What changed in this filing

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Item 1. Business

2025-03-17 compared with 2024-03-15 · 204 added, 144 removed, 618 unchanged (36% of the section changed)

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Our website address is www.coastalbank.com.

Information on our website should not be considered a part of this Report on Form 10-K.

Information on our website should not be considered a part of this Annual Report on Form 10-K.

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

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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 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 CCBX segment had a total of 24 relationships, at varying stages, including three signed letters of intent as of December 31, 2024.

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

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As of December 31, 2024, we had total assets of $4.12 billion, total loans receivable of $3.49 billion, total deposits of $3.59 billion and total shareholders’ equity of $438.7 million.

Throughout this Report on Form 10-K, references to “we,” “us” or “our” refer to the Company or the Bank, or both, as the context indicates.

Throughout this Annual Report on Form 10-K, references to “we,” “us” or “our” refer to the Company or the Bank, or both, as the context indicates.

We define our community bank market broadly as the Puget Sound region in the state of Washington, which encompasses King, Kitsap, Pierce, Snohomish, Skagit, Thurston and Island Counties.

The Puget Sound region, which comprises over 62% of the population of the state of Washington, and approximately 61% of the number of businesses located therein, has a population of approximately 5.0 million, over 138,000 businesses and $155.5 billion of deposits with us and other banking institutions located in the region.

We are the largest locally headquartered bank by deposit market share in Snohomish County, according to data from the FDIC as of June 30, 2023, at which date we had a 15.8% deposit market share in Snohomish County, which was up from 13.0% in 2022 and 9.0% in 2021.

We are the largest locally headquartered bank by deposit market share in Snohomish County, according to data from the FDIC as of June 30, 2024, which includes CCBX deposits recorded at Snohomish County locations, at which date we had a 17.5% deposit market share in Snohomish County, which was up from 15.8% in 2023 and 13.0% in 2022.

We aim to continuously enhance our customer base, increase loans and deposits and expand our overall market share in Snohomish County.

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Working with our CCBX partners allows us to provide a broader range of services for different demographics through their offerings.

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.

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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.

As of December 31, 2024, the CCBX segment had a total of 24 relationships as indicated in the chart below, at varying stages, including three signed letters of intent as of December 31, 2024.

Segment Reporting

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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.

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Lending Activities

We focus primarily on commercial lending, with an emphasis on commercial real estate in the community bank.

We focus primarily on commercial lending in our community bank and primarily consumer business lending in CCBX.

We offer a variety of loans to business owners, including commercial and industrial loans and commercial real estate loans secured by owner-occupied commercial properties.

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We offer commercial and consumer loans through CCBX.

Our largest CCBX consumer and business loan categories are installment loans and credit cards.

Commercial and Industrial Loans .

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Included in the commercial and industrial loan balance is $150.4 million in community bank loans and $143.0 million in CCBX commercial loans.

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 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.

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Capital call lines represent 37.2% of total commercial and industrial loans, and are included in CCBX commercial and industrial loans.

As of December 31, 2023, our total commercial SBA portfolio, excluding PPP loans, was $2.7 million, net of $3.5 million in loans sold, with $1.3 million guaranteed by the SBA.

As of December 31, 2024, our total commercial SBA portfolio, excluding Paycheck Protection Program (“PPP”) loans, was $1.8 million, net of $1.9 million in loans sold, with $1.0 million guaranteed by the SBA.

We participate in the SBA 7(a) program in order to meet the needs of our small business community.

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The SBA’s 7(a) program provides up to a 75% guaranty for loans greater than $150,000.

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

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Loan amounts generally do not exceed 75% of the lesser of the appraised value or the purchase price.

As of December 31, 2023, we had a total of $2.1 million, and service $4.4 million in loans sold to others that are guaranteed by the SBA, in commercial real estate SBA loans.

As of December 31, 2024, we had a total of $1.1 million, and serviced $1.6 million in loans sold to others that are guaranteed by the SBA, in commercial real estate SBA loans.

Also included in commercial real estate loans was $107.2 million, or 3.1% of total loans, in loans under the SBA 504 program.

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The first lien loan is generally a long-term, fully amortizing, fixed-rate loan made in the amount of 50% of the total purchase cost.

The second lien loan is a short-term, interest only, adjustable rate loan made in the amount of 40% of the total purchase cost, which is generally paid off within three to six months after full receipt of loan proceeds from a certified development corporation that provides long-term financing directly to the borrower.

The second lien loan is a short-term, interest only, adjustable rate loan

made in the amount of 40% of the total purchase cost, which is generally paid off within three to six months after full receipt of loan proceeds from a certified development corporation that provides long-term financing directly to the borrower.

Our multi-family residential loan portfolio is comprised of loans secured by apartment buildings, residential mixed-use buildings and, to a lesser extent, senior living centers.

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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

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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 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.

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These loans are home equity line of credits that are accessed through the use of a consumer card.

We originate one-to-four adjustable-rate mortgage (“ARM”), loans for our portfolio and operate as a mortgage broker for mortgage lenders we have agreements with for customers who want a 15-year to 30-year, fixed-rate mortgage loan.

These are first and second lien residential loans and require 18 months of home ownership.

Term lengths are up to 30 years and lines range from $50,000 to $400,000.

These loans are made through a CCBX partner to our underwriting standards.

We originate one-to-four family adjustable-rate mortgage (“ARM”), loans for our portfolio and operate as a mortgage broker for mortgage lenders we have agreements with for customers who want a 15-year to 30-year, fixed-rate mortgage loan.

As of December 31, 2024, the balance of ARM portfolio loans was $33.0 million, or 7.0% of residential real estate loans.

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We also purchase residential mortgages originated through other financial institutions to hold for investment with the intent to diversify our residential mortgage loan portfolio, meet certain regulatory requirements and increase our interest income.

As of December 31, 2023, we held $8.1 million, representing 1.7% of our residential real estate loans, in purchased residential real estate mortgage loans.

As of December 31, 2024, we held $6.1 million, representing 1.3% of our residential real estate loans, in

purchased residential real estate mortgage loans.

Our last purchase of residential mortgages was in 2018.

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Consumer and Other Loans .

As of December 31, 2023, we had $818.0 million in total consumer loans, representing 26.9% of total loans.

As of December 31, 2024, we had $1.21 billion in total consumer loans, representing 34.6% of total loans.

Consumer loans are primarily originated through our CCBX partners.

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

Through our CCBX segment we have $816.4 million in consumer and other loans as of December 31, 2023.

Through our CCBX segment we had $1.19 billion in consumer and other loans as of December 31, 2024.

This includes $664.8 million in other consumer loans, $202.7 million of which are purchased loans secured by consumer term loans, and $528.6 million in credit cards.

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

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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.

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

Consumer credit cards are open-ended and have interest rates ranging from 7.75% to the maximum allowable rate by state.

For short-term consumer loans, both secured and unsecured options are available and typically have fully-amortizing terms ranging from three months to five years.

Interest rates can be fixed or variable and range from 3.99% to the maximum allowable rate by state.

CCBX consumer loans are originated and serviced through our CCBX partners to our underwriting standards.

The following chart breaks out our consumer loan portfolio by segment and type of loan as of December 31, 2024.

The largest portion of our consumer portfolio is comprised of CCBX installment loans and credit card loans.

These loans are further divided to show the total secured and unsecured in each of these categories.

The average overall outstanding consumer loan balance is small at $1,044.

(dollars in thousands) Outstanding Balance % of Total Outstanding Balance Consumer Loans

Average Loan Balance Number of Loans

CCBX consumer loans

Installment loans - cash secured $ 127,014 10.5 %

Installment loans - unsecured 529,783 43.9

Installment loans - total 656,797 54.4 $ 1.0 690,596

Credit cards - cash secured 211 0.0

Credit cards - unsecured 528,343 43.8

Credit cards - total 528,554 43.8 1.8 301,799

Lines of credit 722 0.1 1.4 524

Other loans 7,261 0.6 — 163,026

Community bank consumer loans

Lines of credit 181 0.0 5.7 32

Installment loans 1,917 0.2 68.5 28

Other loans 11,444 0.9 30.6 374

Total $ 1,206,876 100.0 % $ 1.0 1,156,379

Credit Administration and Loan Review

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Any loan policy exceptions are fully disclosed to the approving authority.

CCBX loans are originated by our CCBX lending partners.

Prior to implementation of a new lending product or subsequent to any changes to an existing lending product, the lending partner is required by their Program Agreement to submit all policies, scorecards, and/or lending models to us for review and approval in order to ensure the loans will meet our risk profile prior to origination.

Underwriting requirements vary based on products with partners that have higher risk product lines necessitating increased credit enhancements and/or cash reserves.

As of December 31, 2024, 98.7% of our CCBX loans are covered by a credit enhancement.

Please refer to “ Concentrations of Credit Risk” section below for more information on CCBX credit enhancements.

Ongoing Credit Risk Management.

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

In addition to requiring prior review and approval of lending criteria on CCBX loans, we also provide ongoing oversight of the CCBX portfolio to confirm whether originated credits meet the agreed upon conditions of the loans.

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.

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As of December 31, 2024, approximately 85% 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

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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.

CCBX loans receivable total $1.20 billion, or 39.4% of total loans receivable, as of December 31, 2023.

CCBX loans receivable totaled $1.60 billion, or 45.9% of total loans receivable, as of December 31, 2024.

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 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.

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 partners’ 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.

The credit enhancement asset is an amount due from CCBX partners related to losses in the loan portfolio.

It is determined by the provision for credit and other losses, such as fraud, and increases due to credit loss recoveries, which is ultimately reduced by reimbursement for incurred losses by partners.

Identified below is the portion of incurred losses that are pending settlement with partners as of each period indicated.

The CCBX provision for credit losses and CCBX net-charge-offs include partner accounts that are not covered by credit enhancement therefore those items are included on a separate line item to reflect the exclusion from the credit enhancement asset.

At December 31, 2024, the Company was responsible for credit losses on approximately 5% of a $324.6 million CCBX loan portfolio and represented $20.6 million in loans.

The table below shows the activity in the credit enhancement asset for the periods indicated:

As of or for the Twelve Months Ended December 31,

(dollars in thousands) 2024 2023 (1)

Credit enhancement at beginning of period 112,894 53,377

CECL Day 1 Adjustment — 4,465

CCBX Provision for credit losses - loans 277,793 182,721

CCBX Provision for credit losses - unfunded commitments 1,187 160

Credit losses settled with partner during period (228,537) (151,933)

Credit recoveries settled with partner during period 13,027 7,442

Net losses pending settlement with partner 5,998 18,156

Net (provision) charge-offs without credit enhancement (472) (1,494)

Credit enhancement at end of period 181,890 112,894

(1) See Note 23, Restatement of Prior Period Financial Statements

Many CCBX partners also pledge a cash reserve account at the Bank as collateral for loss exposure which the Bank can collect from when losses occur that is then replenished by the partner on a regular interval.

Credit losses and recoveries typically flow through the cash reserve account.

These cash reserve accounts are included in total deposits on the balance sheet.

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 a partner is unable to fulfill its contracted obligation then the Bank would be exposed to additional loan and deposit losses (counterparty risk) if the cash flows are not sufficient to fund the reimbursement of loan losses.

If a CCBX partner does not replenish its cash reserve account the Bank may consider an alternative plan for funding the cash reserve, such as adjusting the funding amounts or timelines to better align with the partner's specific situation.

If a mutually agreeable funding plan is not achieved then the Bank may 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 fulfill its obligations and would determine if a write-off is appropriate.

If a default occurs and payments to the CCBX partner are stopped, the Bank would retain the full yield and any fee income on the loan portfolio going forward, and our BaaS loan expense would decrease.

For the period ended December 31, 2024, CCBX cash reserve accounts totaled $69.3 million.

Average balance of the cash reserve accounts are not materially different from the period end balance.

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 $1.52 billion and represented 184.2% of the Bank’s total risk-based capital at December 31, 2024.

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Our internal loan-to-value limitations also follow all limits established by applicable law.

Our CCBX loan portfolio is subject to portfolio and partner maximum limits, therefore CCBX partners are limited to a maximum aggregate customer loan balance originated and held on our balance sheet.

As indicated in partner agreements, we are able to sell CCBX loans back to the originating partner as one method of managing CCBX portfolio and partner limits.

Deposit Products

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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

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

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).

We emphasize obtaining deposit relationships at loan origination.

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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 deposits are generally classified as interest bearing demand 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, 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.

Additionally, as of December 31, 2024 we had access to $273.2 million in CCBX customer deposits that are currently being transferred off the Bank’s balance sheet for FDIC insurance purposes and deposit management.

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.

FDIC insurance coverage is provided to the end customer account holder for deposit accounts originated through CCBX partners.

CCBX segment (BaaS)

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

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.

We had a total of 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 and more established partners, with experienced management teams, existing customer bases and strong financial positions and will continue to exit partnerships where it makes sense for us to do so.

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, 2024, the fair value of our investment portfolio, which represented 1.1% of assets, totaled $46.7 million and had an average effective yield of 5.47% and an estimated weighted average life of approximately 14.3 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.

At December 31, 2023, 66.1% of our investment portfolio consisted of U.S.

Treasury securities.

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

At December 31, 2024 our securities portfolio was invested in U.S.

Agency collateralized mortgage and U.S.

Agency residential mortgage-backed securities obligations.

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.

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.

As of December 31, 2024, we had $2.6 million in equity investments.

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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, 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 without a readily determined fair value include:

• a $2.2 million equity interest in a specialized bank technology company as of December 31, 2024 and December 31, 2023;

• a $350,000 equity interest in a technology company as of the years ended December 31, 2024 and December 31, 2023;

• a $47,000 and $50,000 equity interest in a technology company as of the years ended December 31, 2024, and December 31, 2023, respectively.

Additionally, 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, 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.

During the year ended December 31, 2024, the Company contributed $72,000 with investment funds designed to help accelerate technology adoption at banks, and recognized net gains of $29,000, resulting in an equity interest of $910,000 at December 31, 2024, compared to $809,000 at December 31, 2023.

The Company has committed up to $480,000 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

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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 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.

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The majority of our systems including our electronic funds transfer, transaction processing, and our online banking services are hosted by third-party service providers.

The scalability of this infrastructure will support our growth strategy.

The scalability of this infrastructure will support our growth

In addition, the tested capability of these vendors to automatically switch over to standby systems should allow us to recover our systems and provide business continuity quickly in case of a disaster.

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

Some of the segments served through our BaaS partnerships are:

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

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Some of the segments served through our BaaS partnerships are women, people of color, young adults, immigrants, small businesses and other underserved populations.

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 practical applications of the 3 R’s:

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

Reduce waste and energy consumption

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As a result, we try to conduct business responsibly, with awareness to environmental, social, and human rights issues while also monitoring credit risks.

This process involves management and board of director oversight.

This process involves

management and board of director oversight.

In general, we evaluate each credit or transaction on its individual merits, with larger deals receiving more attention and deeper analysis.

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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

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

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:

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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 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 through payroll deduction.

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.

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In 2024, employees volunteered 4,951 hours supporting 170 organizations.

Community Impact Grants

As part of its commitment to the Community Reinvestment Act, we are proud to support non-profit organizations working to improve our community.

We focus on building long-term relationships with our community partners to make a significant impact in the markets we serve.

We are particularly interested in supporting projects and organizations whose primary purpose is to improve and revitalize low- and moderate-income areas or to assist low- and moderate-income persons and families to be better able to take part in the financial opportunities available in their community.

In 2024, we awarded impact grants in the amount of $45,000 to five local non-profits.

Financial Inclusion

We recognize the need to connect our marginalized communities to financial education and safe, affordable, and functional financial services.

We do this a number of different ways:

• Support the un-banked and under-banked in our community with Access Checking, a Bank On certified account;

• Sponsor financial education resources in seven schools with high numbers of children living in low income households as well as a juvenile justice center;

• Collaborate with community partners to sponsor financial education classes in Spanish;

• Provide financial education resources to non-profits in our community.

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 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

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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.

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

Regulation and Supervision

Insured banks, their holding companies and their affiliates are extensively regulated under federal and state law.

As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes and by the regulations and policies of various bank regulatory agencies, including the Washington Department of Financial Institutions (“Washington DFI”), the Board of Governors of the Federal Reserve (“Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer Financial Protection Bureau (“CFPB”).

Furthermore, tax laws administered by the Internal Revenue Service (“IRS”), and state taxing authorities, accounting rules developed by the FASB, securities laws administered by the SEC and state securities authorities, anti-money laundering laws enforced by the U.S.

various bank regulatory agencies, including the Washington Department of Financial Institutions (“Washington DFI”), the Board of Governors of the Federal Reserve (“Federal Reserve”), the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer Financial Protection Bureau (“CFPB”).

Furthermore, tax laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the FASB, securities laws administered by the SEC and state securities authorities, anti-money laundering laws enforced by the U.S.

Department of the Treasury (“Treasury Department”) and mortgage related rules, including with respect to loan securitization and servicing by the U.S.

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The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.

Political, economic, and industry events and other factors may influence changes to the banking laws, regulations and policies by the U.S.

Congress, state legislatures and federal and state regulatory agencies.

In addition to laws and regulations, state and federal bank regulatory agencies may issue policy statements, interpretive letters and similar written guidance, which sometimes materially changes regulatory expectations.

Any change in the statutes, regulations or regulatory policies applicable to us, including changes in their interpretation, expectations or implementation, could have a material effect on our business and operations.

To this end, due to the recent issuance of certain executive orders by the President of the United States, it may not be clear for a period of time as to what the priorities of the three prudential banking agencies, the Office of the Comptroller of the Currency (the “OCC”), Federal Reserve and FDIC, may be with respect to their respective supervisory and enforcement matters for banks and bank holding companies during the current administration.

For example, one executive order requires independent agencies, including the Federal Reserve and FDIC to submit to the White House Office of Management and Budget (“OMB”) major orders proposed by these agencies for OMB’s review.

OMB would also write "performance standards and management objectives" to the heads of independent agencies, review and adjust their budgets, including the Federal Reserve (excluding with respect to its monetary policy function) and the FDIC.

As a result, it may take longer for the prudential banking agencies to establish their supervisory and enforcement priorities and develop and adopt new rules and regulations, or make changes to existing rules and regulations.

Another executive order requires agency heads to determine whether ongoing enforcement of any regulations identified in their regulatory review is compliant with law and policy of the current administration.

This executive order also provides that to preserve resources and ensure lawful enforcement, agency heads, in consultation with the Director of the OMB, shall, on a case-by-case basis and as appropriate and consistent with applicable law, then direct the termination of all such enforcement proceedings that do not comply with the Constitution, laws, or the policy of the current administration.

It is unclear what impact these orders will have on the supervisory and enforcement activities of the OCC, Federal Reserve and FDIC.

The following is a summary of the material elements of the supervisory and regulatory framework applicable to us and the Bank.

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The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision.

Our CCBX segment operates as part of the Bank, and there are no specific regulations that would apply to the operations of CCBX only.

Bank Holding Company Regulation

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• 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;

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

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

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• leasing personal or real property under certain conditions;

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

The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve’s view that a bank holding company should pay cash dividends only to the extent that the holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition.

the holding company’s net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent with the holding company’s capital needs, asset quality and overall financial condition.

The Federal Reserve also has indicated that it would be inappropriate for a holding company experiencing serious financial problems to borrow funds to pay dividends.

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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.

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Repurchase or Redemption of Securities

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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.

On October 18, 2022 the FDIC adopted a final rule to increase initial base deposit insurance assessment rates for insured depository institutions by 2 basis points, beginning with the first quarterly assessment period of 2023.

On October 18, 2022 the FDIC adopted a final rule to increase initial base deposit insurance assessment rates for insured depository institutions by two basis points, beginning with the first quarterly assessment period of 2023.

The increased assessment rate schedules will remain in effect unless and until the reserve ratio of the DIF meets or exceeds 2%.

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,

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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.

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

The range of assessment rates effective January 1, 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.

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

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.

On October 24, 2023, the FDIC, the Federal Reserve and the 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.

The rule became effective April 1, 2024, however, Federal Court indefinitely paused the CRA Final Rule implementation following the ABA lawsuit filed on March 30, 2024.

CRA Rule 1071, part of the Dodd-Frank Act, requires financial institutions to collect and report data on small business credit applications, particularly from women- and minority-owned businesses.

This rule aims to make small

business lending more accessible, especially for underserved communities.

By gathering and reporting data on lending practices, financial institutions can identify disparities and ensure fair treatment for all applicants.

The intersection of Section 1071, the Community Reinvestment Act (CRA), and Fair Lending regulations promotes fair access to credit and prevents discriminatory lending practices.

While CRA encourages banks to meet the credit needs of their communities, Fair Lending regulations ensure that credit is extended without discrimination.

Section 1071 complements these efforts by targeting data collection and reporting on small business lending practices

The effective date for CRA Rule 1071 has been extended due to legal challenges.

The new compliance dates are as follows:

• Tier 1 institutions (highest volume lenders):

July 18, 2025

• Tier 2 institutions (moderate volume lenders):

January 16, 2026

• Tier 3 institutions (smallest volume lenders):

October 18, 2026

These dates reflect the extended compliance deadlines to accommodate the period during which the rule was stayed.

Interest Rate Limitations

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

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• 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;

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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

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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 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.”

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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 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’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.

Capital management consists of providing equity and other instruments that qualify as regulatory capital to support current and future operations.

Banking regulators view capital levels as important indicators of an institution’s financial soundness.

As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital levels relative to the amount and types of assets they hold.

We are subject to

regulatory capital requirements at the bank level.

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

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.

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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

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executive officers.

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

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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.

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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.

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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

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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 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

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In addition, in December 2015, the federal bank agencies issued additional guidance entitled “Statement on Prudent Risk Management for Commercial Real Estate Lending.” Together, these guidelines describe the criteria the agencies will use as indicators to identify institutions potentially exposed to CRE concentration risk.

An institution that has (i) experienced rapid growth in CRE lending, (ii) notable exposure to a specific type of CRE, (iii) total reported loans for construction, land development, and other land representing 100% or more of the institution’s capital, or (iv) total CRE loans representing 300% or more of the institution’s capital, and the outstanding balance of the institutions CRE portfolio has increased by 50% or more in the prior 36 months, may be identified for further supervisory analysis of the level and nature of its CRE concentration risk.

nature of its CRE concentration risk.

The Bank’s total non-owner-occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate, and construction and land loans, represented 184.2% and 238.3% of its capital, at December 31, 2024 and 2023, respectively.

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

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Consumer Credit Reporting

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These statutes and related rules and regulations impose requirements and limitations on specified financial transactions and accounts and other relationships intended to guard against money laundering and terrorism financing.

The principal requirements for an insured depository institution include (i) establishment of an anti-money laundering program that includes training and audit components, (ii) establishment of a “know your customer” program involving due diligence to confirm the identities of persons seeking to open accounts and to deny accounts to those persons unable to demonstrate their identities, (iii) the filing of currency transaction reports for deposits and withdrawals of large amounts of cash, (iv) additional precautions for accounts sought and managed for non-U.S.

transaction reports for deposits and withdrawals of large amounts of cash, (iv) additional precautions for accounts sought and managed for non-U.S.

persons and (v) verification and certification of money laundering risk with respect to private banking and foreign correspondent banking relationships.

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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.

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Overdraft Fees

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(iv) authorizes the SEC to promulgate rules that would allow shareholders to nominate their own candidates using a company’s proxy materials;

and (v) directs the federal banking regulators to issue rules prohibiting incentive compensation that encourages inappropriate risks.

and (v) directs the

federal banking regulators to issue rules prohibiting incentive compensation that encourages inappropriate risks.

• Other rules and regulations implementing the Dodd-Frank Act that may be relevant to us and the Bank are described or otherwise accounted for in various parts of this “-Regulation and Supervision” section.

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Current Expected Credit Losses Model

The FASB adopted a new accounting standard for GAAP that became effective for us on January 1, 2023.

The FASB adopted a new accounting standard for U.S Generally Accepted Accounting Principles (“GAAP”) that became effective for us on January 1, 2023.

This standard, referred to as CECL, requires FDIC-insured institutions and their holding companies (banking organizations) to recognize credit losses expected over the life of certain financial assets.

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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

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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 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.

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

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Information About Our Executive Officers

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Sprink 52 Chief Executive Officer and Director

Queyrouze 62 President

Hamilton 47 President, CCBX and Director

Queyrouze 63 President, Community Bank and Corporate Credit

Edwards 64 Chief Financial Officer, Corporate Secretary

Culp 35 Chief Revenue Officer

Herger 38 CCBX Division Manager

Keithley 58 Chief Banking Officer

Sand 53 Chief Credit Officer

Stines 54 Chief Risk Officer

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Sprink has been a member of our board of directors since 2006.

Queyrouze has served as our President since 2022.

Hamilton serves as President, CCBX.

He joined the Company in 2024.

Most recently, Mr.

Hamilton was co-founder and Chief Executive Officer of ONE (One Finance Inc.), which was acquired by a Walmart-led joint venture in 2022, from January 2019 until August 2023.

Prior to co-founding ONE, he was the founder of Azlo, a digital bank for small businesses, and helped to build out the BBVA Open Platform for sponsor banking services.

A serial entrepreneur, with deep expertise in domestic and international settlement systems and digital platforms, Mr.

Hamilton has held senior leadership roles at Capital One, serving as President of their Merchant Services division from January 2013 until February 2015, Wells Fargo from July 1998 until March 2006 and Verifone from January 2012 until January 2013, in addition to founding and operating multiple companies in the fintech space.

Hamilton is an honors graduate of Oregon

State University, with technical certifications from Wells Fargo’s commercial banking school and various industry groups.

Hamilton is a seasoned financial technology executive and business leader, with more than 25 years of experience in the banking, lending, payments and digital product development industries.

Hamilton has been a member of our board of directors since 2024.

Queyrouze serves as President, Community Bank and Corporate Credit.

He joined the Company in 2022 as President and currently serves as President of the community bank and corporate credit.

Queyrouze was most recently President and Chief Executive Officer of TAB Bank, UT, from 2016 to 2022 and Chief Credit Officer from 2014 to 2016, where he gained experience in managing a community bank and fintech partnerships through BaaS.

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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.

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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 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.

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.

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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