Business Context and Reporting Period
Company: Coastal Financial Corp (CCB)
Filing Type: Form 10-Q (Unaudited)
Period Ended: June 30, 2026
Business Overview: Coastal Financial operates as a bank holding company with three segments: Community Bank (traditional banking in the Puget Sound region), CCBX (Banking-as-a-Service for digital financial providers), and Treasury & Administration. As of June 30, 2026, the company had 30 CCBX partners.
Key Financial Metrics
| Metric | Q2 2026 (3 Months) | YTD 2026 (6 Months) | Q2 2025 (3 Months) | YTD 2025 (6 Months) |
|---|---|---|---|---|
| Net Income (Loss) | $(42.1) million | $(30.1) million | $11.0 million | $20.8 million |
| Diluted EPS | $(2.76) | $(1.98) | $0.71 | $1.36 |
| Total Assets | $5.46 billion | $5.46 billion | $4.74 billion (Dec 31, 2025) | $4.74 billion (Dec 31, 2025) |
| Total Loans Receivable | $4.21 billion | $4.21 billion | $3.75 billion (Dec 31, 2025) | $3.75 billion (Dec 31, 2025) |
| Total Deposits | $4.86 billion | $4.86 billion | $4.14 billion (Dec 31, 2025) | $4.14 billion (Dec 31, 2025) |
| Net Interest Income | $89.4 million | $172.7 million | $76.7 million | $152.8 million |
| Provision for Credit Losses | $92.2 million | $143.6 million | $32.2 million | $88.0 million |
| Noninterest Income | $88.7 million | $154.8 million | $42.7 million | $106.2 million |
| Noninterest Expense | $141.1 million | $224.6 million | $72.8 million | $144.8 million |
| Net Interest Margin | 7.27% | 7.14% | 7.06% | 7.27% |
| Allowance for Credit Losses (ACL) | $213.7 million (5.08% of loans) | $213.7 million | $169.5 million (Dec 31, 2025) | $169.5 million (Dec 31, 2025) |
Material Changes vs. Prior Period
- Net Loss vs. Profit: The company reported a net loss of $42.1 million for Q2 2026, a significant reversal from the $11.0 million net income in Q2 2025. The YTD loss was $30.1 million compared to $20.8 million income in the prior year.
- Provision for Credit Losses: The provision increased to $92.2 million in Q2 2026 from $32.2 million in Q2 2025. This was driven by loan growth and a specific $22.8 million provision related to one CCBX partner where credit losses were not expected to be fully collected under the indemnification arrangement.
- Valuation Adjustment: A one-time, non-cash credit enhancement receivable valuation adjustment of $46.0 million was recorded in Q2 2026 against a CCBX partner following an assessment of collectability. This significantly impacted noninterest expense.
- Deposit Growth: Total deposits increased by $717.7 million (17.3%) year-over-year to $4.86 billion, primarily driven by a $729.9 million increase in CCBX deposits.
- Loan Growth: Total loans receivable grew by $458.7 million (12.2%) to $4.21 billion, with CCBX loans increasing by $418.2 million.
Guidance, Outlook, and Risks
- Management Commentary: Management attributes the loss primarily to the isolated credit event with a single CCBX partner ($46.0M valuation adjustment and $22.8M specific provision). They note that the Community Bank segment remains profitable with strong credit quality (0.15% nonperforming loans).
- CCBX Strategy: The company continues to optimize the CCBX portfolio by selling loans to partners to manage balance sheet size while retaining fee income. They are shifting toward lower-risk loan products, which has lowered the average CCBX yield.
- Key Risks:
- Counterparty Risk: Significant exposure to CCBX partners; if a partner cannot fulfill indemnification obligations, the Bank bears the loss.
- Stock Volatility: The filing notes significant recent volatility and a decline in stock price following the Q2 results, which could impact employee retention and lead to litigation.
- Interest Rate Risk: The balance sheet is asset-sensitive; further rate cuts could negatively impact net interest income.
- Uninsured Deposits: Uninsured deposits rose to $1.35 billion (27.7% of total deposits), though liquidity resources exceed this amount.
- Capital Adequacy: The Bank remains "well-capitalized" under Federal Reserve regulations. The company has an effective S-3 registration statement to raise up to $102.0 million in additional capital.
Investor Verification Checklist
- Partner Concentration: Verify the identity and financial health of the specific CCBX partner responsible for the $46.0 million valuation adjustment and $22.8 million specific provision.
- Indemnification Terms: Review the contractual indemnification agreements with CCBX partners to understand the extent of the Bank's recourse if partners default on reimbursement obligations.
- Loan Sales Activity: Confirm the volume and pricing of the $7.84 billion in CCBX loans sold during the six months ended June 30, 2026, and the resulting fee income retention.
- Uninsured Deposit Composition: Analyze the concentration of the $1.35 billion in uninsured deposits and the stability of the partner relationships holding these funds.
- Technology Spend: Assess the sustainability of the increased data processing and software license expenses ($14.3M in Q2 vs $5.5M in Q2 2025) driven by technology modernization.