Assessing Coastal Financial's Q3 2025 Earnings: Sustainable Momentum Amid Credit Challenges?

The financial services sector remains a barometer of economic resilience, and Coastal Financial Corporation's (CCB) third-quarter 2025 results offer a nuanced case study. While the company reported a rise in net income and loan growth, a significant provision for credit losses and bearish analyst forecasts raise critical questions about the sustainability of its earnings momentum. This analysis dissects the interplay of operational strength and credit risk to evaluate whether Coastal Financial's performance signals a durable recovery or a precarious balancing act.

Operational Strengths: Growth and Efficiency Gains

Coastal Financial's Q3 2025 results highlight robust operational metrics. Net income rose to $13.6 million, or $0.88 per diluted share, outpacing the $11.0 million in Q2 2025 and matching the $13.5 million in Q3 2024, as detailed in Coastal Financial's press release. This growth was driven by a 4.6% increase in loans receivable and a 1.5% deposit expansion, bolstering liquidity. The CCBX segment, a key innovation initiative, also showed progress, with one partner advancing to active status and three entering implementation, according to the release.

Notably, noninterest expenses declined by 3.7% quarter-over-quarter, a sign of cost discipline. Meanwhile, BaaS (Banking as a Service) fee income surged 11.3% to $7.6 million, excluding nonrecurring items, the press release added. These figures suggest a strategic pivot toward fee-based revenue and operational efficiency, which are critical for long-term resilience.

Credit Risk: A Looming Overhang

Despite these positives, Coastal Financial's $56.6 million provision for credit losses in Q3 2025 casts a shadow over its earnings sustainability, per the company release. This provision, driven by loan growth in the CCBX segment and a diversified loan portfolio, pushed the allowance for credit losses to $155.5 million. While contractual indemnities from CCBX partners cover 98.9% of losses, the net charge-off rate of 5.37% remains alarmingly high, according to the same filing.

The provision underscores the fragility of Coastal Financial's credit risk management. Although management emphasized investments in risk infrastructure, the magnitude of losses suggests systemic vulnerabilities. As one analyst noted in a Zacks earnings preview, "The company's ability to scale its CCBX model without compromising credit quality will determine its long-term viability."

Earnings Sustainability: A Delicate Balance

The sustainability of Coastal Financial's earnings hinges on reconciling its operational gains with credit-related headwinds. While the return on average assets (ROA) of 1.19% indicates profitability, analysts project a 8.3% year-over-year decline in earnings per share for Q3 2025, with revenues expected to drop 15.3% to $129 million, according to the preview. This pessimism is reflected in the company's negative Earnings Surprise Probability (ESP) of -2.83%, signaling a bearish consensus noted in the report.

The CEO's assertion of confidence in managing expenses and credit quality is tempered by the reality of near-term volatility. New partner onboarding and product launches, while strategically vital, could strain margins and amplify credit risks in the short term, the company acknowledged. For earnings momentum to be sustainable, Coastal Financial must demonstrate that its risk mitigation strategies can outpace loan growth and market pressures.

Conclusion: A Test of Resilience

Coastal Financial's Q3 2025 results present a mixed picture. Operational strengths-loan growth, deposit expansion, and cost efficiency-suggest a company adapting to a challenging environment. However, the elevated credit losses and bearish analyst forecasts highlight the fragility of this progress. Investors must weigh the firm's strategic investments in risk management against the likelihood of continued credit stress.

In the end, the question is not merely whether Coastal Financial can grow its earnings, but whether it can do so without sacrificing the very credit discipline that underpins its long-term value.