Coastal Financial Corporation Announces Fourth Quarter 2024 Results

Coastal Financial Corporation Announces Fourth Quarter 2024 Results January 28, 2025 EVERETT, Wash., Jan. 28, 2025 (GLOBE NEWSWIRE) -- Coastal Financial Corporation (Nasdaq: CCB) (the “Company”, "Coastal", "we", "our", or "us"), the holding company for Coastal Community Bank (the “Bank”), through which it operates a community-focused bank with an industry leading banking as a service ("BaaS") segment, today reported unaudited financial results for the quarter ended December 31, 2024, including net income of $13.4 million, or $0.94 per diluted common share, compared to $13.5 million, or $0.97 per diluted common share, for the three months ended September 30, 2024 and $45.2 million, or $3.26 per diluted common share, for the year ended December 31, 2024, compared to $44.6 million, or $3.27 per diluted common share for the year ended December 31, 2023. Management Discussion of the Quarter and Full-year Results “2024 was highlighted by the completion of our $98.0 million capital raise during the fourth quarter, which we will utilize to support growth of the Bank including in our CCBX segment,” said CEO Eric Sprink. “We saw high quality net loan growth of $72.7 million despite selling $845.5 million in loans during the fourth quarter, and our CCBX program fee income continued to increase which was up 51.6% for full-year 2024 relative to the prior year. We continue to invest heavily in CCBX to support future growth, and we are pleased to have three letters of intent ("LOI") signed going into 2025 with an active pipeline.” Key Points for Fourth Quarter and Our Go-Forward Strategy Completed Capital Raise Allows CCBX Growth to Continue. During the fourth quarter of 2024, we completed a $98.0 million common equity raise, which was priced at $71.00/share. Proceeds will be used for general corporate purposes and to support growth of the Bank including in our CCBX segment. As of December 31, 2024 we had three signed LOIs and continue to have an active pipeline for 2025. The growth in common-equity tier 1 and total risk-based capital to 12.04% and 14.67%, respectively, includes the benefit of the capital raise. Strong Annual Growth in CCBX Program Fees. Total BaaS program fee income was $20.1 million for the year ended December 31, 2024, an increase of $6.8 million, or 51.6%, from the year ended December 31, 2023, and is representative of growth in partner transaction activity and expanded product offerings within our CCBX operating segment. Trends in CCBX noninterest income were also positive during the quarter, with total program fees of $5.6 million for the three months ended December 31, 2024, an increase of $396,000, or 7.7%, from the three months ended September 30, 2024. Investments for Growth Continues. Total non-interest expense of $67.4 million was up $3.0 million, or 4.6%, as compared to $64.4 million in the third quarter of 2024, mainly driven by higher salaries and employee benefits, and legal and professional expenses partially offset by lower BaaS loan expense. As we increase the number of new CCBX partners and programs launching in 2025, we expect that expenses will tend to be front-loaded with a focus on compliance and operational risk before any new program reaches significant revenues. Off Balance Sheet Activity Update. During the fourth quarter of 2024, we sold $845.5 million of loans, the majority of which were credit card receivables, and swept $273.2 million of deposits off balance-sheet. We are able to retain a portion of the fee income on these sold credit card loans. As of December 31, 2024 there were 182,449 credit cards with fee earning potential, an increase of 101,023 compared to the quarter ended September 30, 2024 and an increase of 172,400 from December 31, 2023. Continued Monitoring of CCBX Risk. We remain fully indemnified against fraud and 98.7% indemnified against credit risk with our CCBX partners as of year-end of 2024. Fourth Quarter 2024 Financial Highlights The tables below outline some of our key operating metrics. Three Months Ended (Dollars in thousands, except share and per share data; unaudited) December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 Income Statement Data: Interest and dividend income $ 102,448 $ 105,165 $ 97,422 $ 91,742 $ 85,059 Interest expense 30,071 32,892 31,250 29,536 28,586 Net interest income 72,377 72,273 66,172 62,206 56,473 Provision for credit losses 61,867 70,257 62,325 83,158 60,789 Net interest (expense)/ income after provision for credit losses 10,510 2,016 3,847 (20,952 ) (4,316 ) Noninterest income 74,100 78,790 69,138 86,176 63,884 Noninterest expense 67,411 64,424 57,694 56,509 47,709 Provision for income tax 3,832 2,926 3,425 1,915 2,847 Net income 13,367 13,456 11,596 6,800 9,012 As of and for the Three Month Period December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 Balance Sheet Data: Cash and cash equivalents $ 452,513 $ 484,026 $ 487,245 $ 515,128 $ 483,128 Investment securities 47,321 48,620 49,213 50,090 150,364 Loans held for sale 20,600 7,565 — 797 — Loans receivable 3,483,565 3,413,894 3,321,813 3,195,101 3,021,542 Allowance for credit losses (176,994 ) (171,674 ) (148,878 ) (139,941 ) (117,381 ) Total assets 4,121,208 4,064,472 3,959,549 3,863,062 3,750,005 Interest bearing deposits 3,057,808 3,047,861 2,949,643 2,888,867 2,735,161 Noninterest bearing deposits 527,524 579,427 593,789 574,112 625,202 Core deposits(1) 3,123,434 3,190,869 3,528,339 3,447,864 3,342,004 Total deposits 3,585,332 3,627,288 3,543,432 3,462,979 3,360,363 Total borrowings 47,884 47,847 47,810 47,771 47,734 Total shareholders’ equity 438,704 331,930 316,693 303,709 294,978 Share and Per Share Data (2): Earnings per share – basic $ 0.97 $ 1.00 $ 0.86 $ 0.51 $ 0.68 Earnings per share – diluted $ 0.94 $ 0.97 $ 0.84 $ 0.50 $ 0.66 Dividends per share — — — — — Book value per share(3) $ 29.37 $ 24.51 $ 23.54 $ 22.65 $ 22.17 Tangible book value per share(4) $ 29.37 $ 24.51 $ 23.54 $ 22.65 $ 22.17 Weighted avg outstanding shares – basic 13,828,605 13,447,066 13,412,667 13,340,997 13,286,828 Weighted avg outstanding shares – diluted 14,268,229 13,822,270 13,736,508 13,676,917 13,676,513 Shares outstanding at end of period 14,935,298 13,543,282 13,453,805 13,407,320 13,304,339 Stock options outstanding at end of period 186,354 198,370 286,119 309,069 354,969 See footnotes that follow the tables below As of and for the Three Month Period December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 Credit Quality Data: Nonperforming assets(5) to total assets 1.52 % 1.63 % 1.34 % 1.42 % 1.44 % Nonperforming assets (5) to loans receivable and OREO 1.80 % 1.94 % 1.60 % 1.72 % 1.78 % Nonperforming loans(5) to total loans receivable 1.80 % 1.94 % 1.60 % 1.72 % 1.78 % Allowance for credit losses to nonperforming loans 282.5 % 257.2 % 278.6 % 254.3 % 217.8 % Allowance for credit losses to total loans receivable 5.08 % 5.03 % 4.45 % 4.35 % 3.88 % Gross charge-offs $ 61,585 $ 53,305 $ 55,207 $ 58,994 $ 47,652 Gross recoveries $ 5,223 $ 4,516 $ 2,254 $ 2,036 $ 3,094 Net charge-offs to average loans(6) 6.56 % 5.60 % 6.54 % 7.30 % 5.88 % Capital Ratios: Company Tier 1 leverage capital 10.78 % 8.40 % 8.31 % 8.24 % 8.10 % Common equity Tier 1 risk-based capital 12.04 % 9.24 % 9.03 % 8.98 % 9.10 % Tier 1 risk-based capital 12.14 % 9.34 % 9.13 % 9.08 % 9.20 % Total risk-based capital 14.67 % 11.89 % 11.70 % 11.70 % 11.87 % Bank Tier 1 leverage capital 10.64 % 9.29 % 9.24 % 9.19 % 9.06 % Common equity Tier 1 risk-based capital 11.99 % 10.34 % 10.15 % 10.14 % 10.30 % Tier 1 risk-based capital 11.99 % 10.34 % 10.15 % 10.14 % 10.30 % Total risk-based capital 13.28 % 11.63 % 11.44 % 11.43 % 11.58 % (1) Core deposits are defined as all deposits excluding brokered and time deposits. (2) Share and per share amounts are based on total actual or average common shares outstanding, as applicable. (3) We calculate book value per share as total shareholders’ equity at the end of the relevant period divided by the outstanding number of our common shares at the end of each period. (4) Tangible book value per share is a non-GAAP financial measure. We calculate tangible book value per share as total shareholders’ equity at the end of the relevant period, less goodwill and other intangible assets, divided by the outstanding number of our common shares at the end of each period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets as of any of the dates indicated. As a result, tangible book value per share is the same as book value per share as of each of the dates indicated. (5) Nonperforming assets and nonperforming loans include loans 90+ days past due and accruing interest. (6) Annualized calculations. Key Performance Ratios Return on average assets ("ROA") was 1.30% for the quarter ended December 31, 2024 compared to 1.34% and 0.97% for the quarters ended September 30, 2024 and December 31, 2023, respectively. ROA for the quarter ended December 31, 2024, decreased 0.04% and increased 0.33% compared to September 30, 2024 and December 31, 2023, respectively. Noninterest expenses were higher for the quarter ended December 31, 2024 compared to the quarter ended September 30, 2024 largely due to higher salaries and employee benefits, and legal and professional expenses partially offset by a decrease in BaaS loan expense, which is directly related to the amount of interest earned on CCBX loans, and higher than the quarter ended December 31, 2023 largely due to an increase in salaries and employee benefits, data processing and software licenses and legal and professional expenses, all of which are related to the growth of Company and investments in technology and risk management. Yield on earning assets and yield on loans receivable decreased 0.56% and 0.32%, respectively, for the quarter ended December 31, 2024 compared to the quarter ended September 30, 2024. This decrease is due to a combination of factors. We continue to refine our credit approach with partners, widening the scope of loans that we are moving to nonaccrual, which decreased loan interest income in the quarter ended December 31, 2024 as compared to prior quarters. Average loans receivable as of December 31, 2024 decreased $45.4 million compared to September 30, 2024 as we continue to sell CCBX loans as part of our on-going strategy to manage the loan portfolio and credit quality. New loans are being booked with enhanced credit standards, which typically results in a lower interest rate than some of the higher risk loans that have paid off or we have chosen to sell. The following table shows the Company’s key performance ratios for the periods indicated.  Three Months Ended Twelve Months Ended (unaudited) December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 Return on average assets(1) 1.30% 1.34% 1.21% 0.73% 0.97% 1.15% 1.28% Return on average equity(1) 14.90% 16.67% 15.22% 9.21% 12.35% 14.11% 16.41% Yield on earnings assets(1) 10.24% 10.79% 10.49% 10.21% 9.42% 10.44% 9.61% Yield on loans receivable (1) 11.12% 11.44% 11.22% 11.01% 10.29% 11.20% 10.36% Cost of funds (1) 3.24% 3.62% 3.60% 3.52% 3.39% 3.49% 2.91% Cost of deposits(1) 3.21% 3.59% 3.58% 3.49% 3.36% 3.46% 2.87% Net interest margin(1) 7.23% 7.42% 7.12% 6.92% 6.26% 7.18% 6.88% Noninterest expense to average assets(1) 6.54% 6.42% 6.05% 6.10% 5.13% 6.28% 5.61% Noninterest income to average assets (1) 7.19% 7.85% 7.22% 9.30% 6.87% 7.86% 5.88% Efficiency ratio 46.02% 42.65% 42.84% 38.08% 39.64% 42.38% 44.66% Loans receivable to deposits(2) 97.82% 94.33% 93.75% 92.29% 89.92% 97.8% 89.9% (1) Annualized calculations shown for quarterly periods presented. (2) Includes loans held for sale. Management Outlook; CEO Eric Sprink “As we look forward to 2025, our strategy involves selectively expanding our current base of CCBX partners while continuing to invest in and enhance our technology and risk management infrastructure. This will enable us to support the next phase of growth within CCBX more efficiently. Additionally, we are focused on growing noninterest income through increased transaction activity and new product offerings with our established partners. We plan to continue selling credit card loans while retaining a portion of the fee income for our role in processing transactions, which offers an additional source of noninterest income without adding on-balance-sheet risk. We believe that by increasing noninterest income, we can mitigate the uncertainties associated with fluctuating interest rates and provide a more stable income stream in the future.” said CEO Eric Sprink. Coastal Financial Corporation 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.  CCBX Performance Update Our CCBX segment continues to evolve, and we have 24 relationships, at varying stages, including three signed letters of intent as of December 31, 2024. We continue to refine the criteria for CCBX partnerships, exploring relationships with larger more established partners, with experienced management teams, existing customer bases and strong financial positions and will continue to exit relationships where it makes sense for us to do so. As we explore relationships with new partners we plan to continue expanding product offerings with our existing CCBX partners. As we become more proficient in the BaaS space we aim to cultivate new relationships that align with our long-term goals. We believe that a strategy of adding new partnerships and launching new products with existing partners positions us to reach a wide and established customer base with a modest increase in regulatory risk given that we have already vetted existing partners and have an operational history. Increases in partner activity/transaction counts is positively impacting noninterest income and we expect that trend to continue as products launched earlier in the year gain traction. We plan to continue selling loans as part of our strategy to balance partner and lending limits, and manage the loan portfolio and credit quality. We retain a portion of the fee income for our role in processing transactions on sold credit card balances, and plan to continue this strategy to provide an on-going and passive revenue stream with no on balance sheet risk. The following table illustrates the activity and evolution in CCBX relationships for the periods presented. As of (unaudited) December 31, 2024 September 30, 2024 December 31, 2023 Active 19 19 19 Friends and family / testing 1 1 1 Implementation / onboarding 1 1 1 Signed letters of intent 3 1 0 Wind down - active but preparing to exit relationship 0 0 0 Total CCBX relationships 24 22 21 CCBX loans increased $87.2 million, or 5.8%, to $1.60 billion despite selling $845.5 million loans during the three months ended December 31, 2024. In accordance with the program agreement for one partner, effective April 1, 2024, the portion of the CCBX portfolio that we are responsible for losses on decreased from 10% to 5%. At December 31, 2024 the portion of this portfolio for which we are responsible represented $20.6 million in loans. The following table details the CCBX loan portfolio: CCBX As of December 31, 2024 September 30, 2024 December 31, 2023 (dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total Commercial and industrial loans: Capital call lines $ 109,017 6.8 % $ 103,924 6.9 % $ 87,494 7.3 % All other commercial & industrial loans 33,961 2.1 36,501 2.4 54,295 4.6 Real estate loans: Residential real estate loans 267,707 16.7 265,402 17.5 238,035 20.0 Consumer and other loans: Credit cards 528,554 33.0 633,691 41.7 505,837 42.4 Other consumer and other loans 41.4 477,283 31.5 306,027 25.7 Gross CCBX loans receivable 1,604,019 100.0 % 1,516,801 100.0 % 1,191,688 100.0 % Net deferred origination (fees) costs (442 ) (447 ) (300 ) Loans receivable $ 1,603,577 $ 1,516,354 $ 1,191,388 Loan Yield - CCBX(1)(2) 16.81 % 17.37 % 16.30 % (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. The increase in CCBX loans in the quarter ended December 31, 2024, includes an increase of $82.4 million or 7.4%, in consumer and other loans, an increase of $5.1 million, or 4.9%, in capital call lines as a result of normal balance fluctuations and business activities, and an increase of $2.3 million, or 0.9%, in residential real estate loans. We continue to monitor and manage the CCBX loan portfolio, and sold $845.5 million in CCBX loans during the quarter ended December 31, 2024 compared to sales of $423.7 million in the quarter ended September 30, 2024. We continue to reposition ourselves by managing CCBX credit and concentration levels in an effort to optimize our loan portfolio and generate off balance sheet fee income. CCBX loan yield decreased 0.56% for the quarter ended December 31, 2024 compared to the quarter ended September 30, 2024 as a result of our widening the scope of loans that we are moving to nonaccrual, which decreased loan interest income in the quarter ended December 31, 2024. Also contributing to the decrease are lower interest rates on new CCBX loans, which are replacing higher risk and higher rate loans that have paid off or were sold as part of our strategy to manage the loan portfolio and credit quality. The recent decrease in the Fed funds interest rate further contributed to the change. The following chart show the growth in credit card accounts that we are able to generate fee income from. This includes accounts with balances, which are included in our loan totals, and accounts that have been sold and have no corresponding balance in our loan totals, but that we are still able to generate fee income on. The following table details the CCBX deposit portfolio: CCBX As of December 31, 2024 September 30, 2024 December 31, 2023 (dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total Demand, noninterest bearing $ 55,686 2.7 % $ 60,655 2.9 % $ 63,630 3.4 % Interest bearing demand and money market 1,958,459 94.9 1,991,858 94.6 1,794,168 96.3 Savings 5,710 0.3 5,204 0.3 4,964 0.3 Total core deposits 2,019,855 97.9 2,057,717 97.8 1,862,762 100.0 Other deposits 44,233 2.1 47,046 2.2 — — Total CCBX deposits $ 2,064,088 100.0 % $ 2,104,763 100.0 % $ 1,862,762 100.0 % Cost of deposits(1) 4.19 % 4.82 % 4.90 % (1) Cost of deposits is annualized for the three months ended for each period presented. CCBX deposits decreased $40.7 million, or 1.9%, in the three months ended December 31, 2024 to $2.06 billion as a result of normal balance fluctuations. This excludes the $273.2 million in CCBX deposits that were transferred off balance sheet for increased Federal Deposit Insurance Corporation ("FDIC") insurance coverage and sweep purposes, compared to $214.5 million for the quarter ended September 30, 2024. Amounts in excess of FDIC insurance coverage are transferred, using a third party facilitator/vendor sweep product, to participating financial institutions. Community Bank Performance Update In the quarter ended December 31, 2024, the community bank saw net loans decrease $14.6 million, or 0.8%, to $1.88 billion. The following table details the Community Bank loan portfolio: Community Bank As of December 31, 2024 September 30, 2024 December 31, 2023 (dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total Commercial and industrial loans $ 150,395 8.0 % $ 152,161 8.0 % $ 149,502 8.2 % Real estate loans: Construction, land and land development loans 148,198 7.8 163,051 8.6 157,100 8.5 Residential real estate loans 202,064 10.7 212,467 11.2 225,391 12.3 Commercial real estate loans 1,374,801 72.8 1,362,452 71.5 1,303,533 70.9 Consumer and other loans: Other consumer and other loans 13,542 0.7 14,173 0.7 1,628 0.1 Gross Community Bank loans receivable 1,889,000 100.0 % 1,904,304 100.0 % 1,837,154 100.0 % Net deferred origination fees (6,012 ) (6,764 ) (7,000 ) Loans receivable $ 1,882,988 $ 1,897,540 $ 1,830,154 Loan Yield(1) 6.53 % 6.64 % 6.32 % (1) Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans. Community bank loans decreased $14.9 million in construction, land and land development loans, decreased $1.8 million in commercial and industrial loans and decreased $631,000 in consumer and other loans, and were partially offset by an increase in commercial real estate loans of $12.3 million during the quarter ended December 31, 2024. The following table details the community bank deposit portfolio: Community Bank As of December 31, 2024 September 30, 2024 December 31, 2023 (dollars in thousands; unaudited) Balance % to Total Balance % to Total Balance % to Total Demand, noninterest bearing $ 471,838 31.0 % $ 518,772 34.1 % $ 561,572 37.5 % Interest bearing demand and money market 570,625 37.5 552,108 36.3 846,072 56.5 Savings 61,116 4.0 62,272 4.1 71,598 4.8 Total core deposits 1,103,579 72.5 1,133,152 74.5 1,479,242 98.8 Other deposits 400,118 26.3 373,681 24.5 1 0.0 Time deposits less than $100,000 5,920 0.4 6,305 0.4 8,109 0.5 Time deposits $100,000 and over 11,627 0.8 9,387 0.6 10,249 0.7 Total Community Bank deposits $ 1,521,244 100.0 % $ 1,522,525 100.0 % $ 1,497,601 100.0 % Cost of deposits(1) 1.86 % 1.92 % 1.57 % (1) Cost of deposits is annualized for the three months ended for each period presented. Community bank deposits decreased $1.3 million, or 0.1%, during the three months ended December 31, 2024 to $1.52 billion as result of normal balance fluctuations. The community bank segment includes noninterest bearing deposits of $471.8 million, or 31.0%, of total community bank deposits, resulting in a cost of deposits of 1.86%, which compared to 1.92% for the quarter ended September 30, 2024, largely due to the decreases in the Fed funds rate late in the third quarter and during the fourth quarter of 2024. The cost of community bank deposits are projected to decline further as the Fed funds rate had a decrease of 0.25%, which occurred in December 2024 and the full quarterly effect of that decrease will not be recognized until the first quarter of 2025. Net Interest Income and Margin Discussion Net interest income was $72.4 million for the quarter ended December 31, 2024, an increase of $104,000, or 0.1%, from $72.3 million for the quarter ended September 30, 2024, and an increase of $15.9 million, or 28.2%, from $56.5 million for the quarter ended December 31, 2023. Net interest income compared to September 30, 2024, was fairly flat a result of a decrease in average loans receivable as a result of selling $845.5 million in CCBX loans during the quarter ended December 31, 2024, the recent decrease in the Fed funds interest rate, and continued enhancements to our partner credit practices that resulted in a reduction of interest income on loans. The increase in net interest income compared to December 31, 2023 was largely related to increased yield on loans resulting from higher interest rates and growth in higher yielding loans, partially offset by an increase in cost of funds relating to higher interest rates and growth in interest bearing deposits.  Net interest margin was 7.23% for the three months ended December 31, 2024, compared to 7.42% for the three months ended September 30, 2024, largely due to lower loan yield. Net interest margin, net of BaaS loan expense, (A reconciliation of the non-GAAP measures are set forth in the Non-GAAP Financial Measures section of this earnings release.) was 4.16% for the three months ended December 31, 2024, compared to 4.06% for the three months ended September 30, 2024. Net interest margin was 6.26% for the three months ended December 31, 2023. The increase in net interest margin for the three months ended December 31, 2024 compared to the three months ended December 31, 2023 was largely due to an increase in loan yield, partially offset by higher interest rates on interest bearing deposits. Interest and fees on loans receivable decreased $4.1 million, or 4.1%, to $95.6 million for the three months ended December 31, 2024, compared to $99.6 million for the three months ended September 30, 2024, as a result of loan sales and a decrease in the Fed funds interest rate. Additionally, as we continue to refine our credit approach with partners, we are widening the scope of loans that we are moving to nonaccrual which decreased interest income in the quarter ended December 31, 2024 and lowered loan yield and net interest margin; however this also decreased BaaS loan expense (which is in noninterest expense) resulting in no impact to net income. Interest and fees on loans receivable increased $17.6 million, or 22.6%, compared to $78.0 million for the three months ended December 31, 2023, due to an increase in outstanding balances and higher interest rates. Net interest margin, net of Baas loan expense (A reconciliation of the non-GAAP measures are set forth in the Non-GAAP Financial Measures section of this earnings release.) increased 0.10% for the three months ended December 31, 2024, compared to the three months ended September 30, 2024 and increased 0.25% compared the three months ended December 31, 2023. The following tables illustrate how net interest margin and loan yield is affected by BaaS loan expense: Consolidated As of and for the Three Months Ended As of and for the Twelve Months Ended (dollars in thousands; unaudited) December 31 2024 September 30 2024 December 31 2023 December 31 2024 December 31 2023 Net interest margin, net of BaaS loan expense: Net interest margin(1) 7.23 % 7.42 % 6.26 % 7.18 % 6.88 % Earning assets 3,980,078 3,875,911 3,581,772 3,802,275 3,364,406 Net interest income (GAAP) 72,377 72,237 56,473 273,028 231,575 Less: BaaS loan expense (30,720 ) (32,698 ) (21,126 ) (118,536 ) (79,748 ) Net interest income, net of BaaS loan expense(2) $ 41,657 $ 39,575 $ 35,347 $ 154,492 $ 151,827 Net interest margin, net of BaaS loan expense(1)(2) 4.16 % 4.06 % 3.92 % 4.06 % 4.51 % Loan income net of BaaS loan expense divided by average loans: Loan yield (GAAP)(1) 11.12 % 11.44 % 10.29 % 11.20 % 10.36 % Total average loans receivable $ 3,419,476 $ 3,464,871 $ 3,007,289 $ 3,320,582 $ 2,936,908 Interest and earned fee income on loans (GAAP) 95,575 99,676 77,975 372,021 304,289 BaaS loan expense (30,720 ) (32,698 ) (21,126 ) (118,536 ) (79,748 ) Net loan income(2) $ 64,855 $ 66,978 $ 56,849 $ 253,485 $ 224,541 Loan income, net of BaaS loan expense, divided by average loans(1)(2) 7.55 % 7.69 % 7.50 % 7.63 % 7.65 % (1) Annualized calculations shown for periods presented. (2) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release. Average investment securities decreased $820,000 to $48.2 million compared to the three months ended September 30, 2024 and decreased $101.5 million compared to the three months ended December 31, 2023 as a result of principal paydowns and maturing securities. Cost of funds was 3.24% for the quarter ended December 31, 2024, a decrease of 38 basis points from the quarter ended September 30, 2024 and a decrease of 16 basis points from the quarter ended December 31, 2023. Cost of deposits for the quarter ended December 31, 2024 was 3.21%, compared to 3.59% for the quarter ended September 30, 2024, and 3.36% for the quarter ended December 31, 2023. The decreased cost of funds and deposits compared to September 30, 2024 and December 31, 2023 was largely due to the recent reductions in the Fed funds rate. The following table summarizes the average yield on loans receivable and cost of deposits: For the Three Months Ended December 31, 2024 September 30, 2024 December 31, 2023 Yield on Loans (2) Cost of Deposits (2) Yield on Loans (2) Cost of Deposits (2) Yield on Loans (2) Cost of Deposits (2) Community Bank 6.53% 1.86% 6.64% 1.92% 6.32% 1.57% CCBX(1) 16.81% 4.19% 17.37% 4.82% 16.30% 4.90% Consolidated 11.12% 3.21% 11.44% 3.59% 10.29% 3.36% (1) Annualized calculations for periods shown 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 table 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 December 31, 2024 September 30, 2024 December 31, 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 $ 64,532 16.81% $ 67,778 17.37 % $ 49,143 16.30% Less: BaaS loan expense 30,720 8.00% 32,698 8.38 % 21,126 7.01% Net BaaS loan income (1) $ 33,812 8.81% $ 35,080 8.99 % $ 28,017 9.29% Average BaaS Loans(3) $ 1,527,178 $ 1,552,443 $ 1,196,137 (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. Noninterest Income Discussion Noninterest income was $74.1 million for the three months ended December 31, 2024, a decrease of $4.7 million from $78.8 million for the three months ended September 30, 2024, and an increase of $10.2 million from $63.9 million for the three months ended December 31, 2023. The decrease in noninterest income for the quarter ended December 31, 2024 as compared to the quarter ended September 30, 2024 was primarily due to a decrease of $4.7 million in total BaaS income. The $4.7 million decrease in total BaaS income included an $8.0 million decrease in BaaS credit enhancements related to the provision for credit losses, partially offset by a a $3.0 million increase in BaaS fraud enhancements and an increase of $396,000 in BaaS program income. The $396,000 increase in BaaS program income is largely due to higher reimbursement of expenses as well as an increase in transaction fees and interchange fees, our primary BaaS source for recurring fee income, as well as higher reimbursement of expenses (see “Appendix B” for more information on the accounting for BaaS allowance for credit losses and credit and fraud enhancements). The $10.2 million increase in noninterest income over the quarter ended December 31, 2023 was primarily due to a $7.9 million increase in BaaS credit and fraud enhancements and an increase of $2.0 million in BaaS program income. Noninterest Expense Discussion Total noninterest expense increase $3.0 million to $67.4 million for the three months ended December 31, 2024, compared to $64.4 million for the three months ended September 30, 2024, and increased $19.7 million from $47.7 million for the three months ended December 31, 2023. The increase in noninterest expense for the quarter ended December 31, 2024, as compared to the quarter ended September 30, 2024, was primarily due to a $1.0 million increase in BaaS expense, $3.0 million increase in BaaS fraud expense, partially offset by a $2.0 million decrease 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 in which the loss occurs, and a portion is estimated based on historical or other information from our partners. Other variances that partially offset the net decrease in noninterest expense include an increase of $893,000 in salaries and employee benefits and an increase of $1.0 million in legal and professional fees as part of our continued investments in technology and risk management. The increase in noninterest expenses for the quarter ended December 31, 2024 compared to the quarter ended December 31, 2023 was largely due to an increase of $13.9 million in BaaS partner expense primarily from a $4.3 million increase in BaaS fraud expense, a $9.6 million increase in BaaS loan expense, a $2.0 million increase in legal and professional expenses, a $1.5 million increase in salary and employee benefits, and a $1.2 million increase in data processing and software licenses due to enhancements in technology. Certain noninterest expenses are reimbursed by our CCBX partners. In accordance with GAAP we recognize all expenses in noninterest expense and all reimbursement of expenses from our CCBX partner in noninterest income. The following table reflects the portion of noninterest expenses that are reimbursed by partners to assist the understanding of how the increases in noninterest expense are related to expenses incurred for and reimbursed by CCBX partners: Three Months Ended December 31, September 30, December 31, (dollars in thousands; unaudited) 2024 2024 2023 Total noninterest expense (GAAP) $ 67,411 $ 64,424 $ 47,709 Less: BaaS loan expense 30,720 32,698 21,126 Less: BaaS fraud expense 5,043 2,084 779 Less: Reimbursement of expenses (Baas) 812 565 266 Noninterest expense, net of Baas loan expense, BaaS fraud expense and reimbursement of expenses (BaaS) (1) $ 30,836 $ 29,077 $ 25,538 (1) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release. Provision for Income Taxes The provision for income taxes was $3.8 million for the three months ended December 31, 2024, $2.9 million for the three months ended September 30, 2024 and $2.8 million for the fourth quarter of 2023. The income tax provision was higher for the three months ended December 31, 2024 compared to the quarter ended September 30, 2024 as a result of the deductibility of certain equity awards which reduced tax expense during the quarter ended September 30, 2024 compared to the quarter ended December 31, 2024 despite net income being higher fairly even, and higher than the quarter ended December 31, 2023, primarily due to higher net income compared to that quarter, partially offset by the deductibility of certain equity awards. 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 2.63% for calculating the provision for state income taxes. Financial Condition Overview Total assets increased $56.7 million, or 1.4%, to $4.12 billion at December 31, 2024 compared to $4.06 billion at September 30, 2024. The increase is primarily due to stronger loan growth, partially offset by lower cash balances. Total loans receivable increased $72.7 million to $3.49 billion at December 31, 2024, from $3.41 billion at September 30, 2024. As of December 31, 2024, the Company had the capacity to borrow up to a total of $642.1 million from the Federal Reserve Bank discount window and Federal Home Loan Bank, and an additional $50.0 million from a correspondent bank. There were no borrowings outstanding on these lines as of December 31, 2024. The Company completed a $98.0 million capital raise during the quarter ended December 31, 2024. After contributing $50.0 million to the Bank, the Company had a cash balance of $47.7 million as of December 31, 2024, which is retained for general operating purposes, including debt repayment, and for funding $480,000 in commitments to bank technology investment funds.  Uninsured deposits were $543.0 million as of December 31, 2024, compared to $542.2 million as of September 30, 2024. Total shareholders’ equity as of December 31, 2024 increased $106.8 million since September 30, 2024. The increase in shareholders’ equity was primarily due to an increase of $93.4 million in common stock outstanding as a result of the aforementioned capital raise and, to a lessor extent, equity awards exercised during the three months ended December 31, 2024 combined with $13.4 million in net earnings. The Company and the Bank remained well capitalized at December 31, 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) 10.64% 10.78% 5.00% Common Equity Tier 1 Capital (to risk-weighted assets) 11.99% 12.04% 6.50% Tier 1 Capital (to risk-weighted assets) 11.99% 12.14% 8.00% Total Capital (to risk-weighted assets) 13.28% 14.67% 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 $177.0 million and 5.08% of loans receivable at December 31, 2024 compared to $171.7 million and 5.03% at September 30, 2024 and $117.4 million and 3.88% at December 31, 2023. The allowance for credit loss allocated to the CCBX portfolio was $158.1 million and 9.86% of CCBX loans receivable at December 31, 2024, with $18.9 million of allowance for credit loss allocated to the community bank or 1.00% 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 December 31, 2024 As of September 30, 2024 As of December 31, 2023 (dollars in thousands; unaudited) Community Bank CCBX Total Community Bank CCBX Total Community Bank CCBX Total Loans receivable $ 1,882,988 $ 1,603,577 $ 3,486,565 $ 1,897,540 $ 1,516,354 $ 3,413,894 $ 1,830,154 $ 1,191,338 $ 3,021,542 Allowance for credit losses (18,924 ) (158,070 ) (176,994 ) (20,132 ) (151,542 ) (171,674 ) (21,595 ) (95,786 ) (117,381 ) Allowance for credit losses to total loans receivable 1.00 % 9.86 % 5.08 % 1.06 % 9.99 % 5.03 % 1.18 % 8.04 % 3.88 % Net charge-offs totaled $56.4 million for the quarter ended December 31, 2024, compared to $48.8 million for the quarter ended September 30, 2024 and $44.6 million for the quarter ended December 31, 2023. Net charge-offs as a percent of average loans increased to 6.56% for the quarter ended December 31, 2024 compared to 5.60% for the quarter ended September 30, 2024. 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 $324.6 million loan portfolio. At December 31, 2024, our portion of this portfolio represented $20.6 million in loans. Net charge-offs for this $20.6 million in loans were $1.1 million for the three months ended December 31, 2024, compared to $1.1 million for the three months ended September 30, 2024 and $1.5 million for the three months ended December 31, 2023. The following table details net charge-offs for the community bank and CCBX for the period indicated: Three Months Ended December 31, 2024 September 30, 2024 December 31, 2023 (dollars in thousands; unaudited) Community Bank CCBX Total Community Bank CCBX Total Community Bank CCBX Total Gross charge-offs $ 139 $ 61,446 $ 61,585 $ 398 $ 52,907 $ 53,305 $ 2 $ 47,650 $ 47,652 Gross recoveries (3 ) (5,220 ) (5,223 ) (3 ) (4,513 ) (4,516 ) (4 ) (3,090 ) (3,094 ) Net charge-offs $ 136 $ 55,226 $ 56,362 $ 395 $ 48,394 $ 48,789 $ (2 ) $ 44,560 $ 44,558 Net charge-offs to average loans(1) 0.03 % 14.65 % 6.56 % 0.08 % 12.40 % 5.60 % 0.00 % 14.78 % 5.88 % (1) Annualized calculations shown for periods presented. During the quarter ended December 31, 2024, a $63.7 million provision for credit losses was recorded for CCBX partner loans, compared to the $72.1 million provision for credit losses was recorded for CCBX partner loans for the quarter ended September 30, 2024, the provision was based on management's analysis, bringing the CCBX allowance for credit losses to $158.1 million at December 31, 2024 compared to $151.5 million at September 30, 2024. The increase in the allowance is due to the addition of new loans, partially offset by loan sales. CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by indemnifying or reimbursing incurred losses. In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans and reclassified negative deposit accounts. When the provision for CCBX credit losses and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements). Expected losses are recorded in the allowance for credit losses. The credit enhancement asset is relieved when credit enhancement recoveries are received from the CCBX partner. If our partner is unable to fulfill their contracted obligations then the Bank could be exposed to additional credit losses. Management regularly evaluates and manages this counterparty risk. The factors used in management’s analysis for community bank credit losses indicated that a provision recapture of $1.1 million and was needed for the quarter ended December 31, 2024 compared to a provision recapture of $519,000 and provision of $277,000 for the quarters ended September 30, 2024 and December 31, 2023, respectively. The recapture in the current period was due to the decrease in the community bank loan portfolio combined with an improvement in the forward look, which is driven by the future projected unemployment and GDP curves, which flattened since last quarter, lessening the impact of this factor. The following table details the provision expense/(recapture) for the community bank and CCBX for the period indicated: Three Months Ended (dollars in thousands; unaudited) December 31, 2024 September 30, 2024 December 31, 2023 Community bank $ (1,071 ) $ (519 ) $ 277 CCBX 63,741 72,104 60,467 Total provision expense $ 62,670 $ 71,585 $ 60,744 A recapture for unfunded commitments of $803,000 was recorded for the quarter ended December 31, 2024 as a result of a decrease in the overall available balance combined with an improvement in the reserve rates. At December 31, 2024, our nonperforming assets were $62.7 million, or 1.52%, of total assets, compared to $66.4 million, or 1.63%, of total assets, at September 30, 2024, and $53.8 million, or 1.44%, of total assets, at December 31, 2023. These ratios are impacted by nonperforming CCBX loans that are covered by CCBX partner credit enhancements. As of December 31, 2024, $60.8 million of the $62.6 million in nonperforming CCBX loans were covered by CCBX partner credit enhancements described above. Nonperforming assets decreased $3.7 million during the quarter ended December 31, 2024, compared to the quarter ended September 30, 2024. This change is due to a decrease in CCBX and community bank nonaccrual loans. Community bank nonperforming loans decreased $1.0 million from September 30, 2024 to $100,000 as of December 31, 2024, and CCBX nonperforming loans decreased $2.7 million to $62.6 million from September 30, 2024. The decrease in CCBX nonperforming loans is due to an decrease of $570,000 in nonaccrual loans from September 30, 2024 to $19.5 million. Some CCBX partners have a collection practice that places certain loans on nonaccrual status to improve collectability. $17.2 million of these loans are less than 90 days past due as of December 31, 2024. Additionally, there was a $2.2 million decrease in CCBX loans that are past due 90 days or more and still accruing interest. As a result of the type of loans (primarily consumer loans) originated through our CCBX partners we anticipate that balances 90 days past due or more and still accruing will generally increase as those loan portfolios grow. Installment/closed-end and revolving/open-end consumer loans originated through CCBX lending partners will continue to accrue interest until 120 and 180 days past due, respectively and are reported as substandard, 90 days or more days past due and still accruing. There were no repossessed assets or other real estate owned at December 31, 2024. Our nonperforming loans to loans receivable ratio was 1.80% at December 31, 2024, compared to 1.94% at September 30, 2024, and 1.78% at December 31, 2023. For the quarter ended December 31, 2024, there were $136,000 community bank net charge-offs and $56.2 million in net charge-offs were recorded on CCBX loans. These CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses. The following table details the Company’s nonperforming assets for the periods indicated. Consolidated As of (dollars in thousands; unaudited) December 31, 2024 September 30, 2024 December 31, 2023 Nonaccrual loans: Commercial and industrial loans $ 334 $ 531 $ — Real estate loans: Residential real estate — 44 170 Commercial real estate — 831 7,145 Consumer and other loans: Credit cards 10,262 7,987 — Other consumer and other loans 8,967 11,713 — Total nonaccrual loans 19,563 21,106 7,315 Accruing loans past due 90 days or more: Commercial & industrial loans 1,006 1,566 2,086 Real estate loans: Residential real estate loans 2,608 3,025 1,115 Consumer and other loans: Credit cards 34,490 34,562 34,835 Other consumer and other loans 4,989 6,111 8,488 Total accruing loans past due 90 days or more 43,093 45,264 46,524 Total nonperforming loans 62,656 66,370 53,839 Real estate owned — — — Repossessed assets — — — Total nonperforming assets $ 62,656 $ 66,370 $ 53,839 Total nonaccrual loans to loans receivable 0.56 % 0.62 % 0.24 % Total nonperforming loans to loans receivable 1.80 % 1.94 % 1.78 % Total nonperforming assets to total assets 1.52 % 1.63 % 1.44 % The following tables detail the CCBX and community bank nonperforming assets which are included in the total nonperforming assets table above. CCBX As of (dollars in thousands; unaudited) December 31, 2024 September 30, 2024 December 31, 2023 Nonaccrual loans: Commercial and industrial loans: All other commercial & industrial loans $ 234 $ 333 $ — Consumer and other loans: Credit cards 10,262 7,987 — Other consumer and other loans 8,967 11,713 — Total nonaccrual loans 19,463 20,033 — Accruing loans past due 90 days or more: Commercial & industrial loans 1,006 1,566 2,086 Real estate loans: Residential real estate loans 2,608 3,025 1,115 Consumer and other loans: Credit cards 34,490 34,562 34,835 Other consumer and other loans 4,989 6,111 8,488 Total accruing loans past due 90 days or more 43,093 45,264 46,524 Total nonperforming loans 62,556 65,297 46,524 Other real estate owned — — — Repossessed assets — — — Total nonperforming assets $ 62,556 $ 65,297 $ 46,524 Total CCBX nonperforming assets to total consolidated assets 1.52 % 1.61 % 1.24 % Community Bank As of (dollars in thousands; unaudited) December 31, 2024 September 30, 2024 December 31, 2023 Nonaccrual loans: Commercial and industrial loans $ 100 $ 198 $ — Real estate: Residential real estate — 44 170 Commercial real estate — 831 7,145 Total nonaccrual loans 100 1,073 7,315 Accruing loans past due 90 days or more: Total accruing loans past due 90 days or more — — — Total nonperforming loans 100 1,073 7,315 Other real estate owned — — — Repossessed assets — — — Total nonperforming assets $ 100 $ 1,073 $ 7,315 Total community bank nonperforming assets to total consolidated assets < 0.01% 0.03 % 0.20 % About Coastal Financial Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), is an Everett, Washington based bank holding company whose wholly owned subsidiaries are Coastal Community Bank (“Bank”) and Arlington Olympic LLC. The $4.12 billion Bank provides service through 14 branches in Snohomish, Island, and King Counties, the Internet and its mobile banking application. The Bank provides banking as a service to broker-dealers, digital financial service providers, companies and brands that want to provide financial services to their customers through the Bank's CCBX segment. To learn more about the Company visit www.coastalbank.com. CCB-ER Contact Eric Sprink, Chief Executive Officer, (425) 357-3659 Joel Edwards, Executive Vice President & Chief Financial Officer, (425) 357-3687 Forward-Looking Statements This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Any or all of the forward-looking statements in this earnings release may turn out to be inaccurate. The inclusion of or reference to forward-looking information in this earnings release should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of risks, uncertainties and assumptions that are difficult to predict. Factors that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, the risks and uncertainties discussed under “Risk Factors” in our Annual Report on Form 10-K for the most recent period filed and in any of our subsequent filings with the Securities and Exchange Commission. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. You are cautioned not to place undue reliance on forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law. COASTAL FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Dollars in thousands; unaudited) ASSETS December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 Cash and due from banks $ 36,533 $ 45,327 $ 59,995 $ 32,790 $ 31,345 Interest earning deposits with other banks 415,980 438,699 427,250 482,338 451,783 Investment securities, available for sale, at fair value 35 38 39 41 99,504 Investment securities, held to maturity, at amortized cost 47,286 48,582 49,174 50,049 50,860 Other investments 10,800 10,757 10,664 10,583 10,227 Loans held for sale 20,600 7,565 — 797 — Loans receivable 3,486,565 3,413,894 3,321,813 3,195,101 3,021,542 Allowance for credit losses (176,994 ) (171,674 ) (148,878 ) (139,941 ) (117,381 ) Total loans receivable, net 3,309,571 3,242,220 3,172,935 3,055,160 2,904,161 CCBX credit enhancement asset 181,890 173,600 149,096 142,412 112,894 CCBX receivable 14,138 16,060 11,520 10,369 9,088 Premises and equipment, net 27,431 25,833 24,526 22,995 22,090 Lease right-of-use assets 5,219 5,427 5,635 5,756 5,932 Accrued interest receivable 21,104 22,315 21,620 22,485 23,458 Bank-owned life insurance, net 13,375 13,255 13,132 12,991 12,870 Deferred tax asset, net 3,600 3,083 2,221 2,221 3,806 Other assets 13,646 11,711 11,742 12,075 11,987 Total assets $ 4,121,208 $ 4,064,472 $ 3,959,549 $ 3,863,062 $ 3,750,005 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES Deposits $ 3,585,332 $ 3,627,288 $ 3,543,432 $ 3,462,979 $ 3,360,363 Subordinated debt, net 44,293 44,256 44,219 44,181 44,144 Junior subordinated debentures, net 3,591 3,591 3,591 3,590 3,590 Deferred compensation 332 369 405 442 479 Accrued interest payable 962 1,070 999 1,061 892 Lease liabilities 5,398 5,609 5,821 5,946 6,124 CCBX payable 29,171 37,839 32,539 30,899 30,290 Other liabilities 13,425 12,520 11,850 10,255 9,145 Total liabilities 3,682,504 3,732,542 3,642,856 3,559,353 3,455,027 SHAREHOLDERS’ EQUITY Common Stock 228,177 134,769 132,989 131,601 130,136 Retained earnings 210,529 197,162 183,706 172,110 165,311 Accumulated other comprehensive loss, net of tax (2 ) (1 ) (2 ) (2 ) (469 ) Total shareholders’ equity 438,704 331,930 316,693 303,709 294,978 Total liabilities and shareholders’ equity $ 4,121,208 $ 4,064,472 $ 3,959,549 $ 3,863,062 $ 3,750,005 COASTAL FINANCIAL CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts; unaudited) Three Months Ended December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 INTEREST AND DIVIDEND INCOME Interest and fees on loans $ 95,575 $ 99,676 $ 90,879 $ 85,891 $ 77,975 Interest on interest earning deposits with other banks 6,021 4,781 5,683 4,780 5,687 Interest on investment securities 661 675 686 1,034 1,225 Dividends on other investments 191 33 174 37 172 Total interest income 102,448 105,165 97,422 91,742 85,059 INTEREST EXPENSE Interest on deposits 29,404 32,083 30,578 28,867 27,916 Interest on borrowed funds 667 809 672 669 670 Total interest expense 30,071 32,892 31,250 29,536 28,586 Net interest income 72,377 72,273 66,172 62,206 56,473 PROVISION FOR CREDIT LOSSES 61,867 70,257 62,325 83,158 60,789 Net interest income/(expense) after provision for credit losses 10,510 2,016 3,847 (20,952 ) (4,316 ) NONINTEREST INCOME Service charges and fees 932 952 946 908 957 Loan referral fees — — — 168 — Unrealized gain (loss) on equity securities, net 1 2 9 15 80 Other income 473 486 257 308 60 Noninterest income, excluding BaaS program income and BaaS indemnification income 1,406 1,440 1,212 1,399 1,097 Servicing and other BaaS fees 1,043 1,044 1,525 1,131 1,015 Transaction fees 1,783 1,696 1,309 1,122 1,006 Interchange fees 1,916 1,853 1,625 1,539 1,272 Reimbursement of expenses 812 565 857 254 266 BaaS program income 5,554 5,158 5,316 4,046 3,559 BaaS credit enhancements 62,097 70,108 60,826 79,808 58,449 BaaS fraud enhancements 5,043 2,084 1,784 923 779 BaaS indemnification income 67,140 72,192 62,610 80,731 59,228 Total noninterest income 74,100 78,790 69,138 86,176 63,884 NONINTEREST EXPENSE Salaries and employee benefits 17,994 17,101 17,005 17,984 16,490 Occupancy 958 964 985 1,029 976 Data processing and software licenses 4,010 4,297 3,625 3,381 2,781 Legal and professional expenses 4,606 3,597 3,631 3,672 2,649 Point of sale expense 89 73 72 90 89 Excise taxes 778 762 (706 ) 320 449 Federal Deposit Insurance Corporation ("FDIC") assessments 750 740 690 683 665 Director and staff expenses 683 559 470 400 478 Marketing 28 67 14 53 138 Other expense 1,752 1,482 1,383 1,867 1,089 Noninterest expense, excluding BaaS loan and BaaS fraud expense 31,648 29,642 27,169 29,479 25,804 BaaS loan expense 30,720 32,698 29,011 26,107 21,126 BaaS fraud expense 5,043 2,084 1,784 923 779 BaaS loan and fraud expense 35,763 34,782 30,795 27,030 21,905 Total noninterest expense 67,411 64,424 57,964 56,509 47,709 Income before provision for income taxes 17,199 16,382 15,021 8,715 11,859 PROVISION FOR INCOME TAXES 3,832 2,926 3,425 1,915 2,847 NET INCOME $ 13,367 $ 13,456 $ 11,596 $ 6,800 $ 9,012 Basic earnings per common share $ 0.97 $ 1.00 $ 0.86 $ 0.51 $ 0.68 Diluted earnings per common share $ 0.94 $ 0.97 $ 0.84 $ 0.50 $ 0.66 Weighted average number of common shares outstanding: Basic 13,828,605 13,447,066 13,412,667 13,340,997 13,286,828 Diluted 14,268,229 13,822,270 13,736,508 13,676,917 13,676,513 COASTAL FINANCIAL CORPORATION AVERAGE BALANCES, YIELDS, AND RATES – QUARTERLY (Dollars in thousands; unaudited) For the Three Months Ended December 31, 2024 September 30, 2024 December 31, 2023 Average Balance Interest & Dividends Yield / Cost (1) Average Balance Interest & Dividends Yield / Cost (1) Average Balance Interest & Dividends Yield / Cost (1) Assets Interest earning assets: Interest earning deposits with other banks $ 501,654 $ 6,021 4.77 % $ 350,915 $ 4,781 5.42 % $ 413,127 $ 5,687 5.46 % Investment securities, available for sale(2) 39 — — 40 — — 100,204 546 2.16 Investment securities, held to maturity(2) 48,126 661 5.46 48,945 675 5.49 49,469 679 5.45 Other investments 10,783 191 7.05 11,140 33 1.18 11,683 172 5.84 Loans receivable (3) 3,419,476 95,575 11.12 3,464,871 99,676 11.44 3,007,289 77,975 10.29 Total interest earning assets 3,980,078 102,448 10.24 3,875,911 105,165 10.79 3,581,772 85,059 9.42 Noninterest earning assets: Allowance for credit losses (156,687 ) (151,292 ) (95,391 ) Other noninterest earning assets 277,922 268,903 204,052 Total assets $ 4,101,313 $ 3,993,522 $ 3,690,433 Liabilities and Shareholders’ Equity Interest bearing liabilities: Interest bearing deposits $ 3,068,357 $ 29,404 3.81 % $ 2,966,527 $ 32,083 4.30 % $ 2,660,235 $ 27,916 4.16 % FHLB advances and other borrowings — 1 — 9,717 140 5.73 3 — — Subordinated debt 44,272 599 5.38 44,234 598 5.38 44,121 598 5.38 Junior subordinated debentures 3,591 67 7.42 3,591 71 7.87 3,590 72 7.96 Total interest bearing liabilities 3,116,220 30,071 3.84 3,024,069 32,892 4.33 2,707,949 28,586 4.19 Noninterest bearing deposits 577,453 588,178 640,424 Other liabilities 50,824 60,101 52,450 Total shareholders' equity 356,816 321,174 289,612 Total liabilities and shareholders' equity $ 4,101,313 $ 3,993,522 $ 3,690,435 Net interest income $ 72,377 $ 72,273 $ 56,473 Interest rate spread 6.40 % 6.47 % 5.23 % Net interest margin (4) 7.23 % 7.42 % 6.26 % (1) Yields and costs are annualized. (2) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts. (3) Includes loans held for sale and nonaccrual loans. (4) Net interest margin represents net interest income divided by the average total interest earning assets. COASTAL FINANCIAL CORPORATION SELECTED AVERAGE BALANCES, YIELDS, AND RATES – BY SEGMENT - QUARTERLY (Dollars in thousands; unaudited) For the Three Months Ended December 31, 2024 September 30, 2024 December 31, 2023 (dollars in thousands, unaudited) Average Balance Interest & Dividends Yield / Cost (1) Average Balance Interest & Dividends Yield / Cost (1) Average Balance Interest & Dividends Yield / Cost (1) Community Bank Assets Interest earning assets: Loans receivable(2) $ 1,892,298 $ 31,043 6.53 % $ 1,912,428 $ 31,898 6.64 % $ 1,811,152 $ 28,832 6.32 % Total interest earning assets 1,892,298 31,043 6.53 1,912,428 31,898 6.64 1,811,152 28,832 6.32 Liabilities Interest bearing liabilities: Interest bearing deposits 1,029,346 7,161 2.77 % 982,280 7,264 2.94 % 951,148 6,090 2.54 % Intrabank liability 357,442 4,290 4.77 406,641 5,540 5.42 275,995 3,799 5.46 Total interest bearing liabilities 1,386,788 11,451 3.28 1,388,921 12,804 3.67 1,227,143 9,889 3.20 Noninterest bearing deposits 505,510 523,507 584,009 Net interest income $ 19,592 $ 19,094 $ 18,943 Net interest margin(3) 4.12 % 3.97 % 4.15 % CCBX Assets Interest earning assets: Loans receivable (2)(4) $ 1,527,178 $ 64,532 16.81 % $ 1,552,443 $ 67,778 17.37 % $ 1,196,137 $ 49,143 16.30 % Intrabank asset 583,776 7,007 4.78 496,475 6,764 5.42 569,365 7,837 5.46 Total interest earning assets 2,110,954 71,539 13.38 2,048,918 74,542 14.47 1,765,502 56,980 12.80 Liabilities Interest bearing liabilities: Interest bearing deposits 2,039,011 22,243 4.34 % 1,984,247 24,819 4.98 % 1,709,087 21,826 5.07 % Total interest bearing liabilities 2,039,011 22,243 4.34 1,984,247 24,819 4.98 1,709,087 21,826 5.07 Noninterest bearing deposits 71,943 64,671 56,415 Net interest income $ 49,296 $ 49,723 $ 35,154 Net interest margin(3) 0.29 % 9.65 % 7.90 % Net interest margin, net of Baas loan expense (5) 3.50 % 3.31 % 3.15 % For the Three Months Ended December 31, 2024 September 30, 2024 December 31, 2023 (dollars in thousands, unaudited) Average Balance Interest & Dividends Yield / Cost (1) Average Balance Interest & Dividends Yield / Cost (1) Average Balance Interest & Dividends Yield / Cost (1) Treasury & Administration Assets Interest earning assets: Interest earning deposits with other banks $ 501,654 $ 6,021 4.77 % $ 350,915 $ 4,781 5.42 % $ 413,127 $ 5,687 5.46 % Investment securities, available for sale(6) 39 — — 40 — — 100,204 546 2.16 Investment securities, held to maturity(6) 48,126 661 5.46 48,945 675 5.49 49,469 679 5.45 Other investments 10,783 191 7.05 11,140 33 1.18 11,683 172 5.84 Total interest earning assets 560,602 6,873 4.88 % 411,040 — 5,489 5.31 % 574,483 7,084 4.89 % Liabilities Interest bearing liabilities: FHLB advances and borrowings $ — $ 1 — % 9,717 140 5.73 % 3 — — % Subordinated debt 44,272 599 5.38 % 44,234 598 5.38 % 44,121 598 5.38 % Junior subordinated debentures 3,591 67 7.42 3,591 71 7.87 3,590 72 7.96 Intrabank liability, net(7) 226,334 2,717 4.78 89,834 1,224 5.42 293,370 4,038 5.46 Total interest bearing liabilities 274,197 3,384 4.91 147,376 2,033 5.49 341,084 4,708 5.48 Net interest income $ 3,489 $ 3,456 $ 2,376 Net interest margin(3) 2.48 % 3.34 % 1.64 % (1) Yields and costs are annualized. (2) Includes loans held for sale and nonaccrual loans. (3) Net interest margin represents net interest income divided by the average total interest earning assets. (4) CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and originating & servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release for the impact of BaaS loan expense on CCBX loan yield. (5) Net interest margin, net of BaaS loan expense, includes the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, originating & servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release. (6) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts. (7) Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the table above. Non-GAAP Financial Measures The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies. The following non-GAAP measures are presented to illustrate the impact of BaaS loan expense on net loan income and yield on loans and CCBX loans and the impact of BaaS loan expense on net interest income and net interest margin. Loan income, net of BaaS loan expense, divided by average loans, is a non-GAAP measure that includes the impact BaaS loan expense on loan income and the yield on loans. The most directly comparable GAAP measure is yield on loans. Net BaaS loan income divided by average CCBX loans is a non-GAAP measure that includes the impact BaaS loan expense on net BaaS loan income and the yield on CCBX loans. The most directly comparable GAAP measure is yield on CCBX loans. Net interest income, net of BaaS loan expense, is a non-GAAP measure that includes the impact BaaS loan expense on net interest income. The most directly comparable GAAP measure is net interest income. CCBX net interest margin, net of BaaS loan expense, is a non-GAAP measure that includes the impact of BaaS loan expense on net interest rate margin. The most directly comparable GAAP measure is CCBX net interest margin. Reconciliations of the GAAP and non-GAAP measures are presented below. CCBX As of and for the Three Months Ended As of and for the Twelve Months Ended (dollars in thousands; unaudited) December 31 2024 September 30 2024 December 31 2023 December 31 2024 December 31 2023 Net BaaS loan income divided by average CCBX loans: CCBX loan yield (GAAP)(1) 16.81 % 17.37 % 16.30 % 17.39 % 16.30 % Total average CCBX loans receivable $ 1,527,178 $ 1,552,443 $ 1,196,137 $ 1,427,571 $ 1,210,413 Interest and earned fee income on CCBX loans (GAAP) 64,532 67,778 49,143 248,286 197,306 BaaS loan expense (30,720 ) (32,698 ) (21,126 ) (118,536 ) (79,748 ) Net BaaS loan income $ 33,812 $ 35,080 $ 28,017 $ 129,750 $ 117,558 Net BaaS loan income divided by average CCBX loans(1) 8.81 % 8.99 % 9.29 % 9.09 % 9.71 % CCBX net interest margin, net of BaaS loan expense: CCBX net interest margin(1) 9.29 % 9.65 % 7.90 % 9.23 % 9.19 % CCBX earning assets 2,110,954 2,048,918 1,765,502 1,999,695 1,574,334 Net interest income (GAAP) 40,296 49,723 35,154 184,472 144,731 Less: BaaS loan expense (30,720 ) (32,698 ) (21,126 ) (118,536 ) (79,748 ) Net interest income, net of BaaS loan expense $ 18,576 $ 17,025 $ 14,028 $ 65,936 $ 64,983 CCBX net interest margin, net of BaaS loan expense(1) 3.50 % 3.31 % 3.15 % 3.30 % 4.13 % Consolidated As of and for the Three Months Ended As of and for the Twelve Months Ended (dollars in thousands; unaudited) December 31 2024 September 30 2024 December 31 2023 December 31 2024 December 31 2023 Net interest margin, net of BaaS loan expense: Net interest margin(1) 7.23 % 7.42 % 6.26 % 7.18 % 6.88 % Earning assets 3,980,078 3,875,911 3,581,772 3,802,275 3,364,406 Net interest income (GAAP) 72,377 72,273 56,473 273,028 231,575 Less: BaaS loan expense (30,720 ) (32,698 ) (21,126 ) (118,536 ) (79,748 ) Net interest income, net of BaaS loan expense $ 41,657 $ 39,575 $ 35,347 $ 154,492 $ 151,827 Net interest margin, net of BaaS loan expense(1) 4.16 % 4.06 % 3.92 % 4.06 % 4.51 % Loan income net of BaaS loan expense divided by average loans: Loan yield (GAAP)(1) 11.12 % 11.44 % 10.29 % 11.20 % 10.36 % Total average loans receivable $ 3,419,476 $ 3,464,871 $ 3,007,289 $ 3,320,582 $ 2,936,908 Interest and earned fee income on loans (GAAP) 95,575 99,676 77,975 372,021 304,289 BaaS loan expense (30,720 ) (32,698 ) (21,126 ) (118,536 ) (79,748 ) Net loan income $ 64,855 $ 66,978 $ 56,849 $ 253,485 $ 224,541 Loan income, net of BaaS loan expense, divided by average loans(1) 7.55 % 7.69 % 7.50 % 7.63 % 7.65 % (1) Annualized calculations for periods presented. The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense, BaaS fraud expense and reimbursement of expenses (BaaS) on noninterest expense. The most comparable GAAP measure is noninterest expense. As of and for the Three Months Ended (dollars in thousands, unaudited) December 31, 2024 September 30, 2024 December 31, 2023 Noninterest expense, net of reimbursement of expenses (BaaS) Noninterest expense (GAAP) $ 67,411 $ 64,424 $ 47,709 Less: BaaS loan expense 30,720 32,698 21,126 Less: BaaS fraud expense 5,043 2,084 779 Less: Reimbursement of expenses 812 565 266 Noninterest expense, net of BaaS loan expense, BaaS fraud expense and reimbursement of expenses $ 30,836 $ 29,077 $ 25,538 APPENDIX A - As of December 31, 2024 Industry Concentration We have a diversified loan portfolio, representing a wide variety of industries. Our major categories of loans are commercial real estate, consumer and other loans, residential real estate, commercial and industrial, and construction, land and land development loans. Together they represent $3.49 billion in outstanding loan balances. When combined with $1.96 billion in unused commitments the total of these categories is $5.46 billion. Commercial real estate loans represent the largest segment of our loans, comprising 39.4% of our total balance of outstanding loans as of December 31, 2024. Unused commitments to extend credit represents an additional $34.2 million, and the combined total in commercial real estate loans represents $1.41 billion, or 25.8% of our total outstanding loans and loan commitments. The following table summarizes our loan commitment by industry for our commercial real estate portfolio as of December 31, 2024: (dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments Total Outstanding Balance & Available Commitment % of Total Loans (Outstanding Balance & Available Commitment) Average Loan Balance Number of Loans Apartments $ 405,561 $ 4,953 $ 410,514 7.5 % $ 3,937 103 Hotel/Motel 154,691 68 154,759 2.8 6,726 23 Convenience Store 139,735 575 140,310 2.6 2,329 60 Office 122,897 7,687 130,584 2.4 1,366 90 Retail 103,312 414 103,726 1.9 993 104 Warehouse 103,130 — 103,130 1.9 1,748 59 Mixed use 91,607 5,365 96,972 1.8 1,160 79 Mini Storage 80,837 10,183 91,020 1.7 3,674 22 Strip Mall 43,894 — 43,894 0.8 6,271 7 Manufacturing 37,617 1,200 38,817 0.7 1,297 29 Groups < 0.70% of total 91,520 3,777 95,297 1.7 1,173 78 Total $ 1,374,801 $ 34,222 $ 1,409,023 25.8 % $ 2,102 654 Consumer loans comprise 34.6% of our total balance of outstanding loans as of December 31, 2024. Unused commitments to extend credit represents an additional $735.8 million, and the combined total in consumer and other loans represents $1.94 billion, or 35.6% of our total outstanding loans and loan commitments. As illustrated in the table below, our CCBX partners bring in a large number of mostly smaller dollar loans, resulting in an average consumer loan balance of just $1,000. CCBX consumer loans are underwritten to CCBX credit standards and underwriting of these loans is regularly tested, including quarterly testing for partners with portfolio balances greater than $10.0 million. The following table summarizes our loan commitment by industry for our consumer and other loan portfolio as of December 31, 2024: (dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments (1) Total Outstanding Balance & Available Commitment (1) % of Total Loans (Outstanding Balance & Available Commitment) Average Loan Balance Number of Loans CCBX consumer loans Credit cards $ 528,554 $ 717,198 $ 1,245,752 22.8 % $ 1.8 301,799 Installment loans 656,797 15,806 672,603 12.3 1.0 690,596 Lines of credit 722 1 723 0.0 1.4 524 Other loans 7,261 — 7,261 0.1 — 163,026 Community bank consumer loans Installment loans 1,917 2 1,919 0.1 68.5 28 Lines of credit 181 344 525 0.0 5.7 32 Other loans 11,444 2,400 13,844 0.3 30.6 374 Total $ 1,206,876 $ 735,751 $ 1,942,627 35.6 % $ 1.0 1,156,379 (1) Total exposure on CCBX loans is subject to CCBX partner/portfolio maximum limits. Residential real estate loans comprise 13.4% of our total balance of outstanding loans as of December 31, 2024. Unused commitments to extend credit represents an additional $499.5 million, and the combined total in residential real estate loans represents $969.3 million, or 17.8% of our total outstanding loans and loan commitments. The following table summarizes our loan commitment by industry for our residential real estate loan portfolio as of December 31, 2024: (dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments (1) Total Outstanding Balance & Available Commitment (1) % of Total Loans (Outstanding Balance & Available Commitment) Average Loan Balance Number of Loans CCBX residential real estate loans Home equity line of credit $ 267,707 $ 453,369 $ 721,076 13.2 % $ 27 10,092 Community bank residential real estate loans Closed end, secured by first liens 165,433 2,080 167,513 3.1 537 308 Home equity line of credit 25,506 43,102 68,608 1.3 109 234 Closed end, second liens 11,125 965 12,090 0.2 371 30 Total $ 469,771 $ 499,516 $ 969,287 17.8 % $ 44 10,664 (1) Total exposure on CCBX loans is subject to CCBX partner/portfolio maximum limits. Commercial and industrial loans comprise 8.4% of our total balance of outstanding loans as of December 31, 2024. Unused commitments to extend credit represents an additional $645.5 million, and the combined total in commercial and industrial loans represents $938.9 million, or 17.2% of our total outstanding loans and loan commitments. Included in commercial and industrial loans is $109.0 million in outstanding capital call lines, with an additional $550.9 million in available loan commitments which is limited to a $350.0 million portfolio maximum. Capital call lines are provided to venture capital firms through one of our CCBX BaaS clients. These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards and the underwriting is reviewed by the Bank on every capital call line. The following table summarizes our loan commitment by industry for our commercial and industrial loan portfolio as of December 31, 2024: (dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments (1) Total Outstanding Balance & Available Commitment (1) % of Total Loans (Outstanding Balance & Available Commitment) Average Loan Balance Number of Loans CCBX C&I Loans Capital Call Lines $ 109,017 $ 550,948 $ 659,965 12.1 % $ 350,000 135 Retail and other loans 33,960 19,104 53,064 1.0 480,069 3,064 Community bank C&I Loans Construction/Contractor Services 24,367 36,343 60,710 1.1 n/a 202 Financial Institutions 48,648 — 48,648 0.9 n/a 12 Medical / Dental / Other Care 7,074 2,641 9,715 0.2 n/a 13 Manufacturing 5,604 4,581 10,185 0.2 n/a 38 Groups < 0.20% of total 64,703 31,920 96,623 1.7 n/a 263 Total $ 293,373 $ 645,537 $ 938,910 17.2 % $ 830,069 3,727 (1) Total exposure on CCBX loans is subject to CCBX partner/portfolio maximum limits. Construction, land and land development loans comprise 4.2% of our total balance of outstanding loans as of December 31, 2024. Unused commitments to extend credit represents an additional $47.8 million, and the combined total in construction, land and land development loans represents $196.0 million, or 3.6% of our total outstanding loans and loan commitments. The following table details our loan commitment for our construction, land and land development portfolio as of December 31, 2024: (dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments Total Outstanding Balance & Available Commitment % of Total Loans (Outstanding Balance & Available Commitment) Average Loan Balance Number of Loans Commercial construction $ 83,216 $ 30,500 $ 113,716 2.1 % $ 6,935 12 Residential construction 40,940 10,873 51,813 0.9 2,408 17 Developed land loans 8,305 456 8,761 0.2 489 17 Undeveloped land loans 8,665 4,816 13,481 0.2 619 14 Land development 7,072 1,157 8,229 0.2 643 11 Total $ 148,198 $ 47,802 $ 196,000 3.6 % $ 2,087 71 Exposure and risk in our construction, land and land development portfolio is declining compared to previous periods as indicated in the following table: Outstanding Balance as of (dollars in thousands; unaudited) December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 December 31, 2023 Commercial construction $ 83,216 $ 97,792 $ 110,372 $ 102,099 $ 81,489 Residential construction 40,940 35,822 34,652 28,751 34,213 Undeveloped land loans 8,665 8,606 8,372 8,190 7,890 Developed land loans 8,305 14,863 13,954 14,307 20,515 Land development 7,072 5,968 5,714 7,515 12,993 Total $ 148,198 $ 163,051 $ 173,064 $ 160,862 $ 157,100 Commitments to extend credit total $1.96 billion at December 31, 2024, however we do not anticipate our customers using the $1.96 billion that is showing as available due to CCBX partner and portfolio limits. The following table presents outstanding commitments to extend credit as of December 31, 2024: Consolidated (dollars in thousands; unaudited) As of December 31, 2024 Commitments to extend credit: Commercial and industrial loans $ 94,589 Commercial and industrial loans - capital call lines 550,948 Construction – commercial real estate loans 36,873 Construction – residential real estate loans 10,929 Residential real estate loans 499,516 Commercial real estate loans 34,222 Credit cards 717,198 Consumer and other loans 18,553 Total commitments to extend credit $ 1,962,828 We have individual CCBX partner portfolio limits with our each of our partners to manage loan concentration risk, liquidity risk, and counter-party partner risk. For example, as of December 31, 2024, capital call lines outstanding balance totaled $109.0 million, and while commitments totaled $550.9 million, the commitments are limited to a maximum of $350.0 million by agreement with the partner. If a CCBX partner goes over their individual limit, it would be a breach of their contract and the Bank may impose penalties and would have the choice to fund the loan. See the table below for CCBX portfolio maximums and related available commitments: CCBX (dollars in thousands; unaudited) Balance Percent of CCBX loans receivable Available Commitments (1) Maximum Portfolio Size Cash Reserve/Pledge Account Amount (2) Commercial and industrial loans: Capital call lines $ 109,017 6.8 % $ 550,948 $ 350,000 $ — All other commercial & industrial loans 33,961 2.1 19,104 480,069 834 Real estate loans: Home equity lines of credit (3) 267,707 16.7 453,369 375,000 36,241 Consumer and other loans: Credit cards - cash secured 211 — — Credit cards - unsecured 528,343 717,198 26,742 Credit cards - total 528,554 33.0 717,198 820,000 26,742 Installment loans - cash secured 127,014 15,806 — Installment loans - unsecured 529,783 — 5,332 Installment loans - total 656,797 40.9 15,806 1,774,533 5,332 Other consumer and other loans 7,983 0.5 1 5,398 196 Gross CCBX loans receivable 1,604,019 100.0 % 1,756,426 3,805,000 $ 69,345 Net deferred origination fees (442 ) Loans receivable $ 1,603,577 (1) Remaining commitment available, net of outstanding balance. (2) Balances are as of January 8, 2025. (3) These home equity lines of credit are secured by residential real estate and are accessed by using a credit card, but are classified as 1-4 family residential properties per regulatory guidelines. APPENDIX B - As of December 31, 2024 CCBX – BaaS Reporting Information During the quarter ended December 31, 2024, $62.1 million was recorded in BaaS credit enhancements related to the provision for credit losses - loans and reserve for unfunded commitments for CCBX partner loans and negative deposit accounts. Agreements with our CCBX partners provide for a credit enhancement provided by the partner which protects the Bank by indemnifying or reimbursing incurred losses. In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans, unfunded commitments and negative deposit accounts. When the provision for credit losses - loans and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements) in recognition of the CCBX partner legal commitment to indemnify or reimburse losses. The credit enhancement asset is relieved as credit enhancement payments and recoveries are received from the CCBX partner or taken from the partner's cash reserve account. Agreements with our CCBX partners also provide protection to the Bank from fraud by indemnifying or reimbursing incurred fraud losses. BaaS fraud includes noncredit fraud losses on loans and deposits originated through partners. Fraud losses are recorded when incurred as losses in noninterest expense, and the enhancement received from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement. Many CCBX partners also pledge a cash reserve account at the Bank which the Bank can collect from when losses occur that is then replenished by the partner on a regular interval. Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by indemnifying or reimbursing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligation then the bank would be exposed to additional loan and deposit losses if the cash flows on the loans were not sufficient to fund the reimbursement of loan losses, as a result of this counterparty risk. If a CCBX partner does not replenish their cash reserve account the Bank may consider an alternative plan for funding the cash reserve. This may involve the possibility of adjusting the funding amounts or timelines to better align with the partner's specific situation. If a mutually agreeable funding plan is not agreed to, the Bank could declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. The Bank would evaluate any remaining credit enhancement asset from the CCBX partner in the event the partner failed to determine if a write-off is appropriate. If a write-off occurs, the Bank would retain the full yield and any fee income on the loan portfolio going forward, and our BaaS loan expense would decrease once default occurred and payments to the CCBX partner were stopped. The Bank records contractual interest earned from the borrower on CCBX partner loans in interest income, adjusted for origination costs which are paid or payable to the CCBX partner. BaaS loan expense represents the amount paid or payable to partners for credit and fraud enhancements and originating & servicing CCBX loans. To determine net revenue (Net BaaS loan income) earned from CCBX loan relationships, the Bank takes BaaS loan interest income and deducts BaaS loan expense to arrive at Net BaaS loan income (A reconciliation of the non-GAAP measures are set forth in the preceding section of this earnings release.) which can be compared to interest income on the Company’s community bank loans. The following table illustrates how CCBX partner loan income and expenses are recorded in the financial statements: Loan income and related loan expense Three Months Ended (dollars in thousands; unaudited) December 31, 2024 September 30, 2024 December 31, 2023 Yield on loans(1) 16.81 % 17.37 % 16.30 % BaaS loan interest income $ 64,532 $ 67,778 $ 49,143 Less: BaaS loan expense 30,720 32,698 21,126 Net BaaS loan income (2) $ 33,812 $ 35,080 $ 28,017 Net BaaS loan income divided by average BaaS loans(1)(2) 8.81 % 8.99 % 9.29 % (1) Annualized calculation for quarterly periods shown. (2) A reconciliation of the non-GAAP measures are set forth in the preceding section of this earnings release. A decrease in average CCBX loans receivable resulted in decreased interest income on CCBX loans during the quarter ended December 31, 2024 compared to the quarter ended September 30, 2024. The decrease in average CCBX loans receivable was primarily due to loan sales in the CCBX loan portfolio as part of our strategy to optimize the CCBX loan portfolio and strengthen our balance sheet through originating higher quality new loans and enhanced credit standards. These higher quality loans also have lower stated rates and expected losses. As a result, our yield on loans and our BaaS loan expense decrease by similar amounts. We continue to reposition ourselves by managing CCBX credit and concentration levels in an effort to optimize our loan portfolio and generate off balance sheet fee income. Growth in CCBX loans and deposits has resulted in increases in interest income and expense for the quarter ended December 31, 2024 compared to the quarter ended December 31, 2023. The following tables are a summary of the interest components, direct fees, and expenses of BaaS for the periods indicated and are not inclusive of all income and expense related to BaaS. Interest income Three Months Ended (dollars in thousands; unaudited) December 31, 2024 September 30, 2024 December 31, 2023 Loan interest income $ 64,532 $ 67,778 $ 49,143 Total BaaS interest income $ 64,532 $ 67,778 $ 49,143 Interest expense Three Months Ended (dollars in thousands; unaudited) December 31, 2024 September 30, 2024 December 31, 2023 BaaS interest expense $ 22,243 $ 24,819 $ 21,826 Total BaaS interest expense $ 22,243 $ 24,819 $ 21,826 BaaS income Three Months Ended (dollars in thousands; unaudited) December 31, 2024 September 30, 2024 December 31, 2023 BaaS program income: Servicing and other BaaS fees $ 1,043 $ 1,044 $ 1,015 Transaction fees 1,783 1,696 1,006 Interchange fees 1,916 1,853 1,272 Reimbursement of expenses 812 565 266 BaaS program income 5,554 5,158 3,559 BaaS indemnification income: BaaS credit enhancements 62,097 70,108 58,449 BaaS fraud enhancements 5,043 2,084 779 BaaS indemnification income 67,140 72,192 59,228 Total noninterest BaaS income $ 72,694 $ 77,350 $ 62,787 Servicing and other BaaS fees decreased $1,000 in the quarter ended December 31, 2024 compared to the quarter ended September 30, 2024 while transaction fees and interchange fees increased $87,000 and $63,000, respectively. We expect servicing and other BaaS fees to decrease and transaction and interchange fees to increase as partner activity grows and contracted minimum fees are replaced with recurring fees and then exceed those minimum fees. Increases in BaaS reimbursement of fees offsets increases in noninterest expense from BaaS expenses covered by CCBX partners. BaaS loan and fraud expense: Three Months Ended (dollars in thousands; unaudited) December 31, 2024 September 30, 2024 December 31, 2023 BaaS loan expense $ 30,720 $ 32,698 $ 21,126 BaaS fraud expense 5,043 2,084 779 Total BaaS loan and fraud expense $ 35,763 $ 34,782 $ 21,905 A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/20c5a089-a44b-483e-acb5-fccbbe07fc10 CCBX Credit Cards CCBX Credit Cards Source: Coastal Financial Corporation