COASTAL FINANCIAL CORP

Previous wording

We are a bank holding company that operates through our wholly owned subsidiaries, Coastal Community Bank (“Bank”) and Arlington Olympic LLC. We are headquartered in Everett, Washington, which by population is the largest city in, and the county seat of, Snohomish County, which has an estimated population in 2024 of over 849,000. Our business is conducted through three reportable segments: The community bank, CCBX and treasury & administration. The community bank segment includes all community banking activities, with a primary focus on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application. We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties (one in King County and one in Island County). The CCBX segment provides banking as a service (“BaaS”) that allows digital financial service providers, companies and brands to offer their customers banking services. The CCBX segment has 25 partners as of March 31, 2025. The treasury & administration segment includes investments, debt and other reporting items that are not specific to the community bank or CCBX segments. The Bank’s deposits are insured in whole or in part by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to regulation by the Federal Reserve and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has supervisory authority over the Company.

Current wording

We are a bank holding company that operates through our wholly owned subsidiaries, Coastal Community Bank (“Bank”) and Arlington Olympic LLC. We are headquartered in Everett, Washington, which by population is the largest city in, and the county seat of, Snohomish County, which has an estimated population in 2025 of over 853,000. Our business is conducted through three reportable segments: The community bank, CCBX and treasury & administration. The community bank segment includes all community banking activities, with a primary focus on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application. We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties (one in King County and one in Island County). The CCBX segment provides banking as a service (“BaaS”) that allows digital financial service providers, companies and brands to offer their customers banking services. The CCBX segment has 29 partners as of June 30, 2025. The treasury & administration segment includes investments, debt and other reporting items that are not specific to the community bank or CCBX segments. The Bank’s deposits are insured in whole or in part by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to regulation by the Federal Reserve and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has supervisory authority over the Company.

Previous wording

As of March 31, 2025, we had total assets of $4.34 billion, total loans receivable of $3.52 billion, total deposits of $3.79 billion and total shareholders’ equity of $449.9 million.

Current wording

As of June 30, 2025, we had total assets of $4.48 billion, total loans receivable of $3.54 billion, total deposits of $3.91 billion and total shareholders’ equity of $461.7 million.

Previous wording

On July 25, 2024, the Federal Reserve, FDIC, and Office of the Comptroller of the Currency released a joint statement discussing potential risks related to arrangements between banks and third parties to deliver bank deposit products and services to end users, as well as examples of effective practices for the management of those risks. Additionally, the agencies issued a request for information and comment on the nature of banks’ relationships with financial technology companies and effective risk management practices for those relationships. The agencies also indicated that they are considering whether additional steps, such as enhancements to supervisory guidance, could help ensure that banks effectively manage risks associated with these various types of arrangements. These developments suggest that the agencies are increasing their focus on third-party deposit arrangements and may expect financial institutions involved in these arrangements, such as us, to change their risk management and compliance practices, which may increase the costs of operating a BaaS business.

Current wording

On July 25, 2024, the Federal Reserve, FDIC, and Office of the Comptroller of the Currency released a joint statement discussing potential risks related to arrangements between banks and third parties to deliver bank deposit products and services to end users, as well as examples of effective practices for the management of those risks. Additionally, the agencies issued a request for information and comment on the nature of banks’ relationships with financial technology companies and effective risk management practices for those relationships. The agencies also indicated that they are considering whether additional steps, such as enhancements to supervisory guidance, could help ensure that banks effectively manage risks associated with these various types of arrangements. These developments suggest that the agencies are increasing their focus on third-party deposit arrangements and may expect financial institutions involved in these arrangements, such as us, to change their risk management and compliance practices, which may increase the costs of operating a BaaS business. To date, there has been no further progress on the request for information and comment.

Previous wording

Total loans, net of deferred fees, increased $30.8 million, or 0.9%, during the three months ended March 31, 2025 to $3.52 billion, compared to $3.49 billion at December 31, 2024. Community bank loans decreased $16.5 million, or 0.9%, and CCBX loans increased $47.2 million, or 2.9%. CCBX loan growth is net of $744.6 million in CCBX loans sold during the quarter ended March 31, 2025. We continue to monitor and manage the CCBX loan portfolio, and will continue to sell CCBX loans to the originating partner in the coming months as part of our strategy to optimize our CCBX portfolio, manage credit quality, portfolio limits and partner limits. At the same time we will be focused on increasing our efficiency and using technology to reduce future expense growth. Deposits increased $205.9 million, or 5.7% to $3.79 billion as of March 31, 2025 compared to $3.59 billion as of December 31, 2024. Our liquidity position is supported by diligent management of our liquid assets and liabilities as well as maintaining access to alternative sources of funds. As of March 31, 2025 we had $624.3 million in cash on the balance sheet and the capacity to borrow up to $662.4 million from Federal Home Loan Bank and the Federal Reserve Bank discount window. Cash on the balance sheet and borrowing capacity total $1.29 billion and represented 33.9% of total deposits and exceeded our $558.8 million in uninsured deposits as of March 31, 2025. Our AFS securities portfolio of $34,000 has a weighted average remaining maturity of 3.6 years. Unrealized losses on the AFS securities portfolio were $2,000, or 0.001%, of shareholders' equity as of March 31, 2025.

Current wording

Total loans, net of deferred fees, increased $23.0 million, or 0.7%, during the three months ended June 30, 2025 to $3.54 billion, compared to $3.52 billion at March 31, 2025. Community bank loans decreased $6.5 million, or 0.3%, and CCBX loans increased $29.5 million, or 1.8%. CCBX loan growth is net of $1.30 billion in CCBX loans sold during the quarter ended June 30, 2025. We continue to monitor and manage the CCBX loan portfolio, and will continue to sell CCBX loans to the originating partner in the coming months as part of our strategy to optimize our CCBX portfolio, manage growth, credit quality, portfolio and partner limits. At the same time we will be focused on increasing our efficiency and using technology to reduce future expense growth. Deposits increased $122.3 million, or 3.2% to $3.91 billion as of June 30, 2025 compared to $3.79 billion as of March 31, 2025. Our liquidity position is supported by diligent management of our liquid assets and liabilities as well as maintaining access to alternative sources of funds. As of June 30, 2025 we had $719.8 million in cash on the balance sheet and the capacity to borrow up to $642.7 million from Federal Home Loan Bank and the Federal Reserve Bank discount window. Cash on the balance sheet and borrowing capacity total $1.36 billion and represented 34.8% of total deposits and exceeded our $579.9 million in uninsured deposits as of June 30, 2025. Our AFS securities portfolio of $33,000 has a weighted average remaining maturity of 2.5 years. Unrealized losses on the AFS securities portfolio were $1,000, or less than 1.0%, of shareholders' equity as of June 30, 2025.

Previous wording

Our CCBX segment continues to evolve, and we have 25 relationships, at varying stages, as of March 31, 2025. We continue to refine the criteria for CCBX partnerships, exploring relationships with larger more established partners, with experienced management teams, existing customer bases and strong financial positions. We also will consider promising medium and smaller sized partners that align with our approach and terms including financial wherewithal and will continue to exit relationships where it makes sense for us to do so.

Current wording

Our CCBX segment continues to evolve, and we have 29 relationships, at varying stages, as of June 30, 2025. We continue to refine the criteria for CCBX partnerships, exploring relationships with larger more established partners, with experienced management teams, existing customer bases and strong financial positions. We also will consider promising medium and smaller sized partners that align with our approach and terms including financial wherewithal and will continue to exit relationships where it makes sense for us to do so.

Previous wording

As we explore relationships with new partners we continue to expand our product offerings with existing CCBX partners. As we become more proficient in the BaaS space we aim to cultivate new relationships that align with our long-term goals. We believe that a strategy of adding new partnerships and launching new products with existing partners allows us to expand and grow our customer base with a modest increase in regulatory risk given our operational history with them. Increases in partner activity/transaction counts is positively impacting noninterest income and we expect this trend to continue as current products grow and new products are introduced . We plan to continue selling loans as part of our strategy to balance partner and lending limits, and manage the loan portfolio and credit quality. We retain a portion of the fee income for our role in processing transactions on sold credit card balances, and will continue this strategy to provide an on-going and recurring revenue source with no on balance sheet risk or capital requirement.

Current wording

As we explore relationships with new partners we continue to expand our product offerings with existing CCBX partners. As we become more proficient in the BaaS space we aim to cultivate new relationships that align with our long-term goals. We believe that a strategy of adding new partnerships and launching new products with existing partners allows us to expand and grow our customer base with a modest increase in regulatory risk given our operational history with them. Increases in partner activity/transaction counts is positively impacting noninterest income and we expect this trend to continue as current products grow and new products are introduced. We plan to continue selling loans as part of our strategy to balance partner and lending limits, and manage the loan portfolio and credit quality. We retain a portion of the future fee income for our role in processing transactions on sold credit card balances, and will continue this strategy to provide an on-going and recurring revenue source with no on balance sheet risk or capital requirement.

Previous wording

Net income for the three months ended March 31, 2025 was $9.7 million, or $0.63 per diluted share, compared to $6.8 million, or $0.50 per diluted share, for the three months ended March 31, 2024. The increase in net income over the comparable period in the prior year was primarily attributable to a $13.2 million increase in interest income due to an increase in average loans receivable and higher interest rates on loan products and portfolio composition, a decrease in interest expense on deposits of $682,000, due to decreases in the Fed funds interest rate, partially offset by an increase of $6.4 million in BaaS loan expense. Also contributing is an increase BaaS program income of $2.2 million. The increase in BaaS program income is related to increased CCBX loan and deposit activity.

Current wording

Net income for the three months ended June 30, 2025 was $11.0 million, or $0.71 per diluted share, compared to $11.6 million, or $0.84 per diluted share, for the three months ended June 30, 2024. The decrease in net income over the comparable period in the prior year was primarily attributable to a $14.9 million increase in noninterest expenses partially offset by $10.4 million increase in interest income due to an increase in average loans receivable, an increase in BaaS program income of $2.0 million, which includes $504,000 in nonrecurring revenue, and a decrease in interest expense on deposits of $178,000 combined with other less significant changes.

Previous wording

Additionally, BaaS credit enhancement income decreased $26.2 million, which is directly related to and offsets the decrease in provision for credit losses of $27.4 million for the quarter ended March 31, 2025. In accordance with GAAP, we recognize as revenue (1) the right to be indemnified or reimbursed for fraud losses on CCBX customer loans and deposits and (2) the right to be indemnified for credit losses by our partners for expected credit losses related to loans they originate and unfunded commitments from such loans. CCBX customer credit losses are recognized in the allowance for credit loss and fraud loss is recognized in BaaS noninterest expense. For more information on the accounting for BaaS allowance for credit losses, reserve for unfunded commitments, credit enhancements and fraud enhancements see the section titled “CCBX – BaaS Reporting Information.”

Current wording

Additionally, BaaS credit enhancement income decreased $29.6 million, which is directly related to and offsets the decrease in provision for credit losses of $30.1 million for the quarter ended June 30, 2025. The lower provision is due to improvement in the performance of the CCBX portfolio and our focus on originating higher quality CCBX loans resulting in lower historical loss factors. In accordance with GAAP, we recognize as revenue (1) the right to be indemnified or reimbursed for fraud losses on CCBX customer loans and deposits and (2) the right to be indemnified for credit losses by our partners for expected credit losses related to loans they originate and unfunded commitments from such loans. CCBX customer credit losses are recognized in the allowance for credit loss and fraud loss is recognized in BaaS noninterest expense. For more information on the accounting for BaaS allowance for credit losses, reserve for unfunded commitments, credit enhancements and fraud enhancements see the section titled“CCBX – BaaS Reporting Information.”

Previous wording

Net interest income for the three months ended March 31, 2025 was $76.1 million, compared to $62.2 million for the three months ended March 31, 2024, an increase of $13.9 million, or 22.3%. Yield on loans receivable was 11.33% for the three months ended March 31, 2025, compared to 11.01% for the three months ended March 31, 2024. The increase in net interest income compared to the quarter ended March 31, 2024 was largely related to growth in higher yielding loans. The average balance of higher yielding CCBX loans were $364.2 million more for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. Total average loans receivable for the three months ended March 31, 2025 was $3.51 billion, compared to $3.14 billion for the three months ended March 31, 2024. The FOMC last lowered the targeted Federal Funds rate by 0.25% on December 19, 2024; a reduction of 1.00% compared to March 31, 2024.

Current wording

Net interest income for the three months ended June 30, 2025 was $76.7 million, compared to $66.2 million for the three months ended June 30, 2024, an increase of $10.6 million, or 16.0%. The increase in net interest income compared to the quarter ended June 30, 2024 was largely related to growth in loans receivable. The average balance of CCBX loans were $326.1 million more for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. Total average loans receivable for the three months ended June 30, 2025 was $3.57 billion, compared to $3.26 billion for the three months ended June 30, 2024. The FOMC last lowered the targeted Federal Funds rate by 0.25% on December 19, 2024; a reduction of 1.00% compared to June 30, 2024.

Previous wording

Total interest and fees on loans totaled $98.1 million for the three months ended March 31, 2025 compared to $85.9 million for the three months ended March 31, 2024. The $12.3 million increase in interest and fees on loans for the quarter ended March 31, 2025, compared to the quarter ended March 31, 2024, was largely due to growth in loans, primarily from CCBX. Total loans receivable was $3.52 billion at March 31, 2025, compared to $3.20 billion at March 31, 2024. CCBX average loans receivable was $1.63 billion for the quarter ended March 31, 2025, compared to $1.27 billion for the quarter ended March 31, 2024, an increase of $364.2 million, or 28.8%. Average CCBX yield of 16.88% was earned on CCBX loans for the quarter ended March 31, 2025, compared to 17.74% for the quarter ended March 31, 2024. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield.

Current wording

Total interest and fees on loans totaled $98.9 million for the three months ended June 30, 2025 compared to $90.9 million for the three months ended June 30, 2024. The $8.0 million increase in interest and fees on loans for the quarter ended June 30, 2025, compared to the quarter ended June 30, 2024, was largely due to growth in loans, primarily from CCBX. Total loans receivable was $3.54 billion at June 30, 2025, compared to $3.32 billion at June 30, 2024. CCBX average loans receivable was $1.69 billion for the quarter ended June 30, 2025, compared to $1.36 billion for the quarter ended June 30, 2024, an increase of $326.1 million, or 23.9%. Average CCBX yield of 16.22% was earned on CCBX loans for the quarter ended June 30, 2025, compared to 17.75% for the quarter ended June 30, 2024. The lower loan yield is the result of lower rates compared to the prior year period as well as a change in the loan mix. Lower rate capital call lines were $90.5 million higher compared to June 30, 2024. These loans bear a lower rate of interest, but have less credit risk due to the way the loans are structured compared to other commercial loans. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield.

Previous wording

Interest income from interest earning deposits with other banks was $6.1 million for the quarter ended March 31, 2025, an increase of $1.3 million, or 27.0%, primarily due to an increase in balances compared to the quarter ended March 31, 2024. The average balance of interest earning deposits invested with other banks for the three months ended March 31, 2025 was $553.4 million, compared to $350.9 million for the three months ended March 31, 2024. The yield on these interest earning deposits with other banks decreased 1.03%, in line with the 1.0% reduction in Fed funds, to 4.45% compared to 5.48% at March 31, 2024. Interest income on investment securities decreased $384,000 to $650,000 at March 31, 2025, compared to $1.0 million at March 31, 2024. Average investment securities decreased $68.2 million from $115.4 million for the three months ended March 31, 2024, to $47.2 million for the three months ended March 31, 2025, primarily as a result of maturing securities and principal paydowns. Average yield on investment securities increased to 5.59% for the three months ended March 31, 2025, compared to 3.60% for the three months ended March 31, 2024.

Current wording

Interest income from interest earning deposits with other banks was $8.1 million for the quarter ended June 30, 2025, an increase of $2.4 million, or 42.3%, primarily due to an increase in balances compared to the quarter ended June 30, 2024. The average balance of interest earning deposits invested with other banks for the three months ended June 30, 2025 was $729.7 million, compared to $418.2 million for the three months ended June 30, 2024. The yield on these interest earning deposits with other banks decreased 1.03%, in line with the 1.0% reduction in Fed funds, to 4.44% compared to 5.47% at June 30, 2024. Interest income on investment securities decreased $60,000 to $626,000 at June 30, 2025, compared to $686,000 at June 30, 2024. Average investment securities decreased $3.5 million from $49.8 million for the three months ended June 30, 2024, to $46.3 million for the three months ended June 30, 2025, as a result of principal paydowns. Average yield on investment securities decreased to 5.42% for the three months ended June 30, 2025, compared to 5.54% for the three months ended June 30, 2024.

Previous wording

Interest expense was $28.8 million for the quarter ended March 31, 2025, a $691,000 decrease from the quarter ended March 31, 2024. Interest expense on deposits was $28.2 million for the quarter ended March 31, 2025, compared to $28.9 million for the quarter ended March 31, 2024. The $682,000 decrease in interest expense on deposits was largely due to lower interest rates despite an increase of $437.5 million in interest bearing deposits compared to the quarter ended March 31, 2024. Interest on borrowed funds was $660,000 for the quarter ended March 31, 2025, compared to $669,000 for the quarter ended March 31, 2024.

Current wording

Interest expense was $31.1 million for the quarter ended June 30, 2025, a $190,000 decrease from the quarter ended June 30, 2024. Interest expense on deposits was $30.4 million for the quarter ended June 30, 2025, compared to $30.6 million for the quarter ended June 30, 2024. The $178,000 decrease in interest expense on deposits was largely due to lower interest rates despite an increase of $515.0 million in average interest bearing deposits compared to the quarter ended June 30, 2024. Interest on borrowed funds was $660,000 for the quarter ended June 30, 2025, compared to $672,000 for the quarter ended June 30, 2024.

Previous wording

Cost of funds was 3.11% for the quarter ended March 31, 2025, which is a decrease of 0.42% from the quarter ended March 31, 2024. Cost of deposits for the quarter ended March 31, 2025 was 3.08%, which was a 0.41% decrease, from 3.49% for the quarter ended March 31, 2024. These decreases were largely due to lower interest rates.

Current wording

Cost of funds was 3.13% for the quarter ended June 30, 2025, which is a decrease of 0.47% from the quarter ended June 30, 2024. Cost of deposits for the quarter ended June 30, 2025 was 3.10%, which was a 0.48% decrease, from 3.58% for the quarter ended June 30, 2024. These decreases were largely due to lower interest rates.

Previous wording

Net interest margin was 7.48% for the three months ended March 31, 2025, compared to 6.92% for the three months ended March 31, 2024. The increase in net interest margin compared to the three months ended March 31, 2024 was largely due to an increase in loan yield partially combined with a decrease in cost of deposits.

Current wording

Net interest margin was 7.06% for the three months ended June 30, 2025, compared to 7.12% for the three months ended June 30, 2024. The decrease in net interest margin compared to the three months ended June 30, 2024 was largely due to a decrease in loan yield partially offset by a decrease in cost of deposits.

Previous wording

Total yield on loans receivable for the quarter ended March 31, 2025 was 11.33%, compared to 11.01% for the quarter ended March 31, 2024. This increase in yield on loans receivable is primarily attributed to an increase in the average balance of higher yielding CCBX loans even though the yield on CCBX loans slightly declined. The yield on community bank loans also contributed as it was up slightly. The composition of the loan portfolio is shifting with CCBX average loans increasing to 46.4% of the total loan portfolio for the quarter ended March 31, 2025, compared to 40.3% for the quarter ended March 31, 2024, and the average community bank loans decreasing to 53.6% of the loan portfolio for the quarter ended March 31, 2025, compared to 59.7% for the quarter ended March 31, 2024. For the quarter ended March 31, 2025, average CCBX loans increased $364.2 million, or 28.8%, with an average CCBX yield of 16.88%, compared to 17.74% at the quarter ended March 31, 2024. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield. Average community bank loans increased $10.2 million, or 0.5%. Average yield on community bank loans for the three months ended March 31, 2025 was 6.53% compared to 6.46% for the three months ended March 31, 2024.

Current wording

Total yield on loans receivable for the quarter ended June 30, 2025 was 11.11%, compared to 11.22% for the quarter ended June 30, 2024. This decrease in yield on loans receivable is the result of lower rates compared to the prior year period as well as a change in the loan mix. Lower rate capital call lines were $90.5 million higher compared to June 30, 2024. The composition of the loan portfolio is shifting with CCBX average loans increasing to 47.3% of the total loan portfolio for the quarter ended June 30, 2025, compared to 41.8% for the quarter ended June 30, 2024, and the average community bank loans decreasing to 52.7% of the loan portfolio for the quarter ended June 30, 2025, compared to 58.2% for the quarter ended June 30, 2024. For the quarter ended June 30, 2025, average CCBX loans increased $326.1 million, or 23.9%, with an average CCBX yield of 16.22%, compared to 17.75% at the quarter ended June 30, 2024. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield. Average community bank loans decreased $16.4 million, or 0.9% due to normal balance fluctuations. Average yield on community bank loans for the three months ended June 30, 2025 was 6.53% compared to 6.52% for the three months ended June 30, 2024.

Previous wording

For the three months ended March 31, 2025, net interest margin (net interest income divided by the average total interest earning assets) and net interest spread (average yield on total interest earning assets minus average cost of total interest bearing liabilities) were 7.48% and 6.68%, respectively, compared to 6.92% and 5.93%, respectively, for the three months ended March 31, 2024.

Current wording

For the three months ended June 30, 2025, net interest margin (net interest income divided by the average total interest earning assets) and net interest spread (average yield on total interest earning assets minus average cost of total interest bearing liabilities) were 7.06% and 6.27%, respectively, compared to 7.12% and 6.16%, respectively, for the three months ended June 30, 2024.

Previous wording

The following table presents an analysis of the average balances of net interest income, net interest spread and net interest margin for the periods indicated. Loan costs, net of fees included in interest income totaled $2.1 million and $1.9 million for the three months ended March 31, 2025 and 2024, respectively. For the three months ended March 31, 2025 and 2024, the amount of interest income not recognized on nonaccrual loans was not material.

Current wording

The following table presents an analysis of the average balances of net interest income, net interest spread and net interest margin for the periods indicated. Loan costs, net of fees included in interest income totaled $2.1 million and $2.3 million for the three months ended June 30, 2025 and 2024, respectively. For the three months ended June 30, 2025 and 2024, the amount of interest income not recognized on nonaccrual loans was not material.

Previous wording

(5)Net interest margin, net of BaaS loan expense includes the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, servicing CCBX loans. A reconciliation of this non-GAAP measure is set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”

Current wording

(5)Net interest margin, net of BaaS loan expense includes the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, and servicing CCBX loans. A reconciliation of this non-GAAP measure is set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”

Previous wording

The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest earning assets and interest bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. The table illustrates the $2.5 million increase in loan interest income that is attributed to an increase in loan rates and $9.8 million increase in loan interest income that is attributed to an increase in loan volume. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to volume.

Current wording

The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest earning assets and interest bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. The table illustrates that the largest change is in loans receivable and consists of a $1.7 million increase in loan interest income that is attributed to an increase in loan rates and $18.6 million increase in loan interest income that is attributed to an increase in loan volume. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to volume.

Previous wording

The macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters, and trade issues that may impact the provision and therefore the allowance. Gross loans, excluding loans held for sale, totaled $3.52 billion at March 31, 2025. The allowance for credit losses as a percentage of loans was 5.21% at March 31, 2025, compared to 4.38% at March 31, 2024.

Current wording

The macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters, and trade issues that may impact the provision and therefore the allowance. Gross loans, excluding loans held for sale, totaled $3.54 billion at June 30, 2025. The allowance for credit losses as a percentage of loans was 4.65% at June 30, 2025, compared to 4.48% at June 30, 2024.

Previous wording

Agreements with our CCBX partners provide for a credit enhancement provided by the partner which protects the Bank by indemnifying or reimbursing incurred losses. CCBX partners bear most of the responsibility for credit losses incurred which consequently gives them vested interests in the performance of the portfolio. We believe that this alignment of interests ensures that CCBX partners are motivated to implement robust risk management practices and maintain the overall health of the portfolio. In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans and reclassified negative deposit accounts. When the provision for credit losses - loans and provision for unfunded commitments are recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements) in recognition of the CCBX partner's legal commitment to indemnify or reimburse losses. The credit enhancement asset is relieved as credit enhancement payments are received from the CCBX partner or taken from the partner's cash reserve account.

Current wording

Agreements with our CCBX partners provide for a credit enhancement provided by the partner which protects the Bank by indemnifying or reimbursing incurred losses. CCBX partners bear most of the responsibility for credit losses incurred which consequently gives them vested interests in the performance of the portfolio. We believe that this alignment of interests ensures that CCBX partners are motivated to implement robust risk management practices and maintain the overall health of the portfolio. In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans, reclassified negative deposit accounts, and accrued interest receivable on CCBX loans. When the provision for credit losses - loans and provision for unfunded commitments are recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements) in recognition of the CCBX partner's legal commitment to indemnify or reimburse losses. The credit enhancement asset is relieved as credit enhancement payments are received from the CCBX partner or taken from the partner's cash reserve account.

Previous wording

The provision for credit losses for the three months ended March 31, 2025 was $55.8 million, compared to $83.2 million for the three months ended March 31, 2024. This includes a provision for credit losses - loans for the three months ended March 31, 2025 of $54.4 million, compared to $79.5 million for the three months ended March 31, 2024. The decrease in the Company’s provision for credit losses - loans during the quarter ended March 31, 2025, is largely related to the provision for CCBX partner loans. During the quarter ended March 31, 2025, a $54.3 million provision for credit losses - loans was recorded for CCBX partner loans based on management’s analysis. The factors used in management’s analysis for community bank credit losses indicated that a provision for credit losses - loans of $65,000 was needed for the quarter ended March 31, 2025, largely due to a change in loan mix. Additionally, a provision for unfunded commitments of $613,000 was recorded for the quarter ended March 31, 2025, primarily as a result of a change in the loan mix of available balance, compared to $3.6 million for the three months ended March 31, 2024. A provision for accrued interest receivable of $784,000 was recorded for the quarter ended March 31, 2025 on CCBX loans, compared to zero for the quarter ended March 31, 2024.

Current wording

The provision for credit losses for the three months ended June 30, 2025 was $32.2 million, compared to $62.3 million for the three months ended June 30, 2024. This includes a provision for credit losses - loans for the three months ended June 30, 2025 of $30.9 million, compared to $61.9 million for the three months ended June 30, 2024. The decrease in the Company’s provision for credit losses - loans during the quarter ended June 30, 2025, is largely related to improvement in the performance of the CCBX portfolio and our focus on originating higher quality CCBX loans resulting in lower historical loss factors. As we continue to originate higher quality loans, these become a greater proportion of the CCBX portfolio, resulting in an improvement in expected losses and lower provision. During the quarter ended June 30, 2025, a $31.0 million provision for credit losses - loans was recorded for CCBX partner loans based on management’s analysis. The factors used in management’s analysis for community bank credit losses indicated that a provision recapture for credit losses - loans of $47,000 was needed for the quarter ended June 30, 2025, largely due to a change in loan mix. Additionally, a provision for unfunded commitments of $1.5 million was recorded for the quarter ended June 30, 2025, primarily as a result of a change in the loan mix of available balance, compared to $435,000 for the three months ended June 30, 2024. A provision recapture for accrued interest receivable of $182,000 was recorded for the quarter ended June 30, 2025 on CCBX loans, compared to zero for the quarter ended June 30, 2024.

Previous wording

Net charge-offs for the quarter ended March 31, 2025 totaled $48.2 million, or 5.57% of total average loans, compared to $57.0 million, or 7.30% of total average loans, for the quarter ended March 31, 2024. Net charge-offs were down in 2025 compared to 2024, primarily due to our on-going efforts to improve the credit quality of CCBX loans. However, loans originated through CCBX partners have a higher level of expected losses than our community bank loans as reflected in the factors for allowance for credit losses. In accordance with GAAP, CCBX losses are recorded as charge-offs, but CCBX partner agreements provide for a credit enhancement that indemnifies or reimburses the Bank for net-charge-offs on CCBX loans and negative deposit accounts, except in accordance with the program agreement for one partner where, effective April 1, 2024, the Company was responsible for credit losses on approximately 5% of a $299.8 million loan portfolio; prior to April 1, 2024, the Company was responsible for 10% of that portfolio. At March 31, 2025, our portion of this portfolio represented $19.9 million in loans. For the three months ended March 31, 2025, $48.2 million of net charge-offs were recognized for CCBX loans and $3,000 net recoveries were recognized on community bank loans. For the three months ended March 31, 2024, $56.9 million of net charge-offs were recognized on CCBX loans and $11,000 net charge-offs were recognized for community bank loans.

Current wording

Net charge-offs for the quarter ended June 30, 2025 totaled $49.3 million, or 5.54% of total average loans, compared to $53.0 million, or 6.54% of total average loans, for the quarter ended June 30, 2024. Net charge-offs as a percent of loans were down in 2025 compared to 2024, primarily due to our on-going efforts to improve the credit quality of CCBX loans. However, in general, loans originated through CCBX partners have a higher level of expected losses than our community bank loans as reflected in the factors for allowance for credit losses. In accordance with GAAP, CCBX losses are recorded as charge-offs, but CCBX partner agreements provide for a credit enhancement that indemnifies or reimburses the Bank for net-charge-offs on CCBX loans, negative deposit accounts, and accrued interest receivable on CCBX loans except in accordance with the program agreement for one partner where the Company was responsible for credit losses on approximately 5% of a $296.3 million loan portfolio; prior to April 1, 2024, the Company was responsible for 10% of that portfolio. At June 30, 2025, our portion of this portfolio represented $19.8 million in loans. For the three months ended June 30, 2025, $49.3 million of net charge-offs were recognized for CCBX loans and $9,000 net charge-offs were recognized on community bank loans. For the three months ended June 30, 2024, $53.0 million of net charge-offs were recognized on CCBX loans and $2,000 net recoveries were recognized for community bank loans.

Previous wording

Summary of significant noninterest income for the three months ended March 31, 2025 compared to the three months ended March 31, 2024

Current wording

Summary of significant noninterest income for the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024

Previous wording

Unrealized (loss)/gain on equity securities, net. During the three months ended March 31, 2025, we recognized an unrealized gain on equity securities of $16,000 compared to the same period ended March 31, 2024, when there was an unrealized gain of $15,000 recognized. We hold $3.6 million in total equity funds and investments, $3.2 million of which is in equity securities of entities that are focused on providing products to the BaaS and financial services space.

Current wording

Unrealized (loss)/gain on equity securities, net. During the three and six months ended June 30, 2025, we recognized an unrealized net loss on equity securities of $439,000 compared to the same period ended June 30, 2024, when there was an unrealized gain of $9,000 recognized. We hold $3.4 million in total equity funds and investments, $3.0 million of which is in equity securities of entities that are focused on providing products to the BaaS and financial services space. The loss in the current period is due to the re-valuation of a privately held equity stake, which we review quarterly. Management doesn’t believe the write-down is indicative of longer-term concerns of the portfolio company’s health at this time.

Previous wording

The increase in noninterest expenses for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 was largely due to a a $6.4 million increase in BaaS loan expense, a $1.1 million increase in BaaS fraud expense, a $2.8 million increase in legal and professional expenses, a $3.5 million increase in salary and employee benefits, and a $1.3 million increase in data processing and software licenses, largely due to enhancements in technology all of which are related to the growth of Company and investments in technology and risk management.

Current wording

The increase in noninterest expenses for the quarter ended June 30, 2025 compared to the quarter ended June 30, 2024 was largely due to a $4.4 million increase in salary and employee benefits, a $3.5 million increase in BaaS loan expense, a $2.7 million increase in legal and professional expenses, and a $1.6 million increase in data processing and software licenses, and a $1.0 million increase in BaaS fraud expense. These increases are largely due to growth and enhancements in technology all of which are related to the growth of the Company and investments in technology and risk management.

Previous wording

Summary of significant noninterest expense for the three months ended March 31, 2025 compared to the three months ended March 31, 2024

Current wording

Summary of significant noninterest expense for the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024

Previous wording

FDIC Assessments. FDIC assessments are assessed to fund the Deposit Insurance Fund (“DIF”) to insure and protect the depositors of insured banks and to resolve failed banks. The assessment rate is based on a number of factors and recalculated each quarter. As deposits increase, the FDIC assessment expense will generally increase. On October 18, 2022 the FDIC finalized an increase of 2 basis points in the initial base deposit insurance assessment rates schedules, beginning with the first quarterly assessment period of 2023. The rise is intended to increase the reserve ratio of the Deposit Insurance Fund to 1.35%, the statutory requirement. The increase in the base rates will remain in place until the reserve ratio reaches or exceeds 2.0%. The reserve ratio is 1.21% as of June 30, 2024. The reserve ratio is negatively affected by growth in assets and bank failures.

Current wording

FDIC Assessments. FDIC assessments are assessed to fund the Deposit Insurance Fund (“DIF”) to insure and protect the depositors of insured banks and to resolve failed banks. The assessment rate is based on a number of factors and recalculated each quarter. As deposits increase, the FDIC assessment expense will generally increase. On October 18, 2022 the FDIC finalized an increase of 2 basis points in the initial base deposit insurance assessment rates schedules, beginning with the first quarterly assessment period of 2023. The rise is intended to increase the reserve ratio of the Deposit Insurance Fund to 1.35%, the statutory requirement. The increase in the base rates will remain in place until the reserve ratio reaches or exceeds 2.0%. The reserve ratio is 1.28% as of December 31, 2024. The reserve ratio is negatively affected by growth in assets and bank failures.

Previous wording

For the three months ended March 31, 2025, income tax expense totaled $2.0 million, compared to $1.9 million for the three months ended March 31, 2024. The $124,000 increase in income tax expense is the result of higher net income, partially offset by the deductibility of certain equity awards. The effective tax rate was 17.3% for the three months ended March 31, 2025, compared to 22.0% for the three months ended March 31, 2024. The effective tax rate was lower for the three months ended March 31, 2025, largely due to the impact of stock equity award deductions which fluctuate based on employee driven equity award activity, vesting terms and stock price.

Current wording

For the three months ended June 30, 2025, income tax expense totaled $3.4 million a decrease of $66,000 compared to the three months ended June 30, 2024. The $66,000 decrease in income tax expense is the result of lower net income, partially offset by an increase in state income tax rates. Also impacting income tax expense is the deductibility of certain equity awards. The effective tax rate was 23.3% for the three months ended June 30, 2025, compared to 22.8% for the three months ended June 30, 2024. The effective tax rate was higher for the three months ended June 30, 2025, largely due to and increase in the state income tax rate used to calculate provision for income taxes partially offset by the impact of stock equity award deductions which fluctuate based on employee driven equity award activity, vesting terms and stock price. The state rate increased in the quarter ended June 30, 2025 primarily as a result of a change in California's tax laws.

Previous wording

Based on the criteria of ASC 280, Segment Reporting, we have identified three segments: the community bank, CCBX and treasury & administration. The primary focus of the community bank is on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application. We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties (one in King County and one in Island County). The CCBX segment provides BaaS that enables digital financial service providers, companies and brands to provide financial services to their customers. The CCBX segment has 25 partners as of March 31, 2025, 19 that are active with six more currently in the testing or implementation stage as of March 31, 2025. The treasury & administration segment includes treasury management, overall administration and all other aspects of the Company.

Current wording

Based on the criteria of ASC 280, Segment Reporting, we have identified three segments: the community bank, CCBX and treasury & administration. The primary focus of the community bank is on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application. We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties (one in King County and one in Island County). The CCBX segment provides BaaS that enables digital financial service providers, companies and brands to provide financial services to their customers. The CCBX segment has 29 partners as of June 30, 2025, 20 that are active with nine more currently in the testing or implementation stage as of June 30, 2025. The treasury & administration segment includes treasury management, overall administration and all other aspects of the Company.

Previous wording

The Company’s reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The Company continues to evaluate its methodology on allocating items to the Company’s various segments to support strategic business decisions by the Company’s executive leadership. The difference in total loans receivable and total deposits in the community bank and CCBX segments is recorded on the balance sheet of each segment as an intrabank asset or intrabank liability, with the treasury & administration segment as the offset to those entries. Income and expenses that are specific to a segment are directly posted to each segment. Additionally, certain indirect expenses are allocated to each segment utilizing various metrics, such as number of employees, utilization of space, and allocations based on loan and deposit balances. We have implemented a transfer pricing process that credits or charges the community bank and CCBX segments with intrabank interest income or expense for the difference in average loans and average deposits, with the treasury & administration segment as the offset for those entries. The accounting policies of the segments are the same as those described in “Note 1 – Description of Business and Summary of Significant Accounting Policies” in the accompanying notes to the consolidated financial statements included in the Company's most recently filed 10-K report.

Current wording

The Company’s reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. The Company continues to evaluate its methodology on allocating items to the Company’s various segments to support strategic business decisions by the Company’s executive leadership. The difference in total loans receivable and total deposits in the community bank and CCBX segments is recorded on the balance sheet of each segment as an intrabank asset or intrabank liability, with the treasury & administration segment as the offset to those entries. Income and expenses that are specific to a segment are directly posted to each segment. Additionally, certain indirect expenses are allocated to each segment utilizing various metrics, such as number of employees, utilization of space, and allocations based on loan and deposit balances. In the second quarter of 2025, the Company’s business unit structure was reviewed and updated, including the addition of new business units to better capture, allocate, and present certain activities. As a result there was some movement in noninterest expenses between the segments compared to the prior year periods, however the overall expenses allocated to each segment as a percent of total noninterest expense remains consistent. Allocations are generally determined at the beginning of each year, are reviewed at least quarterly, and are updated for material changes as necessary. The allocations for Q2 2025 were updated effective June 1, 2025. We have implemented a transfer pricing process that credits or charges the community bank and CCBX segments with intrabank interest income or expense for the difference in average loans and average deposits, with the treasury & administration segment as the offset for those entries. The accounting policies of the segments are the same as those described in “Note 1 – Description of Business and Summary of Significant Accounting Policies” in the accompanying notes to the consolidated financial statements included in the Company's most recently filed 10-K report.

Previous wording

Community bank total assets as of March 31, 2025 decreased $17.4 million, or 0.9%, to $1.88 billion, compared to $1.90 billion as of December 31, 2024. Loans receivable net of deferred fees for the community bank segment decreased $16.5 million, or 0.9%, to $1.87 billion as of March 31, 2025, compared to $1.88 billion as of December 31, 2024. The decrease in community bank loans receivable is the result of normal balance fluctuations. Total community bank deposits increased $3.0 million, or 0.20%, as of March 31, 2025, compared to $1.52 billion as of December 31, 2024. The overall increase in community bank deposits was primarily a result of exception pricing tactics added as a strategy at the end of the first quarter of 2024 to retain deposits and more effectively compete in the market. Our cost of deposits for the community bank decreased to 1.76% for the three months ended March 31, 2025, primarily as a result of lower interest rates.

Current wording

Community bank total assets as of June 30, 2025 decreased $21.8 million, or 1.2%, to $1.88 billion, compared to $1.90 billion as of December 31, 2024. Loans receivable net of deferred fees for the community bank segment decreased $22.9 million, or 1.2%, to $1.86 billion as of June 30, 2025, compared to $1.88 billion as of December 31, 2024. The decrease in community bank loans receivable is the result of normal balance fluctuations. Total community bank deposits increased $32.2 million, or 2.12%, as of June 30, 2025, compared to $1.52 billion as of December 31, 2024. Our cost of deposits for the community bank was 1.76% for the six months ended June 30, 2025.

Previous wording

CCBX total assets as of March 31, 2025 increased $202.3 million, or 9.6%, to $2.30 billion, compared to $2.10 billion as of December 31, 2024. During the three months ended March 31, 2025, $766.1 million in CCBX loans were transferred to loans held for sale, with $744.6 million in loans sold and $42.1 million loans remaining in loans held for sale as of March 31, 2025 compared to $20.6 million at December 31, 2024. We continue to sell loans back to the originating partner as part of our strategy to balance partner and lending limits, and manage the loan portfolio and credit quality. We retain a portion of the fee income for our role in processing transactions on sold credit card balances. This is expected to provide an on-going and recurring revenue stream without the additional on balance sheet risk. Total CCBX loans receivable increased $47.2 million, or 2.9%, to $1.65 billion as of March 31, 2025, compared to $1.60 billion as of December 31, 2024. The increase in loans receivable is the result of increased activity with CCBX partners. After deliberately reducing our other consumer and other loans portfolio during the third and fourth quarters of 2023 and first quarter of 2024 in an effort to optimize our loan portfolio, we have built back the CCBX portfolio with new loans that are more aligned with our long term objectives. CCBX allowance for credit losses increased to $164.2 million as of March 31, 2025, compared to $158.1 million as of December 31, 2024, primarily as a result of increased loan balances and the mix of loans with increased loss rates which has increased the allowance calculation/requirement. CCBX partner agreements provide for credit enhancements that cover $52.6 million, or 97.8%, of the total gross charge-offs on CCBX loans for the three months ended March 31, 2025. CCBX partners bear most of the responsibility for credit losses incurred which consequently gives them a vested interest in the performance of the portfolio. We believe that this alignment of interests ensures that CCBX partners are motivated to implement robust risk management practices and maintain the overall health of the portfolio. Total CCBX deposits increased $202.9 million, or 9.8%, to $2.27 billion, compared to $2.06 billion as of December 31, 2024, primarily as a result of growth within the CCBX relationships and new partnerships. This does not include an additional $406.3 million in CCBX deposits that were transferred off balance sheet to provide for increased FDIC insurance coverage to certain customers, compared to $273.2 million as of December 31, 2024.

Current wording

CCBX total assets as of June 30, 2025 increased $299.5 million, or 14.3%, to $2.40 billion, compared to $2.10 billion as of December 31, 2024. During the six months ended June 30, 2025, $2.08 billion in CCBX loans were transferred to loans held for sale, with $2.04 billion in loans sold and $60.5 million loans remaining in loans held for sale as of June 30, 2025 compared to $20.6 million at December 31, 2024. We continue to sell loans back to the originating partner as part of our strategy to optimize our CCBX portfolio and manage growth, credit quality, portfolio and partner limits. We retain a portion of the fee income for our role in processing transactions on sold credit card balances. This is expected to provide an on-going and recurring revenue stream without the additional on balance sheet risk. Total CCBX loans receivable increased $76.7 million, or 4.8%, to $1.68 billion as of June 30, 2025, compared to $1.60 billion as of December 31, 2024. The increase in loans receivable is the result of increased activity with CCBX partners, net of $2.04 billion in loan sales. After deliberately reducing our other consumer and other loans portfolio during the third and fourth quarters of 2023 and first quarter of 2024 in an effort to optimize our loan portfolio, we have built back the CCBX portfolio with new loans that are more aligned with our long term objectives. As a result of an increase in the difference of average deposits compared to average loans the intrabank asset increased $188.9 million to $600.7 million as of June 30, 2025, compared to $411.8 million as of December 31, 2024. CCBX allowance for credit losses decreased to $145.9 million as of June 30, 2025, compared to $158.1 million as of December 31, 2024. The decrease in the allowance is due to an improvement in the performance of the CCBX portfolio and our focus on originating higher quality CCBX loans resulting in lower historical loss factors. As we continue to originate higher quality loans, these become a greater proportion of the CCBX portfolio, resulting in an improvement in expected losses and a reduced allowance. CCBX partner agreements provide for credit enhancements that cover $105.1 million, or 97.5%, of the total gross charge-offs on CCBX loans for the six months ended June 30, 2025. CCBX partners bear most of the responsibility for credit losses incurred which consequently gives them a vested interest in the performance of the portfolio. We believe that this alignment of interests ensures that CCBX partners are motivated to implement robust risk management practices and maintain the overall health of the portfolio. Total CCBX deposits increased $296.1 million, or 14.3%, to $2.36 billion, compared to $2.06 billion as of December 31, 2024, primarily as a result of growth within the CCBX relationships and new partnerships. This does not include an additional $478.7 million in CCBX deposits that were transferred off balance sheet to provide for increased FDIC insurance covera…

Excerpt shortened here; the source contains the full paragraph.

Previous wording

Treasury & administration total assets as of March 31, 2025 increased $33.2 million, or 26.7%, to $157.8 million, compared to $124.6 million as of December 31, 2024, primarily due to an increase in cash and due from banks. Total securities decreased $330,000, or 0.7%, to $47.0 million as of March 31, 2025, compared to $47.3 million as of December 31, 2024, primarily as a result of principal repayments on securities. Total borrowings were $47.9 million as of both March 31, 2025 and December 31, 2024.

Current wording

Treasury & administration total assets as of June 30, 2025 increased $81.7 million, or 65.6%, to $206.3 million, compared to $124.6 million as of December 31, 2024, primarily due to an increase in cash and due from banks. Total securities decreased $1.7 million, or 3.7%, to $45.6 million as of June 30, 2025, compared to $47.3 million as of December 31, 2024, primarily as a result of principal repayments on securities. Total borrowings were $48.0 million as of both June 30, 2025 and December 31, 2024.

Previous wording

Net interest income for the community bank was $19.8 million for the quarter ended March 31, 2025, an increase of $1.3 million, or 7.3%, compared to $18.4 million for the quarter ended March 31, 2024. The increase in net interest income is largely due an increase in loan interest income combined with lower cost of deposits resulting from lower interest rates. As a result of the community bank having higher average loans than deposits for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024, less intrabank interest expense was allocated to the community bank. The community bank intrabank interest expense was $3.9 million for the quarter ended March 31, 2025, compared to intrabank interest expense of $5.6 million for the quarter ended March 31, 2024. There was a provision for credit losses - loans for the community bank of $507,000 for the quarter ended March 31, 2025, compared to a provision expense of $2.0 million for the quarter ended March 31, 2024; the provision in the current period was largely due to a change in the mix of community bank loans. Net charge-offs to average loans for the community bank segment was 0.00% for the quarters ended March 31, 2025, and March 31, 2024. Noninterest income for the community bank was $1.0 million, for the quarter ended March 31, 2025, a decrease of $165,000, or 14.0%, compared to $1.2 million for the quarter ended March 31, 2024. Noninterest expenses for the community bank increased $1.4 million, or 15.5%, to $10.4 million as of March 31, 2025, compared to $9.0 million as of March 31, 2024. The increase in noninterest expense is largely due to higher salaries and employee benefits and data processing and software licenses which are related to the growth of Company and investments in technology and risk management.

Current wording

Net interest income for the community bank was $20.0 million for the quarter ended June 30, 2025, an increase of $1.6 million, or 8.6%, compared to $18.4 million for the quarter ended June 30, 2024. The increase in net interest income is largely due lower cost of deposits resulting from lower interest rates. As a result of the community bank having higher average loans than deposits for the quarter ended June 30, 2025 compared to the quarter ended June 30, 2024, less intrabank interest expense was allocated to the community bank. The community bank intrabank interest expense was $3.8 million for the quarter ended June 30, 2025, compared to intrabank interest expense of $5.8 million for the quarter ended June 30, 2024. There was a provision recapture for credit losses - loans for the community bank of $216,000 for the quarter ended June 30, 2025, compared to a provision recapture of $79,000 for the quarter ended June 30, 2024; the recapture in the current period was largely due to a change in the mix of community bank loans. Net charge-offs to average loans for the community bank segment was 0.00% for the quarters ended June 30, 2025, and June 30, 2024. Noninterest income for the community bank was $1.1 million, for the quarter ended June 30, 2025, an increase of $23,000, or 2.2%, compared to the quarter ended June 30, 2024. Noninterest expenses for the community bank increased $3.7 million, or 41.1%, to $12.6 million as of June 30, 2025, compared to $8.9 million as of June 30, 2024. The increase in noninterest expense is largely due to higher salaries and employee benefits and data processing and software licenses which are related to the growth of Company and investments in technology and risk management.

Previous wording

Net interest income for CCBX was $52.4 million for the quarter ended March 31, 2025, an increase of $11.2 million, or 27.3%, compared to $41.1 million for the quarter ended March 31, 2024. The increase in net interest income is primarily due to loan growth from active CCBX relationships. During the quarter ended March 31, 2025 we sold $744.6 million in CCBX loans as part of our strategy to optimize our CCBX portfolio and manage credit quality, portfolio limits and partner limits. We are retaining a portion of the transaction processing fee income on sold credit card balances which provides an on-going and recurring income without balance sheet risk. As a result of having higher average deposits than loans for the quarter ended March 31, 2025 compared to the quarter ended March 31, 2024 intrabank interest income for CCBX was $6.1 million for the quarter ended March 31, 2025, compared to $8.2 million for the quarter ended March 31, 2024. Provision for credit losses - loans was $55.3 million as a result of loan origination growth and the mix of loans for the quarter ended March 31, 2025, compared to $81.1 million for the quarter ended March 31, 2024. CCBX partner agreements provide for credit enhancements that cover $47.1 million, or 97.8% of total gross charge-offs on CCBX loans for the quarter ended March 31, 2025. The $54.3 million provision on CCBX loans includes $53.5 million for partner loans with credit enhancement on them and $847,000 on CCBX loans that the Company is responsible for. In accordance with the program agreement, the Company was responsible for credit losses on approximately 5% of a $299.8 million loan portfolio, or $19.9 million in partner loans at March 31, 2025. Noninterest income for CCBX was $61.9 million for the quarter ended March 31, 2025, a decrease of $22.9 million, or 27.0%, compared to $84.9 million for the quarter ended March 31, 2024, largely due to a decrease of $26.2 million in BaaS credit enhancements to establish a credit enhancement asset for future credit losses due from our CCBX partners, partially offset by a $2.2 million increase in BaaS program income, which was the result of increased activity with digital financial service providers and a $1.1 million increase in BaaS fraud enhancements. Noninterest expenses for CCBX increased $10.2 million, or 26.4%, to $48.6 million as of March 31, 2025, compared to $38.4 million as of March 31, 2024. The increase in noninterest expense is largely due to an increase in salaries and employee benefits, data processing and software licenses and legal and professional expenses, all of which are related to the growth of Company and investments in technology and risk management. For more information on the accounting for BaaS income and expenses see the section titled “CCBX – BaaS Reporting Information.”

Current wording

Net interest income for CCBX was $52.5 million for the quarter ended June 30, 2025, an increase of $8.2 million, or 18.4%, compared to $44.3 million for the quarter ended June 30, 2024. The increase in net interest income is primarily due to loan growth from active CCBX relationships. During the quarter ended June 30, 2025 we sold $1.30 billion in CCBX loans as part of our strategy to optimize our CCBX portfolio and manage growth, credit quality, portfolio and partner limits. We are retaining a portion of the transaction processing fee income on sold credit card balances which provides an on-going and recurring income without balance sheet risk. As a result of having higher average deposits than loans for the quarter ended June 30, 2025 compared to the quarter ended June 30, 2024 intrabank interest income for CCBX was $7.8 million for the quarter ended June 30, 2025, compared to $8.3 million for the quarter ended June 30, 2024. Provision for credit losses - loans was $32.4 million for the quarter ended June 30, 2025, compared to $62.4 million for the quarter ended June 30, 2024. The decrease in the provision is due to an improvement in the performance of the CCBX portfolio and our focus on originating higher quality CCBX loans resulting in lower historical loss factors. As we continue to originate higher quality loans, these become a greater proportion of the CCBX portfolio, resulting in an improvement in expected losses and lower provision expense. CCBX partner agreements provide for credit enhancements that cover $48.0 million, or 97.3% of total gross charge-offs on CCBX loans for the quarter ended June 30, 2025. The $31.0 million provision on CCBX loans includes $29.6 million for partner loans with credit enhancement on them and $1.3 million on CCBX loans that the Company is responsible for. In accordance with the program agreement, the Company was responsible for credit losses on approximately 5% of a $296.3 million loan portfolio, or $19.8 million in partner loans at June 30, 2025. Noninterest income for CCBX was $41.7 million for the quarter ended June 30, 2025, a decrease of $26.2 million, or 38.6%, compared to $67.9 million for the quarter ended June 30, 2024, largely due to a decrease of $29.6 million in BaaS credit enhancements to establish a credit enhancement asset for future credit losses due from our CCBX partners - which is directly related to the provision for credit losses, partially offset by a $2.0 million increase, which includes $504,000 in nonrecurring revenue, in BaaS program income, which was the result of increased activity with digital financial service providers and a $1.0 million increase in BaaS fraud enhancements. Noninterest expenses for CCBX increased $9.5 million, or 22.4%, to $51.9 million as of June 30, 2025, compared to $42.4 million as of June 30, 2024. The increase in noninterest expense is largely due to an increase in salaries and employee benefits, data processing and software licenses and legal and profes…

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Previous wording

Net interest income for treasury & administration was $3.9 million for the quarter ended March 31, 2025, an increase of $1.3 million, or 49.2%, compared to $2.6 million for the quarter ended March 31, 2024, primarily as a result of higher interest earning deposits with other banks and lower interest expense. Noninterest income increased $404,000, or 292.8%, to $542,000 for the quarter ended March 31, 2025, compared to $138,000 for the quarter ended March 31, 2024. Noninterest expense was $13.0 million for the quarter ended March 31, 2025, and $9.1 million for the quarter ended March 31, 2024, with the increase in data processing and software license expense largely as a result of growth.

Current wording

Net interest income for treasury & administration was $4.2 million for the quarter ended June 30, 2025, an increase of $829,000, or 24.3%, compared to $3.4 million for the quarter ended June 30, 2024, primarily as a result of higher interest earning deposits with other banks and lower interest expense. Noninterest income decreased $252,000, or 186.7%, to $(117,000) for the quarter ended June 30, 2025, compared to $135,000 for the quarter ended June 30, 2024 and included a net $439,000 loss on equity securities due to the re-valuation of a privately held equity stake, which is reviewed quarterly. The Company does not believe the write-down is indicative of longer-term concerns of the portfolio company’s health at this time. Noninterest expense was $8.4 million for the quarter ended June 30, 2025, and $6.7 million for the quarter ended June 30, 2024, with the increase in salaries and employee benefits and legal and professional expense largely as a result of growth.

Previous wording

Our total assets increased $218.1 million, or 5.3%, to $4.34 billion at March 31, 2025 from $4.12 billion at December 31, 2024. The increase is primarily comprised of a $164.9 million increase in interest earning deposits with other banks and a $30.8 million increase in loans receivable.

Current wording

Our total assets increased $359.4 million, or 8.7%, to $4.48 billion at June 30, 2025 from $4.12 billion at December 31, 2024. The increase is primarily comprised of a $274.2 million increase in interest earning deposits with other banks and a $53.8 million increase in loans receivable.

Previous wording

During the three months ended March 31, 2025, $766.1 million in CCBX loans were transferred to loans held for sale, with $744.6 million in loans sold. As of March 31, 2025 there were $42.1 million in loans held for sale and $20.6 million as of December 31, 2024. We will continue to sell loans back to the originating partner as part of our strategy to optimize our CCBX portfolio, manage credit quality, portfolio limits and partner limits. Additionally, on sold credit card balances we are retaining a portion of the fee income for our role in processing transactions. This is expected to provide an on-going and recurring revenue stream without the additional on balance sheet risk.

Current wording

During the six months ended June 30, 2025, $2.08 billion in CCBX loans were transferred to loans held for sale, with $2.04 billion in loans sold. As of June 30, 2025 there were $60.5 million in loans held for sale and $20.6 million as of December 31, 2024. We will continue to sell loans back to the originating partner as part of our strategy to optimize our CCBX portfolio, manage growth, credit quality, portfolio and partner limits. Additionally, on sold credit card balances we are retaining a portion of the future fee income for our role in processing transactions. This is expected to provide an on-going and recurring revenue stream without the additional on balance sheet risk.

Previous wording

As of March 31, 2025, loans receivable totaled $3.52 billion, an increase of $30.8 million, or 0.9%, compared to December 31, 2024. Total loans receivable is net of $6.5 million in net deferred origination fees. The increase includes gross CCBX loan growth of $47.3 million, or 2.9%, and a decrease in gross community bank loans of $16.5 million, or 0.9%.

Current wording

As of June 30, 2025, loans receivable totaled $3.54 billion, an increase of $53.8 million, or 1.5%, compared to December 31, 2024. Total loans receivable is net of $6.6 million in net deferred origination fees. The increase includes gross CCBX loan growth of $76.8 million, or 4.8%, and a decrease in gross community bank loans of $23.0 million, or 1.2%.