Shareholders of Coastal Financial would probably like to forget the past six months even happened. The stock dropped 35.8% and now trades at $69.71. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Following the drawdown, is now a good time to buy CCB? Find out in our full research report, it’s free.
Why Are We Positive On Coastal Financial?
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.
1. Net Interest Income Skyrockets, Fueling Growth Opportunities
While bank generate revenue from multiple sources, investors view net interest income as a cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of one-time fees.
Coastal Financial’s net interest income has grown at a 38% annualized rate over the last five years, much better than the broader banking industry. Its growth was driven by an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book shrank throughout that period.
2. Elite Net Interest Margin Powers Best-In-Class Loan Book
The net interest margin (NIM) is a key profitability indicator that measures the difference between what a bank earns on its loans and what it pays on its deposits. This metric measures how efficiently one can generate income from its core lending activities.
Over the past two years, we can see that Coastal Financial’s net interest margin averaged an elite 7.2%, indicating the company has a high-yielding loan book and a low cost of funds.
3. Growing TBVPS Reflects Strong Asset Base
For banks, tangible book value per share (TBVPS) is a crucial metric that measures the actual value of shareholders’ equity, stripping out goodwill and other intangible assets that may not be recoverable in a worst-case scenario.
Coastal Financial’s TBVPS increased by 21.8% annually over the last five years, and although its annualized growth has recently decelerated a bit to 20.3% over the last two years (from $22.65 to $32.76 per share), we still think its performance was incredible.
Final Judgment
These are just a few reasons why we think Coastal Financial is a high-quality business. After the recent drawdown, the stock trades at 1.9× forward P/B (or $69.71 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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