8-K: Coastal Financial Corporation Reports First Quarter 2025 Results: Deposits and Core Revenue Rise

Coastal Financial Corporation announces its first quarter 2025 results, highlighting growth in total deposits and core net revenue despite a decrease in overall revenue.

Summary

• Coastal Financial Corporation reported its financial results for the first quarter of 2025.
• Total deposits increased by $205.9 million, reaching $3.79 billion, a 5.7% increase from the previous quarter.
• Core net revenue grew by 5.4% compared to the quarter ended December 31, 2024.
• However, total revenue decreased by 4.7% compared to the previous quarter, primarily due to lower credit enhancement revenue and lower interest income on loans, offset by a decrease in BaaS loan expense.
• Diluted earnings per share (EPS) were $0.63, impacted by elevated expenses, but up 26.6% compared to the same quarter last year.
• The return on assets (ROA) was 0.93% for the quarter ended March 31, 2025.
• Net income was $9.7 million, a 27.2% decrease compared to the previous quarter but a 43.1% increase compared to the same quarter last year.
• Core pre-tax, pre-provision net revenue (PPNR) was $13.9 million, down 18.1% compared to the previous quarter but up 15.2% compared to the same quarter last year.
• The company sold $744.6 million of loans, primarily credit card receivables, and swept $406.3 million of deposits off balance-sheet.
• The company launched new deposit products with RobinHood and T-Mobile, with deposits expected to be seen in the second quarter of 2025.
• The Bank Common Equity Tier 1 ratio grew to 12.12%, and the Bank Total Risk-based capital remained stable at 13.42%.

Sentiment

Score: 6

Explanation: The document presents a mixed picture. While there are positives such as deposit growth and BaaS fee income growth, there are also negatives such as decreased revenue and increased expenses. The sentiment is neutral to slightly positive.

Positives

• Total deposits saw a substantial increase of $205.9 million, reaching $3.79 billion.
• Core net revenue experienced a growth of 5.4% compared to the previous quarter.
• Diluted EPS increased by 26.6% compared to the same quarter last year.
• Net income increased by 43.1% compared to the same quarter last year.
• The company is retaining its portion of fee income on sold credit card loans.
• The company launched new deposit products with RobinHood and T-Mobile.
• BaaS Program Fee Income grew 55.2% compared to the three months ended March 31, 2024.
• Tangible book value grew 2.1% from the last quarter and 32.3% versus the same quarter last year to $29.98 per share.
• Bank Common Equity Tier 1 ratio grew to 12.12%, Bank Total Risk-based stable at 13.42%.

Negatives

• Overall revenue decreased by 4.7% compared to the previous quarter.
• Diluted EPS was impacted by elevated expenses.
• ROA was 0.93% in the quarter ended March 31, 2025, compared to 1.30% in the previous quarter.
• Net income decreased by 27.2% compared to the previous quarter.
• Core PPNR decreased by 18.1% compared to the previous quarter.
• Noninterest expense increased 6.8% compared to the previous quarter related to the onboarding and implementation costs of several new partnerships and products within CCBX and investments in technology.

Risks

• The company's forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
• The company's reliance on BaaS partners exposes it to risks associated with their financial health and compliance.
• Continued investment in technology to build and enhance the BaaS infrastructure, increase automation, enhance operational efficiency and productivity, and new customer implementations requires significant upfront expense.
• Risk resources fluctuate based on volume of alerts, identification of higher risk customers and addition of new partners and product offerings.

Future Outlook

The company expects deposits from new programs with RobinHood and T-Mobile to start being seen in the second quarter of 2025, and anticipates net interest margin will expand slightly as interest rate sensitive deposits reprice faster than CCBX loans reprice. The company will continue to sell CCBX loans in the coming months as it works to strengthen the balance sheet by optimizing its CCBX portfolio through higher quality loan originations, loan sales, new products and build on existing relationships.

Management Comments

• We continue to focus on higher quality CCBX loans.
• We will continue to work to grow the portfolio with loans that are subject to increased underwriting standards.
• We will see lower loan yields on the higher quality loans being originated but will also see lower BaaS loan expense and expect our margins net of BaaS loan expense to be stable or grow.

Industry Context

Coastal Financial's focus on BaaS aligns with the broader trend of fintech companies partnering with traditional banks to offer innovative financial services. The company's growth in deposits and core revenue reflects the increasing demand for digital banking solutions. The emphasis on compliance and risk management is crucial in the evolving regulatory landscape for BaaS providers.

Comparison to Industry Standards

• Coastal Community Bank's deposit market share in Snohomish County is 17.46%, making it the largest bank by deposit market share in that region.
• The company's efficiency ratio of 51.59% is higher than previous quarters, indicating increased expenses.
• The company's tangible book value per share of $29.98 represents a 32.3% increase compared to the same quarter last year.
• The company's focus on core deposits, which represent 87.6% of total deposits, is a positive indicator of funding stability.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and EPS, but encouraged by the growth in deposits and core revenue.
• Employees may be affected by the company's focus on efficiency and cost management.
• Customers may benefit from the new deposit products and services offered through the BaaS program.
• Suppliers and creditors may be impacted by the company's financial performance and strategic decisions.

Next Steps

• The company will continue to monitor and actively manage the CCBX loan portfolio.
• The company will continue to sell CCBX loans in the coming months.
• The company expects deposits from new programs with RobinHood and T-Mobile to start being seen in the second quarter of 2025.
• The company will continue to work to grow the portfolio with loans that are subject to increased underwriting standards.

Key Dates

Keywords

Coastal Financial Corporation, CCBX, BaaS, deposits, revenue, earnings, loans, financial results, investor presentation, banking