What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-03-15 compared with 2023-03-16 · 158 added, 130 removed, 604 unchanged (32% of the section changed)

7 unchanged sentences

We are headquartered in Everett, Washington, which by population is the largest city in, and the county seat of, Snohomish County.

Our business is conducted through two reportable segments:

The community bank and CCBX.

Our business is conducted through three reportable segments:

The community bank, CCBX and treasury & administration.

The primary focus of the community bank is on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application.

1 unchanged sentence

The CCBX segment provides banking as a service (“BaaS”) that allows our broker-dealer and digital financial service partners to offer their customers banking services.

The CCBX segment has 19 active partners with six more currently in the testing of LOI stage as of December 31, 2022.

The CCBX segment has a total of 21 partners, 19 that are active with two more currently in the testing or implementation stage as of December 31, 2023.

The treasury & administration segment includes investments, debt and other reporting items that are not specific to the community bank or CCBX segments.

The Bank’s deposits are insured in whole or in part by the Federal Deposit Insurance Corporation (“FDIC”).

13 unchanged sentences

Developing the kind of unique offerings to specific under-served or under-banked populations would be difficult for a bank our size, but through our CCBX partnerships we are able to use our banking charter to support this effort in a much broader scope.

Table of Content s

Segment Reporting

The Company has two reportable segments:

The community bank and CCBX.

The primary focus of the community bank segment is on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington.

The Company has three reportable segments:

The community bank, CCBX and treasury & administration.

The community bank segment includes all community banking activities, with a primary focus on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application.

We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties (one in King County and one in Island County).

The CCBX segment provides BaaS that allows our broker-dealer and digital financial service partners to offer their customers banking services.

The CCBX segment has a total of 21 partners, 19 that are active with two more currently in the testing or implementation stage as of December 31, 2023.

The treasury & administration segment includes investments, debt and other reporting items that are not specific to the community bank or CCBX segments.

For more information about each of the Company’s reportable segments, please refer to “ Note 21 – Segment Reporting ” of the accompanying notes to the consolidated financial statements included elsewhere in this report.

9 unchanged sentences

Included in the commercial and industrial loan balance is $149.5 million in community bank loans and $141.8 million in CCBX commercial loans.

We make commercial and industrial loans, including term loans, Small Business Administration (“SBA”) loans, commercial lines of credit, capital call lines working capital loans, equipment financing, borrowing base loans, and other loan products, that are underwritten on the basis of the borrower’s ability to service the debt from income.

We make commercial and industrial loans, including term loans, commercial lines of credit, capital call lines working capital loans, equipment financing, borrowing base loans, Small Business Administration (“SBA”) loans, and other loan products, that are underwritten on the basis of the borrower’s ability to service the debt from income.

We take as collateral a lien on general business assets including, among other things, available real estate, accounts receivable, inventory and equipment and generally obtain a personal guaranty from the borrower or principal.

12 unchanged sentences

The SBA’s 7(a) program provides up to a 75% guaranty for loans greater than

Table of Content s

For loans $150,000 or less, the program provides up to an 85% guaranty.

1 unchanged sentence

The guaranty is conditional and covers a portion of the risk of payment default by the borrower, but not the risk of improper underwriting, closing and servicing by the lender.

As such, prudent underwriting and closing processes are

essential to effective utilization of the 7(a) program.

As such, prudent underwriting and closing processes are essential to effective utilization of the 7(a) program.

We typically sell in the secondary market the SBA-guaranteed portion (generally 75% of the principal balance) of the SBA loans we originate.

2 unchanged sentences

These loans have a contractual rate of 1.0%, with maturity terms of two to five years, are unsecured, 100% guaranteed and loan proceeds may be forgiven by the SBA if used for certain purposes.

As of December 31, 2022, we held a total of $521,000, and service $2.1 million on loans sold to others that are guaranteed by the United States Department of Agriculture (“USDA”), classified as commercial and industrial loans.

We participate in the USDA Business and Industry and Community Facilities programs.

Both loan programs provide up to a 90% guarantee.

The guarantee is conditional and covers a portion of the risk of payment default by the borrower but not the risk of improper servicing by the lender.

Unlike the SBA 7(a) program, the USDA guarantee is not issued until after the loan closes.

USDA issues a conditional commitment prior to loan closing and prudent closing processes are essential to effective utilization of the USDA loan programs.

The USDA guaranteed portion of the USDA loans are typically sold in the secondary market.

Commercial Real Estate .

23 unchanged sentences

Construction loans are typically disbursed as construction progresses and carry either fixed or variable interest rates.

Our construction and development loans typically have terms that range from six months to two years depending on factors such as the type and size of the development and the financial strength

of the borrower/guarantor.

Our construction and development loans typically have terms that range from six months to two years depending on factors such as the type and size of the development and the financial strength of the borrower/guarantor.

Loans are typically structured with an interest only construction period and mature at the completion of construction.

Construction and land development loans typically involve more risk than other types of lending products because repayment of these loans is dependent, in part, on the sale or refinance of the ultimate project rather than the ability of the borrower or guarantor to repay principal and interest.

Moreover, these loans are typically based on future estimates of value and economic circumstances, which may differ from actual results or be affected by unforeseen events.

Moreover, these loans are typically based on future estimates of value

Table of Content s

and economic circumstances, which may differ from actual results or be affected by unforeseen events.

If the actual circumstances differ from the estimates made at the time of approval of these loans, we face the risk of having inadequate security for the repayment of the loan.

27 unchanged sentences

We also offer personal lines of credit including overdraft protection.

Consumer loans are underwritten based on the individual borrower’s income, current

debt level, past credit history and the value of any available collateral.

Consumer loans are underwritten based on the individual borrower’s income, current debt level, past credit history and the value of any available collateral.

The terms of consumer loans vary considerably based upon the loan type, nature of collateral and size of the loan.

1 unchanged sentence

This includes $310.6 million in other consumer loans, $40.2 million of which are purchased loans secured by consumer term loans, and $505.8 million in credit cards.

Our CCBX segment includes cash secured and unsecured consumer loans, loan products designed to help consumers build credit, credit cards and overdrafts.

Our CCBX segment includes cash secured and unsecured consumer loans, loan

Table of Content s

products designed to help consumers build credit, credit cards and overdrafts.

Consumer loans are made through our CCBX partners to our underwriting standards.

The terms of consumer loans vary considerably based upon the loan type, nature of collateral and size of the loan.

As our relationships with CCBX partners continues to increase, we anticipate that our consumer loan portfolio will grow through these offerings.

Credit Administration and Loan Review

12 unchanged sentences

Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our board of directors and management.

We have established several levels of lending authority that have been delegated by the board of directors to our management credit committee, Chief Executive Officer, Chief Credit Officers (community bank and CCBX) and other personnel in accordance with our loan policy.

We have established several levels of lending authority that have been delegated by the board of directors to our management credit committee, Chief Executive Officer, Chief Credit Officer and other personnel in accordance with our loan policy.

Authority limits are based on the total exposure of the borrower and are conditioned on the loan conforming to the policies contained in the loan policy.

4 unchanged sentences

We strive to identify potential problem loans early in an effort to actively seek resolution of these situations before they create a loss.

We record any necessary charge-offs promptly and maintain adequate allowance levels for probable loan losses incurred in the loan portfolio.

We record any necessary charge-offs promptly and maintain adequate allowance levels for expected credit losses estimated in the loan portfolio.

In general, whenever a particular loan or overall borrower relationship is downgraded from a pass grade to a watch or substandard grade based on one or more standard loan grading factors, our relationship manager (who is typically the loan officer) and credit team members engage in active evaluation of the asset to determine the appropriate resolution strategy.

3 unchanged sentences

As of December 31, 2023, approximately 86% of the real estate loans in our community bank loan portfolio (measured by dollar amount) were secured by real estate, or made to borrowers who live or conduct business, in the Puget Sound region.

A substantial portion of our loan portfolio consists of commercial and industrial loans and real estate loans secured by commercial real estate properties located in the Puget Sound region, and is dependent upon the economic environment of the Puget Sound region.

Table of Content s

the Puget Sound region.

We have a limited number of loans secured by properties located outside of the Puget Sound region, most of which are made to borrowers who are well-known to us.

1 unchanged sentence

CCBX loans are originated through our partners and are consistent with our underwriting standards.

Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses.

In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans.

When the provision for loan losses and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS fees -credit enhancement).

Incurred losses are recorded in the allowance for loan losses, and as the credit enhancement recoveries are received from the CCBX partner, the credit enhancement asset is relieved.

Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by reimbursing most 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 are 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 reduced when credit enhancement payments are received from the CCBX partner or taken from the partner's cash reserve account.

CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by reimbursing the Bank for the losses.

If the partner is unable to fulfill its contracted obligations then the Bank could be exposed to the loss of the reimbursement and credit enhancement income, as a result of this counterparty risk.

Agreements with our CCBX partners also provide protection to the Bank from fraud by absorbing incurred fraud losses.

Fraud losses, which are substantially comprised of first payment defaults on partner loans, are recorded when incurred as losses in noninterest expense, and the recovery received from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement.

Although many agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by absorbing incurred credit and fraud losses and the possibility of writing off the credit enhancement on those loans, if our partner is unable to fulfill their contracted obligations then the Bank would be exposed to additional loan losses, as a result of this counterparty risk.

Our total non-owner-occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate, and construction and land loans totaled $1.46 billion and represented 238.3% of the Bank’s total risk-based capital at December 31, 2023.

14 unchanged sentences

We also offer business accounts and cash management services, including business checking and savings accounts, and treasury services.

We also offer reciprocal deposits which enables us to extend FDIC

insurance to customers that have balances in excess of the FDIC insurance limit.

We also offer reciprocal deposits which enables us to extend FDIC insurance to customers that have balances in excess of the FDIC insurance limit.

This reciprocal deposit service trades our customer’s funds in increments under the FDIC insured amount to other participating financial institutions and in exchange we receive customer deposits from participating financial institutions in a reciprocal agreement.

We solicit deposits through our relationship-driven team of dedicated and accessible bankers and through community-focused marketing.

We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in

Table of Content s

neighboring counties (one in King County and one in Island County).

We emphasize obtaining deposit relationships at loan origination.

1 unchanged sentence

Our CCBX partners originate deposits with many of the same characteristics as our community bank and these deposits are primarily interest bearing to us.

CCBX deposits are generally classified as interest bearing negotiable order of withdrawal (“NOW”) and money market accounts.

CCBX deposit products allow us to offer a broader range of partner specific products, which include products designed to reach specific under-served or under-banked populations served by our CCBX partners.

The CCBX partner determines the rate paid to the end consumer and we determine the rates paid to the partner as indicated in the partner agreement.

Additionally, as of December 31, 2022 we have access to $225.0 million in CCBX customer deposits that are currently being transferred off the Bank’s balance sheet to other financial institutions on a daily basis.

The Bank could retain these deposits for liquidity and funding purposes if needed.

Additionally, as of December 31, 2023 we have access to $69.4 million in CCBX customer deposits that are currently being transferred off the Bank’s balance sheet for FDIC insurance purposes.

The Bank may be able to retain the transferred deposits for liquidity and funding purposes, if needed.

Depending on the circumstances of how the Bank retains these deposits and its relationship with the customer, these retained deposits could be classified as brokered deposits.

CCBX segment (BaaS)

Our CCBX segment provides BaaS enabling broker dealers and digital financial service providers to offer its clients banking services.

Our CCBX segment provides BaaS, enabling broker dealers and digital financial service providers to offer their clients banking services.

The “X” is indicative of the technology services that our partners provide.

1 unchanged sentence

In doing so, our addressable market expands to a broader spectrum of consumers as well as small businesses.

We currently have a total of 27 relationships, which includes 19 active relationships, one in friends and family trials, zero in implementation and onboarding, five signed letters of intent, and two winding down to exit, and we continue to maintain a robust pipeline.

CCBX is supported by staff that we began hiring in late 2019 and continued throughout 2022 to build the infrastructure, work with our CCBX partners and to execute new contracts.

As of December 31, 2022, the fair value of our investment portfolio, which represented 3.1% of assets, totaled $98.2 million and had an average effective yield of 2.16% and an estimated duration of approximately 1.2 years.

We had a total of 21 relationships, which includes 19 active relationships, one in friends and family trials, one in implementation and onboarding.

We continue to refine the criteria for CCBX partnerships and are exiting relationships where it makes sense and are focusing on expanding and developing relationships with larger and more established partners, with experienced management teams, existing customer bases and strong financial positions.

As of December 31, 2023, the fair value of our investment portfolio, which represented 4.0% of assets, totaled $150.5 million and had an average effective yield of 3.27% and an estimated weighted average life of approximately 6.1 years.

The primary objectives of the investment portfolio are to provide a source of liquidity and provide collateral that can be readily sold or pledged for public deposits or other business purposes.

1 unchanged sentence

Treasury securities.

The remainder of our securities portfolio is invested in municipal bonds, U.S.

The remainder of our securities portfolio is invested in U.S.

Agency collateralized mortgage and U.S.

1 unchanged sentence

We regularly evaluate the composition of our investment portfolio as the interest rate yield curve changes and may sell or pledge investment securities from time to time to adjust our exposure to interest rates or to provide liquidity to meet loan demand.

Due to the low interest rate environment, we are primarily holding the majority of our on-balance sheet liquidity in interest bearing bank deposits to limit our exposure to interest rate and price risk and to provide readily available funds for loan growth.

We are primarily holding the majority of our on-balance sheet liquidity in interest bearing bank deposits to limit our exposure to interest rate and price risk and to provide readily available funds for loan growth.

As of December 31, 2023, we had $2.6 million in equity investments.

2 unchanged sentences

We will reassess at each reporting period whether our equity investment without a readily determinable fair value qualifies to be measured at cost minus impairment.

Our total equity investments as of December 31, 2022 included a $2.2 million equity interest in a specialized bank technology company and an equity interest of $350,000 in a separate bank technology company.

Additionally, during the year ended December 31, 2022, we reassessed the value of an investment and recognized a $100,000 impairment.

This investment has been written off and is no longer carried on the Company’s books.

Our total equity investments as of December 31, 2023 included a $2.2 million equity interest in a specialized bank technology company, an equity interest of $350,000 in a separate bank technology company and a contribution of $50,000 in another technology company during the year ended December 31, 2023.

We have invested in funds that are accelerating technology for adoption by banks.

These equity investments are held at fair value, as reported by the funds.

During the year ended December 31, 2022, we contributed $349,000 with investment funds designed to help accelerate technology adoption at banks, and recognized net losses of $53,000, resulting in an equity interest of $456,000 at December 31, 2022.

We have committed up to $988,000 in capital for these equity funds, however, we are not obligated to fund these commitments prior to a capital call.

During the year ended December 31, 2023, the Company contributed $74,500 with investment funds designed to help accelerate technology adoption at banks, and recognized net gains of $278,000, resulting in an equity interest of $809,000 at December 31, 2023.

The Company has committed up to $653,000 in capital for these equity funds, however, we are not obligated to fund these commitments prior to a capital call.

We operate in a highly competitive industry and in a highly competitive market.

Our community bank commercial real estate lending in the Puget Sound region attracts keen competition from large banking institutions with national operations, as well as mid-sized regional banking institutions.

Our community bank commercial real estate lending in the Puget Sound region attracts keen competition from large banking institutions with national

Table of Content s

operations, as well as mid-sized regional banking institutions.

We compete with other community banks, savings and loan associations, credit unions, mortgage companies, insurance companies, finance companies and other financial intermediaries.

16 unchanged sentences

These systems provide redundancy and disaster recovery capabilities.

Emerging Growth Company Status

We are an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”).

An emerging growth company may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies.

As an emerging growth company:

• we may present as few as two years of audited financial statements and as few as two years of related management’s discussion and analysis of financial condition and results of operations;

• we are exempt from the requirement to obtain an attestation report from our auditors on management’s assessment of the effectiveness of our internal control over financial reporting under the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;

• we are not required to comply with any requirements adopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and our financial statements;

• we are permitted to provide reduced disclosure regarding our executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, which means we do not have to include a

compensation discussion and analysis and certain other disclosures regarding our executive compensation;

• we are not required to give our shareholders non-binding advisory votes on executive compensation or golden parachute arrangements.

We will cease to be an “emerging growth company” upon the earliest of:

• the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more;

• the date on which we become a “large accelerated filer” (the fiscal year end on which the total market value of our common equity securities held by non-affiliates is $700 million or more as of June 30);

• the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt;

• the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering in 2018.

We have elected to adopt certain of the reduced disclosure requirements above with respect to the periodic reports we will file with the Securities and Exchange Commission (the “SEC”), and proxy statements that we use to solicit proxies from our shareholders.

In addition, Section 107 of the JOBS Act permits us to take advantage of an extended transition period for complying with new or revised accounting standards affecting public companies.

However, we have irrevocably opted out of the extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

Diversity, Equity and Inclusion (“DEI”)

1 unchanged sentence

As the Company enters and expands its presence in more complex arenas including BaaS, we seek out diverse and qualified director candidates who bring a background and expertise in the fintech and digital banking sectors regardless of their gender, race, or other personal characteristics.

Additionally, those members of the Company’s board of directors would need to be representative of the diversity found in the fintech’s themselves.

Since beginning this effort the board of directors has added three women and two directors from minority backgrounds.

Additionally, we strive for the Company's board of directors to be as diverse as the fintechs themselves.

Since beginning this effort the board of directors has added three women and two directors from minoritized backgrounds.

We strive to maintain a diverse and inclusive work culture in which individual differences and experiences are valued and all employees have the opportunity to contribute and thrive.

We believe that leveraging our employees’ diverse perspectives and capabilities will enhance innovation, foster a collaborative work culture and enable us to better serve our customers and communities.

DEI is also achieved through our CCBX partners and the markets they serve.

We also promote DEI by reaching customers through our CCBX partners and the markets they serve.

Our reach extends to a diverse and often underserved market through our BaaS relationships.

These partners offer access to credit, promote financial well-being, provide financial education, and other services to a variety of markets.

Some of the markets served through our BaaS partnerships are:

Some of the segments served through our BaaS partnerships are:

women, people of color, young adults, immigrants, small businesses and other underserved populations.

DEI extends to our customers as well.

We are focused on supporting small businesses throughout our communities.

The COVID-19 pandemic exposed the challenges of small business.

We are proud to have participated in the Paycheck Protection Program, originating over 5,800 loans totaling more than $763 million.

During the COVID-19 pandemic, our company financially supported locally-owned restaurants by providing meals and gift cards for our employees.

Table of Content s

Environment and Sustainability

We are focused on the environment and committed to business practices and activities that encourage sustainability and minimize our environmental impact.

We demonstrate environmental responsibility in various ways, including:

We demonstrate environmental responsibility in various ways, including practical applications of the 3 R’s:

Reduce waste and energy consumption

• using technology that provides for a paperless environment and transactional efficiencies;

• replacing standard light bulbs with LED bulb that have a longer life and use less energy – most notably many of our parking lot lights have been converted to LED;

• utilizing occupancy sensors or timers that automatically shut off lights and reduce power consumption;

• annual shareholder meetings are virtual and allow for expanded access in a climate friendly manner.

• repurposing existing furniture whenever possible instead of buying new.

We are focused on sustainability throughout our everyday business practices by:

• using technology that provides for a paperless environment and transactional efficiencies,

• eCycling old technology equipment to avoid sending it to landfills.

• installation of occupancy sensors that automatically shut off lights in densely populated buildings;

• exterior lights are on timers.

Services like mobile and online banking, remote deposit capture, electronic loan payments, eStatements and combined statements enable us to support all customers in their efforts to consume less fuel and paper.

14 unchanged sentences

We believe a diverse workforce is critical to sustainable success.

As of December 31, 2022, 64% of our employees were female, 24% were minorities (non-Caucasian) and 3% were disabled.

As of December 31, 2023, 64% of our employees were female, 27% were from underrepresented racial and ethnic groups and 4% have a disability.

We are proud of our workforce and the opportunity to further diversify our team going forward.

We have always led with people, building our Bank on the diverse perspectives, knowledge, and experiences of our employees.

Our employees utilize their strengths to set the course and are empowered to do the right things for our clients.

Our employees utilize their strengths to set the course and are empowered to do the right things for our

Table of Content s

We strive to create an inclusive workplace so we can build and maintain a high-performing culture where engaged, satisfied employees embody our core values:

5 unchanged sentences

Health, Safety and Wellness

Since the onset of the COVID-19 pandemic, we have taken a people-first approach to help our employees manage their work and personal responsibilities, with a strong focus on employee well-being, health and safety.

We have taken a people-first approach to help our employees manage their work and personal responsibilities, with a strong focus on employee well-being, health and safety.

Our human resource team engages the staff in an evolving wellness program designed to enhance physical, financial, and mental well-being for all our employees.

We encourage healthy lifestyle behaviors through regular communications, educational sessions, voluntary progress tracking of beneficial health changes, and wellness challenges.

We value the contributions of our employees, particularly in the face of the challenges posed by the COVID-19 pandemic.

Where possible, many employees have been working from home to help maintain their health and safety as well as business continuity.

The Bank has accommodated staff who are unable to work on site due to health or family issues, and our human resources department works one-on-one to find solutions that are workable for both staff and the Company.

Community Engagement

We are committed to supporting the communities we serve through donations, sponsorships and employee volunteerism.

We offer employees two options for employees donate to charitable organizations, the Employee Giving Fund and the Employee Workplace Giving Portal.

The charities that provide critical services in our communities depend on support from donors.

As a community-focused bank, we have a unique opportunity to partner with organizations to support and strengthen the communities we serve.

In 2023, Coastal Community Bank supported 162 non-profit organizations through donations and event sponsorships.

The nonprofit organizations that provide critical services in our communities depend on support from donors.

We offer employees two options to support charitable organizations through:

the Employee Giving Fund and the Employee Workplace Giving Portal.

This is a testament to our commitment to helping and supporting our neighbors by encouraging employees to give to their charity of choice – wherever they live and work – through payroll deduction.

The Employee Giving Fund is supported entirely by donations contributed by employees, enabling staff to pool their donations for the greatest impact in the communities served by the community bank.

Employees direct the grants from the fund by serving on Bank’s grant advisory committee.

The Employee Giving Fund is supported entirely by donations contributed by employees and directors, enabling donors to pool their donations for the greatest impact in the communities served by the Bank.

Employees direct the grants from the fund by serving on the Bank’s fund advisory committee.

Since its inception in 2001, the Employee Giving Fund has awarded 461 grants totaling more than $822,741 through the end of 2023.

The Employee Workplace Giving Portal, launched in the fourth quarter of 2022, allows employees to support their charity of choice.

In 2023 the Employee Giving Fund awarded grants in the amount of $76,240 to 12 local non-profit organizations.

With staff in 40 states, it is important to encourage and enable employees to support their community, wherever they are located.

The Employee Workplace Giving Portal allows employees to support their charity of choice through payroll deduction.

The Company pays the administrative fees for the program so 100% of employee donations are directed to their charities of choice.

We pay the administrative fees for the program so 100% of employee donations are directed to their charities of choice.

Volunteering and supporting our communities is an important part of community engagement.

1 unchanged sentence

In 2023, employees volunteered 5,301 hours supporting 201 organizations.

In 2022, the Bank supported 152 organizations through donations and event sponsorships.

Available Information

The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), and other filings with the SEC are available free of charge at https://ir.coastalbank.com/ under the heading “–Financials - SEC Filings” as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC.

These reports are also available for free on the SEC's website at http://

The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), and other filings with the Securities and Exchange Commission (the “SEC”) are available free of charge at https://ir.coastalbank.com/ under the heading “–Financials - SEC Filings” as soon as reasonably

Table of Content s

practicable after the Company electronically files such material with, or furnishes it to, the SEC.

These reports are also available for free on the SEC's website at http://www.sec.gov.

The information contained on the Company's website as referenced in this Report on Form 10-K should not be considered a part of this Report.

20 unchanged sentences

• acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will, directly or indirectly, own or control more than 5% of the bank’s voting shares;

Table of Content s

• acquiring all or substantially all of the assets of any bank;

21 unchanged sentences

• making, acquiring, brokering or servicing loans and usual related activities in connection with the foregoing;

Table of Content s

• leasing personal or real property under certain conditions;

11 unchanged sentences

For us to qualify to become a financial holding company, we must be well-capitalized and well-managed.

In addition, the Bank and any other depository institution subsidiary we control must be well-capitalized and well-managed and must have a CRA rating of at least “satisfactory.” Additionally, we must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with 30 days written notice prior to engaging in a permitted financial activity.

In addition, the Bank and any other depository institution subsidiary we control must be well-capitalized and well-managed and must have a Community and Reinvestment Act (“CRA”) rating of at least “Satisfactory.” Additionally, we must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with 30 days written notice prior to engaging in a permitted financial activity.

We have not elected to become a financial holding company at this time.

6 unchanged sentences

As a result of a bank holding company’s source of strength obligation, a bank holding company may be required to provide funds to a bank subsidiary in the form of subordinate capital or other instruments which qualify as capital under bank regulatory rules and at a time when the bank holding company would not otherwise be inclined to do so.

Table of Content s

Repurchase or Redemption of Securities

then-outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth.

A bank holding company that is not well capitalized or well managed, or that is subject to any unresolved supervisory issues, is required to give the Federal Reserve prior written notice of any purchase or redemption of its own then-outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth.

The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve order or directive, or any condition imposed by, or written agreement with, the Federal Reserve.

24 unchanged sentences

and loan mix index) and a weighted average of supervisory ratings components.

Since the outbreak of the COVID-19 pandemic, the amount of total estimated insured deposits has grown rapidly while the funds in the DIF have grown at a normal rate, causing the DIF reserve ratio to fall below the statutory minimum of 1.35%.

Since the outbreak of the COVID-19 pandemic, the amount of total estimated insured deposits has grown rapidly while the funds in the FDIC’s Deposit Insurance Fund (“DIF”) have grown at a normal rate, causing the DIF reserve ratio to fall below the statutory minimum of 1.35%.

The FDIC adopted a restoration plan in September 2020, which it amended in June 2022, to restore the DIF reserve ratio to at least 1.35% by September 30, 2028.

2 unchanged sentences

As a result of the new rule, the FDIC insurance costs of insured depository institutions, including the Bank, will generally increase.

The range of assessment rates effective January 1, 2023, and first applicable on invoices dated June 30, 2023, will fall between 2.5 basis points for an established small institution posing the least risk, to 32 basis points for an established small institution posing the most risk.

The FDIC will lower the range of assessment rates if the reserve ratio of the Deposit Insurance Fund (“DIF”) increases to 2% or more.

The range of assessment rates effective January 1,

Table of Content s

2023, and first applicable on invoices dated June 30, 2023, fall between 2.5 basis points for an established small institution posing the least risk, to 32 basis points for an established small institution posing the most risk.

The FDIC will lower the range of assessment rates if the reserve ratio of the DIF increases to 2% or more.

The FDIC may also impose special assessments from time to time.

As of September 30, 2022, which is the most recent information available, the DIF was at 1.26%.

As of September 30, 2023, which is the most recent information available, the DIF reserve ratio was 1.13%.

Termination of Deposit Insurance

1 unchanged sentence

Community Reinvestment Act

The Community Reinvestment Act (“CRA”) requires that, in connection with examinations of insured depository institutions within their respective jurisdictions, the federal banking agencies will evaluate the record of each financial institution in meeting the credit needs of its local community, including low- and moderate-income neighborhoods.

The CRA requires that, in connection with examinations of insured depository institutions within their respective jurisdictions, the federal banking agencies will evaluate the record of each financial institution in meeting the credit needs of its local community, including low- and moderate-income neighborhoods.

The Federal Reserve periodically evaluates the Bank’s record of performance under the CRA, and these evaluations are publicly available.

4 unchanged sentences

The Bank received a Satisfactory rating at its most recent evaluation dated March 7, 2022.

On May 5, 2022 the federal banking agencies issued a proposed rule that would substantially revise how they evaluate an insured depository institution’s record of satisfying the credit needs of its entire communities, including low- and moderate- income individuals and neighborhoods, under the CRA.

If this rule is finalized as proposed, it may become more challenging and/or costly for insured depository institutions to achieve an “Outstanding” or “Satisfactory” CRA rating, which could negatively impact our ability to obtain regulatory approval for an acquisition.

On October 24, 2023, the FDIC, the Federal Reserve and the Office of the Comptroller of the Currency (“OCC”) released a final rule revising the framework that they use to evaluate banks’ records of community reinvestment under the CRA.

Under the revised framework, banks with assets of at least $2 billion, such as the Bank, are considered large banks and will have their retail lending, retail services and products, community development financing, and community development services subject to periodic evaluation.

Depending on a large bank’s geographic concentrations of lending, the evaluation of retail lending may include assessment areas in which the bank extends loans but does not operate any deposit-taking facilities, in addition to assessment areas in which the bank has deposit-taking facilities.

The rule becomes effective April 1, 2024.

Most provisions of the final rule will apply beginning January 1, 2026, and the remaining provisions will apply beginning January 1, 2027.

The Company is evaluating the impact of the final rule.

Interest Rate Limitations

8 unchanged sentences

• the Real Estate Settlement Procedures Act, imposing requirements on the settlement and servicing of residential mortgage loans;

Table of Content s

• the Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the communities it serves;

21 unchanged sentences

Effectively, the Basel III framework, including the capital conservation buffer, requires the Bank to meet minimum risk-based capital ratios of (i) 7% for common equity Tier 1 capital, (ii) 8.5% Tier 1 capital, and (iii) 10.5% total capital.

The eligible retained income of a banking organization is defined as the greater of (1) its net income for the four calendar quarters preceding the current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income, and (2) the average of its net income over the preceding four quarters.

The eligible retained income of a banking organization is defined as the greater of (1) its net income for the four calendar quarters preceding the

Table of Content s

current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income, and (2) the average of its net income over the preceding four quarters.

The minimum capital requirements plus the capital conservation buffer will exceed the prompt corrective action (“PCA”), well-capitalized thresholds for risk-based capital ratios, which are described below under “—Prompt Corrective Action.”

2 unchanged sentences

However, depository institution holding companies with less than $15 billion in total assets generally may include non-qualifying instruments that were issued and included in Tier 1 or Tier 2 capital prior to May 19, 2010 in Additional Tier 1 or Tier 2 capital until they redeem such instruments or until the instruments mature.

At December 31,

2022 the Company had $3.5 million of non-qualifying instruments includable in Tier 1 capital that were issued prior to May 19, 2010.

At December 31, 2023 the Company had $3.5 million of non-qualifying instruments includable in Tier 1 capital that were issued prior to May 19, 2010.

The Company and the Bank are required to meet the generally applicable regulatory capital requirements of the Federal Reserve and the FDIC.

Historically, the Company had been operating under the Small Bank Holding Company Policy Statement, which exempts bank holding companies that have total consolidated assets of less than $3.0 billion and meet other criteria from the Federal Reserve’s risk-based- and leverage capital rules.

Because the Company’s total consolidated assets exceeded $3.0 billion as of September 30, 2022, the Company is no longer subject to the Federal Reserve’s Small Bank Holding Company Policy Statement and will be evaluated relative to the capital adequacy standards established by the Federal Reserve going forward.

Because the Company’s total consolidated assets exceeded $3.0 billion as of September 30, 2022, the Company is no longer subject to the Federal Reserve’s Small Bank Holding Company Policy Statement and is evaluated relative to the capital adequacy standards established by the Federal Reserve.

A bank holding company that crosses the $3.0 billion total consolidated assets threshold as of June 30 of a particular year is no longer permitted to file reports as a small holding company beginning the following March.

The Company was not in excess of $3.0 billion as of June 30, 2022, and accordingly prepared and filed financial reports with the Federal Reserve as a small bank holding company.

Currently, the Federal Reserve assesses the capital position of the Company based on these reports by reviewing its debt-to-equity ratio and its capacity to serve as a source of strength to the Bank.

If the Company’s total consolidated assets remain in excess of $3.0 billion as of June 30, 2023, starting in March 2024 the Company will cease filing financial reports with the Federal Reserve as though it were a small bank holding company.

The Company’s total assets were in excess of $3.0 billion as of June 30, 2023, and as a consequence, beginning in March 2024, the Company will no longer prepare and file financial reports with the Federal Reserve as a small bank holding company.

The Economic Growth, Regulatory Relief and Consumer Protection Act (the “EGRRCPA”) requires the federal banking agencies to develop a community bank leverage ratio (the “CBLR”) (defined as the ratio of tangible equity capital to average total consolidated assets) for certain banks and holding companies with total consolidated assets of less than $10 billion.

14 unchanged sentences

The severity of the action depends upon the capital category in which the institution is placed.

For example, institutions in all three undercapitalized categories are automatically restricted from paying distributions and management fees, whereas only an institution that is significantly undercapitalized or critically undercapitalized is restricted in its compensation paid to senior executive officers.

Table of Content s

executive officers.

Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized.

1 unchanged sentence

Such a plan must include a guarantee from the institution’s bank holding company that the institution will comply with the plan until the institution has been adequately capitalized on average during each of the four consecutive calendar quarters.

The holding company’s obligation to fund a capital restoration plan is limited to the lesser of (i) 5% of an undercapitalized subsidiary

institution’s assets at the time it became undercapitalized and (ii) the amount required to meet regulatory capital requirements.

The holding company’s obligation to fund a capital restoration plan is limited to the lesser of (i) 5% of an undercapitalized subsidiary institution’s assets at the time it became undercapitalized and (ii) the amount required to meet regulatory capital requirements.

An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with Federal Reserve approval.

17 unchanged sentences

Under Federal Reserve regulations, the Bank may not declare or pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of the Bank’s net income during the current calendar year and the retained net income of the prior two calendar years, unless the dividend has been approved by the Federal Reserve.

Table of Content s

The Bank’s payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.

25 unchanged sentences

FDIC rules set forth standards for determining whether a person is a “deposit broker” and whether an insured depository institution must therefore treat deposits placed by that person as brokered deposits.

Among other things, these rules provides that a person can generally only be a deposit broker if the person places deposits at more than one insured depository institution.

Among other things, these

Table of Content s

rules provides that a person can generally only be a deposit broker if the person places deposits at more than one insured depository institution.

Single Borrower Credit Limits

6 unchanged sentences

The outstanding balance of the Bank’s CRE portfolio has increased by 16.8% and 30.9%, for the years ended December 31, 2023 and 2022, respectively.

The level of CRE has exceeded regulatory guidelines in the previous 36 months but the growth rate is within regulatory guidelines, however, the Bank maintains enhanced underwriting and monitoring processes and procedures to manage its CRE portfolio.

The Bank maintains enhanced underwriting and monitoring processes and procedures to manage its CRE portfolio.

Financial institutions are required to disclose their policies for collecting and protecting nonpublic personal information of their clients.

7 unchanged sentences

Federal banking agency rules require banking organizations to notify their primary federal regulator of significant security incidents within 36 hours of determining that such an incident has occurred as soon as possible and no later than within 36 hours of a significant cybersecurity incident.

In addition, the SEC recently enacted rules, effective as of December 18, 2023, requiring public companies to disclose material cybersecurity incidents that they experience on Form 8-K within four business days of determining that a material cybersecurity incident has occurred and to disclose on annual basis material information regarding their cybersecurity risk management, strategy, and governance.

For further information, see the section titled “ Cybersecurity ” in Part I, Item 1C of this Annual Report on Form 10-K.

Table of Content s

Consumer Credit Reporting

27 unchanged sentences

The legislation also established an accounting oversight board to enforce auditing standards and restrict the scope of services that accounting firms may provide to their publicly traded company audit clients.

Table of Content s

Overdraft Fees

27 unchanged sentences

The CFPB also has authority to prevent unfair, deceptive or abusive acts or practices in connection with the offering of consumer financial products.

The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal

Table of Content s

level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

The CFPB has proposed or issued a number of important rules affecting a wide range of consumer financial products.

16 unchanged sentences

Whether or when the agencies will finalize the proposal is uncertain.

Table of Content s

Information About Our Executive Officers

5 unchanged sentences

Edwards 63 Chief Financial Officer, Corporate Secretary

Culp 35 Chief Revenue Officer

Herger 38 CCBX Division Manager

Keithley 58 Chief Banking Officer

Dickson 62 Chief Operating Officer

Sand 53 Chief Credit Officer

Stines 53 Chief Risk Officer

The following is a brief discussion of the business and banking background and experience of our executive officers, including their business experience during the last five years.

14 unchanged sentences

Queyrouze was Senior Vice President Loss Mitigation Manager for Hancock Whitney Bank, from 2009 to 2012.

His career includes a

variety of leadership roles at banks ranging from top-ten and regionals to community institutions, and as Chief Operating Officer of a fintech company.

His career includes a variety of leadership roles at banks ranging from top-ten and regionals to community institutions, and as Chief Operating Officer of a fintech company.

He holds a degree in Accounting from Louisiana State University and is active in his community and banking industry organizations.

9 unchanged sentences

from Eastern Washington University.

Culp has served as Executive Vice President and Chief Revenue Officer of the Bank since 2023.

Culp joined the Bank in September 2013.

From 2021 to 2023 Mr.

Culp was the Senior Vice President and Chief Revenue Officer for the Bank and from 2018 to 2021 he served as the Vice President and Senior Vice President of the Bank’s Portfolio Risk Officer.

Culp’s responsibilities at the Bank have included budgeting, managing interest rate risk, overseeing the Bank’s interest rate swaps, and working on strategic initiatives.

Prior to joining the Bank, Mr.

Culp was a Portfolio Risk Manager at Premier West Bank.

Culp graduated summa cum laude with a bachelor’s degree in economics and a certificate of applied finance and economics.

He completed post-graduate studies in accounting.

Culp received an M.B.A.

from Washington State University with a concentration in finance.

Table of Content s

Herger has served as Executive Vice President and CCBX Division Manager of the Bank since 2022.

Herger joined the Bank in 2016 and in 2018 was the first employee assigned to the CCBX Division as Vice President and Strategic Partner Program Manager.

Herger was responsible for designing and implementing the operational and oversight aspects of the CCBX segment.

Keithley has served as Executive Vice President and Chief Banking Officer of the Bank since 2020.

From 2015 to 2020, Mr.

Keithley held the position of Executive Vice President and Chief Lending Officer.

He joined the Bank in 2012 and became Senior Vice President and Chief Credit Officer in 2014.

Prior to joining the Bank, he served as Senior Vice President and Chief Lending Officer of North County Bank and Manager Team Lead at InterWest Bank.

Keithley served as the Bank’s Executive Vice President and Chief Lending Officer.

Keithley joined the Bank in 2012 and became Senior Vice President and Chief Credit Officer in 2014.

Prior to joining the Bank, he served as Senior Vice President and Chief Lending Officer of North County Bank and as the Manager Team Lead at InterWest Bank.

Keithley graduated from the University of Washington with a bachelor’s degree in political science.

He is an honors graduate of the Pacific Coast Banking School at the University of Washington.

Dickson joined the Bank in 2010 and currently serves as Executive Vice President and Chief Operating Officer of the Bank.

Prior to joining the Bank, he served in various roles for Frontier Financial Corporation and Frontier Bank from 1985 to 2010, most recently serving as President of Frontier Bank from 2008 to 2010.

In 2010, Frontier Bank was closed by the Washington DFI, and the FDIC was named receiver.

Dickson received a bachelor’s degree in economics from the University of Puget Sound and graduated with honors from the Graduate School of Banking at the University of Wisconsin-Madison.

Dickson practiced accounting as a CPA for three years in the audit division of a large accounting firm.

Dickson is a past Chairman of the Washington Bankers Association.

Sand has served as the Executive Vice President and Chief Credit Officer of the Bank since April of 2020 and as the Chief Credit Officer of the CCBX segment of the Bank since January of 2023.

Prior to becoming the Chief Credit Officer, Mr.

Sand served as Senior Credit Administrator since 2012.

Prior to joining the Bank, Mr.

Sand held the position of Senior Credit Administrator with Cascade Bank after starting his banking career with Frontier Bank.

Sand is a graduate of Central Washington University and Pacific Coast Banking School.

Stines has served as the Bank’s Chief Risk Officer since January 2020.

From 2013 through 2019, Mr.

Stines was an Executive Director with Ernst and Young LLP in its Regulatory Practices Group assisting large financial institutions with their remediation of enforcement actions, compliance program designs and advising on similar regulatory matters.

Before joining Ernst and Young, Mr.

Stines served as Chief Risk Officer and BSA Officer for Sunwest Bank in California.

Stines has over 20 years of experience working with financial institutions on various legal, regulatory and compliance matters.

Stines holds a BS in Management from the University of Colorado, a Juris Doctor from Seattle University and a Master in Science and Finance from Seattle University.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business