Coastal Financial Corporation

What they do

The company operates through three reportable segments: the community bank, CCBX and treasury & administration. The community bank serves consumers and small to medium sized businesses in the Puget Sound region, with 12 of its 14 full-service branches in Snohomish County, where it says it is the largest community bank by deposit market share. CCBX provides banking as a service that lets digital financial service partners, companies and brands offer banking services to their customers nationwide, and had 30 partners as of June 30, 2026. It generates most community bank revenue from interest on loans and CCBX revenue from BaaS fee income and interest on loans, funded primarily by commercial and retail deposits, with secondary reliance on FHLB borrowings.

Revenue drivers

• Community bank net interest income — Lending to consumers and small to medium sized businesses in the Puget Sound region; principal products are commercial real estate, consumer, residential real estate, commercial and industrial, and construction/land loans. Funded largely by core deposits from these customer relationships.
• CCBX BaaS fee income — Fee income from 30 digital financial service partners as of June 30, 2026; total BaaS program fee income was $12.0 million in Q2 2026, up $1.1 million or 10.3% from Q1 2026.
• CCBX loan interest and credit enhancement income — The CCBX segment originates or purchases loans through partners and records BaaS credit enhancement income tied to partner indemnification arrangements; that income rose $39.5 million in Q2 2026, primarily on loan growth and portfolio mix.
• Treasury & administration — Holds investments, debt and other items not specific to the community bank or CCBX segments, including the company's securities portfolio and wholesale funding.

Recent performance

For Q2 2026 the company reported a net loss of $42.1 million, or $(2.76) per diluted share, versus net income of $11.0 million, or $0.71 per diluted share, a year earlier and $12.0 million, or $0.78 per diluted share, in Q1 2026. The loss was driven by a $68.8 million credit expense tied to one non-public CCBX partner relationship, comprising a $46.0 million credit enhancement receivable valuation adjustment and a $20.5 million increase in the provision for credit losses that included a $22.8 million specific reserve. Data processing and software license costs were $8.8 million higher, including $4.4 million of capitalized software amortization from shortened useful lives. Those items were partly offset by a $10.8 million increase in interest income, a $4.4 million increase in BaaS program income and a $1.9 million decrease in interest expense. Full-year net income was $47.0 million in 2025 on diluted EPS of $3.06, versus $45.2 million and $3.26 in 2024.

Strategy

Management describes the Q2 2026 credit event as isolated to one partner and says it does not change its view of the broader partner portfolio or BaaS model. The stated focus is disciplined, sustainable growth by deepening relationships with larger, well-established partners, expanding product offerings with existing partners, and moving new partners through testing, implementation and launch. The company continues to invest in technology modernization, risk management and infrastructure to support CCBX scalability; it attributes $4.4 million of accelerated software amortization to shortened useful lives in that modernization effort. It also cites off-balance-sheet deposit sweeping for FDIC insurance and liquidity purposes.

Risks

• Concentration in a single BaaS partner — Q2 2026 results show a $68.8 million credit expense from one non-public CCBX partner, including a $46.0 million credit enhancement valuation adjustment and a $22.8 million specific provision for losses not expected to be fully recovered under the partner's indemnification arrangement.
• Credit risk in CCBX-originated loans — The company originates and purchases loans through CCBX partners, which it identifies as exposing it to increased lending and compliance risk, and its allowance for credit losses may prove insufficient.
• Deposit, asset and income dependence on BaaS — The company states it derives a percentage of its deposits, total assets and income from deposit accounts generated through BaaS relationships, and ineffective liquidity management could adversely affect results.
• BaaS competition and partner disintermediation — Its BaaS strategy faces increasing competition, including from institutions and partners that may no longer require a third-party bank.

Outlook

Management says it expects new partnership opportunities and product launches over the remainder of 2026, supported by an active pipeline that at June 30, 2026 included one partner in testing, one in implementation onboarding and three signed letters of intent. It points to record net interest income and 9.0% loan growth alongside the credit charges, and says its capital and liquidity position support execution. CEO Eric Sprink said the company will keep partnering with organizations aligned with its long-term strategy and invest in infrastructure, technology and risk management.