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What changed in COASTAL FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of COASTAL FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+717 added−685 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-16)

Top changes in COASTAL FINANCIAL CORP's 2023 10-K

717 paragraphs added · 685 removed · 523 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

118 edited+30 added−33 removed199 unchanged
Biggest changeRepurchase or Redemption of Securities A bank holding company that is not well capitalized or well managed, or that is subject to any unresolved supervisory issues, is required to give the Federal Reserve prior written notice of any purchase or redemption of its own 16 Table of Contents then-outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth.
Biggest changeAs 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. 15 Table of Content s Repurchase or Redemption of Securities A bank holding company that is not well capitalized or well managed, or that is subject to any unresolved supervisory issues, is required to give the Federal Reserve prior written notice of any purchase or redemption of its own then-outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth.
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 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 make commercial and industrial loans, including term loans, Small Business Administration (“SBA”) loans, commercial lines of credit, capital call lines working capital loans, equipment financing, borrowing base loans, and other loan products, that are underwritten on the basis of the borrower’s ability to service the debt from income.
We make commercial and industrial loans, including term loans, commercial lines of credit, capital call lines working capital loans, equipment financing, borrowing base loans, Small Business Administration (“SBA”) loans, and other loan products, that are underwritten on the basis of the borrower’s ability to service the debt from income.
Federal Laws Applicable to Consumer Credit and Deposit Transactions The Bank’s loan and deposit operations are subject to a number of federal consumer protection laws, including: • the Federal Truth in Lending Act, governing disclosures of credit terms to consumer borrowers; • the Real Estate Settlement Procedures Act, imposing requirements on the settlement and servicing of residential mortgage loans; • 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; • the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, color, religion, national origin, sex, marital status or certain other prohibited factors in all aspects of credit transactions; • the Fair Credit Reporting Act (“FCRA”), governing the use and provision of information to credit reporting agencies; 18 Table of Contents • the Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected by debt collectors; • the Service Members Civil Relief Act, governing the repayment terms of, and property rights underlying, secured obligations of persons in military service; • the Truth in Savings Act, governing disclosure of account terms and costs to consumer depositors; • the Gramm-Leach-Bliley Act, governing the disclosure and safeguarding of sensitive non-public personal information of our clients; • the Right to Financial Privacy Act, imposing a duty to maintain confidentiality of consumer financial records and prescribing procedures for complying with administrative subpoenas of financial records; • the National Flood Insurance Act, as amended, to provide flood insurance for structures and contents in communities that adopt and enforce an ordinance outlining minimal floodplain management standards and to identify areas of high and low flood hazard and establish flood insurance rates for structures inside each flood hazard area; • the Electronic Funds Transfer Act governing automatic deposits to and withdrawals from deposit accounts and clients’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and • the rules and regulations of the CFPB and various federal agencies charged with the responsibility of implementing these federal laws.
Federal Laws Applicable to Consumer Credit and Deposit Transactions The Bank’s loan and deposit operations are subject to a number of federal consumer protection laws, including: • the Federal Truth in Lending Act, governing disclosures of credit terms to consumer borrowers; • the Real Estate Settlement Procedures Act, imposing requirements on the settlement and servicing of residential mortgage loans; 17 Table of Content s • the Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the communities it serves; • the Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, color, religion, national origin, sex, marital status or certain other prohibited factors in all aspects of credit transactions; • the Fair Credit Reporting Act (“FCRA”), governing the use and provision of information to credit reporting agencies; • the Fair Debt Collection Practices Act, governing the manner in which consumer debts may be collected by debt collectors; • the Service Members Civil Relief Act, governing the repayment terms of, and property rights underlying, secured obligations of persons in military service; • the Truth in Savings Act, governing disclosure of account terms and costs to consumer depositors; • the Gramm-Leach-Bliley Act, governing the disclosure and safeguarding of sensitive non-public personal information of our clients; • the Right to Financial Privacy Act, imposing a duty to maintain confidentiality of consumer financial records and prescribing procedures for complying with administrative subpoenas of financial records; • the National Flood Insurance Act, as amended, to provide flood insurance for structures and contents in communities that adopt and enforce an ordinance outlining minimal floodplain management standards and to identify areas of high and low flood hazard and establish flood insurance rates for structures inside each flood hazard area; • the Electronic Funds Transfer Act governing automatic deposits to and withdrawals from deposit accounts and clients’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and • the rules and regulations of the CFPB and various federal agencies charged with the responsibility of implementing these federal laws.
CCBX segment (BaaS) Our CCBX segment provides BaaS enabling broker dealers and digital financial service providers to offer its clients banking services. The “X” is indicative of the technology services that our partners provide. Our partners make our banking products and services available to their consumers, partners and workforce through integration with our banking platform.
CCBX segment (BaaS) Our CCBX segment provides BaaS, enabling broker dealers and digital financial service providers to offer their clients banking services. The “X” is indicative of the technology services that our partners provide. Our partners make our banking products and services available to their consumers, partners and workforce through integration with our banking platform.
Prior to joining the Bank, he served as Senior Vice President and Chief Lending Officer of North County Bank and Manager Team Lead at InterWest Bank. Mr. 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. John J.
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. Mr. 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.
Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include: • factoring accounts receivable; • making, acquiring, brokering or servicing loans and usual related activities in connection with the foregoing; • leasing personal or real property under certain conditions; 15 Table of Contents • operating a non-bank depository institution, such as a savings association; • engaging in trust company functions in a manner authorized by state law; • financial and investment advisory activities; • discount securities brokerage activities; • underwriting and dealing in government obligations and money market instruments; • providing specified management consulting and counseling activities; • performing selected data processing services and support services; • acting as an agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and • performing selected insurance underwriting activities.
Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include: • factoring accounts receivable; • making, acquiring, brokering or servicing loans and usual related activities in connection with the foregoing; 14 Table of Content s • leasing personal or real property under certain conditions; • operating a non-bank depository institution, such as a savings association; • engaging in trust company functions in a manner authorized by state law; • financial and investment advisory activities; • discount securities brokerage activities; • underwriting and dealing in government obligations and money market instruments; • providing specified management consulting and counseling activities; • performing selected data processing services and support services; • acting as an agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and • performing selected insurance underwriting activities.
Community Reinvestment Act The Community Reinvestment Act (“CRA”) requires that, in connection with examinations of insured depository institutions within their respective jurisdictions, the federal banking agencies will evaluate the record of each financial institution in meeting the credit needs of its local community, including low- and moderate-income neighborhoods.
Community Reinvestment Act The CRA requires that, in connection with examinations of insured depository institutions within their respective jurisdictions, the federal banking agencies will evaluate the record of each financial institution in meeting the credit needs of its local community, including low- and moderate-income neighborhoods.
The law created a variety of consumer protections, including limitations, subject to exceptions, on the manner by which loan originators may be compensated and an obligation on the part of lenders to verify a borrower’s “ability to repay” a residential mortgage loan. 24 Table of Contents • The Dodd-Frank Act addresses many investor protection, corporate governance and executive compensation matters that affect most U.S. publicly traded companies.
The law created a variety of consumer protections, including limitations, subject to exceptions, on the manner by which loan originators may be compensated and an obligation on the part of lenders to verify a borrower’s “ability to repay” a residential mortgage loan. • The Dodd-Frank Act addresses many investor protection, corporate governance and executive compensation matters that affect most U.S. publicly traded companies.
As of December 31, 2022, approximately 86% of the real estate loans in our community bank loan portfolio (measured by dollar amount) were secured by real estate, or made to borrowers who live or conduct business, in the Puget Sound region.
As of December 31, 2023, approximately 86% of the real estate loans in our community bank loan portfolio (measured by dollar amount) were secured by real estate, or made to borrowers who live or conduct business, in the Puget Sound region.
At December 31, 2022, the Bank qualified for the well-capitalized category. Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories.
At December 31, 2023, the Bank qualified for the well-capitalized category. Federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories.
Construction loans are typically disbursed as construction progresses and carry either fixed or variable interest rates. Our construction and development loans typically have terms that range from six months to two years depending on factors such as the type and size of the development and the financial strength 5 Table of Contents of the borrower/guarantor.
Construction loans are typically disbursed as construction progresses and carry either fixed or variable interest rates. Our construction and development loans typically have terms that range from six months to two years depending on factors such as the type and size of the development and the financial strength of the borrower/guarantor.
His career includes a 26 Table of Contents variety of leadership roles at banks ranging from top-ten and regionals to community institutions, and as Chief Operating Officer of a fintech company. He holds a degree in Accounting from Louisiana State University and is active in his community and banking industry organizations. Mr.
His career includes a variety of leadership roles at banks ranging from top-ten and regionals to community institutions, and as Chief Operating Officer of a fintech company. He holds a degree in Accounting from Louisiana State University and is active in his community and banking industry organizations. Mr.
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.
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.
Management regularly reviews the status of the watch list and classified assets portfolio as well as the larger credits in the portfolio. 7 Table of Contents Concentrations of Credit Risk Most of our community bank lending activity is conducted with businesses and individuals in our market area.
Management regularly reviews the status of the watch list and classified assets portfolio as well as the larger credits in the portfolio. Concentrations of Credit Risk Most of our community bank lending activity is conducted with businesses and individuals in our market area.
Available Information The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, proxy statements, current reports on Form 8-K, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”), and other filings with the SEC are available free of charge at https://ir.coastalbank.com/ under the heading “–Financials - SEC Filings” as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC.
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 12 Table of Content s practicable after the Company electronically files such material with, or furnishes it to, the SEC.
Consumer loan collections are dependent on the borrower’s continuing financial stability and are therefore more likely to be affected by adverse personal circumstances, such as a loss of employment, divorce, or unexpected medical costs. The community bank segment has $1.7 million in consumer loans as of December 31, 2022.
Consumer loan collections are dependent on the borrower’s continuing financial stability and are therefore more likely to be affected by adverse personal circumstances, such as a loss of employment, divorce, or unexpected medical costs. The community bank segment has $1.6 million in consumer loans as of December 31, 2023.
The guaranty is conditional and covers a portion of the risk of payment default by the borrower, but not the risk of improper underwriting, closing and servicing by the lender. As such, prudent underwriting and closing processes are 4 Table of Contents essential to effective utilization of the 7(a) program.
The guaranty is conditional and covers a portion of the risk of payment default by the borrower, but not the risk of improper underwriting, closing and servicing by the lender. As such, prudent underwriting and closing processes are essential to effective utilization of the 7(a) program.
The holding company’s obligation to fund a capital restoration plan is limited to the lesser of (i) 5% of an undercapitalized subsidiary 20 Table of Contents institution’s assets at the time it became undercapitalized and (ii) the amount required to meet regulatory capital requirements.
The holding company’s obligation to fund a capital restoration plan is limited to the lesser of (i) 5% of an undercapitalized subsidiary institution’s assets at the time it became undercapitalized and (ii) the amount required to meet regulatory capital requirements.
Human Capital As of December 31, 2022, we had 448 full-time equivalent employees, all were located in the United States, however technology has allowed us to expand our reach to include a larger demographic with more remote employees working outside of our physical locations and throughout the country.
Human Capital As of December 31, 2023, we had 507 full-time equivalent employees, all were located in the United States, however technology has allowed us to expand our reach to include a larger demographic with more remote employees working outside of our physical locations and throughout the country.
The eligible retained income of a banking organization is defined as the greater of (1) its net income for the four calendar quarters preceding the current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income, and (2) the average of its net income over the preceding four quarters.
The eligible retained income of a banking organization is defined as the greater of (1) its net income for the four calendar quarters preceding the 18 Table of Content s current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income, and (2) the average of its net income over the preceding four quarters.
Consumer loans are underwritten based on the individual borrower’s income, current 6 Table of Contents debt level, past credit history and the value of any available collateral. The terms of consumer loans vary considerably based upon the loan type, nature of collateral and size of the loan.
Consumer loans are underwritten based on the individual borrower’s income, current debt level, past credit history and the value of any available collateral. The terms of consumer loans vary considerably based upon the loan type, nature of collateral and size of the loan.
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.
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 8 Table of Content s neighboring counties (one in King County and one in Island County). We emphasize obtaining deposit relationships at loan origination.
At December 31, 19 Table of Contents 2022 the Company had $3.5 million of non-qualifying instruments includable in Tier 1 capital that were issued prior to May 19, 2010. The Company and the Bank are required to meet the generally applicable regulatory capital requirements of the Federal Reserve and the FDIC.
At December 31, 2023 the Company had $3.5 million of non-qualifying instruments includable in Tier 1 capital that were issued prior to May 19, 2010. The Company and the Bank are required to meet the generally applicable regulatory capital requirements of the Federal Reserve and the FDIC.
Our CCBX segment includes cash secured and unsecured consumer loans, loan 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 6 Table of Content s products designed to help consumers build credit, credit cards and overdrafts. Consumer loans are made through our CCBX partners to our underwriting standards. The terms of consumer loans vary considerably based upon the loan type, nature of collateral and size of the loan.
Because the Company’s total consolidated assets exceeded $3.0 billion as of September 30, 2022, the Company is no longer subject to the Federal Reserve’s Small Bank Holding Company Policy Statement and will be evaluated relative to the capital adequacy standards established by the Federal Reserve going forward.
Because the Company’s total consolidated assets exceeded $3.0 billion as of September 30, 2022, the Company is no longer subject to the Federal Reserve’s Small Bank Holding Company Policy Statement and is evaluated relative to the capital adequacy standards established by the Federal Reserve.
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. Overdraft Fees Federal Reserve Regulation E restricts banks’ abilities to charge overdraft fees.
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. 23 Table of Content s Overdraft Fees Federal Reserve Regulation E restricts banks’ abilities to charge overdraft fees.
In addition, the Bank and any other depository institution subsidiary we control must be well-capitalized and well-managed and must have a CRA rating of at least “satisfactory.” Additionally, we must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with 30 days written notice prior to engaging in a permitted financial activity.
In addition, the Bank and any other depository institution subsidiary we control must be well-capitalized and well-managed and must have a Community and Reinvestment Act (“CRA”) rating of at least “Satisfactory.” Additionally, we must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with 30 days written notice prior to engaging in a permitted financial activity.
Acquisition of Banks The BHC Act requires every bank holding company to obtain the Federal Reserve’s prior approval before: • 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; • acquiring all or substantially all of the assets of any bank; or 14 Table of Contents • merging or consolidating with any other bank holding company.
Acquisition of Banks The BHC Act requires every bank holding company to obtain the Federal Reserve’s prior approval before: • 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; 13 Table of Content s • acquiring all or substantially all of the assets of any bank; or • merging or consolidating with any other bank holding company.
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.
Our community bank commercial real estate lending in the Puget Sound region attracts keen competition from large banking institutions with national 9 Table of Content s operations, as well as mid-sized regional banking institutions. We compete with other community banks, savings and loan associations, credit unions, mortgage companies, insurance companies, finance companies and other financial intermediaries.
The proposal would also impose certain governance and recordkeeping requirements on institutions covered by the rule. Whether or when the agencies will finalize the proposal is uncertain. Information About Our Executive Officers The table below provides information about our executive officers. Ages are as of December 31, 2022. Name Age Position Eric M.
The proposal would also impose certain governance and recordkeeping requirements on institutions covered by the rule. Whether or when the agencies will finalize the proposal is uncertain. 25 Table of Content s Information About Our Executive Officers The table below provides information about our executive officers. Ages are as of December 31, 2023. Name Age Position Eric M.
Culture We have always led with people, building our Bank on the diverse perspectives, knowledge, and experiences of our employees. Our employees utilize their strengths to set the course and are empowered to do the right things for our clients.
Culture 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 11 Table of Content s clients.
We have established several levels of lending authority that have been delegated by the board of directors to our management credit committee, Chief Executive Officer, Chief Credit Officers (community bank and CCBX) and other personnel in accordance with our loan policy.
We have established several levels of lending authority that have been delegated by the board of directors to our management credit committee, Chief Executive Officer, Chief Credit Officer and other personnel in accordance with our loan policy.
We strive to identify potential problem loans early in an effort to actively seek resolution of these situations before they create a loss. We record any necessary charge-offs promptly and maintain adequate allowance levels for probable loan losses incurred in the loan portfolio.
We strive to identify potential problem loans early in an effort to actively seek resolution of these situations before they create a loss. We record any necessary charge-offs promptly and maintain adequate allowance levels for expected credit losses estimated in the loan portfolio.
A substantial portion of our loan portfolio consists of commercial and industrial loans and real estate loans secured by commercial real estate properties located in the Puget Sound region, and is dependent upon the economic environment of the Puget Sound region.
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 7 Table of Content s the Puget Sound region.
The Bank could retain these 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.
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.
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. 3 Table of Contents Segment Reporting The Company has two reportable segments: The community bank and CCBX.
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. 3 Table of Content s Segment Reporting The Company has three reportable segments: The community bank, CCBX and treasury & administration.
As of December 31, 2022, we held $146.0 million in capital call lines provided to venture capital firms through one of our CCBX partners. These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards and the underwriting is reviewed by the Bank on every loan/line.
As of December 31, 2023, we held $87.5 million in capital call lines provided to venture capital firms through one of our CCBX partners. These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards and the underwriting is reviewed by the Bank on every loan/line.
Since the outbreak of the COVID-19 pandemic, the amount of total estimated insured deposits has grown rapidly while the funds in the DIF have grown at a normal rate, causing the DIF reserve ratio to fall below the statutory minimum of 1.35%.
Since the outbreak of the COVID-19 pandemic, the amount of total estimated insured deposits has grown rapidly while the funds in the FDIC’s Deposit Insurance Fund (“DIF”) have grown at a normal rate, causing the DIF reserve ratio to fall below the statutory minimum of 1.35%.
The range of assessment rates effective January 1, 2023, and first applicable on invoices dated June 30, 2023, will fall between 2.5 basis points for an established small institution posing the least risk, to 32 basis points for an established small institution posing the most risk.
The range of assessment rates effective January 1, 16 Table of Content s 2023, and first applicable on invoices dated June 30, 2023, fall between 2.5 basis points for an established small institution posing the least risk, to 32 basis points for an established small institution posing the most risk.
The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.
The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal 24 Table of Content s level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.
We are headquartered in Everett, Washington, which by population is the largest city in, and the county seat of, Snohomish County. Our business is conducted through two reportable segments: The community bank and CCBX.
We are headquartered in Everett, Washington, which by population is the largest city in, and the county seat of, Snohomish County. Our business is conducted through three reportable segments: The community bank, CCBX and treasury & administration.
Our focus on relationship banking combined with our robust business banking services has led to approximately 76.9% of our community bank loan customers having deposit relationships with us as of December 31, 2022. Our CCBX partners originate deposits with many of the same characteristics as our community bank and these deposits are primarily interest bearing to us.
Our focus on relationship banking combined with our robust business banking services has led to approximately 77.6% of our community bank loan customers having deposit relationships with us as of December 31, 2023. Our CCBX partners originate deposits with many of the same characteristics as our community bank and these deposits are primarily interest bearing to us.
We seek to attract, retain and develop the most talented employees possible by promoting a strong, positive culture, maintaining a safe and healthy workplace, emphasizing open communication with management and investing in training and education. In 2022, our retention rate was 88%. We seek to help our employees grow and develop. In 2022, we had 106 internal promotions.
We seek to attract, retain and develop the most talented employees possible by promoting a strong, positive culture, maintaining a safe and healthy workplace, emphasizing open communication with management and investing in training and education. In 2023, our retention rate was 85%. We seek to help our employees grow and develop. In 2023, we had 108 internal promotions.
With staff in 34 states, it is important to encourage and enable employees to support their community, wherever they are located. The Employee Workplace Giving Portal allows employees to support their charity of choice through payroll deduction. The Company pays the administrative fees for the program so 100% of employee donations are directed to their charities of choice.
With staff in 40 states, it is important to encourage and enable employees to support their community, wherever they are located. The Employee Workplace Giving Portal allows employees to support their charity of choice through payroll deduction. We pay the administrative fees for the program so 100% of employee donations are directed to their charities of choice.
As of December 31, 2022, the balance of ARM portfolio loans was $28.0 million, or 6.2% of residential real estate loans. Our ARM loans typically do not meet the guidelines for sale in the secondary market due to characteristics of the property, the loan terms or exceptions from agency underwriting guidelines, which enables us to earn a higher interest rate.
As of December 31, 2023, the balance of ARM portfolio loans was $31.5 million, or 6.8% of residential real estate loans. Our ARM loans typically do not meet the guidelines for sale in the secondary market due to characteristics of the property, the loan terms or exceptions from agency underwriting guidelines, which enables us to earn a higher interest rate.
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, 2022, we held $9.4 million, representing 2.1% of our residential real estate loans, in purchased residential real estate mortgage loans.
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.
We are the largest locally headquartered bank by deposit market share in Snohomish County, according to data from the FDIC as of June 30, 2022, at which date we had a 13.0% deposit market share in Snohomish County, which was up from 9.0% in 2021 and 7.6% in 2020.
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.
DEI is also achieved through our CCBX partners and the markets they serve. Our reach extends to a diverse and often underserved market through our BaaS relationships. These partners offer access to credit, promote financial well-being, provide financial education, and other services to a variety of markets.
We also promote DEI by reaching customers through our CCBX partners and the markets they serve. Our reach extends to a diverse and often underserved market through our BaaS relationships. These partners offer access to credit, promote financial well-being, provide financial education, and other services to a variety of markets.
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 $1.01 billion, or 38.5% of total loans receivable, as of December 31, 2022. CCBX loans are originated through our partners and are consistent with our underwriting standards.
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 are originated through our partners and are consistent with our underwriting standards.
The SBA’s 7(a) program provides up to a 75% guaranty for loans greater than $150,000. For loans $150,000 or less, the program provides up to an 85% guaranty. The maximum 7(a) loan amount is $5 million.
The SBA’s 7(a) program provides up to a 75% guaranty for loans greater than 4 Table of Content s $150,000. For loans $150,000 or less, the program provides up to an 85% guaranty. The maximum 7(a) loan amount is $5 million.
As of December 31, 2022, we had a total of $2.7 million, and service $6.2 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 $68.4 million, or 2.6% of total loans, in loans under the SBA 504 program.
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. Also included in commercial real estate loans was $77.9 million, or 2.6% of total loans, in loans under the SBA 504 program.
The Employee Giving Fund is supported entirely by donations contributed by employees, enabling staff to pool their donations for the greatest impact in the communities served by the community bank. Employees direct the grants from the fund by serving on Bank’s grant advisory committee.
The Employee Giving Fund is supported entirely by donations contributed by employees and directors, enabling donors to pool their donations for the greatest impact in the communities served by the Bank. Employees direct the grants from the fund by serving on the Bank’s fund advisory committee.
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 269.2% and 305.1% of its capital, at December 31, 2022 and 2021, respectively.
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 238.3% and 269.2% of its capital, at December 31, 2023 and 2022, respectively.
We require that our commercial real estate loans to investors be secured by well-managed properties with adequate margins and generally obtain a guaranty from responsible parties. As of December 31, 2022, we held $460.1 million in other non-owner occupied loans, excluding multifamily loans, representing 43.9% of our commercial real estate loans and 17.4% of total loans.
We require that our commercial real estate loans to investors be secured by well-managed properties with adequate margins and generally obtain a guaranty from responsible parties. As of December 31, 2023, we held $542.6 million in other non-owner occupied loans, excluding multifamily loans, representing 41.6% of our commercial real estate loans and 17.9% of total loans.
Dickson 62 Chief Operating Officer The following is a brief discussion of the business and banking background and experience of our executive officers, including their business experience during the last five years. Eric M. Sprink serves as our Chief Executive Officer. Mr.
Stines 53 Chief Risk Officer The following is a brief discussion of the business and banking background and experience of our executive officers, including their business experience during the last five years. Eric M. Sprink serves as our Chief Executive Officer. Mr.
Russ A. Keithley has served as Executive Vice President and Chief Banking Officer of the Bank since 2020. From 2015 to 2020, Mr. Keithley held the position of Executive Vice President and Chief Lending Officer. He joined the Bank in 2012 and became Senior Vice President and Chief Credit Officer in 2014.
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. Mr. Keithley joined the Bank in 2012 and became Senior Vice President and Chief Credit Officer in 2014.
We typically sell in the secondary market the SBA-guaranteed portion (generally 75% of the principal balance) of the SBA loans we originate. As of December 31, 2022, our commercial and industrial loans included $4.7 million in PPP loans.
We typically sell in the secondary market the SBA-guaranteed portion (generally 75% of the principal balance) of the SBA loans we originate. As of December 31, 2023, our commercial and industrial loans included $3.0 million in PPP loans.
At December 31, 2022, approximately 30.5% of the commercial real estate loan portfolio consisted of fixed rate loans. Loan amounts generally do not exceed 75% of the lesser of the appraised value or the purchase price.
At December 31, 2023, approximately 33.6% of the commercial real estate loan portfolio consisted of fixed rate loans. Loan amounts generally do not exceed 75% of the lesser of the appraised value or the purchase price.
Capital call lines represent 46.7% of total commercial and industrial loans, and are included in CCBX commercial and industrial loans. As of December 31, 2022, our total commercial SBA portfolio, excluding PPP loans, was $4.7 million, net of $5.2 million in loans sold, with $2.4 million guaranteed by the SBA.
Capital call lines represent 30.0% 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.
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 $1.26 billion and represented 269.2% of the Bank’s total risk-based capital at December 31, 2022.
Our total non-owner-occupied commercial real estate loans, including loans secured by apartment buildings, investor commercial real estate, and construction and land loans totaled $1.46 billion and represented 238.3% of the Bank’s total risk-based capital at December 31, 2023.
The Bank’s legal lending limit as of December 31, 2022 on loans to a single borrower was $68.3 million, or 20% of capital and surplus.
The Bank’s legal lending limit as of December 31, 2023 on loans to a single borrower was $90.2 million, or 20% of capital and surplus.
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, 2022, 98.7% of our investment portfolio consisted of U.S. Treasury securities. The remainder of our securities portfolio is invested in municipal bonds, U.S.
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. Agency collateralized mortgage and U.S.
The CCBX segment provides banking as a service (“BaaS”) that allows our broker-dealer and digital financial service partners to offer their customers banking services. The CCBX segment has 19 active partners with six more currently in the testing of LOI stage as of December 31, 2022.
The CCBX segment 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.
As of December 31, 2022, we had $608.8 million in total consumer loans, representing 23.2% of total loans. Consumer loans are primarily originated through our CCBX partners. Consumer loans typically have shorter terms, lower balances, higher yields and higher risks of default than residential real estate mortgage loans.
As of December 31, 2023, we had $818.0 million in total consumer loans, representing 26.9% of total loans. Consumer loans are primarily originated through our CCBX partners. Consumer loans typically have shorter terms, lower balances, higher yields and higher risks of default than residential real estate mortgage loans.
The Puget Sound region, which comprises over 62% of the population of the state of Washington, and approximately 63% of the number of businesses located therein has a population of approximately 4.9 million, over 164,000 businesses and $173.4 billion of deposits with us and other banking institutions located in the region.
The Puget Sound region, which comprises over 62% of the population of the state of Washington, and approximately 62% of the number of businesses located therein has a population of approximately 5.0 million, over 174,000 businesses and $159.5 billion of deposits with us and other banking institutions located in the region.
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. As of December 31, 2022, we had $241.4 million on multi-family residential loans, representing 23.0% of our commercial real estate loans, and 9.2% of total loans.
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. As of December 31, 2023, we had $369.5 million on multi-family residential loans, representing 28.3% of our commercial real estate loans, and 12.2% of total loans.
Due to the low interest rate environment, we are primarily holding the majority of our on-balance sheet liquidity in interest bearing bank deposits to limit our exposure to interest rate and price risk and to provide readily available funds for loan growth. As of December 31, 2022, we had $2.6 million in equity investments.
We are primarily holding the majority of our on-balance sheet liquidity in interest bearing bank deposits to limit our exposure to interest rate and price risk and to provide readily available funds for loan growth. As of December 31, 2023, we had $2.6 million in equity investments. The equity investments will be held at cost minus any impairment.
As of December 31, 2022, we had total assets of $3.14 billion, total loans receivable of $2.63 billion, total deposits of $2.82 billion and total shareholders’ equity of $243.5 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.
As of December 31, 2023, we had total assets of $3.75 billion, total loans receivable of $3.03 billion, total deposits of $3.36 billion and total shareholders’ equity of $295.0 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.
The primary focus of the community bank segment is on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington.
The community bank segment includes all community banking activities, with a primary focus on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application.
As of December 31, 2022, we had $449.2 million in residential real estate loans, representing 17.1% of total loans. We make one-to-four family loans to investors to finance their rental properties and to business owners to secure their business loans.
As of December 31, 2023, we had $463.4 million in residential real estate loans, representing 15.3% of total loans. We make one-to-four family loans to investors to finance their rental properties and to business owners to secure their business loans.
Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses. In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans.
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.
We have committed up to $988,000 in capital for these equity funds, however, we are not obligated to fund these commitments prior to a capital call. 9 Table of Contents Competition We operate in a highly competitive industry and in a highly competitive market.
The Company has committed up to $653,000 in capital for these equity funds, however, we are not obligated to fund these commitments prior to a capital call. Competition We operate in a highly competitive industry and in a highly competitive market.
Moreover, the federal agencies have issued policy statements providing that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. 21 Table of Contents Restrictions on Transactions with Affiliates and Insiders The Bank is subject to Section 23A of the Federal Reserve Act, which places limits on the amount of: • a bank’s loans or extensions of credit to affiliates; • a bank’s investment in securities issued by affiliates; • a bank’s purchase of assets from affiliates; • loans or extensions of credit made by a bank to third parties collateralized by the securities or obligations of affiliates; • a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate; • a bank’s transactions with an affiliate involving the borrowing or lending of securities to the extent they create credit exposure to the affiliate; and • a bank’s derivative transactions with an affiliate to the extent they create credit exposure to the affiliate.
Restrictions on Transactions with Affiliates and Insiders The Bank is subject to Section 23A of the Federal Reserve Act, which places limits on the amount of: • a bank’s loans or extensions of credit to affiliates; • a bank’s investment in securities issued by affiliates; • a bank’s purchase of assets from affiliates; • loans or extensions of credit made by a bank to third parties collateralized by the securities or obligations of affiliates; • a bank’s guarantee, acceptance or letter of credit issued on behalf of an affiliate; • a bank’s transactions with an affiliate involving the borrowing or lending of securities to the extent they create credit exposure to the affiliate; and • a bank’s derivative transactions with an affiliate to the extent they create credit exposure to the affiliate.
When the provision for loan losses and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS fees -credit enhancement). Incurred losses are recorded in the allowance for loan losses, and as the credit enhancement recoveries are received from the CCBX partner, the credit enhancement asset is relieved.
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.
Volunteering and supporting our communities is an important part of community engagement. We provide 16 hours of paid volunteer hours (for full time staff) per year to encourage and enable employees to volunteer in their communities. In 2022, employees volunteered 5,545 hours supporting 187 organizations. In 2022, the Bank supported 152 organizations through donations and event sponsorships.
Volunteering and supporting our communities is an important part of community engagement. We provide 16 hours of paid volunteer hours (for full-time staff) per year to encourage and enable employees to volunteer in their communities. In 2023, employees volunteered 5,301 hours supporting 201 organizations.
Construction, Land and Land Development Loans . As of December 31, 2022, we had $214.1 million in construction, land and land development loans, representing 8.1% of total loans.
Construction, Land and Land Development Loans . As of December 31, 2023, we had $157.1 million in construction, land and land development loans, representing 5.2% of total loans.
As of September 30, 2022, which is the most recent information available, the DIF was at 1.26%. 17 Table of Contents Termination of Deposit Insurance The FDIC may terminate its insurance of deposits of a bank if it finds that the bank has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Termination of Deposit Insurance The FDIC may terminate its insurance of deposits of a bank if it finds that the bank has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Consumer Credit Reporting The FCRA imposes, among other things: • requirements for financial institutions to develop policies and procedures to identify potential identity theft and, upon the request of a consumer, to place a fraud alert in the consumer’s credit file stating that the consumer may be the victim of identity theft or other fraud; • requirements for entities that furnish information to consumer reporting agencies to implement procedures and policies regarding the accuracy and integrity of the furnished information and regarding the correction of previously furnished information that is later determined to be inaccurate; • requirements for mortgage lenders to disclose credit scores to consumers in certain circumstances; and • limitations on the ability of a business that receives consumer information from an affiliate to use that information for marketing purposes. 23 Table of Contents Anti-Terrorism, Money Laundering Legislation and OFAC The Bank is subject to the Bank Secrecy Act and the USA Patriot Act.
For further information, see the section titled “ Cybersecurity ” in Part I, Item 1C of this Annual Report on Form 10-K. 22 Table of Content s Consumer Credit Reporting The FCRA imposes, among other things: • requirements for financial institutions to develop policies and procedures to identify potential identity theft and, upon the request of a consumer, to place a fraud alert in the consumer’s credit file stating that the consumer may be the victim of identity theft or other fraud; • requirements for entities that furnish information to consumer reporting agencies to implement procedures and policies regarding the accuracy and integrity of the furnished information and regarding the correction of previously furnished information that is later determined to be inaccurate; • requirements for mortgage lenders to disclose credit scores to consumers in certain circumstances; and • limitations on the ability of a business that receives consumer information from an affiliate to use that information for marketing purposes.
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.
Anti-Terrorism, Money Laundering Legislation and OFAC The Bank is subject to the Bank Secrecy Act and the USA Patriot Act. 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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAdditionally, in May 2022 the federal banking agencies issued a proposed rule that may make it more challenging and/or costly for insured depository institutions to achieve an “Outstanding” or “Satisfactory” CRA rating, which could negatively impact our ability to obtain regulatory approval for an acquisition.
Biggest changeAdditionally, 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 that may make it more challenging and/or costly for insured depository institutions to achieve an “Outstanding” or “Satisfactory” CRA rating, which could negatively impact our ability to obtain regulatory approval for an acquisition. 44 Table of Content s In addition, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.
Moreover, if loans that are collateralized by commercial real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for loan losses and would adversely affect our business, financial condition and results of operations.
Moreover, if loans that are collateralized by commercial real estate become troubled and the value of the real estate has been significantly impaired, then we may not be able to recover the full contractual amount of principal and interest that we anticipated at the time we originated the loan, which could cause us to increase our provision for credit losses and would adversely affect our business, financial condition and results of operations.
Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses. If current conditions in the housing and real estate markets weaken, we expect we will experience increased delinquencies and credit losses.
Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for credit losses. If current conditions in the housing and real estate markets weaken, we expect we will experience increased delinquencies and credit losses.
Such regulatory approvals may not be granted on terms that are acceptable to us, or at all. Federal bank regulators have increasingly focused on the risks related to bank and fintech company partnerships, raising concerns regarding risk management, oversight, internal controls, information security, change management, and information technology operational resilience.
Such regulatory approvals may not be granted on terms that are acceptable to us, or at all. Federal bank regulators have increasingly focused on the risks related to bank and fintech company partnerships, raising concerns regarding risk management, oversight, internal controls, information security, change management, compliance, and information technology operational resilience.
Our partners provide fraud and credit enhancements on many of our CCBX loans, but if they are unable to fulfill their contracted obligations then the Bank would be exposed to writing off all or a part of the credit enhancement asset and to additional loan losses as a result of this counterparty risk.
Our partners provide fraud and credit enhancements on many of our CCBX loans, but if they are unable to fulfill their contracted obligations then the Bank would be exposed to writing off all or a part of the credit enhancement asset and to additional credit losses as a result of this counterparty risk.
The principal risks and uncertainties affecting our business include the following: • Our business and operations are concentrated in the Puget Sound region and we are sensitive to adverse changes in the local economy. • If our allowance for loan losses is insufficient to absorb actual loan losses, our results of operations would be negatively affected. • We operate in a highly competitive market and face increasing competition from traditional and new financial services providers. 27 Table of Contents • We are subject to the various risks associated with our banking business and operations, including, among others, credit, market, liquidity, interest rate and compliance risks, which may have an adverse effect on our business, financial condition and results of operations if we are unable to manage such risks. • We may be unable to effectively manage our growth, which could have an adverse effect on our business, financial condition and results of operations. • The success of our relationship with broker dealers, digital financial service providers and other partners to provide BaaS is subject to risks associated with managing such relationships. • We operate in a highly regulated industry, and the current regulatory framework and any future legislative and regulatory changes, may have an adverse effect on our business, financial condition and results of operations. • We are subject to regulatory requirements, including stringent capital requirements, consumer protection laws, and anti-money laundering laws, and failure to comply with these requirements could have an adverse effect on our business, financial condition and results of operations. • We are subject to laws regarding privacy, information security and protection of personal information and any violation of these laws or incidents involving personal, confidential or proprietary information of individuals, including, among others, system failures or cybersecurity breaches of our network security, could damage our reputation and otherwise adversely affect our business, financial condition and results of operation. • Our charter documents contain certain provisions, including anti-takeover provision, that limit the ability of our shareholders to take certain actions and could delay or discourage takeover attempts that shareholders may consider favorable.
The principal risks and uncertainties affecting our business include the following: • Our business and operations are concentrated in the Puget Sound region and we are sensitive to adverse changes in the local economy. • If our allowance for credit losses is insufficient to absorb actual credit losses, our results of operations would be negatively affected. • We operate in a highly competitive market and face increasing competition from traditional and new financial services providers. • We are subject to the various risks associated with our banking business and operations, including, among others, credit, market, liquidity, interest rate and compliance risks, which may have an adverse effect on our business, financial condition and results of operations if we are unable to manage such risks. • We may be unable to effectively manage our growth, which could have an adverse effect on our business, financial condition and results of operations. 27 Table of Content s • The success of our relationship with broker dealers, digital financial service providers and other partners to provide BaaS is subject to risks associated with managing such relationships. • We operate in a highly regulated industry, and the current regulatory framework and any future legislative and regulatory changes, may have an adverse effect on our business, financial condition and results of operations. • We are subject to regulatory requirements, including stringent capital requirements, consumer protection laws, and anti-money laundering laws, and failure to comply with these requirements could have an adverse effect on our business, financial condition and results of operations. • We are subject to laws regarding privacy, information security and protection of personal information and any violation of these laws or incidents involving personal, confidential or proprietary information of individuals, including, among others, system failures or cybersecurity breaches of our network security, could damage our reputation and otherwise adversely affect our business, financial condition and results of operation. • Our charter documents contain certain provisions, including anti-takeover provision, that limit the ability of our shareholders to take certain actions and could delay or discourage takeover attempts that shareholders may consider favorable.
Our governing documents include provisions that: • empower our board of directors, without shareholder approval, to issue preferred stock, the terms of which, including voting power, are to be set by our board of directors; • establish a classified board of directors, with directors of each class serving a three-year term; • provide that directors may be removed from office without cause only by vote of 80% of the outstanding shares then entitled to vote; • eliminate cumulative voting in elections of directors; • permit our board of directors to alter, amend or repeal our bylaws or to adopt new bylaws; • require the request of holders of at least one-third of the outstanding shares of our capital stock entitled to vote at a meeting to call a special shareholders’ meeting; • require shareholders that wish to bring business before annual meetings of shareholders, or to nominate candidates for election as directors at our annual meeting of shareholders, to provide timely notice of their intent in writing; 40 Table of Contents • require that certain business combination transactions with a significant shareholder be approved by holders of two-thirds of the shares held by persons other than the significant shareholder; and • enable our board of directors to increase, between annual meetings, the number of persons serving as directors and to fill the vacancies created as a result of the increase by a majority vote of the directors present at a meeting of directors.
Our governing documents include provisions that: • empower our board of directors, without shareholder approval, to issue preferred stock, the terms of which, including voting power, are to be set by our board of directors; • establish a classified board of directors, with directors of each class serving a three-year term; • provide that directors may be removed from office without cause only by vote of 80% of the outstanding shares then entitled to vote; • eliminate cumulative voting in elections of directors; • permit our board of directors to alter, amend or repeal our bylaws or to adopt new bylaws; • require the request of holders of at least one-third of the outstanding shares of our capital stock entitled to vote at a meeting to call a special shareholders’ meeting; • require shareholders that wish to bring business before annual meetings of shareholders, or to nominate candidates for election as directors at our annual meeting of shareholders, to provide timely notice of their intent in writing; • require that certain business combination transactions with a significant shareholder be approved by holders of two-thirds of the shares held by persons other than the significant shareholder; and • enable our board of directors to increase, between annual meetings, the number of persons serving as directors and to fill the vacancies created as a result of the increase by a majority vote of the directors present at a meeting of directors.
We are subject to compliance and regulatory risk if partners do not follow our servicing policies, lending laws and regulations. Our allowance for loan losses may prove to be insufficient to absorb losses in our loan portfolio. Lending money is a substantial part of our business.
We are subject to compliance and regulatory risk if partners do not follow our servicing policies, lending laws and regulations. Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio. Lending money is a substantial part of our business.
In addition, bank regulatory agencies periodically review our allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on their judgments about information available to them at the time of their examination.
In addition, bank regulatory agencies periodically review our allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on their judgments about information available to them at the time of their examination.
The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes.
The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material changes.
If our estimates are incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in the need for increases in our allowance for loan losses through the provision for losses on loans which is charged against income.
If our estimates are incorrect, the allowance for credit losses may not be sufficient to cover losses inherent in our loan portfolio, resulting in the need for increases in our allowance for credit losses through the provision for losses on loans which is charged against income.
Many of the agreements with our CCBX partners provide for a credit enhancement which helps protect the Bank by absorbing incurred losses. CCBX credit enhancements are free-standing and are accounted separately from the allowance for loan loss.
Many of the agreements with our CCBX partners provide for a credit enhancement which helps protect the Bank by absorbing incurred losses. CCBX credit enhancements are free-standing and are accounted separately from the allowance for credit loss.
Although we have not recognized other-than-temporary impairment related to our investment portfolio as of December 31, 2022, changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, among other factors, may cause us to recognize losses in future periods, which could have an adverse effect on our business, financial condition and results of operations.
Although we have not recognized other-than-temporary impairment related to our investment portfolio as of December 31, 2023, changing economic and market conditions affecting interest rates, the financial condition of issuers of the securities and the performance of the underlying collateral, among other factors, may cause us to recognize losses in future periods, which could have an adverse effect on our business, financial condition and results of operations.
Further, any losses incurred on a small number of 29 Table of Contents commercial loans could have an adverse impact on our financial condition and results of operations due to the larger average size of commercial loans as compared with other loans and the risk that collateral securing such loans may depreciate over time, may be difficult to appraise, may fluctuate in value and may depend on the borrower’s ability to collect receivables.
Further, any losses incurred on a small number of commercial loans could have an adverse impact on our financial condition and results of operations due to the larger average size of commercial loans as compared with other loans and the risk that collateral securing such loans may depreciate over time, may be difficult to appraise, may fluctuate in value and may depend on the borrower’s ability to collect receivables.
Further, deterioration in local economic conditions could drive the level of loan losses beyond the level we have provided for in our allowance for loan losses, which in turn could necessitate an increase in our provision for loan losses and a resulting reduction to our earnings and capital.
Further, deterioration in local economic conditions could drive the level of credit losses beyond the level we have provided for in our allowance for credit losses, which in turn could necessitate an increase in our provision for credit losses and a resulting reduction to our earnings and capital.
In addition, weakening in regional and general economic conditions such as inflation, recession, business closings, restrictions on business activity, unemployment, natural disasters, epidemic illness, or other factors beyond our control 32 Table of Contents could reduce our growth rate and negatively affect demand for loans, the ability of our borrowers to repay their loans and our financial condition and results of operations.
In addition, weakening in regional and general economic conditions such as inflation, recession, business closings, restrictions on business activity, unemployment, natural disasters, epidemic illness, or other factors beyond our control could reduce our growth rate and negatively affect demand for loans, the ability of our borrowers to repay their loans and our financial condition and results of operations.
If any of these valuations are inaccurate, our financial statements may not reflect the correct value of our OREO, and our allowance for loan losses may not reflect accurate loan impairments. This could adversely affect our business, financial condition and results of operations. As of December 31, 2022, we did not hold any OREO or repossessed property and equipment.
If any of these valuations are inaccurate, our financial statements may not reflect the correct value of our OREO, and our allowance for credit losses may not reflect accurate loan impairments. This could adversely affect our business, financial condition and results of operations. As of December 31, 2023, we did not hold any OREO or repossessed property and equipment.
There is also increased scrutiny of compliance with the sanctions programs and rules administered and enforced by the Treasury Department’s Office of Foreign Assets Control. 44 Table of Contents In order to comply with regulations, guidelines and examination procedures in this area, we have dedicated significant resources to our anti-money laundering program.
There is also increased scrutiny of compliance with the sanctions programs and rules administered and enforced by the Treasury Department’s Office of Foreign Assets Control. In order to comply with regulations, guidelines and examination procedures in this area, we have dedicated significant resources to our anti-money laundering program.
If we fail to implement one or more aspects of our strategy, we may be unable to maintain our historical earnings trends, which could have an adverse effect on our business, financial condition and results of operations. 39 Table of Contents Strong competition within our market area could hurt our profits and slow growth.
If we fail to implement one or more aspects of our strategy, we may be unable to maintain our historical earnings trends, which could have an adverse effect on our business, financial condition and results of operations. Strong competition within our market area could hurt our profits and slow growth.
Economic conditions and a loss of confidence in financial institutions may increase our cost of funding 42 Table of Contents and limit access to certain customary sources of capital or make such capital only available on unfavorable terms, including interbank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve.
Economic conditions and a loss of confidence in financial institutions may increase our cost of funding and limit access to certain customary sources of capital or make such capital only available on unfavorable terms, including interbank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve.
The Federal Reserve may enjoin “unsafe or unsound” practices or violations of law, require affirmative actions to correct any conditions resulting from any violation or practice, issue an administrative order that can be judicially enforced, direct an increase in our capital levels, restrict our growth, assess civil monetary penalties against us, the Bank or their respective officers or directors, and remove officers and directors.
The Federal Reserve may enjoin “unsafe or unsound” practices or violations of law, require affirmative actions to correct any conditions resulting from any violation or practice, issue an administrative order that can be judicially enforced, direct an increase in our capital levels, restrict our growth, assess civil monetary penalties against us, the Bank or their respective officers or directors, and 43 Table of Content s remove officers and directors.
These risks may be affected by the strength of the borrower’s business sector and local, regional and national market and economic conditions. Many of our loans are made to small to medium-sized businesses that may be less able to 30 Table of Contents withstand competitive, economic and financial pressures than larger borrowers.
These risks may be affected by the strength of the borrower’s business sector and local, regional and national market and economic conditions. Many of our loans are made to small to medium-sized businesses that may be less able to withstand competitive, economic and financial pressures than larger borrowers.
Any deterioration in the economies of the nation as a whole or in our markets would have an adverse effect, which could be material, on our business, financial condition, results of operations 46 Table of Contents and could also cause the market price of our stock to decline.
Any deterioration in the economies of the nation as a whole or in our markets would have an adverse effect, which could be material, on our business, financial condition, results of operations and could also cause the market price of our stock to decline.
Although our control testing has not identified any significant deficiencies in our internal control system, a breakdown in our internal control system, improper operation of our systems or improper employee actions could result in material financial loss to us, the imposition of regulatory action, and damage to our reputation.
Although our control testing has not identified any material weaknesses in our internal control system, a breakdown in our internal control system, improper operation of our systems or improper employee actions could result in material financial loss to us, the imposition of regulatory action, and damage to our reputation.
Any such misrepresented information could adversely affect our business, financial condition and results of operations. 37 Table of Contents We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate .
Any such misrepresented information could adversely affect our business, financial condition and results of operations. We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate .
Generally, we do not maintain reserves or loss allowances for such potential claims and any such claims could adversely affect our business, financial condition and results of operations. The laws, regulations and standard operating procedures that are applicable to SBA loan products may change in the future.
Generally, we do not maintain reserves or loss allowances for such potential claims and any such claims could adversely affect our business, financial condition and results of operations. 33 Table of Content s The laws, regulations and standard operating procedures that are applicable to SBA loan products may change in the future.
Changes in any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have an adverse effect on our business, financial condition and results of operations. We are subject to certain risks in connection with growing through mergers and acquisitions.
Changes in any of these policies are influenced by 46 Table of Content s macroeconomic conditions and other factors that are beyond our control, are difficult to predict and could have an adverse effect on our business, financial condition and results of operations. We are subject to certain risks in connection with growing through mergers and acquisitions.
We rely comprehensively on financial, accounting, transaction execution, data processing and other operational systems to process, record, monitor and report a large number of transactions on a continuous basis, and to do so 38 Table of Contents accurately, quickly and securely.
We rely comprehensively on financial, accounting, transaction execution, data processing and other operational systems to process, record, monitor and report a large number of transactions on a continuous basis, and to do so accurately, quickly and securely.
We are highly dependent on the accuracy and effectiveness of its operational processes and systems and the operational processes and systems of external parties related to the community bank and CCBX.
We are highly dependent on the accuracy and effectiveness of our operational processes and systems and the operational processes and systems of external parties related to the community bank and CCBX.
The agreements have varying terms and may be terminated by the parties under certain circumstances. If our BaaS partners are not successful in achieving customer acceptance of their programs or terminate the agreement before the end of its term, our revenue under the agreement may be limited or may cease altogether.
The agreements have varying terms and may be terminated by the parties under certain circumstances. If our BaaS partners are not successful in achieving customer acceptance of their programs or terminate the agreement before the end of its term, our revenue under the agreement may 35 Table of Content s be limited or may cease altogether.
We intend to complement and expand our business by growing our BaaS segment, expanding the Bank’s banking location network, or de novo branching, and pursuing strategic acquisitions of financial institutions and other complementary businesses.
We may complement and expand our business by growing our BaaS segment, expanding the Bank’s banking location network, or de novo branching, and pursuing strategic acquisitions of financial institutions and other complementary businesses.
As compared to commercial real estate loans, which are secured by real property, the value of which tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.
As compared to commercial real estate loans, which are secured by real property, the value 29 Table of Content s of which tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.
Our ability to successfully grow will depend on a variety of factors, including our ability to attract and retain experienced bankers, the continued availability of desirable business opportunities, competition from other financial institutions in our market area and our ability to manage our growth.
Our ability to 38 Table of Content s successfully grow will depend on a variety of factors, including our ability to attract and retain experienced bankers, the continued availability of desirable business opportunities, competition from other financial institutions in our market area and our ability to manage our growth.
Further, to the extent that the activities of our third-party service providers or the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, regulatory scrutiny, litigation costs and other possible liabilities.
Further, to the extent that the activities of our third-party service providers or 41 Table of Content s the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, regulatory scrutiny, litigation costs and other possible liabilities.
Both we and our regulators perform a variety of analyses of our assets, including the preparation of stress case scenarios, and as a result of those assessments we could determine, or our regulators could require us, to raise additional capital.
Both we and our regulators perform a variety of analyses of our assets, including the 42 Table of Content s preparation of stress case scenarios, and as a result of those assessments we could determine, or our regulators could require us, to raise additional capital.
Reduction in problem assets can be slow, and the process can be exacerbated by the condition of the properties securing nonperforming loans and the lengthy foreclosure 33 Table of Contents process in Washington.
Reduction in problem assets can be slow, and the process can be exacerbated by the condition of the properties securing nonperforming loans and the lengthy foreclosure process in Washington.
Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience 41 Table of Contents interruptions.
Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions.
In addition, our credit risk may be exacerbated when our collateral cannot be foreclosed upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due. Any such losses could adversely affect our business, financial condition and results of operations. We could be adversely affected by the soundness of our CCBX partners.
In addition, our credit risk may be exacerbated when our collateral cannot be foreclosed upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due. Any such losses could adversely affect our business, financial condition and results of operations.
These loans may behave more like multi-family loans than individual 1-4 family loans that are occupied by their owners. As of December 31, 2022, $244.6 million of our residential mortgage loans were made through CCBX partners and are located in different regions across the U.S.
These loans may behave more like multi-family loans than individual 1-4 family loans that are occupied by their owners. As of December 31, 2023, $238.0 million of our residential mortgage loans were made through CCBX partners and are located in different regions across the U.S.
We derive a percentage of our deposits, total assets and income from deposit accounts generated through our BaaS relationships. Deposit accounts acquired through these relationships totaled $1.28 billion, or 45.4% of total deposits at December 31, 2022. We provide oversight over these relationships, which must meet all internal and regulatory requirements.
We derive a percentage of our deposits, total assets and income from deposit accounts generated through our BaaS relationships. Deposit accounts acquired through these relationships totaled $1.86 billion, or 55.4% of total deposits at December 31, 2023. We provide oversight over these relationships, which must meet all internal and regulatory requirements.
If our borrowers are unable to repay their loans, our business, financial condition and earnings could be adversely affected. We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses.
If our borrowers are unable to repay their loans, our business, financial condition and earnings could be adversely affected. 30 Table of Content s We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses.
A decline in residential real estate values as a result of a downturn in the Puget Sound housing market could reduce the value of the real estate collateral securing these types of loans. As of December 31, 2022, $140.7 million of our residential mortgage loans made through the community bank were made to investors.
A decline in residential real estate values as a result of a downturn in the Puget Sound housing market could reduce the value of the real estate collateral securing these types of loans. As of December 31, 2023, $161.3 million of our residential mortgage loans made through the community bank were made to investors.
If a CCBX lending partner is unable to fulfill their 31 Table of Contents contractual obligations with the Bank, then the Bank would be exposed to additional loan losses as a result of this counterparty risk and would have to absorb any loan losses associated with the CCBX partner that cannot fulfill its contractual obligations.
If a CCBX lending partner is unable to fulfill its contractual obligations with the Bank, then the Bank would be exposed to additional credit losses as a result of this counterparty risk and would have to absorb any credit losses associated with the CCBX partner that cannot fulfill its contractual obligations.
A deterioration of the economy in the market areas we serve could result in the following consequences, any of which would have an adverse impact, which could be material, on our business, financial condition, and results of operations: • loan delinquencies may increase; • problem assets and foreclosures may increase; • collateral for loans made may decline in value, in turn reducing customers’ borrowing power, reducing the value of assets and collateral associated with existing loans; • certain securities within our investment portfolio could become other than temporarily impaired, requiring a write-down through earnings to fair value, thereby reducing equity; • CCBX partners may experience financial difficulties or fail, our BaaS revenue may decrease, and loan losses could increase if the partner cannot fulfill its credit enhancement obligations; • low cost or noninterest bearing deposits may decrease; and • demand for our loan and other products and services may decrease.
A deterioration of the economy in the market areas we serve could result in the following consequences, any of which would have an adverse impact, which could be material, on our business, financial condition, and results of operations: • high short-term interest rates may cause deposits to decline and deposit costs to increase as depositors seek higher returns on their deposits; • loan delinquencies may increase; • problem assets and foreclosures may increase; • collateral for loans made may decline in value, in turn reducing customers’ borrowing power, reducing the value of assets and collateral associated with existing loans; • certain securities within our investment portfolio could become other than temporarily impaired, requiring a write-down through earnings to fair value, thereby reducing equity; 32 Table of Content s • CCBX partners may experience financial difficulties or fail, our BaaS revenue may decrease, and credit losses could increase if the partner cannot fulfill its credit enhancement obligations; • low cost or noninterest bearing deposits may decrease; and • demand for our loan and other products and services may decrease.
We have a cybersecurity program that includes internal/external penetration testing, regular vulnerability assessments, detailed vulnerability management, data loss prevention controls, file access and integrity monitoring and reporting and threat intelligence.
We have an Information Security Program that includes internal/external penetration testing, regular vulnerability assessments, detailed vulnerability management, data loss prevention controls, file access and integrity monitoring and reporting and threat intelligence.
At December 31, 2022, $214.1 million, or 8.1% of our total loans was construction, land and land development loans. We originate commercial construction loans primarily to professional builders for the construction of one-to-four family residences, apartment buildings, and commercial real estate properties.
At December 31, 2023, $157.1 million, or 5.2% of our total loans was construction, land and land development loans. We originate commercial construction loans primarily to professional builders for the construction of one-to-four family residences, apartment buildings, and commercial real estate properties.
Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income. Our commercial real estate lending activities expose us to increased lending risks and related loan losses. At December 31, 2022, our commercial real estate loan portfolio totaled $1.05 billion, or 39.8% of our total loan portfolio.
Thus, an increase in the amount of nonperforming assets would have an adverse impact on net interest income. Our commercial real estate lending activities expose us to increased lending risks and related credit losses. At December 31, 2023, our commercial real estate loan portfolio totaled $1.30 billion, or 43.0% of our total loan portfolio.
While we attempt to invest a significant majority of our total assets in loans (our loan-to-asset ratio was 83.6% as of December 31, 2022), we invest a percentage of our total assets (3.2% as of December 31, 2022) in investment securities with the primary objectives of providing a source of liquidity and meeting pledging requirements.
While we attempt to invest a significant majority of our total assets in loans (our loan-to-asset ratio was 80.6% as of December 31, 2023), we invest a percentage of our total assets (4.0% as of December 31, 2023) in investment securities with the primary objectives of providing a source of liquidity and meeting pledging requirements.
Any of these outcomes could adversely affect us. The Federal Reserve may require us to commit capital resources to support the Bank. The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support its subsidiary banks.
The Federal Reserve may require us to commit capital resources to support the Bank. The Federal Reserve requires a bank holding company to act as a source of financial and managerial strength to its subsidiary banks and to commit resources to support its subsidiary banks.
As a result, if future events or regulatory views concerning such analysis differ significantly from the judgments, assumptions and estimates in our critical accounting policies, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures, in each case resulting in our needing to revise or restate prior period financial statements, cause damage to our reputation and the price of our common stock, and adversely affect our business, financial condition and results of operations.
As a result, if future events or regulatory views concerning such analysis differ significantly from the judgments, assumptions and estimates in our critical accounting policies, those events or assumptions could have a material impact on our consolidated financial statements and related disclosures, in each case resulting in our needing to revise or restate prior period financial statements, cause damage to our reputation and the price of our common stock, and adversely affect our business, financial condition and results of operations. 37 Table of Content s Dependency on external security systems expose us to greater operational risk.
Due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced in January of 2022 that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time. The FOMC since has increased the target range seven times throughout 2022.
Due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced in January of 2022 that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time. The FOMC since has increased the federal funds rate to 5.50% as of December 31, 2023.
From time to time, the U.S. Government may introduce new tax laws and regulations, or interpretations of existing income tax laws could change, causing an adverse effect on our business, financial condition and results of operations.
Government may introduce new tax laws and regulations, or interpretations of existing income tax laws could change, causing an adverse effect on our business, financial condition and results of operations.
We require sufficient liquidity to meet customer loan requests, customer deposit maturities/withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial market stress.
Effective liquidity management is essential for the operation of our business. We require sufficient liquidity to meet customer loan requests, customer deposit maturities/withdrawals, payments on our debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances causing industry or general financial market stress.
We have increased our focus on commercial business lending in recent years and intend to continue to focus on this type of lending in the future. Our concentration of residential mortgage loans exposes us to increased lending risks . At December 31, 2022, $449.2 million, or 17.1%, of our loan portfolio was secured by one-to-four family real estate.
We have increased our focus on commercial business lending in recent years and intend to continue to focus on this type of lending in the future. Our concentration of residential mortgage loans exposes us to increased lending risks . At December 31, 2023, $463.4 million, or 15.3%, of our loan portfolio was secured by one-to-four family real estate.
As of December 31, 2022, $204.6 million of our residential mortgage loans were made through the community bank, and 82.7% are secured by property in Washington State, and a significant majority of that is located in the Puget Sound region.
As of December 31, 2023, $225.4 million of our residential mortgage loans were made through the community bank, and 82.1% are secured by property in Washington State, and a significant majority of that is located in the Puget Sound region.
As of December 31, 2022, the balance of SBA loans sold and serviced was $14.3 million, resulting in $69,000 in servicing income for the year ended December 31, 2022. Our SBA lending program is dependent upon the U.S. federal government.
As of December 31, 2023, the balance of SBA loans sold and serviced was $8.7 million, resulting in $49,000 in servicing income for the year ended December 31, 2023. Our SBA lending program is dependent upon the U.S. federal government.
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 $920.1 million and represented 269.2% and 305.1% of its capital, at December 31, 2022 and 2021, respectively.
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 $1.1 billion and represented 238.3% and 269.2% of its capital, at December 31, 2023 and 2022, respectively.
The outstanding balance of the Bank’s regulatory CRE portfolio has increased by 30.9% and 7.8%, for the years ended December 31, 2022 and 2021, respectively. The level of CRE has exceeded regulatory guidelines in the previous 36 months but the growth rate is within regulatory guidelines.
The outstanding balance of the Bank’s regulatory CRE portfolio has increased by 16.8% and 30.9%, for the years ended December 31, 2023 and 2022, respectively. The level of CRE has exceeded regulatory guidelines in the previous 36 months, it was 305.1% at December 31, 2021, but the growth rate was within regulatory guidelines.
As of December 31, 2022, the balance of owned SBA loans and SBA loans net of the sold portion was $12.3 million, which includes $4.7 million in PPP loans that are 100% guaranteed, and an additional $3.1 million in non-PPP SBA loans which are also guaranteed.
As of December 31, 2023, the balance of owned SBA loans and SBA loans net of the sold portion was $8.0 million, which includes $3.0 million in PPP loans that are 100% guaranteed, and an additional $1.9 million in non-PPP SBA loans which are also guaranteed.
General Risk Factors National and global economic and other conditions could adversely affect our future results of operations or market price of our stock.
Any such losses could adversely affect our business, financial condition and results of operations. General Risk Factors National and global economic and other conditions could adversely affect our future results of operations or market price of our stock.
The FASB, has adopted a new accounting standard, CECL, which requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and provide for the expected credit losses as allowances for loan losses. We adopted CECL effective January 1, 2023.
The FASB adopted a new accounting standard referred to as CECL which requires financial institutions to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses. We adopted this accounting pronouncement effective for our fiscal year beginning January 1, 2023.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services. We also maintain important internal company data such as personally identifiable information about our employees and information relating to our operations.
Our business requires the collection and retention of large volumes of customer data, including personally identifiable information in various information systems that we maintain and in those maintained by third parties with whom we contract to provide data services to customers and partners.
A growing portion of our revenue, deposits and loans are derived from CCBX partner activities. If our partners are not operating soundly, we may be adversely impacted through decreased revenue, increased loan losses and reduced deposits. Our CCBX partners originate their loans in compliance with our credit standards and policies.
We could be adversely affected by the soundness of our CCBX partners. A growing portion of our revenue, deposits and loans are derived from CCBX partner activities. If our partners are not operating soundly, we may be adversely impacted through decreased revenue, increased credit losses and reduced deposits.
At December 31, 2022, $1.01 billion, or 38.5% of our total loans were originated or purchased through CCBX partners. Our partners underwrite these loans in compliance with our credit standards and policies. Our CCBX partners service $866.5 million of these loans.
At December 31, 2023, $1.20 billion, or 39.4% of our total loans were originated or purchased through CCBX partners. Our partners underwrite these loans in compliance with our credit standards and policies. Our CCBX partners service $1.11 billion of these loans.
As of December 31, 2022, the fair value of our available for sale investment securities portfolio was $97.3 million, which included a net unrealized loss of $3.0 million, and the fair value of our held to maturity investment securities was $916,000, which included a net unrealized loss of $120,000.
As of December 31, 2023, the fair value of our available for sale investment securities portfolio was $99.5 million, which included a net unrealized loss of $537,000, and the fair value of our held to maturity investment securities was $51.0 million, which included a net unrealized gain of $181,000.
In addition, if charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to increase the allowance for loan losses.While we believe that our allowance for loan losses was adequate at December 31, 2022, there is no assurance that it will be sufficient to cover future loan losses, especially if there is a significant deterioration in economic conditions.
While we believe that our allowance for credit losses was adequate at December 31, 2023, there is no assurance that it will be sufficient to cover future credit losses, especially if there is a significant deterioration in economic conditions.
In addition, concerns about the performance of international economies, especially in Europe and emerging markets, economic conditions in Asia, particularly the economies of China, South Korea and Japan, and the Russian invasion of Ukraine and resulting economic impact, can impact the economy and financial markets here in the United States.
In addition, concerns about the performance of international economies, especially in Europe and emerging markets, economic conditions in Asia, particularly the economies of China, South Korea and Japan, GDP, inflation, higher interest rates, unemployment, global unrest, the Russian invasion of Ukraine, conflicts in the Middle East, the political environment, trade issues and resulting economic impact, can impact the economy and financial markets here in the United States.
Under the prompt corrective action regime, if the Bank were to become undercapitalized, we would be required to guarantee the Bank’s plan to restore its capital subject to certain limits. See “Item 1. Business—Regulation and Supervision—Bank Regulation and Supervision—Prompt Corrective Action.” Accordingly, we could be required to provide financial assistance to the Bank if it experiences financial distress.
Under the prompt corrective action regime, if the Bank were to become undercapitalized, we would be required to guarantee the Bank’s plan to restore its capital subject to certain limits. See “Item 1.
Our business is subject to the risks of epidemic illnesses, earthquakes, tsunamis, floods, fires and other natural catastrophic events or effects of climate change. A major catastrophe, such as an epidemic illness, earthquake, tsunami, flood, fire or other natural disaster or effects of climate change could result in a prolonged interruption of our business.
A major catastrophe, such as an epidemic illness, earthquake, tsunami, flood, fire or other natural disaster or effects of climate change could result in a prolonged interruption of our business.
We may be exposed not only to a systems failure with which we are directly connected, but also to a systems breakdown of a party to CCBX or other relationship to which we are connected.
External security systems with which we are connected, whether directly or indirectly, through the community bank or CCBX, can be sources of risk to us. We may be exposed not only to a systems failure with which we are directly connected, but also to a systems breakdown of a party to CCBX or other relationship to which we are connected.
Additionally, partners provide fraud and credit enhancements on many of our CCBX loans. If any CCBX partners encounter operating difficulties, we may experience reduced revenue, increased loan losses if credit and fraud enhancement obligations are not met, and reduced deposits, which may impact liquidity. Any such losses could adversely affect our business, financial condition and results of operations.
Our CCBX partners originate their loans in compliance with our credit standards and policies. Additionally, partners provide fraud and credit enhancements on many of our CCBX loans. If any CCBX partners encounter operating difficulties, we may experience reduced revenue, increased credit losses if credit and fraud enhancement obligations are not met, and reduced deposits, which may impact liquidity.
These changes are not within our control and may significantly impact our business, financial condition and results of operations. Because the nature of the financial services business involves a high volume of transactions, we face significant operational risks, including, but not limited to, customer, employee or third-party fraud and data processing system failures and errors.
Because the nature of the financial services business involves a high volume of transactions, we face significant operational risks, including, but not limited to, customer, employee or third-party fraud and data processing system failures and errors. We rely on the ability of our employees and systems to process a high number of transactions.
If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to us, or at all, which could have an adverse effect on our business, financial condition and results of operations.
If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable to us, or at all, which could have an adverse effect on our business, financial condition and results of operations. 39 Table of Content s Anti-takeover provisions in our corporate organizational documents and provisions of federal and state law may make an attempted acquisition or replacement of our board of directors or management more difficult.
We are subject to complex and increasingly demanding laws and regulations governing the privacy and protection of personal information of individuals (including customers, employees, suppliers and other third parties).
We also maintain important internal company data such as personally identifiable information about our employees and information relating to our operations. We are subject to complex and increasingly demanding laws and regulations governing the privacy and protection of personal information of individuals (including customers, employees, suppliers and other third parties).
We anticipate data-based modeling will penetrate further into bank decision-making, particularly risk management efforts, as the capacities developed to meet rigorous stress testing requirements are able to be employed more widely and in differing applications.
While we are not subject to stress testing under the Dodd-Frank Act, we anticipate that model-derived testing may become more extensively implemented by regulators in the future. 36 Table of Content s We anticipate data-based modeling will penetrate further into bank decision-making, particularly risk management efforts, as the capacities developed to meet rigorous stress testing requirements are able to be employed more widely and in differing applications.
Furthermore, we may not be able to ensure that all of our clients, suppliers, counterparties, broker dealers and financial providers in CCBX, and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means.
While we have implemented a vendor management program with the third-party service providers, to help ensure third party relationships are effectively managed by providing risk-focused controls and processes that are designed to monitor our vendors’ compliance with relevant laws, regulations, and industry standards, we may not be able to ensure that all of our clients, suppliers, counterparties, broker dealers and financial providers in CCBX, and other third parties have appropriate controls in place to protect the confidentiality of the information that they exchange with us, particularly where such information is transmitted by electronic means.
If the Federal Reserve, our primary federal regulator, were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, for reasons noted above or otherwise, our earnings would be adversely affected.
If the Federal Reserve, our primary federal regulator, were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, for reasons noted above or otherwise, our earnings would be adversely affected. 34 Table of Content s Our business is subject to the risks of epidemic illnesses, earthquakes, tsunamis, floods, fires and other natural catastrophic events or effects of climate change.
Various state and federal laws and regulations impose data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in certain circumstances in the event of a security breach. Ensuring that our collection, use, transfer and storage of personal information complies with all applicable laws and regulations can increase our costs.
Various state and federal laws and regulations impose data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement notification in 40 Table of Content s certain circumstances in the event of a security breach.
The FDIC utilized all of these powers during the financial crisis for the purpose of restoring the reserve ratios of the Deposit Insurance Fund, and more recently increased assessment rates to address extraordinary growth in the amount of insured deposits resulting from the COVID-19 pandemic. 43 Table of Contents Any future special assessments, increases in assessment rates or premiums, or required prepayments in FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business opportunities, which could adversely affect our business, financial condition, and results of operations.
The FDIC utilized all of these powers during the financial crisis for the purpose of restoring the reserve ratios of the Deposit Insurance Fund, and more recently increased assessment rates to address extraordinary growth in the amount of insured deposits resulting from the COVID-19 pandemic.
In addition, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. The federal banking agencies, the CFPB, the U.S. Department of Justice and other federal agencies are responsible for enforcing these laws and regulations.
The federal banking agencies, the CFPB, the U.S. Department of Justice and other federal agencies are responsible for enforcing these laws and regulations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our corporate headquarters is located at 5415 Evergreen Way, Everett, WA 98203. In addition to our corporate headquarters, which includes our Evergreen branch, we operated 13 other branch offices as of December 31, 2022 for our community bank and CCBX segments.
Biggest changeItem 2. Properties Our corporate headquarters is located at 5415 Evergreen Way, Everett, WA 98203. In addition to our corporate headquarters, which includes our Evergreen branch, we operated 13 other branch offices as of December 31, 2023 for our 48 Table of Content s community bank and CCBX segments.
The leases, excluding renewal periods, on our branch offices expire in 2023 through 2044. We believe that these facilities and additional or alternative space available to us are adequate to meet our needs for the foreseeable future.
The leases, excluding renewal periods, on our branch offices expire in 2024 through 2044. We believe that these facilities and additional or alternative space available to us are adequate to meet our needs for the foreseeable future.
Twelve of our branches are located in Snohomish County and two of our branches are located in neighboring counties (one in King County and one in Island County). We own our corporate headquarters and four of our other branch offices and lease the remainder of our branch offices.
Twelve of our branches are located in Snohomish County and two of our branches are located in neighboring counties (one in King County and one in Island County). We own our corporate headquarters and five of our other branch offices and lease the remainder of our branch offices.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe Bank is not obligated to pay us dividends. 49 Table of Contents Purchases of Equity Securities The Company did not purchase any shares of its common stock during the year ended December 31, 2022.
Biggest changePurchases of Equity Securities The Company did not purchase any shares of its common stock during the year ended December 31, 2023. 51 Table of Content s
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information, Holders of Common Stock and Dividends The Company’s common stock, no par value per share, is traded on the Nasdaq Global Select Market under the symbol “CCB.” On March 7, 2023, there were 294 holders of record of the Company’s common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information, Holders of Common Stock and Dividends The Company’s common stock, no par value per share, is traded on the Nasdaq Global Select Market under the symbol “CCB.” On March 7, 2024, there were 279 holders of record of the Company’s common stock.
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The Bank is not obligated to pay us dividends. 50 Table of Content s Securities Authorized for Issuance under Equity Compensation Plan For information regarding securities authorized for issuance under the Company’s equity compensation plans, see subparagraph (d) in Part III, Item 12 “Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters” of this Form 10-K , which is incorporated herein by reference.
Added
Performance Graph The following graph shows the five-year comparison of the total return to shareholders of the Company’s common stock as compared to the total returns of the S&P United States SmallCap Banks (Industry Group) Index and S&P 600 Small Cap during the five-year period beginning December 31, 2018 and ending December 31, 2023.
Added
Total return includes appreciation or depreciation in market value of the Company’s common stock as well as actual cash and stock dividends paid to common shareholders. The graph assumes the value of the investment in Company’s common stock and each index was $100 on December 31, 2018, and all dividends were reinvested.
Added
There can be no assurance that our future stock performance will be the same or similar to the historical stock performance shown in the graph below.
Added
We neither make nor endorse any predictions as to stock performance. 2018 2019 2020 2021 2022 2023 Coastal Financial Corporation $ 100.00 $ 108.14 $ 137.89 $ 332.37 $ 312.02 $ 291.60 S&P 600 Small Cap 100.00 122.78 136.64 173.29 145.39 168.73 S&P United States SmallCap Banks (Industry Group) Index 100.00 125.46 113.94 158.62 139.85 140.55 Source: S&P Global Market Intelligence The information set forth under the heading “Performance Graph” shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically requests that such information to be treated as soliciting material or specifically to be incorporated by reference into a filing under the Securities Act of 1933 or the Exchange Act.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

309 edited+134 added−100 removed109 unchanged
Biggest changeItems are that not directly attributed to the segment are not listed: For the Year Ended December 31, 2022 December 31, 2021 (dollars in thousands; unaudited) Average Balance Interest & Dividends Yield / Cost Average Balance Interest & Dividends Yield / Cost Community Bank Assets Loans receivable (1) $ 1,515,395 $ 80,544 5.32 % $ 1,542,621 $ 75,580 4.90 % Liabilities Interest bearing deposits 905,447 2,896 0.32 877,389 2,228 0.25 Noninterest bearing deposits 733,104 674,509 Total deposits $ 1,638,551 $ 2,896 0.18 $ 1,551,898 $ 2,228 0.14 Interest rate spread 5.14 % 4.76 % CCBX Assets Loans receivable (1)(2) $ 742,392 $ 102,808 13.85 % $ 146,304 $ 6,532 4.46 % Liabilities Interest bearing deposits 818,573 16,108 1.97 32,717 99 0.30 Noninterest bearing deposits 208,983 315,436 Total deposits $ 1,027,556 $ 16,108 1.57 $ 348,153 $ 99 0.03 Interest rate spread 12.28 % 4.43 % Net BaaS loan income interest rate spread (3) 5.10 % 2.40 % (1) Includes loans held for sale and nonaccrual loans.
Biggest changeItems are that not directly attributed to the segment are not listed: For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (dollars in thousands; unaudited) Average Balance Interest & Dividends Yield / Cost Average Balance Interest & Dividends Yield / Cost Average Balance Interest & Dividends Yield / Cost Community Bank Assets Interest earning assets: Loans receivable (1) $ 1,726,495 $ 106,983 6.20 % $ 1,515,395 $ 80,544 5.32 % $ 1,542,621 $ 75,580 4.90 % Intrabank asset, net (6) — — — 123,156 796 0.65 n/a n/a n/a Total interest earning assets 1,726,495 106,983 6.20 1,638,551 81,340 4.96 1,542,621 75,580 4.90 Liabilities Interest bearing liabilities: Interest bearing deposits 900,516 17,354 1.93 905,447 2,896 0.32 877,389 2,228 0.25 Intrabank liability, net (6) 198,176 10,404 5.25 — — — n/a n/a n/a Total interest bearing liabilities 1,098,692 27,758 2.53 905,447 2,896 0.32 877,389 2,228 0.25 Noninterest bearing deposits 627,803 733,104 674,509 Net interest income $ 79,225 $ 78,444 $ 73,352 Net interest margin (2) 4.59 % 4.79 % 4.76 % CCBX Assets Interest earning assets: Loans receivable (1)(3) $ 1,210,413 $ 204,458 16.89 % $ 742,392 $ 102,808 13.85 % $ 146,304 $ 6,532 4.46 % Intrabank asset, net (6) 363,921 19,071 5.24 285,164 4,106 1.44 n/a n/a n/a Total interest earning assets 1,574,334 223,529 14.20 1,027,556 106,914 10.40 146,304 6,532 4.46 Liabilities Interest bearing liabilities: Interest bearing deposits 1,494,496 71,646 4.79 818,573 16,108 1.97 32,717 99 0.30 Total interest bearing liabilities 1,494,496 71,646 4.79 818,573 16,108 1.97 32,717 99 0.30 Noninterest bearing deposits 79,838 208,983 315,436 Net interest income $ 151,883 $ 90,806 $ 6,433 Net interest margin (2) 9.65 % 8.84 % 4.40 % Net interest margin, net of Baas loan expense (4) 4.13 % 3.65 % 4.40 % 62 Table of Content s For the Year Ended December 31, 2023 December 31, 2022 December 31, 2021 (dollars in thousands; unaudited) Average Balance Interest & Dividends Yield / Cost Average Balance Interest & Dividends Yield / Cost Average Balance Interest & Dividends Yield / Cost Treasury & Administration Assets Interest earning assets: Interest earning deposits with other banks $ 295,808 $ 15,346 5.19 % $ 515,967 $ 6,728 1.30 % $ 402,081 $ 608 0.15 % Investment securities, available for sale (5) 100,260 2,158 2.15 91,970 1,710 1.86 27,908 49 0.18 Investment securities, held to maturity (5) 19,918 1,039 5.22 1,266 35 2.76 2,137 30 1.40 Other investments 11,512 387 3.36 10,146 345 3.40 7,052 284 4.03 Total interest earning assets 427,498 18,930 4.43 619,349 8,818 1.42 439,178 971 0.22 Liabilities Interest bearing liabilities: PPPLF borrowings — — — 68,699 240 0.35 FHLB advances and borrowings — — — % 6,029 69 1.14 % 24,999 284 1.14 % Subordinated debt 44,066 2,373 5.39 27,626 1,179 4.27 15,379 711 4.62 Junior subordinated debentures 3,589 271 7.55 3,587 143 3.99 3,585 84 2.34 Intrabank liability, net (6) 165,745 8,667 5.23 408,320 4,902 1.20 n/a n/a n/a Total interest bearing liabilities 213,400 11,311 5.30 445,562 6,293 1.41 112,662 1,319 1.17 Net interest income $ 7,619 $ 2,525 $ (348) Net interest margin (2) 1.78 % 0.41 % (0.08) % (1) Includes loans held for sale and nonaccrual loans.
BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans.
BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, and servicing CCBX loans.
See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.
See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.
As we deploy our capital and continue to grow our operations, our regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control our growth in order to remain in compliance with all regulatory capital standards applicable to us.
As we deploy capital and continue to grow operations, regulatory capital levels may decrease depending on our level of earnings. However, we expect to monitor and control growth in order to remain in compliance with all regulatory capital standards applicable to us.
For CCBX partner loans the Bank records contractual interest earned from the borrower on loans in interest income, adjusted for origination costs which are paid or payable to the CCBX partner. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans.
For CCBX partner loans the Bank records contractual interest earned from the borrower on loans in interest income, adjusted for origination costs which are paid or payable to the CCBX partner. BaaS loan expense represents the amount paid or payable to partners for credit and fraud enhancements and servicing CCBX loans.
Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services.
Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services.
If economic conditions worsen then the U.S., Washington state and Puget Sound region may experience a more severe economic downturn, and our asset quality could deteriorate, which may require material additional provisions for loan losses. The following table shows the allocation of the allowance for loan losses among loan categories and certain other information as of the dates indicated.
If economic conditions worsen then the U.S., Washington state and Puget Sound region may experience a more severe economic downturn, and our asset quality could deteriorate, which may require material additional provisions for credit losses. The following table shows the allocation of the allowance for credit losses among loan categories and certain other information as of the dates indicated.
The allocation of the allowance for loan losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category.
The allocation of the allowance for credit losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category.
In accordance with GAAP, we recognize the reimbursement of noncredit fraud losses on loans and deposits originated through partners and credit enhancements related to the allowance for loan losses and reserve for unfunded commitments provided by the partner as revenue in BaaS income.
In accordance with GAAP, we recognize the reimbursement of noncredit fraud losses on loans and deposits originated through partners and credit enhancements related to the allowance for credit losses and reserve for unfunded commitments provided by the partner as revenue in BaaS income.
Loans Held for Sale CCBX loans held for sale consist of the portion of CCBX originated loans that the Company intends to sell back to the originating CCBX partner or its affiliate generally at par. The Company sells loans to manage credit positions with partners and across loan categories.
Loans Held for Sale CCBX loans held for sale consist of the portion of CCBX originated loans that the Company intends to sell back to the originating CCBX partner or its affiliate generally at par. The Company sells loans to manage credit positions and concentrations with partners and across loan categories.
Incurred losses are recorded in the allowance for loan losses, the credit enhancement asset is relieved when credit enhancement recoveries are received from the CCBX partner. Many agreements with our CCBX partners also provide protection to the Bank from fraud by absorbing incurred fraud losses.
Incurred losses are recorded in the allowance for credit losses, the credit enhancement asset is relieved when credit enhancement recoveries are received from the CCBX partner. Many agreements with our CCBX partners also provide protection to the Bank from fraud by absorbing incurred fraud losses.
Also in accordance with GAAP, we establish a credit enhancement asset for expected future loan losses through the recognition of BaaS credit enhancement revenue at the same time we establish an allowance for those loans though a provision for loan losses.
Also in accordance with GAAP, we establish a credit enhancement asset for expected future credit losses through the recognition of BaaS credit enhancement revenue at the same time we establish an allowance for those loans though a provision for credit losses - loans.
We generate most of our community bank revenue from interest on loans and investments and CCBX revenue from BaaS fee income. Our primary source of funding for our loans is commercial and retail deposits from our customer relationships and from our partner deposit relationships.
We generate most of our community bank revenue from interest on loans and CCBX revenue from BaaS fee income and interest on loans. Our primary source of funding for our loans is commercial and retail deposits from our customer relationships and from our partner deposit relationships.
Non-parallel simulations are also conducted and involve analysis of interest income and expense under various changes in the shape of the yield curve including a forward curve, flat curve, steepening curve, and an inverted curve.
Non-parallel simulations are also conducted and involve analysis of net interest income and expense under various changes in the shape of the yield curve including a forward curve, flat curve, steepening curve, and an inverted curve.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, implements a new 15% corporate alternative minimum tax for certain large corporations, a 1% excise tax on stock buybacks, and several tax incentives to promote clean energy and climate initiatives. These provisions are effective beginning January 1, 2023.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, implements a new 15% corporate alternative minimum tax for certain large corporations, a 1% excise tax on stock buybacks, and several tax incentives to promote clean energy and climate initiatives. These provisions were effective beginning January 1, 2023.
When we make substantial investments in the infrastructure of new divisions, open new branches or make investments to increase our operating capacity, our operating efficiency decreases until we generate enough revenue growth to offset the increased costs however, prior to making such investments, we focus on how best and most expediently we can achieve the revenue growth necessary to offset the costs of these investments or new branches.
When we make substantial investments in the infrastructure of new segments, open new branches or make investments to increase our operating capacity, our operating efficiency decreases until we generate enough revenue growth to offset the increased costs however, prior to making such investments, we focus on how best and most expediently we can achieve the revenue growth necessary to offset the costs of these investments or new branches.
There were no community bank loans held for sale at December 31, 2022 and 2021. Equity Investments Equity investments include amounts invested in stock, venture capital funds, partnerships, and other business ventures. Some of these equity investments are in vendors/suppliers, private companies, government agencies, or government sponsored enterprises.
There were no community bank loans held for sale at December 31, 2023 and 2022. Equity Investments Equity investments include amounts invested in stock, venture capital funds, partnerships, and other business ventures. Some of these equity investments are in vendors/suppliers, private companies, government agencies, or government sponsored enterprises.
The Company is a corporation separate and apart from our Bank and, therefore, must provide for its own liquidity, including liquidity required to meet its debt service requirements on its subordinated notes and junior subordinated debentures. The Company’s main source of cash flow has been through equity and debt offerings.
The Company is a corporation separate and apart from our Bank and, therefore, must provide for its own liquidity, including liquidity required to meet its debt service requirements on its subordinated note and junior subordinated debentures. The Company’s main source of cash flow has been through equity and debt offerings.
Data processing and s oftware licenses includes expenses related to obtaining and maintaining software required for our various functions. Data processing costs include all of our customer transaction processing and data storage, computer processing, and network costs. Data processing costs grow as we grow and add new products, customers and branches.
Data processing and s oftware licenses includes expenses related to obtaining and maintaining software required for our various functions. Data processing costs include all of our customer transaction processing and data storage, computer processing, and network costs. Data processing costs grow as we grow and add new products, customers and branches and enhance technology.
In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans. When the provision for loan losses and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS fees -credit enhancement).
In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans. 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 enhancement).
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the 95 Table of Contents total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis.
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis.
Through our thorough underwriting process, we strive to originate quality loans that will maintain and enhance the overall credit quality of our loan portfolio, and through our careful monitoring of our loan portfolio and prompt attention to delinquencies, we seek to minimize the impact of problem loans.
Through our thorough underwriting process, we strive to originate quality loans that will maintain and enhance the overall credit quality of our loan portfolio, and through our careful monitoring of our community bank loan portfolio and prompt attention to delinquencies, we seek to minimize the impact of problem loans.
The increase in net interest income compared to the year ended December 31, 2021 was largely related to increased yield on loans from growth in higher yielding CCBX and community bank loans and interest rate increases on variable rate and new loans.
The increase in net interest income compared to the year ended December 31, 2022 was largely related to increased yield on loans from growth in higher yielding CCBX and community bank loans and interest rate increases on variable rate and new loans.
If a CCBX partner does not adequately replenish their cash reserve account then the Bank can declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements.
If a CCBX partner does not replenish their cash reserve account then the Bank can declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit and fraud enhancements.
This included a $10.0 million advance that would have matured in March of 2023 and $15.0 million advance that would have matured in March 2025. We have sufficient liquidity for our current loan demand, and 89 Table of Contents with no prepayment penalty for early repayment, management opted to repay these term advances and save the unnecessary interest expense .
This included a $10.0 million advance that would have matured in March of 2023 and $15.0 million advance that would have matured in March 2025. We have sufficient liquidity for our current loan demand, and with no prepayment penalty for early repayment, management opted to repay these term advances and save the unnecessary interest expense .
As of December 31, 2022 One Year or Less More than One Year to Five Years More than Five Years to Ten Years More than Ten Years Total (dollars in thousands) Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Securities available-for-sale: U.S.
As of December 31, 2023 One Year or Less More than One Year to Five Years More than Five Years to Ten Years More than Ten Years Total (dollars in thousands) Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Carrying Value Weighted Average Yield Securities available-for-sale: U.S.
Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting policies, which are discussed below, to be critical accounting policies. These assumptions, estimates and judgments we use can be influenced by a number of factors, including the general economic environment.
Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider the items discussed below to be critical accounting estimates. These assumptions, estimates and judgments we use can be influenced by a number of factors, including the general economic environment.
Noninterest expense also includes operational expenses, such as legal and professional expenses, data processing and software licenses, occupancy, FDIC assessment, points of sale expense, excise taxes, director and staff expenses, marketing and other expenses.
Noninterest expense also includes operational expenses, such as legal and professional expenses, data processing and software licenses, occupancy, point of sale expense, FDIC assessment, director and staff expenses, excise taxes, marketing and other expenses.
The level of net interest income is influenced by movements in interest rates and the pace at which such movements occur, as well as the relationship between short- and long-term interest rates. Credit Quality We have well established loan policies and underwriting practices that have resulted in low levels of charge-offs and nonperforming assets for the community bank.
The level of net interest income is influenced by movements in interest rates and the pace at which such movements occur, as well as the relationship between short- and long-term interest rates. 53 Table of Content s Credit Quality We have well established loan policies and underwriting practices that have resulted in low levels of charge-offs and nonperforming assets for the community bank.
We have seen competitors increase rates on time deposits, and we have not globally matched their rates in response as we focus on growing and retaining less costly core deposits. 86 Table of Contents The following table sets forth deposit balances at the dates indicated.
We have seen competitors increase rates on time deposits, and we have not globally matched their rates in response as we focus on growing and retaining less costly core deposits. The following table sets forth deposit balances at the dates indicated.
This includes $26.1 million in CCBX loans more than 90 days past due and still accruing interest as of December 31, 2022, compared to $1.5 million at December 31, 2021. All of our nonperforming assets were nonperforming loans as of December 31, 2022 and December 31, 2021.
This includes $46.5 million in CCBX loans more than 90 days past due and still accruing interest as of December 31, 2023, compared to $26.1 million at December 31, 2022. All of our nonperforming assets were nonperforming loans as of December 31, 2023 and December 31, 2022.
For more information and discussion related to the loans held for investment, see “ Note 4 - Loans and Allowance for Loan Losses” in the Consolidated Financial Statements.
For more information and discussion related to the loans held for investment, see “ Note 4 - Loans and Allowance for Credit Losses” in the Consolidated Financial Statements.
The Company directly holds stock in organizations such as the Federal Reserve Bank, Federal Home Loan Bank of Des Moines, private companies, and venture capital funds. Equity investments are subject to the risk of loss if these organizations experience financial difficulties or fall on hard times.
The Company directly holds stock in organizations such as the Federal Reserve Bank, Federal Home Loan Bank of Des Moines, private companies, and venture capital funds. Equity investments are subject to 55 Table of Content s the risk of loss if these organizations experience financial difficulties or fall on hard times.
The recording of BaaS income and expense is dependent upon the contractual agreement with each partner, however in accordance with accounting guidance the recording of certain components of BaaS income are as follows: Agreements with many of our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses.
The recording of BaaS income and expense is dependent upon the contractual agreement with each partner, however in accordance with accounting guidance the recording of certain components of BaaS income are consistent across agreements. Agreements with many of our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses.
Like our commercial real estate loans, our residential real estate loans are secured by real estate, the value of which may fluctuate significantly over a short period of time as a result of market conditions in the area in which the real estate is 72 Table of Contents located.
Like our commercial real estate loans, our residential real estate loans are secured by real estate, the value of which may fluctuate significantly over a short period of time as a result of market conditions in the area in which the real estate is located.
Reciprocal deposits enable us to provide an FDIC insured deposit option to customers that have balances in excess of the FDIC insurance limit.
Sweep deposits enable us to provide an FDIC insured deposit option to customers that have balances in excess of the FDIC insurance limit.
We believe that these limitations will not impact the ability of the Bank to pay dividends to the Company if needed, to meet ongoing operating needs.
We believe that these limitations will not impact the ability of the Bank to pay dividends to the Company to meet ongoing operating needs.
For a description of the factors taken into account by our management in determining the allowance for loan losses see “Item 7.
For a description of the factors taken into account by our management in determining the allowance for credit losses see “Item 7.
During any such extension period, distributions on the Trust’s preferred securities will also be deferred, and our ability to pay dividends on our common stock will be restricted. The Trust’s preferred securities are mandatorily redeemable upon maturity of the debentures, or upon earlier redemption as provided in the indenture.
During any such extension period, distributions on the Trust’s preferred securities will also be deferred, and our ability to pay dividends on our common stock will be restricted. The Trust’s preferred securities are mandatorily redeemable upon maturity of the debentures, or upon earlier redemption as provided in the indenture, subject to Federal Reserve approval.
Critical Accounting Policies Our accounting policies are integral to understanding our results of operations. Our accounting policies are described in greater detail in Note 1 to our consolidated financial statements included elsewhere in this Report on Form 10-K.
Critical Accounting Estimates and Significant Accounting Policies Our accounting policies are integral to understanding our results of operations. Our accounting policies are described in greater detail in Note 1 to our consolidated financial statements included elsewhere in this Report on Form 10-K.
The increase of $420,000 in occupancy expenses for 2022 compared to 2021, was primarily the result of $222,000 increase in depreciation expense, resulting from increased costs associated with the increase in FTE and growth in CCBX and $138,000 increase in maintenance and repairs expense. Occupancy expenses rent, utilities, janitorial and other maintenance expenses, property insurances and taxes.
The increase of $378,000 in occupancy expenses for 2023 compared to 2022, was primarily the result of $222,000 increase in depreciation expense, resulting from increased costs associated with the increase in FTE and growth in CCBX and $138,000 increase in maintenance and repairs expense. Occupancy expenses rent, utilities, janitorial and other maintenance expenses, property insurances and taxes.
Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit losses by absorbing incurred credit losses, if our partner is unable to fulfill its contracted obligations to replenish its cash reserve account then the Bank would be exposed to additional loan and deposit losses, as a result of this counterparty risk.
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 our partner is unable to fulfill its contracted obligations to replenish its cash reserve account then the Bank would be exposed to additional loan and deposit losses, as a result of this counterparty risk.
Additionally, ALCO reviews liquidity, cash flows, maturities of deposits and consumer and commercial deposit activity. Management employs various methodologies to manage interest rate risk including an analysis of relationships between interest earning assets and interest bearing liabilities and interest rate simulations using a model.
Additionally, ALCO reviews liquidity, cash flows, maturities of deposits and consumer and commercial deposit activity. Management employs various methodologies to manage interest rate risk including an analysis of relationships between interest earning assets and interest bearing liabilities and interest rate 109 Table of Content s simulations using a model.
The FHLB allows us to borrow against our line of credit, which is collateralized by certain loans. As of December 31, 2022 and December 31, 2021, we had borrowing capacity of $120.8 million and $120.4 million, respectively, with the FHLB. During the year ended December 31, 2022, we repaid a total of $25.0 million in FHLB term advances.
The FHLB allows us to borrow against our line of credit, which is collateralized by certain loans. As of December 31, 2023 and December 31, 2022, we had borrowing capacity of $204.6 million and $120.8 million, respectively, with the FHLB. During the year ended December 31, 2022, we repaid a total of $25.0 million in FHLB term advances.
Fraud losses 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.
Fraud losses are recorded when incurred as losses in noninterest expense, and the reimbursement from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement.
The Company maintains the allowance at an amount the Company believes is sufficient to provide for estimated losses inherent in the Company’s loan portfolio at each balance sheet date, and fluctuations in the provision for loan losses may result from management’s assessment of the adequacy of the allowance.
The Company maintains the allowance at an amount the Company believes is sufficient to provide for estimated losses expected to occur in the Company’s loan portfolio at each balance sheet date, and fluctuations in the provision for credit losses may result from management’s assessment of the adequacy of the allowance.
Federal Reserve Bank Line of Credit. The Federal Reserve allows us to borrow against our line of credit through a borrower in custody agreement utilizing the discount window, which is collateralized by certain loans. As of December 31, 2022, and December 31, 2021, total borrowing capacity of $26.7 million and $21.9 million, respectively, was available under this arrangement.
Federal Reserve Bank Line of Credit. The Federal Reserve allows us to borrow against our line of credit through a borrower in custody agreement utilizing the discount window, which is collateralized by certain loans. As of December 31, 2023, and December 31, 2022, total borrowing capacity of $435.5 million and $26.7 million, respectively, was available under this arrangement.
For the CCBX segment, the offering rates on the loan portfolio are modeled using partner contractual net yields which adjust with market shifts. For this CCBX portfolio, the offering rates on both the loans and the deposits nearly fully reprice with changes in market rates.
For the CCBX segment, the offering rates on the loan portfolio are modeled using partner contractual net yields which mostly adjust with market shifts. For this CCBX portfolio, the offering rates on the majority of the loans and the deposits nearly fully reprice with changes in market rates.
The following table illustrates the activity in CCBX for the periods indicated: As of (unaudited) December 31, 2022 December 31, 2021 Active 19 19 Friends and family / testing 1 1 Implementation / onboarding 0 5 Signed letters of intent 5 3 Wind down - preparing to exit relationship 2 0 Total CCBX relationships 27 28 Deposit Service Charges and Fees.
The following table illustrates the activity and evolution in CCBX relationships for the periods indicated: As of (unaudited) December 31, 2023 December 31, 2022 Active 19 19 Friends and family / testing 1 1 Implementation / onboarding 1 0 Signed letters of intent 0 5 Wind down - preparing to exit relationship 0 2 Total CCBX relationships 21 27 Deposit Service Charges and Fees.
The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically 54 Table of Contents fixed, charged either on a periodic basis or based on activity.
The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed, charged either on a periodic basis or based on activity.
Because the Company’s total consolidated assets exceeded $3.0 billion as of September 30, 2022, the Company is no longer subject to the Federal Reserve’s Small Bank Holding Company Policy Statement and will be evaluated relative to the capital adequacy standards established by the Federal Reserve going forward.
Because the Company’s 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.
As of December 31, 2022, and December 31, 2021, the Bank was in compliance with all applicable regulatory capital requirements, and the Bank was classified as “well capitalized” for purposes of the Federal Reserve’s prompt corrective action regulations.
As of December 31, 2023, and December 31, 2022, the Company and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as “well capitalized” for purposes of the Federal Reserve’s prompt corrective action regulations.
Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable, inventory or equipment, and we generally obtain personal guarantees on these loans. Commercial and industrial loans includes $45.1 million and $20.2 million in loans to financial institutions as of December 31, 2022, and December 31, 2021, respectively.
Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable, inventory or equipment, and we generally obtain personal guarantees on these loans. Commercial and industrial loans includes $48.6 million and $45.1 million in loans to financial institutions as of December 31, 2023, and December 31, 2022, respectively.
The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management’s credit evaluation of the customer. As of December 31, 2022, $1.57 billion in commitments to extend credit are unconditionally cancelable, compared to $162.3 million at December 31, 2021. The increase in unconditionally cancelable commitments is attributed to growth in CCBX loans.
The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management’s credit evaluation of the customer. As of December 31, 2023, $1.63 billion in commitments to extend credit are unconditionally cancelable, compared to $1.57 billion at December 31, 2022. The increase in unconditionally cancelable commitments is attributed to growth in CCBX loans.
Our largest expenses are provision for loan losses, salaries and employee benefits, interest on deposits and borrowings, legal and professional expenses and data processing. Our principal lending products are commercial real estate loans, commercial and industrial loans, residential real estate loans, construction, land and land development loans, and consumer loans.
Our largest expenses are provision for credit losses - loans, BaaS loan expense, BaaS fraud expense, salaries and employee benefits, interest on deposits and borrowings, occupancy expense, legal and professional expenses and data processing. Our principal lending products are commercial real estate loans, consumer loans, residential real estate, commercial and industrial loans and construction, land and land development loans.
Also included is depreciation on building, leasehold, furniture, fixtures and equipment. Although our hybrid and remote workforce has increased, which helps keep some occupancy expenses down, we do expect occupancy expenses to increase as we continue to grow. Legal and Professional Expenses.
Also included is depreciation on building, leasehold, furniture, fixtures and equipment. Although our hybrid and remote workforce has increased, which helps keep some occupancy expenses down, we do expect occupancy expenses to increase as we continue to grow. Point of Sale Expenses.
We have established underwriting guidelines, concentration limits and we also monitor our delinquency levels for any negative or adverse trends. We actively manage problem assets to reduce our risk for loss. We had $33.2 million in nonperforming assets as of December 31, 2022, compared to $1.7 million as of December 31, 2021.
We have established underwriting guidelines, concentration limits and we also monitor our delinquency levels for any negative or adverse trends. We actively manage problem assets to reduce our risk for loss. We had $53.8 million in nonperforming assets as of December 31, 2023, compared to $33.2 million as of December 31, 2022.
Noninterest Expense Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest components of noninterest expense are BaaS loan and fraud expense and salaries and employee benefits.
Noninterest Expense Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest components of noninterest expense are BaaS loan and fraud expense combined and salaries and employee 69 Table of Content s benefits.
In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans and negative deposit accounts.
In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans and reclassified negative deposit accounts.
In addition, the Company maintains an effective registration statement on Form S-3 with the Securities and Exchange Commission that would allow the Company to raise additional capital in an amount up to $115.5 million. The Company raised $34.5 million in December 2021.
In addition, the Company maintains an effective registration statement on Form S-3 with the Securities and Exchange Commission which allows the Company to raise additional capital in an amount up to $115.5 million. The Company raised $34.5 million in December 2021.
The increase in average deposits was primarily due to an increase in core deposits, both in noninterest bearing deposits and in interest bearing deposits. Included in this increase is growth in CCBX deposits.
The increase in average deposits was primarily due to an increase in core deposits, in interest bearing deposits. Included in this increase is growth in CCBX deposits.
Since commitments associated with commitments to extend credit and letters of credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements. As of December 31, 2022, we had $2.20 billion in commitments to extend credit, compared to $909.6 million as of December 31, 2021.
Since commitments associated with commitments to extend credit and letters of credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements. As of December 31, 2023 we had $2.34 billion in commitments to extend credit, compared to $2.20 billion as of December 31, 2022.
We actively manage our interest rates on deposits, however, rate changes from the Federal Reserve and competition can and do impact our deposit costs. 88 Table of Contents Uninsured Deposits The FDIC insures our deposits up to $250,000 per depositor, per insured bank for each account ownership category. Deposits that exceed insurance limits are uninsured.
We actively manage our interest rates on deposits, however, rate changes from the FOMC and competition can and do impact our deposit costs. Uninsured Deposits The FDIC insures our deposits up to $250,000 per depositor, per insured bank for each account ownership category. Deposits that exceed insurance limits are uninsured.
The following table presents details on FHLB advance borrowings for the periods indicated: As of and For the Years Ended December 31, (dollars in thousands) 2022 2021 Maximum amount outstanding at any month-end during period: $ 24,999 $ 24,999 Average outstanding balance during period: $ 6,029 $ 24,999 Weighted average interest rate during period: 1.13 % 1.13 % Balance outstanding at end of period: $ — $ 24,999 Weighted average interest rate at end of period: n/a 1.13 % Junior Subordinated Debentures.
The following table presents details on FHLB advance borrowings for the periods indicated: As of and For the Years Ended December 31, (dollars in thousands) 2023 2022 Maximum amount outstanding at any month-end during period: $ — $ 24,999 Average outstanding balance during period: $ 1 $ 6,029 Weighted average interest rate during period: 5.60 % 1.13 % Balance outstanding at end of period: $ — $ — Weighted average interest rate at end of period: 0.00% 0.00 % Junior Subordinated Debentures.
Our business is conducted through two reportable segments: The community bank and CCBX. The primary focus of the community bank is on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application.
The primary focus of the community bank is on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application.
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 required to meet the generally applicable regulatory capital requirements of the Federal Reserve and the FDIC at the company and bank level.
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 and holding company level.
In 2021, net contributions to private company equity investments totaled $163,000 and increased in value by $1.5 million (unrealized gain) mostly in response to one company’s issuance of common equity awards, identical to the Company’s holdings, at a higher value. The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment.
In 2022, net contributions to private company equity investments totaled $699,000 and increased in value by $153,000 (unrealized gain) mostly in response to one company’s issuance of common equity awards, identical to the Company’s holdings, at a higher value. The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment.
Although agreements with our CCBX partners provide for enhancements that provide protection to the Bank from credit and fraud losses by absorbing incurred credit and fraud losses, if our partner is unable to fulfill its contracted obligations beyond its cash reserve account then the Bank would be exposed to additional loan and deposit losses, as a result of this counterparty risk.
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 our partner is unable to fulfill its contracted obligations to replenish its cash reserve account then the Bank would be exposed to additional losses, as a result of this counterparty risk.
Management evaluates debt securities for other-than-temporary impairment (“OTTI”), on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.
Management evaluates debt securities for credit losses, on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.
Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. These loans are primarily made based on the borrower’s ability to service the debt from 71 Table of Contents income.
Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. These loans are primarily made based on the borrower’s ability to service the debt from 80 Table of Content s income.
The table illustrates the $55.0 million increase in loan interest income that is attributable to an increase in loan rates and $46.2 million increase in loan interest income that is attributable to an increase in loan volume. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to volume.
The table illustrates the $56.1 million increase in loan interest income that is attributable to an increase in loan rates and $72.0 million increase in loan interest income that is attributable to an increase in loan volume. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to volume.
The carrying values of our investment securities classified as available for sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.
Our investment portfolio consists of securities classified as available for sale and, to a lesser amount, held to maturity. The carrying values of our investment securities classified as available for sale are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity.
As of December 31, 2022, our available for sale portfolio has an unrealized loss of $3.0 million, compared to an unrealized loss of $38,000 as of December 31, 2021.
As of December 31, 2023, our available for sale portfolio has an unrealized loss of $537,000, compared to an unrealized loss of $3.0 million as of December 31, 2022.
In addition, the Bank can 91 Table of Contents declare and pay dividends to the Company if needed, to meet the Company’s debt and operating expenses. There are statutory and regulatory limitations that affect the ability of the Bank to pay dividends to the Company.
In addition, the Bank can declare and pay dividends to the Company to meet the Company’s debt and operating expenses. There are statutory and regulatory limitations that affect the ability of the Bank to pay dividends to the Company.
We may redeem the subordinated note, in whole or in part, without premium or penalty, in principal redemption multiples of $1,000, after November 1, 2027, subject to any required regulatory approvals. 90 Table of Contents Liquidity and Capital Resources Liquidity Management Liquidity refers to our capacity to meet our cash obligations at a reasonable cost.
We may redeem the subordinated note, in whole or in part, without premium or penalty, in principal redemption multiples of $1,000, after November 1, 2027, subject to any required regulatory approvals. 100 Table of Content s Liquidity and Capital Resources Liquidity Management Liquidity refers to our capacity to meet our cash obligations when they come due at a reasonable cost.
The economic environment is continuously changing, due to increased inflation, global unrest, the war in Ukraine, the political environment, and trade issues all contribute to economic uncertainty which has caused increased market volatility and may lead to an economic recession and/or a significant decrease in consumer confidence and business generally.
The economic environment is continuously changing, due to GDP, inflation, higher interest rates, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, the political environment, and trade issues all contribute to economic uncertainty which has caused increased market volatility and may lead to an economic recession and/or a significant decrease in consumer confidence and business generally.
For the year ended December 31, 2022, noninterest income subject to Topic 606 increased $4.3 million to $18.2 million, compared to $13.9 million for the year ended December 31, 2021. The increase was largely due to an increase in BaaS fee income resulting from growth with active CCBX partners.
For the year ended December 31, 2023, noninterest income subject to Topic 606 increased $3.0 million to $21.2 million, compared to $18.2 million for the year ended December 31, 2022. The increase was largely due to an increase in BaaS fee income resulting from growth with active CCBX partners.
The following table summarizes the amortized cost and estimated fair value of certain of our investment securities as of the dates shown: As of December 31, 2022 2021 (dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Securities available-for-sale: U.S. Treasury securities $ 99,967 $ 97,015 $ 34,999 $ 34,998 U.S.
The following table summarizes the amortized cost and estimated fair value of certain of our investment securities as of the dates shown: As of December 31, 2023 2022 (dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Securities available-for-sale: U.S. Treasury securities $ 99,996 $ 99,461 $ 99,967 $ 97,015 U.S.
During the twelve months ended December 31, 2022, the Company transferred $152.5 million in CCBX loans receivable to loans held for sale and subsequently sold these loans. As of December 31, 2022 and 2021 there were no CCBX loans held for sale.
During the twelve months ended December 31, 2023, the Company transferred $599.9 million in CCBX loans receivable to loans held for sale and subsequently sold these loans. As of December 31, 2023 and 2022 there were no CCBX loans held for sale.
Management’s Discussion and Analysis of Financial Condition and Operations—Financial Condition—Allowance for Loan Losses.” The economic environment is continuously changing, due to increased inflation, higher interest rates, global unrest, the war in Ukraine, the political environment and trade issues that may impact the provision and therefore the allowance.
Management’s Discussion and Analysis of Financial Condition and Operations—Financial Condition—Allowance for Credit Losses.” The economic environment is continuously changing, due to GDP, inflation, higher interest rates, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, the political environment and trade issues that may impact the provision and therefore the allowance.

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