Coastal Financial (CCB)

Banking services provider Coastal Financial (NASDAQ:CCB) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 25.6% year on year to $144.7 million. Its GAAP profit of $0.88 per share was in line with analysts’ consensus estimates.

Company Overview

Pioneering the intersection of traditional banking and financial technology in the Pacific Northwest, Coastal Financial (NASDAQ:CCB) operates as a bank holding company that provides traditional banking services and Banking-as-a-Service (BaaS) solutions to consumers and businesses.

Regional banks, financial institutions operating within specific geographic areas, serve as intermediaries between local depositors and borrowers. They benefit from rising interest rates that improve net interest margins (the difference between loan yields and deposit costs), digital transformation reducing operational expenses, and local economic growth driving loan demand. However, these banks face headwinds from fintech competition, deposit outflows to higher-yielding alternatives, credit deterioration (increasing loan defaults) during economic slowdowns, and regulatory compliance costs. Recent concerns about regional bank stability following high-profile failures and significant commercial real estate exposure present additional challenges.

Coastal Financial competes with regional banks in the Pacific Northwest like Columbia Banking System (NASDAQ: COLB) and Heritage Financial (NASDAQ: HFWA) in its community banking segment. In its Banking-as-a-Service segment, it faces competition from other BaaS providers like The Bancorp (NASDAQ: TBBK), Evolve Bank & Trust, and Cross River Bank.

Two primary revenue streams drive bank earnings. While net interest income, which is earned by charging higher rates on loans than paid on deposits, forms the foundation, fee-based services across banking, credit, wealth management, and trading operations provide additional income. Thankfully, Coastal Financial’s 49.7% annualized revenue growth over the last five years was incredible. Its growth surpassed the average banking company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Coastal Financial’s annualized revenue growth of 18.8% over the last two years is below its five-year trend, but we still think the results suggest healthy demand. Note: Quarters not shown were determined to be outliers, impacted by outsized investment gains/losses that are not indicative of the recurring fundamentals of the business.

This quarter, Coastal Financial reported robust year-on-year revenue growth of 25.6%, and its $144.7 million of revenue topped Wall Street estimates by 2%.

Net interest income made up 71.5% of the company’s total revenue during the last five years, meaning lending operations are Coastal Financial’s largest source of revenue.

Our experience and research show the market cares primarily about a bank’s net interest income growth as non-interest income is considered a lower-quality and non-recurring revenue source.

Topline growth is certainly important, but the overall profitability of this growth matters for the bottom line. For banks, we look at efficiency ratio, which is non-interest expense (salaries, rent, IT, marketing, excluding interest paid out to depositors) as a percentage of total revenue.

Investors focus on efficiency ratio changes rather than absolute levels, understanding that expense structures vary by revenue mix. Counterintuitively, lower efficiency ratios indicate better performance since they represent lower costs relative to revenue.

Over the last five years, Coastal Financial’s efficiency ratio has swelled by 5.9 percentage points, going from 61.4% to 53.7%. Said differently, the company’s expenses have grown at a slower rate than revenue, which typically signals prudent management.

Coastal Financial’s efficiency ratio came in at 48.5% this quarter, beating analysts’ expectations by 697.5 basis points (100 basis points = 1 percentage point). This result was 5.4 percentage points worse than the same quarter last year.

For the next 12 months, Wall Street expects Coastal Financial to rein in some of its expenses as it anticipates an efficiency ratio of 48.6%.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Coastal Financial’s EPS grew at an astounding 22.2% compounded annual growth rate over the last five years. However, this performance was lower than its 49.7% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Coastal Financial, its two-year annual EPS declines of 6% mark a reversal from its (seemingly) healthy five-year trend. These shorter-term results weren’t ideal, but given it was successful in other measures of financial health, we’re hopeful Coastal Financial can return to earnings growth in the future.

In Q3, Coastal Financial reported EPS of $0.88, down from $0.97 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Coastal Financial’s full-year EPS of $3.16 to grow 72.3%.

Banks profit by intermediating between depositors and borrowers, making them fundamentally balance sheet-driven enterprises. Market participants emphasize balance sheet quality and sustained book value growth when evaluating these institutions.

This explains why tangible book value per share (TBVPS) stands as the premier banking metric. TBVPS strips away questionable intangible assets, revealing concrete per-share net worth that investors can trust. Other (and more commonly known) per-share metrics like EPS can sometimes be murky due to M&A or accounting rules allowing for loan losses to be spread out.

Coastal Financial’s TBVPS grew at an incredible 22.6% annual clip over the last five years. TBVPS growth has recently decelerated a bit to 21.3% annual growth over the last two years (from $21.38 to $31.45 per share).

Over the next 12 months, Consensus estimates call for Coastal Financial’s TBVPS to grow by 16.6% to $36.66, elite growth rate.

Leverage is core to a financial firm’s business model (loans funded by deposits). To ensure economic stability and avoid a repeat of the 2008 GFC, regulators require certain levels of capital and liquidity, focusing on the Tier 1 capital ratio.

Tier 1 capital is the highest-quality capital that a firm holds, consisting primarily of common stock and retained earnings, but also physical gold. It serves as the primary cushion against losses and is the first line of defense in times of financial distress.

This capital is divided by risk-weighted assets to derive the Tier 1 capital ratio. Risk-weighted means that cash and US treasury securities are assigned little risk while unsecured consumer loans and equity investments get much higher risk weights, for example.

New regulation after the 2008 financial crisis requires that all firms must maintain a Tier 1 capital ratio greater than 4.5%. On top of this, there are additional buffers based on scale, risk profile, and other regulatory classifications, so that at the end of the day, firms generally must maintain a 7-10% ratio at minimum.

Over the last two years, Coastal Financial has averaged a Tier 1 capital ratio of 10.6%, which is considered safe and well capitalized in the event that macro or market conditions suddenly deteriorate.

Return on equity (ROE) measures how effectively banks generate profit from each dollar of shareholder equity - a critical funding source. High-ROE institutions typically compound shareholder wealth faster over time through retained earnings, share repurchases, and dividend payments.

Over the last five years, Coastal Financial has averaged an ROE of 15.3%, exceptional for a company operating in a sector where the average shakes out around 7.5% and those putting up 15%+ are greatly admired. This shows Coastal Financial has a strong competitive moat.

It was encouraging to see Coastal Financial beat analysts’ revenue and efficiency ratio expectations this quarter. On the other hand, its net interest income and net interest margin Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $105.16 immediately after reporting.

Updated: December 3, 2025 at 11:49 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

There is a lot to like about Coastal Financial. First of all, the company’s revenue growth was exceptional over the last five years. On top of that, its net interest income growth was exceptional over the last five years, and its admirable net interest margin a wonderful starting point for the overall profitability of the business.

Coastal Financial’s P/B ratio based on the next 12 months is 3.3x. Expectations are high given its premium multiple, but we’ll happily own Coastal Financial as its fundamentals shine bright. Investments like this should be held patiently for at least three to five years as they benefit from the power of long-term compounding, which more than makes up for any short-term price volatility that comes with high valuations.

Wall Street analysts have a consensus one-year price target of $131.20 on the company (compared to the current share price of $109.98).