What changed in this filing

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Item 9A. Controls and Procedures

2025-03-17 compared with 2024-03-15 · 62 added, 53 removed, 178 unchanged (39% of the section changed)

Controls and Procedures

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Exchange Act) as of December 31, 2023.

In designing and evaluating our disclosure controls and procedures, we and our management recognize that any controls and procedures, no matter how well-designed and operated, can provide only a reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported as of the end of the period covered by this annual report.

Evaluation of Disclosure Controls and Procedures for 2024

At December 31, 2024, the end of the period covered by this Annual Report on Form 10-K, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934.

Based on that evaluation, both the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2024, due to the identification of the material weaknesses described below.

In addition, due to the material weaknesses described below and the resulting restatement of our financial statements as of and for the year ended December 31, 2023, management has concluded that our disclosure controls and procedures were not effective as of December 31, 2023, March 31, 2024, June 30, 2024 or September 30, 2024.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) and 15d- 15(f) of the Exchange Act).

Our internal control system is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published

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financial statements in accordance with GAAP.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act).

Our internal control over financial reporting is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements in accordance with GAAP.

Internal control over financial reporting includes self-monitoring mechanisms, and actions are taken to correct deficiencies as they are identified.

There are inherent limitations in any internal control over financial reporting, no matter how well designed, misstatements due to error or fraud may occur and not be detected, including the possibility of circumvention or overriding of controls.

Accordingly, even an effective internal control system can provide only reasonable assurance with respect to financial statement preparation.

An effective internal control system can provide only reasonable assurance with respect to financial statement preparation.

Further, because of changes in conditions, the effectiveness of an internal control system may vary over time.

Our management assessed its internal control structure over financial reporting as of December 31, 2023 using the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this assessment, our management concluded that we maintained effective internal control over financial reporting as of December 31, 2023.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting based on the Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, management has concluded that our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), was not effective as of December 31, 2024, due to the material weaknesses described below.

In addition, due to the material weaknesses described below and the resulting restatement of our financial statements as of and for the year ended December 31, 2023, management has concluded that our internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f), was also ineffective as of December 31, 2023.

Existence of Material Weaknesses

A material weakness exists when there is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement in the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

During the preparation of our audited financial statements as of and for the year ended December 31, 2024, management identified the following material weaknesses:

• The Company has an ineffective control environment and did not maintain the risk assessment and control activities components of the COSO framework resulting in the Company not appropriately designing and implementing sufficient internal controls around the accounting and financial reporting related to information provided by BaaS partners.

• A deficiency in the design of controls related to the BaaS lending partner accounting policies reflected in BaaS partner reports that could impact the Company’s use of such reports to record interest income, BaaS loan expense and the related balance sheet accounts.

• A deficiency in the design of controls related to the proper presentation of BaaS partner interchange fees on point of sale transactions that conforms with the Company’s adopted accounting policies.

As a result, certain amounts included in interest income, non-interest income, BaaS loan expense, non-interest expense, and the related balance sheet accounts were not recognized in accordance with U.S.

generally accepted accounting principles, which required a restatement of the financial statements for the year ended December 31, 2023, and the interim quarterly periods in 2024 and 2023.

Remediation Plan

Since identifying the material weaknesses described herein, management, under the oversight of the Audit Committee has committed to remediate these deficiencies.

The remediation efforts include implementing controls to:

• Enhance our risk assessment procedures over third-party reports to identify whether additional control activities are needed to conform third party reports to the Company’s accounting policies.

• Periodically verify the accounting policies used by a specific BaaS partner

• Evaluate whether any entries are needed to adjust the interest income and BaaS loan expense reflected on the specific BaaS partner’s system reports

• Evaluate whether any adjustments are needed to third party revenue reports to comply with the Company’s accounting policies.

While we expect that the implementation of these controls will address the material weaknesses, management continues to evaluate the effectiveness of the remedial actions on an ongoing basis.

As a result of the identification of the material weaknesses, management performed extensive testing of the impacted transactions.

Based on additional procedures performed, management concluded that the consolidated financial statements included in this Annual Report on Form 10-K present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented, in conformity with GAAP.

Moss Adams LLP, an independent registered public accounting firm, has audited the effectiveness of our internal control over financial reporting as of December 31, 2024, and their report is included in Item 8.

1 unchanged sentence

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, such controls.

Except as identified above with respect to the identification of the material weaknesses in our internal control over financial reporting during the preparation of our financial statements for the year ended December 31, 2024 and our subsequent efforts to remediate the material weaknesses, there have been no changes in our internal control during our most recently completed fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information

2 unchanged sentences

Not applicable.

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Directors, Executive Officers and Corporate Governance

18 unchanged sentences

Information required by this item is incorporated herein by reference to the section captioned “Stock Information” in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders.

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2 unchanged sentences

The following table sets forth information about the Company common stock that may be issued upon the exercise of stock options, warrants and rights under all of the Company’s equity compensation plans as of December 31, 2024.

(dollars in thousands, except per share amounts;

securities to be

12 unchanged sentences

For information regarding the principal accountant fees and expenses, the section captioned “Item 2—Ratification of Selection of Independent Registered Public Accounting Firm” in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders is incorporated herein by reference.

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Exhibits and Financial Statement Schedules

(1) The financial statements required in response to this item are incorporated herein by reference from Item 8 of this Report on Form 10-K.

(1) The financial statements required in response to this item are incorporated herein by reference from Item 8 of this Annual Report on Form 10-K.

(2) All financial statement schedules are omitted because they are not required or applicable, or the required information is shown in the consolidated financial statements or the notes thereto.

3 unchanged sentences

Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

3.2 Articles of Amendment to the Second Amended and Restated Articles of Incorporation of Coastal Financial Corporation

1 unchanged sentence

Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

3.3 Amended and Restated Bylaws of Coastal Financial Corporation

1 unchanged sentence

Exhibit 3.3 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

4.1* Form of Common Stock Certificate of Coastal Financial Corporation

1 unchanged sentence

Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

4.2 Description of Securities

1 unchanged sentence

Exhibit 4.2 to the Company’s Annual Report on Form 10-K (File No.

001-38589), filed with the Commission on March 12, 2020.

001-38589), filed with the Securities and Exhange Commission on March 12, 2020.

4.3 Form of 3.375% Fixed-to-Floating Rate Subordinated Note due September 1, 2031

Incorporated herein by reference to Exhibit 4.1 of the Company’s Form 8-K (File No.

Incorporated herein by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K (File No.

001-38589), filed with the Securities and Exchange Commission on August 18, 2021.

4.4 Form of 7.00% Fixed-to-Floating Rate Subordinated Note due November 1, 2032

Incorporated herein by reference to Exhibit 4.1 of the Company’s Form 8-K (File No.

Incorporated herein by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K (File No.

001-38589), filed with the Securities and Exchange Commission on November 1, 2022.

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10.1+ 2006 Stock Option and Equity Compensation Plan

1 unchanged sentence

Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

10.2+ First Amendment to the 2006 Stock Option and Equity Compensation Plan

1 unchanged sentence

Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No.

001-38589), filed with the Commission on August 7, 2020.

10.3+ Directors’ Stock Bonus Plan

Incorporated herein by reference to

Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

001-38589), filed with the Securities and Exchange Commission on August 7, 2020.

10.3+ 2018 Omnibus Incentive Plan

1 unchanged sentence

Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

10.4+ Coastal Financial Corporation Annual Incentive Plan

1 unchanged sentence

Exhibit 10.4 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

10.5+ Second Amended and Restated Employment Agreement by and among Coastal Financial Corporation, Coastal Community Bank and Eric M.

Sprink dated October 4, 2021.

Incorporated herein by reference to Exhibit 10.1 of the Company’s Form 8-K (File No.

Incorporated herein by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No.

001-38589), filed with the Securities and Exchange Commission on October 7, 2021.

2 unchanged sentences

Exhibit 10.6 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

10.7 Lease dated October 21, 1996, between certain persons and Coastal Community Bank

1 unchanged sentence

Exhibit 10.9 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

10.8 Lease Amendment 1.0 dated as of August 15, 2006, between certain persons and Coastal Community Bank

1 unchanged sentence

Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

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333-225715), filed with the Securities and Exchange Commission on June 19, 2018

10.9 Lease Amendment 2.0 dated as of March 31, 2008, between certain persons and Coastal Community Bank

1 unchanged sentence

Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

10.10 Lease Amendment 3.0 dated as of June 29, 2009, between certain persons and Coastal Community Bank

1 unchanged sentence

Exhibit 10.12 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

10.11 Lease Amendment 4.0 dated as of January 31, 2023, between certain persons and Coastal Community Bank

Incorporated herein by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K (File No.

001-38589), filed with the Commission on March 16, 2023

001-38589), filed with the Securities and Exchange Commission on March 16, 2023

10.12 Investment Agreement dated as of March 30, 2011, between Coastal Financial Corporation and Steven D.

1 unchanged sentence

Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

10.13 First Amendment to Investment Agreement dated as of May 9, 2019, between Coastal Financial Corporation and Steven D.

1 unchanged sentence

Exhibit 10.20 to the Company’s Registration Statement on Form S-1 (File No.

333-225715), filed with the Commission on June 19, 2018

333-225715), filed with the Securities and Exchange Commission on June 19, 2018

10.14# Program Agreement dated as of September 26, 2019 by and between Coastal Community Bank and Aspiration Financial, LLC

1 unchanged sentence

1 to the Company’s Current Report on Form 8-K/A (File No.

001-38589) filed on March 21, 2019.

001-38589) filed with the Securities and Exchange Commission on March 21, 2019.

10.15+ Form of Change in Control Severance Agreement

1 unchanged sentence

Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No.

001-38589), filed with the Commission on May 8, 2020.

001-38589), filed with the Securities and Exchange Commission on May 8, 2020.

10.16+ Amended Non-Employee Director Compensation Policy

4 unchanged sentences

Incorporated herein by reference to

Exhibit 10.1 of the Company’s Form 8-K (File No.

Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No.

001-38589), filed with the Securities and Exchange Commission on August 18, 2021.

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10.18 Form of Subordinated Note Purchase Agreement, dated as of November 1, 2022

Incorporated herein by reference to

Exhibit 10.1 of the Company’s Form 8-K (File No.

Exhibit 10.1 of the Company’s Current Report on Form 8-K (File No.

001-38589), filed with the Securities and Exchange Commission on November 1, 2022.

10.19 Employment Agreement by and among Coastal Financial Corporation, Coastal Community Bank and Brian Hamilton, dated September 30, 2024.

Filed herewith

19.1 Insider Trading Policy

Filed herewith

21.1 Subsidiaries

15 unchanged sentences

97.1 Executive Compensation Clawback Policy

Filed herewith

Incorporated herein by reference to Exhibit 97.1 of the Company’s Form 10-K (File No.

001-38589), filed with the Securities and Exchange Commission on March 15, 2024

101 The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, formatted in inline XBRL (Extensible Business Reporting Language):

6 unchanged sentences

The Company hereby agrees to furnish copies of these instruments to the SEC upon request.

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Form 10-K Summary

3 unchanged sentences

Chief Executive Officer

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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

2 unchanged sentences

(Principal Executive Officer) March 17, 2025

Hamilton CCBX President and Director March 17, 2025

Edwards Executive Vice President and Chief Financial Officer

17 unchanged sentences

Tisdel Director March 17, 2025

Hamilton Director March 14, 2024

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 9A. Controls and Procedures