Coastal Financial Corporation (CCB) Q3 2026 earnings review
Coastal Financial returns to profit, but a major partner departs
Coastal Financial returned to profit after last quarter's partner default, as its fee-based banking-as-a-service division grew rapidly. The Washington state bank earned $14 million, rebounding from a $42 million loss in June. Chief executive Eric Sprink said a review of the troubled partner confirmed prior estimates, while program fees jumped 80% from a year ago as the bank sold $6 billion of loans and moved deposits off its balance sheet.
| BaaS program fee income | $14.1M +80% from a year ago |
|---|---|
| Net income | $13.8M +1.4% from a year ago |
| Off-balance sheet credit cards | 1.33M +51% from last quarter |
| Cost savings plan | Up to $20M annualized over 4–6 quarters |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because fast growth in capital-light fees was matched by lingering partner credit costs and an upcoming customer exit. Selling loans and transferring deposits cut uninsured deposits by a third, rebuilt capital ratios, and prompted a $20 million cost-cutting plan. On the other hand, the troubled partner cost Coastal another $3 million in unrecovered loan provisions, and the acquisition of partner Bluevine will remove nearly 30% of off-balance sheet deposits by mid-2027.
The question now is whether off-balance sheet card and deposit fees can grow fast enough to replace departing partners and cover rising legal and technology bills. Either the 1.3 million off-balance sheet card accounts mature into higher-fee spenders while cost cuts take hold, or falling fees per card and partner exits cap profitability. Fourth-quarter core expenses and any further unrecovered loan provisions will tell.
🐂 Bull Case
Off-Balance Sheet Card and Deposit Fees Grow Fast
Coastal runs a banking-as-a-service division called CCBX, which lets technology companies offer bank accounts and credit cards under their own brands. To grow without tying up bank capital, the lender sells most new credit card loans to investors and transfers excess deposits to other banks, collecting processing and facilitator fees on both.
- BaaS program fee income: $14.1 million, up 79.6% from a year ago and 17.6% from last quarter
- Off-balance sheet fee-earning credit cards: 1.33 million accounts, up 452,984 accounts in the quarter
- Deposits transferred off the balance sheet: $6.29 billion, generating $1.4 million in quarterly fee income
- Loans sold during the quarter: $5.99 billion, up from $4.56 billion last quarter
This model matters because it generates revenue without adding credit risk or requiring more regulatory capital. Eight of Coastal's 21 active partners are currently adding new products, which supports further fee growth. However, by our math, transaction and interchange fees per off-balance sheet card fell to $6.01 from $12.29 a year ago because newer accounts generate smaller fees.
What to watch: transaction and interchange fees per card next quarter. A stable rate would show that the 452,984 accounts added this quarter are beginning to spend at normal levels.
Sweep Transfers Cut Uninsured Deposits and Rebuild Capital
Rapid loan growth and last quarter's partner loss had strained Coastal's capital ratios while pushing uninsured deposits—balances above the federal insurance limit—to $1.35 billion. In the third quarter, the bank used its deposit transfer network and $5.99 billion of loan sales to shrink its balance sheet by 3.3% to $5.28 billion.
Transferring $2.03 billion of additional partner deposits to outside banks cut Coastal's uninsured deposits by a third to $899.6 million, or 19.2% of total deposits by our math. At the same time, retaining $13.8 million of profit while shrinking total loans lifted its common equity Tier 1 capital ratio—a core measure of bank solvency—by 0.61 percentage points to 11.47%, easing pressure to issue new shares.
What to watch: the company's Tier 1 leverage ratio next quarter, which dipped 0.30 percentage points to 8.81% because average assets inside the quarter were still higher than at quarter-end. A rebound above 9% would confirm that the smaller balance sheet is restoring capital buffers.
🐻 Bear Case
Troubled Partner Charge-Offs Exceeded Forecasts and Caused Another Loss
"The third quarter better reflects the underlying earnings power of Coastal’s business, following a challenging second quarter for our shareholders," chief executive Eric Sprink said. In the second quarter, one CCBX partner failed to cover $68.8 million of loan and overdraft losses under its reimbursement contract. Sprink added that this quarter's review "substantially supported the estimates established at June 30, 2026".
Yet the bleeding from that relationship has not fully stopped. Coastal disclosed that "actual charge-offs were modestly higher than previously projected" on the partner's loans. Because of those defaults, the bank recorded another $3.1 million of credit loss provisions that it could not bill back to the partner "because collection of that portion was not considered probable". In addition, a cash collateral account for unsecured installment loans now sits at a negative $16.6 million balance.
This matters because partner reimbursement is the foundation of Coastal's business model. When a partner runs out of cash to replenish its reserve account, credit losses hit Coastal's own profit directly, and legal fees rose $3.8 million from a year ago partly to handle this dispute.
What to watch: any further unindemnified provision expense in the fourth quarter. Another charge would show that lifetime losses on this partner's portfolio are still outrunning management's models.
Bluevine Exit Will Remove Nearly A Quarter of Partner Deposits
Coastal relies on a small number of large technology partners for most of its funding and fee volume. One of its largest active partners, business-banking platform Bluevine, has agreed to be acquired by rival lender Valley National Bancorp. Valley expects to close the purchase in the second quarter of 2027, at which point Bluevine will end its relationship with Coastal and move its customer accounts out.
At the end of September, Bluevine accounted for $452.4 million of deposits on Coastal's balance sheet and $1.85 billion of deposits transferred off the balance sheet. By our math, Bluevine represents 14.9% of all on-balance sheet CCBX deposits and 29.4% of all off-balance sheet swept deposits. Coastal said it "does not expect a material adverse effect on liquidity or funding as a result of the anticipated termination of the Bluevine relationship" because it can pull other swept deposits back onto its balance sheet.
Pulling swept deposits back onto the balance sheet solves the funding gap, but it shrinks the off-balance sheet pool that generates facilitator fees. Successful fintech partners getting bought by larger banks is a recurring hazard for sponsor banks.
What to watch: off-balance sheet swept deposit balances and sweep fee income in mid-2027. A drop in sweep fees when Bluevine departs will show the true revenue cost of losing a mature partner.
Risks this quarter didn't answer
Three standing governance and credit risks remained unresolved in the third-quarter release, while executive turnover widened when CCBX president Brian Hamilton stepped down to become an advisor.
- Uncollateralized partner exposure: Coastal holds $150.3 million in partner reimbursement receivables against $85.0 million in net cash collateral, and still does not disclose the uncollateralized gap by partner.
- Troubled portfolio delinquencies: the bank still does not separate the troubled partner's loan balances from the rest of the CCBX book in its past-due tables.
- Permanent finance chief: retired finance chief Joel Edwards remains in the role on an interim basis following Brandon Soto's August departure, with the search in its final stages.
👓 Other Themes
Management Targets $20 Million In Annual Cost Savings
Core operating expenses—excluding partner loan, fraud and reimbursed costs—rose 25.5% from a year ago to $42.4 million by our math, as legal fees rose 4.5 percentage points of core revenue and software costs rose 1.4 points. To curb expenses, Coastal is "reviewing vendors, contractors and discretionary spending; eliminating duplication; replacing legacy systems with more efficient technology; and applying clear risk-adjusted return standards to every partner program and product". Management identified up to $20.0 million in annual savings over the next four to six quarters, and Sprink cut his base salary by 43% to $500,000.
September Rate Hike Lifts Deposit Funding Costs
The Federal Reserve raised its benchmark interest rate by 0.25 percentage points on September 17, 2026. Because most of Coastal's partner deposits reprice with short-term interest rates, its total cost of deposits edged up 0.04 percentage points from last quarter to 2.61%, and the bank noted that the rate hike will continue to affect funding costs in upcoming periods.
💲 Other KPIs
Dipped 0.05 percentage points from last quarter and 1.25 percentage points from a year ago. This non-GAAP measure shows the annualized interest yield Coastal keeps on partner loans after paying partners for servicing and credit protection. Gross CCBX loan yields fell 1.83 points in the quarter to 12.73% as loan sales shifted the book toward lower-yielding products, but lower partner payouts cushioned the net rate.
Fell $14.7 million, or 19.6% by our math, from last quarter to 1.15% of total assets, down from 1.38% in June. Nonperforming assets are loans in default or 90 days past due. The improvement came from a $14.3 million drop in problem CCBX loans as credit card delinquencies eased, and partners cover $52.8 million of the remaining balance.
Rose $63.2 million, or 4.0%, from last quarter after sitting nearly unchanged in the first half of the year. Traditional branch deposits carry an annualized interest cost of just 1.54%—less than half the 3.17% cost of CCBX deposits—because 30.0% of branch balances pay no interest.
🔮 Guidance
Unchanged. Coastal does not issue numerical targets, but reiterated its plan to keep selling loans, sweeping deposits off the balance sheet, and growing noninterest fee income as eight active partner programs add new lending and card products. The lender has one partner in testing, two in onboarding, and three signed letters of intent, while four relationships are winding down.
❓ Key Questions
What will replacing Bluevine's swept deposits cost in fees?
Bluevine represents $1.85 billion of off-balance sheet swept deposits and $452.4 million of on-balance sheet deposits. When the relationship ends in mid-2027, how much annual sweep and program fee income will leave with it?
Why is the installment loan cash reserve negative $16.6 million?
The CCBX portfolio table shows a negative $16.6 million cash reserve balance for unsecured installment loans. Does this negative balance belong entirely to the troubled partner from last quarter, or are other partners behind on collateral?
What is the baseline for the $20 million savings plan?
Management identified up to $20.0 million in annualized noninterest expense savings over four to six quarters. Will those cuts reduce core expenses below the current $42.4 million quarterly run rate, or merely offset inflation and hiring?
Why is fee revenue per off-balance sheet card falling?
Off-balance sheet credit card accounts rose 236% from a year ago to 1.33 million, but transaction and interchange fees rose 65% by our math. Are the newer accounts lower-spending programs or still ramping up?