Stock-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement [Abstract]

Stock Options and Restricted Stock

The 2018 Coastal Financial Corporation Omnibus Plan (2018 Plan) authorizes the Company to grant awards, including but not limited to, stock options, restricted stock units, 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. On May 24, 2021, the Company’s shareholders approved the First Amendment to the 2018 Plan, which increased the authorized plan shares by 600,000. The 2018 Plan replaces both the 2006 Plan and the Directors’ Stock Bonus Plan (2006 Plan). Existing awards will vest under the terms granted and no further awards will be granted under these prior plans. Shares available to be granted under the 2018 plan were 522,822 at December 31, 2022.

Stock Option Awards

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. 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.

There were no new options granted in the year ended December 31, 2022.

A summary of stock option activity under the Company’s Plan during the year ended December 31, 2022:


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, 2021	694,519	$	7.79	4.0	$	29,744
Granted	—	$	—
Exercised	(247,221)	$	5.94
Expired	(75)	$	13.35
Forfeited	(9,120)	$	10.08
Outstanding at December 31, 2022	438,103	$	8.79	4.1	$	16,968
Vested or expected to vest at December 31, 2022	438,103	$	8.79	4.1	$	16,968
Exercisable at December 31, 2022	196,902	$	8.07	3.5	$	7,767

The total intrinsic value (which is the amount by which the stock price exceeds the exercise price) of options exercised during the year ended December 31, 2022 was $10.3 million. The intrinsic value of options exercised during the year ended December 31, 2021 was $1.2 million.

As of December 31, 2022, there was $1.1 million of total unrecognized compensation cost related to nonvested stock options granted under the Plan. Total unrecognized compensation costs is adjusted for unvested forfeitures. The Company expects to recognize that cost over a weighted-average period of approximately 4.5 years. Compensation expense recorded related to stock options was $331,000 and $357,000 for the years ended December 31, 2022 and 2021, respectively.

Restricted Stock Units

In the first quarter of 2022, the Company granted 53,721 restricted stock units under the 2018 Plan to employees, which vest ratably over 4 years and 150 restricted stock units which vest ratably over 10 years. In the second quarter of 2022, the Company granted 9,831 restricted stock units under the 2018 Plan to employees, which vest ratably over 5 years and 7,000 restricted stock units that vest ratably over 3 years. Additionally, the Company granted 53,000 performance-based restricted stock units under the 2018 Plan to an employee, that vest on June 1, 2028, the quantity of which is dependent upon achievement of specified performance goals. In the third quarter of 2022, the Company granted 20,000 restricted stock units under the 2018 Plan to employees, which vest in two blocks: 10,000 vest after 5 years and the remaining 10,000 vest after 7.5 years. In the fourth quarter of 2022, the Company granted 1,054 restricted stock units under the 2018 Plan to an employee which vests in two blocks: 527 shares vest after three years and the remaining 527 shares vest after five years.

Restricted stock units provide for an interest in Company common stock to the recipient, the underlying stock is not issued until certain conditions are met. Vesting requirements include time-based, performance-based, or market-based conditions. Recipients of restricted stock units do not pay any cash consideration to the Company for the units and the holders of the restricted units do not have voting rights. The fair value of time-based and performance-based units is equal to the fair market value of the Company’s common stock on the grant date. The fair value of market-based units is estimated on the grant date using the Monte Carlo simulation model. Compensation expense is recognized over the vesting period that the awards are based. Restricted stock units are nonparticipating securities.

As of December 31, 2022, there was $8.9 million of total unrecognized compensation cost related to nonvested restricted stock units. The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately 3.4 years. Compensation expense recorded related to restricted stock units was $1.9 million and $616,000 for the year ended December 31, 2022 and 2021, respectively.

A summary of the Company’s nonvested restricted stock units at December 31, 2022 and changes during the year is presented below:


Nonvested shares - RSUs	Shares	Weighted- Average Grant Date Fair Value		Total or Aggregate Intrinsic Value
	(dollars in thousands, except per share amounts)
Nonvested shares at December 31, 2021	269,844	$	21.70	$	7,803
Granted	144,756	$	39.66
Forfeited	(6,734)	$	24.95
Vested	(27,817)	$	20.03
Nonvested shares at December 31, 2022	380,049	$	28.61	$	7,187

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.

Restricted Stock Awards

Employees

There were no new restricted stock awards granted to employees in the year ended December 31, 2022.

As of December 31, 2022, there was $45,000 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 5.1 years. Compensation expense recorded related to restricted stock awards was $9,000 and $134,000 for the years ended December 31, 2022 and 2021, respectively.

Director’s Stock Bonus

Under the 2018 Plan, in May 2022 eligible directors were each granted stock with a total market value of $35,000, and the Board Chair was granted stock with a total market value of $55,000. Committee chairs received additional stock with a market value of $2,500 for each committee chaired at the time of the award. Stock is granted as of each annual meeting date and will cliff vest one day prior to the next annual meeting date. During the vesting period, the grants are considered participating securities.

In May 2022, there were 10,396 shares granted to ten directors at an estimated fair value of $37.30 per share. As of December 31, 2022, there was $151,000 of total unrecognized compensation expense related to director stock awards. Compensation expense related to the Plan totaled $295,000 and $173,000 for the years ended December 31, 2022 and 2021, respectively.

A summary of the Company’s nonvested shares at December 31, 2022 and changes during the year is presented below:


Nonvested shares - RSAs	Shares	Weighted- Average Grant Date Fair Value		Total or Aggregate Intrinsic Value
	(dollars in thousands, except per share amounts)
Nonvested shares at December 31, 2021	10,203	$	23.78	$	274
Granted	10,396	$	37.30
Forfeited	—	$	—
Vested	(7,203)	$	26.27
Nonvested shares at December 31, 2022	13,396	$	32.94	$	195