8-K/A: Coastal Financial Corporation Amends 8-K Filing to Correct Financials Related to Fintech Partnerships

Coastal Financial Corporation filed an amendment to its original Form 8-K to correct financial statement items due to accounting errors related to certain fintech partners, with no impact on net income or earnings per share.

Summary

• Coastal Financial Corporation amended its original Form 8-K filing to reflect corrections to the balance sheet, income statement, and statement of cash flows for the fiscal quarter and year ended December 31, 2024.
• The corrections resulted from accounting errors related to certain fintech partners.
• The adjustments did not impact the company's net income or earnings per share for the specified periods.
• The company filed an updated investor presentation on March 17, 2025, containing the corrected financial information.
• A completed $98.0 million capital equity raise was priced at $71.00 per share.
• The company sold $845.5 million of loans, primarily credit card receivables, and swept $273.2 million of deposits off-balance sheet.
• Diluted EPS was $0.94, compared to $0.97 in the previous quarter and $0.66 in the prior year quarter.
• The return on assets (ROA) was 1.30% for the quarter ended December 31, 2024.
• Net income was $13.4 million, down 0.7% from the previous quarter but up 48.3% from the prior year quarter.
• Core pre-tax, pre-provision net revenue (PPNR) was $17.0 million, up 2.6% compared to the previous quarter and 19.5% versus the prior year quarter.
• Total loans, net of deferred fees, increased by $72.7 million, or 2.1%, to $3.49 billion as of December 31, 2024.
• Deposits decreased by $42.0 million, or 1.2%, to $3.59 billion during the quarter ended December 31, 2024.
• Tangible book value grew 19.8% from the previous quarter and 32.5% versus the prior year quarter to $29.37 per share.
• The Bank Common Equity Tier 1 ratio grew to 11.99%, and the Bank Total Risk-based capital remained stable at 13.28%.

Sentiment

Score: 6

Explanation: The sentiment is neutral. While the company had to correct its financials, the impact on net income and EPS was negligible. The company also completed a capital raise and continues to grow its CCBX business.

Positives

• The company completed a $98.0 million capital equity raise.
• Tangible book value grew 19.8% from the previous quarter and 32.5% versus the prior year quarter to $29.37 per share.
• The Bank Common Equity Tier 1 ratio grew to 11.99%, and the Bank Total Risk-based capital remained stable at 13.28%.

Negatives

• The company had to amend its original Form 8-K filing due to accounting errors related to certain fintech partners.
• Revenue decreased 3.0% compared to the quarter ended September 30, 2024.
• Deposits decreased by $42.0 million, or 1.2%, to $3.59 billion during the quarter ended December 31, 2024.

Risks

• The company's reliance on fintech partners introduces accounting complexities and potential for errors.
• Fluctuations in deposit levels could impact the company's funding costs and overall financial performance.
• The company's exposure to CCBX loans and the associated credit and fraud risks require careful monitoring and management.

Future Outlook

The company expects net interest margin to expand slightly as interest rate sensitive deposits reprice faster than CCBX loans reprice. The company will continue to work to grow the portfolio with loans that are subject to increased underwriting standards. The company expects transaction and interchange fees to increase and servicing and other BaaS fees to decrease and as partner activity grows and contracted minimum fees are replaced with recurring fees which exceed those minimum fees.

Industry Context

Coastal Financial's focus on Banking as a Service (BaaS) reflects a broader trend in the financial industry, where traditional banks are partnering with fintech companies to expand their reach and offer innovative services. The company's emphasis on compliance and risk management is crucial in this evolving landscape, as regulatory scrutiny of fintech partnerships increases.

Comparison to Industry Standards

• Coastal Financial's performance can be compared to other community banks and BaaS providers.
• Key metrics to consider include ROA, efficiency ratio, and deposit growth.
• Companies like LendingClub and Green Dot also operate in the fintech and BaaS space, providing benchmarks for revenue growth and profitability.
• Comparing Coastal's loan portfolio composition and credit quality metrics to peers can provide insights into its risk management practices.

Stakeholder Impact

• Shareholders are impacted by the correction of financial statements, although the impact on net income and EPS was negligible.
• Customers may be indirectly affected by the company's focus on higher quality loan originations and risk management.
• Fintech partners are impacted by the company's due diligence process and ongoing monitoring of the CCBX loan portfolio.

Next Steps

• The company will continue to monitor and actively manage the CCBX loan portfolio.
• The company will continue to sell CCBX loans to strengthen the balance sheet.
• The company will optimize the CCBX portfolio through higher quality loan originations, loan sales, new products and build on existing relationships.

Key Dates