Business Overview and History Coastal Financial Corporation was founded in 2003 and is headquartered in Everett, Washington. The company operates through three primary segments: the community bank, the CCBX banking-as-a-service (BaaS) division, and treasury administration. The community bank division focuses on providing a comprehensive range of banking products and services to consumers and small-to-medium-sized businesses in the Puget Sound region, while the CCBX segment leverages Coastal's expertise to offer BaaS solutions to a growing network of broker-dealers and digital financial service providers across the nation. The treasury administration segment includes treasury management, overall administration, and all other aspects of the company not specific to the community bank or CCBX segments.
Coastal Community Bank, the company's wholly owned subsidiary, was incorporated and commenced operations in 1997, initially serving the greater Puget Sound region. The bank has since expanded its presence to 14 branch locations across Snohomish, Island, and King Counties. In 2019, the company formed a new subsidiary, Arlington Olympic LLC, to own and manage the company's Arlington branch site, which the bank now leases.
A significant milestone in the company's history came in 2021 with the launch of its Banking as a Service (BaaS) segment, known as CCBX. This strategic move allowed Coastal Financial to diversify its business model and revenue streams by providing banking services and products to broker-dealers and digital financial service providers nationwide.
Throughout its history, Coastal Financial has demonstrated resilience in the face of challenges, including navigating the economic uncertainty caused by the COVID-19 pandemic in 2020 and 2021. The company maintained sound asset quality and continued to grow its loan portfolio and deposit base during this period. Additionally, Coastal Financial has adapted to an evolving regulatory landscape, including recent changes to brokered deposit regulations, which have required adjustments to its risk management and compliance practices around CCBX partnerships.
Financial Performance and Ratios Coastal Financial Corporation has demonstrated a track record of strong financial performance, despite the challenges posed by the COVID-19 pandemic and macroeconomic uncertainties. As of the latest reported quarter, the company reported total assets of $4.07 billion, a 8.3% increase from the previous year. This growth can be attributed to a 13.0% increase in the loan portfolio, which reached $3.42 billion, and a 7.9% rise in total deposits, which stood at $3.63 billion.
The company's profitability metrics have also been impressive, with a return on average assets (ROAA) of 1.13% and a return on average equity (ROAE) of 14.60% for the first nine months of 2024. These figures compare favorably to the industry averages, underscoring Coastal Financial's ability to generate consistent and sustainable earnings.
For the most recent fiscal year (2023), Coastal Financial reported revenue of $572.20 million, net income of $44.60 million, operating cash flow of $145.10 million, and free cash flow of $142.90 million. In the most recent quarter (Q3 2024), the company achieved revenue of $152.26 million, net income of $13.46 million, operating cash flow of $63.36 million, and free cash flow of $67.79 million. The company experienced a year-over-year growth in net income of 31.36% due to increases in net interest income and noninterest income, partially offset by higher noninterest expense.
The company's balance sheet remains well-capitalized, with a Tier 1 Leverage Ratio of 9.29%, a Common Equity Tier 1 Ratio of 10.34%, and a Total Risk-Based Capital Ratio of 11.63% as of September 30, 2024. These ratios exceed the regulatory requirements for a "well-capitalized" institution, providing a solid foundation for future growth and resilience.
Liquidity Coastal Financial's liquidity position is robust, with a loan-to-deposit ratio of 94.46% as of the latest quarter. The company maintains ample access to alternative funding sources, including the Federal Home Loan Bank and the Federal Reserve's discount window, further strengthening its ability to meet its financial obligations and support its lending and investment activities.
The company reported a debt-to-equity ratio of 0.012 and cash holdings of $484.03 million. Coastal Financial has access to a $477 million line of credit with the Federal Reserve Bank and a $179.30 million line of credit with the FHLB. The company's strong liquidity position is further evidenced by its current ratio and quick ratio, both standing at 623.79.
Segmental Performance and Diversification Coastal Financial's three operating segments – the community bank, the CCBX division, and treasury administration – have all contributed to the company's overall performance.
The community bank segment continues to be a reliable source of earnings, focusing on serving the banking needs of consumers and small-to-medium-sized businesses in the Puget Sound region. As of September 30, 2024, the community bank segment had $1.90 billion in loans, an increase of 3.7% compared to December 31, 2023, primarily driven by growth in the commercial real estate and residential real estate loan portfolios. Deposits for this segment were $1.52 billion, up 1.6% from the end of 2023, attributed to growth in interest-bearing demand and money market accounts.
The CCBX segment has been the key driver of Coastal Financial's growth and diversification. This division provides banking-as-a-service solutions to a growing network of 22 broker-dealers and digital financial service providers, 19 of which were active as of September 30, 2024. The CCBX segment had $1.52 billion in loans, an increase of 27.2% compared to the end of 2023, driven by growth in the residential real estate, credit card, and other consumer loan portfolios. CCBX deposits stood at $2.10 billion, up 13.0% from the prior year-end. For the nine months ended September 30, 2024, the CCBX segment contributed $133.9 million in net interest income and $233.0 million in noninterest income.
The treasury administration segment had $48.6 million in investment securities as of September 30, 2024, a decrease of 67.7% from the end of 2023, primarily due to the maturity of $100.0 million in available-for-sale U.S. Treasury securities during the first nine months of the year.
The complementary nature of these segments has enabled Coastal Financial to deliver a well-diversified revenue stream, reduce concentration risks, and navigate the evolving banking landscape with agility. The CCBX division's success has been a testament to the company's ability to identify and capitalize on emerging market opportunities, positioning Coastal Financial as a leader in the BaaS space.
Geographic Markets Coastal Financial Corporation operates primarily in the greater Puget Sound region of Washington state through its 14 branches in Snohomish, Island, and King Counties. The community bank is the largest community bank by deposit market share in Snohomish County, where 12 of its 14 full-service branches are located.
Regulatory Environment and Risk Management Coastal Financial operates in a highly regulated industry, and the company has demonstrated a strong commitment to maintaining compliance with applicable laws and regulations. The company's risk management practices are robust, with a focus on credit risk, interest rate risk, and operational risk, among others.
The company's credit quality metrics have remained strong, with a nonperforming loans to total loans ratio of 1.94% as of September 30, 2024. This is a testament to the company's prudent underwriting standards and effective credit risk management strategies. However, it's worth noting that the CCBX segment carries higher expected credit losses, requiring increased provisions for credit losses.
Coastal Financial's interest rate risk management practices are also noteworthy. The company utilizes various tools, such as interest rate simulations and asset-liability management techniques, to closely monitor and mitigate its exposure to interest rate fluctuations. This proactive approach has enabled the company to navigate the changing interest rate environment and maintain a healthy net interest margin.
In the operational risk domain, Coastal Financial has invested in robust information technology systems, cybersecurity measures, and internal controls to protect its assets and customer information. The company's commitment to regulatory compliance and risk management has been crucial in maintaining the trust of its customers, regulators, and shareholders.
Guidance and Outlook Coastal Financial Corporation has demonstrated strong balance sheet growth and profitability, driven by the performance of its CCBX segment. The community bank continues to maintain a solid presence in its local markets, while the treasury administration segment provides support for the company's overall operations. Coastal's diversified business model has allowed it to navigate the evolving banking landscape and capitalize on opportunities in both traditional community banking and emerging financial technology services.
Despite the challenges posed by the evolving macroeconomic environment, Coastal Financial remains optimistic about its ability to deliver consistent financial performance and enhance shareholder value. The company's diversified business model, technological capabilities, and experienced management team position it well to navigate the industry's complexities and capitalize on emerging opportunities.
Conclusion Coastal Financial Corporation has established itself as a dynamic player in the banking industry, consistently delivering solid financial results and driving innovation through its CCBX segment. The company's focus on serving the Puget Sound region's community banking needs, coupled with its pioneering BaaS solutions, has positioned it as a leader in the evolving financial services landscape.
With a strong balance sheet, prudent risk management practices, and a clear strategic vision, Coastal Financial is well-equipped to navigate the challenges and capitalize on the opportunities that lie ahead. The company's ability to grow its CCBX segment while maintaining a strong community banking presence demonstrates its adaptability and forward-thinking approach. As Coastal Financial continues to expand its partner relationships and enhance its technological capabilities, it is poised for continued growth and success in the competitive banking industry.
Investors and industry observers will undoubtedly continue to closely monitor the company's progress as it continues to chart its course in the ever-changing world of banking. With its solid financial foundation, innovative business model, and commitment to serving both traditional and emerging market segments, Coastal Financial Corporation is well-positioned to thrive in the years to come.