Coastal Financial earns $13.8 million in third quarter despite missing estimates
Key Facts
Coastal Financial returned to profitability in the third quarter of 2026, posting net income of $13.8 million, or $0.89 per diluted share, compared with a net loss of $42.1 million, or $2.76 per share, in the second quarter. Year over year, net income rose from $13.6 million, or $0.88 per share, in the third quarter of 2025. But results fell short of Zacks estimates: adjusted earnings per share were $0.89 versus consensus of $0.99, a negative surprise of 10.10%. Zacks also reported revenue of $149.33 million, 14.06% below its estimate, compared with $144.68 million a year earlier. The company reported results for the quarter ended September 30 on October 29.
The quarterly comparison shows the return to profit followed a second-quarter loss that included a large accounting adjustment to the value of credit enhancement receivables. Noninterest expenses fell to $84.8 million from $141.1 million, a decline of $56.3 million; the company attributed the decrease mainly to the absence of a $46.0 million adjustment recorded in the prior quarter. It also said lower data processing and software costs, as well as expenses for loans in its banking-as-a-service business, helped reduce expenses. Year over year, return on average assets was 1.01%, compared with 1.19% in the same quarter of 2025, while it was negative 3.32% in the second quarter. These figures reflect a sharp improvement from the prior period, while return on assets remained below its year-earlier level.
On the revenue side, banking-as-a-service program fee income rose to $14.1 million, up 17.6% from the second quarter and 79.6% from the same period last year. The fee growth supports the company's model of providing banking services to external partners and programs. However, net interest income of $88.3 million fell 1.2% quarter over quarter, despite rising 13.4% year over year. Net interest margin narrowed to 6.59% from 7.27% in the second quarter. The indicators highlight a divergence between program fee growth and the movement in interest income and margin during the quarter.
Net loan charge-offs fell to $49.9 million from $50.6 million in the second quarter, but remained above $49.2 million a year earlier. Charge-offs as a share of average loans declined to 4.43%, versus 4.90% in the prior quarter and 5.37% in the third quarter of 2025. Chief Executive Eric Sprink said the company is tightening credit underwriting standards, and that improved pricing and charge-offs were beginning to show up in lower delinquencies and charge-offs while preserving yield. The company also reported a $14.7 million quarter-over-quarter decline in nonperforming assets, reflecting improvement in its community bank and CCBX portfolios. These figures place improving credit indicators alongside the continued rise in absolute charge-off amounts compared with last year.
Loan activity offers another view of the business model: Coastal sold $5.99 billion in loans in the third quarter, including $4.69 billion in additional credit card receivables, compared with $4.56 billion in loans sold in the second quarter. At the end of September, cash and cash equivalents totaled $803.6 million, with an additional $827.4 million in conditional borrowing capacity. The company said its Common Equity Tier 1 capital ratio was 11.47% and that it and its banking subsidiary remained well capitalized. The company cites liquidity and additional borrowing capacity as resources for funding operations and meeting its needs. These indicators are also tied to changes in partner relationships and deposit flows.
In this context, Coastal said Valley National Bancorp's planned acquisition of Bluevine is expected to close in the second quarter of 2027, at which point the Bluevine relationship is expected to end and related deposits to leave the company. It added that it expects to replace the related on-balance-sheet funding and does not anticipate a material adverse effect on liquidity or funding. On expenses, the company identified potential savings of up to $20.0 million annually, which it expects to achieve gradually over the next four to six quarters. Executive Chairman Chris Adams said the existing platform provides room for growth and that management is focused on removing duplication and phasing out older vendors to build a more efficient institution. Executing the cost cuts and managing the transition of the Bluevine relationship are therefore among the key developments the company has outlined for the coming quarters.
In the broader economic context, the U.S. Bureau of Economic Analysis' advance estimate showed real gross domestic product grew at an annual rate of 3.4% in the third quarter of 2026, versus 2.2% in the second quarter. The next estimate is scheduled for release on November 25, 2026. Coastal shares, trading under the ticker CCB, closed at $47.13 on October 28, after closing at $45.66 on October 27 and $45.08 on October 26. Investing.com also reported a close of $47.13 on October 29, and said the stock had risen 14.98% over three months and fallen 54.86% over 12 months. These figures provide economic and market context for the period; the GDP data were not directly linked to the company's results.