Business Context and Reporting Period
Company: Coastal Financial Corporation (CCB)
Filing Type: Form 8-K (Current Report)
Date of Report: March 14, 2025
Subject: Non-reliance on previously issued financial statements and restatement of historical results.
Key Financial Metrics and Impacts
The filing discloses material accounting errors related to fintech partner loans and Banking as a Service (BaaS) arrangements. While specific revenue, profit, or cash flow figures for the current period are not provided in this 8-K, the following adjustments were identified for the Affected Periods (FY 2023 and Q1-Q3 2024):
- Net Income Impact: The errors had no impact on consolidated pre-tax or net income, nor on earnings per share for any Affected Period.
- Balance Sheet Overstatement: Assets were overstated due to reconciliation errors between cash received and partner reporting. The overstatement amounts were:
- Year ended Dec 31, 2023: $3.4 million
- Three months ended Mar 31, 2024: $2.2 million
- Three months ended Jun 30, 2024: $2.0 million
- Three months ended Sep 30, 2024: $1.3 million
- Income Statement Line Items: Interest income, fees on loans, BaaS loan expenses, non-interest income, and point of sale expenses were misstated due to gross vs. net accounting treatment and policy differences.
Material Changes and Accounting Errors
The Audit Committee concluded that previously issued audited financial statements (FY 2023) and unaudited interim statements (Q1-Q3 2024) should no longer be relied upon. The material errors included:
- BaaS Accounting Policy Differences: Misstatements in interest income and BaaS loan expenses due to discrepancies between the Company's policies and those of BaaS lending partners.
- Revenue Recognition (ASU 2014-09): Reimbursement of interchange fees was incorrectly reported on a gross basis (as both non-interest income and expense) rather than a net basis as non-interest expense, as the Company acts as an agent.
- Loan Modifications: Errors in recording charge-offs, same-as-cash loans, and settlement loan modifications.
Outlook, Risks, and Management Commentary
Internal Controls: Management identified material weaknesses in Internal Control over Financial Reporting (ICFR) as of December 31, 2024, and determined these weaknesses also existed as of December 31, 2023. Specifics and the remediation plan will be detailed in the upcoming 2024 Annual Report (Form 10-K).
Next Steps: The Company plans to restate consolidated financial statements for all Affected Periods and include them in the 2024 Annual Report, expected to be filed as soon as practicable.
Risks: The filing includes a Safe Harbor statement noting that forward-looking statements regarding the restatement and filing timing are subject to risks and uncertainties.
Investor Verification Checklist
- Verify the timing and content of the upcoming Form 10-K for the year ended December 31, 2024, which will contain the restated financials.
- Review the detailed remediation plan for the identified material weaknesses in ICFR once disclosed in the 10-K.
- Confirm that the restatement does not alter the previously reported net income or EPS figures, despite the balance sheet and line-item adjustments.
- Monitor communications regarding the specific accounting policy changes for BaaS partners and revenue recognition under ASU 2014-09.