CCB — Q2 2026 Financial Report Analysis

One fintech partner turned a profitable quarter into a $42 million loss

Coastal Financial, the Everett, Washington holding company for Coastal Community Bank, reported a net loss of $42.1 million, or $(2.76) per diluted share, for Q2 2026, against a profit of $11.0 million ($0.71) a year earlier. Almost all of the swing came from one partner in CCBX, its banking-as-a-service (BaaS) arm, which lets fintech apps offer loans, cards and deposit accounts using Coastal's bank charter. The company booked $68.8 million of credit expense tied to that one, non-public partner, because it no longer expects the partner to cover losses it is contractually supposed to cover. Everything else in the bank kept growing: net interest income hit a record $89.4 million, up 16.4%, and loans grew 9.0% in the quarter.

At a glance

• $68.8 million of one-partner charges ($46.0 million written off a receivable from the partner, plus a $22.8 million specific loan-loss provision). Without them, pre-tax income would have been roughly flat on a year ago, by our arithmetic.
• CET1 ratio of 10.86%, down from 12.08% in March. CET1 is the bank's core loss-absorbing capital as a share of its risk-weighted assets. Management says the charges cost about one percentage point. It is still well above the 6.5% "well capitalized" line.
• Net interest margin of 7.27%, roughly double a typical US bank's. The margin is the gap between what the bank earns on loans and pays on deposits, as a share of earning assets. After the share CCBX pays out to its partners, the comparable figure is 3.98% (a non-GAAP measure).

Q2 2026 key figures

The efficiency ratio is noninterest expense as a share of revenue, so lower is better. Coastal's revenue line is unusually large for a $5.5 billion-asset bank because of how partner reimbursements are booked, explained below.

How the BaaS accounting works, and where it broke

CCBX loans come with a guarantee. When a fintech partner's customers default, the partner pays Coastal back under a "credit enhancement" agreement. Under US accounting rules Coastal still has to book the expected loss as a provision, but it also books an equal asset, the amount it expects the partner to pay, as noninterest income ("BaaS credit enhancements"). Normally the two cancel out. That is why CCBX provisions of $94.3 million in the quarter look alarming but mostly aren't: $70.7 million came back as credit-enhancement income.

The arrangement only works if the partner can pay. The 10-Q says the company recorded "its initial valuation adjustment of $46.0 million against a portion of the credit enhancement asset related to one CCBX partner" after assessing whether the money was collectible. On top of that, it set aside a "$22.8 million specific provision related to one partner relationship for credit losses not expected to be fully collected under the partner's indemnification arrangement." Separately, the 10-Q discloses that a reclassified negative deposit account (an overdrawn account recorded as a loan) for one partner, more than 90 days past due, totaled $22.8 million at June 30. The amount matches the specific provision, though the filing does not explicitly connect the two.

This is the first time Coastal has written down a partner's guarantee. The filing gives no partner name. Management calls it "an isolated issue pertaining to one partner." What this quarter proves is that the guarantee is only as good as the partner's balance sheet. That is the core counterparty risk of the BaaS model. The earnings release's own appendix says the bank "would be exposed to additional loan and deposit losses" if a partner cannot meet its obligations.

Segment results: the community bank had a good quarter

Coastal reports three segments. Their pre-tax results show where the loss sits:

• Community bank: pre-tax income rose 66% year on year. Net interest income was $22.9 million (vs $20.0 million), the loan yield held at 6.57%, and deposit costs fell to 1.46% from 1.77% after the Fed's 2025 rate cuts. Loans were essentially flat in the quarter at $1.98 billion. Credit is clean: net charge-offs were $54,000, and the allowance was released by $2.2 million.
• CCBX: segment net interest income rose 18.5% to $62.2 million on 28.2% growth in average loans. CCBX loans ended at $2.23 billion, up 18.1% in the quarter, even after Coastal sold $4.56 billion of CCBX loans during the quarter ($3.68 billion of that was new credit-card spending under forward-flow agreements, meaning pre-agreed ongoing sales to outside buyers). Coastal keeps part of the transaction fees on sold cards without carrying the credit risk. Off-balance-sheet cards with fee potential grew 180.9% year on year to 881,659.
• CCBX yield trend: the CCBX loan yield fell to 14.56% from 16.22% a year ago. The 10-Q attributes this to lower rates plus a deliberate shift "with a greater proportion of lower-risk loan products." That shift shows up in credit: CCBX net charge-offs fell to 9.37% of average loans from 11.71%.

Fee income: the cleanest growth line

BaaS program income (servicing fees, transaction and interchange fees, and expense reimbursements) rose to $12.0 million, up 10.3% on Q1 and 57.0% year on year. Interchange is the small fee a merchant pays each time a card is swiped. Within that total, transaction and interchange fees were $6.8 million (vs $5.1 million) and servicing fees $2.9 million (vs $1.9 million). Deposit-sweep income, which comes from moving partner deposits to other banks so customers stay within FDIC insurance limits, reached $1.2 million, up from $357,000 a year earlier. This income does not depend on the partner credit guarantees, and it is the part of CCBX most likely to keep compounding.

Takeaway: Excluding the one partner's $68.8 million hit, Coastal's two businesses grew: record net interest income, a community bank whose pre-tax profit rose 66%, and BaaS fees up 57%. But Q2 showed that the partner guarantees, which make CCBX's ~9% loss rate tolerable, can fail. The $46.0 million valuation adjustment is the number that matters more than the quarter's loss.

What the headline numbers hide

• Revenue growth is mostly accounting gross-up. Total revenue rose 49.1%, but $41.0 million of the $46.0 million year-on-year rise in noninterest income was BaaS credit and fraud enhancements. That is reimbursement income that mirrors provisions and fraud expense, not new earnings. Net interest income (+16.4%) and BaaS program income (+57.0%) are the better growth gauges. The same gross-up distorts the efficiency ratio: 79.24% this quarter against 55.85% in Q1. The company says swings in that ratio are "driven by changes in the credit enhancement on CCBX loans."
• Underlying profit was roughly flat, not up. Adding back the $68.8 million of partner charges to the $(55.2) million pre-tax loss gives about $13.6 million, against $14.4 million pre-tax a year ago (our calculation, not a company-reported adjusted figure). That $13.6 million is also after a $4.4 million one-off of accelerated software amortization: the company shortened the useful lives of systems being replaced in its technology modernization. Total data processing and software costs rose to $14.3 million from $5.5 million.
• Cash conversion looks fine on paper, for non-cash reasons. H1 operating cash flow was $152.8 million against a $30.1 million net loss. The gap is mainly non-cash items: $143.6 million of provisions and the $46.0 million valuation adjustment. Real losses show up as charge-offs, and those are recovered from partners when the guarantee works.
• No buyback or tax effect flatters the numbers. Diluted shares rose slightly (15.24 million weighted). The $13.1 million tax benefit simply reflects the pre-tax loss. Coastal pays no dividend.
• Credit quality ex-partner is stable to better. Total net charge-offs were 4.90% annualized, down from 5.54% a year ago. Nonperforming loans were 1.79% of loans, and $67.0 million of the $69.0 million of nonperforming CCBX loans is covered by partner credit enhancements. The allowance for credit losses rose to 5.08% of loans (8.90% on CCBX loans).
• Book value took the hit. Book value per share fell to $30.33 from $33.05 in March, back below the $30.59 of a year ago. Shareholders' equity fell $40.3 million in the quarter.

Funding and liquidity

On-balance-sheet deposits fell 3.6% in the quarter to $4.86 billion, but that was by choice. CCBX deposits on the books fell $180.5 million because more balances were swept to other banks. Off-balance-sheet sweeps rose to $4.26 billion from $2.81 billion in March, which management says shows "continued growth in partner balances." Coastal had $1.01 billion of cash, $1.12 billion of untapped borrowing capacity and no FHLB or Fed borrowings drawn. Estimated uninsured deposits fell to $1.35 billion from $1.77 billion.

Since the quarter: a large deposit partner is being acquired

On September 28, 2026, Coastal filed an 8-K after fintech partner Bluevine agreed to be acquired by Valley National Bancorp, which owns its own bank. About $447 million of Bluevine-related deposits sat on Coastal's balance sheet as of September 25, roughly 9% of June 30 total deposits. Coastal says it "does not currently expect the Transaction, or any resulting changes to the Bluevine deposit relationship, to have a material adverse effect" on liquidity or funding. It points to its ability to pull swept deposits back onto its own balance sheet, and with $4.26 billion swept off at June 30 that claim is credible. The open question is earnings more than liquidity. Partner deposits fund CCBX's lending, and an acquirer that owns a bank could eventually move those balances in-house. The filing does not say whether or when that would happen.

Outlook

Management gave no numeric guidance. Its stated direction is "strengthening relationships with larger, well-established partners" and more product launches in the rest of 2026. At June 30 the pipeline had one partner in testing, one in onboarding and three signed letters of intent, and 22 partners were active, up from 20. Three partners are winding down.

Our read: the core earnings engine is intact, but it now carries a credibility discount. Three things will show whether the partner problem was really isolated:

1. Further valuation adjustments. Any new write-down of credit-enhancement assets in Q3, at the same partner or a different one, would undercut the "isolated" framing.
2. CET1 rebuild. Coastal says its loan-sale model supports internal capital generation. A return toward 11.5–12% would show the hit is absorbed.
3. The Bluevine deposit transition. Watch how much of the $447 million leaves and what replaces it, and at what cost. Coastal has said it will give more detail with Q3 results.

The full 10-Q for this quarter is the source for the segment and cash-flow figures above. Q3 2026 results would be expected around late October, based on Coastal's usual cadence.