10-Q

No

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _____________

Commission file number: 001-38589

COASTAL FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Washington	56-2392007
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5415 Evergreen Way, Everett, Washington	98203
(Address of principal executive offices)	(Zip Code)

(425) 257-9000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an “emerging growth company.”  See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-Accelerated Filer	☒	Smaller Reporting Company	☐
Emerging Growth Company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial standards provided pursuant to Section 7(a)(2)(B) of the Securities Act  ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, no par value per share	CCB	The Nasdaq Stock Market LLC

As of May 13, 2019, there were 11,906,335 shares of the registrant’s common stock outstanding.  

COASTAL FINANCIAL CORPORATION

Table of Contents

		Page No.
Part I.   Financial Information
Item 1.	Condensed Consolidated Financial Statements (unaudited)	5
	Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 (unaudited)	5
	Condensed Consolidated Statements of Income for the Three Months ended March 31, 2019 and 2018 (unaudited)	6
	Condensed Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2019 and 2018 (unaudited)	7
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months ended March 31, 2019 and 2018 (unaudited)	8
	Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2019 and 2018 (unaudited)	9
	Notes to Condensed Consolidated Financial Statements (unaudited)	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48
Part II.   Other Information
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	49

3

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This report may contain forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. With respect to any such forward-looking statements, we claim the protection of the safe harbor provided for in the Private Securities Litigation Reform Act of 1995, as amended. Any or all of the forward-looking statements in this report may turn out to be inaccurate. The inclusion of forward-looking information in this report should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

Factors that may affect our results are disclosed in “Item 1A. Risk Factors” in Part II of this report and in the section titled “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2018, including the Risk Factors section of that report, and in its other SEC reports.  Some of the risks and uncertainties that may cause the Company’s actual results, performance or achievements to differ materially from those expressed include, but are not limited to, the following: the overall health of the local and national real estate market; the credit risk associated with our loan portfolio, and specifically with our commercial real estate loans; business and economic conditions generally and in the financial services industry, nationally and within our market area; our ability to maintain an adequate level of allowance for loan losses; our ability to successfully manage liquidity risk; our ability to implement our growth strategy and manage costs effectively; the composition of our senior leadership team and our ability to attract and retain key personnel; changes in market interest rates and impacts of such changes on our profits and business; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; interruptions involving our information technology and telecommunications systems or third-party servicers; our ability to maintain our reputation; increased competition in the financial services industry; regulatory guidance on commercial lending concentrations; the effectiveness of our risk management framework; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes; fluctuations in the value of the securities held in our securities portfolio; governmental monetary and fiscal policies; material weaknesses in our internal control over financial reporting; and our success at managing the risks involved in the foregoing items.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. You are cautioned not to place undue reliance on forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events.

4

PART I.   FINANCIAL INFORMATION

Item 1. Financial Statements

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(dollars in thousands)

ASSETS
	March 31,			December 31,
	2019			2018
Cash and due from banks	$	21,176		$	16,315
Interest earning deposits with other banks (restricted cash of $23,728 and $24,004    at March 31, 2019 and December 31, 2018, respectively)		236,483			109,467
Investment securities, available for sale, at fair value		36,970			36,660
Investment securities, held to maturity, at amortized cost		1,247			1,262
Other investments		3,600			3,766
Loans receivable		791,072			767,899
Allowance for loan losses		(9,915	)		(9,407	)
Total loans receivable, net		781,157			758,492
Premises and equipment, net		13,017			13,167
Operating lease right-of-use assets		9,305			-
Accrued interest receivable		2,505			2,526
Bank-owned life insurance, net		6,735			6,688
Deferred tax asset, net		2,496			2,518
Other assets		1,399			1,249
Total assets	$	1,116,090		$	952,110
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits	$	976,496		$	803,614
Federal Home Loan Bank (FHLB) advances		-			20,000
Subordinated debt
Principal amount $10,000 (less unamortized debt issuance costs of $32    and $35 at March 31, 2019 and December 31, 2018, respectively)		9,968			9,965
Junior subordinated debentures
Principal amount $3,609 (less unamortized debt issuance costs of $28    at March 31, 2019 and December 31, 2018)		3,581			3,581
Deferred compensation		1,052			1,078
Accrued interest payable		343			279
Operating lease liabilities		9,471			-
Other liabilities		2,814			4,437
Total liabilities		1,003,725			842,954
SHAREHOLDERS’ EQUITY
Preferred stock, no par value:
Authorized: 25,000,000 shares at March 31, 2019 and December 31, 2018;     issued and outstanding: zero shares at March 31, 2019 and December 31, 2018		-			-
Common stock, no par value:
Authorized: 300,000,000 shares at March 31, 2019 and December 31, 2018;     11,902,715 voting shares at March 31, 2019 issued and outstanding     and 11,893,203 voting shares at December 31, 2018 issued and outstanding		86,579			86,431
Retained earnings		26,829			24,021
Accumulated other comprehensive loss, net of tax		(1,043	)		(1,296	)
Total shareholders’ equity		112,365			109,156
Total liabilities and shareholders’ equity	$	1,116,090		$	952,110

See accompanying Notes to Condensed Consolidated Financial Statements.

5

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(dollars in thousands, except for per share data)

	Three months ended March 31,
	2019			2018
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	10,419		$	8,189
Interest on interest earning deposits with other banks		808			255
Interest on investment securities		153			152
Dividends on other investments		14			11
Total interest income		11,394			8,607
INTEREST EXPENSE
Interest on deposits		1,436			646
Interest on borrowed funds		191			183
Total interest expense		1,627			829
Net interest income		9,767			7,778
PROVISION FOR LOAN LOSSES		540			501
Net interest income after provision for loan losses		9,227			7,277
NONINTEREST INCOME
Deposit service charges and fees		726			687
Wholesale banking service fees		446			-
Loan referral fees		633			130
Mortgage broker fees		85			37
Sublease and lease income		10			57
(Loss) gain on sales of loans, net		(11	)		64
Other income		95			132
Total noninterest income		1,984			1,107
NONINTEREST EXPENSE
Salaries and employee benefits		4,558			3,735
Occupancy		994			823
Data processing		529			479
Director and staff expenses		240			144
Excise taxes		165			124
Marketing		94			57
Legal and professional fees		409			80
Federal Deposit Insurance Corporation (FDIC) assessments		75			85
Business development		102			88
Other expense		496			452
Total noninterest expense		7,662			6,067
Income before provision for income taxes		3,549			2,317
PROVISION FOR INCOME TAXES		741			474
NET INCOME	$	2,808		$	1,843
Basic earnings per common share	$	0.24		$	0.20
Diluted earnings per common share	$	0.23		$	0.20
Weighted average number of common shares outstanding:
Basic		11,884,107			9,241,620
Diluted		12,183,234			9,247,209

See accompanying Notes to Condensed Consolidated Financial Statements.

6

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(dollars in thousands)

	Three months ended March 31,
	2019			2018
NET INCOME	$	2,808		$	1,843
OTHER COMPREHENSIVE INCOME (LOSS), before tax
Securities available-for-sale
Unrealized holding gain (loss) during the quarter		321			(883	)
Income tax benefit (provision) related to unrealized holding    gain (loss)		(68	)		185
OTHER COMPREHENSIVE INCOME (LOSS), net of tax		253			(698	)
COMPREHENSIVE INCOME	$	3,061		$	1,145

See accompanying Notes to Condensed Consolidated Financial Statements.

7

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(dollars in thousands)

	Shares of Common Stock		Common Stock		Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total
BALANCE, December 31, 2017		9,248,898	$	52,521	$	14,134	$	(944	)	$	65,711
Net income		-		-		1,843		-			1,843
Reclassification of stranded tax effect due to federal tax    rate change		-		-		186		(186	)		-
Issuance of restricted stock awards		4,405		-		-		-			-
Stock-based compensation		-		71		-		-			71
Other comprehensive loss		-		-		-		(698	)		(698	)
BALANCE, March 31, 2018		9,253,303	$	52,592	$	16,163	$	(1,828	)	$	66,927
BALANCE, December 31, 2018		11,893,203	$	86,431	$	24,021	$	(1,296	)	$	109,156
Net income		-		-		2,808		-			2,808
Issuance of restricted stock awards		2,352		-		-		-			-
Exercise of stock options		7,160		42		-		-			42
Stock-based compensation		-		106		-		-			106
Other comprehensive income		-		-		-		253			253
BALANCE, March 31, 2019		11,902,715	$	86,579	$	26,829	$	(1,043	)	$	112,365

See accompanying Notes to Condensed Consolidated Financial Statements.

8

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(dollars in thousands)

	Three months ended March 31,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	2,808		$	1,843
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		540			501
Depreciation and amortization		304			254
Decrease in operating lease right-of-use assets		244			-
Decrease in operating lease liabilities		(205	)		-
Loss (gain) on sales of loans		11			(64	)
Net discount accretion on investment securities		(7	)		(3	)
Stock-based compensation		106			71
Bank-owned life insurance earnings		(47	)		(46	)
Deferred tax expense		(45	)		(40	)
Net change in other assets and liabilities		(1,584	)		188
Total adjustments		(683	)		861
Net cash provided by operating activities		2,125			2,704
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest earning deposits with other banks		(127,292	)		(5,523	)
Purchase of other investments, net		166			(86	)
Principal paydowns of investment securities available-for-sale		18			36
Principal paydowns of investment securities held-to-maturity		14			82
Purchase of participation loans		(7,000	)		-
Purchase of loans		-			(5,469	)
Increase in loans receivable, net		(16,216	)		(16,289	)
Purchases of premises and equipment, net		(154	)		(133	)
Net cash used by investing activities		(150,464	)		(27,382	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW and money market, and savings		174,657			25,122
Net decrease in time deposits		(1,775	)		(1,149	)
Net repayments from short term FHLB borrowing		(20,000	)		-
Proceeds from exercise of stock options		42			-
Net cash provided by financing activities		152,924			23,973
NET INCREASE IN CASH, DUE FROM BANKS AND RESTRICTED CASH		4,585			(705	)
CASH, DUE FROM BANKS AND RESTRICTED CASH, beginning of year		40,319			31,119
CASH, DUE FROM BANKS AND RESTRICTED  CASH, end of quarter	$	44,904		$	30,414
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES
Interest paid	$	1,563		$	828
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Fair value adjustment of securities available-for-sale, gross	$	321		$	(883	)
In conjunction with the adoption of ASU 2016-02 as detailed in Note 6 to the Unaudited Condensed Consolidated Financial Statements, the following assets and liabilities were recognized:
Operating lease right-of-use assets	$	9,549		$	-
Operating lease liabilities	$	9,714		$	-

See accompanying Notes to Condensed Consolidated Financial Statements.

9

COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Description of Business and Summary of Significant Accounting Policies

Nature of operations - Coastal Financial Corporation (Corporation or Company) is a registered bank holding company whose wholly owned subsidiary is Coastal Community Bank (Bank). The Company is a Washington state corporation that was organized in 2003. The Bank was incorporated and commenced operations in 1997 and is a Washington state-chartered commercial bank and Federal Reserve System (Federal Reserve) state member bank.

The Company provides a full range of banking services to small and medium-sized businesses, professionals, and individuals throughout the greater Puget Sound area through its 14 branches in Snohomish, Island, and King Counties, the Internet, and its mobile banking application. The Bank’s main branch and the headquarters of the Bank and Company are located in Everett, Washington. The Bank’s deposits are insured in whole or in part by the FDIC. The Bank’s loans and deposits are primarily within the greater Puget Sound area, and the Bank’s primary funding source is deposits from customers. The Bank is subject to regulation by the Federal Reserve and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has supervisory authority over the Company.

Financial statement presentation - The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim reporting requirements and with instructions to Form 10-Q and Article 10 of Regulation S-X, and therefore do not include all the information and notes included in the annual consolidated financial statements in conformity with GAAP. These interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual report on Form 10-K as filed with the U.S. Securities and Exchange Commission (SEC) on March 28, 2019. Operating results for the three months ended March 31, 2019, are not necessarily indicative of the results that may be expected for future periods.

Amounts presented in the consolidated financial statements and footnote tables are rounded and presented in thousands of dollars except per-share amounts, which are presented in dollars. In the narrative footnote discussion, amounts are rounded to thousands and presented in dollars.

In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying consolidated financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation.

Principles of consolidation - The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts have been eliminated in consolidation.

Business Segments - The Company is managed by legal entity and not by lines of business. The entity’s primary business is that of a traditional banking institution, gathering deposits and originating loans for portfolio in its market areas. The Bank offers a wide variety of deposit products to its customers. Lending activities include the origination of real estate, commercial and industrial, and consumer loans. Interest income on loans is the Company’s primary source of revenue, and is supplemented by interest income on deposits with other banks, interest income from investment securities, deposit service charges, and other service provided activities. The Company has determined that its current business and operations consist of a single reporting segment and, therefore, segment disclosures are not required.

Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that its critical accounting policies include determining the allowance for loan losses, the fair value of the Company’s investment securities, deferred tax assets, and financial instruments. Actual results could differ significantly from those estimates.

Subsequent Events - The Company has evaluated events and transactions subsequent to March 31, 2019 for potential recognition or disclosure.

10

Accounting policies – Our complete accounting policies are described in Note 1, summary of significant accounting policies of the Company’s audited consolidated financial statements as of and for the years ended December 31, 2018 and 2017 included in the Company’s Annual Report Form 10-K filed with the SEC on March 28, 2019.

Reclassifications - Certain amounts reported in prior quarters' consolidated financial statements have been reclassified to conform to the current presentation with no effect on stockholders’ equity or net income.

Note 2 - Recent accounting standards

Accounting Standards Adopted in 2019

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 was effective for us on January 1, 2019. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients. We have elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and have not restated comparative periods. 

Our operating leases relate primarily to office space and bank branches. As a result of implementing ASU 2016-02, we recognized an operating lease right-of-use ("ROU") asset of $9.5 million and an operating lease liability of $9.7 million on January 1, 2019, with no impact on our consolidated statement of income or consolidated statement of cash flows compared to the prior lease accounting model. The ROU asset and operating lease liability are recorded on the face on the consolidated balance sheets. See Note 6 - Leases for additional information.

  In May 2018, the FASB issued ASU No. 2018-06, Codification Improvements to Topic 942, Financial Services - Depository and Lending. This ASU updates outdated guidance related to the Office of Comptroller of the Currency’s (OCC) Banking Circular 202, Accounting for Net Deferred Tax Charges, as the guidance has been rescinded by OCC and is no longer relevant. The amendments in this ASU are effective immediately. The adoption of ASU No. 2018-06 did not have a material impact on the Company's consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.  This ASU was issued to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  Previously, these awards were recorded at the fair value of consideration received or the fair value of the equity instruments issued and was measured as of the earlier of the commitment date or the date performance was completed. The amendments in this ASU require the awards to be measured at the grant-date fair value of the equity instrument.  ASU No. 2018-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Early adoption was permitted, but no earlier than an entity's adoption of Topic 606.  The adoption of ASU No. 2018-07 did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Guidance Not Yet Effective

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendment is effective for annual periods beginning after December 15, 2019 and interim period within those annual periods. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are actively assessing our data and the model needs and are evaluating the impact of adopting the amendment. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

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Note 3 - Investment Securities

The amortized cost and fair values of investment securities at the date indicated are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(dollars in thousands)
March 31, 2019
Available-for-sale
U.S. Treasury securities	$	34,840	$	-	$	(1,285	)	$	33,555
U.S. Government agencies		3,000		-		(32	)		2,968
U.S. Agency collateralized mortgage obligations		156		-		(2	)		154
U.S. Agency residential mortgage-backed securities		36		-		-			36
Municipals		258		-		(1	)		257
Total available-for-sale securities		38,290		-		(1,320	)		36,970
Held-to-maturity
U.S. Agency residential mortgage-backed securities		1,247		-		(37	)		1,210
Total investment securities	$	39,537	$	-	$	(1,357	)	$	38,180

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(dollars in thousands)
December 31, 2018
Available-for-sale
U.S. Treasury securities	$	34,831	$	-	$	(1,590	)	$	33,241
U.S. Government agencies		3,000		-		(43	)		2,957
U.S. Agency collateralized mortgage obligations		172		-		(3	)		169
U.S. Agency residential mortgage-backed securities		39		-		(1	)		38
Municipals		259		-		(4	)		255
Total available-for-sale securities		38,301		-		(1,641	)		36,660
Held-to-maturity
U.S. Agency residential mortgage-backed securities		1,262		-		(57	)		1,205
Total investment securities	$	39,563	$	-	$	(1,698	)	$	37,865

The amortized cost and fair value of debt securities at March 31, 2019, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers or the underlying borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities and collateralized mortgage obligations are shown separately, since they are not due at a single maturity date.

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(dollars in thousands)
March 31, 2019
Amounts maturing in
One year or less	$	3,000	$	2,968	$	-	$	-
After one year through five years		25,115		24,217		-		-
After five years through ten years		9,983		9,595		-		-
		38,098		36,780		-		-
U.S. Agency residential mortgage-backed securities and    collateralized mortgage obligations		192		190		1,247		1,210
	$	38,290	$	36,970	$	1,247	$	1,210

Investment securities with carrying values of $19,646,000 and $19,678,000 at March 31, 2019 and December 31, 2018 respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

12

There were no sales of investment securities during the three months ended March 31, 2019 and March 31, 2018.

Information pertaining to securities with gross unrealized losses at the dates indicated, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(dollars in thousands)
March 31, 2019
Available-for-sale
U.S. Treasury securities	$	-	$	-		$	33,555	$	(1,285	)	$	33,555	$	(1,285	)
U.S. Government agencies		-		-			2,968		(32	)		2,968		(32	)
U.S. Agency collateralized mortgage obligations		-		-			154		(2	)		154		(2	)
Municipals		-		-			257		(1	)		257		(1	)
Total available-for-sale securities		-		-			36,934		(1,320	)		36,934		(1,320	)
Held-to-maturity
U.S. Agency residential mortgage-backed securities		-		-			1,210		(37	)		1,210		(37	)
Total investment securities	$	-	$	-		$	38,144	$	(1,357	)	$	38,144	$	(1,357	)
December 31, 2018
Available-for-sale
U.S. Treasury securities	$	-	$	-		$	33,241	$	(1,590	)	$	33,241	$	(1,590	)
U.S. Government agencies		-		-			2,957		(43	)		2,957		(43	)
U.S. Agency collateralized mortgage obligations		-		-			169		(3	)		169		(3	)
Municipals		-		-			255		(4	)		255		(4	)
U.S. Agency residential mortgage-backed securities		38		(1	)		-		-			38		(1	)
Total available-for-sale securities		38		(1	)		36,622		(1,640	)		36,660		(1,641	)
Held-to-maturity
U.S. Agency residential mortgage-backed securities		-		-			1,205		(57	)		1,205		(57	)
Total investment securities	$	38	$	(1	)	$	37,827	$	(1,697	)	$	37,865	$	(1,698	)

At March 31, 2019 and December 31, 2018, there were 11 and 12 securities in an unrealized loss position, respectively. Unrealized losses have not been recognized into income because management does not intend to sell and does not expect it will be required to sell the investments. The decline is largely due to changes in market conditions and interest rates, rather than credit quality. The fair value is expected to recover as the underlying securities in the portfolio approach maturity date and market conditions improve. The Company does not consider these securities to be other than temporarily impaired at March 31, 2019 and December 31, 2018.

Note 4 - Loans and Allowance for Loan Losses

The composition of the loan portfolio is as follows as of the periods indicated:

	March 31,			December 31,
	2019			2018
	(dollars in thousands)
Commercial and industrial loans	$	92,248		$	90,390
Real estate loans:
Construction, land, and land development		65,686			64,045
Residential real estate		94,743			94,745
Commercial real estate		535,896			515,959
Consumer and other loans		3,583			3,584
Gross loans receivable		792,156			768,723
Net deferred origination fees and premiums		(1,084	)		(824	)
Loans receivable	$	791,072		$	767,899

13

Included in consumer and other loans are overdrafts of $30,000 and $36,000 at March 31, 2019 and December 31, 2018, respectively. The Company has pledged loans totaling $156,713,000 and $155,029,000 at March 31, 2019 and December 31, 2018, respectively, for borrowing lines at the FHLB and Federal Reserve Bank (FRB).

The balance of Small Business Administration (SBA) loans and participations serviced for others totaled $25,105,000 and $24,878,000 at March 31, 2019 and December 31, 2018, respectively.

The Company, at times, purchases individual loans at fair value as of the acquisition date. Purchased loans with remaining balances totaled $43,960,000 and $45,368,000 as of March 31, 2019 and December 31, 2018, respectively. Unamortized premiums totaled $687,000 and $701,000 as of March 31, 2019 and December 31, 2018, respectively, and are amortized into interest income over the life of the loans.

The Company has purchased participation loans with remaining balances totaling $46,829,000 and $36,561,000 as of March 31, 2019 and December 31, 2018, respectively.

The following is a summary of the Company’s loan portfolio segments:

Commercial and industrial loans - Commercial and industrial loans are secured by business assets including inventory, receivables and machinery and equipment of businesses located generally in our primary market area. Loan types include revolving lines of credit, term loans, and loans secured by liquid collateral such as cash deposits or marketable securities. We also issue letters of credit on behalf of our customers. Risk arises primarily due to the difference between expected and actual cash flows of the borrowers. In addition, the recoverability of the Company’s investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans. The fair value of the collateral securing these loans may fluctuate as market conditions change. In the case of loans secured by accounts receivable, the recovery of the Company’s investment is dependent upon the borrower’s ability to collect amounts due from its customers.

Construction, land and land development loans - We originate loans for the construction of 1-4 family, multifamily, and Commercial Real Estate (CRE) properties in our market area. Construction loans are considered to have higher risks due to construction completion and timing risk, the ultimate repayment being sensitive to interest rate changes, government regulation of real property and the availability of long-term financing. Additionally, economic conditions may impact the Company’s ability to recover its investment in construction loans, as adverse economic conditions may negatively impact the real estate market, which could affect the borrower’s ability to complete and sell the project. Additionally, the fair value of the underlying collateral may fluctuate as market conditions change. We occasionally originate land loans for the purpose of facilitating the ultimate construction of a home or commercial building. The primary risks include the borrower’s ability to pay and the inability of the Company to recover its investment due to a material decline in the fair value of the underlying collateral.

Residential real estate loans - Residential real estate loans include various types of loans for which the Company holds real property as collateral. Included in this segment are multi-family loans, first lien single family loans, which we occasionally purchase to diversify our loan portfolio, and rental portfolios secured by one-to-four family homes. The primary risks of residential real estate loans include the borrower’s inability to pay, material decreases in the value of the collateral, and significant increases in interest rates which may make the loan unprofitable.

Commercial real estate (includes owner occupied and nonowner occupied) loans - Commercial real estate loans include various types of loans for which the Company holds real property as collateral. The primary risks of commercial real estate loans include the borrower’s inability to pay, material decreases in the value of the collateralized real estate and significant increases in interest rates, which may make the real estate loan unprofitable. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.

Consumer and other loans - We originate a limited number of consumer loans, generally for banking customers only, which consist primarily of home equity lines of credit, saving account secured loans, and auto loans. This loan category also includes overdrafts. Repayment of these loans is dependent on the borrower’s ability to pay and the fair value of the underlying collateral.

14

The following table illustrates an age analysis of past due loans as of the dates indicated:

	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans			Recorded Investment 90 Days or More Past Due and Still Accruing
	(dollars in thousands)
March 31, 2019
Commercial and industrial loans	$	268	$	1,241	$	1,509	$	90,739	$	92,248		$	748
Real estate loans:
Construction, land and land development		-		-		-		65,686		65,686			-
Residential real estate		-		71		71		94,672		94,743			-
Commercial real estate		159		-		159		535,737		535,896			-
Consumer and other loans		6		2		8		3,575		3,583			-
	$	433	$	1,314	$	1,747	$	790,409	$	792,156		$	748
Less net deferred origination fees										(1,084	)
Loans receivable									$	791,072

	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans			Recorded Investment 90 Days or More Past Due and Still Accruing
	(dollars in thousands)
December 31, 2018
Commercial and industrial loans	$	171	$	494	$	665	$	89,725	$	90,390		$	-
Real estate loans:
Construction, land and land development		823		-		823		63,222		64,045			-
Residential real estate		-		72		72		94,673		94,745			-
Commercial real estate		-		-		0		515,959		515,959			-
Consumer and other loans		2		-		2		3,582		3,584			-
	$	996	$	566	$	1,562	$	767,161		768,723		$	-
Less net deferred origination fees										(824	)
Loans receivable									$	767,899

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A summary of information pertaining to impaired loans as of the period indicated:

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
	(dollars in thousands)
March 31, 2019
Commercial and industrial loans	$	766	$	493	$	-	$	493	$	-
Real estate loans:
Residential real estate		74		71		-		71		-
Total	$	840	$	564	$	-	$	564	$	-
December 31, 2018
Commercial and industrial loans	$	766	$	493	$	-	$	493	$	-
Real estate loans:
Residential real estate		74		72		-		72		-
Commercial real estate		1,491		1,261		-		1,261		-
Total	$	2,331	$	1,826	$	-	$	1,826	$	-

The following tables summarize our average recorded investment and interest income recognized on impaired loans by loan class for the three months ended March 31, 2019 and 2018:

	Three Months Ended
	March 31, 2019				March 31, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Commercial and industrial loans	$	588	$	-	$	396	$	-
Real estate loans:
Residential real estate		73		-		-		-
Commercial real estate		658		-		1,303		-
Total	$	1,319	$	-	$	1,699	$	-

The Company grants restructurings in response to borrower financial difficulty, and generally provides for a temporary modification of loan repayment terms. The restructured loans on accrual status represent the only impaired loans accruing interest. In order for a restructured loan to be considered for accrual status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow for an extended period of time, usually at least six months in duration.

The following table presents troubled debt restructurings by accrual versus nonaccrual status and by loan class as of December 31, 2018.  The troubled debt restructuring outstanding as of December 31, 2018 was paid off in the first quarter of 2019, therefore there were no troubled debt restructurings as of March 31, 2019.  

	Accrual Status		Nonaccrual Status		Total Restructured Loans
	(dollars in thousands)
December 31, 2018
Commercial real estate	$	-	$	1,261	$	1,261

No loans were restructured in the three months ended March 31, 2019 and March 31, 2018 that qualified as troubled debt restructurings. The Company has no commitments to loan additional funds to borrowers whose loans were classified as troubled debt restructurings at March 31, 2019, as there were no outstanding troubled debt restructurings at March 31, 2019.

When loans are placed on nonaccrual status, all accrued interest is reversed from current period earnings. Payments received on nonaccrual loans are generally applied as a reduction to the loan principal balance. If the likelihood of further loss is removed, the

16

Company will recognize interest on a cash basis only. Loans may be returned to accruing status if the Company believes that all remaining principal and interest is fully collectible and there has been at least six months of sustained repayment performance since the loan was placed on nonaccrual.

An analysis of nonaccrual loans by category consisted of the following at the periods indicated:

	March 31,		December 31,
	2019		2018
Commercial and industrial loans	$	493	$	493
Real estate loans:
Residential real estate		71		72
Commercial real estate		-		1,261
Consumer and other loans		2		-
Total nonaccrual loans	$	566	$	1,826

Credit Quality and Credit Risk

Federal regulations require that the Company periodically evaluate the risks inherent in its loan portfolio. In addition, the Company’s regulatory agencies have authority to identify problem loans and, if appropriate, require them to be reclassified. There are three classifications for problem loans: Substandard, Doubtful, and Loss. Substandard loans have one or more defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful loans have the weaknesses of loans classified as Substandard, with additional characteristics that suggest the weaknesses make collection or recovery in full after liquidation of collateral questionable on the basis of currently existing facts, conditions, and values. There is a high possibility of loss in loans classified as Doubtful. A loan classified as Loss is considered uncollectible and of such little value that continued classification of the credit as a loan is not warranted. If a loan or a portion thereof is classified as Loss, it must be charged-off, meaning the amount of the loss is charged against the allowance for loan losses, thereby reducing that reserve. The Company also classifies some loans as Watch or Other Loans Especially Mentioned (OLEM). Loans classified as Watch are performing assets and classified as pass credits but have elements of risk that require more monitoring than other performing loans and are reported in the Pass column in the following table. Loans classified as OLEM are assets that continue to perform but have shown deterioration in credit quality and require close monitoring.

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Loans by credit quality risk rating are as follows as of the periods indicated:

	Pass		Other Loans Especially Mentioned		Sub- Standard		Doubtful		Total
	(dollars in thousands)
March 31, 2019
Commercial and industrial loans	$	86,743	$	3,838	$	1,667	$	-	$	92,248
Real estate loans:
Construction, land, and land development		63,150		2,536		-		-		65,686
Residential real estate		94,252		420		71		-		94,743
Commercial real estate		533,371		2,525		-		-		535,896
Consumer and other loans		3,583		-		-		-		3,583
	$	781,099	$	9,319	$	1,738	$	-		792,156
Less net deferred origination fees										(1,084	)
Loans receivable									$	791,072
December 31, 2018
Commercial and industrial loans	$	84,859	$	3,908	$	1,623	$	-	$	90,390
Real estate loans:
Construction, land, and land development		55,666		8,379		-		-		64,045
Residential real estate		94,548		125		72		-		94,745
Commercial real estate		512,151		2,547		1,261		-		515,959
Consumer and other loans		3,584		-		-				3,584
	$	750,808	$	14,959	$	2,956	$	-		768,723
Less net deferred origination fees										(824	)
Loans receivable									$	767,899

Allowance for Loan Losses

The Company’s allowance for loan losses (ALLL) covers estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated probable losses inherent in the remainder of the loan portfolio. The ALLL is prepared using the information provided by the Company’s credit review process together with data from peer institutions and economic information gathered from published sources.

The loan portfolio is segmented into groups of loans with similar risk profiles. Each segment possesses varying degrees of risk based on the type of loan, the type of collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions. An estimated loss rate calculated the Company’s actual historical loss rates adjusted for current portfolio trends, economic conditions, and other relevant internal and external factors, is applied to each group’s aggregate loan balances.

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The following tables summarize the allocation of the ALLL, as well as the activity in the ALLLattributed to various segments in the loan portfolio, as of and for the three months ended March 31, 2019:

	Commercial and Industrial		Construction, Land, and Land Development		Residential Real Estate			Commercial Real Estate			Consumer and Other			Unallocated		Total
	(dollars in thousands)
Three Months Ended March 31, 2019
ALLL balance, December 31, 2018	$	2,039	$	1,806	$	1,647		$	2,648		$	77		$	1,190	$	9,407
Provision for loan losses or (recapture)		29		46		(24	)		131			6			352		540
		2,068		1,852		1,623			2,779			83			1,542		9,947
Loans charged-off		-		-		-			(29	)		(5	)		-		(34	)
Recoveries of loans previously charged-off		1		-		-			-			1			-		2
Net (charge-offs) recoveries		1		-		-			(29	)		(4	)		-		(32	)
ALLL balance, March 31, 2019	$	2,069	$	1,852	$	1,623		$	2,750		$	79		$	1,542	$	9,915
As of March 31, 2019
ALLL amounts allocated to
Individually evaluated for impairment	$	-	$	-	$	-		$	-		$	-		$	-	$	-
Collectively evaluated for impairment		2,069		1,852		1,623			2,750			79			1,542		9,915
ALLL balance, March 31, 2019	$	2,069	$	1,852	$	1,623		$	2,750		$	79		$	1,542	$	9,915
Loans individually evaluated for impairment	$	493	$	-	$	71		$	-		$	-				$	564
Loans collectively evaluated for impairment		91,755		65,686		94,672			535,896			3,583					791,592
Loan balance, March 31, 2019	$	92,248	$	65,686	$	94,743		$	535,896		$	3,583				$	792,156

The following tables summarize the allocation of the ALLL, as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three months ended March 31, 2018:

	Commercial and Industrial			Construction, Land, and Land Development		Residential Real Estate			Commercial Real Estate			Consumer and Other			Unallocated		Total
	(dollars in thousands)
Three months ended March 31, 2018
Beginning balance, December 31, 2017	$	1,864		$	1,063	$	1,343		$	2,014		$	43		$	1,690	$	8,017
Provision for loan losses or (recapture)		172			70		(15	)		158			13			103		501
		2,036			1,133		1,328			2,172			56			1,793		8,518
Loans charged-off		(9	)		-		-			(84	)		(5	)		-		(98	)
Recoveries of loans previously charged-off		1			-		-			-			2			-		3
Net (charge-offs) recoveries		(8	)		-		-			(84	)		(3	)		-		(95	)
ALLL balance, March 31, 2018	$	2,028		$	1,133	$	1,328		$	2,088		$	53		$	1,793	$	8,423
As of March 31, 2018
ALLL amounts allocated to
Individually evaluated for impairment	$	241		$	-	$	-		$	-		$	-		$	-	$	241
Collectively evaluated for impairment		1,787			1,133		1,328			2,088			53			1,793		8,182
ALLL Balance, March 31, 2018	$	2,028		$	1,133	$	1,328		$	2,088		$	53		$	1,793	$	8,423
Loans individually evaluated for impairment	$	1,133		$	-	$	352		$	1,303		$	-				$	2,788
Loans collectively evaluated for impairment		85,586			44,970		90,272			452,624			2,558					676,010
Loan balance, March 31, 2018	$	86,719		$	44,970	$	90,624		$	453,927		$	2,558				$	678,798

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The following tables summarizes the allocation of the ALLLattributed to various segments in the loan portfolioas of December 31, 2018:

	Commercial and Industrial		Construction, Land, and Land Development		Residential Real Estate		Commercial Real Estate		Consumer and Other		Unallocated		Total
	(dollars in thousands)
As of December 31, 2018
ALLL amounts allocated to
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		2,039		1,806		1,647		2,648		77		1,190		9,407
ALLL balance, December 31, 2018	$	2,039	$	1,806	$	1,647	$	2,648	$	77	$	1,190	$	9,407
Loans individually evaluated for impairment	$	493	$	-	$	72	$	1,261	$	-			$	1,826
Loans collectively evaluated for impairment		89,897		64,045		94,673		514,698		3,584				766,897
Loan balance, December 31, 2018	$	90,390	$	64,045	$	94,745	$	515,959	$	3,584			$	768,723

Note 5 - Deposits

The composition of consolidated deposits consisted of the following at the periods indicated:

	March 31,		December 31,
	2019		2018
Demand, noninterest bearing	$	296,247	$	293,525
Now and money market		532,734		360,473
Savings		52,246		52,572
Time deposits less than $250,000		60,728		62,272
Time deposits $250,000 and over		34,541		34,772
Total deposits	$	976,496	$	803,614

The Company held $164,604,000 and $10,521,000 in brokered NOW and money market accounts as of March 31, 2019 and December 31, 2018, respectively.  These brokered deposits were held at the request of a wholesale banking services customer until that customer could transfer them to their deposit provider.  On April 9, 2019, that customer transferred $157.1 million of these temporary deposits to their deposit provider.

The following table presents the maturity distribution of time deposits as of March 31, 2019 (dollars in thousands):

Twelve months	$	68,351
One to two years		16,934
Two to three years		6,974
Three to four years		2,185
Four to five years		825
	$	95,269

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Note 6 - Leases

The Company has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception.

The Company adopted the provisions of ASU 2016-02 (Topic 842) on January 1, 2019. Operating lease right-of-use (“ROU”) assets represent a right to use an underlying asset for the contractual lease term. Operating lease liabilities represent an obligation to make lease payments arising from the lease. Upon adoption, operating lease ROU assets totaling $9.5 million and operating lease liabilities totaling $9.7 million were recognized in our Unaudited Consolidated Balance Sheets for leases that existed at the adoption date, based on the present value of lease payments over the remaining lease term.  ROU assets are further adjusted for lease incentives.  Operating leases entered into after the adoption date will be recognized as an operating lease ROU asset and operating lease liability at the commencement date of the new lease.

The Company’s leases do not provide an implicit interest rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine the present value of operating lease liabilities. The weighted average discount rate used to discount operating lease liabilities at March 31, 2019 was 3.33%.

The Company’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Company’s lease agreements do not contain any residual value guarantees.

Operating leases with terms of 12 months or less are not included in ROU assets and operating lease liabilities recorded in our consolidated balance sheets. Operating lease terms include options to extend when it is reasonably certain that the Company will exercise such options, determined on a lease-by-lease basis. As of March 31, 2019, the Company does not have any leases that have not yet commenced. The Company has entered into a sublease agreement that will commence in June 2019.  At March 31, 2019, lease expiration dates ranged from two to 26 years, with additional renewal options on certain leases typically ranging from 5 to 10 years. At March 31, 2019, the weighted average remaining lease term for the Company’s operating leases was 11.5 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $371,000 and $283,000, respectively, for the three months ended March 31, 2019 and 2018. Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

The following table presents the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew, at March 31, 2019:

	March 31,
(dollars in thousands)	2019
April 1, 2019 to December 31, 2019	$	994
2020		1,328
2021		1,315
2022		1,340
2023		1,314
2024 and thereafter		4,949
Total lease payments		11,240
Less:  amounts representing interest		1,769
Present value of lease liabilities	$	9,471

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The following table presents the components of total lease expense and operating cash flows:

	March 31,
(dollars in thousands)	2019
Lease expense:
Operating lease expense	$	333
Variable lease expense	$	38
Total lease expense (1)	$	371
Cash paid:
Cash paid reducing operating lease liabilities	$	370
(1) Included in net occupancy expense in the Condensed Consolidated Statements of Income (Unaudited)

Note 7 - Stock-Based Compensation

Stock Options and Restricted Stock

On April 30, 2018, the Company’s shareholders approved the Coastal Financial Corporation 2018 Omnibus Incentive Plan (2018 Plan). The 2018 Plan authorizes the Company to grant awards, including but not limited to, stock options and restricted stock awards, to eligible employees, directors or individuals that provide service to the Company, up to an aggregate of 500,000 shares of common stock. The 2018 Plan replaces both the Company’s 2006 Stock Option and Equity Compensation Plan (2006 Plan) and its Directors’ Stock Bonus Plan.  Existing awards will vest under the terms granted and no further awards will be made under these previous plans. Shares available to be granted under the 2018 Plan totaled 358,811 at March 31, 2019.

Stock Option Awards

In January 2019, the Company granted 26,737 nonqualified stock options under the 2018 Plan to an employee, which vest ratably over 10 years. In January 2019, the Company also granted 99,100 qualified stock options under the 2018 Plan to employees, which vest ratably over 10 years.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock and other factors. The Company uses the vesting term and contractual life to determine the expected life. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation expense related to unvested stock option awards is reversed at date of forfeiture.

The following assumptions were used to estimate the value of options granted under the 2006 Plan and the 2018 Plan as applicable in the periods indicated:

	Three months ended March 31, 2019			Three months ended March 31, 2018
Expected term	10.0 years			10.0 years
Expected stock price volatility		48.79	%		41.89	%
Risk-free interest rate		2.74	%		2.66	%
Expected dividends	Zero			Zero
Weighted average grant date fair value	$	9.22		$	3.95

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A summary of stock option activity under the 2018 Plan and 2006 Plan during the three months ended March 31, 2019:

Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
(dollars in thousands, except per share amounts)
Outstanding at December 31, 2018		688,310		$	6.39		6.38
Granted		125,837			14.91
Exercised		(7,160	)		5.91
Forfeited or expired		(2,870	)		9.05
Outstanding at March 31, 2019		804,117		$	7.71		6.71	$	7,458
Vested or expected to vest at March 31, 2019		804,117		$	7.71		6.71	$	7,458
Exercisable at March 31, 2019		242,422		$	6.03		5.10	$	2,657

The total intrinsic value (which is the amount by which the stock price exceeds the exercise price) of options exercised during the three months ended March 31, 2019 was $69,000. There were no options exercised during the quarter ended March 31, 2018.

As of March 31, 2019, there was $2,665,000 of total unrecognized compensation cost related to nonvested stock options granted under the 2018 Plan and 2006 Plan. Total unrecognized compensation costs is adjusted for unvested forfeitures. The Company expects to recognize that cost over a weighted-average period of approximately 8.05 years.   Compensation expense recorded related to stock options was $97,000 and $64,000 for the three months ended March 31, 2019 and 2018, respectively.

Restricted Stock Awards

The fair value of restricted stock awards is equal to the fair value of the Company’s stock at the date of grant. Compensation expense is recognized over the vesting period that the awards are based. Restricted stock awards are participating securities.

As of March 31, 2019 there was $65,000 of total unrecognized compensation cost related to nonvested restricted stock awards.  The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately 7.5 years.  Compensation expense recorded related to restricted stock awards was $2,000 for the three months ended March 31, 2019 and was nominal for the three months ended March 31, 2018.

A summary of the Company’s nonvested shares at March 31, 2019 and changes during the three-month period is presented below:

Nonvested shares	Shares		Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value
(all amounts in dollars except per share amounts)
Nonvested shares at December 31, 2018		5,200	$	12.32
Granted		—		—
Forfeited		—		—
Vested		—		—
Nonvested shares at March 31, 2019		5,200	$	12.32	$	19,448

Director’s Stock Bonus

The Company adopted and subsequently amended the Director’s Stock Bonus Plan (Bonus Plan). The Bonus Plan has expired and was replaced on April 30, 2018, when the shareholders approved the 2018 Plan.

Under the Bonus Plan, the Company could grant up to 50,000 shares. Stock was granted to directors who attended at least 75% of the scheduled board meetings during the prior year. Grants cliff vest over two years from date awarded, contingent on the director still being a director of the Company. During the vesting period, the grants are considered participating securities. Grants also immediately vest when a director has attained the retirement age of 72 and retires from the Board.

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The Bonus Plan granted shares with a total market value of $5,000 per director, per year, with the exception of the board chairman receiving $7,500 per year, and committee chairmen receiving $6,250 per year. The amended Bonus Plan expired on May 31, 2018and it was replaced on April 30, 2018by the 2018 Plan. Awards previously granted under the Bonus Plan will vest under the term granted.  Under the 2018 Plan, eligible directors are granted stock with a total market value of $5,000. Directors unable to receive stock will receive cash in lieu upon completion of the vesting period. Cash awards are recognized over the vesting period and recorded in other liabilities until paid.

In January 2019, there were 2,352 shares granted to seven directors at an estimated fair value of $14.91 per share. In January 2018, there were 4,405 shares granted to five directors at an estimated fair value of $7.10 per share. Compensation expense recorded related to the Plan totaled $8,000 for the three months ended March 31, 2019 and 2018.

Note 8 - Shareholders’ Equity

On May 4, 2018 the Company effected a 1-for-5 reverse stock split, decreasing the number of issued shares from 46,268,359 to 9,254,073, including 401 additional shares issued to shareholders with fractional shares. Authorized shares were not impacted by the reverse stock split. Share and per share amounts included in the consolidated financial statements and accompanying notes reflect the effect of the split for all periods presented.

The total authorized preferred stock is 25,000,000.  There were no shares of preferred stock issued and outstanding at March 31, 2019 and December 31, 2018.

The total authorized common shares is 300,000,000 shares.At March 31, 2019 and December 31, 2018, there were 11,902,715 and 11,893,203 common shares issued and outstanding.

On September 26, 2018, all 100,000 shares of Class B nonvoting common stock outstanding were exchanged for voting common stock on terms and conditions approved by the Company’s board of directors. At March 31, 2019 and December 31, 2018 there were no shares of Class B nonvoting common stock issued and outstanding.  

On September 26, 2018, 261,444 Class C shares were exchanged for common stock on terms and conditions approved by the Company’s board of directors. There were no shares of Class C nonvoting common stock issued and outstanding, at March 31, 2019 and December 31, 2018.

Note 9 - Fair Value Measurements

The following tables present estimated fair values of the Company’s financial instruments as of the period indicated, whether or not recognized or recorded in the consolidated balance sheets at the period indicated:

	March 31, 2019				Fair Value Measurements Using
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets
Cash and due from banks	$	21,176	$	21,176	$	21,176	$	-	$	-
Interest earning deposits with other banks		236,483		236,483		236,483		-		-
Investment securities		38,217		38,180		33,555		4,625		-
Other investments		3,600		3,600		-		3,600		-
Loans receivable, net		781,157		770,865		-		-		770,865
Accrued interest receivable		2,505		2,505		-		2,505		-
Financial liabilities
Deposits	$	976,496		975,840	$	-	$	975,840	$	-
Subordinated debt		9,968		9,945		-		9,945		-
Junior subordinated debentures		3,581		3,353		-		3,353		-
Accrued interest payable		343		343		-		343		-

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	December 31, 2018				Fair Value Measurements Using
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets
Cash and due from banks	$	16,315	$	16,315	$	16,315	$	-	$	-
Interest earning deposits with other banks		109,467		109,467		109,467		-		-
Investment securities		37,922		37,865		33,241		4,624		-
Other investments		3,766		3,766		-		3,766		-
Loans receivable, net		758,491		743,354		-		-		743,354
Accrued interest receivable		2,526		2,526		-		2,526		-
Financial liabilities
Deposits	$	803,614	$	802,645	$	-	$	802,645	$	-
FHLB advances		20,000		20,000		-		20,000		-
Subordinated debt		9,965		9,804		-		9,804		-
Junior subordinated debentures		3,581		3,265		-		3,265		-
Accrued interest payable		279		279		-		279		-

The Company measures and discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale). GAAP establishes a consistent framework for measuring fair value and disclosure requirements about fair value measurements. Among other things, the accounting standard requires the reporting entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions. These two types of inputs create the following fair value hierarchy:

• Level 1 – Quoted prices in active markets for identical instruments. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

• Level 2 – Observable inputs other than Level 1 including quoted prices in active markets for similar instruments, quoted prices in less active markets for identical or similar instruments, or other observable inputs that can be corroborated by observable market data.

• Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs from nonbinding single dealer quotes not corroborated by observable market data.

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for certain financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

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Items measured at fair value on a recurring basis – The following fair value hierarchy table presents information about the Company’s assets that are measured at fair value on a recurring basis at the dates indicated:

	Level 1		Level 2		Level 3		Total Fair Value
	(dollars in thousands)
March 31, 2019
Available-for-sale
U.S. Treasury securities	$	33,555	$	-	$	-	$	33,555
U.S. Government agencies		-		2,968		-		2,968
U.S. Agency collateralized mortgage obligations		-		154		-		154
U.S. Agency residential mortgage-backed securities		-		36		-		36
Municipals		-		257		-		257
	$	33,555	$	3,415	$	-	$	36,970
December 31, 2018
Available-for-sale
U.S. Treasury securities	$	33,241	$	-	$	-	$	33,241
U.S. Government agencies		-		2,957		-		2,957
U.S. Agency collateralized mortgage obligations		-		169		-		169
U.S. Agency residential mortgage-backed securities		-		38		-		38
Municipals		-		255		-		255
	$	33,241	$	3,419	$	-	$	36,660

The following methods were used to estimate the fair value of the class of financial instruments above:

Investment securities - The fair value of securities is based on quoted market prices, pricing models, quoted prices of similar securities, independent pricing sources, and discounted cash flows.

Limitations: The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2019 and December 31, 2018. The factors used in the fair values estimates are subject to change subsequent to the dates the fair value estimates are completed, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

Assets measured at fair value using significant unobservable inputs (Level 3)

The following table provides a description of the valuation technique, unobservable inputs, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring basis at the dates indicated:

	Valuation Technique	Unobservable Inputs	March 31, 2019 Weighted Average Rate			December 31, 2018 Weighted Average Rate
Impaired loans	Collateral valuations	Discount to appraised value		10	%		9	%

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Items measured at fair value on a nonrecurring basis – The following table presents financial assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy of the fair value measurements for those assets at the dates indicated:

	Level 1		Level 2		Level 3		Total Fair Value
	(dollars in thousands)
March 31, 2019
Impaired loans	$	-	$	-	$	493	$	493
Total	$	-	$	-	$	493	$	493
December 31, 2018
Impaired loans	$	-	$	-	$	493	$	493
Total	$	-	$	-	$	493	$	493

The amounts disclosed above represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported on.

Impaired loans - A loan is considered impaired when it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. Impairment is measured based on the fair value of the underlying collateral or the discounted cash expected future cash flows. Subsequent changes in the value of impaired loans are included within the provision for loan losses in the same manner in which impairment initially was recognized or as a reduction in the provision that would otherwise be reported. Impaired loans are evaluated quarterly to determine if valuation adjustments should be recorded. The need for valuation adjustments arises when observable market prices or current appraised values of collateral indicate a shortfall in collateral value compared to current carrying values of the related loan. If the Company determines that the value of the impaired loan is less than the carrying value of the loan, the Company either establishes an impairment reserve as a specific component of the allowance for loan losses or charges off the impairment amount. These valuation adjustments are considered nonrecurring fair value adjustments.

Note 10 - Earnings Per Common Share

The following is a computation of basic and diluted earnings per common share at the periods indicated:

	Three months ended
	March 31, 2019		March 31, 2018
	(dollars in thousands, except share data)
Net Income	$	2,808	$	1,843
Basic weighted average number common shares outstanding		11,884,107		9,241,620
Dilutive effect of share-based compensation		299,127		5,589
Diluted weighted average number common shares outstanding		12,183,234		9,247,209
Basic earnings per share	$	0.24	$	0.20
Diluted earnings per share	$	0.23	$	0.20

For the three month periods ended March 31, 2019 and 2018,  options to purchase an additional 134,037 and 763,264 shares of common stock, were not included in the computation of diluted earnings per common share because their effect resulted in them being antidilutive.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Coastal Financial Corporation (the “Company”) is a bank holding company thatoperatesthrough its wholly ownedsubsidiary,CoastalCommunity Bank (the “Bank”).We are headquarteredin Everett,Washington,which by populationis the largestcityin, and the county seatof, Snohomish County. We focus on providinga wide range of banking productsand servicesto consumers and smallto mediumsizedbusinessesin the broaderPuget Soundregionin the stateof Washington.We currentlyoperate14 full-servicebanking locations,11 of which are locatedin Snohomish County, where weare the largestcommunitybank by depositmarketshare,and threeof which are locatedin neighboringcounties(one in King County and two in IslandCounty).  

The followingdiscussionand analysispresentsour financialconditionand resultsof operationson a consolidatedbasis.However, becauseweconduct allof our materialbusinessoperationsthrough the Bank,the discussionand analysisrelateto activitiesprimarilyconductedby the Bank.

Asa bank holding company thatoperatesthrough one segment,communitybanking, wegeneratemostof our revenuefromintereston loans and investments.Our primarysourceof funding for our loans is commercialand retaildeposits.We placesecondaryrelianceon wholesalefunding, primarilyborrowingsfromthe FederalHome Loan Bank,or FHLB.Our largestexpensesare salariesand relatedemployeebenefits,occupancy, intereston depositsand borrowings,data processing,and provisionfor loan losses.Our principallendingproductsare commercialrealestateloans, commercialand industrialloans, and to a lesserextentresidentialrealestateloans and consumerloans.

The Company successfully closed its initial public offering on July 20, 2018, raising net proceeds of $33.2 million and issuing 2,577,500 shares of common stock in exchange. We are using, and intend to continue to use, the net proceeds to support or growth, organically or through mergers and acquisitions, and for general corporate purposes, which may include the repayment or refinancing of debt and maintenance of our required regulatory capital levels.

Comparison of Operating Results for the Three Months Ended March 31, 2019 and March 31, 2018

In October 2018, the Bank agreed to retain deposits from a wholesale banking services client on a temporary basis, which we refer to herein as “wholesale-brokered deposits”.  These deposits come through a wholesale banking relationship and not from the end customer so they are classified as brokered deposits in accordance with regulatory guidance.  

At March 31, 2019, wholesale-brokered deposits totaled $164.6 million compared to $10.5 million at December 31, 2018.  The Bank invested the cash from wholesale-brokered deposits into overnight funds.  Cash and cash equivalents at March 31, 2019 totaled $257.6 million compared to $125.8 million at December 31, 2018.  On April 9, 2019, the wholesale banking customer transferred $157.1 million in temporary wholesale-brokered deposits from the Bank to its deposit provider, which brought the balance to below $6.0 million at the Bank.  

The increase of wholesale-brokered deposits during the quarter ended March 31, 2019 most significantly affected the following balance sheet items: cash and cash equivalents, assets, deposits, and liabilities.  Cost of deposits, cost of funds, net interest margin, and net income were the most significantly impacted income statement items due to the temporary increase in wholesale-brokered deposits.  We will explain the impact of the temporary increase in wholesale-brokered deposits throughout this earning release so users of this financial information can compare first quarter’s results with prior quarter’s results, with and without the impact of retaining these temporary balances.

Net Income

Net incomefor the threemonthsended March 31, 2019, was $2.8 million,or $0.23 per dilutedshare,comparedto $1.8 million,or $0.20 per dilutedshare,for the threemonthsended March 31, 2018. The increasein net incomeover the comparableperiodin the prioryear was attributableto a $2.0 million increasein net interestincome,primarily arisingfromincreasedinterest earningassetsfromour loan growth initiatives,as well as increases of $503,000 in loan referral fees from arranging interest rate swaps for our customers and $446,000 in wholesale banking service fees, a new line of business in which we are banking customers of other financial service.  These positive factorswere partiallyoffsetby a $1.6 million increasein noninterestexpense, which includes $823,000 more in salaries and employee benefits.

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Net InterestIncome

Net interestincome for the threemonthsended March 31, 2019, was $9.8 million,comparedto $7.8 millionfor the threemonths ended March 31, 2018, an increaseof $2.0 million, or 25.6%. The increasein net interestincomeconsistedof a $2.8 million,or 32.4%, increasein interestincome partially offsetby a $798,000, or 96.3%, increasein interestexpense.  The increase from prior quarter one year ago is a result of higher yielding and increased interest earning asset balances.

The growth in interestincomewas primarilyattributableto a $127.8 million,or 19.5%, increasein averageloans outstandingfor the threemonthsended March 31, 2019, comparedto the prioryear, combinedwith a 33 basis point increasein the yieldon totalloans. The increase of loan yields, as compared to the prior year period, was from pricing new loans at higher rates, variable loans repricing with the increases in prime rate, and changes in the composition in the loan portfolio.  Total loan yields for the quarter ended March 31, 2019 were 5.40%, an increase of one basis point from 5.39% for the quarter ended December 31, 2018, and a 33 basis point increase from 5.07% for the quarter ended March 31, 2018. Loan yields for the quarter ended December 31, 2018 were impacted by significant prepayment penalties and early recognition of deferred fees. Contractual loan yields approximated 5.22% for the quarter ended March 31, 2019 compared to 5.15% for the quarter ended December 31, 2018.  The increase in yield for the current quarter was from pricing new loans at higher rates and variable loans repricing with the increase in prime rate and changes in the loan portfolio. We have continuedto focus on our loan growth initiatives,includingthe deepeningof relationshipswith existingcustomersand developingnewloan and depositrelationships.We focuson organicallygrowing loans through our existinglendersand by acquiring newlenders or teamsto assist to grow our loan portfolio.

The increasein interestexpense for the threemonthsended March 31, 2019, was primarilyrelatedto a 46 basis point increasein the cost of interest bearingdepositscombinedwith a $106.9 million,or 23.0%, increasein average interest bearingdeposits compared to the sameperiodin the prioryear. Wholesale-brokered deposits averaged $74.1 million for the quarter ended March 31, 2019.  This temporary increase resulted in an atypical increase in interest expense.  Without the increase in wholesale-brokered deposits, cost of deposits would have approximated 0.52% for the quarter ended March 31, 2019.  These deposit balances decreased significantly in early April 2019, which will decrease the cost of deposits incurred in first quarter 2019, going forward. Also contributing to the increase in interest expense is an increase in the ratepaid on NOWand money marketaccounts,as marketinterest ratesincreased in response to the Federal Reserve last raising rates in December 2018. The increasein averageinterest bearingdepositsfor the threemonthsended March 31, 2019, comparedto the sameperiodin 2018 was attributableto both rate increases and growth in alldepositcategories.The averagebalanceof NOWand money marketaccountsgrew $20.2 million,or 6.2%. The averagebalanceof savingsaccountsgrew $6.8 million,or 14.8%, and the averagebalanceof customertimedepositsgrew$5.7 million,or 6.4% to $94.9 million. We do not regularlyadvertisetimedepositratesor money marketrates,althoughwe occasionallyadvertisepromotionalratesin targetedportionsof our marketarea.Our branch managers,business developmentofficers,and lenderscollaborateto provideconsistentand coordinatedcustomerserviceand to seek depositsfromnewand existingcustomers.

For the threemonthsended March 31, 2019, net interestmargin(annualizednet interestincomedividedby averagetotalinterest earningassets) and net interestspread(averageyieldon totalinterest earningassetsminusaveragecost of totalinterest bearingliabilities)were 4.13% and 3.69%, respectively,comparedto 4.12% and 3.86% for the threemonthsended March 31, 2018.  The impact of holding the wholesale-brokered deposits during the quarter increased lower yielding assets and increased the costs of deposits due to the price of those deposits, 2.38%. The net interest margin would have been 4.48% for the quarter ended March 31, 2019, excluding the impact of temporary wholesale-brokered deposits, a five basis point increase over prior quarter, with loan yields outpacing deposit costs. The adjusted net interest margin of 4.48% for the quarter ended March 31, 2019 reflected a 36 basis point increase over same quarter one year ago. The increase in net interest margin over the prior year is a result of loan growth, loan pricing increasing at a rate greater than core deposits costs, increased recognition of deferred fees and prepayment penalties on paid-off loans, and change in the composition of loan portfolio.  

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The followingtablepresentsan analysisof net interestincome,net interestspreadand net interestmarginfor the periodsindicated.Loan feesincludedin interestincometotaled$350,000 and $311,000 for the threemonths ended March 31, 2019 and 2018, respectively.For the threemonthsended March 31, 2019 and 2018, the amount of interestincomenot recognizedon nonaccrualloans was not material.

	Average balance sheets
	For the Three Months Ended March 31,
	2019								2018
	Average			Interest &		Yield /			Average			Interest &		Yield /
(Dollars in thousands)	Balance			Dividends		Cost (4)			Balance			Dividends		Cost (4)
Assets
Interest earning assets:
Interest earning deposits	$	133,458		$	808		2.46	%	$	68,160		$	255		1.52	%
Investment securities, available for sale (1)		38,296			144		1.52			38,341			145		1.53
Investment securities, held to maturity (1)		1,256			9		2.91			1,376			7		2.06
Other investments		3,150			14		1.80			2,912			11		1.53
Loans receivable (2)		782,387			10,419		5.40			654,570			8,189		5.07
Total interest earning assets		958,547			11,394		4.82	%		765,359			8,607		4.56	%
Noninterest earning assets:
Allowance for loan losses		(9,623	)							(8,121	)
Other noninterest earning assets		48,145								36,077
Total assets	$	997,069							$	793,315
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Interest bearing deposits	$	571,086		$	1,436		1.02	%	$	464,219		$	646		0.56	%
FHLB advances and other borrowings		297			2		2.73			793			4		2.05
Subordinated debt		9,966			145		5.90			9,952			144		5.87
Junior subordinated debentures		3,581			44		4.98			3,579			35		3.97
Total interest bearing liabilities		584,930			1,627		1.13	%		478,543			829		0.70	%
Noninterest bearing deposits		288,049								245,273
Other liabilities		13,029								2,845
Total shareholders' equity		111,061								66,654
Total liabilities and shareholders' equity	$	997,069							$	793,315
Net interest income				$	9,767							$	7,778
Interest rate spread							3.69	%							3.86	%
Net interest margin (3)							4.13	%							4.12	%

(1) For presentationin thistable,averagebalancesand the correspondingaverageratesfor investmentsecurities are based upon historicalcost, adjustedfor amortizationof premiumsand accretionof discounts.

(2) Includesnonaccrualloans.

(3) Net interestmarginrepresentsannualizednet interestincomedividedby averagetotalinterest earning assets.

(4) Yields and costsare annualized.

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The followingtablepresentsinformationregardingthe dollaramountof changes in interestincomeand interestexpense for the periodsindicatedfor each majorcomponentof interest earningassetsand interest bearingliabilitiesand distinguishesbetween the changes attributableto changes in volumeand changes attributableto changes in interestrates.For purposesof thistable,changes attributableto both rateand volume thatcannot be segregatedhave been allocatedto volume.  The increase in interest earning deposits, primarily in volume and interest bearing deposits which impacted both volume and rate is largely the result of temporary wholesale–brokered deposits.  These temporary deposits declined $157.1 million in April 2019 as anticipated, which will reduce interest income and interest expense attributed to these deposits going forward.

	Three Months Ended March 31, 2019
	Compared to
	Three Months Ended March 31, 2018
	Increase (Decrease)
	Due to						Total Increase
(Dollars in thousands)	Volume			Rate			(Decrease)
Interest income:
Interest earning deposits	$	395		$	158		$	553
Investment securities, available for sale		-			(1	)		(1	)
Investment securities, held to maturity		(1	)		3			2
Other Investments		1			2			3
Loans receivable		1,702			528			2,230
Total increase in interest income		2,097			690			2,787
Interest expense:
Interest bearing deposits		267			523			790
FHLB advances and other borrowings		(3	)		1			(2	)
Subordinated debt		-			1			1
Junior subordinated debentures		-			9			9
Total increase in interest expense		264			534			798
Increase in net interest income	$	1,833		$	156		$	1,989

Provisionfor LoanLosses

The provisionfor loan lossesis an expense weincurto maintainan allowancefor loan lossesat a levelthatis deemedappropriateby managementto absorb inherentlosseson existingloans. For a descriptionof the factors taken into accountby our managementin determiningthe allowancefor loan lossessee “—Financial Condition—Allowance for Loan Losses.”

The provisionfor loan lossesfor the threemonthsended March 31, 2019 was $540,000, comparedto $501,000 for the three monthsended March 31, 2018. The allowancefor loan lossesas a percentageof loans was 1.25% at March 31, 2019, comparedto 1.24% at March 31, 2018. Consistentcreditqualitykept the allowance static, while the provision for loan losses was increased due to loan growth.

Net charge-offs for the threemonthsended March 31, 2019, totaled$32,000, or 0.02% (annualized) of total averageloans, as comparedto net charge-offs of $95,000, or 0.06% (annualized) of totalaverageloans, for the threemonthsended March 31, 2018. Net charge-offs for both periodswere low and demonstrate the strong creditqualityof our loan portfolio and a healthyeconomicenvironment in our marketarea.

NoninterestIncome

Our primarysourcesof recurringnoninterestincomeare depositaccountservicecharges, loan referral fees, wholesale banking service fees, and mortgagebrokerfees.Noninterestincomedoes not includeloan originationfees to the extentthey exceed the directloan originationcosts,which are generallyrecognizedover the lifeof the relatedloan as an adjustmentto yieldusing the interestmethod.

For the threemonthsended March 31, 2019, noninterestincometotaled$2.0 million,an increaseof $877,000, or 79.2%, comparedto $1.1 million for the threemonthsended March 31, 2018.

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The following table presents, for the periods indicated, the major categories of noninterest income:

	Three Months
	Ended March 31,					Increase			Percent
(Dollars in thousands)	2019			2018		(Decrease)			Change
Deposit service charges and fees	$	726		$	687	$	39			5.7	%
Loan referral fees		633			130		503			386.9
Wholesale banking service fees		446			-		446		N/A
Mortgage broker fees		85			37		48			129.7
Sublease and lease income		10			57		(47	)		(82.5	)
(Loss) gain on sales of loans, net		(11	)		64		(75	)		(117.2	)
Other		95			132		(37	)		(28.0	)
Total noninterest income	$	1,984		$	1,107	$	877			79.2	%

Deposit ServiceCharges and Fees. Deposit fees,which are feesfromour customersfor deposit-related services,constitutethe largestcomponentof our noninterestincome. Servicechargeson depositaccountswere$726,000 for the threemonthsended March 31, 2019, an increaseof $39,000, or 5.7%, over the sameperiodin the prioryear. The increasein depositaccountservicecharges was primarilythe resultof a fee incomeinitiativeto adjustthe pricingof fees,types of fees,and features of our depositaccounts,and growth in deposit accounts and balances.

LoanReferralFees. We earn loan referralfeeswhenweoriginatea variablerateloan and the borrowerenters into an interestrateswap agreementwith a thirdpartyto fix the interestratefor an extendedperiod,usually20 or 25 years.We recognizethe loan referralfee for arrangingthe interestrateswap. Byfacilitatinginterestrate swaps to our clients,weare able to providethemwith a long-term,fixedinterestratewithout assumingthe interestraterisk.Loan referralfeeswere $633,000 for the threemonthsended March 31, 2019, comparedto $130,000in the sameperiodin the prioryear. Interestratevolatility,swap rates,and the timingof loan closings allimpactthe demand for long-termfixedrateswaps. The recognitionof loan referralfeesfluctuatesin response to thesemarketconditionsand as a resultwemay not recognizeany loan referralfeesin some periods.

Wholesale Banking Service Fees. We provide banking services to wholesale banking service clients that provide financial services to their customers. In exchange for providing these services, we earn fixed and variable fees and reimbursement of costs incurred for providing these services.  This line of business was launched mid-year in 2018, therefore there was no income for the three months ended March 31, 2018.  

MortgageBroker Fees. We earn mortgagebrokerfeesfor residentialmortgageloans thatwebrokerthrough mortgage lenders. Mortgagebrokerfeesincreased$48,000 in the threemonthsended March 31, 2019, comparedto the sameperiodin 2018 as a resultof increased demand from lower interest rates on mortgages.

Gain on Sale of Loans. We typicallysellin the secondarymarketthe guaranteedportion(generally75% of the principalbalance)of the Small Business Administration (SBA)and United States Department of Agriculture (USDA)loans thatweoriginate. An accounting adjustment to a prior period gain on sale resulted in loss of $11,000 on sale of loans for the three months ended March 31, 2019 as compared to a gain of $64,000 in the sameperiodin 2018.  We are in the process of refocusing and rebuilding our SBA pipeline as we focus on higher quality loans in what we believe is the latter half of the credit cycle.

Other. This categoryincludesa varietyof otherincome-producingactivities,annuitybrokerfees,and SBA servicingfees.Other noninterestincomedecreased $37,000 in the threemonthsended March 31, 2019, compared to the sameperiodin 2018 primarily as a result of lower SBA servicing fees.

NoninterestExpense

Generally,noninterestexpense is composedof allemployeeexpensesand costsassociatedwith operatingour facilities,obtainingand retainingcustomerrelationshipsand providingbank services.The largestcomponentof noninterestexpense is salariesand employeebenefits.Noninterestexpense also includesoperationalexpenses, such as occupancy expense, data processingexpense, directorand staffexpense, marketingexpense, and legal and professionalfees.

For the threemonthsended March 31, 2019, noninterestexpense totaled$7.7 million,an increaseof $1.6 million, or 26.3%, comparedto $6.1 millionfor the threemonthsended March 31, 2018.

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The followingtablepresents,for the periodsindicated,the majorcategoriesof noninterestexpense:

	Three Months
	Ended March 31,				Increase			Percent
(Dollars in thousands)	2019		2018		(Decrease)			Change
Salaries and employee benefits	$	4,558	$	3,735	$	823			22.0	%
Occupancy		994		823		171			20.8
Data processing		529		479		50			10.4
Legal and professional fees		409		80		329			411.3
Director and staff expenses		240		144		96			66.7
Excise taxes		165		124		41			33.1
Business development		102		88		14			15.9
Marketing		94		57		37			64.9
FDIC assessments		75		85		(10	)		(11.8	)
Other		496		452		44			9.7
Total noninterest expense	$	7,662	$	6,067	$	1,595			26.3	%

Salariesand Employee Benefits.Salariesand employeebenefitsare the largestcomponentof noninterest expense and includepayrollexpense, incentivecompensationcosts,benefitplans, healthinsuranceand payroll taxes.Salariesand employeebenefitswere $4.6 millionfor the threemonthsended March 31, 2019, an increase of $823,000, or 22.0%, comparedto $3.7 millionfor the threemonthsended March 31, 2018. The increasewas due to hiringstafffor our Edmonds branch (which opened late in 2018); hiring new lenders and lending teams, new back office staff to support growth and becoming a public company, and staff for our wholesale banking activities.  New hires were primarily in support of our growth initiatives and deploying capital.  Asof March 31, 2019, wehad 179 full-timeequivalentemployees,comparedto 159 at March 31, 2018, a 13% increase.

Occupancy Expenses. Occupancy expenseswere $994,000 for the threemonthsended March 31, 2019, comparedto $823,000 for the threemonthsended March 31, 2018. This categoryincludesbuilding,leasehold,furniture,fixturesand equipmentdepreciationtotaling$304,000 and$254,000 for the threemonthsended March 31, 2019 and 2018, respectively.The increaseof 20.8% in occupancy expensesfor the threemonthsended March 31, 2019, comparedto the sameperiodin the prioryear, was primarilydue to opening our Edmonds location late October 2018, increased lease expense, depreciation and utility costs, and higher overall maintenancecosts.

Legal and professional fees. Legal and professional costs were $409,000 for the quarter ended March 31, 2019 compared to $80,000 for the quarter ended March 31, 2018.  The increase over the prior year is largely the result of additional legal and consulting fees from negotiating wholesale services banking agreements and increased legal and accounting expenses associated with being a public company.

Data Processing.Data processingcostswere $529,000 for the threemonthsended March 31, 2019, compared to $479,000 for the threemonthsended March 31, 2018. Data processing costsincludeallof our customerprocessing,computerprocessing,and network costs.  Data processing costs grow as we add new products, customers and branches.

Other. This category includes dues and subscriptions, office supplies, mail services, telephone, examination fees, internal loan expenses, services charges from banks, operational losses, directors and officers insurance, donations, provision for unfunded commitments, and miscellaneous other expenses.Other noninterest expense was $496,000 for the three months ended March 31, 2019, compared to$452,000 for the three months ended March 31, 2018. The increase was primarily due to increased costs as a result of overall growth for the three months ended March 31, 2019 as compared to the same period last year.

Income TaxExpense

The amountof incometax expense weincuris impactedby the amountsof our pre-taxincome,tax-exempt incomeand othernondeductibleexpenses.Deferredtax assetsand liabilitiesare reflectedat currentincometax ratesin effectfor the periodin which the deferredtax assetsand liabilitiesare expectedto be realizedor settled. Aschanges in tax laws or ratesare enacted,deferredtax assetsand liabilitiesare adjustedthrough the provision for incometaxes.Valuationallowancesare establishedwhennecessaryto reduceour deferredtax assetsto the amountexpectedto be realized. For the three monthsended March 31, 2019, incometax expense totaled$741,000, comparedto $474,000 for the threemonths ended March 31, 2018. Our effectivetax ratesfor the threemonthsended March 31, 2019 and 2018, were 20.9% and 20.5%, respectively.

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Financial Condition

The Company’s total assets increased $164.0 million, or 17.2%, to $1.1 billion at March 31, 2019 from $952.1 million at December 31, 2018.  The primary cause of the increase was the $154.1 million increase in wholesale-brokered deposits which increased interest earning deposits with other banks.  The $285.1 million, or 34.3% increase in total assets from $831.0 million at March 31, 2018 was due to a $164.6 million increase in interest earning deposits with other banks stemming from the wholesale-brokered deposit increase of the same amount coupled with organic growth initiatives, which included the opening of the Edmonds branch in the fourth quarter of 2018, and the increase in cash from the successful initial public offering.  Additionally, the Company implemented the new lease accounting standard, which brought operating leases onto the balance sheet on January 1, 2019, and increased assets by $9.3 million as of March 31, 2019.

LoanPortfolio

Our primarysourceof incomeis derivedthrough interestearnedon loans. Asubstantialportionof our loan portfolioconsistsof commercialand industrialloans and realestateloans securedby commercialrealestate propertieslocatedin the Puget Soundregion.Our loan portfoliorepresentsthe highestyieldingcomponentof our earningassets.

Asof March 31, 2019, loans totaled$791.1 million,an increaseof $23.2 million,or 3.0%, comparedto December 31, 2018. The increasewas primarilydue to our efforts to increaseincomeby buildinga diversifiedloan portfoliowhile maintainingstrongcreditquality.

Loans as a percentageof depositswere 81.0% as of March 31, 2019, compared to 95.6% as of December 31, 2018. The decrease is attributed to the temporary increase in wholesale-brokered deposits, without the wholesale-brokered deposits the loans as a percentage of deposits would have been 97.4%.  We are focusedon servingour communitiesand marketsby growing loans and funding those loans with customerdeposits.

The followingtablesummarizesour loan portfolioby type of loan as of the datesindicated:

	As of March 31, 2019						As of December 31, 2018
(Dollars in thousands)	Amount			Percent			Amount			Percent
Commercial and industrial loans	$	92,248			11.6	%	$	90,390			11.8	%
Real estate:
Construction, land and land development		65,686			8.3			64,045			8.3
Residential real estate		94,743			12.0			94,745			12.3
Commercial real estate		535,896			67.6			515,959			67.1
Consumer and other loans		3,583			0.5			3,584			0.5
Gross loans receivable		792,156			100.0	%		768,723			100.0	%
Net deferred origination fees		(1,084	)					(824	)
Loans receivable	$	791,072					$	767,899

Commercial and IndustrialLoans.Commercialand industrialloans increased$1.8 million,or 2.0%, to $92.2 millionas of March 31, 2019, from $90.4 millionas of December 31, 2018.

Construction,Landand LandDevelopment Loans.Construction,land and land developmentloans increased$1.6 million,or 2.6%, to $65.7 millionas of March 31, 2019, from$64.0 millionas of December 31, 2018. We continue to have favorable economicconditionsfor buildingin our marketarea.We had a number of construction loans that have been approved, primarily for residential projects, where the contractor/developer had not requested the funds, resulting in our unfunded construction and development commitments increasing to $80.0 millionat March 31, 2019, from$63.4 millionat December 31, 2018. Because of the strong commercial and residentialrealestatemarketin the Puget Soundregion,weexpect to see constructionand developmentloans continueto pay off morequicklythan wehave experienced historically even though the balances have continued to grow.

ResidentialReal EstateLoans.Our residentialloans were unchanged at $94.7 millionas of March 31, 2019, and December 31, 2018. A fairly significant portion of our residential real estate loans are purchased and totaled $37.9 million as of March 31, 2019.  Most of the one-to-fourfamilyloans thatwepurchased are fromotherlendersin the Puget Soundregionor in California.  We also make one-to-fourfamilyloans to investors to financetheirrentalpropertiesand to businessowners to securetheirbusinessloans. Asof March 31, 2019, residentialrealestateloans made to investorsand businessowners totaled$32.8 million.In addition,we originatehome equitylinesof creditand home equitytermloans for our portfolio.

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Commercial Real EstateLoans.Commercialrealestateloans increased$19.9 million,or 3.9%, to $535.9 millionas of March 31, 2019, from $516.0 millionas of December 31, 2018. The increaseoccurredbecause we activelyseek commercialrealestateloans in our marketsand our lendersare experiencedin competingfor theseloans.Our credit administration team has substantial experience in underwriting, managing and monitoring commercial real estate loans.  We funded $83.9million of new commercial real estate loans over the three months ended March 31, 2019.  There was $7.0 million in purchased loan participations during the three months ended March 31, 2019.  We occasionally purchase participations from other community banks we know under terms and credit conditions acceptable to us.  All participations are individually underwritten to our credit standards and are from our market or the other community bank’s market.

Consumerand Other Loans.Consumer and otherloans totaled $3.6 million as of both March 31, 2019 and December 31, 2018. We continue to see strongconsumer confidenceand economicstrengthin the Puget Soundregion.

Nonperforming Assets

Loans are consideredpast due if the requiredprincipaland interestpaymentshave not been receivedas of the date such paymentswere due. Loans are placedon nonaccrualstatuswhen,in management’sopinion, the borrowermay be unable to meetpaymentobligationsas they becomedue, as well as whenrequiredby applicable regulations.Loans may be placedon nonaccrualstatusregardlessof whether or not such loans are considered past due. In general,weplaceloans on nonaccrualstatuswhenthey become90 days past due. We also place loans on nonaccrualstatusif they are lessthan 90 days past due if the collectionof principalor interestis in doubt. When loans are placedon nonaccrualstatus,allunpaid accruedinterestis reversedfromincomeand all interestaccrualsare stopped. Interestincomeis subsequentlyrecognizedonly to the extentcash paymentsare receivedin excessof principalbalance.Loans are returnedto accrualstatusif webelievethatallremaining principaland interestis fullycollectibleand therehas been at leastsix monthsof sustainedrepayment performancesincethe loan was placedon nonaccrualstatus.  We define nonperforming loans as loans on nonaccrual status and accruing loans 90 days or more past due.  Also included in nonperforming assets is other real estate owned and repossessed assets.  

We believeour lendingpracticesand activeapproachto managingnonperformingassetshas resultedin sound assetqualityand timelyresolutionof problemassets.We have severalproceduresin placeto assistus in maintainingthe overallcreditqualityof our loan portfolio.We have establishedunderwriting guidelines, concentration limitsand wealso monitorour delinquencylevelsfor any negativeor adversetrends.We activelymanage problemassetsto reduceour riskfor loss.

We had $1.3 millionin nonperformingassets,as of March 31, 2019, comparedto $1.8 millionas of December 31, 2018. As of March 31, 2019, we had one loan for $748,000 which was more than 90 days past due and still accruing interest. This loan was pending renewal at the end of the quarter and was brought current in April 2019.  There were no loans more than 90 days past due and still accruing interest as of December 31, 2018.  

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The followingtablepresentsinformationregardingnonperformingassetsat the datesindicated:

	As of			As of
	March 31,			December 31,
(Dollars in thousands)	2019			2018
Nonaccrual loans:
Commercial and industrial loans	$	493		$	493
Real estate:
Construction, land and land development		-			-
Residential		71			72
Commercial real estate		-			1,261
Consumer and other loans		2			-
Total nonaccrual loans		566			1,826
Accruing loans past due 90 days or more:
Commercial and industrial loans		748			-
Real estate:
Construction, land and land development		-			-
Residential		-			-
Commercial real estate		-			-
Consumer and other		-			-
Total accruing loans past due 90 days or more		748			-
Total nonperforming loans	$	1,314		$	1,826
Real estate owned		-			-
Repossessed assets		-			-
Troubled debt restructurings, accruing		-			-
Total nonperforming assets	$	1,314		$	1,826
Total nonperforming loans to loans receivable		0.17	%		0.24	%
Total nonperforming assets to total assets		0.12	%		0.19	%

Allowance for LoanLosses

We maintainan allowancefor loan lossesthatrepresentsmanagement’sbest estimateof the loan lossesand risksinherentin our loan portfolio.The amountof the allowancefor loan lossesshould not be interpretedas an indicationthatcharge-offsin futureperiodswill necessarilyoccur in those amounts.In determiningthe allowancefor loan losses,weestimatelosseson specificloans, or groups of loans, where the probableloss can be identifiedand reasonablydetermined.The balanceof the allowancefor loan lossesis based on internally assignedriskclassificationsof loans, historicalloan loss rates,changes in the natureof our loan portfolio,overall portfolioquality,industryconcentrations,delinquencytrends,and currenteconomicfactors.

In connectionwith the review of our loan portfolio,weconsiderriskelementsapplicableto particularloan types or categoriesin assessingthe qualityof individualloans. Some of the riskelementsweconsiderinclude:

• for commercialand industrialloans, the debt servicecoverageratio(incomefromthe businessin excessof operatingexpensescomparedto loan repaymentrequirements),the operatingresultsof the commercial, professionalor agriculturalenterprise,the borrower’sbusiness,professionaland financialabilityand expertise,the specificrisksand volatilityof incomeand operatingresultstypicalfor businessesin that categoryand the value, natureand marketabilityof collateral;

• for commercialrealestateloans, the debt servicecoverageratio,operatingresultsof the owner in the case of owner-occupiedproperties,the loan-to-valueratio,the age and conditionof the collateraland the volatility of income,propertyvalue and futureoperatingresultstypicalof propertiesof thattype;

• for residentialmortgageloans, the borrower’sabilityto repay the loan, includinga considerationof the debt-to-incomeratioand employmentand incomestability,the loan-to-valueratio,and the age, condition and marketabilityof the collateral;and

• for construction,land and land developmentloans, the perceivedfeasibilityof the projectincludingthe abilityto selldevelopedlotsor improvementsconstructedfor resaleor the abilityto leaseproperty constructedfor lease,the qualityand natureof contractsfor presaleor prelease,if any, experienceand abilityof the developerand loan-to-valueratio.

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Asof March 31, 2019, the allowancefor loan lossestotaled$9.9 million,or 1.25% of totalloans. Our allowancefor loan lossesas of March 31, 2019, increasedby $508,000, or 5.4%, comparedto December 31, 2018, primarilydue to growth in our loan portfolio.Asof December 31, 2018, the allowancefor loan losses totaled$9.4 million,or 1.24% of totalloans.

The followingtablepresents,as of and for the periodsindicated,an analysisof the allowancefor loan losses and otherrelateddata:

	As of or for the Three
	Months Ended
	March 31,
(Dollars in thousands)	2019			2018
Allowance at beginning of period	$	9,407		$	8,017
Provision for loan losses		540			501
Charge-offs:
Commercial and industrial loans		-			(9	)
Real estate:
Construction, land and land development		-			-
Residential		-			-
Commercial real estate		(29	)		(84	)
Consumer and other		(5	)		(5	)
Total charge-offs		(34	)		(98	)
Recoveries:
Commercial and industrial loans		1			1
Real estate:
Construction, land and land development		-			-
Residential		-			-
Commercial real estate		-			-
Consumer and other		1			2
Total recoveries		2			3
Net charge-offs		(32	)		(95	)
Allowance at end of period	$	9,915		$	8,423
Allowance to nonperforming loans		754.57	%		495.76	%
Allowance to loans receivable		1.25	%		1.24	%
Net charge-offs (recoveries) to average loans (1)		0.02	%		0.06	%

(1)Ratios for the threemonthsended March 31, 2019 and 2018, are annualized.

Although webelievethatwehave establishedour allowancefor loan lossesin accordancewith GAAPand that the allowancefor loan losseswas adequateto providefor knownand inherentlossesin the portfolioat alltimes shownabove, futureprovisionsfor loan losseswill be subjectto ongoing evaluationsof the risksin our loan portfolio.If the Puget Soundregionexperiencesan economicdownturn, our assetqualitycould deteriorateor if weare successfulin continuingto grow our loan portfolio,our allowancemay becomeinadequateand material additionalprovisionsfor loan lossescould be necessary.

Investment Securities

We use our securitiesportfolioprimarilyas a sourceof liquidityand collateralthatcan be readilysold or pledged for publicdepositsor otherbusinesspurposes.At March 31, 2019, 87.9% of our investmentportfolio consistedof U.S.Treasurysecurities.The remainderof our securitiesportfoliowas investedin U.S.Governmentagency securities,agency collateralizedmortgageobligationsand mortgage-backedsecurities,and municipal bonds. Because wetargeta loan-to-depositratioin the range of 90% to 100%, weprioritizeliquidityover the earningsof our securitiesportfolio.At March 31, 2019, our loan-to-depositratiowas 81.0%, which was lower than our target because of the temporary increase in wholesale-brokered deposits, without the wholesale-brokered deposits the loan-to-deposit ratio would have been 97.4%.   Our securities portfoliorepresentedlessthan 5% of assets.Tothe extentour securitiesrepresentmorethan 5% of assets,absent an immediateneed for liquidity,weanticipateinvestingexcessfunds to providea higherreturn.

Asof March 31, 2019, the carryingamountof our investmentsecuritiestotaled$38.2 million,an increaseof$295,000,or 0.8%, comparedto $37.9 millionas of December 31, 2018. The increasein the securities portfoliowas primarilydue to the improvement of the fair value of available-for-sale securities partially offset by pay-downs on mortgage-backedsecurities.

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Our investmentportfolioconsistsof securitiesclassifiedas availablefor saleand, to a lesseramount,held to maturity.The carryingvaluesof our investmentsecuritiesclassifiedas availablefor saleare adjustedfor unrealizedgain or loss, and any gain or loss is reportedon an after-taxbasisas a componentof other comprehensiveincomein shareholders’equity.

The followingtablesummarizesthe amortizedcost and estimatedfairvalue of our investmentsecuritiesas of the datesshown:

	As of				As of
	March 31, 2019				December 31, 2018
	Amortized		Fair		Amortized		Fair
(Dollars in thousands)	Cost		Value		Cost		Value
Securities available-for-sale:
U.S. Treasury securities	$	34,840	$	33,555	$	34,831	$	33,241
U.S. Government securities		3,000		2,968		3,000		2,957
U.S. Agency collateralized mortgage obligations		156		154		172		169
U.S. Agency residential mortgage-backed    securities		36		36		39		38
Municipal bonds		258		257		259		255
Total available-for-sale securities		38,290		36,970		38,301		36,660
Securities held-to-maturity:
U.S. Agency residential mortgage-backed    securities		1,247		1,210		1,262		1,205
Total held-to-maturity securities		1,247		1,210		1,262		1,205
Total investment securities	$	39,537	$	38,180	$	39,563	$	37,865

Deposits

We offera varietyof depositproductsthathave a wide range of interestratesand terms,includingdemand, savings,money marketand timeaccounts as well as wholesale-brokered deposits.We relyprimarilyon competitivepricingpolicies,convenient locations,electronicdeliverychannels (Internet and mobile),and personalizedserviceto attractand retainthesedeposits.

Total depositsas of March 31, 2019 were $976.5 million,an increaseof $172.9 million,or 21.5%, comparedto$803.6 millionas of December 31, 2018. The increasewas largelyrelatedto a temporary increase in wholesale-brokered deposits.  

Noninterest bearingdepositsas of March 31, 2019 were $296.2 million,an increaseof $2.7 million,or 0.9%, comparedto $293.5 millionas of December 31, 2018. The increasewas due to the collaborationof our branch managers,businessdevelopmentofficersand lendersto grow core deposits.Asa team,weactivelypursue new business and retail customers.

Total interest bearingaccountbalances, excluding time deposits,as of March 31, 2019 were $585.0 million,an increaseof $172.0 million,or 41.6% from$413.0 millionas of December 31, 2018. Included in interest bearing account balances is $154.1 million increase in wholesale-brokered deposits from wholesale banking services as an accommodation to a wholesale banking services customer.  As planned, these temporary deposits decreased by $157.1 million in April 2019.  The remaining increasewas due to our focuson growing core deposits.

Total timedepositbalancesas of March 31, 2019 were $95.3 million,a decreaseof $1.8 million,or 1.8%, from$97.0 millionas of December 31, 2018. The decreasein total time depositsduring the periodwas due to a reduction in the more costly time deposits over $100,000.  Total time deposits represented 9.8% of deposits at March 31, 2019 as compared to 12.1% at December 31, 2018. We have seen competitors increase rates on time deposits, and we have not globally matched their rates in response as we have been able to grow and retain less costly core deposits.

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The followingtablesetsforthdepositbalancesat the datesindicated.

	As of					As of
	March 31, 2019					December 31, 2018
			Percent of					Percent of
(Dollars in thousands)	Amount		Total Deposits			Amount		Total Deposits
Demand, noninterest bearing	$	296,247		30.3	%	$	293,525		36.5	%
NOW and money market		368,130		37.7			349,951		43.6
Savings		52,246		5.3			52,573		6.5
Total core deposits		716,623		73.4			696,049		86.6
Wholesale brokered deposits		164,604		16.9			10,521		1.3
Time deposits less than $100,000		26,088		2.7			25,851		3.2
Time deposits $100,000 and over		69,181		7.1			71,193		8.9
Total	$	976,496		100.0	%	$	803,614		100.0	%

The following table sets forth the Company’s time deposits of $100,000 or more by time remaining until maturity as of the dates indicated:

(Dollars in thousands)	As of March 31, 2019		As of December 31, 2018
Maturity Period:
Three months or less	$	13,544	$	8,228
Over three through six months		11,681		13,166
Over six through twelve months		24,863		28,196
Over twelve months		19,093		21,603
Total	$	69,181	$	71,193

Average depositsfor the threemonthsended March 31, 2019 were $859.1 million,an increaseof 21.1%, comparedto the threemonthsended March 31, 2018. The increasein averagedepositswas largely due to temporary wholesale-brokered deposits.  As anticipated, these deposits declined in April 2019.  Continuedgrowth in our primarymarketareasand the increasein commerciallendingrelationshipsfor which wealso seek deposit balancesand the resultsof businessdevelopmenteffortsby our businessdevelopmentofficers,branch managers and lenders continue to contribute to deposit growth.

The averageratepaid on totalinterest bearingdepositswas 0.68% the threemonthsended March 31, 2019, comparedto 0.37% for the threemonthsended March 31, 2018.  Without the temporary increase in wholesale-brokered deposits the total paid on interest bearing deposits would have been 0.52%.  Additionally, in 2018, the Federal Reserve raised the Fed Funds rate 100 basis points which has resulted in higher deposit rates throughout the market.  We will continue to actively manage our interest rates on deposits while pursuing our growth goals.  Any additional Fed Funds increases will continue to raise our deposit costs.

The followingtablepresentsthe averagebalancesand averageratespaid on depositsfor the periodsindicated:

	For the Three Months Ended March 31,
	2019					2018
(Dollars in thousands)	Average Balance		Average Rate			Average Balance		Average Rate
Demand, noninterest bearing	$	288,049		0.00	%	$	245,273		0.00	%
NOW and money market		349,285		0.71			329,038		0.45
Savings		52,812		0.08			46,002		0.03
Wholesale brokered deposits		74,116		2.38			-		0.00
Time deposits less than $100,000		25,969		1.30			26,546		1.01
Time deposits $100,000 and over		68,904		1.75			62,633		1.39
Total deposits	$	859,135		0.68	%	$	709,492		0.37	%

The ratioof averagenoninterest bearingdepositsto averagetotaldepositsfor the threemonthsendedMarch 31, 2019 and 2018, was 33.5% and 34.6%, respectively.

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Borrowings

We have the abilityto utilizeshort-termto long-termborrowingsto supplementdepositsto fund our lending and investmentactivities,each of which is discussedbelow.

Federal Reserve Bank Line of Credit. The FRBallows us to borrow againstour lineof credit,which is collateralizedby certainloans. Asof March 31, 2019, and December 31, 2018, totalborrowing capacityof $21.5 million and$20.8 million,respectively,was availableunder thisarrangement.  Asof March 31, 2019, and December 31, 2018, FRB advances totaled zero.

Federal HomeLoanBankAdvances. The FHLBallows us to borrow againstour lineof credit,which is collateralizedby certainloans. Asof March 31, 2019, and December 31, 2018, totalborrowing capacityof $79.4 million and$79.3 million,respectively,was availableunder thisarrangement. FHLB advances totaled zero and $20.0 million as of March 31, 2019 and December 31, 2018, respectively.

	As of and For the Three
	Months Ended
	March 31,
(Dollars in thousands)	2019			2018
Maximum amount outstanding at any month-end during period:
FHLB Advances	$	-		$	20,000
Average outstanding balance during period:
FHLB Advances	$	222		$	667
Weighted average interest rate during period:
FHLB Advances		2.67	%		1.88	%
Balance outstanding at end of period:
FHLB Advances	$	-		$	20,000
Weighted average interest rate at end of period:
FHLB Advances		N/A			1.91	%

Junior SubordinatedDebentures. In 2004, weissued$3.6 millionin juniorsubordinateddebenturesto Coastal (WA) StatutoryTrust I, or the Trust, of which weownallof the outstandingcommonsecurities.The Trust used the proceedsfromthe issuanceof itsunderlyingcommonsecuritiesand preferredsecuritiesto purchasethe debenturesissuedby the Company. These debenturesare the Trust’sonly assetsand the interestpaymentsfrom the debenturesfinancethe distributionspaid on the preferredsecurities.The debenturesbear interestat a rateper annum equal to the 3-monthLIBORplus 2.10%. The effectiverateas of March 31, 2019, and December 31, 2018, was 4.71% and 4.88%, respectively.We generallyhave the rightto deferpaymentof intereston the debenturesat any timeor fromtimeto timefor a periodnot exceedingfiveyearsprovidedthatno extensionperiodmay extend beyond the statedmaturityof the debentures.During any such extensionperiod, distributionson the Trust’spreferredsecuritieswill also be deferred,and our abilityto pay dividendson our commonstock will be restricted.The Trust’spreferredsecuritiesare mandatorilyredeemableupon maturityof the debentures,or upon earlierredemptionas providedin the indenture.If the debenturesare redeemedpriorto maturity,the redemptionpricewill be the principalamountand any accruedbut unpaid interest.Weunconditionallyguaranteepaymentof accruedand unpaid distributionsrequiredto be paid on the Trust securitiessubjectto certainexceptions,the redemptionpricewith respectto any Trust securitiescalledfor redemptionand amountsdue if the Trust is liquidatedor terminated.

SubordinatedDebt. In 2016, the Company issueda subordinatednote to a commercialbank in the amountof$10.0 million.The note matureson August 1, 2026, and bearsinterestat the rateof 5.65% per year for fiveyears and, thereafter,at a rateequal to The WallStreetJournal primerateplus 2.50%. Principalpaymentsof $500,000 per quartercommenceNovember 1, 2021. We may redeemthe subordinatednote, in whole or in part,without premiumor penaltyafterJuly 29, 2021, subjectto any requiredregulatoryapprovals.

Liquidity andCapital Resources

LiquidityManagement

Liquidityrefersto our capacityto meetour cash obligationsat a reasonablecost. Our cash obligationsrequire us to have cash flow thatis adequateto fund loan growth and maintainon-balancesheetliquiditywhile meeting presentand futureobligationsof depositwithdrawals,borrowing maturitiesand othercontractualcash obligations.In managingour cash flows, managementregularlyconfrontssituationsthatcan give riseto increasedliquidityrisk.These includefunding mismatches,marketconstraintsin accessingsourcesof funds and the abilityto convertassetsinto cash. Changes in economicconditionsor exposureto credit,market,and

40

operational,legaland reputationalrisksalso could affectthe Bank’s liquidityriskprofileand are consideredin the assessmentof liquiditymanagement.

We continuallymonitorour liquiditypositionto ensurethatour assetsand liabilitiesare managedin a manner to meetallreasonablyforeseeableshort-term,long-termand strategicliquiditydemands.Managementhas establisheda comprehensiveprocessfor identifying,measuring,monitoringand controllingliquidityrisk. Because of itscriticalimportanceto the viabilityof the Bank,liquidityriskmanagementis fullyintegratedinto our riskmanagementprocesses.Criticalelementsof our liquidityriskmanagementinclude:effectivecorporate governanceconsistingof oversightby the board of directorsand activeinvolvementby management;appropriate strategies,policies,procedures,and limitsused to manageand mitigateliquidityrisk;comprehensiveliquidity riskmeasurementand monitoringsystemsthatare commensuratewith the complexityof our businessactivities; activemanagementof intradayliquidityand collateral;an appropriatelydiversemix of existingand potential futurefunding sources;adequatelevelsof highly liquidmarketablesecuritiesfreeof legal,regulatory,or operationalimpediments,thatcan be used to meetliquidityneeds in stressfulsituations;contingencyfunding policiesand plans thatsufficientlyaddresspotentialadverseliquidityeventsand emergencycash flow requirements;and internalcontrolsand internalauditprocessessufficientto determinethe adequacy of the Bank’s liquidityriskmanagementprocess.

Our liquiditypositionis supportedby managementof our liquidassetsand liabilitiesand accessto alternative sourcesof funds. Our liquidityrequirementsare metprimarilythrough our deposits,FHLBadvancesand the principaland interestpaymentswereceiveon loans and investmentsecurities.Cash on hand, cash at third-party banks, investmentsavailable-for-saleand maturingor prepayingbalancesin our investmentand loan portfolios are our mostliquidassets.Other sourcesof liquiditythatare routinelyavailableto us includefunds fromretail, commercial,and wholesaledeposits,advancesfromthe FHLBand proceedsfromthe saleof loans. Less commonlyused sourcesof funding includeborrowingsfromthe FederalReserve discountwindow,draws on establishedfederalfunds linesfromunaffiliatedcommercialbanks and the issuanceof debt or equitysecurities. We believewehave ampleliquidityresourcesto fund futuregrowth and meetothercash needs as necessary.

The Company is a corporationseparateand apartfromour Bankand, therefore,mustprovidefor itsown liquidity,includingliquidityrequiredto meetitsdebt servicerequirementson itssubordinatednote and junior subordinateddebentures.The Company’s mainsourceof cash flow has been through equityand debt offerings. The Company has consistentlyretaineda portionof the funds fromequityand debt offeringsso thatis has sufficientfunds for itsoperatingand debt costsfor the next two or threeyears. The Company held $20.0 million in cash at March 31, 2019 and uses approximately $1.1 million for debt servicing and operating purposes each year, leaving about $16.7 million for other purposes after deducting $3.3 million to cover operating purposes for the next three years.  In addition,the Bankcan declare and pay dividendsto the Company to meetthe Company’s debt and operatingexpenses.There are statutoryand regulatorylimitationsthataffectthe abilityof the Bankto pay dividendsto the Company. We believethatthese limitationswill not impactthe abilityof the Bankto pay dividendsto the Company to meetongoing operating needs. For contingencypurposes,the Company maintainsa minimumlevelof cash to fund one year’sprojected operatingcash flow needs and the Bankmanagesto a minimumliquidityratioof 10% of assets.Both of these minimumliquiditylevelsare on-balancesheetsources.Per policyand the Bank’s liquiditycontingencyplan, in event of a liquidityemergencythe Bankcan utilizewholesalefunds in an amountup to 30% of assets.Since the Bankuses only a smallportionof itsborrowing capacity,the Bankhas accessto funds if needed in a liquidity emergency.

Capital Adequacy

Capitalmanagementconsistsof providingequityand otherinstrumentsthatqualifyas regulatorycapitalto supportcurrentand futureoperations.Banking regulatorsview capitallevelsas importantindicatorsof an institution’sfinancialsoundness. Asa generalmatter,FDIC-insureddepositoryinstitutionsand theirholding companiesare requiredto maintainminimumcapitallevelsrelativeto the amountand types of assetsthey hold. We are subjectto regulatorycapitalrequirementsat the bank level.The Company will becomesubjectto regulatorycapitalrequirementsonce itsconsolidatedassetsexceed $3.0 billion.

Asof March 31, 2019, and December 31, 2018, the Bankwas in compliancewith all applicableregulatorycapitalrequirements,and the Bankwas classifiedas “well capitalized”for purposesof the FederalReserve’spromptcorrectiveactionregulations.Aswedeploy our capitaland continueto grow our operations,our regulatorycapitallevelsmay decreasedepending on our levelof earnings.However, weexpectto monitorand controlour growth in orderto remainin compliancewith allregulatorycapitalstandardsapplicable to us.

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The followingtablepresentsthe Company’s and the Bank’s regulatorycapitalratiosas of the datespresented,as well as the regulatorycapitalratiosthatare requiredby FederalReserve regulationsto maintain“well-capitalized”status:

	Actual					Minimum Required for Capital Adequacy Purposes					Required to be Well Capitalized Under the Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
March 31, 2019
Common Equity Tier I risk-based capital ratio (to    risk-weighted assets)
Company	$	111,858		13.24	%	$	38,009		4.50	%	$	54,902		6.50	%
Bank Only		106,692		12.62	%		38,041		4.50	%		54,948		6.50	%
Leverage Capital (to average assets)
Company		115,358		11.57	%		39,877		4.00	%		49,847		5.00	%
Bank Only		106,692		10.70	%		39,871		4.00	%		49,839		5.00	%
Tier I Capital (to risk-weighted assets)
Company		115,358		13.66	%		50,679		6.00	%		67,572		8.00	%
Bank Only		106,692		12.62	%		50,722		6.00	%		67,629		8.00	%
Total Capital (to risk-weighted assets)
Company		135,631		16.06	%		67,572		8.00	%		84,465		10.00	%
Bank Only		116,965		13.84	%		67,629		8.00	%		84,536		10.00	%
December 31, 2018
Common Equity Tier I risk-based capital ratio (to    risk-weighted assets)
Company	$	110,307		13.70	%	$	36,238		4.50	%	$	52,343		6.50	%
Bank Only		103,597		12.84	%		36,294		4.50	%		52,425		6.50	%
Leverage Capital (to average assets)
Company		113,807		12.46	%		36,529		4.00	%		45,661		5.00	%
Bank Only		103,597		11.35	%		36,524		4.00	%		45,655		5.00	%
Tier I Capital (to risk-weighted assets)
Company		113,807		14.13	%		48,317		6.00	%		64,423		8.00	%
Bank Only		103,597		12.84	%		48,392		6.00	%		64,253		8.00	%
Total Capital (to risk-weighted assets)
Company		133,518		16.58	%		64,423		8.00	%		80,528		10.00	%
Bank Only		113,308		14.05	%		64,523		8.00	%		80,653		10.00	%

ContractualObligations

The followingtablesummarizescontractualobligationsand othercommitmentsto make futurepayments (otherthan non timedepositobligations),which consistof futurecash paymentsassociatedwith our contractual obligations,as of March 31, 2019.

			Payments Due by Period
			Less than		1 to 2		2 to 5		More than
(Dollars in thousands)	Total		1 Year		Years		Years		5 Years
Time Deposits	$	95,269	$	68,351	$	16,934	$	9,984	$	-
Subordinated note		10,000		-		-		4,500		5,500
Junior subordinated debentures		3,609		-		-		-		3,609
Deferred compensation plans		1,592		175		175		526		716
Operating leases		8,957		1,347		1,340		3,657		2,613

For a discussionof our borrowings,see “—FinancialCondition—Borrowings.”

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We believethatwill webe able to meetour contractualobligationsas they come due. Adequate cash levelsare expectedthrough profitability,repaymentsfromloans and securities,depositgatheringactivity,accessto borrowing sourcesand periodicloan sales.

Off-BalanceSheet Items

In the normalcourseof business,weenterinto varioustransactions,which, in accordancewith GAAP,are not includedin our consolidatedbalancesheets.We enterinto thesetransactionsto meetthe financingneeds of our customers.These transactionsincludecommitmentsto extend creditand standby and commerciallettersof credit,which involve,to varyingdegrees,elementsof creditriskand interestrateriskin excessof the amounts recognizedin our consolidatedbalancesheets.

Our commitmentsassociatedwith outstandingcommitmentsto extend creditand standby and commercial lettersof creditare summarizedbelow. Since commitmentsassociatedwith commitmentsto extend creditand lettersof creditmay expireunused, the amountsshowndo not necessarilyreflectthe actualfuturecash funding requirements.

	As of		As of
	March 31,		December 31,
(Dollars in thousands)	2019		2018
Commitments to extend credit:
Commercial and industrial loans	$	43,132	$	47,033
Construction – commercial real estate		46,671		33,128
Construction – residential real estate		33,318		30,269
Residential real estate		14,606		12,543
Commercial real estate		10,613		12,871
Other		793		656
Total commitments to extend credit	$	149,133	$	136,500
Standby letters of credit	$	2,200	$	2,331

Commitmentsto extend creditare agreementsto lend to a customeras long as thereis no violationof any conditionestablishedin the contract.Commitmentsgenerallyhave fixedexpirationdatesor othertermination clausesand may requirepaymentof a fee. Since many of the commitmentsare expectedto expirewithout being fullydrawn upon, the totalcommitmentamountsdisclosedabove do not necessarilyrepresentfuturecash requirements.We evaluateeach customer’screditworthinesson a case-by-casebasis.The amountof collateral obtained,if considerednecessaryby us, upon extensionof credit,is based on management’screditevaluationof the customer.

Standby and commerciallettersof creditare conditionalcommitmentsissuedby us to guaranteethe performanceof a customerto a thirdparty.In the event of nonperformanceby the customer,wehave rightsto theunderlyingcollateral,which can includecommercialrealestate,physicalplantand property,inventory, receivables,cash and/ormarketablesecurities.Our creditriskassociatedwith issuinglettersof creditis essentiallythe sameas the riskinvolvedin extendingloan facilitiesto our customers.

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Selected Financial Data

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 wholesale-brokered deposits so current quarter’s results could be more easily compared to prior quarters.  These adjusted ratios are non-GAAP measures.  For more information about non-GAAP financial measures see “Non-GAAP Financial Measures” section that follows.

	Three months ended
	March 31,   2019			December 31, 2018			March 31, 2018
Return on average assets (1)		1.14	%		1.33	%		0.93	%
Return on average assets, as adjusted (1,2)		1.20	%		1.33	%		0.93	%
Return on average equity (1)		10.25	%		11.31	%		11.09	%
Yield on earnings assets (1)		4.82	%		4.93	%		4.56	%
Yield on loans receivable (1)		5.40	%		5.39	%		5.07	%
Loan yield excluding fees (1)		5.22	%		5.15	%		4.88	%
Cost of funds (1)		0.76	%		0.56	%		0.46	%
Cost of funds, as adjusted (1,3)		0.61	%		0.56	%		0.46	%
Cost of deposits (1)		0.68	%		0.47	%		0.37	%
Cost of deposits, as adjusted (1,4)		0.52	%		0.47	%		0.37	%
Net interest margin (1)		4.13	%		4.43	%		4.12	%
Net interest margin, as adjusted (1,5)		4.48	%		4.43	%		4.12	%
Noninterest expense to average assets (1)		3.12	%		3.12	%		3.07	%
Noninterest expense to average assets, as adjusted (1,6)		3.37	%		3.12	%		3.07	%
Efficiency ratio		65.20	%		62.54	%		68.28	%
Loans receivable to deposits		81.01	%		95.56	%		93.30	%
Loans receivable to deposits, as adjusted (7)		97.44	%		95.56	%		93.30	%
(1) Annualized calculations shown for quarterly periods presented.
(2) Adjusted return on average assets is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is return on average assets.
(3) Adjusted cost of funds is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is cost of funds.
(4) Adjusted cost of deposits is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is cost of deposits.
(5) Adjusted net interest margin is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is net interest margin.
(6) Adjusted noninterest expense to average assets is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale deposits on balance sheet. The most directly comparable GAAP measure is noninterest expense to average assets.
(7) Adjusted loans receivable to deposits is a non-GAAP measure that excludes wholesale-brokered deposits on balance sheet. The most directly comparable GAAP measure is loans receivable to deposits.

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Non-GAAP Financial Measures

Some of the financial measures included in this report are not measures of financial performance recognized by GAAP. Our management uses the non-GAAP financial measures set forth below in its analysis of our performance.

“Adjusted return on average assets” is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale-brokered deposits on the balance sheet. The most directly comparable GAAP measure is return on average assets.

“Adjusted cost of funds” is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale-brokered deposits on the balance sheet. The most directly comparable GAAP measure is cost of funds.

“Adjusted cost of deposits” is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale-brokered deposits on the balance sheet. The most directly comparable GAAP measure is cost of deposits.

“Adjusted net interest margin” is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale-brokered deposits on the balance sheet. The most directly comparable GAAP measure is net interest margin.

“Adjusted noninterest expense to average assets” is a non-GAAP measure that excludes the temporary impact of holding high rate wholesale-brokered deposits on the balance sheet. The most directly comparable GAAP measure is noninterest expense to average assets.

“Adjusted loans receivable to deposits” is a non-GAAP measure that excludes wholesale-brokered deposits on the balance sheet. The most directly comparable GAAP measure is loans receivable to deposits.

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The Company also presented comparable earnings and financial information using GAAP financial measures.  Reconciliations of the GAAP and non-GAAP measures are presented below:

(Dollars in thousands)	As of and for the Three Months Ended March 31, 2019
Adjusted return on average assets:
Total average assets	$	997,069
Less: average wholesale-brokered deposits		74,116
Adjusted total average deposits and borrowings	$	922,953
Total net income	$	2,808
Less: fees earned on servicing wholesale-brokered deposits		78
Adjusted net income	$	2,730
Adjusted return on average assets:		1.20	%
Adjusted cost of funds:
Total average deposits and borrowings	$	872,979
Less: average wholesale-brokered deposits		74,116
Adjusted total average deposits and borrowings	$	798,863
Total interest expense	$	1,627
Less: interest expense on wholesale-brokered deposits		435
Adjusted interest expense	$	1,192
Adjusted cost of funds:		0.61	%
Adjusted cost on deposits:
Total average deposits	$	859,135
Less: average wholesale-brokered deposits		74,116
Adjusted total average deposits	$	785,019
Interest expense on deposits	$	1,436
Less: interest expense on wholesale-brokered deposits		435
Adjusted interest expense on interest bearing deposits	$	1,001
Adjusted cost of deposits:		0.52	%
Adjusted net interest margin:
Total average interest earning assets	$	958,547
Less: average wholesale-brokered deposits held in cash		74,116
Adjusted total average interest bearing deposits	$	884,431
Total net interest income	$	9,767
Less: interest income earned wholesale-brokered deposits held in cash (rate 2.38%)		435
Plus: interest expense on wholesale-brokered deposits		435
Adjusted net interest income	$	9,767
Adjusted net interest margin:		4.48	%
Adjusted noninterest expense to average assets:
Total average assets	$	997,069
Less: average wholesale-brokered deposits		74,116
Adjusted total average assets	$	922,953
Total noninterest expense	$	7,662
Adjusted noninterest expense to average assets:		3.37	%
Adjusted loans receivable to deposits:
Total loans receivable	$	791,072
Total deposits		976,496
Less: wholesale-brokered deposits		164,604
Total deposits, less wholesale-brokered deposits	$	811,892
Adjusted loans receivable to deposits:		97.44	%

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Item 3.  Quantitative and Qualitative Disclosure about Market Risk

QuantitativeandQualitativeDisclosuresabout Market Risk

Asa financialinstitution,our primarycomponentof marketriskis interestratevolatility.Our assetliability and funds managementpolicyprovidesmanagementwith the guidelinesfor effectivefunds management,and we have establisheda measurementsystemfor monitoringour net interestratesensitivityposition.We have historicallymanagedour sensitivitypositionwithin our establishedguidelines.

Fluctuationsin interestrateswill ultimatelyimpactboth the levelof incomeand expense recordedon mostof our assetsand liabilities,and the marketvalue of allinterest earningassetsand interest bearingliabilities,other than those which have a shorttermto maturity.Interestrateriskis the potentialfor economiclossesdue to future interestratechanges. These economiclossescan be reflectedas a loss of futurenet interestincomeand/ora decreasein currentfairmarketvalues.Our objectiveis to measurethe effecton net interestincomeand to adjust the balancesheetto minimizethe inherentriskwhile at the sametimemaximizingincome.

We manageour exposureto interestratesby structuringour balancesheetin the ordinarycourseof business. We do not enterinto instrumentssuch as leveragedderivatives,financialoptions,financialfuturecontractsor forwarddeliverycontractsfor the purpose of reducinginterestraterisk.Based upon the natureof our operations, weare not subjectto foreignexchange or commoditypricerisk.We do not ownany tradingassets.

Our exposureto interestrateriskis managedby the Asset LiabilityCommittee(ALCO),of the Bankand reviewedby the Asset Liabilityand InvestmentCommitteeof our board of directorsin accordancewith policies approved by our board of directors.ALCOformulatesstrategiesbased on appropriatelevelsof interestraterisk. In determiningthe appropriatelevelof interestraterisk,ALCOconsidersthe impacton earningsand capitalon the currentoutlook on interestrates,potentialchanges in interestrates,regionaleconomies,liquidity,business strategiesand otherfactors.ALCOmeetsregularlyto review, among otherthings,the sensitivityof assetsand liabilitiesto interestratechanges, the book and marketvaluesof assetsand liabilities,unrealizedgains and losses,purchaseand saleactivities,commitmentsto originateloans and the maturitiesof investmentsand borrowings.Additionally,ALCOreviewsliquidity,cash flows, maturitiesof depositsand consumerand commercialdepositactivity.Managementemploysvariousmethodologiesto manageinterestrateriskincluding an analysisof relationshipsbetween interest earningassetsand interest bearingliabilitiesand interestrate simulationsusing a model.The Asset Liabilityand InvestmentCommitteeof our board of directorsmeets quarterlyto review the Bank’s interestrateriskprofile,liquidityposition,includingcontingentliquidity,and investmentportfolio.

We use interestraterisksimulationmodelsto testinterestratesensitivityof net interestincomeand fairvalue of equity,and the impactof changes in interestrateson otherfinancialmetrics.Contractualmaturitiesandre-pricingopportunitiesof loans are incorporatedin the model,as are prepaymentassumptions,maturitydata and calloptionswithin the investmentportfolio.Average lifeof non-maturitydepositaccountsare based on historical decay ratesand assumptionsand are incorporatedinto the model.The assumptionsused are inherentlyuncertain and, as a result,the modelcannot preciselymeasurefuturenet interestincomeor preciselypredictthe impactof fluctuationsin marketinterestrateson net interestincome.Actual resultswill differfromthe model’ssimulated resultsdue to timing,magnitudeand frequencyof interestratechanges as well as changes in marketconditions and the applicationand timingof variousmanagementstrategies.

Ona quarterlybasis,werun multiplesimulationsunder two differentpremisesof which one is a staticbalance sheetand the otheris a dynamicgrowth balancesheet.The staticbalancesheetapproachproducesresultsthat showthe interestriskcurrentlyinherentin our balancesheetat thatpoint in time.The dynamicbalancesheet includesour projectedgrowth levelsgoing forwardand producesresultsthatshows hownet income,net interest income,and interestriskchange based on our projectedgrowth. These simulationstestthe impacton net interest incomeand fairvalue of equityfromchanges in marketinterestratesunder variousscenarios.Under the static and dynamicapproaches,ratesare shocked instantaneouslyand rampedover a 12-monthhorizonassuming parallelyieldcurve shifts.Parallelshock scenariosassumeinstantaneousparallelmovementsin the yieldcurve comparedto a flatyieldcurve scenario.Non-parallelsimulationsare also conductedand involveanalysisof interestincomeand expense under variouschanges in the shape of the yieldcurve includinga forwardcurve, flat curve, steepeningcurve, and an invertedcurve. Our internalpolicyregardinginternalraterisksimulations currentlyspecifiesthatfor instantaneousparallelshiftsof the yieldcurve, estimatednet incomeat riskfor the subsequentone- and two-yearperiodshould not declineby morethan 10% for a 100 basispoint shift,15% for a 200 basispoint shift,20% for a 300 basispoint shift,and 25% for a 400 basispoint shift.

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The followingtablessummarizethe simulatedchange in net interestincomeover a 12-monthhorizonas of the datesindicated:

	Estimated Increase (Decrease) in Net Interest Income
Change in Market Interest Rates	Twelve Month Projection March 31, 2019	Twelve Month Projection December 31, 2018
Static Balance Sheet and Rate Shifts
+400 basis points	11.5%	15.2%
+300 basis points	8.4	11.2
+200 basis points	5.6	7.4
+100 basis points	2.8	3.7
-100 basis points	0.6	(1.5)
-200 basis points	(5.4)	(8.7)
-300 basis points	(9.5)	(14.0)
Dynamic Balance Sheet and Rate Shifts
+400 basis points	15.3	17.9
+300 basis points	11.3	13.2
+200 basis points	7.4	8.8
+100 basis points	3.7	4.4
-100 basis points	(0.4)	(2.3)
-200 basis points	(7.3)	(10.1)
-300 basis points	(12.1)	(16.2)

TheresultsillustratethattheBankisassetsensitiveandgenerallyperformsbetterinanincreasinginterestrateenvironment.Theresultsareprimarilyduetobehaviorofdemand,moneymarketandsavingsdepositsduringsuchratefluctuations.Wehavefoundthat,historically,interestratesonthesedepositschangemoreslowlythanchangesinthediscountandfederalfundsrates.Thisassumptionisincorporatedintothesimulationmodel.Theassumptionsincorporatedintothemodelareinherentlyuncertainand,asaresult,themodelcannotpreciselymeasurefuturenetinterestincomeorpreciselypredicttheimpactoffluctuationsinmarketinterestratesonnetinterestincome.Actual results willdifferfromthemodel’ssimulatedresultsduetotiming,magnitudeandfrequencyofinterestrate changesaswellaschangesinmarketconditions, the shape of the interest yield curve,andtheapplicationandtimingofvariousstrategies.

Impactof Inflation

Our consolidatedfinancialstatementsand relatednotes to those financialstatementsincludedelsewherein this report have been preparedin accordancewith GAAP.GAAPrequiresthe measurementof financialposition and operatingresultsin termsof historicaldollars,without consideringchanges in the relativevalue of money over timedue to inflationor recession.

Unlike many industrialcompanies,substantiallyallof our assetsand liabilitiesare monetaryin nature.Asa result,interestrateshave a moresignificantimpacton our performancethan the effectsof generallevelsof inflation.Interestratesmay not necessarilymove in the samedirectionor in the samemagnitudeas the pricesof goods and services.However, otheroperatingexpensesdo reflectgenerallevelsof inflation.

Item 4.  Controls and Procedures

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(f) promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”).  Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.  In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the three months ended March 31, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

48

PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

From time to time we are a party to various litigation matters incidental to the conduct of our business. We do not believe that any currently pending legal proceedings will have a material adverse effect on our business, financial condition or earnings.

Item 1A.  Risk Factors

For information regarding the Company’s risk factors, see “Risk Factors” in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 28, 2019. As of March 31, 2019, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of the Company’s stock during the quarter.

The Company did not repurchase any of its shares during the quarter and does not have any authorized share repurchase programs.

Item 3.  Defaults Upon Senior Securities

Not applicable.

Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Not applicable.

Item 6.  Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101.0	The following materials from the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2019, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements.

49

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			COASTAL FINANCIAL CORPORATION
Dated:	May 13, 2019	By:	/s/ Eric M. Sprink
			Eric M. Sprink
			President and Chief Executive Officer
			(principal executive officer)
Dated:	May 13, 2019	By:	/s/ Joel G. Edwards
			Joel G. Edwards
			Executive Vice President and
			Chief Financial Officer
			(principal financial officer)

50

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Eric M. Sprink, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Coastal Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 13, 2019	By:	/s/ Eric M. Sprink
		Eric M. Sprink
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joel G. Edwards, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Coastal Financial Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 13, 2019	By:	/s/ Joel G. Edwards
		Joel G. Edwards
		Executive Vice President and Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Coastal Financial Corporation (the “Company”) on Form 10-Q for the period ending March 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: May 13, 2019	By:	/s/ Eric M. Sprink
		Eric M. Sprink
		President and Chief Executive Officer

By:	/s/ Joel G. Edwards
	Joel G. Edwards
	Executive Vice President and Financial Officer

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2019	May 13, 2019
Document And Entity Information [Abstract]
Entity Registrant Name	COASTAL FINANCIAL CORP
Entity Central Index Key	0001437958
Amendment Flag	false
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	true
Entity Ex Transition Period	true
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Entity Common Stock, Shares Outstanding		11,906,335

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
ASSETS
Cash and due from banks	$ 21,176	$ 16,315
Interest earning deposits with other banks (restricted cash of $23,728 and $24,004 at March 31, 2019 and December 31, 2018, respectively)	236,483	109,467
Investment securities, available for sale, at fair value	36,970	36,660
Investment securities, held to maturity, at amortized cost	1,247	1,262
Other investments	3,600	3,766
Loans receivable	791,072	767,899
Allowance for loan losses	(9,915)	(9,407)
Total loans receivable, net	781,157	758,492
Premises and equipment, net	13,017	13,167
Operating lease right-of-use assets	9,305
Accrued interest receivable	2,505	2,526
Bank-owned life insurance, net	6,735	6,688
Deferred tax asset, net	2,496	2,518
Other assets	1,399	1,249
Total assets	1,116,090	952,110
LIABILITIES
Deposits	976,496	803,614
Federal Home Loan Bank (FHLB) advances		20,000
Principal amount $10,000 (less unamortized debt issuance costs of $32 and $35 at March 31, 2019 and December 31, 2018, respectively)	9,968	9,965
Principal amount $3,609 (less unamortized debt issuance costs of $28 at March 31, 2019 and December 31, 2018)	3,581	3,581
Deferred compensation	1,052	1,078
Accrued interest payable	343	279
Operating lease liabilities	9,471
Other liabilities	2,814	4,437
Total liabilities	1,003,725	842,954
SHAREHOLDERS’ EQUITY
Authorized: 25,000,000 shares at March 31, 2019 and December 31, 2018; issued and outstanding: zero shares at March 31, 2019 and December 31, 2018
Authorized: 300,000,000 shares at March 31, 2019 and December 31, 2018; 11,902,715 voting shares at March 31, 2019 issued and outstanding and 11,893,203 voting shares at December 31, 2018 issued and outstanding	86,579	86,431
Retained earnings	26,829	24,021
Accumulated other comprehensive loss, net of tax	(1,043)	(1,296)
Total shareholders’ equity	112,365	109,156
Total liabilities and shareholders’ equity	$ 1,116,090	$ 952,110

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Restricted cash	$ 23,728	$ 24,004
Preferred stock, no par value
Preferred stock, shares authorized	25,000,000	25,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, no par value
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares, issued	11,902,715	11,893,203
Common stock, shares, outstanding	11,902,715	11,893,203
Voting Common Stock
Common stock, shares, issued	11,902,715	11,893,203
Common stock, shares, outstanding	11,902,715	11,893,203
Subordinated Debt
Principal amount	$ 10,000	$ 10,000
Unamortized debt issuance cost	32	35
Junior Subordinated Debentures
Principal amount	3,609	3,609
Unamortized debt issuance cost	$ 28	$ 28

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$ 10,419	$ 8,189
Interest on interest earning deposits with other banks	808	255
Interest on investment securities	153	152
Dividends on other investments	14	11
Total interest income	11,394	8,607
INTEREST EXPENSE
Interest on deposits	1,436	646
Interest on borrowed funds	191	183
Total interest expense	1,627	829
Net interest income	9,767	7,778
PROVISION FOR LOAN LOSSES	540	501
Net interest income after provision for loan losses	9,227	7,277
NONINTEREST INCOME
Sublease and lease income	10	57
(Loss) gain on sales of loans, net	(11)	64
Other income	95	132
Total noninterest income	1,984	1,107
NONINTEREST EXPENSE
Salaries and employee benefits	4,558	3,735
Occupancy	994	823
Data processing	529	479
Director and staff expenses	240	144
Excise taxes	165	124
Marketing	94	57
Legal and professional fees	409	80
Federal Deposit Insurance Corporation (FDIC) assessments	75	85
Business development	102	88
Other expense	496	452
Total noninterest expense	7,662	6,067
Income before provision for income taxes	3,549	2,317
PROVISION FOR INCOME TAXES	741	474
NET INCOME	$ 2,808	$ 1,843
Basic earnings per common share	$ 0.24	$ 0.20
Diluted earnings per common share	$ 0.23	$ 0.20
Weighted average number of common shares outstanding:
Basic	11,884,107	9,241,620
Diluted	12,183,234	9,247,209
Deposit Service Charges and Fees
NONINTEREST INCOME
Noninterest income	$ 726	$ 687
Loan Referral Fees
NONINTEREST INCOME
Noninterest income	633	130
Wholesale Banking Service Fees
NONINTEREST INCOME
Noninterest income	446
Mortgage Broker Fees
NONINTEREST INCOME
Noninterest income	$ 85	$ 37

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Statement Of Income And Comprehensive Income [Abstract]
NET INCOME	$ 2,808	$ 1,843
Securities available-for-sale
Unrealized holding gain (loss) during the quarter	321	(883)
Income tax benefit (provision) related to unrealized holding gain (loss)	(68)	185
OTHER COMPREHENSIVE INCOME (LOSS), net of tax	253	(698)
COMPREHENSIVE INCOME	$ 3,061	$ 1,145

XML

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($) $ in Thousands	Total	Common Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss)
Beginning balance at Dec. 31, 2017	$ 65,711	$ 52,521	$ 14,134	$ (944)
Beginning balance, Shares at Dec. 31, 2017		9,248,898
Net income	1,843		1,843
Reclassification of stranded tax effect due to federal tax rate change			186	(186)
Issuance of restricted stock awards, Shares		4,405
Stock-based compensation	71	$ 71
Other comprehensive loss (income)	(698)			(698)
Ending balance at Mar. 31, 2018	66,927	$ 52,592	16,163	(1,828)
Ending balance, Shares at Mar. 31, 2018		9,253,303
Beginning balance at Dec. 31, 2018	109,156	$ 86,431	24,021	(1,296)
Beginning balance, Shares at Dec. 31, 2018		11,893,203
Net income	2,808		2,808
Issuance of restricted stock awards, Shares		2,352
Exercise of stock options	42	$ 42
Exercise of stock options, Shares		7,160
Stock-based compensation	106	$ 106
Other comprehensive loss (income)	253			253
Ending balance at Mar. 31, 2019	$ 112,365	$ 86,579	$ 26,829	$ (1,043)
Ending balance, Shares at Mar. 31, 2019		11,902,715

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 2,808	$ 1,843
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	540	501
Depreciation and amortization	304	254
Decrease in operating lease right-of-use assets	244
Decrease in operating lease liabilities	(205)
Loss (gain) on sales of loans	11	(64)
Net discount accretion on investment securities	(7)	(3)
Stock-based compensation	106	71
Bank-owned life insurance earnings	(47)	(46)
Deferred tax expense	(45)	(40)
Net change in other assets and liabilities	(1,584)	188
Total adjustments	(683)	861
Net cash provided by operating activities	2,125	2,704
CASH FLOWS FROM INVESTING ACTIVITIES
Net increase in interest earning deposits with other banks	(127,292)	(5,523)
Purchase of other investments, net	166	(86)
Principal paydowns of investment securities available-for-sale	18	36
Principal paydowns of investment securities held-to-maturity	14	82
Purchase of participation loans	(7,000)
Purchase of loans		(5,469)
Increase in loans receivable, net	(16,216)	(16,289)
Purchases of premises and equipment, net	(154)	(133)
Net cash used by investing activities	(150,464)	(27,382)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits, NOW and money market, and savings	174,657	25,122
Net decrease in time deposits	(1,775)	(1,149)
Net repayments from short term FHLB borrowing	(20,000)
Proceeds from exercise of stock options	42
Net cash provided by financing activities	152,924	23,973
NET INCREASE IN CASH, DUE FROM BANKS AND RESTRICTED CASH	4,585	(705)
CASH, DUE FROM BANKS AND RESTRICTED CASH, beginning of year	40,319	31,119
CASH, DUE FROM BANKS AND RESTRICTED CASH, end of quarter	44,904	30,414
SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES
Interest paid	1,563	828
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Fair value adjustment of securities available-for-sale, gross	321	$ (883)
In conjunction with the adoption of ASU 2016-02 as detailed in Note 6 to the Unaudited Condensed Consolidated Financial Statements, the following assets and liabilities were recognized:
Operating lease right-of-use assets	9,549
Operating lease liabilities	$ 9,714

XML

Description of Business and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Description of Business and Summary of Significant Accounting Policies

Note 1 - Description of Business and Summary of Significant Accounting Policies

Nature of operations - Coastal Financial Corporation (Corporation or Company) is a registered bank holding company whose wholly owned subsidiary is Coastal Community Bank (Bank). The Company is a Washington state corporation that was organized in 2003. The Bank was incorporated and commenced operations in 1997 and is a Washington state-chartered commercial bank and Federal Reserve System (Federal Reserve) state member bank.

The Company provides a full range of banking services to small and medium-sized businesses, professionals, and individuals throughout the greater Puget Sound area through its 14 branches in Snohomish, Island, and King Counties, the Internet, and its mobile banking application. The Bank’s main branch and the headquarters of the Bank and Company are located in Everett, Washington. The Bank’s deposits are insured in whole or in part by the FDIC. The Bank’s loans and deposits are primarily within the greater Puget Sound area, and the Bank’s primary funding source is deposits from customers. The Bank is subject to regulation by the Federal Reserve and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has supervisory authority over the Company.

Financial statement presentation - The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim reporting requirements and with instructions to Form 10-Q and Article 10 of Regulation S-X, and therefore do not include all the information and notes included in the annual consolidated financial statements in conformity with GAAP. These interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual report on Form 10-K as filed with the U.S. Securities and Exchange Commission (SEC) on March 28, 2019. Operating results for the three months ended March 31, 2019, are not necessarily indicative of the results that may be expected for future periods.

Amounts presented in the consolidated financial statements and footnote tables are rounded and presented in thousands of dollars except per-share amounts, which are presented in dollars. In the narrative footnote discussion, amounts are rounded to thousands and presented in dollars.

In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying consolidated financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation.

Principles of consolidation - The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts have been eliminated in consolidation.

Business Segments - The Company is managed by legal entity and not by lines of business. The entity’s primary business is that of a traditional banking institution, gathering deposits and originating loans for portfolio in its market areas. The Bank offers a wide variety of deposit products to its customers. Lending activities include the origination of real estate, commercial and industrial, and consumer loans. Interest income on loans is the Company’s primary source of revenue, and is supplemented by interest income on deposits with other banks, interest income from investment securities, deposit service charges, and other service provided activities. The Company has determined that its current business and operations consist of a single reporting segment and, therefore, segment disclosures are not required.

Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that its critical accounting policies include determining the allowance for loan losses, the fair value of the Company’s investment securities, deferred tax assets, and financial instruments. Actual results could differ significantly from those estimates.

Subsequent Events - The Company has evaluated events and transactions subsequent to March 31, 2019 for potential recognition or disclosure.

Accounting policies – Our complete accounting policies are described in Note 1, summary of significant accounting policies of the Company’s audited consolidated financial statements as of and for the years ended December 31, 2018 and 2017 included in the Company’s Annual Report Form 10-K filed with the SEC on March 28, 2019.

Reclassifications - Certain amounts reported in prior quarters' consolidated financial statements have been reclassified to conform to the current presentation with no effect on stockholders’ equity or net income.

XML

Recent Accounting Standards

3 Months Ended

Mar. 31, 2019

New Accounting Pronouncements And Changes In Accounting Principles [Abstract]

Recent Accounting Standards

Note 2 - Recent accounting standards

Accounting Standards Adopted in 2019

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 was effective for us on January 1, 2019. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients. We have elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and have not restated comparative periods. 

Our operating leases relate primarily to office space and bank branches. As a result of implementing ASU 2016-02, we recognized an operating lease right-of-use ("ROU") asset of $9.5 million and an operating lease liability of $9.7 million on January 1, 2019, with no impact on our consolidated statement of income or consolidated statement of cash flows compared to the prior lease accounting model. The ROU asset and operating lease liability are recorded on the face on the consolidated balance sheets. See Note 6 - Leases for additional information.

  In May 2018, the FASB issued ASU No. 2018-06, Codification Improvements to Topic 942, Financial Services - Depository and Lending. This ASU updates outdated guidance related to the Office of Comptroller of the Currency’s (OCC) Banking Circular 202, Accounting for Net Deferred Tax Charges, as the guidance has been rescinded by OCC and is no longer relevant. The amendments in this ASU are effective immediately. The adoption of ASU No. 2018-06 did not have a material impact on the Company's consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.  This ASU was issued to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  Previously, these awards were recorded at the fair value of consideration received or the fair value of the equity instruments issued and was measured as of the earlier of the commitment date or the date performance was completed. The amendments in this ASU require the awards to be measured at the grant-date fair value of the equity instrument.  ASU No. 2018-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Early adoption was permitted, but no earlier than an entity's adoption of Topic 606.  The adoption of ASU No. 2018-07 did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Guidance Not Yet Effective

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendment is effective for annual periods beginning after December 15, 2019 and interim period within those annual periods. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are actively assessing our data and the model needs and are evaluating the impact of adopting the amendment. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

XML

Investment Securities

3 Months Ended

Mar. 31, 2019

Investments Debt And Equity Securities [Abstract]

Investment Securities

Note 3 - Investment Securities

The amortized cost and fair values of investment securities at the date indicated are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(dollars in thousands)
March 31, 2019
Available-for-sale
U.S. Treasury securities	$	34,840	$	-	$	(1,285	)	$	33,555
U.S. Government agencies		3,000		-		(32	)		2,968
U.S. Agency collateralized mortgage obligations		156		-		(2	)		154
U.S. Agency residential mortgage-backed securities		36		-		-			36
Municipals		258		-		(1	)		257
Total available-for-sale securities		38,290		-		(1,320	)		36,970
Held-to-maturity
U.S. Agency residential mortgage-backed securities		1,247		-		(37	)		1,210
Total investment securities	$	39,537	$	-	$	(1,357	)	$	38,180

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(dollars in thousands)
December 31, 2018
Available-for-sale
U.S. Treasury securities	$	34,831	$	-	$	(1,590	)	$	33,241
U.S. Government agencies		3,000		-		(43	)		2,957
U.S. Agency collateralized mortgage obligations		172		-		(3	)		169
U.S. Agency residential mortgage-backed securities		39		-		(1	)		38
Municipals		259		-		(4	)		255
Total available-for-sale securities		38,301		-		(1,641	)		36,660
Held-to-maturity
U.S. Agency residential mortgage-backed securities		1,262		-		(57	)		1,205
Total investment securities	$	39,563	$	-	$	(1,698	)	$	37,865

The amortized cost and fair value of debt securities at March 31, 2019, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because issuers or the underlying borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Mortgage-backed securities and collateralized mortgage obligations are shown separately, since they are not due at a single maturity date.

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(dollars in thousands)
March 31, 2019
Amounts maturing in
One year or less	$	3,000	$	2,968	$	-	$	-
After one year through five years		25,115		24,217		-		-
After five years through ten years		9,983		9,595		-		-
		38,098		36,780		-		-
U.S. Agency residential mortgage-backed securities and    collateralized mortgage obligations		192		190		1,247		1,210
	$	38,290	$	36,970	$	1,247	$	1,210

Investment securities with carrying values of $19,646,000 and $19,678,000 at March 31, 2019 and December 31, 2018 respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

There were no sales of investment securities during the three months ended March 31, 2019 and March 31, 2018.

Information pertaining to securities with gross unrealized losses at the dates indicated, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(dollars in thousands)
March 31, 2019
Available-for-sale
U.S. Treasury securities	$	-	$	-		$	33,555	$	(1,285	)	$	33,555	$	(1,285	)
U.S. Government agencies		-		-			2,968		(32	)		2,968		(32	)
U.S. Agency collateralized mortgage obligations		-		-			154		(2	)		154		(2	)
Municipals		-		-			257		(1	)		257		(1	)
Total available-for-sale securities		-		-			36,934		(1,320	)		36,934		(1,320	)
Held-to-maturity
U.S. Agency residential mortgage-backed securities		-		-			1,210		(37	)		1,210		(37	)
Total investment securities	$	-	$	-		$	38,144	$	(1,357	)	$	38,144	$	(1,357	)
December 31, 2018
Available-for-sale
U.S. Treasury securities	$	-	$	-		$	33,241	$	(1,590	)	$	33,241	$	(1,590	)
U.S. Government agencies		-		-			2,957		(43	)		2,957		(43	)
U.S. Agency collateralized mortgage obligations		-		-			169		(3	)		169		(3	)
Municipals		-		-			255		(4	)		255		(4	)
U.S. Agency residential mortgage-backed securities		38		(1	)		-		-			38		(1	)
Total available-for-sale securities		38		(1	)		36,622		(1,640	)		36,660		(1,641	)
Held-to-maturity
U.S. Agency residential mortgage-backed securities		-		-			1,205		(57	)		1,205		(57	)
Total investment securities	$	38	$	(1	)	$	37,827	$	(1,697	)	$	37,865	$	(1,698	)

At March 31, 2019 and December 31, 2018, there were 11 and 12 securities in an unrealized loss position, respectively. Unrealized losses have not been recognized into income because management does not intend to sell and does not expect it will be required to sell the investments. The decline is largely due to changes in market conditions and interest rates, rather than credit quality. The fair value is expected to recover as the underlying securities in the portfolio approach maturity date and market conditions improve. The Company does not consider these securities to be other than temporarily impaired at March 31, 2019 and December 31, 2018.

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Loans and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2019

Receivables [Abstract]

Loans and Allowance for Loan Losses

Note 4 - Loans and Allowance for Loan Losses

The composition of the loan portfolio is as follows as of the periods indicated:

	March 31,			December 31,
	2019			2018
	(dollars in thousands)
Commercial and industrial loans	$	92,248		$	90,390
Real estate loans:
Construction, land, and land development		65,686			64,045
Residential real estate		94,743			94,745
Commercial real estate		535,896			515,959
Consumer and other loans		3,583			3,584
Gross loans receivable		792,156			768,723
Net deferred origination fees and premiums		(1,084	)		(824	)
Loans receivable	$	791,072		$	767,899

Included in consumer and other loans are overdrafts of $30,000 and $36,000 at March 31, 2019 and December 31, 2018, respectively. The Company has pledged loans totaling $156,713,000 and $155,029,000 at March 31, 2019 and December 31, 2018, respectively, for borrowing lines at the FHLB and Federal Reserve Bank (FRB).

The balance of Small Business Administration (SBA) loans and participations serviced for others totaled $25,105,000 and $24,878,000 at March 31, 2019 and December 31, 2018, respectively.

The Company, at times, purchases individual loans at fair value as of the acquisition date. Purchased loans with remaining balances totaled $43,960,000 and $45,368,000 as of March 31, 2019 and December 31, 2018, respectively. Unamortized premiums totaled $687,000 and $701,000 as of March 31, 2019 and December 31, 2018, respectively, and are amortized into interest income over the life of the loans.

The Company has purchased participation loans with remaining balances totaling $46,829,000 and $36,561,000 as of March 31, 2019 and December 31, 2018, respectively.

The following is a summary of the Company’s loan portfolio segments:

Commercial and industrial loans - Commercial and industrial loans are secured by business assets including inventory, receivables and machinery and equipment of businesses located generally in our primary market area. Loan types include revolving lines of credit, term loans, and loans secured by liquid collateral such as cash deposits or marketable securities. We also issue letters of credit on behalf of our customers. Risk arises primarily due to the difference between expected and actual cash flows of the borrowers. In addition, the recoverability of the Company’s investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans. The fair value of the collateral securing these loans may fluctuate as market conditions change. In the case of loans secured by accounts receivable, the recovery of the Company’s investment is dependent upon the borrower’s ability to collect amounts due from its customers.

Construction, land and land development loans - We originate loans for the construction of 1-4 family, multifamily, and Commercial Real Estate (CRE) properties in our market area. Construction loans are considered to have higher risks due to construction completion and timing risk, the ultimate repayment being sensitive to interest rate changes, government regulation of real property and the availability of long-term financing. Additionally, economic conditions may impact the Company’s ability to recover its investment in construction loans, as adverse economic conditions may negatively impact the real estate market, which could affect the borrower’s ability to complete and sell the project. Additionally, the fair value of the underlying collateral may fluctuate as market conditions change. We occasionally originate land loans for the purpose of facilitating the ultimate construction of a home or commercial building. The primary risks include the borrower’s ability to pay and the inability of the Company to recover its investment due to a material decline in the fair value of the underlying collateral.

Residential real estate loans - Residential real estate loans include various types of loans for which the Company holds real property as collateral. Included in this segment are multi-family loans, first lien single family loans, which we occasionally purchase to diversify our loan portfolio, and rental portfolios secured by one-to-four family homes. The primary risks of residential real estate loans include the borrower’s inability to pay, material decreases in the value of the collateral, and significant increases in interest rates which may make the loan unprofitable.

Commercial real estate (includes owner occupied and nonowner occupied) loans - Commercial real estate loans include various types of loans for which the Company holds real property as collateral. The primary risks of commercial real estate loans include the borrower’s inability to pay, material decreases in the value of the collateralized real estate and significant increases in interest rates, which may make the real estate loan unprofitable. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.

Consumer and other loans - We originate a limited number of consumer loans, generally for banking customers only, which consist primarily of home equity lines of credit, saving account secured loans, and auto loans. This loan category also includes overdrafts. Repayment of these loans is dependent on the borrower’s ability to pay and the fair value of the underlying collateral.

The following table illustrates an age analysis of past due loans as of the dates indicated:

	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans			Recorded Investment 90 Days or More Past Due and Still Accruing
	(dollars in thousands)
March 31, 2019
Commercial and industrial loans	$	268	$	1,241	$	1,509	$	90,739	$	92,248		$	748
Real estate loans:
Construction, land and land development		-		-		-		65,686		65,686			-
Residential real estate		-		71		71		94,672		94,743			-
Commercial real estate		159		-		159		535,737		535,896			-
Consumer and other loans		6		2		8		3,575		3,583			-
	$	433	$	1,314	$	1,747	$	790,409	$	792,156		$	748
Less net deferred origination fees										(1,084	)
Loans receivable									$	791,072

	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans			Recorded Investment 90 Days or More Past Due and Still Accruing
	(dollars in thousands)
December 31, 2018
Commercial and industrial loans	$	171	$	494	$	665	$	89,725	$	90,390		$	-
Real estate loans:
Construction, land and land development		823		-		823		63,222		64,045			-
Residential real estate		-		72		72		94,673		94,745			-
Commercial real estate		-		-		0		515,959		515,959			-
Consumer and other loans		2		-		2		3,582		3,584			-
	$	996	$	566	$	1,562	$	767,161		768,723		$	-
Less net deferred origination fees										(824	)
Loans receivable									$	767,899

A summary of information pertaining to impaired loans as of the period indicated:

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
	(dollars in thousands)
March 31, 2019
Commercial and industrial loans	$	766	$	493	$	-	$	493	$	-
Real estate loans:
Residential real estate		74		71		-		71		-
Total	$	840	$	564	$	-	$	564	$	-
December 31, 2018
Commercial and industrial loans	$	766	$	493	$	-	$	493	$	-
Real estate loans:
Residential real estate		74		72		-		72		-
Commercial real estate		1,491		1,261		-		1,261		-
Total	$	2,331	$	1,826	$	-	$	1,826	$	-

The following tables summarize our average recorded investment and interest income recognized on impaired loans by loan class for the three months ended March 31, 2019 and 2018:

	Three Months Ended
	March 31, 2019				March 31, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Commercial and industrial loans	$	588	$	-	$	396	$	-
Real estate loans:
Residential real estate		73		-		-		-
Commercial real estate		658		-		1,303		-
Total	$	1,319	$	-	$	1,699	$	-

The Company grants restructurings in response to borrower financial difficulty, and generally provides for a temporary modification of loan repayment terms. The restructured loans on accrual status represent the only impaired loans accruing interest. In order for a restructured loan to be considered for accrual status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow for an extended period of time, usually at least six months in duration.

The following table presents troubled debt restructurings by accrual versus nonaccrual status and by loan class as of December 31, 2018.  The troubled debt restructuring outstanding as of December 31, 2018 was paid off in the first quarter of 2019, therefore there were no troubled debt restructurings as of March 31, 2019.  

	Accrual Status		Nonaccrual Status		Total Restructured Loans
	(dollars in thousands)
December 31, 2018
Commercial real estate	$	-	$	1,261	$	1,261

No loans were restructured in the three months ended March 31, 2019 and March 31, 2018 that qualified as troubled debt restructurings. The Company has no commitments to loan additional funds to borrowers whose loans were classified as troubled debt restructurings at March 31, 2019, as there were no outstanding troubled debt restructurings at March 31, 2019.

When loans are placed on nonaccrual status, all accrued interest is reversed from current period earnings. Payments received on nonaccrual loans are generally applied as a reduction to the loan principal balance. If the likelihood of further loss is removed, the Company will recognize interest on a cash basis only. Loans may be returned to accruing status if the Company believes that all remaining principal and interest is fully collectible and there has been at least six months of sustained repayment performance since the loan was placed on nonaccrual.

An analysis of nonaccrual loans by category consisted of the following at the periods indicated:

	March 31,		December 31,
	2019		2018
Commercial and industrial loans	$	493	$	493
Real estate loans:
Residential real estate		71		72
Commercial real estate		-		1,261
Consumer and other loans		2		-
Total nonaccrual loans	$	566	$	1,826

Credit Quality and Credit Risk

Federal regulations require that the Company periodically evaluate the risks inherent in its loan portfolio. In addition, the Company’s regulatory agencies have authority to identify problem loans and, if appropriate, require them to be reclassified. There are three classifications for problem loans: Substandard, Doubtful, and Loss. Substandard loans have one or more defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Doubtful loans have the weaknesses of loans classified as Substandard, with additional characteristics that suggest the weaknesses make collection or recovery in full after liquidation of collateral questionable on the basis of currently existing facts, conditions, and values. There is a high possibility of loss in loans classified as Doubtful. A loan classified as Loss is considered uncollectible and of such little value that continued classification of the credit as a loan is not warranted. If a loan or a portion thereof is classified as Loss, it must be charged-off, meaning the amount of the loss is charged against the allowance for loan losses, thereby reducing that reserve. The Company also classifies some loans as Watch or Other Loans Especially Mentioned (OLEM). Loans classified as Watch are performing assets and classified as pass credits but have elements of risk that require more monitoring than other performing loans and are reported in the Pass column in the following table. Loans classified as OLEM are assets that continue to perform but have shown deterioration in credit quality and require close monitoring.

Loans by credit quality risk rating are as follows as of the periods indicated:

	Pass		Other Loans Especially Mentioned		Sub- Standard		Doubtful		Total
	(dollars in thousands)
March 31, 2019
Commercial and industrial loans	$	86,743	$	3,838	$	1,667	$	-	$	92,248
Real estate loans:
Construction, land, and land development		63,150		2,536		-		-		65,686
Residential real estate		94,252		420		71		-		94,743
Commercial real estate		533,371		2,525		-		-		535,896
Consumer and other loans		3,583		-		-		-		3,583
	$	781,099	$	9,319	$	1,738	$	-		792,156
Less net deferred origination fees										(1,084	)
Loans receivable									$	791,072
December 31, 2018
Commercial and industrial loans	$	84,859	$	3,908	$	1,623	$	-	$	90,390
Real estate loans:
Construction, land, and land development		55,666		8,379		-		-		64,045
Residential real estate		94,548		125		72		-		94,745
Commercial real estate		512,151		2,547		1,261		-		515,959
Consumer and other loans		3,584		-		-				3,584
	$	750,808	$	14,959	$	2,956	$	-		768,723
Less net deferred origination fees										(824	)
Loans receivable									$	767,899

Allowance for Loan Losses

The Company’s allowance for loan losses (ALLL) covers estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated probable losses inherent in the remainder of the loan portfolio. The ALLL is prepared using the information provided by the Company’s credit review process together with data from peer institutions and economic information gathered from published sources.

The loan portfolio is segmented into groups of loans with similar risk profiles. Each segment possesses varying degrees of risk based on the type of loan, the type of collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions. An estimated loss rate calculated the Company’s actual historical loss rates adjusted for current portfolio trends, economic conditions, and other relevant internal and external factors, is applied to each group’s aggregate loan balances.

The following tables summarize the allocation of the ALLL, as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three months ended March 31, 2019:

	Commercial and Industrial		Construction, Land, and Land Development		Residential Real Estate			Commercial Real Estate			Consumer and Other			Unallocated		Total
	(dollars in thousands)
Three Months Ended March 31, 2019
ALLL balance, December 31, 2018	$	2,039	$	1,806	$	1,647		$	2,648		$	77		$	1,190	$	9,407
Provision for loan losses or (recapture)		29		46		(24	)		131			6			352		540
		2,068		1,852		1,623			2,779			83			1,542		9,947
Loans charged-off		-		-		-			(29	)		(5	)		-		(34	)
Recoveries of loans previously charged-off		1		-		-			-			1			-		2
Net (charge-offs) recoveries		1		-		-			(29	)		(4	)		-		(32	)
ALLL balance, March 31, 2019	$	2,069	$	1,852	$	1,623		$	2,750		$	79		$	1,542	$	9,915
As of March 31, 2019
ALLL amounts allocated to
Individually evaluated for impairment	$	-	$	-	$	-		$	-		$	-		$	-	$	-
Collectively evaluated for impairment		2,069		1,852		1,623			2,750			79			1,542		9,915
ALLL balance, March 31, 2019	$	2,069	$	1,852	$	1,623		$	2,750		$	79		$	1,542	$	9,915
Loans individually evaluated for impairment	$	493	$	-	$	71		$	-		$	-				$	564
Loans collectively evaluated for impairment		91,755		65,686		94,672			535,896			3,583					791,592
Loan balance, March 31, 2019	$	92,248	$	65,686	$	94,743		$	535,896		$	3,583				$	792,156

The following tables summarize the allocation of the ALLL, as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three months ended March 31, 2018:

	Commercial and Industrial			Construction, Land, and Land Development		Residential Real Estate			Commercial Real Estate			Consumer and Other			Unallocated		Total
	(dollars in thousands)
Three months ended March 31, 2018
Beginning balance, December 31, 2017	$	1,864		$	1,063	$	1,343		$	2,014		$	43		$	1,690	$	8,017
Provision for loan losses or (recapture)		172			70		(15	)		158			13			103		501
		2,036			1,133		1,328			2,172			56			1,793		8,518
Loans charged-off		(9	)		-		-			(84	)		(5	)		-		(98	)
Recoveries of loans previously charged-off		1			-		-			-			2			-		3
Net (charge-offs) recoveries		(8	)		-		-			(84	)		(3	)		-		(95	)
ALLL balance, March 31, 2018	$	2,028		$	1,133	$	1,328		$	2,088		$	53		$	1,793	$	8,423
As of March 31, 2018
ALLL amounts allocated to
Individually evaluated for impairment	$	241		$	-	$	-		$	-		$	-		$	-	$	241
Collectively evaluated for impairment		1,787			1,133		1,328			2,088			53			1,793		8,182
ALLL Balance, March 31, 2018	$	2,028		$	1,133	$	1,328		$	2,088		$	53		$	1,793	$	8,423
Loans individually evaluated for impairment	$	1,133		$	-	$	352		$	1,303		$	-				$	2,788
Loans collectively evaluated for impairment		85,586			44,970		90,272			452,624			2,558					676,010
Loan balance, March 31, 2018	$	86,719		$	44,970	$	90,624		$	453,927		$	2,558				$	678,798

The following tables summarizes the allocation of the ALLL attributed to various segments in the loan portfolio as of December 31, 2018:

	Commercial and Industrial		Construction, Land, and Land Development		Residential Real Estate		Commercial Real Estate		Consumer and Other		Unallocated		Total
	(dollars in thousands)
As of December 31, 2018
ALLL amounts allocated to
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		2,039		1,806		1,647		2,648		77		1,190		9,407
ALLL balance, December 31, 2018	$	2,039	$	1,806	$	1,647	$	2,648	$	77	$	1,190	$	9,407
Loans individually evaluated for impairment	$	493	$	-	$	72	$	1,261	$	-			$	1,826
Loans collectively evaluated for impairment		89,897		64,045		94,673		514,698		3,584				766,897
Loan balance, December 31, 2018	$	90,390	$	64,045	$	94,745	$	515,959	$	3,584			$	768,723

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Deposits

3 Months Ended

Mar. 31, 2019

Deposits [Abstract]

Deposits

Note 5 - Deposits

The composition of consolidated deposits consisted of the following at the periods indicated:

	March 31,		December 31,
	2019		2018
Demand, noninterest bearing	$	296,247	$	293,525
Now and money market		532,734		360,473
Savings		52,246		52,572
Time deposits less than $250,000		60,728		62,272
Time deposits $250,000 and over		34,541		34,772
Total deposits	$	976,496	$	803,614

The Company held $164,604,000 and $10,521,000 in brokered NOW and money market accounts as of March 31, 2019 and December 31, 2018, respectively.  These brokered deposits were held at the request of a wholesale banking services customer until that customer could transfer them to their deposit provider.  On April 9, 2019, that customer transferred $157.1 million of these temporary deposits to their deposit provider.

The following table presents the maturity distribution of time deposits as of March 31, 2019 (dollars in thousands):

Twelve months	$	68,351
One to two years		16,934
Two to three years		6,974
Three to four years		2,185
Four to five years		825
	$	95,269

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Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

Note 6 - Leases

The Company has committed to rent premises used in business operations under non-cancelable operating leases and determines if an arrangement meets the definition of a lease upon inception.

The Company adopted the provisions of ASU 2016-02 (Topic 842) on January 1, 2019. Operating lease right-of-use (“ROU”) assets represent a right to use an underlying asset for the contractual lease term. Operating lease liabilities represent an obligation to make lease payments arising from the lease. Upon adoption, operating lease ROU assets totaling $9.5 million and operating lease liabilities totaling $9.7 million were recognized in our Unaudited Consolidated Balance Sheets for leases that existed at the adoption date, based on the present value of lease payments over the remaining lease term.  ROU assets are further adjusted for lease incentives.  Operating leases entered into after the adoption date will be recognized as an operating lease ROU asset and operating lease liability at the commencement date of the new lease.

The Company’s leases do not provide an implicit interest rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine the present value of operating lease liabilities. The weighted average discount rate used to discount operating lease liabilities at March 31, 2019 was 3.33%.

The Company’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Company’s lease agreements do not contain any residual value guarantees.

Operating leases with terms of 12 months or less are not included in ROU assets and operating lease liabilities recorded in our consolidated balance sheets. Operating lease terms include options to extend when it is reasonably certain that the Company will exercise such options, determined on a lease-by-lease basis. As of March 31, 2019, the Company does not have any leases that have not yet commenced. The Company has entered into a sublease agreement that will commence in June 2019.  At March 31, 2019, lease expiration dates ranged from two to 26 years, with additional renewal options on certain leases typically ranging from 5 to 10 years. At March 31, 2019, the weighted average remaining lease term for the Company’s operating leases was 11.5 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $371,000 and $283,000, respectively, for the three months ended March 31, 2019 and 2018. Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

The following table presents the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew, at March 31, 2019:

	March 31,
(dollars in thousands)	2019
April 1, 2019 to December 31, 2019	$	994
2020		1,328
2021		1,315
2022		1,340
2023		1,314
2024 and thereafter		4,949
Total lease payments		11,240
Less:  amounts representing interest		1,769
Present value of lease liabilities	$	9,471

The following table presents the components of total lease expense and operating cash flows:

	March 31,
(dollars in thousands)	2019
Lease expense:
Operating lease expense	$	333
Variable lease expense	$	38
Total lease expense (1)	$	371
Cash paid:
Cash paid reducing operating lease liabilities	$	370
(1) Included in net occupancy expense in the Condensed Consolidated Statements of Income (Unaudited)

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

Note 7 - Stock-Based Compensation

Stock Options and Restricted Stock

On April 30, 2018, the Company’s shareholders approved the Coastal Financial Corporation 2018 Omnibus Incentive Plan (2018 Plan). The 2018 Plan authorizes the Company to grant awards, including but not limited to, stock options and restricted stock awards, to eligible employees, directors or individuals that provide service to the Company, up to an aggregate of 500,000 shares of common stock. The 2018 Plan replaces both the Company’s 2006 Stock Option and Equity Compensation Plan (2006 Plan) and its Directors’ Stock Bonus Plan.  Existing awards will vest under the terms granted and no further awards will be made under these previous plans. Shares available to be granted under the 2018 Plan totaled 358,811 at March 31, 2019.

Stock Option Awards

In January 2019, the Company granted 26,737 nonqualified stock options under the 2018 Plan to an employee, which vest ratably over 10 years. In January 2019, the Company also granted 99,100 qualified stock options under the 2018 Plan to employees, which vest ratably over 10 years.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock and other factors. The Company uses the vesting term and contractual life to determine the expected life. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation expense related to unvested stock option awards is reversed at date of forfeiture.

The following assumptions were used to estimate the value of options granted under the 2006 Plan and the 2018 Plan as applicable in the periods indicated:

	Three months ended March 31, 2019			Three months ended March 31, 2018
Expected term	10.0 years			10.0 years
Expected stock price volatility		48.79	%		41.89	%
Risk-free interest rate		2.74	%		2.66	%
Expected dividends	Zero			Zero
Weighted average grant date fair value	$	9.22		$	3.95

A summary of stock option activity under the 2018 Plan and 2006 Plan during the three months ended March 31, 2019:

Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
(dollars in thousands, except per share amounts)
Outstanding at December 31, 2018		688,310		$	6.39		6.38
Granted		125,837			14.91
Exercised		(7,160	)		5.91
Forfeited or expired		(2,870	)		9.05
Outstanding at March 31, 2019		804,117		$	7.71		6.71	$	7,458
Vested or expected to vest at March 31, 2019		804,117		$	7.71		6.71	$	7,458
Exercisable at March 31, 2019		242,422		$	6.03		5.10	$	2,657

The total intrinsic value (which is the amount by which the stock price exceeds the exercise price) of options exercised during the three months ended March 31, 2019 was $69,000. There were no options exercised during the quarter ended March 31, 2018.

As of March 31, 2019, there was $2,665,000 of total unrecognized compensation cost related to nonvested stock options granted under the 2018 Plan and 2006 Plan. Total unrecognized compensation costs is adjusted for unvested forfeitures. The Company expects to recognize that cost over a weighted-average period of approximately 8.05 years.   Compensation expense recorded related to stock options was $97,000 and $64,000 for the three months ended March 31, 2019 and 2018, respectively.

Restricted Stock Awards

The fair value of restricted stock awards is equal to the fair value of the Company’s stock at the date of grant. Compensation expense is recognized over the vesting period that the awards are based. Restricted stock awards are participating securities.

As of March 31, 2019 there was $65,000 of total unrecognized compensation cost related to nonvested restricted stock awards.  The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately 7.5 years.  Compensation expense recorded related to restricted stock awards was $2,000 for the three months ended March 31, 2019 and was nominal for the three months ended March 31, 2018.

A summary of the Company’s nonvested shares at March 31, 2019 and changes during the three-month period is presented below:

Nonvested shares	Shares		Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value
(all amounts in dollars except per share amounts)
Nonvested shares at December 31, 2018		5,200	$	12.32
Granted		—		—
Forfeited		—		—
Vested		—		—
Nonvested shares at March 31, 2019		5,200	$	12.32	$	19,448

Director’s Stock Bonus

The Company adopted and subsequently amended the Director’s Stock Bonus Plan (Bonus Plan). The Bonus Plan has expired and was replaced on April 30, 2018, when the shareholders approved the 2018 Plan.

Under the Bonus Plan, the Company could grant up to 50,000 shares. Stock was granted to directors who attended at least 75% of the scheduled board meetings during the prior year. Grants cliff vest over two years from date awarded, contingent on the director still being a director of the Company. During the vesting period, the grants are considered participating securities. Grants also immediately vest when a director has attained the retirement age of 72 and retires from the Board.

The Bonus Plan granted shares with a total market value of $5,000 per director, per year, with the exception of the board chairman receiving $7,500 per year, and committee chairmen receiving $6,250 per year. The amended Bonus Plan expired on May 31, 2018 and it was replaced on April 30, 2018 by the 2018 Plan. Awards previously granted under the Bonus Plan will vest under the term granted.  Under the 2018 Plan, eligible directors are granted stock with a total market value of $5,000. Directors unable to receive stock will receive cash in lieu upon completion of the vesting period. Cash awards are recognized over the vesting period and recorded in other liabilities until paid.

In January 2019, there were 2,352 shares granted to seven directors at an estimated fair value of $14.91 per share. In January 2018, there were 4,405 shares granted to five directors at an estimated fair value of $7.10 per share. Compensation expense recorded related to the Plan totaled $8,000 for the three months ended March 31, 2019 and 2018.

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Shareholders' Equity

3 Months Ended

Mar. 31, 2019

Equity [Abstract]

Shareholders Equity

Note 8 - Shareholders’ Equity

On May 4, 2018 the Company effected a 1-for-5 reverse stock split, decreasing the number of issued shares from 46,268,359 to 9,254,073, including 401 additional shares issued to shareholders with fractional shares. Authorized shares were not impacted by the reverse stock split. Share and per share amounts included in the consolidated financial statements and accompanying notes reflect the effect of the split for all periods presented.

The total authorized preferred stock is 25,000,000.  There were no shares of preferred stock issued and outstanding at March 31, 2019 and December 31, 2018.

The total authorized common shares is 300,000,000 shares.At March 31, 2019 and December 31, 2018, there were 11,902,715 and 11,893,203 common shares issued and outstanding.

On September 26, 2018, all 100,000 shares of Class B nonvoting common stock outstanding were exchanged for voting common stock on terms and conditions approved by the Company’s board of directors. At March 31, 2019 and December 31, 2018 there were no shares of Class B nonvoting common stock issued and outstanding.  

On September 26, 2018, 261,444 Class C shares were exchanged for common stock on terms and conditions approved by the Company’s board of directors. There were no shares of Class C nonvoting common stock issued and outstanding, at March 31, 2019 and December 31, 2018.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value Measurements

Note 9 - Fair Value Measurements

The following tables present estimated fair values of the Company’s financial instruments as of the period indicated, whether or not recognized or recorded in the consolidated balance sheets at the period indicated:

	March 31, 2019				Fair Value Measurements Using
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets
Cash and due from banks	$	21,176	$	21,176	$	21,176	$	-	$	-
Interest earning deposits with other banks		236,483		236,483		236,483		-		-
Investment securities		38,217		38,180		33,555		4,625		-
Other investments		3,600		3,600		-		3,600		-
Loans receivable, net		781,157		770,865		-		-		770,865
Accrued interest receivable		2,505		2,505		-		2,505		-
Financial liabilities
Deposits	$	976,496		975,840	$	-	$	975,840	$	-
Subordinated debt		9,968		9,945		-		9,945		-
Junior subordinated debentures		3,581		3,353		-		3,353		-
Accrued interest payable		343		343		-		343		-

	December 31, 2018				Fair Value Measurements Using
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets
Cash and due from banks	$	16,315	$	16,315	$	16,315	$	-	$	-
Interest earning deposits with other banks		109,467		109,467		109,467		-		-
Investment securities		37,922		37,865		33,241		4,624		-
Other investments		3,766		3,766		-		3,766		-
Loans receivable, net		758,491		743,354		-		-		743,354
Accrued interest receivable		2,526		2,526		-		2,526		-
Financial liabilities
Deposits	$	803,614	$	802,645	$	-	$	802,645	$	-
FHLB advances		20,000		20,000		-		20,000		-
Subordinated debt		9,965		9,804		-		9,804		-
Junior subordinated debentures		3,581		3,265		-		3,265		-
Accrued interest payable		279		279		-		279		-

The Company measures and discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale). GAAP establishes a consistent framework for measuring fair value and disclosure requirements about fair value measurements. Among other things, the accounting standard requires the reporting entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions. These two types of inputs create the following fair value hierarchy:

• Level 1 – Quoted prices in active markets for identical instruments. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.

• Level 2 – Observable inputs other than Level 1 including quoted prices in active markets for similar instruments, quoted prices in less active markets for identical or similar instruments, or other observable inputs that can be corroborated by observable market data.

• Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs from nonbinding single dealer quotes not corroborated by observable market data.

The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for certain financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.

Items measured at fair value on a recurring basis – The following fair value hierarchy table presents information about the Company’s assets that are measured at fair value on a recurring basis at the dates indicated:

	Level 1		Level 2		Level 3		Total Fair Value
	(dollars in thousands)
March 31, 2019
Available-for-sale
U.S. Treasury securities	$	33,555	$	-	$	-	$	33,555
U.S. Government agencies		-		2,968		-		2,968
U.S. Agency collateralized mortgage obligations		-		154		-		154
U.S. Agency residential mortgage-backed securities		-		36		-		36
Municipals		-		257		-		257
	$	33,555	$	3,415	$	-	$	36,970
December 31, 2018
Available-for-sale
U.S. Treasury securities	$	33,241	$	-	$	-	$	33,241
U.S. Government agencies		-		2,957		-		2,957
U.S. Agency collateralized mortgage obligations		-		169		-		169
U.S. Agency residential mortgage-backed securities		-		38		-		38
Municipals		-		255		-		255
	$	33,241	$	3,419	$	-	$	36,660

The following methods were used to estimate the fair value of the class of financial instruments above:

Investment securities - The fair value of securities is based on quoted market prices, pricing models, quoted prices of similar securities, independent pricing sources, and discounted cash flows.

Limitations: The fair value estimates presented herein are based on pertinent information available to management as of March 31, 2019 and December 31, 2018. The factors used in the fair values estimates are subject to change subsequent to the dates the fair value estimates are completed, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

Assets measured at fair value using significant unobservable inputs (Level 3)

The following table provides a description of the valuation technique, unobservable inputs, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring basis at the dates indicated:

	Valuation Technique	Unobservable Inputs	March 31, 2019 Weighted Average Rate			December 31, 2018 Weighted Average Rate
Impaired loans	Collateral valuations	Discount to appraised value		10	%		9	%

Items measured at fair value on a nonrecurring basis – The following table presents financial assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy of the fair value measurements for those assets at the dates indicated:

	Level 1		Level 2		Level 3		Total Fair Value
	(dollars in thousands)
March 31, 2019
Impaired loans	$	-	$	-	$	493	$	493
Total	$	-	$	-	$	493	$	493
December 31, 2018
Impaired loans	$	-	$	-	$	493	$	493
Total	$	-	$	-	$	493	$	493

The amounts disclosed above represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported on.

Impaired loans - A loan is considered impaired when it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement. Impairment is measured based on the fair value of the underlying collateral or the discounted cash expected future cash flows. Subsequent changes in the value of impaired loans are included within the provision for loan losses in the same manner in which impairment initially was recognized or as a reduction in the provision that would otherwise be reported. Impaired loans are evaluated quarterly to determine if valuation adjustments should be recorded. The need for valuation adjustments arises when observable market prices or current appraised values of collateral indicate a shortfall in collateral value compared to current carrying values of the related loan. If the Company determines that the value of the impaired loan is less than the carrying value of the loan, the Company either establishes an impairment reserve as a specific component of the allowance for loan losses or charges off the impairment amount. These valuation adjustments are considered nonrecurring fair value adjustments.

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Earnings Per Common Share

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Earnings Per Common Share

Note 10 - Earnings Per Common Share

The following is a computation of basic and diluted earnings per common share at the periods indicated:

	Three months ended
	March 31, 2019		March 31, 2018
	(dollars in thousands, except share data)
Net Income	$	2,808	$	1,843
Basic weighted average number common shares outstanding		11,884,107		9,241,620
Dilutive effect of share-based compensation		299,127		5,589
Diluted weighted average number common shares outstanding		12,183,234		9,247,209
Basic earnings per share	$	0.24	$	0.20
Diluted earnings per share	$	0.23	$	0.20

For the three month periods ended March 31, 2019 and 2018,  options to purchase an additional 134,037 and 763,264 shares of common stock, were not included in the computation of diluted earnings per common share because their effect resulted in them being antidilutive.

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Description of Business and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Nature of Operations

Nature of operations - Coastal Financial Corporation (Corporation or Company) is a registered bank holding company whose wholly owned subsidiary is Coastal Community Bank (Bank). The Company is a Washington state corporation that was organized in 2003. The Bank was incorporated and commenced operations in 1997 and is a Washington state-chartered commercial bank and Federal Reserve System (Federal Reserve) state member bank.

The Company provides a full range of banking services to small and medium-sized businesses, professionals, and individuals throughout the greater Puget Sound area through its 14 branches in Snohomish, Island, and King Counties, the Internet, and its mobile banking application. The Bank’s main branch and the headquarters of the Bank and Company are located in Everett, Washington. The Bank’s deposits are insured in whole or in part by the FDIC. The Bank’s loans and deposits are primarily within the greater Puget Sound area, and the Bank’s primary funding source is deposits from customers. The Bank is subject to regulation by the Federal Reserve and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has supervisory authority over the Company.

Financial Statement Preparation

Financial statement presentation - The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim reporting requirements and with instructions to Form 10-Q and Article 10 of Regulation S-X, and therefore do not include all the information and notes included in the annual consolidated financial statements in conformity with GAAP. These interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual report on Form 10-K as filed with the U.S. Securities and Exchange Commission (SEC) on March 28, 2019. Operating results for the three months ended March 31, 2019, are not necessarily indicative of the results that may be expected for future periods.

Amounts presented in the consolidated financial statements and footnote tables are rounded and presented in thousands of dollars except per-share amounts, which are presented in dollars. In the narrative footnote discussion, amounts are rounded to thousands and presented in dollars.

In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying consolidated financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation.

Principles of Consolidation

Principles of consolidation - The consolidated financial statements include the accounts of the Company and the Bank. All significant intercompany accounts have been eliminated in consolidation.

Business Segments

Business Segments - The Company is managed by legal entity and not by lines of business. The entity’s primary business is that of a traditional banking institution, gathering deposits and originating loans for portfolio in its market areas. The Bank offers a wide variety of deposit products to its customers. Lending activities include the origination of real estate, commercial and industrial, and consumer loans. Interest income on loans is the Company’s primary source of revenue, and is supplemented by interest income on deposits with other banks, interest income from investment securities, deposit service charges, and other service provided activities. The Company has determined that its current business and operations consist of a single reporting segment and, therefore, segment disclosures are not required.

Estimates

Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that its critical accounting policies include determining the allowance for loan losses, the fair value of the Company’s investment securities, deferred tax assets, and financial instruments. Actual results could differ significantly from those estimates.

Subsequent Events

Subsequent Events - The Company has evaluated events and transactions subsequent to March 31, 2019 for potential recognition or disclosure.

Accounting Policies

Accounting policies – Our complete accounting policies are described in Note 1, summary of significant accounting policies of the Company’s audited consolidated financial statements as of and for the years ended December 31, 2018 and 2017 included in the Company’s Annual Report Form 10-K filed with the SEC on March 28, 2019.

Reclassifications

Reclassifications - Certain amounts reported in prior quarters' consolidated financial statements have been reclassified to conform to the current presentation with no effect on stockholders’ equity or net income.

Accounting Standards Adopted in 2019

Accounting Standards Adopted in 2019

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires that lessees and lessors recognize lease assets and lease liabilities on the balance sheet and disclose key information about leasing arrangements. ASU 2016-02 was effective for us on January 1, 2019. ASU 2016-02 provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients. We have elected to apply ASU 2016-02 as of the beginning of the period of adoption (January 1, 2019) and have not restated comparative periods. 

Our operating leases relate primarily to office space and bank branches. As a result of implementing ASU 2016-02, we recognized an operating lease right-of-use ("ROU") asset of $9.5 million and an operating lease liability of $9.7 million on January 1, 2019, with no impact on our consolidated statement of income or consolidated statement of cash flows compared to the prior lease accounting model. The ROU asset and operating lease liability are recorded on the face on the consolidated balance sheets. See Note 6 - Leases for additional information.

  In May 2018, the FASB issued ASU No. 2018-06, Codification Improvements to Topic 942, Financial Services - Depository and Lending. This ASU updates outdated guidance related to the Office of Comptroller of the Currency’s (OCC) Banking Circular 202, Accounting for Net Deferred Tax Charges, as the guidance has been rescinded by OCC and is no longer relevant. The amendments in this ASU are effective immediately. The adoption of ASU No. 2018-06 did not have a material impact on the Company's consolidated financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.  This ASU was issued to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  Previously, these awards were recorded at the fair value of consideration received or the fair value of the equity instruments issued and was measured as of the earlier of the commitment date or the date performance was completed. The amendments in this ASU require the awards to be measured at the grant-date fair value of the equity instrument.  ASU No. 2018-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  Early adoption was permitted, but no earlier than an entity's adoption of Topic 606.  The adoption of ASU No. 2018-07 did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Guidance Not Yet Effective

Recent Accounting Guidance Not Yet Effective

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The amendment is effective for annual periods beginning after December 15, 2019 and interim period within those annual periods. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. We are actively assessing our data and the model needs and are evaluating the impact of adopting the amendment. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

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Investment Securities (Tables)

3 Months Ended

Mar. 31, 2019

Investments Debt And Equity Securities [Abstract]

Amortized Cost and Fair Values of Investment Securities

The amortized cost and fair values of investment securities at the date indicated are as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(dollars in thousands)
March 31, 2019
Available-for-sale
U.S. Treasury securities	$	34,840	$	-	$	(1,285	)	$	33,555
U.S. Government agencies		3,000		-		(32	)		2,968
U.S. Agency collateralized mortgage obligations		156		-		(2	)		154
U.S. Agency residential mortgage-backed securities		36		-		-			36
Municipals		258		-		(1	)		257
Total available-for-sale securities		38,290		-		(1,320	)		36,970
Held-to-maturity
U.S. Agency residential mortgage-backed securities		1,247		-		(37	)		1,210
Total investment securities	$	39,537	$	-	$	(1,357	)	$	38,180

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(dollars in thousands)
December 31, 2018
Available-for-sale
U.S. Treasury securities	$	34,831	$	-	$	(1,590	)	$	33,241
U.S. Government agencies		3,000		-		(43	)		2,957
U.S. Agency collateralized mortgage obligations		172		-		(3	)		169
U.S. Agency residential mortgage-backed securities		39		-		(1	)		38
Municipals		259		-		(4	)		255
Total available-for-sale securities		38,301		-		(1,641	)		36,660
Held-to-maturity
U.S. Agency residential mortgage-backed securities		1,262		-		(57	)		1,205
Total investment securities	$	39,563	$	-	$	(1,698	)	$	37,865

Amortized Cost and Fair Value of Debt Securities by Contractual Maturity

Mortgage-backed securities and collateralized mortgage obligations are shown separately, since they are not due at a single maturity date.

	Available-for-Sale				Held-to-Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(dollars in thousands)
March 31, 2019
Amounts maturing in
One year or less	$	3,000	$	2,968	$	-	$	-
After one year through five years		25,115		24,217		-		-
After five years through ten years		9,983		9,595		-		-
		38,098		36,780		-		-
U.S. Agency residential mortgage-backed securities and    collateralized mortgage obligations		192		190		1,247		1,210
	$	38,290	$	36,970	$	1,247	$	1,210

Summary of Investment Securities Continuous Unrealized Loss Position

Information pertaining to securities with gross unrealized losses at the dates indicated, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than 12 Months					12 Months or Greater					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(dollars in thousands)
March 31, 2019
Available-for-sale
U.S. Treasury securities	$	-	$	-		$	33,555	$	(1,285	)	$	33,555	$	(1,285	)
U.S. Government agencies		-		-			2,968		(32	)		2,968		(32	)
U.S. Agency collateralized mortgage obligations		-		-			154		(2	)		154		(2	)
Municipals		-		-			257		(1	)		257		(1	)
Total available-for-sale securities		-		-			36,934		(1,320	)		36,934		(1,320	)
Held-to-maturity
U.S. Agency residential mortgage-backed securities		-		-			1,210		(37	)		1,210		(37	)
Total investment securities	$	-	$	-		$	38,144	$	(1,357	)	$	38,144	$	(1,357	)
December 31, 2018
Available-for-sale
U.S. Treasury securities	$	-	$	-		$	33,241	$	(1,590	)	$	33,241	$	(1,590	)
U.S. Government agencies		-		-			2,957		(43	)		2,957		(43	)
U.S. Agency collateralized mortgage obligations		-		-			169		(3	)		169		(3	)
Municipals		-		-			255		(4	)		255		(4	)
U.S. Agency residential mortgage-backed securities		38		(1	)		-		-			38		(1	)
Total available-for-sale securities		38		(1	)		36,622		(1,640	)		36,660		(1,641	)
Held-to-maturity
U.S. Agency residential mortgage-backed securities		-		-			1,205		(57	)		1,205		(57	)
Total investment securities	$	38	$	(1	)	$	37,827	$	(1,697	)	$	37,865	$	(1,698	)

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Loans and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2019

Receivables [Abstract]

Composition of Loan Portfolio

The composition of the loan portfolio is as follows as of the periods indicated:

	March 31,			December 31,
	2019			2018
	(dollars in thousands)
Commercial and industrial loans	$	92,248		$	90,390
Real estate loans:
Construction, land, and land development		65,686			64,045
Residential real estate		94,743			94,745
Commercial real estate		535,896			515,959
Consumer and other loans		3,583			3,584
Gross loans receivable		792,156			768,723
Net deferred origination fees and premiums		(1,084	)		(824	)
Loans receivable	$	791,072		$	767,899

Summary of an Age Analysis of Past Due Loans

The following table illustrates an age analysis of past due loans as of the dates indicated:

	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans			Recorded Investment 90 Days or More Past Due and Still Accruing
	(dollars in thousands)
March 31, 2019
Commercial and industrial loans	$	268	$	1,241	$	1,509	$	90,739	$	92,248		$	748
Real estate loans:
Construction, land and land development		-		-		-		65,686		65,686			-
Residential real estate		-		71		71		94,672		94,743			-
Commercial real estate		159		-		159		535,737		535,896			-
Consumer and other loans		6		2		8		3,575		3,583			-
	$	433	$	1,314	$	1,747	$	790,409	$	792,156		$	748
Less net deferred origination fees										(1,084	)
Loans receivable									$	791,072

	30-89 Days Past Due		90 Days or More Past Due		Total Past Due		Current		Total Loans			Recorded Investment 90 Days or More Past Due and Still Accruing
	(dollars in thousands)
December 31, 2018
Commercial and industrial loans	$	171	$	494	$	665	$	89,725	$	90,390		$	-
Real estate loans:
Construction, land and land development		823		-		823		63,222		64,045			-
Residential real estate		-		72		72		94,673		94,745			-
Commercial real estate		-		-		0		515,959		515,959			-
Consumer and other loans		2		-		2		3,582		3,584			-
	$	996	$	566	$	1,562	$	767,161		768,723		$	-
Less net deferred origination fees										(824	)
Loans receivable									$	767,899

Summary of Information Pertaining to Impaired Loans

A summary of information pertaining to impaired loans as of the period indicated:

	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
	(dollars in thousands)
March 31, 2019
Commercial and industrial loans	$	766	$	493	$	-	$	493	$	-
Real estate loans:
Residential real estate		74		71		-		71		-
Total	$	840	$	564	$	-	$	564	$	-
December 31, 2018
Commercial and industrial loans	$	766	$	493	$	-	$	493	$	-
Real estate loans:
Residential real estate		74		72		-		72		-
Commercial real estate		1,491		1,261		-		1,261		-
Total	$	2,331	$	1,826	$	-	$	1,826	$	-

Summary of Our Average Recorded Investment and Interest Income Recognized on Impaired Loans

The following tables summarize our average recorded investment and interest income recognized on impaired loans by loan class for the three months ended March 31, 2019 and 2018:

	Three Months Ended
	March 31, 2019				March 31, 2018
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
	(dollars in thousands)
Commercial and industrial loans	$	588	$	-	$	396	$	-
Real estate loans:
Residential real estate		73		-		-		-
Commercial real estate		658		-		1,303		-
Total	$	1,319	$	-	$	1,699	$	-

Summary of Troubled Debt Restructurings by Accrual Versus Nonaccrual Status and by Loan Class

The following table presents troubled debt restructurings by accrual versus nonaccrual status and by loan class as of December 31, 2018.  The troubled debt restructuring outstanding as of December 31, 2018 was paid off in the first quarter of 2019, therefore there were no troubled debt restructurings as of March 31, 2019.  

	Accrual Status		Nonaccrual Status		Total Restructured Loans
	(dollars in thousands)
December 31, 2018
Commercial real estate	$	-	$	1,261	$	1,261

Analysis of Nonaccrual Loans by Category

An analysis of nonaccrual loans by category consisted of the following at the periods indicated:

	March 31,		December 31,
	2019		2018
Commercial and industrial loans	$	493	$	493
Real estate loans:
Residential real estate		71		72
Commercial real estate		-		1,261
Consumer and other loans		2		-
Total nonaccrual loans	$	566	$	1,826

Summary of Loans by Credit Quality Risk Rating

Loans by credit quality risk rating are as follows as of the periods indicated:

	Pass		Other Loans Especially Mentioned		Sub- Standard		Doubtful		Total
	(dollars in thousands)
March 31, 2019
Commercial and industrial loans	$	86,743	$	3,838	$	1,667	$	-	$	92,248
Real estate loans:
Construction, land, and land development		63,150		2,536		-		-		65,686
Residential real estate		94,252		420		71		-		94,743
Commercial real estate		533,371		2,525		-		-		535,896
Consumer and other loans		3,583		-		-		-		3,583
	$	781,099	$	9,319	$	1,738	$	-		792,156
Less net deferred origination fees										(1,084	)
Loans receivable									$	791,072
December 31, 2018
Commercial and industrial loans	$	84,859	$	3,908	$	1,623	$	-	$	90,390
Real estate loans:
Construction, land, and land development		55,666		8,379		-		-		64,045
Residential real estate		94,548		125		72		-		94,745
Commercial real estate		512,151		2,547		1,261		-		515,959
Consumer and other loans		3,584		-		-				3,584
	$	750,808	$	14,959	$	2,956	$	-		768,723
Less net deferred origination fees										(824	)
Loans receivable									$	767,899

Summary of Allocation of Allowance for Loan Loss as well as Activity in Allowance for Loan Loss Attributed to Various Segments in Loan

The following tables summarize the allocation of the ALLL, as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three months ended March 31, 2019:

	Commercial and Industrial		Construction, Land, and Land Development		Residential Real Estate			Commercial Real Estate			Consumer and Other			Unallocated		Total
	(dollars in thousands)
Three Months Ended March 31, 2019
ALLL balance, December 31, 2018	$	2,039	$	1,806	$	1,647		$	2,648		$	77		$	1,190	$	9,407
Provision for loan losses or (recapture)		29		46		(24	)		131			6			352		540
		2,068		1,852		1,623			2,779			83			1,542		9,947
Loans charged-off		-		-		-			(29	)		(5	)		-		(34	)
Recoveries of loans previously charged-off		1		-		-			-			1			-		2
Net (charge-offs) recoveries		1		-		-			(29	)		(4	)		-		(32	)
ALLL balance, March 31, 2019	$	2,069	$	1,852	$	1,623		$	2,750		$	79		$	1,542	$	9,915
As of March 31, 2019
ALLL amounts allocated to
Individually evaluated for impairment	$	-	$	-	$	-		$	-		$	-		$	-	$	-
Collectively evaluated for impairment		2,069		1,852		1,623			2,750			79			1,542		9,915
ALLL balance, March 31, 2019	$	2,069	$	1,852	$	1,623		$	2,750		$	79		$	1,542	$	9,915
Loans individually evaluated for impairment	$	493	$	-	$	71		$	-		$	-				$	564
Loans collectively evaluated for impairment		91,755		65,686		94,672			535,896			3,583					791,592
Loan balance, March 31, 2019	$	92,248	$	65,686	$	94,743		$	535,896		$	3,583				$	792,156

The following tables summarize the allocation of the ALLL, as well as the activity in the ALLL attributed to various segments in the loan portfolio, as of and for the three months ended March 31, 2018:

	Commercial and Industrial			Construction, Land, and Land Development		Residential Real Estate			Commercial Real Estate			Consumer and Other			Unallocated		Total
	(dollars in thousands)
Three months ended March 31, 2018
Beginning balance, December 31, 2017	$	1,864		$	1,063	$	1,343		$	2,014		$	43		$	1,690	$	8,017
Provision for loan losses or (recapture)		172			70		(15	)		158			13			103		501
		2,036			1,133		1,328			2,172			56			1,793		8,518
Loans charged-off		(9	)		-		-			(84	)		(5	)		-		(98	)
Recoveries of loans previously charged-off		1			-		-			-			2			-		3
Net (charge-offs) recoveries		(8	)		-		-			(84	)		(3	)		-		(95	)
ALLL balance, March 31, 2018	$	2,028		$	1,133	$	1,328		$	2,088		$	53		$	1,793	$	8,423
As of March 31, 2018
ALLL amounts allocated to
Individually evaluated for impairment	$	241		$	-	$	-		$	-		$	-		$	-	$	241
Collectively evaluated for impairment		1,787			1,133		1,328			2,088			53			1,793		8,182
ALLL Balance, March 31, 2018	$	2,028		$	1,133	$	1,328		$	2,088		$	53		$	1,793	$	8,423
Loans individually evaluated for impairment	$	1,133		$	-	$	352		$	1,303		$	-				$	2,788
Loans collectively evaluated for impairment		85,586			44,970		90,272			452,624			2,558					676,010
Loan balance, March 31, 2018	$	86,719		$	44,970	$	90,624		$	453,927		$	2,558				$	678,798

The following tables summarizes the allocation of the ALLL attributed to various segments in the loan portfolio as of December 31, 2018:

	Commercial and Industrial		Construction, Land, and Land Development		Residential Real Estate		Commercial Real Estate		Consumer and Other		Unallocated		Total
	(dollars in thousands)
As of December 31, 2018
ALLL amounts allocated to
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment		2,039		1,806		1,647		2,648		77		1,190		9,407
ALLL balance, December 31, 2018	$	2,039	$	1,806	$	1,647	$	2,648	$	77	$	1,190	$	9,407
Loans individually evaluated for impairment	$	493	$	-	$	72	$	1,261	$	-			$	1,826
Loans collectively evaluated for impairment		89,897		64,045		94,673		514,698		3,584				766,897
Loan balance, December 31, 2018	$	90,390	$	64,045	$	94,745	$	515,959	$	3,584			$	768,723

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Deposits (Tables)

3 Months Ended

Mar. 31, 2019

Deposits [Abstract]

Composition of Consolidated Deposits

The composition of consolidated deposits consisted of the following at the periods indicated:

	March 31,		December 31,
	2019		2018
Demand, noninterest bearing	$	296,247	$	293,525
Now and money market		532,734		360,473
Savings		52,246		52,572
Time deposits less than $250,000		60,728		62,272
Time deposits $250,000 and over		34,541		34,772
Total deposits	$	976,496	$	803,614

Schedule of Maturity Distribution of Time Deposits

The following table presents the maturity distribution of time deposits as of March 31, 2019 (dollars in thousands):

Twelve months	$	68,351
One to two years		16,934
Two to three years		6,974
Three to four years		2,185
Four to five years		825
	$	95,269

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Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Summary of Minimum Annual Lease Payments under Lease Terms

The following table presents the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew, at March 31, 2019:

	March 31,
(dollars in thousands)	2019
April 1, 2019 to December 31, 2019	$	994
2020		1,328
2021		1,315
2022		1,340
2023		1,314
2024 and thereafter		4,949
Total lease payments		11,240
Less:  amounts representing interest		1,769
Present value of lease liabilities	$	9,471

Summary of Components of Total Lease Expense and Operating Cash Flows

The following table presents the components of total lease expense and operating cash flows:

	March 31,
(dollars in thousands)	2019
Lease expense:
Operating lease expense	$	333
Variable lease expense	$	38
Total lease expense (1)	$	371
Cash paid:
Cash paid reducing operating lease liabilities	$	370
(1) Included in net occupancy expense in the Condensed Consolidated Statements of Income (Unaudited)

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2019

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summary of Assumptions Used to Estimate the Value of Options Granted

The following assumptions were used to estimate the value of options granted under the 2006 Plan and the 2018 Plan as applicable in the periods indicated:

	Three months ended March 31, 2019			Three months ended March 31, 2018
Expected term	10.0 years			10.0 years
Expected stock price volatility		48.79	%		41.89	%
Risk-free interest rate		2.74	%		2.66	%
Expected dividends	Zero			Zero
Weighted average grant date fair value	$	9.22		$	3.95

Summary of Stock Option Activity

A summary of stock option activity under the 2018 Plan and 2006 Plan during the three months ended March 31, 2019:

Options	Shares			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
(dollars in thousands, except per share amounts)
Outstanding at December 31, 2018		688,310		$	6.39		6.38
Granted		125,837			14.91
Exercised		(7,160	)		5.91
Forfeited or expired		(2,870	)		9.05
Outstanding at March 31, 2019		804,117		$	7.71		6.71	$	7,458
Vested or expected to vest at March 31, 2019		804,117		$	7.71		6.71	$	7,458
Exercisable at March 31, 2019		242,422		$	6.03		5.10	$	2,657

Summary of Nonvested Shares

A summary of the Company’s nonvested shares at March 31, 2019 and changes during the three-month period is presented below:

Nonvested shares	Shares		Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value
(all amounts in dollars except per share amounts)
Nonvested shares at December 31, 2018		5,200	$	12.32
Granted		—		—
Forfeited		—		—
Vested		—		—
Nonvested shares at March 31, 2019		5,200	$	12.32	$	19,448

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2019

Fair Value Disclosures [Abstract]

Summary of Estimated Fair Values of Financial Instruments

The following tables present estimated fair values of the Company’s financial instruments as of the period indicated, whether or not recognized or recorded in the consolidated balance sheets at the period indicated:

	March 31, 2019				Fair Value Measurements Using
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets
Cash and due from banks	$	21,176	$	21,176	$	21,176	$	-	$	-
Interest earning deposits with other banks		236,483		236,483		236,483		-		-
Investment securities		38,217		38,180		33,555		4,625		-
Other investments		3,600		3,600		-		3,600		-
Loans receivable, net		781,157		770,865		-		-		770,865
Accrued interest receivable		2,505		2,505		-		2,505		-
Financial liabilities
Deposits	$	976,496		975,840	$	-	$	975,840	$	-
Subordinated debt		9,968		9,945		-		9,945		-
Junior subordinated debentures		3,581		3,353		-		3,353		-
Accrued interest payable		343		343		-		343		-

	December 31, 2018				Fair Value Measurements Using
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
	(dollars in thousands)
Financial assets
Cash and due from banks	$	16,315	$	16,315	$	16,315	$	-	$	-
Interest earning deposits with other banks		109,467		109,467		109,467		-		-
Investment securities		37,922		37,865		33,241		4,624		-
Other investments		3,766		3,766		-		3,766		-
Loans receivable, net		758,491		743,354		-		-		743,354
Accrued interest receivable		2,526		2,526		-		2,526		-
Financial liabilities
Deposits	$	803,614	$	802,645	$	-	$	802,645	$	-
FHLB advances		20,000		20,000		-		20,000		-
Subordinated debt		9,965		9,804		-		9,804		-
Junior subordinated debentures		3,581		3,265		-		3,265		-
Accrued interest payable		279		279		-		279		-

Summary of Assets Measured at Fair Value on Recurring Basis

Items measured at fair value on a recurring basis – The following fair value hierarchy table presents information about the Company’s assets that are measured at fair value on a recurring basis at the dates indicated:

	Level 1		Level 2		Level 3		Total Fair Value
	(dollars in thousands)
March 31, 2019
Available-for-sale
U.S. Treasury securities	$	33,555	$	-	$	-	$	33,555
U.S. Government agencies		-		2,968		-		2,968
U.S. Agency collateralized mortgage obligations		-		154		-		154
U.S. Agency residential mortgage-backed securities		-		36		-		36
Municipals		-		257		-		257
	$	33,555	$	3,415	$	-	$	36,970
December 31, 2018
Available-for-sale
U.S. Treasury securities	$	33,241	$	-	$	-	$	33,241
U.S. Government agencies		-		2,957		-		2,957
U.S. Agency collateralized mortgage obligations		-		169		-		169
U.S. Agency residential mortgage-backed securities		-		38		-		38
Municipals		-		255		-		255
	$	33,241	$	3,419	$	-	$	36,660

Summary of Assets and Liabilities Classified as Level 3 and Measured at Fair Value on Nonrecurring Basis

The following table provides a description of the valuation technique, unobservable inputs, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring basis at the dates indicated:

	Valuation Technique	Unobservable Inputs	March 31, 2019 Weighted Average Rate			December 31, 2018 Weighted Average Rate
Impaired loans	Collateral valuations	Discount to appraised value		10	%		9	%

Summary of Financial Assets and Liabilities Measured at Fair Value on Nonrecurring Basis

Items measured at fair value on a nonrecurring basis – The following table presents financial assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy of the fair value measurements for those assets at the dates indicated:

	Level 1		Level 2		Level 3		Total Fair Value
	(dollars in thousands)
March 31, 2019
Impaired loans	$	-	$	-	$	493	$	493
Total	$	-	$	-	$	493	$	493
December 31, 2018
Impaired loans	$	-	$	-	$	493	$	493
Total	$	-	$	-	$	493	$	493

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Earnings Per Common Share (Tables)

3 Months Ended

Mar. 31, 2019

Earnings Per Share [Abstract]

Schedule of Computation of Basic and Diluted Earnings Per Common Share

The following is a computation of basic and diluted earnings per common share at the periods indicated:

	Three months ended
	March 31, 2019		March 31, 2018
	(dollars in thousands, except share data)
Net Income	$	2,808	$	1,843
Basic weighted average number common shares outstanding		11,884,107		9,241,620
Dilutive effect of share-based compensation		299,127		5,589
Diluted weighted average number common shares outstanding		12,183,234		9,247,209
Basic earnings per share	$	0.24	$	0.20
Diluted earnings per share	$	0.23	$	0.20

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Description of Business and Summary of Significant Accounting Policies - Additional Information (Details)	3 Months Ended
	Mar. 31, 2019 Branch
Accounting Policies [Abstract]
Entity incorporation, state name	The Company is a Washington state corporation that was organized in 2003.
Number of branches	14

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Recent Accounting Standards - Additional Information (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Operating lease right-of-use asset	$ 9,305	$ 9,500
Operating lease liability	$ 9,471	9,700
ASU 2016-02
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Operating lease right-of-use asset		9,500
Operating lease liability		$ 9,700

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Investments Securities - Amortized Cost and Fair Values of Investment Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Available-for-Sale and Held-to-Maturity Securities [Line Items]
Available-for-sale, Amortized Cost	$ 38,290	$ 38,301
Available-for-sale, Gross Unrealized Losses	(1,320)	(1,641)
Available-for-sale, Fair Value	36,970	36,660
Held-to-maturity, Amortized Cost	1,247	1,262
Held-to-maturity, Fair Value	1,210
Total investment securities, Amortized Cost	39,537	39,563
Total investment securities, Gross Unrealized Losses	(1,357)	(1,698)
Total investment securities, Fair Value	38,180	37,865
U.S. Treasury Securities
Available-for-Sale and Held-to-Maturity Securities [Line Items]
Available-for-sale, Amortized Cost	34,840	34,831
Available-for-sale, Gross Unrealized Losses	(1,285)	(1,590)
Available-for-sale, Fair Value	33,555	33,241
U.S. Government Agencies
Available-for-Sale and Held-to-Maturity Securities [Line Items]
Available-for-sale, Amortized Cost	3,000	3,000
Available-for-sale, Gross Unrealized Losses	(32)	(43)
Available-for-sale, Fair Value	2,968	2,957
U.S. Agency Collateralized Mortgage Obligations
Available-for-Sale and Held-to-Maturity Securities [Line Items]
Available-for-sale, Amortized Cost	156	172
Available-for-sale, Gross Unrealized Losses	(2)	(3)
Available-for-sale, Fair Value	154	169
U.S. Agency Residential Mortgage-Backed Securities
Available-for-Sale and Held-to-Maturity Securities [Line Items]
Available-for-sale, Amortized Cost	36	39
Available-for-sale, Gross Unrealized Losses		(1)
Available-for-sale, Fair Value	36	38
Held-to-maturity, Amortized Cost	1,247	1,262
Held-to-maturity, Gross Unrealized Losses	(37)	(57)
Held-to-maturity, Fair Value	1,210	1,205
Municipals
Available-for-Sale and Held-to-Maturity Securities [Line Items]
Available-for-sale, Amortized Cost	258	259
Available-for-sale, Gross Unrealized Losses	(1)	(4)
Available-for-sale, Fair Value	$ 257	$ 255

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Investments Securities - Amortized Cost and Fair Value of Debt Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Available-for-Sale and Held-to-Maturity Securities [Line Items]
Available-for-Sale, Amortized Cost, Amounts maturing in One year or less	$ 3,000
Available-for-Sale, Amortized Cost, Amounts maturing in After one year through five years	25,115
Available-for-Sale, Amortized Cost, Amounts maturing in After five years through ten years	9,983
Available-for-Sale, Amortized Cost. Amounts maturity with single maturity	38,098
Available-for-sale, Amortized Cost	38,290	$ 38,301
Available-for-Sale, Fair Value, Amounts maturing in One year or less	2,968
Available-for-Sale, Fair Value, Amounts maturing in After one year through five years	24,217
Available-for-Sale, Fair Value, Amounts maturing in After five years through ten years	9,595
Available-for-Sale, Fair Value, Amounts maturing with single maturity	36,780
Available-for-Sale, Fair Value	36,970	36,660
Held-to-maturity, Amortized Cost	1,247	$ 1,262
Held-to-Maturity, Fair Value	1,210
U.S. Agency Residential Mortgage-backed Securities and Collateralized Mortgage Obligations
Available-for-Sale and Held-to-Maturity Securities [Line Items]
Available-for-Sale, Amortized Cost, Amounts maturity without single maturity	192
Available-for-Sale, Fair Value, Amounts maturing without single maturity	190
Held-to-Maturity, Amortized Cost, Amounts maturity without single maturity	1,247
Held-to-Maturity, Fair Value, Amounts maturing without single maturity	$ 1,210

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Investments Securities - Additional Information (Details)	3 Months Ended		12 Months Ended
	Mar. 31, 2019 USD ($) Security	Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($) Security
Investments [Abstract]
Investment securities with carrying value pledged to secure public deposits	$ 19,646,000		$ 19,678,000
Sales of investment securities	$ 0	$ 0
Number of securities in unrealized loss position | Security	11		12
Securities other than temporarily impaired	$ 0		$ 0

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Investments Securities - Summary of Investment Securities Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Schedule Of Available For Sale Securities [Line Items]
Available-for-sale, Fair Value, Less Than 12 Months		$ 38
Available-for-sale, Gross Unrealized Losses, Less Than 12 Months		(1)
Available-for-sale, Fair Value, 12 Months or Greater	$ 36,934	36,622
Available-for-sale, Gross Unrealized Losses, 12 Months or Greater	(1,320)	(1,640)
Available-for-sale, Total Fair Value	36,934	36,660
Available-for-sale, Total Gross Unrealized Losses	(1,320)	(1,641)
Held-to-maturity, Fair Value, Less Than 12 Months		38
Held-to-maturity, Gross Unrealized Losses, Less Than 12 Months		(1)
Held-to-maturity, Fair Value, 12 Months or Greater	38,144	37,827
Held-to-maturity, Gross Unrealized Losses, Less Than 12 Months	(1,357)	(1,697)
Held-to-maturity, Total, Fair Value	38,144	37,865
Held-to-maturity, Total, Gross Unrealized Losses	(1,357)	(1,698)
U.S. Treasury Securities
Schedule Of Available For Sale Securities [Line Items]
Available-for-sale, Fair Value, 12 Months or Greater	33,555	33,241
Available-for-sale, Gross Unrealized Losses, 12 Months or Greater	(1,285)	(1,590)
Available-for-sale, Total Fair Value	33,555	33,241
Available-for-sale, Total Gross Unrealized Losses	(1,285)	(1,590)
U.S. Government Agencies
Schedule Of Available For Sale Securities [Line Items]
Available-for-sale, Fair Value, 12 Months or Greater	2,968	2,957
Available-for-sale, Gross Unrealized Losses, 12 Months or Greater	(32)	(43)
Available-for-sale, Total Fair Value	2,968	2,957
Available-for-sale, Total Gross Unrealized Losses	(32)	(43)
U.S. Agency Collateralized Mortgage Obligations
Schedule Of Available For Sale Securities [Line Items]
Available-for-sale, Fair Value, 12 Months or Greater	154	169
Available-for-sale, Gross Unrealized Losses, 12 Months or Greater	(2)	(3)
Available-for-sale, Total Fair Value	154	169
Available-for-sale, Total Gross Unrealized Losses	(2)	(3)
Municipals
Schedule Of Available For Sale Securities [Line Items]
Available-for-sale, Fair Value, 12 Months or Greater	257	255
Available-for-sale, Gross Unrealized Losses, 12 Months or Greater	(1)	(4)
Available-for-sale, Total Fair Value	257	255
Available-for-sale, Total Gross Unrealized Losses	(1)	(4)
U.S. Agency Residential Mortgage-Backed Securities
Schedule Of Available For Sale Securities [Line Items]
Available-for-sale, Fair Value, Less Than 12 Months		38
Available-for-sale, Gross Unrealized Losses, Less Than 12 Months		(1)
Available-for-sale, Total Fair Value		38
Available-for-sale, Total Gross Unrealized Losses		(1)
Held-to-maturity, Fair Value, 12 Months or Greater	1,210	1,205
Held-to-maturity, Gross Unrealized Losses, Less Than 12 Months	(37)	(57)
Held-to-maturity, Total, Fair Value	1,210	1,205
Held-to-maturity, Total, Gross Unrealized Losses	$ (37)	$ (57)

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Loans and Allowance for Loan Losses - Composition of Loan Portfolio (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Loans And Leases Receivable Disclosure [Line Items]
Gross loans receivable	$ 792,156	$ 768,723	$ 678,798
Net deferred origination fees and premiums	(1,084)	(824)
Loans receivable	791,072	767,899
Commercial and Industrial Loans
Loans And Leases Receivable Disclosure [Line Items]
Gross loans receivable	92,248	90,390	86,719
Construction, Land and Land Development
Loans And Leases Receivable Disclosure [Line Items]
Gross loans receivable	65,686	64,045	44,970
Residential Real Estate
Loans And Leases Receivable Disclosure [Line Items]
Gross loans receivable	94,743	94,745	90,624
Commercial Real Estate
Loans And Leases Receivable Disclosure [Line Items]
Gross loans receivable	535,896	515,959	453,927
Consumer and Other Loans
Loans And Leases Receivable Disclosure [Line Items]
Gross loans receivable	$ 3,583	$ 3,584	$ 2,558

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Loans and Allowance for Loan Losses - Additional Information (Details)	3 Months Ended
	Mar. 31, 2019 USD ($) Loan	Mar. 31, 2018 Loan	Dec. 31, 2018 USD ($)
Loans And Leases Receivable Disclosure [Line Items]
Overdrafts included in loans	$ 30,000		$ 36,000
Pledged loans for borrowing lines at FHLB and FRB	156,713,000		155,029,000
Balance of SBA loans and participations serviced	25,105,000		24,878,000
Purchased loans	43,960,000		45,368,000
Unamortized premiums	687,000		701,000
Purchased participation loans	46,829,000		$ 36,561,000
Troubled debt restructuring	$ 0
Number of loans restructured as troubled debt restructurings | Loan	0	0
Additional funds to borrowers with troubled debt restructurings	$ 0
Minimum
Loans And Leases Receivable Disclosure [Line Items]
Percentage of collateral coverage to loan balance	100.00%
Loan repayment extended period of time	6 months
Sustained repayment performance period of loan placed on nonaccrual	6 months

XML

Loans and Allowance for Loan Losses - Summary of an Age Analysis of Past Due Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	$ 1,747	$ 1,562
Current	790,409	767,161
Total Loans	792,156	768,723	$ 678,798
Recorded Investment 90 Days or More Past Due and Still Accruing	748
Less net deferred origination fees	(1,084)	(824)
Loans receivable	791,072	767,899
30-89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	433	996
90 Days or More Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	1,314	566
Commercial and Industrial Loans
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	1,509	665
Current	90,739	89,725
Total Loans	92,248	90,390	86,719
Recorded Investment 90 Days or More Past Due and Still Accruing	748
Commercial and Industrial Loans | 30-89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	268	171
Commercial and Industrial Loans | 90 Days or More Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	1,241	494
Construction, Land and Land Development
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due		823
Current	65,686	63,222
Total Loans	65,686	64,045	44,970
Construction, Land and Land Development | 30-89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due		823
Residential Real Estate
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	71	72
Current	94,672	94,673
Total Loans	94,743	94,745	90,624
Residential Real Estate | 90 Days or More Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	71	72
Commercial Real Estate
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	159	0
Current	535,737	515,959
Total Loans	535,896	515,959	453,927
Commercial Real Estate | 30-89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	159
Consumer and Other Loans
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	8	2
Current	3,575	3,582
Total Loans	3,583	3,584	$ 2,558
Consumer and Other Loans | 30-89 Days Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	6	$ 2
Consumer and Other Loans | 90 Days or More Past Due
Financing Receivable Recorded Investment Past Due [Line Items]
Total Past Due	$ 2

XML

Loans and Allowance for Loan Losses - Summary of Information Pertaining to Impaired Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable Impaired [Line Items]
Unpaid Contractual Principal Balance	$ 840	$ 2,331
Recorded Investment With No Allowance	564	1,826
Total Recorded Investment	564	1,826
Commercial and Industrial Loans
Financing Receivable Impaired [Line Items]
Unpaid Contractual Principal Balance	766	766
Recorded Investment With No Allowance	493	493
Total Recorded Investment	493	493
Residential Real Estate
Financing Receivable Impaired [Line Items]
Unpaid Contractual Principal Balance	74	74
Recorded Investment With No Allowance	71	72
Total Recorded Investment	$ 71	72
Commercial Real Estate
Financing Receivable Impaired [Line Items]
Unpaid Contractual Principal Balance		1,491
Recorded Investment With No Allowance		1,261
Total Recorded Investment		$ 1,261

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Loans and Allowance for Loan Losses - Summary of Our Average Recorded Investment and Interest Income Recognized on Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Financing Receivable Impaired [Line Items]
Average Recorded Investment	$ 1,319	$ 1,699
Commercial and Industrial Loans
Financing Receivable Impaired [Line Items]
Average Recorded Investment	588	396
Residential Real Estate
Financing Receivable Impaired [Line Items]
Average Recorded Investment	73
Commercial Real Estate
Financing Receivable Impaired [Line Items]
Average Recorded Investment	$ 658	$ 1,303

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Loans and Allowance for Loan Losses - Summary of Troubled Debt Restructurings by Accrual Versus Nonaccrual Status and by Loan Class (Details) - USD ($)	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable Modifications [Line Items]
Total Restructured Loans	$ 0
Commercial Real Estate
Financing Receivable Modifications [Line Items]
Total Restructured Loans		$ 1,261,000
Commercial Real Estate | Nonaccrual Status
Financing Receivable Modifications [Line Items]
Total Restructured Loans		$ 1,261,000

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Loans and Allowance for Loan Losses - Analysis of Nonaccrual Loans by Category (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable Recorded Investment Past Due [Line Items]
Total nonaccrual loans	$ 566	$ 1,826
Commercial and Industrial Loans
Financing Receivable Recorded Investment Past Due [Line Items]
Total nonaccrual loans	493	493
Residential Real Estate
Financing Receivable Recorded Investment Past Due [Line Items]
Total nonaccrual loans	71	72
Commercial Real Estate
Financing Receivable Recorded Investment Past Due [Line Items]
Total nonaccrual loans		$ 1,261
Consumer and Other Loans
Financing Receivable Recorded Investment Past Due [Line Items]
Total nonaccrual loans	$ 2

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Loans and Allowance for Loan Losses - Summary of Loans by Credit Quality Risk Rating (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	$ 792,156	$ 768,723	$ 678,798
Less net deferred origination fees	(1,084)	(824)
Loans receivable	791,072	767,899
Commercial and Industrial Loans
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	92,248	90,390	86,719
Construction, Land and Land Development
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	65,686	64,045	44,970
Residential Real Estate
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	94,743	94,745	90,624
Commercial Real Estate
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	535,896	515,959	453,927
Consumer and Other Loans
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	3,583	3,584	$ 2,558
Pass
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	781,099	750,808
Pass | Commercial and Industrial Loans
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	86,743	84,859
Pass | Construction, Land and Land Development
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	63,150	55,666
Pass | Residential Real Estate
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	94,252	94,548
Pass | Commercial Real Estate
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	533,371	512,151
Pass | Consumer and Other Loans
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	3,583	3,584
Other Loans Especially Mentioned
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	9,319	14,959
Other Loans Especially Mentioned | Commercial and Industrial Loans
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	3,838	3,908
Other Loans Especially Mentioned | Construction, Land and Land Development
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	2,536	8,379
Other Loans Especially Mentioned | Residential Real Estate
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	420	125
Other Loans Especially Mentioned | Commercial Real Estate
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	2,525	2,547
Sub-Standard
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	1,738	2,956
Sub-Standard | Commercial and Industrial Loans
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	1,667	1,623
Sub-Standard | Residential Real Estate
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross	$ 71	72
Sub-Standard | Commercial Real Estate
Loans And Leases Receivable Disclosure [Line Items]
Loans, gross		$ 1,261

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Loans and Allowance for Loan Losses - Summary of Allocation of Allowance for Loan Loss as well as Activity in Allowance for Loan Loss Attributed to Various Segments in Loan (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018	Dec. 31, 2017
Loans And Leases Receivable Disclosure [Line Items]
ALLL Balance	$ 9,407	$ 8,017
Provision for loan losses or (recapture)			$ 540	$ 501
Loans receivable allowance including provision losses or (recapture)			9,947	8,518
Loans charged-off	(34)	(98)
Recoveries of loans previously charged-off	2	3
Net (charge-offs) recoveries	(32)	(95)
ALLL Balance	9,915	8,423
Loans
Loans individually evaluated for impairment	564	2,788	1,826
Loans collectively evaluated for impairment	791,592	676,010	766,897
Total Loans	792,156	678,798	768,723
Amounts allocated to Individually evaluated for impairment		241
Amounts allocated to Collectively evaluated for impairment	9,915	8,182	9,407
Loans individually evaluated for impairment	564	2,788	1,826
Loans collectively evaluated for impairment	791,592	676,010	766,897
Total Loans	792,156	678,798	768,723
Allowances
Amounts allocated to Individually evaluated for impairment		241
Amounts allocated to Collectively evaluated for impairment	9,915	8,182	9,407
ALLL Balance	9,915	8,423
Commercial and Industrial Loans
Loans And Leases Receivable Disclosure [Line Items]
ALLL Balance	2,039	1,864
Provision for loan losses or (recapture)			29	172
Loans receivable allowance including provision losses or (recapture)			2,068	2,036
Loans charged-off		(9)
Recoveries of loans previously charged-off	1	1
Net (charge-offs) recoveries	1	(8)
ALLL Balance	2,069	2,028
Loans
Loans individually evaluated for impairment	493	1,133	493
Loans collectively evaluated for impairment	91,755	85,586	89,897
Total Loans	92,248	86,719	90,390
Amounts allocated to Individually evaluated for impairment		241
Amounts allocated to Collectively evaluated for impairment	2,069	1,787	2,039
Loans individually evaluated for impairment	493	1,133	493
Loans collectively evaluated for impairment	91,755	85,586	89,897
Total Loans	92,248	86,719	90,390
Allowances
Amounts allocated to Individually evaluated for impairment		241
Amounts allocated to Collectively evaluated for impairment	2,069	1,787	2,039
ALLL Balance	2,069	2,028
Construction, Land and Land Development
Loans And Leases Receivable Disclosure [Line Items]
ALLL Balance	1,806	1,063
Provision for loan losses or (recapture)			46	70
Loans receivable allowance including provision losses or (recapture)			1,852	1,133
ALLL Balance	1,852	1,133
Loans
Loans collectively evaluated for impairment	65,686	44,970	64,045
Total Loans	65,686	44,970	64,045
Amounts allocated to Collectively evaluated for impairment	1,852	1,133	1,806
Loans collectively evaluated for impairment	65,686	44,970	64,045
Total Loans	65,686	44,970	64,045
Allowances
Amounts allocated to Collectively evaluated for impairment	1,852	1,133	1,806
ALLL Balance	1,852	1,133
Residential Real Estate
Loans And Leases Receivable Disclosure [Line Items]
ALLL Balance	1,647	1,343
Provision for loan losses or (recapture)			(24)	(15)
Loans receivable allowance including provision losses or (recapture)			1,623	1,328
ALLL Balance	1,623	1,328
Loans
Loans individually evaluated for impairment	71	352	72
Loans collectively evaluated for impairment	94,672	90,272	94,673
Total Loans	94,743	90,624	94,745
Amounts allocated to Collectively evaluated for impairment	1,623	1,328	1,647
Loans individually evaluated for impairment	71	352	72
Loans collectively evaluated for impairment	94,672	90,272	94,673
Total Loans	94,743	90,624	94,745
Allowances
Amounts allocated to Collectively evaluated for impairment	1,623	1,328	1,647
ALLL Balance	1,623	1,328
Commercial Real Estate
Loans And Leases Receivable Disclosure [Line Items]
ALLL Balance	2,648	2,014
Provision for loan losses or (recapture)			131	158
Loans receivable allowance including provision losses or (recapture)			2,779	2,172
Loans charged-off	(29)	(84)
Net (charge-offs) recoveries	(29)	(84)
ALLL Balance	2,750	2,088
Loans
Loans individually evaluated for impairment		1,303	1,261
Loans collectively evaluated for impairment	535,896	452,624	514,698
Total Loans	535,896	453,927	515,959
Amounts allocated to Collectively evaluated for impairment	2,750	2,088	2,648
Loans individually evaluated for impairment		1,303	1,261
Loans collectively evaluated for impairment	535,896	452,624	514,698
Total Loans	535,896	453,927	515,959
Allowances
Amounts allocated to Collectively evaluated for impairment	2,750	2,088	2,648
ALLL Balance	2,750	2,088
Consumer and Other Loans
Loans And Leases Receivable Disclosure [Line Items]
ALLL Balance	77	43
Provision for loan losses or (recapture)			6	13
Loans receivable allowance including provision losses or (recapture)			83	56
Loans charged-off	(5)	(5)
Recoveries of loans previously charged-off	1	2
Net (charge-offs) recoveries	(4)	(3)
ALLL Balance	79	53
Loans
Loans collectively evaluated for impairment	3,583	2,558	3,584
Total Loans	3,583	2,558	3,584
Amounts allocated to Collectively evaluated for impairment	79	53	77
Loans collectively evaluated for impairment	3,583	2,558	3,584
Total Loans	3,583	2,558	3,584
Allowances
Amounts allocated to Collectively evaluated for impairment	79	53	77
ALLL Balance	79	53
Unallocated
Loans And Leases Receivable Disclosure [Line Items]
ALLL Balance	1,190	1,690
Provision for loan losses or (recapture)			352	103
Loans receivable allowance including provision losses or (recapture)			1,542	$ 1,793
ALLL Balance	1,542	1,793
Loans
Amounts allocated to Collectively evaluated for impairment	1,542	1,793	1,190
Allowances
Amounts allocated to Collectively evaluated for impairment	1,542	1,793	$ 1,190
ALLL Balance	$ 1,542	$ 1,793

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Deposits - Composition of Consolidated Deposits (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Time Deposits By Maturity [Abstract]
Demand, noninterest bearing	$ 296,247	$ 293,525
Now and money market	532,734	360,473
Savings	52,246	52,572
Time deposits less than $250,000	60,728	62,272
Time deposits $250,000 and over	34,541	34,772
Total deposits	$ 976,496	$ 803,614

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Deposits - Additional Information (Details) - USD ($)	Apr. 09, 2019	Mar. 31, 2019	Dec. 31, 2018
Time Deposits [Abstract]
Deposit held in brokered NOW		$ 164,604,000	$ 164,604,000
Deposit held in money market accounts		$ 10,521,000	$ 10,521,000
Subsequent Event
Time Deposits [Abstract]
Temporary deposits transferred by customer	$ 157,100,000

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Deposits - Schedule of Maturity Distribution of Time Deposits (Details) $ in Thousands	Mar. 31, 2019 USD ($)
Deposits [Abstract]
Twelve months	$ 68,351
One to two years	16,934
Two to three years	6,974
Three to four years	2,185
Four to five years	825
Total time deposits	$ 95,269

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Leases - Additional Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Jan. 01, 2019
Lessee Lease Description [Line Items]
Operating lease ROU assets	$ 9,305,000		$ 9,500,000
Operating lease liabilities	$ 9,471,000		$ 9,700,000
Weighted average discount rate used to discount operating lease liabilities	3.33%
Operating lease not yet commenced	$ 0
Operating lease, option to extend description	Operating lease terms include options to extend when it is reasonably certain that the Company will exercise such options, determined on a lease-by-lease basis.
Operating lease, existence of option to extend	true
Operating leases weighted-average remaining lease term	11 years 6 months
Operating lease rental expense	$ 371,000	$ 283,000
Minimum
Lessee Lease Description [Line Items]
Operating leases lease term	2 years
Operating lease, option to renewal period	5 years
Maximum
Lessee Lease Description [Line Items]
Operating leases lease term	26 years
Operating lease, option to renewal period	10 years

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Leases - Summary of Minimum Annual Lease Payments under Lease Terms (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019
Leases [Abstract]
April 1, 2019 to December 31, 2019	$ 994
2020	1,328
2021	1,315
2022	1,340
2023	1,314
2024 and thereafter	4,949
Total lease payments	11,240
Less: amounts representing interest	1,769
Present value of lease liabilities	$ 9,471	$ 9,700

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Leases - Summary of Components of Total Lease Expense and Operating Cash Flows (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Lease expense:
Operating lease expense	$ 333
Variable lease expense	38
Total lease expense	371
Cash paid:
Cash paid reducing operating lease liabilities	$ 370

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Stock-Based Compensation - Additional Information (Details)		1 Months Ended		3 Months Ended
	Apr. 30, 2018 shares	Jan. 31, 2019 Director $ / shares shares	Jan. 31, 2018 Director $ / shares shares	Mar. 31, 2019 USD ($) shares	Mar. 31, 2018 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total intrinsic value of options exercise price				$ 69,000	$ 0
Total unrecognized compensation cost related to nonvested stock options granted				2,665,000
Compensation expense				$ 106,000	71,000
Stock Option Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost related to nonvested stock options/ RSA granted, weighted-average period				8 years 18 days
Compensation expense				$ 97,000	64,000
Restricted Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation cost related to nonvested stock options/ RSA granted, weighted-average period				7 years 6 months
Compensation expense				$ 2,000
Total unrecognized compensation cost related to nonvested restricted stock awards				$ 65,000
Number of shares granted | shares				0
2018 Omnibus Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock, additional shares authorized | shares	0
Shares available to be granted | shares				358,811
Stock options granted to employees | shares				125,837
2018 Omnibus Incentive Plan | Nonqualified Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options granted to employees | shares		26,737
Stock options vesting period		10 years
2018 Omnibus Incentive Plan | Qualified Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options granted to employees | shares		99,100
Stock options vesting period		10 years
2018 Omnibus Incentive Plan | Restricted Stock Awards | Director
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Market value of shares grants per year				$ 5,000
2018 Omnibus Incentive Plan | Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate of common stock, shares authorized | shares	500,000
Director's Stock Bonus Plan | Restricted Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock options vesting period				2 years
Compensation expense				$ 8,000	$ 8,000
Attainment of retirement age of directors				72 years
Amended bonus plan expiration date				May 31, 2018
Director's Stock Bonus Plan | Restricted Stock Awards | Director
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Market value of shares grants per year				$ 5,000
Number of shares granted | shares		2,352	4,405
Number of directors | Director		7	5
Estimated fair value per share | $ / shares		$ 14.91	$ 7.10
Director's Stock Bonus Plan | Restricted Stock Awards | Board Chairman
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Market value of shares grants per year				7,500
Director's Stock Bonus Plan | Restricted Stock Awards | Committee Chairmen
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Market value of shares grants per year				$ 6,250
Director's Stock Bonus Plan | Maximum | Restricted Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares available to be granted | shares				50,000
Director's Stock Bonus Plan | Minimum | Restricted Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of scheduled board meetings attended by directors during prior year				75.00%

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Stock-Based Compensation - Summary of Assumptions used to Estimate the Value of Options Granted (Details) - 2018 Omnibus Incentive Plan - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected term	10 years	10 years
Expected stock price volatility	48.79%	41.89%
Risk-free interest rate	2.74%	2.66%
Expected dividends	0.00%	0.00%
Weighted average grant date fair value	$ 9.22	$ 3.95

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Stock-Based Compensation - Summary of Stock Option Activity (Details) - 2018 Omnibus Incentive Plan - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding, Shares, Beginning balance	688,310
Granted, Shares	125,837
Exercised, Shares	(7,160)
Forfeited or expired, Shares	(2,870)
Outstanding, Shares, Ending balance	804,117	688,310
Vested or expected to vest, Shares	804,117
Exercisable, Shares	242,422
Outstanding, Weighted Average Exercise Price, Beginning balance	$ 6.39
Granted, Weighted Average Exercise Price	14.91
Exercised, Weighted Average Exercise Price	5.91
Forfeited or expired, Weighted Average Exercise price	9.05
Outstanding, Weighted Average Exercise Price, Ending balance	7.71	$ 6.39
Vested or expected to vest, Weighted Average Exercise Price	7.71
Exercisable, Weighted Average Exercise Price	$ 6.03
Outstanding, Weighted Average Remaining Contractual Term	6 years 8 months 15 days	6 years 4 months 17 days
Vested or expected to vest, Weighted Average Remaining Contractual Term	6 years 8 months 15 days
Exercisable, Weighted Average Remaining Contractual Term	5 years 1 month 6 days
Outstanding, Aggregate Intrinsic Value	$ 7,458
Vested or expected to vest, Aggregate Intrinsic Value	7,458
Exercisable, Aggregate Intrinsic Value	$ 2,657

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Stock-Based Compensation - Summary of Nonvested Shares (Details) - Restricted Stock Awards	3 Months Ended
	Mar. 31, 2019 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Nonvested shares, Beginning balance | shares	5,200
Granted, Shares | shares	0
Forfeited, Shares | shares	0
Vested, Shares | shares	0
Nonvested shares, Ending balance | shares	5,200
Nonvested, Weighted-Average Grant Date Fair Value, Beginning balance | $ / shares	$ 12.32
Granted, Weighted-Average Grant Date Fair Value | $ / shares	0
Forfeited, Weighted-Average Grant Date Fair Value | $ / shares	0
Vested, Weighted-Average Grant Date Fair Value | $ / shares	0
Nonvested, Weighted-Average Grant Date Fair Value, Ending balance | $ / shares	$ 12.32
Nonvested, Aggregate Intrinsic Value, Ending balance | $	$ 19,448

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Shareholders' Equity - Additional Information (Details)	Sep. 26, 2018 shares	May 04, 2018 shares	Mar. 31, 2019 shares	Dec. 31, 2018 shares
Class Of Stock [Line Items]
Reverse stock split, description		1-for-5 reverse stock split
Reverse stock split, conversion ratio		0.2
Number of issued shares before reverse stock split		46,268,359
Number of issued shares after reverse stock split		9,254,073
Number of additional shares issued to shareholders with fractional shares		401
Preferred stock, shares authorized			25,000,000	25,000,000
Preferred stock, shares issued			0	0
Preferred stock, shares outstanding			0	0
Common stock, shares authorized			300,000,000	300,000,000
Common stock, shares issued			11,902,715	11,893,203
Common stock, shares outstanding			11,902,715	11,893,203
Class B Nonvoting Common Stock Exchanged for Voting Common Stock
Class Of Stock [Line Items]
Shares converted to common stock	100,000
Class C Nonvoting Common Stock Exchanged for Voting Common Stock
Class Of Stock [Line Items]
Shares converted to common stock	261,444
Class B Nonvoting Common Stock
Class Of Stock [Line Items]
Common stock, shares issued			0	0
Common stock, shares outstanding			0	0
Class C Nonvoting Common Stock
Class Of Stock [Line Items]
Common stock, shares issued			0	0
Common stock, shares outstanding			0	0

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Fair Value Measurements - Summary of Estimated Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financial assets
Other investments	$ 3,600	$ 3,766
Financial liabilities
FHLB advances		20,000
Carrying Value
Financial assets
Cash and due from banks	21,176	16,315
Interest earning deposits with other banks	236,483	109,467
Investment securities	38,217	37,922
Other investments	3,600	3,766
Loans receivable, net	781,157	758,491
Accrued interest receivable	2,505	2,526
Financial liabilities
Deposits	976,496	803,614
FHLB advances		20,000
Subordinated debt	9,968	9,965
Junior subordinated debentures	3,581	3,581
Accrued interest payable	343	279
Estimated Fair Value
Financial assets
Cash and due from banks	21,176	16,315
Interest earning deposits with other banks	236,483	109,467
Investment securities	38,180	37,865
Other investments	3,600	3,766
Loans receivable, net	770,865	743,354
Accrued interest receivable	2,505	2,526
Financial liabilities
Deposits	975,840	802,645
FHLB advances		20,000
Subordinated debt	9,945	9,804
Junior subordinated debentures	3,353	3,265
Accrued interest payable	343	279
Estimated Fair Value | Level 1
Financial assets
Cash and due from banks	21,176	16,315
Interest earning deposits with other banks	236,483	109,467
Investment securities	33,555	33,241
Estimated Fair Value | Level 2
Financial assets
Investment securities	4,625	4,624
Other investments	3,600	3,766
Accrued interest receivable	2,505	2,526
Financial liabilities
Deposits	975,840	802,645
FHLB advances		20,000
Subordinated debt	9,945	9,804
Junior subordinated debentures	3,353	3,265
Accrued interest payable	343	279
Estimated Fair Value | Level 3
Financial assets
Loans receivable, net	$ 770,865	$ 743,354

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Fair Value Measurements - Summary of Assets Measured at Fair Value on Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	$ 36,970	$ 36,660
Estimated Fair Value | Recurring
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	36,970	36,660
Estimated Fair Value | Recurring | U.S. Treasury Securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	33,555	33,241
Estimated Fair Value | Recurring | U.S. Government Agencies
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	2,968	2,957
Estimated Fair Value | Recurring | U.S. Agency Collateralized Mortgage Obligations
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	154	169
Estimated Fair Value | Recurring | U.S. Agency Residential Mortgage-Backed Securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	36	38
Estimated Fair Value | Recurring | Municipals
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	257	255
Estimated Fair Value | Recurring | Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	33,555	33,241
Estimated Fair Value | Recurring | Level 1 | U.S. Treasury Securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	33,555	33,241
Estimated Fair Value | Recurring | Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	3,415	3,419
Estimated Fair Value | Recurring | Level 2 | U.S. Government Agencies
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	2,968	2,957
Estimated Fair Value | Recurring | Level 2 | U.S. Agency Collateralized Mortgage Obligations
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	154	169
Estimated Fair Value | Recurring | Level 2 | U.S. Agency Residential Mortgage-Backed Securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	36	38
Estimated Fair Value | Recurring | Level 2 | Municipals
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	$ 257	$ 255

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Fair Value Measurements - Summary of Assets and Liabilities Classified as Level 3 and Measured at Fair Value on Nonrecurring Basis (Details) - Level 3	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Valuation Technique	Collateral valuations
Unobservable Inputs	Discount to appraised value
Measurement Input, Discount Rate
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Weighted Average Rate	10.00%	9.00%

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Fair Value Measurements - Summary of Financial Assets and Liabilities Measured at Fair Value on Nonrecurring Basis (Details) - Nonrecurring - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	$ 493	$ 493
Impaired Loans
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	493	493
Level 3
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	493	493
Level 3 | Impaired Loans
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Total Fair Value	$ 493	$ 493

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Earnings Per Common Share - Schedule of Computation of Basic and Diluted Earnings Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings Per Share [Abstract]
Net income	$ 2,808	$ 1,843
Basic weighted average number common shares outstanding	11,884,107	9,241,620
Dilutive effect of share-based compensation	299,127	5,589
Diluted weighted average number common shares outstanding	12,183,234	9,247,209
Basic earnings per share	$ 0.24	$ 0.20
Diluted earnings per share	$ 0.23	$ 0.20

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Earnings Per Common Share - Additional Information (Details) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings Per Share [Abstract]
Antidilutive securities excluded from computation of earnings per share, amount	134,037	763,264