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COASTAL FINANCIAL CORP (CCB)

Business Summary

Coastal Financial Corporation (CCB) operates as a bank holding company through its wholly-owned subsidiaries, Coastal Community Bank (the "Bank") and Arlington Olympic LLC. The Company is headquartered in Everett, Washington, and conducts its business through three reportable segments: the community bank, CCBX, and treasury & administration. The community bank segment focuses on providing banking products and services to consumers and small to medium-sized businesses in the broader Puget Sound region of Washington, operating 14 full-service banking locations, with 12 in Snohomish County and one each in King County and Island County. The CCBX segment offers banking as a service ("BaaS") to digital financial service partners, enabling them to provide banking services to their customers. As of December 31, 2025, the CCBX segment had 28 partners . The treasury & administration segment encompasses investments, debt, and other reporting items not specific to the other two segments. As of December 31, 2025, CCB reported total assets of $4.74 billion , total loans receivable of $3.75 billion , total deposits of $4.14 billion , and total shareholders' equity of $491.0 million .

CCB's core business model revolves around generating revenue primarily from interest on loans and BaaS fee income. The Company's main funding sources are commercial and retail deposits from both community bank customers and CCBX partner relationships, with secondary reliance on wholesale funding, predominantly from the Federal Home Loan Bank (FHLB). Less frequently utilized funding sources include Federal Reserve discount window borrowings, federal funds lines, brokered funds, and one-way buy through insured cash sweep (ICS) accounts. The largest expenses include provision for credit losses on loans, interest on deposits and borrowings, BaaS loan expense, salaries and employee benefits, BaaS fraud expense, legal and professional expenses, data processing and software licenses, and occupancy expense.

The community bank segment provides a wide range of banking products and services, including commercial and industrial loans, commercial real estate loans (owner-occupied, non-owner occupied, and multi-family), construction and development loans, residential real estate loans, and consumer loans. As of December 31, 2025, community bank loans receivable stood at $1.94 billion , representing 51.7% of total loans. The segment's deposits totaled $1.59 billion as of the same date.

The CCBX segment provides BaaS, allowing digital financial service partners to offer banking services to their clients. This segment's loan portfolio primarily consists of consumer and business lending, with installment loans and credit cards being the largest categories. As of December 31, 2025, CCBX loans receivable totaled $1.81 billion , accounting for 48.3% of total loans. CCBX deposits reached $2.56 billion as of December 31, 2025. The segment's revenue is derived from fixed fees, volume-based fees, and reimbursement of costs, depending on the program agreement. Credit and fraud enhancements from CCBX partners protect the Bank by indemnifying or reimbursing incurred losses.

For the fiscal year ended December 31, 2025, CCB reported net income of $47.0 million , or $3.06 per diluted share . This compares to net income of $45.2 million , or $3.26 per diluted share , for the year ended December 31, 2024. Net interest income increased by $37.0 million , or 13.6% , to $310.1 million in 2025 from $273.0 million in 2024. The net interest margin for 2025 was 7.14% , a slight decrease from 7.18% in 2024. Total noninterest income for 2025 was $231.6 million , a decrease of $76.6 million , or 24.9% , from $308.2 million in 2024. Total noninterest expense increased by $41.5 million , or 16.8% , to $287.8 million in 2025 from $246.3 million in 2024. The provision for credit losses on loans decreased to $189.4 million in 2025 from $275.7 million in 2024. The Company's efficiency ratio was 53.13% at December 31, 2025, compared to 42.38% at December 31, 2024.

Year-over-year, net income increased by $1.8 million , while diluted EPS decreased by $0.20 due to an increase in outstanding shares from a capital raise in December 2024. Net interest income grew by $37.0 million , driven by a $25.6 million increase in interest and fees on loans and a $7.7 million increase in interest income from interest-earning deposits with other banks, partially offset by a $4.2 million decrease in total interest expense. CCBX average loans receivable grew by $302.4 million , or 21.2% , while community bank average loans receivable decreased by $8.5 million , or 0.4% . Noninterest income decreased primarily due to an $85.2 million decrease in BaaS credit enhancements and a $1.8 million decrease in BaaS fraud enhancements, partially offset by a $9.4 million increase in BaaS program income. Noninterest expenses increased across several categories, including salaries and employee benefits by $15.8 million , legal and professional expenses by $4.7 million , and data processing and software licenses by $8.0 million .

During the year ended December 31, 2025, CCB transferred $6.69 billion in CCBX loans to loans held for sale, with $6.64 billion in loans sold, including $5.14 billion in new activity on previously sold credit card receivables. The Company also acquired GreenFi assets during the quarter ended December 31, 2025 . Management implemented a comprehensive remediation plan to address previously identified material weaknesses in internal control over financial reporting related to accounting and financial reporting for information provided by BaaS partners, concluding these weaknesses were remediated as of December 31, 2025 .

Business Outlook & Financial Sufficiency

Management's specific forward-looking statements and guidance ranges for the upcoming period are not explicitly provided in the filing. However, the Company's strategic priorities and anticipated trends can be inferred from the discussion.

The Company's growth strategy includes the expansion of its CCBX segment and organic growth of its community bank. For the CCBX segment, the Company continues to refine its criteria for partnerships, focusing on larger, established partners with strong management, customer bases, and finances, while also considering promising smaller partners that fit its approach and terms. The Company will continue to exit partnerships where it makes sense to do so . The CCBX segment had 28 partners as of December 31, 2025, including one signed letter of intent . The Company expects to continue to sell CCBX loans as part of its strategy to optimize its CCBX portfolio, manage growth, credit quality, portfolio, and partner limits. It retains a portion of the transaction processing fee income on sold credit card receivables, which is expected to provide an ongoing and recurring revenue stream without additional on-balance sheet risk .

Operationally, the Company anticipates some continued growth in the number of employees to support CCBX activities and technology investments, but is also working to automate processes to reduce or slow future hiring growth . Data processing and software expenses are expected to increase as the Company invests more in automated processing and as it grows product lines and the CCBX segment . Marketing and promotion costs are also expected to increase as the Company expands its marketing plan . The Company continues to invest in its infrastructure and the automation of its processes to ensure scalability .

Regarding capital allocation, the Company is taking advantage of the immediate deductibility of R&D expenditures, which has positively impacted the tax provision and resulted in a deferred tax liability as of December 31, 2025 . The Company has committed up to $1.1 million in capital for technology-focused equity funds, but is not obligated to fund these commitments prior to a capital call . The Company has not historically declared or paid dividends on its common stock and does not intend to do so in the near-term, anticipating that all future earnings will be retained to support operations and finance business growth and development .

Management explicitly flagged several structural headwinds and execution risks. The BaaS strategy faces increasing competition from a growing number of financial institutions and technology-enabled banking platforms. Additionally, some current or prospective partners may seek to reduce reliance on third-party banking relationships by obtaining their own bank charters, which could reduce demand for CCB's BaaS services, terminate existing partnerships, and adversely affect deposit, fee income, or other revenue growth . Competition in the BaaS market may also increase operating and compliance costs, reduce pricing flexibility, or limit revenue growth . The Company is also subject to potential business risk from actions by regulators related to CCBX relationships, including restrictions on the businesses served or the number of relationships the Company can hold, which could reduce demand for services, future revenue, and limit growth .

Geographic, regulatory, and macro factors identified as constraints include the evolving regulatory and supervisory framework applicable to AI, which may limit the Company's ability to deploy or expand AI-enabled tools or incur additional compliance, governance, or operational costs . The Company is subject to additional state and local taxes and related reporting requirements as CCBX operations and employees expand into new states, which may have an adverse impact on its business . Changes in U.S. trade policies, including tariffs and retaliatory tariffs, may increase costs for customers, disrupt supply chains, reduce demand for products, or compress operating margins, thereby impacting customers' financial performance and liquidity, increasing credit risk, and reducing demand for banking services . The global economic environment is characterized by heightened uncertainty, with uneven growth, persistent inflationary pressures, elevated interest rates, and uncertain fiscal and monetary policy paths. Geopolitical developments, including conflicts in Russia-Ukraine and the Middle East, contribute to uncertainty in global financial markets, supply chains, and commodity prices .

Management Sentiments & Priorities

Management's overall tone is one of strategic growth and adaptation, particularly emphasizing the expansion of the CCBX segment and continuous investment in technology and risk management infrastructure. They explicitly state that net income is up, but net income per diluted share is down as a result of the capital raise in December 2024 that increased the number of shares outstanding . Management highlights the importance of refining CCBX partnership criteria, focusing on larger, established partners while also considering promising smaller ones, and the ongoing strategy to optimize the CCBX portfolio through loan sales to manage growth, credit quality, and partner limits . They anticipate continued growth in employee numbers to support CCBX and technology investments, alongside efforts to automate processes to slow future hiring growth . Key strategic priorities include investing in infrastructure and process automation for scalability, managing CCBX credit and concentration levels, and retaining a portion of transaction processing fee income on sold credit card receivables for ongoing revenue without balance sheet risk .

Risk Factors

The most material risks disclosed in the filing include interest rate risk, where fluctuations in interest rates, particularly a flattening yield curve or sustained elevated rates, could compress net interest income and increase borrower default potential . Credit risk is significant, especially with the commercial real estate loan portfolio totaling $1.29 billion and commercial and industrial loans at $454.1 million , which are susceptible to economic downturns and property value declines. The allowance for credit losses may prove insufficient, particularly with the higher expected losses in the CCBX portfolio, and if CCBX partners fail to fulfill credit enhancement obligations, the Bank would be exposed to additional losses . Operational risks are substantial, stemming from reliance on information technology and third-party service providers, with potential for system failures, security breaches, and cybersecurity threats, including ransomware and malware attacks, which could disrupt operations, damage reputation, and incur financial liabilities . The Company also faces compliance and regulatory risks, particularly in its CCBX segment, where partners' non-compliance with servicing policies or lending laws could lead to liability or enforcement actions . Regulatory scrutiny of commercial real estate concentrations, where total non-owner-occupied commercial real estate loans represent 170.9% of the Bank's total risk-based capital, could lead to restrictions on growth and adversely affect earnings . Furthermore, the Company previously identified material weaknesses in internal control over financial reporting related to accounting and financial reporting for information provided by BaaS partners, which, despite remediation, highlight ongoing control effectiveness risks .

References

  1. [1] Item 1, Business — Our Company
  2. [2] Item 1, Business — Our Company
  3. [3] Item 1, Business — Our Company
  4. [4] Item 1, Business — Our Company
  5. [5] Item 1, Business — Our Company
  6. [6] Item 7, MD&A — Segment Information
  7. [7] Item 7, MD&A — Segment Information
  8. [8] Item 7, MD&A — Segment Information
  9. [9] Item 7, MD&A — Segment Information
  10. [10] Item 7, MD&A — Net Income
  11. [11] Item 7, MD&A — Net Income
  12. [12] Item 7, MD&A — Net Income
  13. [13] Item 7, MD&A — Net Income
  14. [14] Item 7, MD&A — Net Income
  15. [15] Item 7, MD&A — Net Interest Income
  16. [16] Item 7, MD&A — Net Interest Income
  17. [17] Item 7, MD&A — Net Interest Income
  18. [18] Item 7, MD&A — Net Interest Income
  19. [19] Item 7, MD&A — Net Interest Income
  20. [20] Item 7, MD&A — Noninterest Income
  21. [21] Item 7, MD&A — Noninterest Income
  22. [22] Item 7, MD&A — Noninterest Income
  23. [23] Item 7, MD&A — Noninterest Income
  24. [24] Item 7, MD&A — Noninterest Expense
  25. [25] Item 7, MD&A — Noninterest Expense
  26. [26] Item 7, MD&A — Noninterest Expense
  27. [27] Item 7, MD&A — Noninterest Expense
  28. [28] Item 7, MD&A — Provision for Credit Losses
  29. [29] Item 7, MD&A — Provision for Credit Losses
  30. [30] Item 7, MD&A — Operating Efficiency
  31. [31] Item 7, MD&A — Operating Efficiency
  32. [32] Item 7, MD&A — Net Income
  33. [33] Item 7, MD&A — Net Income
  34. [34] Item 7, MD&A — Net Interest Income
  35. [35] Item 7, MD&A — Net Interest Income
  36. [36] Item 7, MD&A — Net Interest Income
  37. [37] Item 7, MD&A — Net Interest Income
  38. [38] Item 7, MD&A — Net Interest Income
  39. [39] Item 7, MD&A — Net Interest Income
  40. [40] Item 7, MD&A — Net Interest Income
  41. [41] Item 7, MD&A — Noninterest Income
  42. [42] Item 7, MD&A — Noninterest Income
  43. [43] Item 7, MD&A — Noninterest Income
  44. [44] Item 7, MD&A — Noninterest Expense
  45. [45] Item 7, MD&A — Noninterest Expense
  46. [46] Item 7, MD&A — Noninterest Expense
  47. [47] Item 7, MD&A — Loans Held For Sale
  48. [48] Item 7, MD&A — Loans Held For Sale
  49. [49] Item 7, MD&A — Loans Held For Sale
  50. [50] Item 1, Business — Our Markets
  51. [51] Item 1A, Risk Factors — We previously identified material weaknesses in our internal control over financial reporting, and any failure to maintain effective internal controls in the future could adversely affect our business, financial condition, and results of operations.
  52. [52] Item 1, Business — CCBX segment (BaaS)
  53. [53] Item 7, MD&A — Loans Held For Sale
  54. [54] Item 7, MD&A — Salaries and Employee Benefits
  55. [55] Item 7, MD&A — Data Processing and Software Licenses
  56. [56] Item 7, MD&A — Marketing
  57. [57] Item 7, MD&A — Community Bank
  58. [58] Item 7, MD&A — Income Tax Expense
  59. [59] Item 1, Business — Investments
  60. [60] Item 1, Business — Investments
  61. [61] Item 5, Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  62. [62] Item 1A, Risk Factors — Our banking-as-a-service (“BaaS”) strategy faces increasing competition, including from institutions and partners that may no longer require a third-party bank.
  63. [63] Item 1A, Risk Factors — Our banking-as-a-service (“BaaS”) strategy faces increasing competition, including from institutions and partners that may no longer require a third-party bank.
  64. [64] Item 1A, Risk Factors — We may be subject to potential business risk from actions by our regulators related to CCBX relationships.
  65. [65] Item 1A, Risk Factors — Risks Related to Artificial Intelligence and Emerging Technologies
  66. [66] Item 1A, Risk Factors — We are subject to additional state and local taxes as a result of CCBX operations.
  67. [67] Item 1A, Risk Factors — Changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition and results of operations.
  68. [68] Item 1A, Risk Factors — National and global economic and other conditions could adversely affect our future results of operations or market price of our stock.
  69. [69] Item 1A, Risk Factors — We are subject to interest rate risk, and fluctuations in interest rates may adversely affect our earnings.
  70. [70] Item 1A, Risk Factors — Our commercial real estate lending activities expose us to increased lending risks and related credit losses.
  71. [71] Item 1A, Risk Factors — Our commercial business lending activities expose us to additional lending risks.
  72. [72] Item 1A, Risk Factors — Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.
  73. [73] Item 1A, Risk Factors — We are dependent on our information technology and telecommunications systems and third-party service providers; systems failures, interruptions, security breaches and cybersecurity threats could have an adverse effect on our business, financial condition and results of operations.
  74. [74] Item 1A, Risk Factors — We originate and purchase loans through our CCBX partners, which exposes us to increased lending and compliance risks.
  75. [75] Item 1A, Risk Factors — Imposition of limits by the bank regulators on commercial real estate lending activities could curtail our growth and adversely affect our earnings.
  76. [76] Item 1A, Risk Factors — Imposition of limits by the bank regulators on commercial real estate lending activities could curtail our growth and adversely affect our earnings.
  77. [77] Item 1A, Risk Factors — We previously identified material weaknesses in our internal control over financial reporting, and any failure to maintain effective internal controls in the future could adversely affect our business, financial condition, and results of operations.
  78. [78] Item 7, MD&A — Net Income
  79. [79] Item 7, MD&A — CCBX
  80. [80] Item 7, MD&A — Salaries and Employee Benefits
  81. [81] Item 7, MD&A — Loans Held For Sale

Analysis on 5/20/2026