Coastal Financial Corporation Announces Second Quarter 2022 Results

Coastal Financial Corporation

Second Quarter 2022 Highlights:

• Record quarterly net income of $10.2 million, or $0.76 per diluted common share, for the three months ended June 30, 2022, compared to $6.2 million, or $0.46 per diluted common share for the three months ended March 31, 2022.

• Total assets increased $136.0 million, or 4.8%, to $2.97 billion for the quarter ended June 30, 2022, compared to $2.83 billion at March 31, 2022.

• Loan growth of $461.2 million, or 24.0%, excluding PPP loan forgiveness/repayments of $31.1 million and including $60.0 million in loans held for sale, for the three months ended June 30, 2022, compared to the three months ended March 31, 2022.

  • CCBX loans increased $288.6 million, or 56.0%

  • Community bank loans increased $112.7 million, or 8.0%, excluding PPP loan forgiveness/repayments

  • PPP loans decreased $31.1 million, or 65.5%, to $16.4 million

  • CCBX loans held for sale of $60.0 million as of June 30, 2022, previously there were no loans held for sale.

• Deposit growth of $120.8 million, or 4.7%, to $2.70 billion for the three months ended June 30, 2022, compared to $2.58 billion at March 31, 2022.

  • CCBX deposit growth of $166.6 million, or 18.5%

    • Additional $269.5 million in CCBX deposits transferred off balance sheet

  • Community bank deposits decreased $45.8 million, or 2.7%, and community bank cost of deposits remained at 0.08%.

• Total revenue increased $14.1 million, or 27.6% for the three months ended June 30, 2022, compared to March 31, 2022.

  • Total revenue excluding BaaS credit enhancements and BaaS fraud enhancements * increased $11.1 million, or 33.0%, for the three months ended June 30, 2022, compared to March 31, 2022.
    

EVERETT, Wash., July 27, 2022 (GLOBE NEWSWIRE) -- Coastal Financial Corporation (Nasdaq: CCB) (the “Company”), the holding company for Coastal Community Bank (the “Bank”), today reported unaudited financial results for the quarter ended June 30, 2022. Record quarterly net income for the second quarter of 2022 was $10.2 million, or $0.76 per diluted common share, compared with net income of $6.2 million, or $0.46 per diluted common share, for the first quarter of 2022, and $7.0 million, or $0.56 per diluted common share, for the quarter ended June 30, 2021.

Total assets increased $136.0 million, or 4.8%, during the second quarter of 2022 to $2.97 billion, from $2.83 billion at March 31, 2022. Loan growth for the three months ended June 30, 2022 was $461.2 million, or 24.0%, excluding PPP loan forgiveness/repayments of $31.1 million and including $60.0 million in loans held for sale. Loan growth, net of $31.1 million in PPP loan forgiveness and repayments during the quarter was $430.1 million. Solid deposit growth of $120.8 million, or 4.7%, during the three months ended June 30, 2022.

“Our CCBX segment, which provides Banking as a Service (“BaaS”), has grown to $1.1 billion in deposits, or 39.5% of total deposits, and to $804.0 million in loans, or 34.4% of total loans receivable, excluding $60.0 million in loans held for sale, as of June 30, 2022. Our community bank segment continues to grow as we build new relationships within the communities that we are located. Contemporaneously, our CCBX partnerships, enable us to extend our reach and build relationships in diverse communities throughout the country.

“For the quarter ended June 30, 2022, we had record quarterly net income of $10.2 million, an increase of $3.9 million, or 63.3%, over the quarter ended March 31, 2022. As we continue to grow in the BaaS space, we are choosing to work with larger, more established fintech partners, so the number of new partnerships is not increasing as quickly as in the past, but these newer, larger partners are expected to have a significant impact on our financial growth”, stated Eric Sprink, the CEO of the Company and the Bank.

Results of Operations Overview

The Company has two segments, both of which are included in the Bank: CCBX and the community bank. The CCBX segment includes our BaaS activities and the community bank segment includes all other banking activities. Net interest income was $39.9 million for the quarter ended June 30, 2022, an increase of $10.6 million, or 36.3%, from $29.3 million for the quarter ended March 31, 2022, and an increase of $21.3 million, or 114.3%, from $18.6 million for the quarter ended June 30, 2021.   Yield on loans receivable was 7.34% for the three months ended June 30, 2022, compared to 6.80% for the three months ended March 31, 2022 and 4.44% for the three months ended June 30, 2021. The increase in net interest income compared to March 31, 2022 and June 30, 2021, was largely related to increased yield on loans resulting from growth in higher yielding loans, primarily from CCBX. Total average loans receivable for the three months ended June 30, 2022 was $2.19 billion, compared to $1.77 billion for the three months ended March 31, 2022, and $1.75 billion for the three months ended June 30, 2021.

Interest and fees on loans totaled $40.2 million for the three months ended June 30, 2022 compared to $29.6 million and $19.4 million for the three months ended March 31, 2022 and June 30, 2021, respectively. Loan growth of $461.2 million, or 24.0%, included $60.0 million in loans held for sale and excluded PPP loan forgiveness/repayments of $31.1 million, during the quarter ended June 30, 2022. Loan growth included $288.6 million increase in CCBX loans; part of that loan growth was in capital call lines, which increased $6.3 million, or 2.9%, during the quarter ended June 30, 2022. These loans bear a lower rate of interest, but have less credit risk due to the way the loans are structured compared to other commercial loans.   The increase in interest and fees on loans for the quarter ended June 30, 2022, compared to March 31, 2022 and June 30, 2021, was largely due to growth in higher yielding loans, and a decrease in low yielding PPP loans. As a result of the Federal Open Market Committee (“FOMC”) raising rates in mid-March 2022 (0.25%), early May (0.50%) and again in mid-June 2022 (0.75%), interest rates on $460.9 million variable rate loans are affected, the impact of these increases in interest rates will be fully seen in future quarters.

As of June 30, 2022, there were $16.4 million in PPP loans, compared to $47.5 million as of March 31, 2022, and $398.0 million as of June 30, 2021. In the three months ended June 30, 2022, a total of $31.1 million in PPP loans were forgiven or repaid. Net deferred fees recognized on PPP loans contributed $969,000 for the three months ended June 30, 2022, compared to $2.3 million for the three months ended March 31, 2022, and $3.6 million for the three months ended June 30, 2021. As of June 30, 2022 97.9% of PPP loans have been paid off or forgiven as of June 30, 2022. The future impact of PPP loans is expected to be minimal with just $16.4 million, or 2.1% of total PPP originated loans remaining, and $396,000 in corresponding net deferred fees left to be recognized, as of June 30, 2022.

PPP loans in rounds 1 and 2 were originated in 2020, and were predominately two year loans, and only $2.2 million, or 0.50%, of these loans remain at June 30, 2022. PPP loans in round 3 were originated in 2021 and are all five-year loans, and $14.2 million, or 4.6%, of these loans remain outstanding at June 30, 2022.

The table below summarizes information about total PPP loans originated in 2020 and 2021.

		Total PPP Loan Origination
		Round 1 & 2 2020			Round 3 2021			Total
(Dollars in thousands; unaudited)
Loans Originated		$	452,846		$	311,012		$	763,858
Deferred fees, net		$	12,933		$	13,334		$	26,267
Outstanding loans and deferred fees as of June 30, 2022
Loans outstanding		$	2,199		$	14,199		$	16,398
Deferred fees, net		$	-		$	396		$	396

Interest income from interest earning deposits with other banks was $956,000 at June 30, 2022, an increase of $554,000 due to increased interest rates compared to March 31, 2022, and an increase of $882,000 due to higher balances and an increase in interest rates compared to June 30, 2021. The average balance of interest earning deposits with other banks for the three months ended June 30, 2022 was $499.9 million, compared to $843.9 million and $235.2 million for the three months ended March 31, 2022 and June 30, 2021, respectively. Interest earning deposits with other banks decreased as a result of increased loan demand. Those deposits were used to fund higher yielding loans receivable. Additionally, the yield on these interest earning deposits with other banks increased to 0.77% for the quarter ended June 30, 2022, compared to 0.19% and 0.13% for the quarters ended March 31, 2022 and June 30, 2021, respectively.

Interest expense was $1.9 million for the quarter ended June 30, 2022, a $1.1 million increase from the quarter ended March 31, 2022 and a $974,000 increase from the quarter ended June 30, 2021. Interest expense on borrowed funds was $260,000 for the quarter ended June 30, 2022, compared to $321,000 and $331,000 for the quarters ended March 31, 2022 and June 30, 2021, respectively. Interest expense on borrowed funds decreased $61,000 compared to the three months ended March 31, 2022, primarily because we paid off $25.0 million in Federal Home Loan Bank (“FHLB”) borrowings late in the quarter ended March 31, 2022 without a prepayment penalty for early repayment. The $71,000 decrease in interest expense on borrowed funds from the quarter ended June 30, 2021 is the result of a decrease in average Paycheck Protection Program Liquidity Facility (“PPPLF”) borrowings, which were paid off in full as of June 30, 2021, partially offset by an increase in interest expense related to subordinated debt, which is higher as a result of increased subordinated debt outstanding. Interest expense on interest bearing deposits increased $1.1 million for the quarter ended June 30, 2022, compared to the quarter ended March 31, 2022 as a result of the FOMC increasing rates 0.25% in mid-March 2022, 0.50% in early May and 0.75% in June 2022. In addition, as a result of the Fed Funds rate increases, CCBX deposits that were not earning interest were reclassed to interest bearing deposits from noninterest bearing deposits. Reclassification of $690.4 million, balances as of March 31, 2022, in CCBX deposits from noninterest bearing to interest bearing deposits occurred mid-March 2022 with the 0.25% interest rate increase, and an additional $86.4 million, balances as of June 30, 2022, were reclassified in the second quarter 2022 as a result of the rate increases totaling 1.25% in the second quarter of 2022. The impact of the March 2022 increase in interest rates by the FOMC was fully reflected in the second quarter interest expense. The more recent rate increases in May and June 2022 by the FOMC did not have as significant impact on the second quarter interest expense, but the impact of that change and the change on loan rates is expected to be seen in future quarters. Currently, we do not expect that any additional CCBX deposits will be reclassified as a result of any future rate increases that may be implemented by the FOMC.

Interest expense on interest bearing deposits increased $1.0 million for the quarter ended June 30, 2022, as a result of increased balances and higher interest rates, compared to the quarter ended June 30, 2021. Total cost of deposits was 0.25% for the three months ended June 30, 2022, 0.09% for the three months ended March 31, 2022, and 0.14%, for the three months ended June 30, 2021. We anticipate additional rate increases in 2022, which will increase our cost of deposits and result in higher interest expense on interest bearing deposits.

Net Interest Margin

Net interest margin was 5.66% for the three months ended June 30, 2022, compared to 4.45% and 3.70% for the three months ended March 31, 2022 and June 30, 2021, respectively. The increase in net interest margin compared to the three months ended March 31, 2022 and June 30, 2021, was largely a result of an increase in higher rate loans.   Loans receivable increased $401.2 million and $1.1 billion, excluding PPP loan forgiveness/repayments, compared to March 31, 2022 and June 30, 2021, respectively. Additionally, the Fed Funds rate increases have resulted in existing, variable rate loans repricing at higher interest rates. Interest on loans receivable increased $10.6 million, or 35.5%, to $40.2 million for the three months ended June 30, 2022, compared to $29.6 million for the three months ended March 31, 2022, and $19.4 million for the three months ended June 30, 2021. Also contributing to the increase in net interest margin compared to the three months ended March 31, 2022 and June 30, 2021, was $554,000 and $882,000 increase in interest on interest earning deposits, respectively. These interest earning deposits earned an average rate of 0.77% for the quarter ended June 30, 2022, compared to 0.19% and 0.13% for the quarters ended March 31, 2022 and June 30, 2021, respectively.   Average investment securities of $121.3 million for the three months ended June 30, 2022 increased $75.5 million compared to the three months ended March 31, 2022, and $96.3 million compared to the three months ended June 30, 2021. Interest on investment securities increased $492,000 and $539,000 for the three months ended June 30, 2022 compared to the three months ended March 31, 2022 and June 30, 2021, respectively, as a result of the increase in average outstanding balance coupled with increased yield, which also positively impacted net interest margin. These increases in interest income were partially offset by increases in interest expense on interest bearing deposits, as previously discussed.

Cost of funds was 0.29% for the quarter ended June 30, 2022, an increase of 15 basis points from the quarter ended March 31, 2022 and an increase of nine basis points from the quarter ended June 30, 2021. Cost of deposits for the quarter ended June 30, 2022 was 0.25%, compared to 0.09% for the quarter ended March 31, 2022, and 0.14% for the quarter ended June 30, 2021. The increased cost of funds and deposits compared to March 31, 2022 and June 30, 2021 was largely due to the increase in interest rates compared to the previous periods. Noninterest bearing deposits of $818.1 million for the quarter ended June 30, 2022 decreased $20.0 million, or 2.4%, compared to the quarter ended March 31, 2022, and decreased $69.8 million, or 7.9%, compared to the quarter ended June 30, 2021 due to the aforementioned reclassification of CCBX noninterest bearing deposits to interest bearing deposits, partially offset by noninterest deposit growth.

During the quarter ended June 30, 2022, total loans receivable increased by $370.1 million, to $2.33 billion, compared to $1.96 billion for the quarter ended March 31, 2022. Loans receivable increased $401.2 million, or 20.9%, excluding PPP loan forgiveness/repayments, for the quarter ended June 30, 2022, compared to the quarter ended March 31, 2022. The increase consists of $288.6 million in CCBX loans and $112.7 million in community bank loan growth partially offset by a decrease in PPP loans of $31.1 million as a result of forgiveness and repayments. Total loans receivable, excluding PPP loan forgiveness/repayments, increased $1.1 billion as of June 30, 2022, compared to the quarter ended June 30, 2021.   CCBX loans increased $700.4 million and community bank loans increased $357.4 million, or 30.9%, excluding PPP loan forgiveness/repayments, as of June 30, 2022, compared June 30, 2021. These increases were partially offset by a decrease of $381.6 million in PPP loans as a result of forgiveness/repayments, and ended the quarter with $16.4 million in outstanding PPP loans, compared to $398.0 million as of June 30, 2021. During the quarter ended June 30, 2022 $80.1 million in CCBX loans were transferred to loans held for sale, with $20.1 million in loans sold during the quarter and $60.0 million remaining in loans held for sale as of June 30, 2022; previously we did not have any loans held for sale.

Total yield on loans receivable for the quarter ended June 30, 2022 was 7.34%, compared 6.80% for the quarter ended March 31, 2022, and 4.44% for the quarter ended June 30, 2021. This increase in yield on loans receivable is largely attributed to an increase in higher rate consumer loans from CCBX partners. During the quarter ended June 30, 2022, CCBX loans outstanding increased 56.0%, or $288.6 million, with an average CCBX yield of 12.35% and community bank loans increased 5.6%, or $81.6 million, net of $31.1 million in forgiven/repaid PPP loans, with an average yield of 5.04%. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans. Net BaaS loan income divided by average CCBX loans outstanding was 5.25% and is impacted by the $224.9 million in capital call lines that are priced at prime minus 0.50%.

The following table summarizes the average yield on loans receivable and cost of deposits for each segment for the periods indicated:

	For the Three Months Ended																						For the Six Months Ended
	June 30, 2022							March 31, 2022							June 30, 2021								June 30, 2022							June 30, 2021
	Yield on			Cost of				Yield on			Cost of				Yield on			Cost of					Yield on			Cost of				Yield on			Cost of
	Loans			Deposits				Loans			Deposits				Loans			Deposits					Loans			Deposits				Loans			Deposits
Community Bank	5.04	%		0.08	%			5.16	%		0.11	%			4.52	%		0.16	%				5.10	%		0.09	%			4.56	%		0.17	%
CCBX (1)	12.35	%		0.56	%			12.73	%		0.06	%			3.14	%		0.03	%				12.48	%		0.34	%			2.90	%		0.05	%
Consolidated	7.34	%		0.25	%			6.80	%		0.09	%			4.44	%		0.14	%				7.10	%		0.18	%			4.47	%		0.16	%
(1) CCBX yield on loans does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans. To determine Net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at Net BaaS loan income which can be compared to interest income on the Company’s community bank loans.

The following tables illustrates how BaaS loan interest income is affected by BaaS loan interest expense resulting in net BaaS loan income and the associated yield:

	For the Three Months Ended
	June 30, 2022							March 31, 2022							June 30, 2021
(Dollars in thousands)	Income / Expense			Income / expense divided by average CCBX loans				Income / Expense			Income / expense divided by average CCBX loans				Income / Expense			Income / expense divided by average CCBX loans
BaaS loan interest income	$	21,281			12.35	%		$	11,992			12.73	%		$	879			3.14	%
Less: BaaS loan expense		12,229			7.10	%			8,290			8.80	%			99			0.35	%
Net BaaS loan income*	$	9,052			5.25	%		$	3,702			3.93	%		$	780			2.79	%
Average BaaS Loans	$	691,294						$	382,153						$	112,210

	For the Six Months Ended
	June 30, 2022								June 30, 2021
(Dollars in thousands)	Income / Expense			Income / expense divided by average CCBX loans					Income / Expense			Income / expense divided by average CCBX loans
BaaS loan interest income	$	33,273			12.48	%			$	1,290			2.90	%
Less: BaaS loan expense		20,519			7.70	%				189			0.43	%
Net BaaS loan income*	$	12,754			4.78	%			$	1,101			2.48	%
Average BaaS Loans	$	537,577							$	89,656

Key Performance Ratios

Return on average assets (“ROA”) was 1.41% for the quarter ended June 30, 2022 compared to 0.93% and 1.36% for the quarters ended March 31, 2022 and June 30, 2021, respectively. ROA for the quarter ended March 31, 2022, was impacted by increased demand deposits and cash on the balance sheet, which are lower yielding earning assets and produced a lower loan to deposit ratio, and combined with increased costs related to the CCBX segment, which increased expenses, compared to the quarters ended June 30, 2022 and June 30, 2021

The following table shows the Company’s key performance ratios for the periods indicated. The table also includes ratios that were adjusted by removing the impact of the PPP loans as described above. The adjusted ratios are non-GAAP measures. For more information about non-GAAP financial measures, see the end of this earnings release.

		Three Months Ended																Six Months Ended
(unaudited)		June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021			June 30, 2021				June 30, 2022			June 30, 2021
Return on average assets (1)			1.41	%		0.93	%		1.14	%		1.21	%		1.36	%			1.18	%		1.32	%
Return on average equity (1)			18.86	%		12.12	%		16.80	%		16.77	%		18.60	%			15.57	%		17.75	%
Yield on earnings assets (1)			5.94	%		4.58	%		4.09	%		3.63	%		3.89	%			5.28	%		3.94	%
Yield on loans receivable (1)			7.34	%		6.80	%		5.92	%		4.57	%		4.44	%			7.10	%		4.47	%
Yield on loans receivable, excluding PPP loans (1)(2)			7.26	%		6.52	%		4.98	%		4.53	%		4.65	%			6.93	%		4.71	%
Yield on loans receivable, excluding earned fees (1)(2)			7.12	%		6.17	%		4.37	%		3.74	%		3.46	%			6.70	%		3.49	%
Yield on loans receivable, excluding earned fees on all loans and interest on PPP loans, as adjusted (1)(2)			7.21	%		6.41	%		4.78	%		4.36	%		4.42	%			6.86	%		4.47	%
Cost of funds (1)			0.29	%		0.14	%		0.14	%		0.16	%		0.20	%			0.22	%		0.22	%
Cost of deposits (1)			0.25	%		0.09	%		0.09	%		0.10	%		0.14	%			0.18	%		0.16	%
Net interest margin (1)			5.66	%		4.45	%		3.95	%		3.48	%		3.70	%			5.08	%		3.73	%
Noninterest expense to average assets (1)			5.29	%		4.52	%		3.29	%		2.91	%		2.65	%			4.92	%		2.64	%
Efficiency ratio			58.38	%		59.34	%		54.08	%		64.68	%		58.69	%			58.80	%		59.70	%
Loans receivable to deposits (3)			86.54	%		76.24	%		73.73	%		76.71	%		92.03	%			86.54	%		92.03	%
(1) Annualized calculations shown for quarterly periods presented.
(2) A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.
(3) Excluding loans held for sale.

Noninterest Income

The following table details noninterest income for the periods indicated:

		Three Months Ended
		June 30,				March 31,				June 30,
(Dollars in thousands)		2022				2022				2021
Deposit service charges and fees		$	988			$	884			$	949
Loan referral fees			208				602				806
Mortgage broker fees			85				123				253
Gain on sale of branch including deposits and loans, net			-				-				1,263
Gain on sales of loans, net			-				-				31
Other			311				265				56
Subtotal			1,592				1,874				3,358
Servicing and other BaaS fees			1,159				1,169				1,029
Transaction fees			814				493				93
Interchange fees			628				432				110
Reimbursement of expenses			618				372				192
BaaS program income			3,219				2,466				1,424
BaaS credit enhancements			14,207				13,075				-
BaaS fraud enhancements			6,474				4,571				-
BaaS indemnification income			20,681				17,646				-
Total noninterest income		$	25,492			$	21,986			$	4,782

Noninterest income was $25.5 million for the three months ended June 30, 2022, an increase of $3.5 million from $22.0 million for the three months ended March 31, 2022, and an increase of $20.7 million from $4.8 million for the three months ended June 30, 2021. The increase in noninterest income over the quarter ended March 31, 2022 was primarily due to an increase of $3.8 million in BaaS income partially offset by a $394,000 decrease in loan referral fees.   The $3.8 million increase in BaaS income included $1.1 million increase in BaaS credit enhancements related to the allowance for loan losses and reserve for unfunded commitments, $1.9 million increase in BaaS fraud enhancements, and an increase of $753,000 in BaaS program income (see “Appendix B” for more information on the accounting for BaaS allowance for loan losses, reserve for unfunded commitments and credit and fraud enhancements). The $20.7 million increase in noninterest income over the quarter ended June 30, 2021 was primarily due to a $22.5 million increase in BaaS income partially offset by a decrease of $598,000 in loan referral fees and the absence of the $1.3 million gain on sale branch which was recognized in the quarter ended June 30, 2021. The $22.5 million increase in BaaS income included a $14.2 million increase in BaaS credit enhancements, $6.5 million increase in BaaS fraud enhancements and $1.8 million increase in other BaaS program income.

Our CCBX segment continues to grow, and now has 29 relationships, at varying stages, as of June 30, 2022. As of June 30, 2022, we increased our active relationships to 23, compared to 20 as of March 31, 2022 and 12 as of June 30, 2021. As we continue to grow in the BaaS space, we continue to refine the criteria for CCBX partnerships and are focusing on selecting larger and more established partners, with experienced management teams.

The following table illustrates the activity and growth in CCBX relationships for the periods presented and includes the removal of a smaller partner during the quarter ended June 30, 2022.

	As of
	June 30, 2022	March 31, 2022	June 30, 2021
Active	23	20	12
Friends and family / testing	2	1	3
Implementation / onboarding	0	5	7
Signed letters of intent	4	2	2
Total CCBX relationships	29	28	24

Noninterest Expense

The following table details noninterest expense for the periods indicated:

		Three Months Ended
		June 30,				March 31,				June 30,
(Dollars in thousands)		2022				2022				2021
Salaries and employee benefits		$	12,238			$	11,085			$	8,913
Software licenses, maintenance and subscriptions			1,108				1,052				543
Occupancy			1,083				1,136				990
Data processing			1,010				809				734
Legal and professional fees			1,002				708				626
FDIC assessments			855				604				225
Excise taxes			564				349				388
Director and staff expenses			377				344				318
Marketing			74				99				132
Other			1,155				1,368				763
Subtotal			19,466				17,554				13,632
BaaS loan expense			12,229				8,290				99
BaaS fraud expense			6,474				4,571				-
BaaS expense			18,703				12,861				99
Total noninterest expense		$	38,169			$	30,415			$	13,731

Total noninterest expense increased to $38.2 million for the three months ended June 30, 2022, compared to $30.4 million for the three months ended March 31, 2022 and $13.7 million for the three months ended June 30, 2021. The increase in noninterest expense for the quarter ended June 30, 2022, as compared to the quarter ended March 31, 2022, was primarily due to a $5.8 million increase in BaaS expense ($3.9 million of which is related to partner loan expense and $1.9 million of which is related to partner fraud expense). Partner loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans. Partner fraud expense represents non-credit fraud losses on partner’s customer loan and deposit accounts, a portion of this expense is realized during the quarter, and a portion is estimated based on historical or other information from our partner. Also contributing to the increase in noninterest expense compared to March 31, 2022 is a $1.2 million increase in salaries and employee benefits which is related to the hiring in CCBX and additional staff for our ongoing growth initiatives. In the second quarter of 2022 compared to the first quarter of 2022, legal and professional fees increased $294,000 and Federal Deposit Insurance Corporation (“FDIC”) assessments increased $251,000. The increase in legal and professional expenses is due to increased fees related to new hires in data and risk management, and increased regulatory consulting expenses. The increase in FDIC assessments is largely the result of an increase in deposits combined with other factors that impact the FDIC assessment calculation compared to the quarter ended March 31, 2022.

The increased noninterest expenses for the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 were largely due to an increase of $18.6 million in BaaS partner expense ($12.1 million of which is related to partner loan expense and $6.5 million of which is related to partner fraud expense), $3.3 million increase in salary and employee benefits related to hiring staff for CCBX and additional staff for our ongoing growth initiatives, $630,000 increase in FDIC assessments and $565,000 increase in software licenses, maintenance and subscriptions. The increase in FDIC assessments is largely the result of an increase in assets combined with other factors that impact the FDIC assessment calculation compared to the quarter ended June 30, 2021. The increase in software license, maintenance and subscription expenses increased as a result of implementing software that aids in the reporting of CCBX activities and monitoring of transactions that helps to automate and create other efficiencies in reporting.

The provision for income taxes was $2.9 million for the three months ended June 30, 2022, $1.7 million for the three months ended March 31, 2022 and $2.3 million for the second quarter of 2021. The Company is subject to various state taxes that are assessed as CCBX activities and employees expand into other states, which has increased the overall tax rate used in calculating the provision for income taxes in the current and future periods. The Company uses a federal statutory tax rate of 21.0% as a basis for calculating provision for federal income taxes and 1.0% for calculating the provision for state taxes.

Financial Condition Overview

Total assets increased $136.0 million, or 4.8%, to $2.97 billion at June 30, 2022 compared to $2.83 billion at March 31, 2022. The increase is primarily due to loans receivable increasing $370.1 million even after receiving $31.1 million in PPP loan forgiveness and paydowns during the quarter ended June 30, 2022. Loans held for sale increased $60.0 million, with no balance in previous periods. Those increases were partially offset by a $284.5 million decrease in interest earning deposits with other banks, as a result of those deposits being utilized to fund loans. Total assets increased $926.6 million, or 48.0%, at June 30, 2022, compared to $2.01 billion at June 30, 2021. The increase is primarily due to loans receivable increasing $676.2 million. Also contributing to the increase is a $113.5 million increase in interest earning deposits with other banks, primarily from increased deposits, and an increase of $83.2 million in investment securities, both compared to June 30, 2021.

Loans Receivable

Total loans receivable increased $370.1 million to $2.33 billion at June 30, 2022, from $1.96 billion at March 31, 2022, and increased $676.2 million from $1.66 billion at June 30, 2021. The increase in loans receivable over the quarter ended March 31, 2022 was the result of $288.6 million in CCBX loan growth and $112.7 million in community bank loan growth partially offset by $31.1 million in PPP loan forgiveness and paydowns. Along with an increase in loans receivable as of June 30, 2022 compared to March 31, 2022, unused commitments also increased during the same period, with the unused commitments on capital call lines increasing $151.0 million to $704.5 million at June 30, 2022 compared to $553.5 million at March 31, 2022, which should translate into future loan growth as the commitments are utilized.   The increase in loans receivable over the quarter ended June 30, 2021 includes CCBX loan growth of $700.4 million and $357.4 million in community bank loan growth, partially offset by a $381.6 million decrease in PPP loans as of June 30, 2022.

The following table summarizes the loan portfolio at the period indicated:

		As of
		June 30, 2022							March 31, 2022							June 30, 2021
(Dollars in thousands; unaudited)		Balance			% to Total				Balance			% to Total				Balance			% to Total
Commercial and industrial loans:
PPP loans		$	16,398			0.7	%		$	47,467			2.4	%		$	398,038			23.8	%
Capital call lines			224,930			9.6				218,675			11.1				98,905			5.9
All other commercial & industrial loans			160,636			6.9				128,181			6.5				102,775			6.1
Real estate loans:
Construction, land and land development loans			225,512			9.6				208,108			10.6				116,733			7.0
Residential real estate loans			326,661			14.0				268,716			13.6				143,574			8.6
Commercial real estate loans			956,320			40.8				889,483			45.1				807,711			48.2
Consumer and other loans			430,083			18.4				210,343			10.7				7,161			0.4
Gross loans receivable			2,340,540			100.0	%			1,970,973			100.0	%			1,674,897			100.0	%
Net deferred origination fees - PPP loans			(396	)						(1,365	)						(12,363	)
Net deferred origination fees - Other loans			(5,790	)						(5,399	)						(4,385	)
Loans receivable		$	2,334,354						$	1,964,209						$	1,658,149
Loan Yield (1)			7.34	%						6.80	%						4.44	%
(1) Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.

Please see Appendix A for additional loan portfolio detail regarding industry concentrations.

The following tables detail the Community Bank and CCBX loans which are included in the total loan portfolio table above.

Community Bank		As of
		June 30, 2022							March 31, 2022							June 30, 2021
(Dollars in thousands; unaudited)		Balance			% to Total				Balance			% to Total				Balance			% to Total
Commercial and industrial loans:
PPP loans		$	16,398			1.1	%		$	47,467			3.3	%		$	398,038			25.3	%
All other commercial & industrial loans			142,569			9.3				124,160			8.5				102,775			6.5
Real estate loans:
Construction, land and land development loans			225,512			14.7				208,108			14.3				116,733			7.4
Residential real estate loans			193,518			12.6				184,485			12.7				143,574			9.1
Commercial real estate loans			956,320			62.2				889,483			61.1				807,711			51.4
Consumer and other loans:
Other consumer and other loans			2,325			0.2				1,959			0.1				2,590			0.2
Gross Community Bank loans receivable			1,536,642			100.0	%			1,455,662			100.0	%			1,571,421			100.0	%
Net deferred origination fees			(6,240	)						(6,842	)						(16,790	)
Loans receivable		$	1,530,402						$	1,448,820						$	1,554,631
Loan Yield (1)			5.04	%						5.16	%						4.52	%
(1) Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.

CCBX		As of
		June 30, 2022							March 31, 2022							June 30, 2021
(Dollars in thousands; unaudited)		Balance			% to Total				Balance			% to Total				Balance			% to Total
Commercial and industrial loans:
Capital call lines		$	224,930			28.0	%		$	218,675			42.5	%		$	98,905			95.6	%
All other commercial & industrial loans			18,067			2.2				4,021			0.8				-			0.0
Real estate loans:
Residential real estate loans			133,143			16.5				84,231			16.3				-			0.0
Consumer and other loans:
Credit cards			139,501			17.4				55,090			10.7				1,850			1.8
Other consumer and other loans			288,257			35.9				153,294			29.7				2,721			2.6
Gross CCBX loans receivable			803,898			100.0	%			515,311			100.1	%			103,476			100.0	%
Net deferred origination costs			54							78							42
Loans receivable		$	803,952						$	515,389						$	103,518
Loan Yield - CCBX (1)(2)			12.35	%						12.73	%						3.14	%
(1) CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements and servicing CCBX loans.
(2) Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.

Deposits

Total deposits increased $120.8 million, or 4.7%, to $2.70 billion at June 30, 2022 from $2.58 billion at March 31, 2022. The increase was due to a $123.9 million increase in core deposits, partially offset by a $3.9 million decrease in time deposits. Our increase in deposits is primarily the result of growth in CCBX partners. Deposits in our CCBX segment increased $166.6 million, from $899.5 million at March 31, 2022, to $1.07 billion at June 30, 2022 and community bank deposits decreased $45.8 million to $1.63 billion at June 30, 2022 from $1.68 billion at March 31, 2022. The deposits from our CCBX segment are predominately classified as interest bearing, or NOW and money market accounts, but a portion of such CCBX deposits may be classified as brokered deposits as a result of the relationship agreement. During the quarter ended June 30, 2022, noninterest bearing deposits decreased $20.0 million, or 2.4%, to $818.1 million from $838.0 million at March 31, 2022, largely due to the reclassification of noninterest bearing CCBX deposits to interest bearing. This reclassification is because the current rate exceeds the minimum interest rate set in their respective program agreements, as a result of the first and second quarter 2022 Fed Funds rate increases. We do not currently expect to have any additional CCBX deposits that will be reclassified as a result of any future Fed Funds rate increases that may be implemented. In the second quarter of 2022 compared to the first quarter of 2022, NOW and money market accounts increased $143.8 million. That increase includes $57.4 million as a result of growth and $86.4 million as a result of a reclassification from noninterest bearing deposits to interest bearing deposits. Savings and BaaS-brokered deposits increased $100,000 and $856,0000, respectively, and time deposits decreased $3.9 million, compared to the first quarter of 2022.

Total deposits increased $895.6 million, or 49.7%, to $2.70 billion at June 30, 2022 compared to $1.80 billion at June 30, 2021. The increase in deposits is largely the result of growth in CCBX and is also due to expanding and growing banking relationships with community bank customers. Noninterest bearing deposits decreased $69.8 million, or 7.9%, to $818.1 million at June 30, 2022 from $887.9 million at June 30, 2021. NOW and money market accounts increased $917.3 million, or 123.5%, to $1.66 billion at June 30, 2022, and savings accounts increased $13.2 million, or 14.2%, and BaaS-brokered deposits increased $48.6 million, or 177.5% while time deposits decreased $13.8 million, or 27.3%, in the second quarter of 2022 compared to the second quarter of 2021. Additionally, as of June 30, 2022 we have access to $269.5 million in CCBX customer deposits that are currently being transferred off the Bank’s balance sheet to other financial institutions on a daily basis. The Bank could retain these deposits for liquidity and funding purposes if needed. If a portion of these deposits are retained, they would be classified as brokered deposits, however if the entire available balance is retained, they would be non-brokered deposits. Efforts to retain and grow core deposits are evidenced by the high ratios in these categories when compared to total deposits.

The following table summarizes the deposit portfolio for the periods indicated.

		As of
		June 30, 2022							March 31, 2022							June 30, 2021
(Dollars in thousands, unaudited)		Balance			% to Total				Balance			% to Total				Balance			% to Total
Demand, noninterest bearing		$	818,052			30.3	%		$	838,044			32.5	%		$	887,896			49.3	%
NOW and money market			1,660,315			61.6				1,516,546			58.9				743,014			41.2
Savings			106,464			3.9				106,364			4.1				93,224			5.2
Total core deposits			2,584,831			95.8				2,460,954			95.5				1,724,134			95.7
BaaS-brokered deposits			76,001			2.8				75,145			2.9				27,388			1.5
Time deposits less than $250,000			26,676			1.0				29,200			1.2				34,809			1.9
Time deposits $250,000 and over			9,797			0.4				11,171			0.4				15,347			0.9
Total deposits		$	2,697,305			100.0	%		$	2,576,470			100.0	%		$	1,801,678			100.0	%
Cost of deposits (1)			0.25	%						0.09	%						0.14	%
(1) Cost of deposits is for the three months ended for each period presented.

The following tables detail the Community Bank and CCBX deposits which are included in the total deposit portfolio table above.

Community Bank

As of

June 30, 2022