Coastal Financial Corp.: Q1 FY2026 earnings call

What management said about Q1 FY2026, from the documents filed with the SEC on 29 April 2026: press release. The quarter’s numbers.

Read the filing

Key takeaways

• Net income declined from prior quarter: Net income was $12.0 million, or $0.78 per diluted share, against $12.6 million, or $0.82, in the fourth quarter of 2025 and $9.7 million, or $0.63, a year earlier. Source
• Total assets and loans grew: Total assets rose $922.4 million, or 19.5%, to $5.66 billion, with interest earning deposits with other banks up $740.0 million and loans receivable up $109.8 million. Source
• CCBX loans grew despite sales: CCBX loans rose $76.6 million, or 4.2%, to $1.88 billion, despite $3.28 billion of loans sold during the quarter. Credit card loans make up 36.8% of CCBX loans. Source
• Noninterest expense rose $10.6 million: Noninterest expense was $83.5 million, compared with $72.8 million in the prior quarter. Management attributed the rise mainly to legal fees, BaaS loan and fraud expense, and data processing. Source
• Margin net of BaaS expense fell: Net interest margin net of BaaS loan expense was 3.90%, against 4.26% in the prior quarter and 4.28% a year earlier. This is a non-GAAP measure. Source
• CCBX provision increased: The CCBX provision for credit losses was $52.6 million, up from $45.9 million, mainly from loan growth and a change in loan mix. The CCBX allowance reached $154.3 million. Source
• Uninsured deposits increased: Uninsured deposits were $1.77 billion, up from $641.3 million, reflecting timing of new partner deposits in sweep and reciprocal deposit networks. Source

“We continued to see strength in our CCBX segment in the first quarter, driven by the performance of our existing partners, new products and the addition of new relationships.”

CEO Eric Sprink

What changed from last quarter

• New: The company added a new CCBX correspondent bank partner relationship, bringing total CCBX relationships to 30 at March 31, 2026. Source

Results and growth drivers

• Net income declined from prior quarter: Net income was $12.0 million, or $0.78 per diluted share, against $12.6 million, or $0.82, in the fourth quarter of 2025 and $9.7 million, or $0.63, a year earlier. Source
• Total assets and loans grew: Total assets rose $922.4 million, or 19.5%, to $5.66 billion, with interest earning deposits with other banks up $740.0 million and loans receivable up $109.8 million. Source
• Return on assets eased: Return on average assets was 0.98%, against 1.09% in the prior quarter and 0.93% a year earlier. Management attributed the quarter-over-quarter decline mainly to higher noninterest expense. Source

Segments: CCBX and community bank

• CCBX loans grew despite sales: CCBX loans rose $76.6 million, or 4.2%, to $1.88 billion, despite $3.28 billion of loans sold during the quarter. Credit card loans make up 36.8% of CCBX loans. Source
• CCBX deposits rose on new partners: CCBX deposits rose $910.4 million, or 35.6%, to $3.47 billion, driven largely by new partner relationships. The increase excludes deposits swept off balance sheet. Source
• Community bank loans rose modestly: Community bank net loans rose $33.3 million, or 1.7%, to $1.98 billion. Commercial real estate loans rose $14.7 million within that growth. Source
• Community bank deposits eased: Community bank deposits fell $13.4 million, or 0.8%, to $1.57 billion, attributed to normal balance fluctuations. Noninterest bearing deposits were 31.9% of segment deposits. Source

“As the rate environment evolves, we expect some pressure on margins, but we believe our diversified business model and funding base continue to position us well.”

CEO Eric Sprink

Partners and products

• CCBX relationships reached 30: Total CCBX relationships were 30 at March 31, 2026, including two in testing, three in onboarding, two signed letters of intent and three winding down. Source
• Partner program fee income rose: Total BaaS program fee income was $10.9 million, up $2.0 million or 22.3% from the prior quarter. Source
• Partner relationship exits planned: Management said it will exit select relationships as part of portfolio optimization, aimed at enhancing partner quality and long-term value creation. Source

Costs and expenses

• Noninterest expense rose $10.6 million: Noninterest expense was $83.5 million, compared with $72.8 million in the prior quarter. Management attributed the rise mainly to legal fees, BaaS loan and fraud expense, and data processing. Source
• Legal fees rose on partner activity: Legal and professional fees rose $2.6 million, driven by a CCBX partner's professional fees tied to the prior quarter's asset acquisition. Source
• BaaS expense increases continued: BaaS loan expense rose $5.7 million and BaaS fraud expense rose $2.0 million on the quarter. Partner reimbursements of $2.4 million were recorded in noninterest income. Source
• Technology spending increased: Data processing and software license costs rose $665,000 on the quarter, from continued investment in growth, technology and risk management. Source
• Partners reimburse some costs: Certain CCBX program expenses are reimbursed by partners. The company records all expenses in noninterest expense and the reimbursements in noninterest income. Source

“We expect growth to continue as current programs scale, new products are introduced, and we leverage our experience in the BaaS space to support disciplined, sustainable expansion”

CEO Eric Sprink

Margins and pricing

• Margin net of BaaS expense fell: Net interest margin net of BaaS loan expense was 3.90%, against 4.26% in the prior quarter and 4.28% a year earlier. This is a non-GAAP measure. Source
• BaaS expense drove the decline: The decline was driven mainly by higher BaaS loan expense. Higher partner loan yields, passed through to partners, partly offset it, and loan sale timing contributed to a lesser extent. Source
• Partner pricing changes under way: Changes to partner agreements and pricing raised BaaS loan expense and reduced loan yield net of that expense. Management said these align with enhanced partner economics. Source
• CCBX loan yield edged up: CCBX loan yield rose 0.12% on the quarter to 15.01%, which management attributed to a change in overall loan mix. Source

Credit quality and provisions

• CCBX provision increased: The CCBX provision for credit losses was $52.6 million, up from $45.9 million, mainly from loan growth and a change in loan mix. The CCBX allowance reached $154.3 million. Source
• Net charge-off rate eased: Net charge-offs were 5.18% of average loans, down from 5.31% in the prior quarter. CCBX net charge-offs were 10.46% of CCBX average loans. Source
• Most CCBX nonperforming loans covered: Of $62.8 million in nonperforming CCBX loans, $60.9 million were covered by partner credit enhancements. Some partners place loans on nonaccrual to aid collection, and $22.3 million of these are under 90 days past due. Source
• Allowance ratio declined: The allowance was $172.4 million, or 4.47% of loans receivable, down from 4.52% in the prior quarter. The community bank allowance was 0.92% of its loans. Source
• Partners indemnify CCBX losses: Partner contracts fully indemnify the company against fraud and cover 98.8% of credit risk on CCBX loan partner balances. The company notes counterparty exposure if a partner cannot perform. Source

Capital, liquidity and funding

• Company and bank well capitalized: Both the company and the bank remained well capitalized under prompt corrective action standards at March 31, 2026, with ratios shown in the release tables. Source
• Equity rose on earnings: Shareholders' equity rose $12.8 million, from $12.0 million of net earnings and an increase in common stock from equity awards vested and exercised. Source
• Liquidity capacity available: Cash on hand was $1.50 billion, with borrowing capacity of $636.6 million from the discount window and FHLB, plus $50.0 million from a correspondent bank. No borrowings were outstanding. Source
• Uninsured deposits increased: Uninsured deposits were $1.77 billion, up from $641.3 million, reflecting timing of new partner deposits in sweep and reciprocal deposit networks. Source
• Deposits swept off balance sheet: The company swept off $2.81 billion of deposits for FDIC insurance and liquidity purposes at quarter end, and earned $710,000 of noninterest income on the sweep. Source

Commitments and demand

• Unused commitments exceed expected use: Commitments to extend credit totaled $2.59 billion, but management does not anticipate customers using the full amount because of CCBX partner and portfolio limits. Source
• Credit card accounts with fee potential grew: Off-balance sheet credit cards with fee earning potential reached 667,023, up 116,046 on the quarter and 429,999 from a year earlier. Source
• Partner program expansions underway: Eight partner programs were in various stages of expansion during the quarter, adding products such as lines of credit, deposit programs, credit cards and other lending products. Source

Strategy and leadership

• Higher quality CCBX loans targeted: Management is originating higher quality loans with enhanced credit standards, which tend to carry lower stated rates and expected losses than some historical CCBX loans. Source
• Partner selection tightened: The company is refining partnership criteria toward larger, established partners, while selectively pursuing emerging partners aligned with its model. Source
• Technology and risk spending tied to growth: Management ties the higher noninterest expense to company growth and to investments in technology and risk management. Source
• Focus on disciplined growth: The CEO said the company's focus remains on consistent execution and building long-term value through disciplined growth. Source
• Staffing reduced year over year: Full-time equivalent employees fell to 496 from 517 a year earlier, which management described as continued discipline in staffing levels. Source

Coming up, as management said on 29 April 2026

• Deposit moderation expected in Q2: Management expects newly added deposits to moderate in the second quarter of 2026 and then normalize. Source
• Uninsured deposits to normalize: Uninsured deposits are expected to normalize during the second quarter, after timing-related increases. Source
• Product launches expected in 2026: The company expects new partnership opportunities and product launches for 2026 from its active pipeline. Source
• Continued loan sales planned: The company plans to keep selling loans to manage partner and lending limits, portfolio composition and credit quality. Source
• Card fee income expected to grow: Management expects fee income on sold credit card loans to keep growing without adding balance sheet risk or capital requirements. Source

Figures management reported

Risks management discussed

• Financial: If a partner cannot meet its contractual obligations, the bank could face additional credit losses. Management manages this counterparty risk with CCBX partners. Source
• Financial: CCBX nonperforming loans rose, with nonaccrual loans up and more loans past due 90 days still accruing. Source
• Financial: CCBX loans carry higher expected losses than community bank loans, and this is reflected in the allowance factors. Source
• Regulatory: Expansion of CCBX activities and employees into more states has increased the company's state tax exposure and overall tax rate. Source
• Operational: Individual partner portfolio limits are used to manage concentration, liquidity and counterparty risk across partners. Source

Earlier plans management reported on

• Not stated: The prior release expected pricing changes to marginally lower loan yields in the near term. The current release reports a decrease in loan yield net of BaaS expense.
• Not stated: The prior release said operating expense trends, excluding certain items, were more aligned with management expectations.

Other quarters

• Q3 FY2026 earnings call
• Q2 FY2026 earnings call
• Q4 FY2025 earnings call
• Q3 FY2025 results

Summarised with AI from the documents the company filed with the SEC. Every point is checked against the filing before it is shown: management’s own words word for word, figures against the line or table row they come from. A point that fails the check is left out. Source opens the filing at that line.