Coastal Financial Corp (EVERETT) (CCB) 2026 Q3 法說會逐字稿

Welcome to Coastal Financial Corporation's third quarter 2026 earnings conference call.

At this time, all participants have been placed in listen-only mode. Following the prepared remarks portion of this morning's call, the management team will take questions.

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.

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, myself, 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 initiative that we are applying across the business and 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 support them as we scale. 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 fintech's 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 two partners in onboarding and three 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 pre-tax charges related to one partner's 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 three months. We have remained focused on updating our assessment of the One Partner's 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. BAS 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 us get into the details. I will start with an update on one of the partners' consumer loan portfolios and the rest of our BAS 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 BAS model is structured so that the partners provide credit enhancement against losses on the programs they originate. That structure continues to perform across our partner base. And today, approximately 96.7% of VAS non-performing loans are covered by partner credit enhancements. What set last quarter apart were circumstances specific to one partner and his portfolio under that structure. We absorbed that impact. Return 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 collectability of amounts due under the specific partners 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 30th, projected cash flows under the Specific Partners Program agreement continues to support our accounting treatment to record substantially all of the corresponding incremental credit enhancement amounts.

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 remain 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 30th, the specific partner portfolio had $511 million in loans outstanding, compared with $507.5 million at quarter close for the second quarter on June 30th. Annualized net charge-offs were 9.81% compared with 11.46% for second quarter, which have markedly improved since third quarter of 2025. Loans 30 or more days past due. Were 3.41% compared with 4.06% for second quarter.

We continue to closely monitor the performance of the specific portfolio and the specific partner's ability to satisfy its obligations and will 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 would not 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 covered 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 non-performing loans decreased $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 BAS originations during the quarter, which partially explains why our gross BAS loan yield declined this quarter. Every partner operates under different portfolio limits we have set, and we test underwriting on a reoccurring basis for our partners with the largest exposures.

At September 30th, we had 30 CCBX relationships at varying stages, including 21 active partners, one in testing, two in onboarding, three signed letters of intent, and four winding down. The caliber of the fintech business and 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 evolved.

Valley Bank's recent announcement 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 30th, Bluevine related deposits on our balance sheet was approximately $452.4 million and another $1.85 billion in deposits was swept off 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. At September 30th, we held $3.04 billion of BAS deposits on balance sheet across 21 active partners with another $6.29 billion swept off balance sheet. Our funding alternatives include the ability to bring sweep deposits back onto our balance sheet, give the flexibility to replace Bluevine-related deposits.

We ended the quarter with $803 million of cash, $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 consternation of their transaction.

Now to the underlying business. VAS program fee income of $14.1 million grew from higher transaction and interchange fees and servicing fees. Eight 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 VAS 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-balance sheet rose to $6.29 billion from $4.26 billion at June 30th. 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 BAS loan expense. Net interest margin was $3.93 compared with $3.98 from the second quarter, and loan income, net at BAF loan expense, was $6.86 of average loan, 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 zero.

With that, I will turn it over to Joel for the financial overview.

Thank you and good morning. I will 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 $276 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 BAS loans, which is largely offset by $41.8 million of BAS credit enhancements recorded in non-interest income. $372,000 of the provision was for the community bank loans, $1.4 million for unfunded commitments, and $319,000 related to accrued interest receivable. 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.

Non-interest 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. Non-interest expense was $84.8 million compared with $141.1 million in second quarter, which included the $46 million credit enhancement valuation adjustment. Excluding past loan and fraud expense, non-interest 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 non-interest 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 a $4.4 million of accelerated depreciation in the prior quarter. These reductions in non-interest expense were partially offset. $1.6 million increase in legal and professional expenses and $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 deposit was 2.61 compared with 2.57% in the second quarter.

Turning to capital at September 30, our common equity tier one ratio was 11.47%, our tier one leverage ratio was 8.81%, and our total risk-based capital was 13.82%. Compared with 10.86%, 9.11%, and 13.3% in June 30. We had no borrowings outstanding on our contingent funding lines at quarter end.

With that, I will hand it over to Chris.

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 revenues faster than controllable expenses over the long-term. And we recognize that a resilient CapEx structure is something that we need to establish, improve to our shareholders over time.

Over the past quarter, we have begun translating these priorities into initiatives and specific actions. Codesal has built a scale-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 are scrutinizing vendors, contractors, and personnel in discretionary spending, eliminating duplication across roles 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 for 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 and non-interest expenses and expect to achieve these potential savings over the next four to six quarters. These expenses exclude VAS loans and fraud expenses, which are generally reimbursed by our CCBX partners and recognize the non-interest 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 in 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.

Close will return 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 will turn it back to Eric for some closing remarks.

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

We returned to profitability, grew BAS 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 requires. 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 VAS partner portfolio, including Valley's anticipated acquisition of BlueVine, while maintaining a strong funding profile, expanding the products and partnerships that yield appropriate risk-adjusted returns and converting revenue growth into. Greater operating leverage and more consistent profitability.

We recognize that one 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 Instructions)

Janet Lee, T.D. Cowan.

Good morning.

Good morning, Janet.

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

Yeah, thanks. I think it is materially stayed the same, as you say.

We are monitoring it. We have 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 dues are improving. The charge-offs are improving.

During the quarter, right, interest rates moved, and that kind of can affect the CECL models on a fixed rate portfolio. So consequently, weighted average lives played a big part of needing to increase that allowance. And since we have deemed it unrecoverable, but that should not reflect on the underlying analysis of the model, which we think is very consistent with our second quarter perspective.

Right. And on overall to CBX credit, you said you are not seeing other trouble relationships, but given higher rates and a few recent consumer finance headlines, are there any areas you are watching more closely?

Yeah, one, we are 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 CCVX 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 is 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 two indications I draw your attention to say, no, we feel confident right now that our oversight and our comments are accurate.

Got it. And thank you. 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? And as we think about '27, is there any efficiency ratio you believe the business can operate at once these actions are further along?

Thank you.

Hi, Janet. it is 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 is the way to think about it in terms of on a go-forward basis. So we are digging into all vendors, all contractors, duplication internally.

So we will continue that work in fourth quarter and continue to give an update on how it flows to the P&L. On a go-forward basis, we are 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.

Andrew Terrell, Stephens.

Hey, good morning.

Hey, good morning, Andrew.

Hey, Chris, if I could maybe stick on that last line of questioning, just on the expenses and the announced $20 million, just to kind of level set expectations, is $20 million a gross. Or a net number. So if we look at your operating expenses, the BAS expense and partner fraud this quarter was $45 million basically on the nose, four to six quarters from now, should you step down $5 million a quarter on the run rate, or is there reinvestment we should be contemplating that you maybe do not see a true kind of $20 million drop in the run rate over the next four to six quarters?

Yeah, that is a great question. So we certainly see that as a pre-tax 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-looking basis, that we will see that run rate over the next four to six. So I think the way that you are thinking about it is probably correct.

Okay, great. I appreciate it.

Just on the BlueVine relationship, I appreciate the color you guys provided. It looks like you can kind of just pull separate seed deposits back on to replace what you would be losing here. Just have a net kind of estimate on how losing this partner impacts your net revenue or net earnings. And then more broadly, just as you have, I am sure, sifted through the partner base. At the bank, do you feel like there is any risk that we see any more of this action going forward within your current partner base?

Yeah, good questions all the way around. So, yeah, Valley -- well, first off, let me just compliment Valley and BlueVine. I think it is 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, right? Ownership changes happen. So I can not sit here and say, hey, this is not going to happen. Quite the opposite. We have been the direct benefactor of changes of ownership over time. I can tell you that specifically, we are not aware today of any other events. Bank charters and/or changes in ownership.

What I can say is on BlueVine specific, we have plenty of funding, alternative sources to sweep back on the balance sheet, and our flexibility really plays into this structure. And I think it is often under-credited 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 have not done the final calculations on a net income impact, but we are looking at everything.

We have given you the numbers around it. So I think everybody, what we are also trying to work out internally, Andrew, is our cost to oversee this. So there is puts and takes. When you get to the net income number and as there is some internal costs, what can actually be reduced due to losing the relationship or what will be reinvested. So, but thank you for the question.

Yeah, no, okay, makes sense.

Now that 2Q is, a little less fresh, you have kind of had time to digest. Any shift in how you are thinking about managing.

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

Yeah, I mean, we humbly admit we are a learning organization and we are 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 partner's 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 have 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.

Okay. If I can sneak one more in just on the CCBX loan balances down a little bit this quarter.

I am assuming some of that was impacted by, it is only some portfolio mix change happened this quarter, maybe just some higher quality credit.

Do you think, should we expect loan portfolio growth out of CCBX going forward, or are we in a period of kind of just continued remix?

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

We look at average balances versus end of period, first off, average balances were up $300 million, so there is quite a lot of variability in the day-to-day management of the balance sheet and I would not read too much into quarter end. We have a robust pipeline. We have new products coming online. We have new partners coming online. We are always going to be constantly managing the portfolio, and we are still a growth company.

We did sell a larger block than normal of on-balance sheet credit cards, and you will see that in the period end balances by product mix.

So it is 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 is 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 are still a growth company and we have a robust pipeline. Line and we are going to manage that appropriately.

Okay, great. Thanks for taking the questions. And Joel, good to hear from you today.

Tim Switzer, KBW.

Hey, good morning. Thanks for taking my question.

Hey, Tim. Good to hear from you.

Putting the cost 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 things and keeping good expense discipline.

Yeah, I am going to kind of answer it this way. The AI technology that is being put in place is definitely on the oversight. That was our main target over the last 12 months.

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

Got it. Okay. Very helpful.

And are you able, 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?

Yeah, so the loan growth was nominal, right? I mean, 507 versus 511, that is. Timing difference if you ask me personally. We worked with the partner to kind of maintain.

So that is just a statement. So I do not think loan growth played into the provisioning. you are right. We try to be as transparent as possible in our comments. And so that is why there is a little bit of a qualitative comment, my opinion, that the attorneys 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 have got our targets inside that is built into the CECL models, but it was really close, but it was not 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 is down from 15% down to, 9% or really dramatically different and improving. And we see the improving comment come through the delinquency status. That is why we added that in there so you 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 are 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, then the losses extend. And at this time, we have deemed that we can not 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 are going to continue to evaluate it.

But, we are trying to give you as much color as we can, Tim.

Yeah, that was really helpful.

I mean, is there any, I guess, aspect of this provision in terms of like a roll forward where, we should expect, maybe a 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?

Good backdoor to a pro forma question.

What I can say is we are going to evaluate it every quarter.

We have 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 asks 50 new questions. So it is all eyes on everything right now. We understand the sensitivity of it. We, of course, did not want to have to come with this messaging today, but we think it is appropriate in the context to be as transparent as possible.

Totally understand. And one last one for me.

You talked about this a little bit, the higher core NIM and CCBX, it is moved higher the last two 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?

Yeah, I think there is a couple slides that, in the earnings release, I think you are kind of referencing or I am 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 is just worth calling that out.

Our cash-secured installment loans now is about $265 million.

But as 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 are 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 are tightening underwriting, so are they, in a cooperative nature, and we are starting to see that manifest itself in lower charge-offs, lower delinquencies, and lower gross yields while we are maintaining our yield.

Got it. Makes sense.

Thank you, Eric.

Your last question comes from the line of Joe with Raymond James. Your line is now open. Please go ahead.

Good morning, guys.

Good morning, Joe.

So, thank you for taking my questions here.

Most of my have been answered, but I do have a few. I would like to bounce off you. So, you talked about the significant investments Coastal's made in technology compliance, your risk infrastructure.

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?

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

Thank you, Joe.

Yeah, we have been building the program, 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 do not think there is any limitation in terms of how we have 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 really good about our growth path right now.

Okay, I appreciate that. And then just kind of 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?

I am 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 am 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 is part of our resiliency of our plan, but I have not heard any pushback from the teams that the secondary markets are not operating efficiently.

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

And this is not a new phenomenon, but has your thinking around, the optimal size of any individual relationship changed?

No, I mean, we have over the last three plus years, we have skewed towards much larger companies, so that is kind of 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 Bates risk-adjusted return.

We have to do, 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, right, because of their pre-existing distribution network or what have you. I think it is 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 should not scare the markets too much, right? Because they know we are disciplined on how we manage the portfolios behind the scenes.

Okay, great. Well, thank you for taking my questions.

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

Well, thank you all, and thank you to the team members on the call and for 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 will talk to you all soon. Have a wonderful day.

This concludes our call for today.

Thank you all for joining. You may now disconnect everyone. Have a great day.