Coastal Financial (CCB) Q3 2026 Earnings Call: Rückkehr in die Gewinnzone, Einsparziel von 20 Mio. USD

Die Coastal Financial Corporation (NASDAQ: CCB) kehrte im 3. Quartal 2026 nach den partnerbedingten Belastungen des Vorquartals in die Gewinnzone zurück. Das Wachstum bei den BaaS-Programmgebühren und den Außer-Bilanz-Aktivitäten stützte die Ergebnisse, während das Management einen potenziellen Plan zur Senkung der jährlichen Ausgaben um 20 Millionen US-Dollar darlegte.

Wichtigste Erkenntnisse

• Der Nettogewinn im dritten Quartal belief sich auf 13,8 Millionen US-Dollar bzw. 0,89 US-Dollar je verwässerter Aktie, verglichen mit einem Nettoverlust von 42,1 Millionen US-Dollar im zweiten Quartal 2026 und einem Nettogewinn von 13,6 Millionen US-Dollar im Vorjahreszeitraum.
• Die Gebühreneinnahmen aus dem BaaS-Programm erreichten 14,1 Millionen US-Dollar, was einem Anstieg von 17,6 % gegenüber dem Vorquartal und 79,6 % gegenüber dem Vorjahr entspricht, was auf höhere Transaktions-, Interchange- und Servicing-Gebühren zurückzuführen ist.
• Die Risikovorsorge im Kreditgeschäft sank von 92,2 Millionen US-Dollar im zweiten Quartal auf 46 Millionen US-Dollar. Die jüngste Vorsorge enthielt 43,9 Millionen US-Dollar für BaaS-Kredite, die weitgehend durch 41,8 Millionen US-Dollar an BaaS-Kreditverbesserungen im Zinsunabhängigen Ertrag ausgeglichen wurden.
• Coastal beendete das Quartal mit einer harten Kernkapitalquote (CET1) von 11,47 %, verglichen mit 10,86 % zum 30. Juni. Die liquiden Mittel beliefen sich auf insgesamt 803 Millionen US-Dollar, mit weiteren 827 Millionen US-Dollar an bedingter Kreditaufnahmekapazität.
• Das Management identifizierte potenzielle jährliche Einsparungen beim Zinsunabhängigen Aufwand von mehr als 20 Millionen US-Dollar, ausgenommen generell erstattete BaaS-Kredit- und Betrugsaufwendungen. Es rechnet damit, diese Einsparungen in den nächsten vier bis sechs Quartalen anzustreben.
• Das spezifische Partnerportfolio blieb ein wesentliches Risiko. Die Kredite beliefen sich auf insgesamt 511 Millionen US-Dollar, die aufs Jahr hochgerechneten Nettoabschreibungen verbesserten sich jedoch von 11,46 % im 2. Quartal auf 9,81 %, während Zahlungsrückstände von mindestens 30 Tagen von 4,06 % auf 3,41 % sanken.

Wichtige Finanzdaten

Geschäfts- und operative Entwicklung

Coastal verkaufte im Quartal BaaS-Kredite im Wert von 5,99 Milliarden US-Dollar, verglichen mit 4,56 Milliarden US-Dollar im zweiten Quartal. Außerbilanzielle Kreditkartenkonten erreichten 1,3 Millionen. Die Zahl der aktiven CCBX-Debitkarten stieg im Vergleich zum Vorquartal um 1,8 Millionen oder 20 % und im Vergleich zum Vorjahr um 6 Millionen oder 118,7 %.

Die außerbilanziell übertragenen Einlagen (Sweeps) stiegen von 4,26 Milliarden US-Dollar zum 30. Juni auf 6,29 Milliarden US-Dollar. Diese Guthaben generierten Gebühreneinnahmen von 1,4 Millionen US-Dollar, was einem Anstieg von 16,4 % gegenüber dem zweiten Quartal entspricht. Coastal hielt zudem bilanzielle BaaS-Einlagen in Höhe von 3,04 Milliarden US-Dollar bei 21 aktiven Partnern.

Das CCBX-Netzwerk umfasste 30 Beziehungen in unterschiedlichen Stadien: 21 aktive Partner, einer in der Testphase, zwei im Onboarding, drei mit unterzeichneten Absichtserklärungen und vier in der Abwicklung. Acht Partnerprogramme expandierten in zusätzliche Produkte.

Das Management erklärte, dass strengere Kreditprüfungen und Änderungen im Produkt-Mix zu niedrigeren Brutto-BaaS-Kreditrenditen beitrugen. Bargeldbesicherte Ratenkredite stiegen im Laufe des Quartals um rund 50 Millionen US-Dollar auf etwa 265 Millionen US-Dollar. Gleichzeitig stiegen die Krediteinnahmen abzüglich BaaS-Kreditaufwand von 6,83 % der durchschnittlichen Kredite auf 6,86 %.

Die Community Bank meldete Einlagen von 1,64 Milliarden US-Dollar bei Einlagenkosten von 1,54 % und Kredite von 1,98 Milliarden US-Dollar. Die Nettoabschreibungen lagen effektiv bei null.

Prognose des Managements

Das Management identifizierte potenzielle jährliche Einsparungen vor Steuern von mehr als 20 Millionen US-Dollar durch Ausgabeninitiativen bei Lieferanten, Dienstleistern, Personal und doppelten Strukturen. Das Unternehmen rechnet damit, diese Einsparungen in den nächsten vier bis sechs Quartalen anzustreben, wobei ein Teil der Einsparungen im Zuge sich verändernder geschäftlicher Anforderungen reinvestiert werden könnte.

Coastal nannte keine Ziel-Aufwand-Ertrag-Relation (Efficiency Ratio). Das Management erklärte, dass die bestehende Technologie- und Compliance-Plattform weiteres Wachstum unterstützen kann, während das Unternehmen Altsysteme und überschneidende Kosten abbaut.

Hinsichtlich der geplanten Übernahme von Bluevine durch Valley National Bancorp erklärte das Management, dass Änderungen an dieser Beziehung voraussichtlich keine wesentlichen nachteiligen Auswirkungen auf das Liquiditäts- oder Refinanzierungsprofil von Coastal haben werden, selbst wenn die Beziehung nach Abschluss der Transaktion endet. Coastal verwies auf die Möglichkeit, im Rahmen von Sweeps übertragene Einlagen als alternative Refinanzierungsquelle zurück in die eigene Bilanz zu holen.

Risiken und zu beobachtende Bereiche

Das spezifische Partnerportfolio bleibt ungeklärt. Das Management gab an, dass die Wahrscheinlichkeit einer Wiedererlangung gegenüber dem zweiten Quartal weitgehend unverändert sei und die Gespräche mit dem Partner sowie anderen Parteien fortgesetzt würden.

Ein zusätzlicher Vorsorgeaufwand im dritten Quartal von etwa 3,1 Millionen US-Dollar wurde nicht durch Erträge aus Kreditverbesserungen ausgeglichen, da der Eingang nicht als wahrscheinlich angesehen wurde. Die Wertberichtigung auf den entsprechenden Vermögenswert aus Kreditverbesserungen sank leicht von 46 Millionen US-Dollar auf 45,6 Millionen US-Dollar.

Die im zweiten Quartal gebildete Einzelwertberichtigung von 22,8 Millionen US-Dollar blieb unverändert. Das Management rechnet damit, dass eine etwaige erforderliche Abschreibung dieses Betrags bis zum Jahresende erfasst wird, wies jedoch darauf hin, dass eine solche Abschreibung die Sanierungs- oder Wiedererlangungsbemühungen nicht beeinträchtigen würde.

Die leistungsträgen BaaS-Kredite beliefen sich zum Quartalsende auf insgesamt 54,6 Millionen US-Dollar, wovon 52,8 Millionen US-Dollar durch Kreditverbesserungen der Partner abgedeckt waren. Im gesamten BaaS-Portfolio waren rund 96,7 % der leistungsträgen Kredite durch Kreditverbesserungen der Partner abgedeckt.

Die bilanziellen Einlagen im Zusammenhang mit Bluevine beliefen sich auf etwa 452,4 Millionen US-Dollar, während weitere 1,85 Milliarden US-Dollar an andere Banken übertragen wurden. Coastal hielt außerdem von Bluevine vergebene Kredite in Höhe von 3 Millionen US-Dollar, während die Community Bank einen separaten gewerblichen Kredit an Bluevine in Höhe von 6,8 Millionen US-Dollar hielt.

Highlights der Analysten-Fragerunde

• Wiedererlangung beim spezifischen Partner: Das Management gab an, dass die Aussichten für eine Wiedererlangung im Wesentlichen unverändert seien. Sich verbessernde Zahlungsrückstände und Abschreibungen wurden durch CECL-Effekte aus dem Zinsumfeld und eine längere gewichtete durchschnittliche Portfoliolaufzeit ausgeglichen.
• Breiteres CCBX-Kreditgeschäft: Coastal teilte mit, dass bei der Überprüfung von 21 aktiven Partnern keine vergleichbaren Probleme festgestellt wurden. Das Management hob strengere Kreditprüfungen, geringere Zahlungsrückstände und niedrigere Abschreibungen als unterstützende Indikatoren hervor.
• Kosteneinsparungen: Das Management bezeichnete die potenziellen jährlichen Einsparungen von 20 Millionen US-Dollar als Chance auf Vorsteuer-Run-Rate-Basis. Es könne zu Reinvestitionen kommen, das Unternehmen geht jedoch davon aus, dass Initiativen bei Lieferanten, Dienstleistern und Doppelstrukturen die angestrebte Senkung über vier bis sechs Quartale vorantreiben werden.
• Bluevine-Übergang: Coastal hat noch keine abschließende Schätzung der Auswirkungen auf den Nettogewinn vorgenommen. Das Management erklärte, dass eine Ersatzfinanzierung verfügbar sei, und merkte an, dass auch einige beziehungsspezifische Überwachungskosten sinken könnten.
• Partner-Risikokontrollen: Das Unternehmen bewertet die Liquidität der Partner, Bargeldsicherheiten, Ertragskraft und Umsatzdiversifizierung neu, wenn es die Stärke von Freistellungen und Portfoliolimits beurteilt.
• BaaS-Kreditbestände: Das Management warnte davor, sich auf die Bestände zum Quartalsende zu verlassen, und wies darauf hin, dass die durchschnittlichen Bestände um 300 Millionen US-Dollar stiegen. Ein überdurchschnittlich großer Kreditkartenverkauf reduzierte zudem die bilanziellen Bestände am Ende der Periode.

Vollständiges Transkript des Earnings Calls

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

Welcome to Coastal Financial Corporation's Third Quarter 2026 Earnings Conference Call.

[Operator Instructions]

Before we begin, I would like to point all of you to the disclosure near the end of the company's earnings release for information about any forward-looking statements that may be made or discussed on this call.

The earnings release is posted on Coastal's website. Please review that information along with our filings with the SEC for a disclosure of factors that may impact the subjects discussed in this morning's call.

The company will also be discussing one or more non-GAAP financial measures. Please look at the company's investor presentation and website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers.

I would like to now turn the call over to the company. Please go ahead.

Eric Sprink

Thank you, and good morning, everyone. With me today are Chris Adams, our Executive Chairman, and Joel Edwards, our Interim Chief Financial Officer.

Many of you are familiar with Joel from his 13 years as Coastal CFO. Joel has provided that same steady leadership over these last few months and has helped ensure continuity during a transition period.

Our search for a permanent CFO is in its final stages, and we look forward to providing an update in the near future. I also want to share a leadership update.

As part of the ongoing efficiency work Chris will discuss, our management team has worked together to realign roles and responsibilities.

As part of that realignment, Brian Hamilton has stepped down as President of Coastal and moved into a strategic advisory role. Brian has played an important role in modernizing CCBX's technology platform and leading investments in the CCBX infrastructure that have positioned our business for growth.

Mr. Hamilton will remain on the company's Board of Directors and continue to be a partner to Chris, me, and the rest of the Board and team. More broadly, we are focused on creating a more agile organization and aligning our cost structure with the needs of the business.

That effort starts with leadership. As part of this work, I am voluntarily reducing my compensation. I believe it is important that I participate directly in the expense discipline initiatives that we are applying across the business, and I am already encouraged by our progress to date on this front.

Consumers and businesses continue to move more of their financial lives to the digital channels. And the financial ecosystem continues to produce innovative products, business models, and operators.

These companies rely on a bank partner with the technology, compliance, and risk infrastructure to scale with them. Coastal has spent years building exactly that, and we have worked hard to become a partner of choice in this market.

We made a deliberate decision well before fintechs broadly turned to bank partners to gain exposure to this fast-growing landscape, and we did the early legwork to establish a strong foothold in the ecosystem.

Our systems allow us to onboard, monitor, and grow partner programs with discipline, and our model is structured so that the partners provide credit enhancements against losses on the programs they originate.

That combination is not easy to replicate. You can see that in our pipeline with 2 partners in onboarding and 3 signed letters of intent, and in the growth of our program fee income this quarter.

We are super excited about the opportunities in front of us.

Turning to the quarter. I want to begin where we left off in July. In the second quarter, we recorded $68.8 million in pretax charges related to Partners' consumer loan portfolio, resulting in a net loss of $42.1 million.

We know that this was a disappointing result for our shareholders and that it raised questions about our broader partner portfolio.

Over the past 3 months, we have remained focused on updating our assessment of the One Partners portfolio, reassessing the broader CCBX partner portfolio, and continuing to evolve our credit risk appetite as we always do.

Results for the third quarter better reflect the underlying earnings power of the business. We returned to profitability with net income of $13.8 million or $0.89 per diluted share.

BaaS program fee income grew to $14.1 million, up 17.6% from the second quarter and 79.6% from a year earlier, reflecting the strength and stability of our broader partner portfolio.

Importantly, we ended the quarter well capitalized with a common equity Tier 1 ratio of 11.5%. So let's get into the details.

I'll start with an update on one of the partners' consumer loan portfolios and the rest of our BaaS partner portfolio, including Bluevine, which in September agreed to be acquired by Valley National Bancorp, and then conclude with the performance of the underlying business.

Joel will then take you through the financials, and Chris will discuss our work on expense discipline and operating leverage. I want to spend a few moments discussing the specific partner-related portfolio that weighed heavily on our results for the second quarter.

As we have said, we do not see similar issues with the broader CCBX portfolio, but we recognize the significance of this matter and the questions it raised about our partner model.

Our BaaS model is structured so that the partners provide credit enhancement losses on the programs they originate. That structure continues to perform across our partner base. And today, approximately 96.7% of BaaS nonperforming loans are covered by partner credit enhancements.

What set last quarter apart were circumstances specific to one partner and its portfolio under that structure. We absorbed that impact, returned to profitability in the following quarter, and strengthened our capital ratios. That is what a resilient model looks like.

In the third quarter, we updated our assessment of the specific portfolio, including loan portfolio performance, expected credit losses, and our assessment of the collectibility of amounts due under the specific partner's indemnification agreement.

The results substantially support the estimate we established at June 30, although actual charge-offs were modestly above projections.

However, actual net charge-offs as a percent of average loans decreased from the second quarter, reflecting a positive directional trend.

Based on our assessment as of September 30, projected cash flows under the specific Partners program agreement continue to support our accounting treatment to record all of the corresponding incremental credit enhancement amounts substantially.

Approximately $3.1 million of the quarter's additional provision expense was not offset by credit enhancement income because collection of that portion was not considered probable.

The valuation allowance against the credit enhancement asset decreased modestly to $45.6 million as of September 30, compared to $46 million at June 30.

The $22.8 million specific allowance established in the second quarter remains unchanged. And we expect any required charge-off of that balance to be recognized by year-end.

Any such charge-off would not affect our ongoing remediation efforts or ability to pursue recovery. As of September 30, the specific partner portfolio had $511 million in loans outstanding compared with $507.5 million at quarter close for the second quarter on June 30.

Annualized net charge-offs were 9.81% compared with 11.46% for the second quarter, which has markedly improved since the third quarter of 2025.

Loans 30 or more days past due were 3.41% compared with 4.06% for the second quarter.

We continue to closely monitor the performance of the specific portfolio and the specific partner's ability to satisfy its obligations, and we'll update our estimates as additional information becomes available in future quarters.

We have not yet reached a complete resolution, though our discussions are ongoing and have many moving parts. Given the commercially sensitive nature of this matter for both parties, I won't go into more detail, but I can confirm that we continue to pursue and evaluate available pathways to maximize recovery.

Based on our review as of September 30, which covers credit performance, delinquencies, charge-off trends, partner liquidity, collateral funding, and reimbursement obligations across 21 active partners, we did not identify a comparable issue.

The data for the quarter is consistent with that assessment. Banking-as-a-Service nonperforming loans decreased from $14.3 million to $54.6 million, and $52.8 million of that balance is covered by the partner credit enhancements.

We also continue to tighten underwriting standards on new BaaS originations during the quarter, which partially explains why our gross BaaS loan yields declined this quarter.

Every partner operates under different portfolio limits we have set, and we test underwriting on a recurring basis for our partners with the largest exposures.

As of September 30, we had 30 CCBX relationships at varying stages, including 21 active partners, 1 in testing, 2 in onboarding, 3 signed letters of intent, and 4 winding down.

The caliber of the fintech business in our pipeline demonstrates that our approach to risk and partnership continues to resonate in the market.

At the same time, we expect to regularly move deposits on and off the balance sheet as our deposit base grows and our partner businesses evolve.

Valley Bank's recent announcement of the acquisition of one of our partners, BlueVine, represents one dynamic of the evolving fintech ecosystem.

We expect these companies to mature and, in some cases, change ownership over time, and our business model is built to manage those realities.

As of September 30, Bluevine-related deposits on our balance sheet were approximately $452.4 million, and another $1.85 billion in deposits was swept off the balance sheet to other banks.

We also held $3 million of Bluevine-originated loans at quarter end. Separately, the Community Bank held a $6.8 million commercial loan to Bluevine at quarter end.

As of September 30, we held $3.04 billion of BaaS deposits on the balance sheet across 21 active partners, with another $6.29 billion swept off the balance sheet.

Our funding alternatives include the ability to bring sweep deposits back onto our balance sheet, which gives us flexibility to replace Bluevine-related deposits.

We ended the quarter with $803 million of cash and $827 million of additional contingent borrowing capacity.

We do not expect the transaction or any resulting changes to the Bluevine deposit relationship to have a material or adverse effect on our liquidity or funding profile even if our relationship with Bluevine is terminated following the consummation of their transaction.

Now to the underlying business. BaaS program fee income of $14.1 million grew from higher transaction and interchange fees and servicing fees. 8 partner programs were in various stages of expanding into additional products with us, a sign that our partners see Coastal as a platform to grow.

Our capital-light activity continued to scale. We sold $5.99 billion of BaaS loans during the quarter, compared with $4.56 billion of loan sales in the second quarter.

Our off-balance sheet credit card accounts now stand at 1.3 million. CCBX active debit cards, a key source of interchange, increased by 1.8 million cards or 20% quarter-over-quarter and by 6 million cards or 118.7% year-over-year.

Deposits swept off the balance sheet rose to $6.29 billion from $4.26 billion at June 30 and generated $1.4 million of fee income, up 16.4% from the second quarter.

Net interest income was $88.3 million, down 1.2% from the second quarter and up 13.4% from a year ago. Net interest margin was 6.59% compared with 7.27% in the second quarter, primarily reflecting a shift in loan mix.

Net of BaaS loan expense, net interest margin was 3.93% compared with 3.98% in the second quarter, and loan income net of BaaS loan expense was 6.86% of average loans, up from 6.83%.

In the Community Bank, deposits grew $63.2 million for the second quarter, or 4% to $1.64 billion at a cost of deposits of 1.54%. Community Bank loans were $1.98 billion.

Net charge-offs were effectively 0. With that, I'll turn it over to Joel for the financial overview.

Joel Edwards

Thank you, and good morning. I'll keep my remarks brief and focus on a few key figures. More detail is in the release.

Third quarter net income was $13.8 million or $0.89 per diluted share compared with a net loss of $42.1 million or $2.76 per diluted share in the second quarter and net income of $13.6 million or $0.88 per diluted share a year ago.

The provision for credit losses was $46 million compared with $92.2 million in the second quarter. The $46 million provision expense included $43.9 million for BaaS loans, which is largely offset by $41.8 million of BaaS credit enhancements recorded in noninterest income.

$372,000 of the provision was for the Community Bank loans. $1.4 million was for unfunded commitments, and $319,000 related to accrued interest receivables.

The allowance for credit losses was $208.1 million, or 4.97% of loans, compared with $213 million or 5.07% in the second quarter.

Noninterest income included a $502,000 unrealized loss on equity securities, which included a $565,000 downward adjustment to the value of one of our strategic equity investments as of September 30.

Noninterest expense was $84.8 million compared with $141.1 million in the second quarter. This included the $46 million credit enhancement valuation adjustment.

Excluding BaaS loan and fraud expense, noninterest expense was $45 million compared with $96.4 million in the second quarter, which included the $46 million credit enhancement valuation adjustment.

We started to see positive movement on noninterest expense in the quarter, including a $1.6 million reduction in salaries and employee benefits and a $5.9 million reduction in data processing and software, partially reflecting the absence of $4.4 million of accelerated depreciation in the prior quarter.

These reductions in noninterest expense were partially offset by a $1.6 million increase in legal and professional expenses and a $440,000 increase in FDIC charges, both related to the second quarter net loss, while other expenses had smaller changes and effectively netted each other out.

Total deposits were $4.68 billion at September 30, and the cost of deposits was 2.61% compared with 2.57% in the second quarter.

Turning to capital at September 30. Our common equity Tier 1 ratio was 11.47%. Our Tier 1 leverage ratio was 8.81%, and our total risk-based capital was 13.2% compared with 10.86%, 9.11% and 13.3% at June 30.

We had no borrowings outstanding on our contingent funding lines at quarter end.

With that, I'll hand it over to Chris.

Christopher Adams

Thank you, Joel, and good morning. When I became Executive Chair in July, I said one of my priorities would be helping Coastal improve operating leverage and profitability.

Operating leverage means growing revenue faster than controllable expenses over the long term, and we recognize that a resilient CapEx structure is something that we need to establish and prove to our shareholders over time.

Over the past quarter, we've begun translating these priorities into initiatives and specific actions. Coastal has built a scalable, regulated platform through significant investment in people, technology, compliance, data, and risk management infrastructure.

Those investments are critical to the growth Eric described. One of our key objectives now is to run that platform more efficiently while continuing to grow revenue and convert that growth into more consistent profitability.

We're scrutinizing vendors, contractors, personnel, and discretionary spending, eliminating duplication across rules and processes, replacing legacy systems with more efficient technology, and holding every partner program, product, and service to a clear standard for risk-adjusted return.

We are also using AI to improve employee effectiveness and productivity and reduce future costs. Expense results from the quarter show early progress as well as where our work remains.

Data processing and software costs declined $1.5 million from the second quarter after removing the $4.4 million of accelerated depreciation recorded in the second quarter for software assets no longer in use, and salaries and benefits declined $1.6 million from the second quarter.

This work is not about indiscriminate cost cutting.

Our focus is on removing low ROI products or services and duplicative spending and redirecting our people, capital and technology toward our partners, products and services, and capabilities where Coastal is best positioned to win.

That focus is designed to support our customers and partners and produce appropriate risk-adjusted returns. We have identified over $20 million in potential annualized savings in noninterest expenses and expect to achieve these potential savings over the next 4 to 6 quarters.

These expenses exclude BaaS loans and fraud expenses, which are generally reimbursed by our CCBX partners and recognized in noninterest income in accordance with GAAP.

The Board also continues to receive rigorous reporting on the specific partners' performance, collections, collateral, remaining exposure and capital impacts, and counterparty conditions as management pursues recoveries and evaluates the strategic alternatives at its disposal.

The development of our operating efficiency plan during the third quarter was an important step, and we expect operating leverage to improve as the plan is implemented.

Coastal returned to profitability while preserving strong capital and liquidity, along with growing fee income from our off-balance sheet loan sales and deposit sweep activity.

Our responsibility now is to build on that performance with the balance sheet and operating model that supports durable earnings, lower volatility, and stronger shareholder returns.

With that, I'll turn it back to Eric for some closing remarks.

Eric Sprink

Thank you, Chris. The third quarter reflects the strength and earnings potential of our business.

We returned to profitability, group BaaS program fee income and capital-efficient off-balance sheet activity, maintained strong community bank credit performance, and ended the quarter with stronger capital ratios.

The specific partner matter we had in the second quarter was a challenging moment for Coastal, and we have treated it with the seriousness it required. We have made progress in each of the areas we discussed in July.

Our priorities moving forward are clear: maintain disciplined portfolio oversight, manage transitions across our vast partner portfolio, including Valley's anticipated acquisition of Bluevine while maintaining a strong funding profile, expand the products and partnerships that yield appropriate risk-adjusted returns, and convert revenue growth into greater operating leverage and more consistent profitability.

We recognize that 1 quarter does not encompass the breadth of our work ahead, but our capital, liquidity, and operating momentum provide a strong foundation, and we are focused on operating with discipline.

Open for questions.

Operator

Your first question comes from the line of Janet Lee with TD Cowen.

Fragen und Antworten

Sun Young Lee

Without getting into the specifics of the relationship, based on what you've seen since the second quarter, has the probability of recovering some of the provision and/or credit enhancement valuation adjustment improved, deteriorated, or remained broadly unchanged?

Eric Sprink

Yes, thanks. I think it's materially stayed the same, as you say. We're monitoring it. We've got great open dialogue with the partner.

We still remain hopeful for their progress. We are monitoring our profile, our portfolio. I do want to call out our comments again. The past-due amounts are improving. The charge-offs are improving.

During the quarter, interest rates moved, and that can affect the CECL models on a fixed-rate portfolio. So, consequently, weighted average lives played a big part in needing to increase that allowance, and since we've deemed it unrecoverable, that shouldn't reflect on the underlying analysis of the model, which we think is very consistent with our second-quarter perspective.

Sun Young Lee

And overall CCBx credit, you said you're not seeing other trouble relationships. But given higher rates and a few recent consumer finance headlines, are there any areas you're watching more closely?

Eric Sprink

Yes. One, we're watching all of it very closely. You can imagine internally how much scrutiny all of the portfolios are receiving.

No, we are not seeing anything else stick out or cause any undue attention. We will draw your attention to the overall delinquency and charge-off rates in CCBX, which improved pretty nicely during the quarter and over the last year.

So internally, we also would draw attention to the gross yields going down. That's a product of both product mix changes, but also a higher class of underwriting credits resulting in lower gross yields, while we were able to basically maintain the net yields to Coastal.

So those are 2 indications I draw your attention to, to say, no, we feel confident right now that our oversight and our comments are accurate.

Sun Young Lee

And lastly, on the $20 million annualized savings. Should expenses start stepping down further in the fourth quarter? And is the benefit fairly linear from here?

As we think about '27, is there any efficiency ratio you believe the business can operate at once these actions are further along?

Christopher Adams

Janet, it's Chris Adams. We feel very confident about the potential $20 million that we have targeted. And the work has just started.

So I think that's the way to think about it in terms of on a go-forward basis. So we are digging into all vendors, all contractors, and duplication internally.

We'll continue that work in the fourth quarter and continue to give an update on how it flows through the P&L. On a go-forward basis, we're not giving any projections in terms of how different ratios will work out yet.

But the potential $20 million, we feel like, is a good number to share. We feel very confident in that.

Operator

Your next question comes from the line of Andrew Terrell with Stephens.

Andrew Terrell

Chris, if I could maybe tickle that last line of questioning just on the expenses and the announced $20 million. Just to level set expectations, is $20 million a gross or a net number?

So if we look at your operating expenses, excluding the BaaS expense and partner fraud, this quarter was $45 million, basically on the nose. 4 to 6 quarters from now, should you step down $5 million a quarter in the run rate?

Or is there a reinvestment we should be contemplating that you maybe don't see a true kind of $20 million drop in the run rate over the next 4 to 6 quarters?

Christopher Adams

Yes, that's a great question. So we certainly see that as a pretax number, and there will be potentially reinvestment that can happen at different stages as we evaluate the business and the needs and everything on a go forward.

But from a vendor/contractor and the duplication side of things, we do think right now, just on a go-forward basis, that we will see that run rate over the next 4 to 6.

So I think the way that you're thinking about it is probably correct.

Andrew Terrell

Just on the Bluevine relationship, I appreciate the color you guys provided. It looks like you can just pull separate deposits back on to replace what you'd be losing here.

Do you just have a net estimate on how losing this partner impacts your net revenue or net earnings? And then more broadly, just as you've, I'm sure, sifted through the partner base at the bank, do you feel like there's any risk that we see any more of this action going forward within your current partner base?

Eric Sprink

Yes. Good questions all the way around. So yes, well, first off, let me just complement Valley and Bluevine.

I think it's a good step for both of them. And I know both the CEOs extremely well, and we wish them nothing but the best. And we see this as not a surprising development.

In the maturing fintech ecosystem, et cetera, we all forget X1 was purchased by Robinhood. We forget that Bridget was bought by Upbound. Ownership changes happen.

So I can't sit here and say, hey, this isn't going to happen. Quite the opposite. We've been the direct benefactor of changes of ownership over time. I can tell you that specifically, we're not aware today of any other events, bank charters and/or changes in ownership.

What I can say is, on Bluevine specifically, we have plenty of funding, alternative sources to sweep back on the balance sheet. And our flexibility really plays into this structure.

I think it's often undercredited that having a diversified portfolio allows us to absorb these shocks. The second quarter event, unfortunate, is an example, but even change of ownership events.

I will say this to you, though, we haven't done the final calculations on a net income impact, but we're looking at everything. We've given you the numbers around it.

So I think what we're also trying to work out internally, Andrew, is our cost to oversee this. So there's puts and takes when you get to the net income number. And as there are some internal costs, what can actually be reduced due to losing the relationship or what will be reinvested. But thank you for the question.

Andrew Terrell

Now that 2Q is a little less fresh, you've had time to digest. Any shift in how you're thinking about managing partner credit?

I'm specifically asking around the credit enhancement asset versus a harder dollar cash pledge deposit guarantee. Is there any shift in how you're thinking about managing the credit indemnity structure with partners moving forward?

Eric Sprink

Yes. I mean we humbly admit we're a learning organization, and we're going to take all events and continually update and monitor how we look at partners, how we look at the indemnification ability capability.

You heard us talk about that, including liquidity, cash pledge accounts, how we look at the partners' earnings.

Some interesting context is the diversity of revenue streams of our partners has become an interesting topic internally to try to figure out the redundancy of the partners versus monoline fintechs.

We've started looking at a lot of different metrics to say, how can we improve this? And going forward, we want to be better today than we were yesterday, and we want to be better in a year than we are today.

Andrew Terrell

And if I could sneak one more in, just on the CCBX loan balances down a little bit this quarter.

I'm assuming some of that was impacted by -- it sounds like some portfolio mix change happened this quarter, maybe there's some higher quality credit.

Should we expect loan portfolio growth out of CCBX going forward? Or are we in a period of kind of just continued remix?

Eric Sprink

Well, Andrew, thank you for sneaking in our first pro forma question of the day. And I'm going to try my best to successfully not answer it.

Look at average balances versus end of period first off. Average balances were up $300 million. So there's quite a lot of variability in the day-to-day management of the balance sheet.

And I wouldn't read too much into quarter end. We have a robust pipeline. We have new products coming online. We have new partners coming online.

We're always going to be constantly managing the portfolio. And we're still a growth company. We did sell a larger block than normal of on-balance sheet credit cards, and you'll see that in the period-end balances by product mix.

So it's worth calling that out. You could see in one of the graphs we gave you that sold credit cards went up versus on-balance sheet credit cards, working with our partners and their risk tolerances, our risk tolerances played into that a little bit, but we enjoyed great discussions with our partners all quarter about risk appetites.

And it's just going to be a constantly fluctuating thing that Joel today and our new CFO will have to optimize the balance sheet going forward. But I do want to reiterate, we're still a growth company, and we have a robust pipeline, and we're going to manage that appropriately.

Operator

Your next question comes from the line of Tim Switzer with KBW.

Timothy Switzer

Putting the cost saves aside for a second, how has your efficiency improved over the last year or so to onboard partners and service current ones due to things like AI investments and stuff like that?

And the obvious follow-up to that is your ability to continue onboarding new partners and meeting the pipeline out there while still achieving these cost saves and keeping good expense discipline.

Eric Sprink

Yes. I'm going to answer it this way. The AI technology that's being put in place is definitely on the oversight. That was our main target over the last 12 months.

We're using it a lot in compliance, anti-money laundering as well as some other maintenance vehicles as compared to what you asked about AI and onboarding.

So I just want to draw a small distinction there. But I do think Tara Herger, our Chief Operating Officer, who helped us start CCBX many moons ago.

She was our first employee in that group is still running it today, and she has continued to refine her team techniques and I would say, if you look at the pipeline today versus some prior aspirational onboarding comments has been more rationalized for the attempt to be giving consistent earnings to the company.

So you've got a balance of all of that working forward that we think we're managing it appropriately, still a growth organization, keeping and maintaining the appropriate oversight to do it safely and soundly with great controls while getting those growth and income targets we're targeting.

Timothy Switzer

Got it. Okay. For the provision on the specific partner, are you able to maybe break down like what portion of that provision was due to loan growth versus macro changes in your CECL model and then also for like the charge-offs?

Eric Sprink

Yes. So the loan growth was nominal. I mean, 507 versus 511, that's a timing difference, if you ask me personally. We worked with the partner to maintain. So that's just a statement.

So I don't think loan growth played into the provisioning. You're right, we try to be as transparent as possible in our comments. And so that's why there's a little bit of a qualitative comment, my opinion, that the attorneys has allowed me to sneak in there saying, hey, charge-offs were a little bit different than what I was expecting, not materially, but modestly, I think, was the word I used.

But we did call it out to say, hey, we've got our targets inside that's built into the CECL models. But it was really close, but it wasn't better than what we were projecting.

So we want to just make that statement. But with that said, the charge-offs was down pretty dramatically quarter-over-quarter. And year-over-year, it's down from 15% down to 9% or really dramatically different and improving.

And we see the improving comment come through the delinquency status. That's why we added that in there, so you can get some color.

So I think what really, in my mind, and of course, we can dive into this more, but is the macro changes in the rate environment really, when you're talking about the CECL model, drives prepayment speeds and it extended our weighted average life or the wall in our warm method and CECL looks at lifetime and the lifetime extends and the losses extend.

And at this time, we deemed that we can't rely on the partner to reimburse us for those CECL expenses. So that $3.1 million is unfortunate. At the end of second quarter, we said, hey, we got to evaluate it every quarter.

We're going to continue to evaluate it. But we're trying to give you as much color as we can, Tim.

Timothy Switzer

Yes. No, that was really helpful. And I mean, is there any, I guess, aspect of this provision in terms of like roll forward where we should expect maybe smaller than this quarter, but like a modest amount of provision expense each quarter as the CECL model continues to move forward and you originate new loans?

Eric Sprink

Good backdoor to a pro forma question. What I can say is we're going to evaluate it every quarter. We've got our models in place. The partner is extremely cooperative.

We are talking with the investment bankers. We are talking with the potential investors on that side. We are talking with our accounting group, our finance group, our credit group.

All parties are at the table looking at everything constantly, and then the Board then comes over top and ask 50 new questions. So it's all eyes on everything right now.

We understand the sensitivity of it. We, of course, didn't want to have to come with this messaging today, but we think it's appropriate in the context to be as transparent as possible.

Timothy Switzer

And one last one for me. You talked about this a little bit, the higher core NIM and CCBX. It's moved higher the last 2 quarters, obviously, a pretty good trend to see with the gross loan yields also moving down.

How much of that is like loan mix and program mix versus better pricing on your lending programs?

Eric Sprink

Yes. I think there's a couple of slides that, in the earnings release, I think you're referencing, or I'm referencing in my comments, Page 29, Page 35, that kind of gives you the loan mix; cash secured installment loans go up $50 million during the quarter.

Well, cash secured consumer loans does get a lower gross yield than unsecured cards. So the mix did change, and it's just worth calling that out. Our cash secured installment loans now is about $265 million.

But if you look at Page 29 in the earnings release, you can see that the net yield to us was pretty moderated and controlled. But the gross yield is a mix question as well as an underwriting question. And we're seeing that our partners are very disciplined.

Our credit groups and their credit groups and management and management teams are talking all the time. We're tightening underwriting, and they are in a cooperative nature.

And we're starting to see that manifest itself in lower charge-offs, lower delinquencies, and lower gross yields while we're maintaining our yield.

Operator

Your last question comes from the line of Joe Yanchunis with Raymond James.

Joseph Yanchunis

Most of them might have been answered, but I do have a few I'd like to bounce off you. So you talked about the significant investments Coastal has made in technology compliance, or risk infrastructure.

And as you work through the expense initiatives, how much additional revenue do you think the existing platform can support without requiring another meaningful increase in spending?

Eric Sprink

No. I mean this is where Chris will talk a little bit about the inflection point. So I'll give it to Chris.

Christopher Adams

Thank you, Joe. Yes, we have been building the platform here for a number of years. And so we feel really good about where it is.

The technology build, the vendors that we put in place, the opportunity now to go back and turn off older vendors and look for duplication. I don't think there's any limitation in terms of how we've constructed it on our growth side of things.

I mean we remain a growth company. This is about building a leaner organization on a go-forward basis to really focus on efficiency and profitability.

So we feel really good about our growth path right now.

Joseph Yanchunis

And then just bouncing around here. So you talked about the big step-up in credit cards sold this quarter. Can you talk about how the market's appetite for that paper has changed over the past few months or quarters?

Eric Sprink

I'm probably not as close to answering that. Let me just say we were very successful. There was a very large transaction that I was involved with during the quarter that the team shepherded through with one of our partners.

It was larger than normal and very successful. So I'm just going to confirm by saying, hey, the market is liquid. The market is able to absorb this. We, of course, maintain liquidity and capital buffers if there is any type of slowdown.

That's part of our resiliency of our plan, but I haven't heard any pushback from the teams that the secondary markets aren't operating efficiently.

Joseph Yanchunis

And then last one for me. So obviously, part of the BaaS model involves potentially some of your largest and most successful partners eventually becoming acquisition targets or pursuing their own charters.

This isn't a new phenomenon, but has your thinking around the optimal size of any individual relationship changed?

Eric Sprink

No. I mean, over the last 3-plus years, we have skewed towards much larger companies. So that's evident in the list that we have there.

We still look for, in totality, the highest probability of success both for the partners' TAM as well as the bank's risk-adjusted return.

We do weigh, hey, when you sign some of these larger ones, the on-balance-sheet margin might be slightly less, but you get the off-balance-sheet upside potential with maybe a moderate-sized or middle-sized company that has slightly better operating margins, but maybe not as much upside because of their preexisting distribution network or what have you.

I think it's about diversification, Joe. When again, it comes back down to it, we believe in product diversification, program diversification, industry diversification and managing concentrations behind that.

So any type of Bluevine announcement shouldn't scare the markets too much because they know we're disciplined on how we manage the portfolios behind the scenes.

Operator

That concludes our Q&A session. I will now turn the call back over to Eric for closing remarks.

Eric Sprink

Well, thank you all, and thank you to the team members on the call and to all of our friends and supporters that woke up at 5:00 to hear this call today.

So we do appreciate the team and everything that they have done, and we are very excited about our future, and we appreciate everybody's attention and coming on the call today, and we'll talk to you all soon. Have a wonderful day.

Operator

This concludes our call for today. Thank you all for joining. You may now disconnect. Everyone, have a great day.