Key Highlights

  • Diluted EPS of USD 0.89 trailed the consensus estimate of USD 0.96, after a USD 2.76 loss last quarter.
  • Total Revenue of USD 149.33 million fell short of the consensus estimate of USD 158.85 million.
  • BaaS program fee income grew 17.6% from the prior quarter and 79.6% year over year to USD 14.1 million.
  • Noninterest expense fell to USD 84.8 million from USD 141.1 million, while the Credit loss provision was USD 46.0 million.

Coastal Financial Corporation (NASDAQ:CCB) reported third quarter 2026 Net Income of USD 13.8 million, or USD 0.89 per diluted share, below the consensus estimate of USD 0.96. A year earlier the bank Holding Company earned USD 13.6 million, or USD 0.88 per share, and in the second quarter it lost USD 42.1 million, or USD 2.76 per share, after charges tied to one banking as a service partner.

Total revenue, the sum of USD 88.3 million of net interest income and USD 61.0 million of noninterest income, was USD 149.33 million, below the consensus estimate of USD 158.85 million. Chief Executive Officer Eric Sprink said the quarter better reflects the underlying Earnings power of the business, with a Return on Assets of 1.01%.

Partner Review and Credit Costs

Management updated its assessment of the affected partner relationship and found the results substantially supported the estimates set at June 30, although actual charge-offs ran modestly above projections. The USD 22.8 million specific allowance was unchanged, the valuation allowance on the credit enhancement asset eased to USD 45.6 million from USD 46.0 million, and about USD 3.1 million of added provision was not offset by credit enhancement income. Annualized net charge-offs on that portfolio were 9.81% versus 11.46% in the second quarter, and loans 30 or more days past due were 3.41% versus 4.06%.

The provision for credit losses was USD 46.0 million compared with USD 92.2 million in the second quarter. Net interest Margin was 6.59% versus 7.27%, reflecting a shift in Loan mix, while the margin net of BaaS loan expense was 3.93%. Management said 96.7% of BaaS nonperforming loans are covered by partner credit enhancements.

Capital, Deposits and Cost Actions

The company reported a common Equity Tier 1 ratio of 11.47%, a Tier 1 Leverage Ratio of 8.81% and a total risk-based Capital ratio of 13.82%. Cash and equivalents were USD 803.6 million, with USD 827.4 million of contingent borrowing capacity and no borrowings outstanding. Total deposits were USD 4.68 billion, and USD 6.29 billion was swept off balance sheet, up from USD 4.26 billion at June 30. Community bank deposits grew 4.0% to USD 1.64 billion at a cost of 1.54%.

Bluevine, a partner, agreed to be acquired by Valley National Bancorp, with closing indicated for the second quarter of 2027. Bluevine deposits on the Balance Sheet were USD 452.4 million, and management said it does not anticipate a material effect on Liquidity or funding. The company identified up to USD 20.0 million of potential annualized noninterest expense savings, to be realized gradually over four to six quarters, and an interim chief financial officer remains in place while a permanent search is in its final stages.

Data Points to Follow Next Quarter

Several items carry dates or numbers. Management said any required charge-off of the USD 22.8 million specific allowance is to be recognized by year-end, and the partner portfolio stood at USD 511 million of loans outstanding. The Bluevine transition, with USD 452.4 million of on balance sheet deposits and USD 1.85 billion swept to other banks, is tied to the second quarter 2027 closing target.

Pipeline markers include one partner in testing, two in onboarding and three signed letters of intent, along with 1.3 million off balance sheet credit card accounts and eight partner programs adding products.