Coastal Financial (CCB) risk factors, FY2025 10-K

Risks Related to Credit Matters

1. 01We are subject to interest rate risk, and fluctuations in interest rates may adversely affect our earnings70% rewritten
2. 02Our commercial real estate lending activities expose us to increased lending risks and related credit losses
3. 03We 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
4. 04Our commercial business lending activities expose us to additional lending risks
5. 05Our concentration of residential mortgage loans exposes us to increased lending risks21% rewritten
6. 06Our origination of construction loans exposes us to increased lending risks
7. 07Our focus on lending to the small- to medium-sized businesses may adversely affect our business, financial condition and results of operations
8. 08We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses
9. 09We originate and purchase loans through our CCBX partners, which exposes us to increased lending and compliance risks73% rewritten
10. 10Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio30% rewritten
11. 11contractual 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 any CCBX partner that cannot fulfill its contractual obligationsNew
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 loans61% rewritten
14. 14Economic 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
15. 15Nonperforming assets take significant time and resources to resolve and adversely affect our business, financial condition and results of operations

Risks Related to Artificial Intelligence and Emerging Technologies

1. 16Our use of artificial intelligence and automated technologies may expose us to operational, compliance and governance risksNew
2. 17The regulatory and supervisory framework applicable to AI continues to evolve and may limit our ability to deploy or expand AI-enabled toolsNew
3. 18AI models may produce outcomes that are difficult to explain, validate or monitorNew
4. 19Our use of third-party vendors for technology solutions, including those incorporating AI, may increase operational and data risksNew
5. 20Increased public and regulatory scrutiny of AI could give rise to reputational riskNew

Risks Related to Compliance and Operational Matters

1. 21Imposition of limits by the bank regulators on commercial real estate lending activities could curtail our growth and adversely affect our earnings31% rewritten
2. 22Our business is subject to the risks of epidemic illnesses, earthquakes, tsunamis, floods, fires and other natural catastrophic events or effects of climate change
3. 23Appraisals 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. 24We derive a percentage of our deposits, total assets and income from deposit accounts generated through our BaaS relationships
5. 25Our banking-as-a-service (“BaaS”) strategy faces increasing competition, including from institutions and partners that may no longer require a third-party bankNew
6. 26Our agreements with BaaS partners may produce limited revenue and may expose us to liability for compliance violations by BaaS partners
7. 27Significant changes in federal government policies, priorities, and operations could cause economic disruption and adversely affect our business, results of operation, and financial conditionNew
8. 28We may be adversely affected by changes in U.S. tax laws and regulations
9. 29We are subject to additional state and local taxes as a result of CCBX operations
10. 30Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition and results of operations100% rewritten
11. 31Because 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. 32We 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. 33We 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. 34We could recognize losses on investment securities held in our securities portfolio, particularly if interest rates increase or economic and market conditions deteriorate28% rewritten
15. 35The 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. 36Dependency on external security systems expose us to greater operational risk
17. 37We 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. 38We may be subject to potential business risk from actions by our regulators related to CCBX relationships

Risks Related to Strategic and Reputational Matters

1. 39Our 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 revenues50% rewritten
2. 40Strong competition within our market area could hurt our profits and slow growth
3. 41We rely heavily on our executive management team and other key employees, and we could be adversely affected by the unexpected loss of their services
4. 42Anti-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
5. 43We 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. 44Ineffective liquidity management could adversely affect our business, financial condition and results of operations
2. 45We may need to raise additional capital in the future, and such capital may not be available when needed or at all
3. 46There 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. 47Regulation 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 current administration
2. 48Additional increases in Federal Deposit Insurance Corporation insurance premiums could adversely affect our earnings and results of operations
3. 49Federal 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. 50Many of our new activities and expansion plans require regulatory approvals, and failure to obtain these approvals may restrict our growth
5. 51Financial 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. 52We 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 sanctions36% rewritten
7. 53Federal, 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. 54The 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. 55The Federal Reserve may require us to commit capital resources to support the Bank
10. 56We could be adversely affected by the soundness of other financial institutions
11. 57We could be adversely affected by the soundness of our CCBX partners83% rewritten
12. 58We previously identified material weaknesses in our internal control over financial reporting, and any failure to maintain effective internal controls in the future could adversely affect our business, financial condition, and results of operationsNew
13. 59National and global economic and other conditions could adversely affect our future results of operations or market price of our stock99% rewritten
14. 60on consumer and commercial loans, declines in residential and commercial real estate values, reduced transaction activity, and volatility in debt and equity marketsNew
15. 61We are subject to certain risks in connection with growing through mergers and acquisitions
16. 62We must keep pace with technological change to remain competitive
17. 63Negative 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