30, 2024, compared to $669,000 and $661,000 for the quarters ended March 31, 2024 and June 30, 2023, respectively. The $11,000 increase in interest expense on borrowed funds from the quarter ended June 30, 2023 is the result of an increase in interest rates.
Total cost of deposits was 3.58% for the three months ended June 30, 2024, compared to 3.49% for the three months ended March 31, 2024, and 2.72%, for the three months ended June 30, 2023. Community bank and CCBX cost of deposits were 1.77% and 4.92% respectively, for the three months ended June 30, 2024, compared to 1.66% and 4.93%, for the three months ended March 31, 2024, and 0.98% and 4.42% for the three months ended June 30, 2023. The increase in cost of deposits for the three months ended June 30, 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 7.13% for the three months ended June 30, 2024, compared to 6.78% for the three months ended March 31, 2024. The increase in net interest margin compared to the three months ended March 31, 2024 was primarily due to higher loan yields. Net interest margin was 7.58% for the three months ended June 30, 2023. The decrease in net interest margin for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was largely due to an increase in cost of deposits, partially offset by an increase in loan yield. 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. Interest and fees on loans receivable increased $6.3 million, or 7.5%, to $90.9 million for the three months ended June 30, 2024, compared to $84.6 million for the three months ended March 31, 2024, and increased $10.7 million, or 13.4%, compared to $80.2 million for the three months ended June 30, 2023, due to an increase in outstanding balances and higher interest rates. Compared to the three months ended June 30, 2023, there was a $3.0 million increase in interest on interest earning deposits held at other financial institutions. These interest earning deposits earned an average rate of 5.47% for the quarter ended June 30, 2024, compared to 5.48% and 5.08% for the quarters ended March 31, 2024 and June 30, 2023, respectively. Average investment securities decreased $65.6 million to $49.8 million compared to the three months ended March 31, 2024 and decreased $60.5 million compared to the three months ended June 30, 2023 as a result of $100.0 million in AFS U.S. Treasury securities that matured on February 29, 2024. Interest on investment securities decreased $348,000 for the three months ended June 30, 2024 compared to the three months ended March 31, 2024 as a result of the maturing Treasury securities. Interest on total investment securities increased $33,000 compared to June 30, 2023, 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 3.60% for the quarter ended June 30, 2024, an increase of 8 basis points from the quarter ended March 31, 2024 and an increase of 83 basis points from the quarter ended June 30, 2023. Cost of deposits for the quarter ended June 30, 2024 was 3.58%, compared to 3.49% for the quarter ended March 31, 2024, and 2.72% for the quarter ended June 30, 2023. The increased cost of funds and deposits compared to March 31, 2024 and June 30, 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 June 30, 2024, total loans receivable increased by $126.9 million, or 4.0%, to $3.33 billion, compared to $3.20 billion for the quarter ended March 31, 2024. This increase consists of a $98.1 million increase in CCBX loans and $28.8 million in community bank loan growth. Total loans receivable as of June 30, 2024 increased $318.9 million compared to June 30, 2023. This increase includes community bank loan growth of $199.0 million and an increase in CCBX loans of $119.9 million. During the quarter ended June 30, 2024, $155.2 million in CCBX loans were sold, compared to sales of $100.5 million in the quarter ended March 31, 2024.
Total yield on loans receivable for the quarter ended June 30, 2024 was 11.23%, compared to 10.85% for the quarters ended March 31, 2024 and June 30, 2023. During the quarter ended June 30, 2024, community bank loans increased 1.5%, or $28.8 million, to $1.91 billion compared to $1.88 billion at March 31, 2024, with an average yield of 6.52%. CCBX loans outstanding increased 7.4%, or $98.1 million, to $1.41 billion compared to $1.32 billion at March 31, 2024, with an average CCBX yield of 17.77%. 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 Six Months Ended
June 30, 2024
March 31, 2024
June 30, 2023
June 30, 2024
June 30, 2023
Yield onLoans (2)
Cost ofDeposits (2)
Yield onLoans (2)
Cost ofDeposits (2)
Yield onLoans (2)
Cost ofDeposits (2)
Yield onLoans (2)
Cost ofDeposits (2)
Yield onLoans (2)
Cost ofDeposits (2)
Community Bank
6.52
%
1.77
%
6.46
%
1.66
%
6.28
%
0.98
%
6.49
%
1.71
%
6.13
%
0.82
%
CCBX (1)
17.77
%
4.92
%
17.34
%
4.93
%
16.95
%
4.42
%
17.56
%
4.92
%
16.56
%
4.18
%
Consolidated
11.23
%
3.58
%
10.85
%
3.49
%
10.85
%
2.72
%
11.04
%
3.53
%
10.42
%
2.44
%
(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
June 30, 2024
March 31, 2024
June 30, 2023
(dollars in thousands, unaudited)
Income / Expense
Income / expense divided by average CCBX loans (2)
Income / Expense
Income / expense divided by average CCBX loans(2)
Income / Expense
Income / expense divided by average CCBX loans (2)
BaaS loan interest income
$
60,203
17.77
%
$
54,569
17.34
%
$
53,632
16.95
%
Less: BaaS loan expense
29,076
8.58
%
24,837
7.89
%
22,033
6.96
%
Net BaaS loan income (1)
$
31,127
9.19
%
$
29,732
9.45
%
$
31,599
9.98
%
Average BaaS Loans(3)
$
1,362,343
$
1,265,857
$
1,269,406
For the Six Months Ended
June 30, 2024
June 30, 2023
(dollars in thousands; unaudited)
Income / Expense
Income / expense divided by average CCBX loans (2)
Income / Expense
Income / expense divided by average CCBX loans (2)
BaaS loan interest income
$
114,772
17.56
%
$
95,851
16.56
%
Less: BaaS loan expense
53,913
8.25
%
39,587
6.84
%
Net BaaS loan income (1)
$
60,859
9.31
%
$
56,264
9.72
%
Average BaaS Loans(3)
$
1,314,099
$
1,167,366
(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 1.21% for the quarter ended June 30, 2024 compared to 0.73% and 1.52% for the quarters ended March 31, 2024 and June 30, 2023, respectively. ROA for the quarter ended June 30, 2024, was up 0.48% and down 0.31% compared to March 31, 2024 and June 30, 2023, respectively. Noninterest expenses were higher for the quarter ended June 30, 2024 compared to the quarters ended March 31, 2024 and June 30, 2023 due to an increase in BaaS loan expense, which is directly related to interest earned on CCBX loans. Noninterest expense excluding Baas loan and fraud expense was lower for the quarter ended June 30, 2024 compared to the quarters ended March 31, 2024 and June 30, 2023 largely due to the $1.2 million credit for business and occupation taxes paid on CCBX income that was sourced/allocated outside the State of Washington for years 2019 through 2022.
The following table shows the Company's key performance ratios for the periods indicated.
Three Months Ended
Six Months Ended
(unaudited)
June 30,2024
March 31,2024
December 31,2023
September 30,2023
June 30,2023
June 30,2024
June 30,2023
Return on average assets (1)
1.21
%
0.73
%
0.97
%
1.13
%
1.52
%
0.98
%
1.55
%
Return on average equity (1)
15.22
%
9.21
%
12.35
%
14.60
%
19.53
%
12.26
%
19.70
%
Yield on earnings assets (1)
10.49
%
10.07
%
9.77
%
10.08
%
10.18
%
10.28
%
9.70
%
Yield on loans receivable (1)
11.23
%
10.85
%
10.71
%
10.84
%
10.85
%
11.04
%
10.42
%
Cost of funds (1)
3.60
%
3.52
%
3.39
%
3.18
%
2.77
%
3.56
%
2.49
%
Cost of deposits (1)
3.58
%
3.49
%
3.36
%
3.14
%
2.72
%
3.53
%
2.44
%
Net interest margin (1)
7.13
%
6.78
%
6.61
%
7.10
%
7.58
%
6.96
%
7.37
%
Noninterest expense to average assets (1)
6.14
%
6.04
%
5.56
%
6.23
%
6.11
%
6.09
%
5.91
%
Noninterest income to average assets (1)
7.30
%
9.38
%
6.95
%
3.81
%
6.90
%
8.32
%
6.60
%
Efficiency ratio
43.19
%
37.88
%
41.58
%
58.36
%
42.92
%
40.43
%
42.97
%
Loans receivable to deposits (2)
93.88
%
92.42
%
90.05
%
90.19
%
96.23
%
93.88
%
96.23
%
(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
June 30,
March 31,
June 30,
(dollars in thousands; unaudited)
2024
2024
2023
Deposit service charges and fees
$
946
$
908
$
989
Loan referral fees
—
168
682
Unrealized gain (loss) on equity securities, net
9
15
155
Gain on sales of loans, net
—
—
23
Other
257
308
234
Noninterest income, excluding BaaS program income and BaaS indemnification income
1,212
1,399
2,083
Servicing and other BaaS fees
1,525
1,131
895
Transaction fees
1,309
1,122
1,052
Interchange fees
1,625
1,539
975
Reimbursement of expenses
1,637
1,033
1,026
BaaS program income
6,096
4,825
3,948
BaaS credit enhancements
60,826
79,808
51,027
Baas fraud enhancements
1,784
923
1,537
BaaS indemnification income
62,610
80,731
52,564
Total BaaS income
68,706
85,556
56,512
Total noninterest income
$
69,918
$
86,955
$
58,595
Noninterest income was $69.9 million for the three months ended June 30, 2024, a decrease of $17.1 million from $87.0 million for the three months ended March 31, 2024, and a increase of $11.3 million from $58.6 million for the three months ended June 30, 2023. The decrease in noninterest income over the quarter ended March 31, 2024 was primarily due to a decrease of $16.9 million in total BaaS income. The $16.9 million decrease in total BaaS income included a $19.0 million decrease in BaaS credit enhancements related to the provision for credit losses, partially offset by a $861,000 increase in BaaS fraud enhancements, and an increase of $1.3 million 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 and our primary BaaS source for recurring fee income (see "Appendix B" for more information on the accounting for BaaS allowance for credit losses and credit and fraud enhancements). Additionally, community bank loan referral fees decreased $168,000 due to the continued high interest rate environment. Other income decreased $51,000 largely due to a decrease in SBA servicing fees. The $11.3 million increase in noninterest income over the quarter ended June 30, 2023 was primarily due to a $10.0 million increase in BaaS credit and fraud enhancements, an increase of $2.1 million in BaaS program income, partially offset by a decrease of $682,000 in loan referral fees.
Our CCBX segment continues to evolve, and we have 21 relationships, at varying stages, as of June 30, 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.
We launched two new lending products through our CCBX segment in the first quarter of 2024 that can reach wide, established customer bases. One was a point-of-sale installment loan program. These loans are fully disclosed and offered as standard credit products, which we believe will minimize the concerns raised with respect to more typical point of sale "Buy Now Pay Later" offerings. The second product was a new credit card that will be marketed to CCBX partner customers who satisfy heightened underwriting standards.
The following table illustrates the activity and evolution in CCBX relationships for the periods presented.
As of
(unaudited)
June 30, 2024
March 31, 2024
June 30, 2023
Active
19
19
18
Friends and family / testing
1
1
1
Implementation / onboarding
1
1
1
Signed letters of intent
0
0
1
Wind down - active but preparing to exit relationship
0
0
1
Total CCBX relationships
21
21
22
The following table details noninterest expense for the periods indicated:
Noninterest Expense
Three Months Ended
June 30,
March 31,
June 30,
(dollars in thousands; unaudited)
2024
2024
2023
Salaries and employee benefits
$
17,005
$
17,984
$
16,309
Legal and professional expenses
3,631
3,672
4,645
Data processing and software licenses
2,924
2,892
1,972
Occupancy
1,686
1,518
1,143
Point of sale expense
852
869
814
Director and staff expenses
470
400
519
FDIC assessments
690
683
570
Excise taxes
(706
)
320
531
Marketing
14
53
115
Other
1,383
1,867
1,722
Noninterest expense, excluding BaaS loan and BaaS fraud expense
27,949
30,258
28,340
BaaS loan expense
29,076
24,837
22,033
BaaS fraud expense
1,784
923
1,537
BaaS loan and fraud expense
30,860
25,760
23,570
Total noninterest expense
$
58,809
$
56,018
$
51,910
Total noninterest expense increased $2.8 million to $58.8 million for the three months ended June 30, 2024, compared to $56.0 million for the three months ended March 31, 2024, and increased $6.9 million from $51.9 million for the three months ended June 30, 2023. The increase in noninterest expense for the quarter ended June 30, 2024, as compared to the quarter ended March 31, 2024, was primarily due to a $5.1 million increase in BaaS expense (including a $861,000 increase in BaaS fraud expense and a $4.2 million increase in BaaS loan expense) (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), partially offset by a $1.0 million decrease in excise taxes (due to the recording of $1.2 million business and occupation tax credit from the State of Washington as a result of a tax apportionment study completed to quantify revenue earned outside of the state of Washington. CCBX income is sourced to the state the partner is headquartered, and the majority of partners are located outside the state of Washington, therefore the credit was for taxes we paid on CCBX income to Washington state that was sourced to other states), $1.0 million decrease in salaries and employee benefits, a $484,000 decrease in other expenses as a result of unanticipated expenses in the quarter ended March 31, 2024 that did not recur in the current quarter and a $41,000 decrease in legal and professional fees as some of our risk management infrastructure projects are being completed. We continue to invest in our infrastructure and the automation of our processes so that they are scalable.
The increase in noninterest expenses for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 were largely due to an increase of $7.3 million in BaaS partner expense (including a $7.0 million increase in BaaS loan and an increase of $247,000 in BaaS fraud expense), a $952,000 increase in data processing and software licenses due to enhancements in technology, $696,000 increase in salary and employee benefits related to hiring staff for CCBX and additional staff for our ongoing growth initiatives, partially offset by a $1.2 million decrease in business and occupation excise taxes as mentioned above, and a $1.0 million decrease in legal and professional fees as a result of risk management projects are being completed.
Provision for Income Taxes
The provision for income taxes was $3.4 million for the three months ended June 30, 2024, $1.9 million for the three months ended March 31, 2024 and $3.9 million for the second quarter of 2023. The income tax provision was higher for the three months ended June 30, 2024 compared to the quarter ended March 31, 2024 primarily due to higher net income and lower than the quarter ended June 30, 2023 primarily due to lower net income compared to that quarter. Also contributing to the variances is the tax impact of stock equity award deductions which fluctuates based on activity. 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 income taxes.
Financial Condition Overview
Total assets increased $96.3 million, or 2.5%, to $3.96 billion at June 30, 2024 compared to $3.87 billion at March 31, 2024. The increase is primarily due to a $126.9 million increase in loans receivable partially offset by $8.7 million increase in the allowance for credit losses, a $55.1 million decrease in interest earning deposits held at other banks, a $6.2 million increase in the credit enhancement asset and a $1.1 million decrease in accrued interest receivable. During the quarter ended June 30, 2024, we sold $155.2 million in CCBX loans compared to $100.5 million sold during the quarter ended March 31, 2024.
Total assets increased $426.3 million, or 12.1%, to $3.96 billion at June 30, 2024, compared to $3.54 billion at June 30, 2023. The increase is primarily due to loans receivable increasing $318.9 million, a $182.0 million increase in interest earning deposits with other banks, and an increase of $46.6 million in the credit enhancement asset, partially offset by a decrease of $61.5 million in investment securities compared to June 30, 2023.
Loans Receivable
Total loans receivable increased $126.9 million to $3.33 billion at June 30, 2024, from $3.20 billion at March 31, 2024, and increased $318.9 million from $3.01 billion at June 30, 2023. The increase in loans receivable over the quarter ended March 31, 2024 was the result of an increase of $98.1 million in CCBX loans as we continue 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 $28.8 million increase in community bank loans. We continue to monitor and manage the CCBX loan portfolio, and sold $155.2 million in CCBX loans during the quarter ended June 30, 2024 as part of our strategy to reduce risk, optimize the CCBX loan portfolio, maintain strong credit quality, and manage portfolio and partner limits. The change in loans receivable over the quarter ended June 30, 2023 includes CCBX loan growth of $119.9 million and community bank loan growth of $199.0 million as of June 30, 2024.
The following table summarizes the loan portfolio at the period indicated:
Consolidated
As of June 30, 2024
As of March 31, 2024
As of June 30, 2023
(dollars in thousands; unaudited)
Amount
Percent
Amount
Percent
Amount
Percent
Commercial and industrial loans:
Capital call lines
$
109,133
3.3
%
$
135,671
4.2
%
$
138,428
4.6
%
All other commercial & industrial loans
186,167
5.6
201,555
6.3
215,401
7.1
Total commercial and industrial loans:
295,300
8.9
337,226
10.5
353,829
11.7
Real estate loans:
Construction, land and land development
173,064
5.2
160,862
5.0
186,706
6.2
Residential real estate
517,589
15.5
496,305
15.5
463,179
15.4
Commercial real estate
1,357,979
40.7
1,342,489
41.9
1,164,088
38.6
Consumer and other loans
990,270
29.7
870,134
27.1
846,459
28.1
Gross loans receivable
3,334,202
100.0
%
3,207,016
100.0
%
3,014,261
100.0
%
Net deferred origination fees
(7,742
)
(7,462
)
(6,708
)
Loans receivable
$
3,326,460
$
3,199,554
$
3,007,553
Loan Yield (1)
11.23
%
10.85
%
10.85
%
(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
June 30, 2024
March 31, 2024
June 30, 2023
(dollars in thousands; unaudited)
Balance
% to Total
Balance
% to Total
Balance
% to Total
Commercial and industrial loans
$
144,436
7.5
%
$
154,395
8.2
%
$
155,078
9.0
%
Real estate loans:
Construction, land and land development loans
173,064
9.0
160,862
8.5
186,706
10.9
Residential real estate loans
229,639
12.0
231,157
12.2
211,966
12.3
Commercial real estate loans
1,357,979
70.8
1,342,489
71.0
1,164,088
67.7
Consumer and other loans:
Other consumer and other loans
14,220
0.7
1,447
0.1
1,457
0.1
Gross Community Bank loans receivable
1,919,338
100.0
%
1,890,350
100.0
%
1,719,295
100.0
%
Net deferred origination fees
(7,304
)
(7,068
)
(6,261
)
Loans receivable
$
1,912,034
$
1,883,282
$
1,713,034
Loan Yield(1)
6.52
%
6.46
%
6.28
%
(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
June 30, 2024
March 31, 2024
June 30, 2023
(dollars in thousands; unaudited)
Balance
% to Total
Balance
% to Total
Balance
% to Total
Commercial and industrial loans:
Capital call lines
$
109,133
7.7
%
$
135,671
10.3
%
$
138,428
10.7
%
All other commercial & industrial loans
41,731
3.0
47,160
3.6
60,323
4.7
Real estate loans:
Residential real estate loans
287,950
20.4
265,148
20.1
251,213
19.4
Consumer and other loans:
Credit cards
549,241
38.7
505,706
38.4
379,642
29.3
Other consumer and other loans
426,809
30.2
362,981
27.6
465,360
35.9
Gross CCBX loans receivable
1,414,864
100.0
%
1,316,666
100.0
%
1,294,966
100.0
%
Net deferred origination (fees) costs
(438
)
(394
)
(447
)
Loans receivable
$
1,414,426
$
1,316,272
$
1,294,519
Loan Yield - CCBX (1)(2)
17.77
%
17.34
%
16.95
%
(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 $80.5 million, or 2.3%, to $3.54 billion at June 30, 2024 from $3.46 billion at March 31, 2024. The increase was due to a $80.5 million increase in core deposits. Deposits in our community bank segment increased $52.9 million from $1.43 billion at March 31, 2024, to $1.49 billion at June 30, 2024 and CCBX deposits increased $27.5 million, from $2.03 billion at March 31, 2024, to $2.06 billion at June 30, 2024. The deposits from our CCBX segment are predominately classified as interest bearing demand and money market accounts. During the quarter ended June 30, 2024, noninterest bearing deposits increased $19.7 million, or 3.4%, to $593.8 million from $574.1 million at March 31, 2024. Community bank noninterest bearing deposits totaled $531.6 million or 35.7% of total community bank deposits and CCBX noninterest bearing deposits totaled $62.2 million, or 3.0% of total CCBX deposits. In the quarter ended June 30, 2024 compared to the quarter ended March 31, 2024, interest bearing demand and money market accounts increased $66.1 million, savings deposits decreased $5.3 million, and time deposits decreased $22,000. Included in total deposits is $352.3 million in IntraFi network reciprocal interest bearing demand and money market accounts as of June 30, 2024, which provides our larger deposit customers with fully insured deposits through a reciprocal agreement with other banks. Uninsured deposits decreased to $532.9 million as of June 30, 2024, compared to $495.6 million as of March 31, 2024.
Total deposits increased $380.9 million, or 12.0%, to $3.54 billion at June 30, 2024 compared to $3.16 billion at June 30, 2023. The increase is largely the result of growth in CCBX deposits. Noninterest bearing deposits decreased $131.8 million, or 18.2%, to $593.8 million at June 30, 2024 from $725.6 million at June 30, 2023 as a result of customer movement from noninterest to interest bearing accounts. Interest bearing demand and money market accounts increased $542.6 million, or 23.4%, to $2.87 billion at June 30, 2024, and savings deposits decreased $20.2 million, or 22.7%, and time deposits decreased $9.7 million, or 39.2%, in the second quarter of 2024 compared to the second quarter of 2023. Deposits in our CCBX segment increased $403.4 million, from $1.65 billion at June 30, 2023, to $2.06 billion at June 30, 2024 and community bank deposits decreased $22.5 million, from $1.51 billion at June 30, 2023, to $1.49 billion at June 30, 2024. The deposits from our CCBX segment are predominately classified as interest bearing demand and money market accounts. Uninsured deposits decreased to $532.9 million as of June 30, 2024, compared to $632.1 million as of June 30, 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 June 30, 2024, $117.7 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 June 30, 2024
As of March 31, 2024
As of June 30, 2023
(dollars in thousands; unaudited)
Amount
Percent of TotalDeposits
Balance
Percent of TotalDeposits
Balance
Percent of TotalDeposits
Demand, noninterest bearing
$
593,789
16.8
%
$
574,112
16.6
%
$
725,592
22.9
%
Interest bearing demand and money market
2,865,773
80.9
2,799,667
80.9
2,323,164
73.5
Savings
68,777
1.9
74,085
2.1
88,991
2.8
Total core deposits
3,528,339
99.6
3,447,864
99.6
3,137,747
99.2
Brokered deposits
1
0.0
1
0.0
1
—
Time deposits less than $100,000
6,741
0.2
7,199
0.2
9,741
0.3
Time deposits $100,000 and over
8,351
0.2
7,915
0.2
15,083
0.5
Total
$
3,543,432
100.0
%
$
3,462,979
100.0
%
$
3,162,572
100.0
%
Cost of deposits (1)
3.58
%
3.49
%
2.72
%
(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
June 30, 2024
March 31, 2024
June 30, 2023
(dollars in thousands; unaudited)
Balance
% to Total
Balance
% to Total
Balance
% to Total
Demand, noninterest bearing
$
531,555
35.7
%
$
515,443
35.9
%
$
621,012
41.1
%
Interest bearing demand and money market
876,668
59.0
834,725
58.2
778,475
51.6
Savings
63,627
4.3
68,747
4.8
85,146
5.7
Total core deposits
1,471,850
99.0
1,418,915
98.9
1,484,633
98.4
Brokered deposits
1
0.0
1
0.0
1
0.0
Time deposits less than $100,000
6,741
0.5
7,199
0.5
9,741
0.6
Time deposits $100,000 and over
8,351
0.5
7,915
0.6
15,083
1.0
Total Community Bank deposits
$
1,486,943
100.0
%
$
1,434,030
100.0
%
$
1,509,458
100.0
%
Cost of deposits(1)
1.77
%
1.66
%
0.98
%
(1) Cost of deposits is annualized for the three months ended for each period presented.
CCBX
As of
June 30, 2024
March 31, 2024
June 30, 2023
(dollars in thousands; unaudited)
Balance
% to Total
Balance
% to Total
Balance
% to Total
Demand, noninterest bearing
$
62,234
3.0
%
$
58,669
2.9
%
$
104,580
6.3
%
Interest bearing demand and money market
1,989,105
96.7
1,964,942
96.8
1,544,689
93.5
Savings
5,150
0.3
5,338
0.3
3,845
0.2
Total core deposits
2,056,489
100.0
2,028,949
100.0
1,653,114
100.0
BaaS-brokered deposits
—
0.0
—
0.0
—
—
Total CCBX deposits
$
2,056,489
100.0
%
$
2,028,949
100.0
%
$
1,653,114
100.0
%
Cost of deposits (1)
4.92
%
4.93
%
4.42
%
(1) Cost of deposits is annualized for the three months ended for each period presented.
Borrowings
As of June 30, 2024, the Company had the capacity to borrow up to a total of $650.1 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 June 30, 2024.
Shareholders' Equity
The Company had a cash balance of $5.3 million as of June 30, 2024, which is retained for general operating purposes, including debt repayment, and for funding $593,000 in commitments to bank technology funds.
Total shareholders' equity increased $13.0 million since March 31, 2024. The increase in shareholders' equity was primarily due to $11.6 million in net earnings, combined with an increase of $1.4 million in common stock outstanding as a result of equity awards exercised during the three months ended June 30, 2024.
Capital Ratios
The Company and the Bank remained well capitalized at June 30, 2024, as summarized in the following table.
(unaudited)
Coastal Community Bank
Coastal Financial Corporation
Minimum Well Capitalized Ratios under Prompt Corrective Action (1)
Tier 1 Leverage Capital (to average assets)
9.24
%
8.31
%
5.00
%
Common Equity Tier 1 Capital (to risk-weighted assets)
10.15
%
9.03
%
6.50
%
Tier 1 Capital (to risk-weighted assets)
10.15
%
9.13
%
8.00
%
Total Capital (to risk-weighted assets)
11.44
%
11.70
%
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
The total allowance for credit losses was $147.9 million and 4.45% of loans receivable at June 30, 2024 compared to $139.3 million and 4.35% at March 31, 2024 and $110.8 million and 3.68% at June 30, 2023. The allowance for credit loss allocated to the CCBX portfolio was $126.9 million and 8.97% of CCBX loans receivable at June 30, 2024, with $21.0 million of allowance for credit loss allocated to the community bank or 1.10% 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 June 30, 2024
As of March 31, 2024
As of June 30, 2023
(dollars in thousands; unaudited)
Community Bank
CCBX
Total
Community Bank
CCBX
Total
Community Bank
CCBX
Total
Loans receivable
$
1,912,034
$
1,414,426
$
3,326,460
$
1,883,282
$
1,316,272
$
3,199,554
$
1,713,034
$
1,294,519
$
3,007,553
Allowance for credit losses
(21,045
)
(126,869
)
(147,914
)
(21,384
)
(117,874
)
(139,258
)
(20,653
)
(90,109
)
(110,762
)
Allowance for credit losses to total loans receivable
1.10
%
8.97
%
4.45
%
1.14
%
8.96
%
4.35
%
1.21
%
6.96
%
3.68
%
Provision for credit losses - loans totaled $61.9 million for the three months ended June 30, 2024, $79.5 million for the three months ended March 31, 2024, and $52.6 million for the three months ended June 30, 2023. Net charge-offs totaled $53.2 million for the quarter ended June 30, 2024, compared to $57.2 million for the quarter ended March 31, 2024 and $31.0 million for the quarter ended June 30, 2023. Net charge-offs as a percent of average loans decreased to 6.57% for the quarter ended June 30, 2024 compared to 7.34% for the quarter ended March 31, 2024 which we believe is a result of the steps we took to strengthen our credit quality. Provisions for credit losses – loans decreased largely due to a steadying of expected loss rates on CCBX loans receivable. CCBX partner agreements provide for a credit enhancement that covers the net-charge-offs on CCBX loans and negative deposit accounts by indemnifying or reimbursing incurred losses, except in accordance with the program agreement for one partner where the Company was responsible for credit losses on approximately 5% of a $353.6 million loan portfolio. At June 30, 2024, our portion of this portfolio represented $17.7 million in loans. The provision on the Company's portion of the portfolio was $1.6 million for the three months ended June 30, 2024 compared to $1.3 million for the three months ended March 31, 2024 and $1.6 million for the three months ended June 30, 2023.
Net charge-offs for this $17.7 million in loans were $1.3 million for the three months ended June 30, 2024, compared to $2.1 million for the three months ended March 31, 2024 and $917,000 for the three months ended June 30, 2023.
The following table details net charge-offs for the community bank and CCBX for the period indicated:
Three Months Ended
June 30, 2024
March 31, 2024
June 30, 2023
(dollars in thousands; unaudited)
Community Bank
CCBX
Total
Community Bank
CCBX
Total
Community Bank
CCBX
Total
Gross charge-offs
$
2
$
55,205
$
55,207
$
15
$
58,979
$
58,994
$
9
$
32,290
$
32,299
Gross recoveries
(4
)
(1,969
)
(1,973
)
(4
)
(1,772
)
(1,776
)
—
(1,340
)
(1,340
)
Net charge-offs
$
(2
)
$
53,236
$
53,234
$
11
$
57,207
$
57,218
$
9
$
30,950
$
30,959
Net charge-offs to average loans (1)
0.00
%
15.72
%
6.57
%
0.00
%
18.18
%
7.34
%
0.00
%
9.78
%
4.19
%
Six Months Ended
June 30, 2024
June 30, 2023
(dollars in thousands; unaudited)
Community Bank
CCBX
Total
Community Bank
CCBX
Total
Gross charge-offs
$
17
$
114,184
$
114,201
$
59
$
66,407
$
66,466
Gross recoveries
(8
)
(3,741
)
(3,749
)
(5
)
(3,200
)
(3,205
)
Net charge-offs
$
9
$
110,443
$
110,452
$
54
$
63,207
$
63,261
Net charge-offs to average loans (1)
0.00
%
16.90
%