Coastal Financial (CCB) risk factors, FY2024 10-K

Risks Related to Credit Matters

1. 01We are subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings
2. 02the FOMC remains highly attentive to inflation risks. In support of its goals, the FOMC decided to maintain the current target range for the federal funds rate at its most recent meeting
3. 03Our commercial real estate lending activities expose us to increased lending risks and related credit losses
4. 04We may be subject to environmental liabilities in connection with the real properties we own and the foreclosure on real estate assets securing our loan portfolio
5. 05Our commercial business lending activities expose us to additional lending risks
6. 06Our concentration of residential mortgage loans exposes us to increased lending risks
7. 07Our origination of construction loans exposes us to increased lending risks
8. 08Our focus on lending to the small to medium-sized businesses may adversely affect our business, financial condition and results of operations
9. 09We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses
10. 10We originate and purchase loans through our CCBX partners, which exposes us to increased lending and compliance risks
11. 11Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio
12. 12The current economic condition in the market areas we serve may adversely impact our earnings and could increase the credit risk associated with our loan portfolio
13. 13Our SBA lending program is dependent upon the U.S. federal government, and we face specific risks associated with originating SBA loans
14. 14Included in this category are PPP loans, which have a contractual rate of 1.0%, with maturity terms of two to five years, are unsecured, 100% guaranteed and the loan proceeds of which may be forgiven by the U.S. Government / SBA if used for certain purposes
15. 15Economic conditions could increase our level of nonperforming loans and/or reduce demand for our products and services, which could have an adverse effect on our results of operations
16. 16Nonperforming assets take significant time and resources to resolve and adversely affect our business, financial condition and results of operations

Risks Related to Compliance and Operational Matters

1. 17Imposition of limits by the bank regulators on commercial real estate lending activities could curtail our growth and adversely affect our earnings
2. 18Our business is subject to the risks of epidemic illnesses, earthquakes, tsunamis, floods, fires and other natural catastrophic events or effects of climate change
3. 19Appraisals and other valuation techniques we use in evaluating and monitoring loans secured by real property, OREO and repossessed personal property may not accurately reflect the net value of the asset
4. 20We derive a percentage of our deposits, total assets and income from deposit accounts generated through our BaaS relationships
5. 21Our strategy of partnering with broker dealers and digital financial service providers to offer BaaS has been adopted by other institutions with which we compete
6. 22Our agreements with BaaS partners may produce limited revenue and may expose us to liability for compliance violations by BaaS partners
7. 23Significant changes to the size, structure, powers and operations of the federal government may cause economic disruptions that could, in turn, adversely impact our business, results of operations and financial condition
8. 24We may be adversely affected by changes in U.S. tax laws and regulations
9. 25We are subject to additional state and local taxes as a result of CCBX operations
10. 26Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition, and results of operations
11. 27Because 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
12. 28We are dependent on the use of data and modeling in our management’s decision-making, and faulty data or modeling approaches could negatively impact our decision-making ability or possibly subject us to regulatory scrutiny in the future
13. 29We depend on the accuracy and completeness of information provided to us by our borrowers and counterparties and any misrepresented information could adversely affect our business, financial condition and results of operations
14. 30We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate
15. 31The accuracy of our financial statements and related disclosures could be affected if the judgments, assumptions or estimates used in our critical accounting policies are inaccurate
16. 32Dependency on external security systems expose us to greater operational risk
17. 33We 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
18. 34We may be subject to potential business risk from actions by our regulators related to CCBX relationships

Risks Related to Strategic and Reputational Matters

1. 35Our business strategy includes growth, and our business, financial condition and results of operations could be negatively affected if we fail to grow or fail to manage our growth effectively. Growing our operations could also cause our expenses to increase faster than our revenues
2. 36reached. Our expenses could be further increased if we encounter delays in modernizing existing facilities, opening new branches or deploying new services
3. 37Strong competition within our market area could hurt our profits and slow growth
4. 38We rely heavily on our executive management team and other key employees, and we could be adversely affected by the unexpected loss of their services
5. 39Anti-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
6. 40We are dependent on our information technology and telecommunications systems and third-party service providers; systems failures, interruptions, security breaches and cybersecurity threats could have an adverse effect on our business, financial condition and results of operations

Risks Related to Our Capital and Liquidity

1. 41Ineffective liquidity management could adversely affect our business, financial condition and results of operations
2. 42We may need to raise additional capital in the future, and such capital may not be available when needed or at all
3. 43There may be future sales or other dilution of our equity, which may adversely affect the market price of our securities

Risks Related to Our Industry

1. 44Regulation of the financial services industry is intense, and we may be adversely affected by changes in laws and regulations, including as a result of the new administration
2. 45Additional increases in Federal Deposit Insurance Corporation insurance premiums could adversely affect our earnings and results of operations
3. 46Federal banking agencies periodically conduct examinations of our business, including compliance with laws and regulations, and our failure to comply with any supervisory actions to which we are or become subject as a result of such examinations could adversely affect us
4. 47Many of our new activities and expansion plans require regulatory approvals, and failure to obtain these approvals may restrict our growth
5. 48Financial institutions, such as the Bank, face a risk of noncompliance with and enforcement action under the Bank Secrecy Act and other anti-money laundering statutes and regulations
6. 49We are subject to numerous laws designed to promote community reinvestment or protect consumers, including the CRA and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions
7. 50Federal, state and local consumer lending laws may restrict our ability to originate certain mortgage loans or increase our risk of liability with respect to such loans and could increase our cost of doing business
8. 51The expanding body of federal, state and local regulations and/or the licensing of loan servicing, collections or other aspects of our business and our sales of loans to third parties may increase the cost of compliance and the risks of noncompliance and subject us to litigation
9. 52The Federal Reserve may require us to commit capital resources to support the Bank
10. 53We could be adversely affected by the soundness of other financial institutions
11. 54We could be adversely affected by the soundness of our CCBX partners
12. 55National and global economic and other conditions could adversely affect our future results of operations or market price of our stock
13. 56We are subject to certain risks in connection with growing through mergers and acquisitions
14. 57We must keep pace with technological change to remain competitive
15. 58Negative public opinion regarding our company or failure to maintain our reputation in the communities we serve could adversely affect our business, financial condition and results of operations and prevent us from growing our business