- Key takeaway: Coastal Financial isn't letting a $68.8 million credit expense created by problems at one of its fintech partners shake its commitment to its nine-year-old banking-as-a-service strategy.
- Supporting data: The bank's fee income from its BaaS business totaled $22.9 million through the first six months of 2026.
- Expert quote: "We are not treating the June 30 accounting actions as the end of the world." — Coastal Executive Chairman Christopher Adams
A number of small banks that partner with fintechs have run into compliance snags. Coastal Financial is dealing with a different kind of problem in connection with its banking-as-a-service strategy: concentration risk.
On Thursday, the holding company for Everett, Washington-based Coastal Community Bank reported a $68.8 million credit expense tied to one of its 25 partner relationships. The move, which was prompted by the unnamed partner's deteriorating financial condition, pushed Coastal decidedly into the red during the second quarter. Its loss totaled $42.1 million, a swing from a $11 million profit in the year-ago period.
The news, not surprisingly, led to a battering of Coastal's stock. Shares on Thursday closed down nearly 44% at $39.91.
Still, Coastal executives said they have no plans to rethink the $5.5 billion-asset company's banking-as-a-service strategy.
"The board is absolutely committed to this growth business and banking-as-a-service," CEO Eric Sprink told analysts. "We think we're at a very unique inflection point in society with digital adoption, more brands getting into financial services. We think we are expertly positioned to continue to do this."
However, in the wake of the large credit expense, Coastal did move to restructure its senior management ranks. The company has named Christopher Adams, an Everett-based attorney who chairs the board of directors, as executive chairman.
While Sprink retains day-to-day management responsibilities as CEO, Adams will play an operational role focusing on long-term strategy, leadership development, external engagement, operational leverage and profitability.
Commenting on the conference call, Adams said his initial priority will be to conduct a wide-ranging examination of operational expenses, in order to ensure Coastal's resources are being used as efficiently as possible.
"The objective is not to just cut costs," Adams said. "[It's] to reduce lower-value and duplicative spending and direct our people, capital and technology toward appropriate risk-adjusted returns."
Adams said Coastal's board is requiring "enhanced reporting" on the BaaS program's performance, but has stopped short of requiring more far-reaching measures.
"We are not treating the June 30 accounting actions as the end of the world," Adams said.
The BaaS disclosure came in two parts: a $22.8 million provision for credit losses and a $46 million valuation adjustment to a credit-enhancement asset that was intended to buttress the pool of loans — totaling $500 million currently — resulting from the troubled partnership.
Overall, about 53% of Coastal's $4.2 billion loan portfolio traces back to the BaaS program.
Coastal uncovered no other significant issues while conducting a comprehensive examination of its roughly two-dozen other active BaaS partnerships, according to Sprink. The review also failed to uncover any fraud at the impacted partner, he added.
"This is not a read-through to the broader portfolio of partners, our view of the BaaS model, or our underwriting discipline," he said.
Despite that vote of confidence, Sprink revealed that Coastal has dropped its plan to acquire BaaS-related assets and deposits from the $1.2 billion-asset Evolve Bank & Trust in Memphis. Evolve became embroiled in the mess involving its bankrupt fintech partner Synapse.
Coastal announced in April that it was exploring a deal with Evolve but said it had not entered into a binding agreement.
Read more:
Should a bank ever be liable when a customer gets scammed ?OpenAI models' Hugging Face breach is a red flag for bankers The top-performing banks with $2B to $10B of assets in 2025 Inside Upstart's journey to get a bank charter approval
Coastal currently has 25 active partners, including three that are winding down their relationships with the bank. Another five are in the development pipeline, including the German fintech Pliant, which signed a deal earlier this month
Coastal embarked on its BaaS strategy in 2017. Prior to Thursday's announcement, it had achieved notable progress, attracting a number of prominent fintech clients, including Lending Point, Prosper, Bluevine and Dave.
Last year, Sprink told American Banker that
The plan appeared to be paying dividends. Beyond a robust new-partner pipeline, BaaS-related fee income, which amounted to $29.9 million for all of 2025, totaled $22.9 million through the first six months of 2026.
