Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
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 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.
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. 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.
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.
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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. Financial Statements and Supplementary Data.
Changes in Internal Control over Financial Reporting
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.
Item 9B. Other Information
During the fiscal quarter ended December 31, 2024 , no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Board of Directors
For information relating to the directors of the Company, the section captioned “Items to be Voted on by Shareholders—Item 1—Election of Directors” in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders is incorporated herein by reference.
Executive Officers
For information relating to officers of the Company, see Part I, Item 1, “Business—Information About Our Executive Officers” to this Annual Report on Form 10-K.
Delinquent Section 16(a) Reports
For information regarding compliance with Delinquent Section 16(a) Reports, the section captioned “Stock Information—Delinquent Section 16(a) Reports” in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders is incorporated herein by reference.
Disclosure of Code of Ethics
For information concerning the Company’s Code of Ethics, the information contained under the section captioned “Corporate Governance—Code of Ethics and Business Conduct” in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders is incorporated by reference. A copy of the Code of Ethics and Business Conduct is available to shareholders on the Company’s website at www.coastalbank.com.
Audit Committee
For information regarding the Audit Committee and its composition and the audit committee financial expert, the section captioned “Corporate Governance—Meetings and Committees of the Board of Directors—Audit Committee” in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders is incorporated herein by reference.
Item 11. Executive Compensation
Executive Compensation
For information regarding executive compensation, the sections captioned “Executive Compensation” and “Director Compensation” in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders are incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
(a) Security Ownership of Certain Beneficial Owners
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.
(b) Security Ownership of Management
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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(c) Changes in Control
Management of the Company knows of no arrangements, including any pledge by any person or securities of the Company the operation of which may at a subsequent date result in a change in control of the registrant.
(d) Securities Authorized for Issuance under Equity Compensation Plans
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.
Number of
securities to be
issued upon
exercise of
outstanding
options
Weighted-
average
exercise price
of outstanding
options
Number of
securities
remaining
available
for issuance
under
equity
compensation
plans (1)
Equity compensation plan approved by stockholders 186,354 $ 9.80 196,447
Equity compensation plan not approved by shareholders - - -
Total 186,354 $ 9.80 196,447
(1) This number has been reduced by the number of securities to be issued upon the exercise of outstanding options, also reported in this table.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and Related Transactions
For information regarding certain relationships and related transactions, the section captioned “ Other Information Relating to Directors and Executive Officers—Transactions with Related Persons” in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders is incorporated herein by reference.
Director Independence
For information regarding director independence, the section captioned “Corporate Governance—Director Independence” in the Company’s Proxy Statement for the 2024 Annual Meeting of Shareholders is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
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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PART IV
Item 15. 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 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) Exhibits
No. Description Location
3.1 Second Amended and Restated Certificate of Incorporation of Coastal Financial Corporation
Incorporated herein by reference to
Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (File No. 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
Incorporated herein by reference to
Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (File No. 333-225715), filed with the Securities and Exchange Commission on June 19, 2018
3.3 Amended and Restated Bylaws of Coastal Financial Corporation
Incorporated herein by reference to
Exhibit 3.3 to the Company’s Registration Statement on Form S-1 (File No. 333-225715), filed with the Securities and Exchange Commission on June 19, 2018
4.1* Form of Common Stock Certificate of Coastal Financial Corporation
Incorporated herein by reference to
Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (File No. 333-225715), filed with the Securities and Exchange Commission on June 19, 2018
4.2 Description of Securities
Incorporated herein by reference to
Exhibit 4.2 to the Company’s Annual Report on Form 10-K (File No. 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 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 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
Incorporated herein by reference to
Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (File No. 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
Incorporated herein by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-38589), filed with the Securities and Exchange Commission on August 7, 2020.
10.3+ 2018 Omnibus Incentive Plan
Incorporated herein by reference to
Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (File No. 333-225715), filed with the Securities and Exchange Commission on June 19, 2018
10.4+ Coastal Financial Corporation Annual Incentive Plan
Incorporated herein by reference to
Exhibit 10.4 to the Company’s Registration Statement on Form S-1 (File No. 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 Current Report on Form 8-K (File No. 001-38589), filed with the Securities and Exchange Commission on October 7, 2021.
10.6+ Amended and Restated Change in Control Severance Agreement by and among Coastal Financial Corporation, Coastal Community Bank, and Joel Edwards
Incorporated herein by reference to
Exhibit 10.6 to the Company’s Registration Statement on Form S-1 (File No. 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
Incorporated herein by reference to
Exhibit 10.9 to the Company’s Registration Statement on Form S-1 (File No. 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
Incorporated herein by reference to
Exhibit 10.10 to the Company’s Registration Statement on Form S-1 (File No. 333-225715), filed with the Securities and Exchange Commission on June 19, 2018
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10.9 Lease Amendment 2.0 dated as of March 31, 2008, between certain persons and Coastal Community Bank
Incorporated herein by reference to
Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (File No. 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
Incorporated herein by reference to
Exhibit 10.12 to the Company’s Registration Statement on Form S-1 (File No. 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 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. Hovde
Incorporated herein by reference to
Exhibit 10.13 to the Company’s Registration Statement on Form S-1 (File No. 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. Hovde
Incorporated herein by reference to
Exhibit 10.20 to the Company’s Registration Statement on Form S-1 (File No. 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
Incorporated herein by reference to Exhibit 10.1 to Amendment No. 1 to the Company’s Current Report on Form 8-K/A (File No. 001-38589) filed with the Securities and Exchange Commission on March 21, 2019.
10.15+ Form of Change in Control Severance Agreement
Incorporated herein by reference to
Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No. 001-38589), filed with the Securities and Exchange Commission on May 8, 2020.
10.16+ Amended Non-Employee Director Compensation Policy
Incorporated herein by reference to
Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-38589), filed with the Commission on November 6, 2020.
10.17 Form of Subordinated Note Purchase Agreement, dated as of August 18, 2021
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 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 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
Incorporated herein by reference to
Exhibit 21.1 of the Company’s Form 10-K (File No. 001-38589), filed with the Securities and Exchange Commission on March 14, 2022.
23.1 Consent of Moss Adams LLP
Filed herewith
31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
31.2 Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.1 Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
32.2 Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
97.1 Executive Compensation Clawback Policy
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
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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): (i) the Consolidated Balance Sheet, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements Filed herewith
104 Cover Page Interactive Data (formatted as Inline XBRL and contained in Exhibit 101 filed herewith)
_______________________________________
+ Management contract or compensatory plan, contract or arrangement.
# Portions of this exhibit have been omitted pursuant to a request for confidential treatment and the non-public information has been filed separately with the SEC.
* Certain instruments defining the rights of holders of long-term debt securities of the Company and its subsidiaries are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company hereby agrees to furnish copies of these instruments to the SEC upon request.
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COASTAL FINANCIAL CORPORATION
Dated: March 17, 2025 /s/ Eric M. Sprink
Eric M. Sprink
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.
Name Title Date
/s/ Eric M. Sprink Chief Executive Officer and Director
(Principal Executive Officer) March 17, 2025
Eric M. Sprink
/s/ Brian T. Hamilton CCBX President and Director March 17, 2025
Brian T. Hamilton
/s/ Joel G. Edwards Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer) March 17, 2025
Joel G. Edwards
/s/ Christopher D. Adams Chair of the Board March 17, 2025
Christopher D. Adams
/s/ Steven D. Hovde Vice Chair of the Board March 17, 2025
Steven D. Hovde
/s/ Pamela R. Unger Director March 17, 2025
Pamela R. Unger
/s/ Rilla R. Delorier Director March 17, 2025
Rilla R. Delorier
/s/ Stephan Klee Director March 17, 2025
Stephan Klee
/s/ Thomas D. Lane Director March 17, 2025
Thomas D. Lane
/s/ Sadhana Akella-Mishra Director March 17, 2025
Sadhana Akella-Mishra
/s/ Michael R. Patterson Director March 17, 2025
Michael R. Patterson
/s/ Gregory A. Tisdel Director March 17, 2025
Gregory A. Tisdel
206