[10-Q] COASTAL FINANCIAL CORP Quarterly Earnings Report
Filing Impact
Filing Sentiment
Form Type
10-Q
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark one)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2025
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from _______________ to _______________
Commission file number: 001-38589
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
( | ||
| (Registrant’s telephone number, including area code) | ||
| Not Applicable | ||
| (Former name, former address and former fiscal year, if changed since last report) | ||
_________________________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and emerging growth company in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer | o | x | |||||||||
| Non-Accelerated Filer | o | Smaller Reporting Company | |||||||||
| Emerging Growth Company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 3, 2025, there were 15,121,263 shares of the issuer’s common stock outstanding.
Table of Contents
COASTAL FINANCIAL CORPORATION
Table of Contents
| Page No. | |||||||||||
Part I. Financial Information | |||||||||||
Item 1. | Condensed Consolidated Financial Statements (unaudited) | 4 | |||||||||
Condensed Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024 (unaudited) | 5 | ||||||||||
Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2025 and 2024 (unaudited) | 6 | ||||||||||
Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2025 and 2024 (unaudited) | 7 | ||||||||||
Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2025 and 2024 (unaudited) | 8 | ||||||||||
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2025 and 2024 (unaudited) | 10 | ||||||||||
Notes to Condensed Consolidated Financial Statements (unaudited) | 11 | ||||||||||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 53 | |||||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 110 | |||||||||
Item 4. | Controls and Procedures | 112 | |||||||||
Part II. Other Information | |||||||||||
Item 1. | Legal Proceedings | 113 | |||||||||
Item 1A. | Risk Factors | 113 | |||||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 113 | |||||||||
Item 3. | Defaults Upon Senior Securities | 113 | |||||||||
Item 4. | Mine Safety Disclosures | 113 | |||||||||
Item 5. | Other Information | 113 | |||||||||
Item 6. | Exhibits | 114 | |||||||||
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Forward-Looking Statements
This report may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. Any statements about our management’s expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. All forward-looking statements, expressed or implied, included herewith are expressly qualified in their entirety by the cautionary statements contained or referred to herein. The inclusion of forward-looking information in this report should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.
Factors that may affect our results are disclosed in “Item 1A. Risk Factors” in Part II of this report and in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 (“Form 10-K”). Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed include, but are not limited to, the following: the difficult market conditions and unfavorable economic conditions and uncertainties in the markets in which we operate and in which our loans are concentrated, including declines in housing markets as a result of global macroeconomic and geopolitical events, an increase in unemployment levels and slowdowns in economic growth, including as a result of the prolonged U.S. government shutdown; changes in U.S. trade policies, including the imposition of tariffs and retaliatory tariffs, may adversely impact our business, financial condition, and results of operations; our expected future financial results; our ability to successfully execute on our strategy for our CCBX segment, CCBX partnerships and our efforts to optimize and strengthen our CCBX balance sheet; the overall health of the local and national real estate market; the impacts related to or resulting from bank failures and mergers and other economic and industry volatility, including potential increased regulatory requirements and costs and potential impacts to macroeconomic conditions; the credit risk associated with our loan portfolio, our level of nonperforming assets and the costs associated with resolving problem loans; business and economic conditions generally and in the financial services industry, nationally and within our market area, particularly in the markets in which we operate and in which our loans are concentrated; the impact on the Company’s operations due to epidemic illnesses, natural or man-made disasters, such as earthquakes, tsunamis, wildfires and flooding, the effects of regional or national civil unrest, wars and acts of terrorism, and political developments that may disrupt or increase volatility in securities or otherwise affect economic conditions; our ability to maintain an adequate level of allowance for credit losses; our ability to successfully manage liquidity risk; our ability to implement our growth strategy and manage costs effectively; the composition of our senior leadership team and our ability to attract and retain key personnel; our ability to raise additional capital to implement our business plan; changes in market interest rates and impacts of such changes on our profits and business; the occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents; interruptions involving our information technology and telecommunications systems or third-party servicers; our ability to maintain our reputation; increased competition in the financial services industry; regulatory guidance on commercial lending concentrations; our relationship with digital financial service providers; the effectiveness of our risk management framework; the costs and obligations associated with being a publicly traded company and other unanticipated costs that we may experience; the commencement and outcome of litigation and other legal proceedings and regulatory actions against us or to which we may become subject; the extensive regulatory framework that applies to us; the impact of recent and future legislative and regulatory changes and economic stimulus programs; and other changes in banking, securities and tax laws and regulations, and their application by our regulators; the impact on our operations due to epidemic illnesses, natural or man-made disasters, such as wildfires, the effects of regional or national civil unrest, and political developments that may disrupt or increase volatility in securities or otherwise affect economic conditions; fluctuations in the value of the securities held in our securities portfolio; governmental monetary and fiscal policies; material weaknesses in our internal control over financial reporting; and our success at managing the risks involved in the foregoing items.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this report. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. You are cautioned not to place undue reliance on forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) | ||
(dollars in thousands) | ||
| ASSETS | |||||||||||
| September 30, 2025 | December 31, 2024 | ||||||||||
| Cash and due from banks | $ | $ | |||||||||
Interest earning deposits with other banks | |||||||||||
| Investment securities, available-for-sale, at fair value | |||||||||||
| Investment securities, held-to-maturity, at amortized cost | |||||||||||
| Other investments | |||||||||||
| Loans held for sale | |||||||||||
| Loans receivable | |||||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Total loans receivable, net | |||||||||||
| CCBX credit enhancement asset | |||||||||||
| CCBX receivable | |||||||||||
| Premises and equipment, net | |||||||||||
| Lease right-of-use assets | |||||||||||
| Accrued interest receivable | |||||||||||
| Bank-owned life insurance, net | |||||||||||
| Deferred tax asset, net | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||||||
| LIABILITIES | |||||||||||
| Deposits | $ | $ | |||||||||
| Subordinated debt, net | |||||||||||
Principal amount $ | |||||||||||
| Junior subordinated debentures, net | |||||||||||
Principal amount $ | |||||||||||
| Deferred compensation | |||||||||||
| Accrued interest payable | |||||||||||
| Lease liabilities | |||||||||||
| CCBX payable | |||||||||||
| Deferred tax liability, net | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| SHAREHOLDERS’ EQUITY | |||||||||||
Preferred stock, | |||||||||||
Authorized: | |||||||||||
Common stock, | |||||||||||
Authorized: | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss, net of tax | ( | ( | |||||||||
| Total shareholders’ equity | |||||||||||
| Total liabilities and shareholders’ equity | $ | $ | |||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) | ||
| (dollars in thousands, except for per share data) | ||
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| INTEREST AND DIVIDEND INCOME | |||||||||||||||||||||||
| Interest and fees on loans | $ | $ | $ | $ | |||||||||||||||||||
| Interest on interest earning deposits with other banks | |||||||||||||||||||||||
| Interest on investment securities | |||||||||||||||||||||||
| Dividends on other investments | |||||||||||||||||||||||
| Total interest income | |||||||||||||||||||||||
| INTEREST EXPENSE | |||||||||||||||||||||||
| Interest on deposits | |||||||||||||||||||||||
| Interest on borrowed funds | |||||||||||||||||||||||
| Total interest expense | |||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||
| PROVISION FOR CREDIT LOSSES | |||||||||||||||||||||||
| Net interest income/(expense) after provision for credit losses | ( | ||||||||||||||||||||||
| NONINTEREST INCOME | |||||||||||||||||||||||
| Service charges and fees | |||||||||||||||||||||||
| Loan referral fees | |||||||||||||||||||||||
| Unrealized gain (loss) on equity securities, net | ( | ||||||||||||||||||||||
| Other income | |||||||||||||||||||||||
Noninterest income, excluding BaaS program income and BaaS indemnification income | |||||||||||||||||||||||
| Servicing and other BaaS fees | |||||||||||||||||||||||
| Transaction and interchange fees | |||||||||||||||||||||||
| Reimbursement of expenses | |||||||||||||||||||||||
| BaaS program income | |||||||||||||||||||||||
| BaaS credit enhancements | |||||||||||||||||||||||
| BaaS fraud enhancements | |||||||||||||||||||||||
| BaaS indemnification income | |||||||||||||||||||||||
| Total noninterest income | |||||||||||||||||||||||
| NONINTEREST EXPENSE | |||||||||||||||||||||||
| Salaries and employee benefits | |||||||||||||||||||||||
| Occupancy | |||||||||||||||||||||||
| Data processing and software licenses | |||||||||||||||||||||||
| Legal and professional expenses | |||||||||||||||||||||||
| Point of sale expense | |||||||||||||||||||||||
| Excise taxes | |||||||||||||||||||||||
| Federal Deposit Insurance Corporation ("FDIC") assessments | |||||||||||||||||||||||
| Director and staff expenses | |||||||||||||||||||||||
| Marketing | |||||||||||||||||||||||
| Other expense | |||||||||||||||||||||||
| Noninterest expense, excluding BaaS loan and BaaS fraud expense | |||||||||||||||||||||||
| BaaS loan expense | |||||||||||||||||||||||
| BaaS fraud expense | |||||||||||||||||||||||
| BaaS loan and fraud expense | |||||||||||||||||||||||
| Total noninterest expense | |||||||||||||||||||||||
| Income before provision for income taxes | |||||||||||||||||||||||
| PROVISION FOR INCOME TAXES | |||||||||||||||||||||||
| NET INCOME | $ | $ | $ | $ | |||||||||||||||||||
| Basic earnings per common share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per common share | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of common shares outstanding: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) | ||
| (dollars in thousands) | ||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| NET INCOME | $ | $ | $ | $ | |||||||||||||||||||
| OTHER COMPREHENSIVE INCOME (LOSS), before tax | |||||||||||||||||||||||
| Securities available-for-sale | |||||||||||||||||||||||
| Unrealized holding income during the period | |||||||||||||||||||||||
| Income tax expense related to unrealized holding gain/(loss) | ( | ( | |||||||||||||||||||||
| OTHER COMPREHENSIVE INCOME, net of tax | |||||||||||||||||||||||
| COMPREHENSIVE INCOME | $ | $ | $ | $ | |||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED) | ||
| (dollars in thousands) | ||
Shares of Common Stock | Amount of Common Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||
BALANCE, June 30, 2024 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| Issuance of restricted stock awards | — | — | — | — | — | ||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | |||||||||||||||||||||||||
| Exercise of stock options | — | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ||||||||||||||||||||||||||
BALANCE, September 30, 2024 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
BALANCE, December 31, 2023 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
| Issuance of restricted stock awards | — | — | — | — | |||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | — | |||||||||||||||||||||||||
| Exercise of stock options | — | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | ||||||||||||||||||||||||||
BALANCE, September 30, 2024 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
BALANCE, June 30, 2025 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
Issuance of restricted stock awards, net of | — | ( | — | — | ( | ||||||||||||||||||||||||
Vesting of restricted stock units, net of | ( | — | — | ( | |||||||||||||||||||||||||
Exercise of stock options, net of shares held to cover for exercise and taxes | — | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||
BALANCE, September 30, 2025 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
BALANCE, December 31, 2024 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
| Net income | — | — | — | ||||||||||||||||||||||||||
Issuance of restricted stock awards, net of | ( | — | — | ( | |||||||||||||||||||||||||
Vesting of restricted stock units, net of | ( | — | — | ( | |||||||||||||||||||||||||
Exercise of stock options, net of shares held to cover for exercise and taxes | — | — | |||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | ||||||||||||||||||||||||||
| Stock issuance and net proceeds from public offering, adjustment | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | ||||||||||||||||||||||||||
BALANCE, September 30, 2025 | $ | $ | $ | ( | $ | ||||||||||||||||||||||||
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See accompanying Notes to Condensed Consolidated Financial Statements.
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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||
| (dollars in thousands) | ||
| Nine Months Ended September 30, | |||||||||||
| 2025 | 2024 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Provision for credit losses | |||||||||||
| Depreciation and amortization | |||||||||||
| Increase in operating lease right-of-use assets | |||||||||||
| Increase in operating lease liabilities | ( | ( | |||||||||
| Net amortization on investment securities | |||||||||||
| Unrealized holding loss (gain) on equity investment, net | ( | ||||||||||
| Stock-based compensation | |||||||||||
| Increase in bank-owned life insurance value | ( | ( | |||||||||
| Deferred tax expense | |||||||||||
| Net change in CCBX receivable | ( | ( | |||||||||
| Net change in CCBX credit enhancement asset | ( | ||||||||||
| Net change in CCBX payable | |||||||||||
| Net change in other assets and liabilities | ( | ||||||||||
| Total adjustments | |||||||||||
| Net cash provided by operating activities | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Change in other investments, net | ( | ( | |||||||||
| Principal paydowns of investment securities available-for-sale | |||||||||||
| Principal paydowns of investment securities held-to-maturity | |||||||||||
| Maturities and calls of investment securities available-for-sale | |||||||||||
| Purchase of bank owned life insurance | ( | ( | |||||||||
| Proceeds from sales of loans held for sale | |||||||||||
| Purchase of loans | ( | ||||||||||
| Increase in loans receivable, net | ( | ( | |||||||||
| Purchases of premises and equipment, net | ( | ( | |||||||||
| Net cash used by investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Net increase in demand deposits, money market, and savings | |||||||||||
| Net decrease in time deposits | ( | ( | |||||||||
| Proceeds from exercise of stock options, net of shares withheld to cover | |||||||||||
| Net cash for shares held to cover on restricted stock vesting | ( | ||||||||||
| Proceeds from public offering, expense true-up | |||||||||||
| Net cash provided by financing activities | |||||||||||
| NET CHANGE IN CASH, DUE FROM BANKS AND RESTRICTED CASH | |||||||||||
| CASH, DUE FROM BANKS AND RESTRICTED CASH, beginning of year | |||||||||||
| CASH, DUE FROM BANKS AND RESTRICTED CASH, end of quarter | $ | $ | |||||||||
| SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES | |||||||||||
| Interest paid | $ | $ | |||||||||
| Income taxes paid | |||||||||||
| SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS | |||||||||||
| Fair value adjustment of securities available-for-sale, gross | $ | $ | |||||||||
| Lease liabilities arising from obtaining right-of-use assets | $ | $ | |||||||||
| Non-cash investing and financing activities: | |||||||||||
| Transfer from loans to loans held for sale | $ | $ | |||||||||
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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | ||
Note 1 - Description of Business and Summary of Significant Accounting Policies
Nature of operations - Coastal Financial Corporation (“Corporation” or “Company”) is a registered bank holding company whose wholly owned subsidiaries are Coastal Community Bank (“Bank”) and Arlington Olympic LLC (“LLC”). The Company is a Washington state corporation that was organized in 2003. The Bank was incorporated and commenced operations in 1997 and is a Washington state-chartered commercial bank that is a member bank of the Federal Reserve system. The LLC was formed in 2019 and owns the Company’s Arlington branch site, which the Bank leases from the LLC.
The Company operates through the Bank and is headquartered in Everett, Washington, which by population is the largest city in Snohomish County. The Company’s business is conducted through three reportable 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). We also have a loan production office which is located in King 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 had a total of 29 partners, at varying stages, one of which is a broker-dealer, as of September 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 community bank’s loans and deposits are primarily within the greater Puget Sound region, while CCBX loans and deposits are dependent upon the partner’s market. The Bank’s primary funding source is deposits from customers. The Bank is subject to regulation and supervision by the Board of Governors of the Federal Reserve System and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has regulatory and supervisory authority over the Company.
Financial statement presentation - The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim reporting requirements and with instructions to Form 10-Q and Article 10 of Regulation S-X, and therefore do not include all the information and notes included in the annual consolidated financial statements in conformity with GAAP. These interim condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included in the Company’s Annual report on Form 10-K as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 17, 2025. Operating results for the three and nine months ended September 30, 2025 are not necessarily indicative of the results that may be expected for the entire year.
Amounts presented in the consolidated financial statements and footnote tables are rounded and presented in thousands of dollars except per-share amounts, which are presented in dollars. In the narrative footnote discussion, amounts are rounded to thousands and presented in dollars.
Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management believes that its critical accounting policies include determining the allowance for credit losses, the valuation
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Reclassifications - Certain amounts reported in prior quarters' consolidated financial statements may have been reclassified to conform to the current presentation with no effect on stockholders’ equity or net income.
Note 2 - Recent accounting standards
Recent Accounting Guidance
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to provide financial statement users with more disaggregated expense information about a public entity’s reportable segments. The ASU addresses the concern that more segment information is needed, including allowing the disclosure of multiple measures of segment profit or loss, requiring the disclosure of significant segment expenses, and requiring the qualitative disclosure of other segment items. This ASU is effective for all entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and was implemented by the Company as of the fiscal year ended December 31, 2024.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, requiring a public business entity to disclose, on an annual basis, a tabular rate reconciliation using both percentages and currency amounts, broken out into specified categories with certain reconciling items further broken out by nature and jurisdiction to the extent those items exceed a specified threshold. In addition, all entities are required to disclose income taxes paid, net of refunds received disaggregated by federal, state/local, and foreign and by jurisdiction if the amount is at least 5% of total income tax payments, net of refunds received. The standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in this ASU prospectively by providing the revised disclosures for the period ending December 31, 2025 and continuing to provide the pre-ASU disclosures for the prior periods, or may apply the amendments retrospectively by providing the revised disclosures for all period presented. The Company expects this ASU to only impact its disclosure requirements and does not expect the adoption of this ASU to have a material impact on its business operations or Consolidated Statements of Financial Condition.
In March 2024, the FASB issued ASU 2024-02, Codification Improvements - Amendments to Remove References to the Concepts Statements. This update contains amendments in the Codification that remove references to various Concepts Statements. In most cases, the references were extraneous and not required to understand or apply the guidance. In other instances, the references were used in previous Statements to provide guidance in certain topical areas. The new standard is effective for annual periods beginning after December 15, 2024, with early adoption permitted. An entity may apply the amendments in this ASU prospectively to all new transactions recognized on or after the date that the entity first applies the amendments, or retrospectively to the beginning of the earliest comparative period presented in which the amendments were first applied. The Company does not expect the adoption of this ASU to have a material impact on its business operations or Consolidated Statements of Financial Condition.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses, requiring public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses at each interim and annual reporting period. The amendments in this ASU are effective for fiscal years beginning after December 15, 2026, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its business operations or Consolidated Statements of Financial Condition.
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Note 3 - Investment Securities
The following table summarizes the amortized cost, fair value, and allowance for credit losses and the corresponding amounts of gross unrealized gains and losses of available-for-sale securities recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses of held-to-maturity securities:
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Allowance for Credit Losses | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||
| Available-for-sale | |||||||||||||||||||||||||||||
| U.S. Agency collateralized mortgage obligations | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Total available-for-sale securities | ( | ||||||||||||||||||||||||||||
| Held-to-maturity | |||||||||||||||||||||||||||||
| U.S. Agency residential mortgage-backed securities | ( | ||||||||||||||||||||||||||||
| Total investment securities | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Allowance for Credit Losses | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||
| Available-for-sale | |||||||||||||||||||||||||||||
| U.S. Agency collateralized mortgage obligations | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Total available-for-sale securities | ( | ||||||||||||||||||||||||||||
| Held-to-maturity | |||||||||||||||||||||||||||||
| U.S. Agency residential mortgage-backed securities | ( | ||||||||||||||||||||||||||||
| Total investment securities | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
Accrued interest on available-for-sale securities was less than $1,000 at September 30, 2025 and December 31, 2024, accrued interest on held-to-maturity securities was $202,000 and $218,000 at September 30, 2025 and December 31, 2024, respectively. Accrued interest on securities is excluded from the balances in the preceding table of securities receivable, and is included in accrued interest receivable on the Company's consolidated balance sheets.
The amortized cost and fair value of debt securities at September 30, 2025, by contractual maturity, are shown below. Currently, the portfolio consists of mortgage-backed securities and collateralized mortgage obligations which are not due at a single maturity date. Expected maturities will differ from contractual maturities because issuers or the underlying borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| Available-for-Sale | Held-to-Maturity | ||||||||||||||||||||||
| Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| U.S. Agency residential mortgage-backed securities and collateralized mortgage obligations | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
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Investments in debt securities with an amortized cost of $40.0 million and $24.0 million were pledged for borrowing lines at September 30, 2025 and December 31, 2024, respectively. An additional $19.2 million in securities were pledged to secure public deposits and for other purposes as required or permitted by law as of December 31, 2024, no securities were pledged for that purpose at September 30, 2025.
During the nine months ended September 30, 2025, no securities matured and no securities were purchased.
There were no
There were seven securities with a $199,000 unrealized loss as of September 30, 2025. There were sixteen securities with a $732,000 unrealized loss as of December 31, 2024. The following table shows the investments’ gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position for which an allowance for credit losses has not been recorded:
| Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Available-for-sale | |||||||||||||||||||||||||||||||||||
| U.S. Agency collateralized mortgage obligations | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total available-for-sale securities | |||||||||||||||||||||||||||||||||||
| Held-to-maturity | |||||||||||||||||||||||||||||||||||
| U.S. Agency residential mortgage-backed securities | |||||||||||||||||||||||||||||||||||
| Total investment securities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | ||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Available-for-sale | |||||||||||||||||||||||||||||||||||
| U.S. Agency collateralized mortgage obligations | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total available-for-sale securities | |||||||||||||||||||||||||||||||||||
| Held-to-maturity | |||||||||||||||||||||||||||||||||||
| U.S. Agency residential mortgage-backed securities | |||||||||||||||||||||||||||||||||||
| Total investment securities | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Management has evaluated the above securities and does not believe that any individual unrealized loss as of September 30, 2025, will be recognized into income. Unrealized losses have not been recognized into income because management does not intend to sell and does not expect it will be required to sell the investments. The decline in fair value is largely due to changes in market conditions and interest rates, rather than credit quality. The fair value is expected to recover as the underlying securities in the portfolio approach maturity date and market conditions improve. Management believes there is a high probability of collecting all contractual amounts due, because all of the securities in the portfolio are backed by government agencies or government sponsored enterprises. However, a recovery in value may not occur for some time, if at all, and may be delayed for greater than the one year time horizon or perhaps even until maturity. Based on management's analysis no allowance for credit losses was required on these securities.
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Note 4 - Loans and Allowance for Credit Losses
Loans Held for Sale
During the nine months ended September 30, 2025, $3.68 billion in CCBX loans were transferred to loans held for sale, with $3.66 billion in loans sold, $2.88 billion of which was new activity on previously sold credit card receivables. These loans were sold back to partners at par. The Company sells CCBX loans to manage loan portfolio size by partner and by loan category. Partner loan limits are established and documented in the relevant partner agreement. There were $42.9 million loans held for sale as of September 30, 2025 and $20.6 million loans held for sale as of December 31, 2024.
Loans Held for Investment
The composition of the loan portfolio is as follows as of the periods indicated:
| September 30, | December 31, | ||||||||||
| 2025 | 2024 | ||||||||||
| (dollars in thousands; unaudited) | |||||||||||
| Community Bank | |||||||||||
| Commercial and industrial loans | $ | $ | |||||||||
| Real estate loans: | |||||||||||
| Construction, land and land development loans | |||||||||||
| Residential real estate loans | |||||||||||
| Commercial real estate loans | |||||||||||
| Consumer and other loans: | |||||||||||
| Other consumer and other loans | |||||||||||
| Gross Community Bank loans receivable | |||||||||||
| CCBX | |||||||||||
| Commercial and industrial loans: | |||||||||||
| Capital call lines | $ | $ | |||||||||
All other commercial & industrial loans | |||||||||||
| Real estate loans: | |||||||||||
| Residential real estate loans | |||||||||||
| Consumer and other loans: | |||||||||||
| Credit cards | |||||||||||
| Other consumer and other loans | |||||||||||
| Gross CCBX loans receivable | |||||||||||
| Total gross loans receivable | |||||||||||
| Net deferred origination fees and premiums | ( | ( | |||||||||
| Loans receivable | $ | $ | |||||||||
Accrued interest on loans, which is excluded from the balances in the preceding table of loans receivable, was $19.3 million and $20.5 million at September 30, 2025 and December 31, 2024, respectively, and was included in accrued interest receivable on the Company's consolidated balance sheets. Accrued interest on loans is net of an allowance of $602,000 and zero at September 30, 2025 and December 31, 2024, respectively.
Included in commercial and industrial loans as of September 30, 2025 and December 31, 2024, is $177.5 million and $109.0 million, respectively in capital call lines, provided to venture capital firms through one of our BaaS clients. These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards by our BaaS client and the underwriting is reviewed by the Bank on every line/loan.
Consumer and other loans includes overdrafts of $18.5 million and $7.4 million at September 30, 2025 and December 31, 2024, respectively. Community bank overdrafts were $9,000 and $147,000 at September 30, 2025 and
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December 31, 2024, respectively and CCBX overdrafts were $18.5 million and $7.3 million at September 30, 2025 and December 31, 2024, respectively.
The Company has pledged loans totaling $936.5 million at September 30, 2025 and $933.9 million at December 31, 2024, for borrowing lines at the FHLB and FRB. Loans are pledged to increase and maintain the borrowing capacity of the Bank in the event of a liquidity crisis.
The balance of SBA and United States Department of Agriculture ("USDA") loans and participations sold and serviced for others totaled $2.6 million and $4.1 million at September 30, 2025 and December 31, 2024, respectively.
The gross balance of Main Street Lending Program (“MSLP”) loans participated and serviced for others, totaled $23.4 million at September 30, 2025 and $50.3 million at December 31, 2024, with $1.2 million in MSLP loans on the balance sheet and included in commercial and industrial loans at September 30, 2025 compared to $2.6 million at December 31, 2024. Servicing is retained on the gross balance.
The Company, through the Bank, at times purchases individual loans at fair value as of the acquisition date. The Company held purchased loans with remaining balances that totaled $4.4 million and $6.1 million as of September 30, 2025 and December 31, 2024, respectively. Unamortized premiums on these loans totaled $85,000 and $117,000 as of September 30, 2025 and December 31, 2024, respectively, and are amortized into interest income over the life of the loans. These loans are included in the applicable loan category depending upon the collateral and purpose of the individual loan.
The Company, through the Bank, has purchased participation loans with remaining balances totaling $27.0 million and $29.2 million as of September 30, 2025 and December 31, 2024, respectively. These loans are included in the applicable loan category depending upon the collateral and purpose of the individual loan and are underwritten to the Bank's credit standards.
The Company, through the Bank, purchased loans from CCBX partners, at par, through agreements with those CCBX partners, and those loans had a remaining balance of $143.3 million as of September 30, 2025 and $208.0 million as of December 31, 2024. As of September 30, 2025, $140.5 million is included in consumer and other loans and $2.8 million is included in commercial and industrial loans, compared to $202.7 million in consumer and other loans and $5.4 million in commercial and industrial loans as of December 31, 2024.
The following is a summary of the Company’s loan portfolio segments:
Commercial and industrial loans – Commercial and industrial loans are secured by business assets including inventory, receivables and machinery and equipment of businesses located generally in the Company’s primary market area and capital calls on venture and investment funds. Also included in commercial and industrial loans are $22.7 million in unsecured CCBX partner loans. Loan types include revolving lines of credit, term loans, PPP loans, and loans secured by liquid collateral such as cash deposits or marketable securities. Also included in commercial and industrial loans are loans to other financial institutions. The Company issues letters of credit on behalf of its customers. Risk arises primarily due to the difference between expected and actual cash flows of the borrowers. In addition, the recoverability of the Company’s investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans. The fair value of the collateral securing these loans may fluctuate as market conditions change. In the case of loans secured by accounts receivable, the recovery of the Company’s investment is dependent upon the borrower’s ability to collect amounts due from its customers.
As of September 30, 2025, $177.5 million in outstanding CCBX capital call lines are included in commercial and industrial loans compared to $109.0 million at December 31, 2024. Capital call lines are provided to venture capital firms and investment funds. These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards by our CCBX partner and the underwriting is reviewed by the Bank on every line/loan. 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.
Construction, land and land development loans – The Company originates loans for the construction of 1-4 family, multifamily, and Commercial Real Estate (“CRE”) properties in the Company’s market area. Construction loans are considered to have higher risks primarily due to construction completion and timing risk, the ultimate repayment being sensitive to interest rate changes, government regulation of real property and the availability of long-term financing. Additionally, economic conditions may impact the Company’s ability to recover its investment in construction loans, as adverse economic conditions may negatively impact the real estate market, which could affect the borrower’s ability to
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complete and sell the project. Additionally, the fair value of the underlying collateral may fluctuate as market conditions change. The Company occasionally originates land loans for the purpose of facilitating the ultimate construction of a home or commercial building. The primary risks include the borrower’s ability to pay and the inability of the Company to recover its investment due to a material decline in the fair value of the underlying collateral.
Residential real estate loans – Residential real estate includes various types of loans for which the Company holds real property as collateral. Included in this segment are first and second lien single family loans, occasionally purchased by the Company to diversify its loan portfolio, and rental portfolios secured by one-to-four family homes. The primary risks of residential real estate loans include the borrower’s inability to pay, material decreases in the value of the collateral, and significant increases in interest rates which may make the loan unprofitable.
As of September 30, 2025, $374.1 million in loans originated through CCBX partners are included in residential real estate loans, compared to $267.7 million at December 31, 2024. These home equity lines of credit are secured by residential real estate and are accessed by using a credit card. Home equity lines of credit are classified as residential real estate per regulatory guidelines.
Commercial real estate (includes owner occupied and non-owner occupied) loans – Commercial real estate loans include various types of loans for which the Company holds real property as collateral. We have commercial mortgage loans totaling $376.8 million that are collateralized by owner-occupied real-estate and $549.1 million that are collateralized by non-owner-occupied real estate, as well as $362.1 million of multi-family residential loans and $12.3 million of farmland loans, as of September 30, 2025. The primary risks of commercial real estate loans include the borrower’s inability to pay, material decreases in the value of the collateralized real estate and significant increases in interest rates, which may make the real estate loan unprofitable. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy.
Consumer and other loans – The community bank originates a limited number of consumer loans, generally for banking customers only, which consist primarily of lines of credit, saving account secured loans, and auto loans. CCBX originates consumer loans including credit cards, consumer term loans and secured and unsecured lines of credit. This loan category includes overdrafts. Repayment of these loans is dependent on the borrower’s ability to pay and the fair value of the underlying collateral, if any.
As of September 30, 2025, $1.23 billion in CCBX loans are included in consumer and other loans compared to $1.19 billion at December 31, 2024. Not included in this category are home equity lines of credit that are secured by residential real estate and are accessed by using a credit card of $374.1 million and $267.7 million as of September 30, 2025 and December 31, 2024, respectively. These credit card accessed home equity lines of credit are classified as residential real estate per regulatory guidelines.
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The following chart breaks out our consumer loan portfolio by segment and type of loan as of September 30, 2025. The largest portion of our consumer portfolio is comprised of CCBX installment loans and credit card loans. These loans are further divided to show the total secured and unsecured amounts in each of these categories. The average overall outstanding consumer loan balance is small at $863 .
| (dollars in thousands; unaudited) | Outstanding Balance | % of Total Outstanding Balance Consumer Loans | Average Loan Balance | Number of Loans | ||||||||||||||||||||||||||||||||||
| CCBX consumer loans | ||||||||||||||||||||||||||||||||||||||
| Installment loans - cash secured | $ | % | ||||||||||||||||||||||||||||||||||||
| Installment loans - unsecured | ||||||||||||||||||||||||||||||||||||||
| Installment loans - total | $ | |||||||||||||||||||||||||||||||||||||
| Credit cards - cash secured | ||||||||||||||||||||||||||||||||||||||
| Credit cards - unsecured | ||||||||||||||||||||||||||||||||||||||
| Credit cards - total | ||||||||||||||||||||||||||||||||||||||
| Lines of credit | ||||||||||||||||||||||||||||||||||||||
| Other loans | ||||||||||||||||||||||||||||||||||||||
| Community bank consumer loans | ||||||||||||||||||||||||||||||||||||||
| Lines of credit | ||||||||||||||||||||||||||||||||||||||
| Installment loans | ||||||||||||||||||||||||||||||||||||||
| Other loans | ||||||||||||||||||||||||||||||||||||||
| Total | $ | % | $ | |||||||||||||||||||||||||||||||||||
The following chart breaks out our consumer loan portfolio by segment and type of loan as of December 31, 2024. The largest portion of our consumer portfolio is comprised of CCBX installment loans and credit card loans. These loans are further divided to show the total secured and unsecured amounts in each of these categories. The average overall outstanding consumer loan balance is small at $1,044 .
| (dollars in thousands; unaudited) | Outstanding Balance | % of Total Outstanding Balance Consumer Loans | Average Loan Balance | Number of Loans | ||||||||||||||||||||||||||||||||||
| CCBX consumer loans | ||||||||||||||||||||||||||||||||||||||
| Installment loans - cash secured | $ | % | ||||||||||||||||||||||||||||||||||||
| Installment loans - unsecured | ||||||||||||||||||||||||||||||||||||||
| Installment loans - total | $ | |||||||||||||||||||||||||||||||||||||
| Credit cards - cash secured | ||||||||||||||||||||||||||||||||||||||
| Credit cards - unsecured | ||||||||||||||||||||||||||||||||||||||
| Credit cards - total | ||||||||||||||||||||||||||||||||||||||
| Lines of credit | ||||||||||||||||||||||||||||||||||||||
| Other loans | ||||||||||||||||||||||||||||||||||||||
| Community bank consumer loans | ||||||||||||||||||||||||||||||||||||||
| Lines of credit | ||||||||||||||||||||||||||||||||||||||
| Installment loans | ||||||||||||||||||||||||||||||||||||||
| Other loans | ||||||||||||||||||||||||||||||||||||||
| Total | $ | % | $ | |||||||||||||||||||||||||||||||||||
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Past Due and Nonaccrual Loans
The following table illustrates an age analysis of past due loans as of the dates indicated:
| 30-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total Loans | 90 Days or More Past Due and Still Accruing | ||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Community Bank | |||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||
| Construction, land and land development | |||||||||||||||||||||||||||||||||||
| Residential real estate | |||||||||||||||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||||||||||||||
| Consumer and other loans | |||||||||||||||||||||||||||||||||||
| Total community bank | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| CCBX | |||||||||||||||||||||||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||||||||||||||||||||
| Capital call lines | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
All other commercial & industrial loans | |||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||
| Residential real estate loans | $ | $ | |||||||||||||||||||||||||||||||||
| Consumer and other loans: | |||||||||||||||||||||||||||||||||||
| Credit cards | $ | $ | |||||||||||||||||||||||||||||||||
| Other consumer and other loans | |||||||||||||||||||||||||||||||||||
| Total CCBX | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Total Consolidated | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Less net deferred origination fees and premiums | ( | ||||||||||||||||||||||||||||||||||
| Loans receivable | $ | ||||||||||||||||||||||||||||||||||
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| 30-89 Days Past Due | 90 Days or More Past Due | Total Past Due | Current | Total Loans | 90 Days or More Past Due and Still Accruing | ||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Community Bank | |||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||
| Construction, land and land development | |||||||||||||||||||||||||||||||||||
| Residential real estate | |||||||||||||||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||||||||||||||
| Consumer and other loans | |||||||||||||||||||||||||||||||||||
| Total community bank | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| CCBX | |||||||||||||||||||||||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||||||||||||||||||||
| Capital call lines | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
All other commercial & industrial loans | |||||||||||||||||||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||||||||||||||
| Residential real estate loans | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Consumer and other loans: | |||||||||||||||||||||||||||||||||||
| Credit cards | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Other consumer and other loans | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Total CCBX | |||||||||||||||||||||||||||||||||||
| Total Consolidated | |||||||||||||||||||||||||||||||||||
| Less net deferred origination fees and premiums | ( | ||||||||||||||||||||||||||||||||||
| Loans receivable | $ | ||||||||||||||||||||||||||||||||||
There were $32.9 million in CCBX loans past due 90 days or more and still accruing interest as of September 30, 2025, and $43.1 million as of December 31, 2024. This is attributed to loans originated through CCBX lending partners which continue to accrue interest up to 180 days past due. As of September 30, 2025 and December 31, 2024, $31.8 million and $41.8 million, respectively of loans past due 90 days or more and still accruing interest are covered by credit enhancements provided by our CCBX partners that protect the Bank against losses.
The accrual of interest on community bank loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due or when they are 90 days past due as to either principal or interest, unless they are well secured and in the process of collection. Installment/closed-end, and revolving/open-end consumer loans originated through CCBX lending partners typically continue to accrue interest until 120 and 180 days past due, respectively and an allowance is recorded through provision expense for these expected losses. Certain CCBX partners employ collection practices that place specific loans on nonaccrual status to enhance collectability. As of September 30, 2025, $18.9 million of these nonaccrual CCBX loans were less than 90 days past due, compared to $17.2 million as of December 31, 2024. For installment/closed-end and revolving/open-end consumer loans originated through CCBX lending partners with balances outstanding beyond 120 days and 180 days past due, respectively, principal and capitalized interest outstanding is charged off against the allowance and accrued interest outstanding is reversed against interest income. These consumer loans are reported as nonperforming/substandard, 90 days or more days past due and still accruing.
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When loans are placed on nonaccrual status, all accrued interest is reversed from current period earnings. Payments received on nonaccrual loans are generally applied as a reduction to the loan principal balance. If the likelihood of further loss is removed, the Company will recognize interest on a cash basis only. Loans may be returned to accruing status if the Company believes that all remaining principal and interest is fully collectible and there has been at least six months of sustained repayment performance since the loan was placed on nonaccrual.
An analysis of nonaccrual loans by category consisted of the following at the periods indicated:
| September 30, | December 31, | ||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Total Nonaccrual | Nonaccrual with No ACL | Nonaccrual with ACL | Total Nonaccrual | Nonaccrual with No ACL | Nonaccrual with ACL | ||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||
| Community Bank | |||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||
| Construction, land and land development | |||||||||||||||||||||||
| Commercial real estate | |||||||||||||||||||||||
| Total Community Bank nonaccrual loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| CCBX | |||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Consumer and other loans: | |||||||||||||||||||||||
| Credit cards | |||||||||||||||||||||||
| Consumer and other consumer loans | |||||||||||||||||||||||
| Total CCBX nonaccrual loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||
| Total Consolidated nonaccrual loans | $ | $ | $ | $ | $ | $ | |||||||||||||||||
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In some circumstances, the Company modifies loans in response to borrower financial difficulty, and generally provides for a temporary modification of loan repayment terms. In order for a modified loan to be considered for accrual status, the loan’s collateral coverage generally will be greater than or equal to 100 % of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow for an extended period of time, usually at least six months in duration.
There was one modified loan for a community bank borrower experiencing financial difficulty at September 30, 2025. The Company had no commitment to lend additional amounts to this borrower at September 30, 2025 and December 31, 2024. No modified community bank loans were 90 days past due or in default at September 30, 2025 and December 31, 2024.
The following table presents the community bank loan that was both experiencing financial difficulty and was modified during the year by class and by type of modification for the periods indicated with the percentage of community bank loans that were modified to borrowers in financial distress as compared to the total of each class of community bank loans. Also presented is the financial effect of the loan modification to the borrower experiencing financial difficulty for the year ended as indicated.
.
| Financial Effect of the Loan Modifications | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | Principal Forgiveness & Interest Rate Reduction | Total | Total Class of Financing Receivable | Principal Forgiveness | Weighted Average Interest Rate Reduction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Community Bank | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Financial Effect of the Loan Modifications | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | Principal Forgiveness & Interest Rate Reduction | Total | Total Class of Financing Receivable | Principal Forgiveness | Weighted Average Interest Rate Reduction | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Community Bank | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | % | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The following table presents the CCBX loans at September 30, 2025 that were both experiencing financial difficulty and were modified during the twelve months prior to September 30, 2025 by class and by type of modification. The percentage of the loans that were modified to borrowers in financial distress as compared to the total CCBX loans of each class is also presented below.
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| September 30, 2025 | Principal Forgiveness | Term Extension | Interest Rate Reduction | Principal Forgiveness & Payment Delay | Interest Rate Reduction & Payment Delay | Total | Total Class of Financing Receivable | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CCBX | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
All other commercial & industrial loans | $ | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit cards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other consumer and other loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | Principal Forgiveness | Term Extension | Interest Rate Reduction | Principal Forgiveness & Payment Delay | Principal Forgiveness, Payment Delay & Term Extension | Total | Total Class of Financing Receivable | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CCBX | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
All other commercial & industrial loans | $ | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit cards | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other consumer and other loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
The Company has committed to lend additional amounts totaling $19,000 to the borrowers included in the table above as of September 30, 2025.
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The performance of loans modified is monitored to understand the effectiveness of the modification efforts. The following table presents the performance of such loans that have been modified in the last 12 months:
| September 30, 2025 | 30-89 Days Past Due | 90 Days or More Past Due | Total Past Due | ||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||
| CCBX | |||||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||
All other commercial & industrial loans | $ | $ | $ | ||||||||||||||
| Consumer and other loans: | |||||||||||||||||
| Credit cards | |||||||||||||||||
| Other consumer and other loans | |||||||||||||||||
| Total CCBX | $ | $ | $ | ||||||||||||||
| December 31, 2024 | 30-89 Days Past Due | 90 Days or More Past Due | Total Past Due | ||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| CCBX | |||||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||
All other commercial & industrial loans | $ | $ | $ | ||||||||||||||
| Consumer and other loans: | |||||||||||||||||
| Credit cards | |||||||||||||||||
| Other consumer and other loans | |||||||||||||||||
| Total CCBX | $ | $ | $ | ||||||||||||||
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The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the preceding 12 months ended September 30, 2025:
| September 30, 2025 | Principal Forgiveness | Weighted Average Interest Rate Reduction | Weighted Average Term Extension (years) | ||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||
| CCBX | |||||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||
All other commercial & industrial loans | $ | % | |||||||||||||||
| Consumer and other loans: | |||||||||||||||||
| Credit cards | n/a | ||||||||||||||||
| Other consumer and other loans | |||||||||||||||||
| Total CCBX | $ | % | |||||||||||||||
| December 31, 2024 | Principal Forgiveness | Weighted Average Interest Rate Reduction | Weighted Average Term Extension (years) | ||||||||||||||
| (dollars in thousands) | |||||||||||||||||
| CCBX | |||||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||
All other commercial & industrial loans | $ | % | |||||||||||||||
| Consumer and other loans: | |||||||||||||||||
| Credit cards | n/a | ||||||||||||||||
| Other consumer and other loans | |||||||||||||||||
| Total CCBX | $ | % | |||||||||||||||
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The following table presents the total of loans that had a payment default during the preceding 12 months ended September 30, 2025 and which were modified for borrowers experiencing financial difficulty in the twelve months prior to that default.
| September 30, 2025 | Principal Forgiveness | Term Extension | Interest Rate Reduction | Principal Forgiveness & Payment Delay | Interest Rate Reduction & Payment Delay | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| CCBX | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
All other commercial & industrial loans | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit cards | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other consumer and other loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2024 | Principal Forgiveness | Term Extension | Interest Rate Reduction | Principal Forgiveness & Payment Delay | Total | ||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| CCBX | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial and industrial loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
All other commercial & industrial loans | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Consumer and other loans: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Credit cards | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other consumer and other loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||||
Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged-off against the allowance for credit losses. Therefore, the loan balance is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.
Credit Quality and Credit Risk
Federal regulations require that the Company periodically evaluate the risks inherent in its loan portfolio. In addition, the Company’s regulatory agencies have authority to identify problem loans and, if appropriate, require them to be reclassified. The Company establishes loan grades for loans at the origination of the loan. Changes to community bank loan grades are considered at the time new information about the performance of a loan becomes available, including the receipt of updated financial information from the borrower and after loan reviews. For consumer loans, the Bank follows the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification and Account Management Policy for subsequent classification in the event of payment delinquencies or default. Typically, an individual loan grade will not be changed from the prior period unless there is a specific indication of credit deterioration or improvement. Credit deterioration is evidenced by delinquency, direct communications with the borrower or other borrower information that becomes known to management. Credit improvements are evidenced by
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known facts regarding the borrower or the collateral property. The Company classifies some loans as Watch or Other Loans Especially Mentioned (“OLEM”). Loans classified as Watch are performing assets but have elements of risk that require more monitoring than other performing loans and are reported in the OLEM column in the following table. Loans classified as OLEM are assets that continue to perform but have shown deterioration in credit quality and require close monitoring. There are three classifications for problem loans: Substandard, Doubtful, and Loss. Substandard loans have one or more defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Revolving (open-ended loans, such as credit cards) and installment (closed end) consumer loans originated through CCBX partners typically continue to accrue interest until they are charged-off at 120 days past due for installment loans (primarily unsecured loans to consumers) and 180 days past due for revolving loans (primarily credit cards) and are classified as substandard once they are 90 days past due. CCBX partners may place certain loans on nonaccrual status prior to achieving these past due timelines. Doubtful loans have the weaknesses of loans classified as Substandard, with additional characteristics that suggest the weaknesses make collection or recovery in full after liquidation of collateral questionable on the basis of currently existing facts, conditions, and values. There is a high possibility of loss in loans classified as Doubtful. A loan classified as Loss is considered uncollectible and of such little value that continued classification of the credit as a loan is not warranted. If a loan or a portion thereof is classified as Loss, it must be charged-off, meaning the amount of the loss is charged against the allowance for credit losses, thereby reducing that reserve.
Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination.
The following tables show the risk category of community bank loans by year of origination for the periods indicated, based on the most recent analysis performed as of each period end:
| Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||||||||
| Community Bank | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted To Term | Total | ||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||
| As of September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total commercial and industrial loans - All other commercial and industrial loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
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| Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||||||||
| Community Bank | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted To Term | Total | ||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||
| As of September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Real estate loans - Construction, land and land development loans | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total real estate loans - Construction, land and land development loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Real estate loans - Residential real estate loans | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total real estate loans - Residential real estate loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Real estate loans - Commercial real estate loans | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total real estate loans - Commercial real estate loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
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| Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||||||||
| Community Bank | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted To Term | Total | ||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||
| As of September 30, 2025 | |||||||||||||||||||||||||||||||||||
| Consumer and other loans - Other consumer and other loans | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total consumer and other loans - Other consumer and other loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Total community bank loans receivable | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total community bank loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
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| Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||||||||
| Community Bank | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted To Term | Total | ||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Commercial and industrial loans | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total commercial and industrial loans - All other commercial and industrial loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Real estate loans - Construction, land and land development loans | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total real estate loans - Construction, land and land development loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
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| Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||||||||
| Community Bank | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted To Term | Total | ||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Real estate loans - Residential real estate loans | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total real estate loans - Residential real estate loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Real estate loans - Commercial real estate loans | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total real estate loans - Commercial real estate loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
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| Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||||||||
| Community Bank | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted To Term | Total | ||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||||||||||||||
| Consumer and other loans - Other consumer and other loans | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total consumer and other loans - Other consumer and other loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Total community bank loans receivable | |||||||||||||||||||||||||||||||||||
| Risk rating | |||||||||||||||||||||||||||||||||||
| Pass | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Other Loan Especially Mentioned | |||||||||||||||||||||||||||||||||||
| Substandard | |||||||||||||||||||||||||||||||||||
| Doubtful | |||||||||||||||||||||||||||||||||||
| Total community bank loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
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The Company considers the performance of the CCBX loan portfolio and its impact on the allowance for credit losses. For CCBX loans, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following tables present the loans in CCBX based on payment activity for the periods indicated:
| Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||
| CCBX | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted To Term | Total | ||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||
| As of September 30, 2025 | |||||||||||||||||||||||||||||
| Commercial and industrial loans - Capital call lines | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total commercial and industrial loans - Capital call lines | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Commercial and industrial loans - All other commercial and industrial loans | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total commercial and industrial loans - All other commercial and industrial loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Real estate loans - Residential real estate loans | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total real estate loans - Residential real estate loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
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| Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||
| CCBX | 2025 | 2024 | 2023 | 2022 | 2021 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted To Term | Total | ||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||
| As of September 30, 2025 | |||||||||||||||||||||||||||||
| Consumer and other loans - Credit cards | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total consumer and other loans - Credit cards | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Consumer and other loans - Other consumer and other loans | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total consumer and other loans - Other consumer and other loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Total CCBX loans receivable | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total CCBX loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
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| Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||
| CCBX | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted To Term | Total | ||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||||||||
| Commercial and industrial loans - Capital call lines | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total commercial and industrial loans - Capital call lines | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Commercial and industrial loans - All other commercial and industrial loans | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total commercial and industrial loans - All other commercial and industrial loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Real estate loans - Residential real estate loans | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total real estate loans - Residential real estate loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
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| Term Loans Amortized Cost Basis by Origination Year | |||||||||||||||||||||||||||||
| CCBX | 2024 | 2023 | 2022 | 2021 | 2020 | Prior | Revolving Loans Amortized Cost Basis | Revolving Loans Converted To Term | Total | ||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||
| As of December 31, 2024 | |||||||||||||||||||||||||||||
| Consumer and other loans - Credit cards | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total consumer and other loans - Credit cards | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Consumer and other loans - Other consumer and other loans | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total consumer and other loans - Other consumer and other loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Total CCBX loans receivable | |||||||||||||||||||||||||||||
| Payment performance | |||||||||||||||||||||||||||||
| Performing | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Nonperforming | |||||||||||||||||||||||||||||
| Total CCBX loans | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Year-to-date gross charge-offs | $ | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
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Allowance for Credit Losses ("ACL")
CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by reimbursing most losses. 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 CCBX credit losses and provision for unfunded commitments are recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements). Expected losses are recorded in the allowance for credit losses. The credit enhancement asset is reduced when credit enhancement payments are received from the CCBX partner or taken from the partner's cash reserve account. CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by reimbursing the Bank for the losses. If the partner is unable to fulfill its contracted obligations then the Bank could be exposed to the loss of the reimbursement and credit enhancement income. In accordance with the program agreement for one CCBX partner, the Company is responsible for credit losses on approximately 5 % of a $297.4 million loan portfolio that are without credit enhancement reimbursements. At September 30, 2025, 5 % of this portfolio represented $20.7 million in loans. The partner is responsible for reimbursing credit losses on approximately 95% of this portfolio and for fraud losses on 100% of this portfolio. The Company earns 100% of the interest income on the aforementioned $20.7 million of loans.
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The following tables summarize the allocation of the ACL, as well as the activity in the ACL attributed to various segments in the loan portfolio, as of and for the three and nine months ended September 30, 2025 and for the three and nine months ended September 30, 2024:
| Commercial and Industrial | Construction, Land, and Land Development | Residential Real Estate | Commercial Real Estate | Consumer and Other | Unallocated | Total | |||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||
ACL balance, June 30, 2025 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Provision for credit losses or (recapture) | ( | ||||||||||||||||||||||||||||||||||||||||
| Loans charged-off | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Recoveries of loans previously charged-off | |||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
ACL balance, September 30, 2025 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2025 | |||||||||||||||||||||||||||||||||||||||||
ACL balance, December 31, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Provision for credit losses or (recapture) | ( | ||||||||||||||||||||||||||||||||||||||||
| Loans charged-off | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
| Recoveries of loans previously charged-off | |||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||
ACL balance, September 30, 2025 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| ACL balance, June 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Provision for credit losses or (recapture) | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Loans charged-off | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
| Recoveries of loans previously charged-off | |||||||||||||||||||||||||||||||||||||||||
| Net (charge-offs) recoveries | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
ACL Balance, September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||
| ACL Balance, December 31, 2023 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Provision for credit losses or (recapture) | ( | ||||||||||||||||||||||||||||||||||||||||
| Loans charged-off | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
| Recoveries of loans previously charged-off | |||||||||||||||||||||||||||||||||||||||||
| Net charge-offs | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||||
ACL Balance, September 30, 2024 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
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There was a provision recapture for unfunded commitments of $1.7 million and provision of $411,000 , respectively for the three and nine months ended September 30, 2025 and a provision recapture for unfunded commitments of $1.3 million and provision of $2.7 million, respectively for the three and nine months ended September 30, 2024. There was a provision for accrued interest receivable of $0 and $602,000 , respectively, for the three and nine months ended September 30, 2025 on CCBX loans. There was no provision for accrued interest receivable for the three and nine months ended September 30, 2024.
The following table presents the collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans as of the dates indicated:
| Real Estate | Business Assets | Total | ACL | ||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | $ | |||||||||||||||||||
| Real estate loans: | |||||||||||||||||||||||
| Residential real estate | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Business Assets | Total | ACL | |||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Commercial and industrial loans | $ | $ | $ | ||||||||||||||||||||
| Total | $ | $ | $ | ||||||||||||||||||||
Note 5 - Deposits
The composition of consolidated deposits consisted of the following at the periods indicated:
| September 30, 2025 | December 31, 2024 | ||||||||||
| (dollars in thousands; unaudited) | |||||||||||
| Demand, noninterest bearing | $ | $ | |||||||||
| Interest bearing demand and money market | |||||||||||
| Savings | |||||||||||
| Total core deposits | |||||||||||
| Other deposits | |||||||||||
| Time deposits less than $250,000 | |||||||||||
| Time deposits $250,000 and over | |||||||||||
| Total deposits | $ | $ | |||||||||
The following table presents the maturity distribution of time deposits as of September 30, 2025:
| (dollars in thousands; unaudited) | As of September 30, 2025 | |||||||
| Twelve months | $ | |||||||
| One to two years | ||||||||
| Two to three years | ||||||||
| Three to four years | ||||||||
| Four to five years | ||||||||
| $ | ||||||||
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Table of Contents
Note 6 - Leases
The Company has committed to rent premises and equipment used in business operations under non-cancelable operating and finance leases and determines if an arrangement meets the definition of a lease upon inception.
Operating and finance lease right-of-use (“ROU”) assets represent a right to use an underlying asset for the contractual lease term. Lease liabilities represent an obligation to make lease payments arising from the lease. A lease ROU asset and lease liability will be recognized for any new leases at the commencement of the new lease.
The Company’s leases do not provide an implicit interest rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine the present value of operating and finance lease liabilities. The weighted average discount rate as of September 30, 2025 was 4.01 % for operating leases and 4.75 % for finance leases and is based off the discount rate at the time the lease is originated or renewed.
The Company’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Company’s lease agreements do not contain any residual value guarantees.
Leases with terms of 12 months or less are not included in ROU assets and lease liabilities recorded in the Company’s consolidated balance sheet. Operating lease terms include options to extend when it is reasonably certain that the Company will exercise such options, determined on a lease-by-lease basis. At September 30, 2025, lease expiration dates ranged from 5 months to 19 years, with additional renewal options on certain leases typically ranging from 12 months to 10 years. At September 30, 2025, the weighted average remaining lease term inclusive of renewal options that the Company is reasonably certain to renew for the Company’s operating leases was 7.8 years. The weighted average remaining lease term for the Company's finance lease was 1.0 year. The Company had one operating lease that had not yet commenced as of September 30, 2025.
Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $303,000 and $885,000 , respectively for the three and nine months ended September 30, 2025 and $317,000 and $913,000 , respectively for the three and nine months ended September 30, 2024. Variable lease components, such as inflation adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.
Amortization expense for finance leases is recognized on a straight-line basis over the lease term and amounted to $9,000 and $26,000 , respectively for the three and nine months ended September 30, 2025 and $8,000 and $34,000 , respectively for the three and nine months ended September 30, 2024. Interest on finance leases was $1,000 and $2,000 , respectively for the three and nine months ended September 30, 2025 and $1,000 and $4,000 for the three and nine months ended September 30, 2024.
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The following table presents the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew, at September 30, 2025:
| Operating | Finance | |||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | September 30, 2025 | ||||||||||||
October 1 to December 31, 2025 | $ | $ | ||||||||||||
| 2026 | ||||||||||||||
| 2027 | ||||||||||||||
| 2028 | ||||||||||||||
| 2029 | ||||||||||||||
2030 and thereafter | ||||||||||||||
| Total lease payments | ||||||||||||||
| Less: amounts representing interest | ||||||||||||||
| Present value of lease liabilities | $ | $ | ||||||||||||
The following table presents the components of total lease expense, including finance lease costs and operating cash flows for the three and nine months ended September 30, 2025 and 2024:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||
| Lease expense: | |||||||||||||||||||||||
Operating lease expense (1) | $ | $ | $ | $ | |||||||||||||||||||
| Variable lease expense | |||||||||||||||||||||||
| Finance lease cost | |||||||||||||||||||||||
Right-of-use amortization (2) | |||||||||||||||||||||||
Interest expense (3) | — | ||||||||||||||||||||||
| Total lease expense | $ | $ | $ | $ | |||||||||||||||||||
| Cash paid: | |||||||||||||||||||||||
| Cash paid from operating leases | $ | $ | $ | $ | |||||||||||||||||||
| Cash paid from finance leases | $ | $ | $ | $ | |||||||||||||||||||
(1)Included in net occupancy expense and in the Condensed Consolidated Statements of Income (unaudited).
(2)Included in other expense in the Condensed Consolidated Statements of Income (unaudited).
Note 7 - Stock-Based Compensation
Stock Options and Restricted Stock
The 2018 Coastal Financial Corporation Omnibus Plan (the "2018 Plan") authorizes the Company to grant awards, including but not limited to, stock options, restricted stock units, and restricted stock awards, to eligible employees, directors or individuals that provide service to the Company, up to an aggregate of 500,000 shares of common stock. On May 24, 2021, the Company’s shareholders approved the First Amendment to the 2018 Plan, which increased the authorized plan shares by 600,000 . On May 28, 2025, the Company's shareholders approved the Second Amendment to the 2018 Plan which increased the authorized plan shares by 600,000 . The 2018 Plan replaced the 2006 Plan for new awards. Existing awards will vest under the terms granted and no further awards will be granted under these prior plans. Shares available to be granted under the 2018 plan were 741,362 at September 30, 2025.
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Stock Option Awards
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatilities are based on historical volatility of the Company’s stock and other factors. The Company uses the vesting term and contractual life to determine the expected life. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation expense related to unvested stock option awards is reversed at date of forfeiture.
There were no
A summary of stock option activity under the 2018 Plan and 2006 Plan during the nine months ended September 30, 2025:
| Options | Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value | ||||||||||||||||||||||
| (dollars in thousands, except per share amounts; unaudited) | ||||||||||||||||||||||||||
Outstanding at December 31, 2024 | $ | $ | ||||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||||
| Exercised | ( | $ | ||||||||||||||||||||||||
| Expired | ||||||||||||||||||||||||||
| Forfeited | ( | |||||||||||||||||||||||||
Outstanding at September 30, 2025 | $ | $ | ||||||||||||||||||||||||
Vested at September 30, 2025 | $ | $ | ||||||||||||||||||||||||
Exercisable at September 30, 2025 | $ | $ | ||||||||||||||||||||||||
The total intrinsic value (which is the amount by which the stock price at the date of exercise exceeds the exercise price) of options exercised during the three and nine months ended September 30, 2025 was $229,000 and $2.7 million, respectively. The total intrinsic value of options exercised during the three and nine months ended September 30, 2024 was $3.8 million and $5.9 million, respectively.
As of September 30, 2025, there was $322,000 of total unrecognized compensation cost related to nonvested stock options granted under the 2018 Plan and 2006 Plan. Total unrecognized compensation costs are adjusted for unvested forfeitures. The Company expects to recognize that cost over a remaining weighted-average period of approximately 2.3 years. Compensation expense recorded related to stock options was $32,000 and $179,000 , respectively for the three and nine months ended September 30, 2025 and $49,000 and $226,000 , respectively for the three and nine months ended September 30, 2024.
Restricted Stock Units
In the first three quarters of 2025, the Company granted 81,077 restricted stock units ("RSUs") under the 2018 Plan to employees, which vest ratably over various terms ranging from 4 years to 5 years. Additionally, the Company granted 49,435 performance-based restricted stock units ("PSUs") under the 2018 Plan that are eligible to vest over various terms ranging from 1.5 years to 5 years.
RSUs provide for an interest in Company common stock to the recipient, the underlying stock is not issued until certain conditions are met. Vesting requirements include time-based, performance-based, or market-based conditions. Recipients of RSUs do not pay any cash consideration to the Company for the units and the holders of the restricted units do not have voting rights. The fair value of time-based and performance-based units is equal to the fair market value of the Company’s common stock on the grant date. The fair value of market-based units is estimated on the grant date using the Monte Carlo simulation model. Compensation expense is recognized over the vesting period that the awards are based. RSUs are nonparticipating securities.
As of September 30, 2025, there was $16.4 million of total unrecognized compensation cost related to nonvested RSUs. The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately
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A summary of the Company’s nonvested RSUs at September 30, 2025 and changes during the nine month period is presented below:
| Nonvested shares - RSUs | Number of Shares | Weighted- Average Grant Date Fair Value | ||||||||||||
| (dollars in thousands, except per share amounts; unaudited) | ||||||||||||||
Nonvested shares at December 31, 2024 | $ | |||||||||||||
| Granted | $ | |||||||||||||
| Forfeited or expired | ( | $ | ||||||||||||
| Vested | ( | $ | ||||||||||||
Nonvested shares at September 30, 2025 | $ | |||||||||||||
Restricted Stock Awards
Employees
There were no new restricted stock awards granted in the nine months ended September 30, 2025. The fair value of restricted stock awards is equal to the fair value of the Company’s stock at the date of grant. Compensation expense is recognized over the vesting period that the awards are based. Restricted stock awards are participating securities.
As of September 30, 2025, there was no unrecognized compensation cost related to nonvested restricted stock awards. Compensation expense recorded related to restricted stock awards was $23,000 and $27,000 , respectively for the three and nine months ended September 30, 2025 and $2,000 and $7,000 , respectively for the three and nine months ended September 30, 2024.
Director’s Stock Compensation
Under the 2018 Plan, effective May 2024, eligible directors are granted stock with a total market value of approximately $85,000 , and the Board Chair is granted stock with a total market value of approximately $125,000 . Committee chairs receive additional stock in an amount that varies depending upon the nature and frequency of the committee meetings. The audit committee chair receives additional stock with a market value of approximately $15,000 , non-financial risk and compensation committee chairs receive additional stock with a market value of approximately $12,500 , and all other committee chairs receive additional stock with a market value of approximately $10,000 . Stock is granted as of each annual meeting date and vest one day prior to the next annual meeting date. During the vesting period, the grants are considered participating securities.
As of September 30, 2025, there was $571,000 of total unrecognized compensation expense related to director restricted stock awards which the Company expects to recognize over the remaining average vesting period of approximately eight months . Director compensation expense recorded related to the 2018 Plan totaled $221,000 and $601,000 , respectively for the three and nine months ended September 30, 2025 and $184,000 and $442,000 , respectively for the three and nine months ended September 30, 2024.
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A summary of the Company’s nonvested shares at September 30, 2025 and changes during the nine-month period is presented below:
| Nonvested shares - RSAs | Number of Shares | Weighted- Average Grant Date Fair Value | ||||||||||||
| (dollars in thousands, except per share amounts; unaudited) | ||||||||||||||
Nonvested shares at December 31, 2024 | $ | |||||||||||||
| Granted | $ | |||||||||||||
| Forfeited | $ | |||||||||||||
| Vested | ( | $ | ||||||||||||
Nonvested shares at September 30, 2025 | $ | |||||||||||||
Note 8 - Fair Value Measurements
The following tables present estimated fair values of the Company’s financial instruments as of the period indicated, whether or not recognized or recorded in the consolidated balance sheets at the period indicated:
| September 30, 2025 | Fair Value Measurements Using | ||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||
| Financial assets | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest earning deposits with other banks | |||||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||||||||
| Loans receivable | |||||||||||||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||||||||||||
| Financial liabilities | |||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | |||||||||||||||||||||||||
| Subordinated debt | |||||||||||||||||||||||||||||
| Junior subordinated debentures | |||||||||||||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||||||||||||
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| December 31, 2024 | Fair Value Measurements Using | ||||||||||||||||||||||||||||
| Carrying Value | Estimated Fair Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||
| Financial assets | |||||||||||||||||||||||||||||
| Cash and due from banks | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Interest earning deposits with other banks | |||||||||||||||||||||||||||||
| Investment securities | |||||||||||||||||||||||||||||
| Other investments | |||||||||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||||||||
| Loans receivable, net | |||||||||||||||||||||||||||||
| Accrued interest receivable | |||||||||||||||||||||||||||||
| Financial liabilities | |||||||||||||||||||||||||||||
| Deposits | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Subordinated debt | |||||||||||||||||||||||||||||
| Junior subordinated debentures | |||||||||||||||||||||||||||||
| Accrued interest payable | |||||||||||||||||||||||||||||
The Company measures and discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale). GAAP establishes a consistent framework for measuring fair value and disclosure requirements about fair value measurements. Among other things, the accounting standard requires the reporting entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s estimates for market assumptions. These two types of inputs create the following fair value hierarchy:
•Level 1 – Quoted prices in active markets for identical instruments. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available.
•Level 2 – Observable inputs other than Level 1 including quoted prices in active markets for similar instruments, quoted prices in less active markets for identical or similar instruments, or other observable inputs that can be corroborated by observable market data.
•Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs from nonbinding single dealer quotes not corroborated by observable market data.
The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for certain financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values.
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Items measured at fair value on a recurring basis – The following fair value hierarchy table presents information about the Company’s assets that are measured at fair value on a recurring basis at the dates indicated:
| Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| Available-for-sale | |||||||||||||||||||||||
| U.S. Agency collateralized mortgage obligations | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Available-for-sale | |||||||||||||||||||||||
| U.S. Agency collateralized mortgage obligations | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
The following methods were used to estimate the fair value of the class of financial instruments above:
Investment securities - The fair value of securities is based on quoted market prices, pricing models, quoted prices of similar securities, independent pricing sources, and discounted cash flows.
Limitations: The fair value estimates presented herein are based on pertinent information available to management as of September 30, 2025 and December 31, 2024. The factors used in the fair values estimates are subject to change subsequent to the dates the fair value estimates are completed, therefore, current estimates of fair value may differ significantly from the amounts presented herein.
Items measured at fair value on a nonrecurring basis – The following table presents financial assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy of the fair value measurements for those assets at the dates indicated:
| Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||
| September 30, 2025 | |||||||||||||||||||||||
| Collateral dependent loans | $ | $ | $ | $ | |||||||||||||||||||
| Equity securities | $ | $ | $ | $ | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2024 | |||||||||||||||||||||||
| Collateral dependent loans | $ | $ | $ | $ | |||||||||||||||||||
| Equity securities | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
The amounts disclosed above represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported on.
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Individually evaluated loans - Fair values for individually evaluated loans are estimated using the fair value of the collateral less selling costs if the loan results in a Level 3 classification. Individually evaluated loan amounts are initially valued at the lower of cost or fair value. Individually evaluated loans carried at fair value generally receive specific allocations of the allowance for credit losses. For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Individually evaluated loans are evaluated on a quarterly basis for additional credit losses and adjusted accordingly. The estimated fair values of financial instruments disclosed above follow the guidance in ASU 2016-01 which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments incorporating discounts for credit, liquidity, and marketability factors. Valuation is measured based on the fair value of the underlying collateral or the discounted cash expected future cash flows. Subsequent changes in the value of loans are included within the provision for credit losses - loans in the same manner in which it initially was recognized or as a reduction in the provision that would otherwise be reported. Loans are evaluated quarterly to determine if valuation adjustments should be recorded. The need for valuation adjustments arises when observable market prices or current appraised values of collateral indicate a shortfall in collateral value compared to current carrying values of the related loan. If the Company determines that the value of the individually evaluated loan is less than the carrying value of the loan, the Company either establishes a reserve as a specific component of the allowance for credit losses or charges off that amount. These valuation adjustments are considered nonrecurring fair value adjustments.
Equity securities – The Company measures equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, with price changes recognized in earnings.
Assets measured at fair value using significant unobservable inputs (Level 3)
The following table presents the carrying value of equity securities without readily determinable fair values, as of September 30, 2025, with adjustments recorded during the periods presented for those securities with observable price changes, if applicable. These equity securities are included in other investments on the balance sheet.
•The Company had a $1.8 million and $2.2 million equity interest in a specialized bank technology company as of the quarters ended September 30, 2025, and September 30, 2024, respectively.
•The Company had a $350,000
•The Company had a $42,000 and $47,000 equity interest in a technology company as of the quarters ended September 30, 2025, and September 30, 2024, respectively.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Carrying value, beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Purchases | ||||||||||||||||||||||||||
| Observable price change | ( | ( | ( | ( | ||||||||||||||||||||||
| Carrying value, end of period | $ | $ | $ | $ | ||||||||||||||||||||||
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The following table provides a description of the valuation technique, unobservable inputs, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring basis at the date indicated:
| (unaudited) | Valuation Technique | Unobservable Inputs | September 30, 2025 Weighted Average Rate | December 31, 2024 Weighted Average Rate | ||||||||||||||||||||||
| Collateral dependent loans | Collateral valuations | Discount to appraised value | ||||||||||||||||||||||||
Note 9 - Earnings Per Common Share
The following is a computation of basic and diluted earnings per common share at the periods indicated:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||
| (dollars in thousands, except earnings per share data; unaudited) | |||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | |||||||||||||||||||
| Basic weighted average number common shares outstanding | |||||||||||||||||||||||
| Dilutive effect of equity-based awards | |||||||||||||||||||||||
Diluted weighted average number common shares outstanding | |||||||||||||||||||||||
| Basic earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Antidilutive stock options and restricted stock outstanding | |||||||||||||||||||||||
Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings, however the difference in the two-class method was not significant.
Note 10 – Segment Reporting
As defined in ASC 280, Segment Reporting, an operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision makers (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. We evaluate performance based on classifications within accounting and reporting systems, which provides line of business results. This system uses various techniques to assign balance sheet and income statement amounts to the business segments, including allocations of income and expense. A primary objective of this measurement system and related internal financial reporting practices are to produce consistent results that reflect the underlying financial impact of the segments on the Company and to provide a basis of support for strategic decision making. The accounting policies applicable to our segments are those that apply to our preparation of the accompanying Consolidated Financial Statements. Based on these criteria, we have identified three 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). We also have a loan production office which is located in King county. The CCBX segment provides BaaS that allows digital financial service providers, companies and brands to offer their customers banking services. The CCBX segment has 29 partners as of September 30, 2025. The treasury & administration
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segment includes investments, debt and other reporting items that are not specific to the community bank or CCBX segments.
The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to GAAP. As a result, 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. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in 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. 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.
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Summarized financial information concerning the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables for the periods indicated:
| September 30, 2025 | December 31, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Community Bank | CCBX | Treasury & Administration | Consolidated | Community Bank | CCBX | Treasury & Administration | Consolidated | ||||||||||||||||||||||||||||||||||||||||
| Assets | (dollars in thousands; unaudited) | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash and Due from Banks | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Intrabank assets | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Securities | |||||||||||||||||||||||||||||||||||||||||||||||
| Loans held for sale | |||||||||||||||||||||||||||||||||||||||||||||||
| Total loans receivable | |||||||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| All other assets | |||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Total deposits | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Total borrowings | |||||||||||||||||||||||||||||||||||||||||||||||
| Intrabank liabilities | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| All other liabilities | |||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | $ | $ | ( | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
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| Three months ended September 30, 2025 | Three months ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Community Bank | CCBX | Treasury & Administration | Consolidated | Community Bank | CCBX | Treasury & Administration | Consolidated | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| INTEREST INCOME AND EXPENSE | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Interest (expense) income intrabank transfer | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||||||||||||||||||||||||||
| Provision/(Recapture) for credit losses | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net interest income/(expense) after provision for credit losses - loans and unfunded commitments | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| NONINTEREST INCOME | |||||||||||||||||||||||||||||||||||||||||||||||
| Deposit service charges and fees | |||||||||||||||||||||||||||||||||||||||||||||||
| Other income | |||||||||||||||||||||||||||||||||||||||||||||||
| BaaS program income | |||||||||||||||||||||||||||||||||||||||||||||||
| BaaS indemnification income | |||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest income | |||||||||||||||||||||||||||||||||||||||||||||||
| NONINTEREST EXPENSE | |||||||||||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | |||||||||||||||||||||||||||||||||||||||||||||||
| Occupancy | |||||||||||||||||||||||||||||||||||||||||||||||
| Data processing and software licenses | |||||||||||||||||||||||||||||||||||||||||||||||
| Legal and professional expenses | |||||||||||||||||||||||||||||||||||||||||||||||
| Other expense | |||||||||||||||||||||||||||||||||||||||||||||||
| BaaS loan expense | |||||||||||||||||||||||||||||||||||||||||||||||
| BaaS fraud expense | |||||||||||||||||||||||||||||||||||||||||||||||
| Total noninterest expense | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) before income taxes | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Income taxes | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) | $ | $ | $ | ( | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
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| Nine Months Ended September 30, 2025 | Nine Months Ended September 30, 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| Community Bank | CCBX | Treasury & Administration | Consolidated | Community Bank | CCBX | Treasury & Administration | Consolidated | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| INTEREST INCOME AND EXPENSE | |||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Interest income (expense) intrabank transfer | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income | |||||||||||||||||||||||||||||||||||||||||||||||
| Provision/(Recapture) for credit losses | |||||||||||||||||||||||||||||||||||||||||||||||
| Net interest income/(expense) after provision for credit losses - loans and unfunded commitments | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| NONINTEREST INCOME | |||||||||||||||||||||||||||||||||||||||||||||||
| Service charges and fees | |||||||||||||||||||||||||||||||||||||||||||||||
| Other income | |||||||||||||||||||||||||||||||||||||||||||||||
| BaaS program income | |||||||||||||||||||||||||||||||||||||||||||||||
| BaaS indemnification income | |||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest income | |||||||||||||||||||||||||||||||||||||||||||||||
| NONINTEREST EXPENSE | |||||||||||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | |||||||||||||||||||||||||||||||||||||||||||||||
| Occupancy | |||||||||||||||||||||||||||||||||||||||||||||||
| Data processing and software licenses | |||||||||||||||||||||||||||||||||||||||||||||||
| Legal and professional expenses | |||||||||||||||||||||||||||||||||||||||||||||||
| Other expense | |||||||||||||||||||||||||||||||||||||||||||||||
| BaaS loan expense | |||||||||||||||||||||||||||||||||||||||||||||||
| BaaS fraud expense | |||||||||||||||||||||||||||||||||||||||||||||||
| Total noninterest expense | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income before income taxes | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Income taxes | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net Income | $ | $ | $ | ( | $ | ( | |||||||||||||||||||||||||||||||||||||||||
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
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 September 30, 2025, one of which is a broker-dealer. 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.
As of September 30, 2025, we had total assets of $4.55 billion, total loans receivable of $3.70 billion, total deposits of $3.97 billion and total shareholders’ equity of $475.3 million.
The following discussion and analysis presents our financial condition and results of operations on a consolidated basis. However, because we conduct all of our material business operations through the Bank, the discussion and analysis relate to activities primarily conducted by the Bank.
We generate most of our community bank revenue from interest on loans and CCBX revenue from BaaS fee income and interest on loans. Our primary source of funding for our loans is commercial and retail deposits from our customer relationships and from our partner deposit relationships. We place secondary reliance on wholesale funding, primarily borrowings from the Federal Home Loan Bank (“FHLB”). Less commonly used sources of funding include borrowings from the Federal Reserve System (“Federal Reserve”) discount window, draws on established federal funds lines from unaffiliated commercial banks, brokered funds, which allows us to obtain deposits from sources that do not have a relationship with the Bank and can be obtained through certificate of deposit listing services, via the internet or through other advertising methods, or a one-way buy through an insured cash sweep (“ICS”) account, which allows us to obtain funds from other institutions that have deposited funds through ICS. Our largest expenses are provision for credit losses - loans, interest on deposits and borrowings, BaaS loan expense, and salaries and employee benefits. Our principal lending products are commercial real estate loans, consumer loans, residential real estate, commercial and industrial loans and construction, land and land development loans.
Financial Summary
Total loans, net of deferred fees, increased $163.5 million, or 4.6%, during the three months ended September 30, 2025 to $3.70 billion, compared to $3.54 billion at June 30, 2025. Community bank loans increased $39.6 million, or 2.1%, and CCBX loans increased $123.9 million, or 7.4%. CCBX loan growth is net of $1.62 billion in CCBX loans sold during the quarter ended September 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 $59.0 million, or 1.5% to $3.97 billion as of September 30, 2025 compared to $3.91 billion as of June 30, 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 September 30, 2025 we had $642.3 million in cash on the balance sheet and the capacity to borrow up to $657.1 million from Federal Home Loan Bank and the Federal Reserve Bank discount window. Cash on the balance sheet and borrowing capacity total $1.30 billion and represented 32.7% of total deposits and exceeded our $617.9 million in uninsured deposits as of September 30, 2025. Our AFS securities portfolio of $31,000 has a weighted average remaining maturity of 2.8 years. Unrealized losses on the AFS securities portfolio were $1,000, or less than 1.0%, of shareholders' equity as of September 30, 2025.
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Our CCBX segment continues to evolve, and we have 29 relationships, at varying stages, as of September 30, 2025. We continue to refine the criteria for CCBX partnerships, by focusing on larger, established partners with strong management, customer bases, and finances, while also considering promising smaller partners that fit our approach and terms and will continue to exit relationships where it makes sense for us to do so.
While 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 are 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 new transactions on previously sold credit card receivables, which continues to grow and is expected to provide increased and on-going revenue with no on balance sheet risk or capital requirement.
As we build our deposit base, we will be better able to sweep deposits off and on the balance sheet as needed. This deposit sweep capability allows us to better manage liquidity and deposit programs. At September 30, 2025 we swept off $672.3 million in deposits for FDIC insurance and primarily liquidity purposes, and generated $311,000 in noninterest income during the quarter ended September 30, 2025. As we look ahead, six existing partner programs are being expanded to include new products such as lines of credit, deposit programs and credit cards. Robinhood's deposit program is in testing and is expected to ramp up in the fourth quarter of 2025. The expansion of these and other partner initiatives is expected to drive higher partner revenue in upcoming periods.
Results of Operations
Net Income
Comparison of the quarter ended September 30, 2025 to the comparable quarter in the prior year
Net income for the three months ended September 30, 2025 was $13.6 million, or $0.88 per diluted share, compared to $13.5 million, or $0.97 per diluted share, for the three months ended September 30, 2024. The increase in net income over the comparable period in the prior year was primarily attributable to a $3.9 million increase in interest income due to an increase in average loans receivable, an increase in BaaS program income of $2.4 million and a decrease in interest expense of $1.8 million, partially offset by a $5.7 million increase in noninterest expenses combined with other less significant changes.
Additionally, BaaS credit enhancement income decreased $14.7 million, which is directly related to and offsets the decrease in provision for credit losses of $13.7 million for the quarter ended September 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.”
Comparison of the nine months ended September 30, 2025 to the comparable period in the prior year
Net income for the nine months ended September 30, 2025 was $34.4 million, or $2.24 per diluted share, compared to $31.9 million, or $2.32 per diluted share, for the nine months ended September 30, 2024. Net income is up, however net income per diluted share is down as a result of the capital raise in December 2024 that increased the number of shares outstanding. The increase in net income over the comparable period in the prior year was primarily attributable to an increase of $30.0 million in net interest income, partially offset by an increase of $10.0 million in BaaS loan expense. The increase in interest income and BaaS loan expense is largely related to growth in CCBX loans. Also contributing to the variance is an increase in BaaS program income of $6.6 million. The increase is partially offset by an $11.1 million increase in salaries and employee benefits, a $5.6 million increase in legal and professional expenses and a $4.4 million increase in data processing and software licenses all related to growth and investments in technology. Additionally, there
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was an increase in the provision for income taxes of $1.4 million as a result of higher net income and an increase in effective tax rate resulting from an increase in state taxes.
Other variances for the nine months ended September 30, 2025 to the comparable period in the prior year include a decrease in the provision for credit losses - loans of $71.2 million which is largely related to and offset by a decrease in BaaS credit enhancement income of $70.4 million, which are 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, combined with other less significant changes.
Net Interest Income
Comparison of the quarter ended September 30, 2025 to the comparable quarter in the prior year
Net interest income for the three months ended September 30, 2025 was $77.9 million, compared to $72.3 million for the three months ended September 30, 2024, an increase of $5.6 million, or 7.8%. The increase in net interest income compared to the quarter ended September 30, 2024 was primarily related to an increase in interest earning deposits with other banks and growth in loans receivable. The average balance of CCBX loans were $212.5 million more for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. Total average loans receivable for the three months ended September 30, 2025 was $3.64 billion, compared to $3.46 billion for the three months ended September 30, 2024. The FOMC last lowered the targeted Federal Funds rate by 0.25% on September 18, 2025; a reduction of 0.75% compared to September 30, 2024.
Total interest and fees on loans were $100.4 million for the three months ended September 30, 2025 compared to $99.7 million for the three months ended September 30, 2024. The $691,000 increase in interest and fees on loans for the quarter ended September 30, 2025, compared to the quarter ended September 30, 2024, was largely due to growth in loans, primarily from CCBX. Total loans receivable was $3.70 billion at September 30, 2025, compared to $3.41 billion at September 30, 2024. CCBX average loans receivable was $1.76 billion for the quarter ended September 30, 2025, compared to $1.55 billion for the quarter ended September 30, 2024, an increase of $212.5 million, or 13.7%. Average CCBX yield of 15.65% was earned on CCBX loans for the quarter ended September 30, 2025, compared to 17.37% for the quarter ended September 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 $73.6 million higher compared to September 30, 2024. These loans earn a lower rate of interest, but have less credit risk due to the way the loans are structured compared to other commercial loans. Additionally, new CCBX loans tend to have lower stated interest rates compared to the prior year period as a result of our ongoing strategy to optimize the CCBX loan portfolio and strengthen our balance sheet by originating higher quality loans with enhanced credit standards. 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.
Interest income from interest earning deposits with other banks was $8.0 million for the quarter ended September 30, 2025, an increase of $3.2 million, or 67.5%, primarily due to an increase in balances compared to the quarter ended September 30, 2024. The average balance of interest earning deposits invested with other banks for the three months ended September 30, 2025 was $719.2 million, compared to $350.9 million for the three months ended September 30, 2024. The yield on these interest earning deposits with other banks decreased 1.00%, which is in line with the reduction in Fed funds compared to the prior year period, to 4.42% compared to 5.42% at September 30, 2024. Interest income on investment securities decreased $59,000 to $616,000 at September 30, 2025, compared to $675,000 at September 30, 2024. Average investment securities decreased $3.9 million from $49.0 million for the three months ended September 30, 2024, to $45.1 million for the three months ended September 30, 2025, as a result of principal paydowns. Average yield on investment securities decreased to 5.42% for the three months ended September 30, 2025, compared to 5.48% for the three months ended September 30, 2024.
Interest expense was $31.1 million for the quarter ended September 30, 2025, a $1.8 million decrease from the quarter ended September 30, 2024. Interest expense on deposits was $30.5 million for the quarter ended September 30, 2025, compared to $32.1 million for the quarter ended September 30, 2024. The $1.6 million decrease in interest expense on deposits was largely due to lower interest rates despite an increase of $428.1 million in average interest bearing deposits compared to the quarter ended September 30, 2024. Interest on borrowed funds was $660,000 for the quarter ended September 30, 2025, compared to $809,000 for the quarter ended September 30, 2024.
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Cost of funds was 3.07% for the quarter ended September 30, 2025, which is a decrease of 0.55% from the quarter ended September 30, 2024. Cost of deposits for the quarter ended September 30, 2025 was 3.04%, which was a 0.56% decrease, from 3.59% for the quarter ended September 30, 2024. These decreases were largely due to lower interest rates.
Net interest margin was 7.00% for the three months ended September 30, 2025, compared to 7.42% for the three months ended September 30, 2024. The decrease in net interest margin compared to the three months ended September 30, 2024 was largely due to a decrease in loan yield partially offset by a decrease in cost of deposits.
Total yield on loans receivable for the quarter ended September 30, 2025 was 10.95%, compared to 11.44% for the quarter ended September 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 $73.6 million higher compared to September 30, 2024. The composition of the loan portfolio is shifting with CCBX average loans increasing to 48.5% of the total loan portfolio for the quarter ended September 30, 2025, compared to 44.8% for the quarter ended September 30, 2024, and the average community bank loans decreasing to 51.5% of the loan portfolio for the quarter ended September 30, 2025, compared to 55.2% for the quarter ended September 30, 2024. For the quarter ended September 30, 2025, average CCBX loans increased $212.5 million, or 13.7%, with an average CCBX yield of 15.65%, compared to 17.37% at the quarter ended September 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 $40.8 million, or 2.1% due to normal balance fluctuations. Average yield on community bank loans for the three months ended September 30, 2025 was 6.51% compared to 6.64% for the three months ended September 30, 2024.
The following tables (1) show the average yield on loans and cost of deposits by segment and (2) illustrate how BaaS loan interest income is affected by BaaS loan expense resulting in net BaaS loan income and the associated yield for the periods indicated:
| For the Three Months Ended | ||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||
| (unaudited) | Yield on Loans (2) | Cost of Deposits (2) | Yield on Loans (2) | Cost of Deposits (2) | ||||||||||||||||||||||
| Community Bank | 6.51% | 1.77% | 6.64% | 1.92% | ||||||||||||||||||||||
CCBX(1) | 15.65% | 3.90% | 17.37% | 4.82% | ||||||||||||||||||||||
| Consolidated | 10.95% | 3.04% | 11.44% | 3.59% | ||||||||||||||||||||||
(1)CCBX yield on loans 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. To determine net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at net BaaS loan income which can be compared to interest income on the Company’s community bank loans. See the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” for a reconciliation of the impact of BaaS loan expense on CCBX yield on loans.
(2)Annualized calculations shown for periods presented.
| For the Three Months Ended | ||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||
| (dollars in thousands, unaudited) | Income / Expense | Income / expense divided by average CCBX loans (2) | Income / Expense | Income / expense divided by average CCBX loans (2) | ||||||||||||||||||||||
| BaaS loan interest income | $ | 69,643 | 15.65 | % | $ | 67,778 | 17.37 | % | ||||||||||||||||||
| Less: BaaS loan expense | 32,840 | 7.38 | % | 32,698 | 8.38 | % | ||||||||||||||||||||
Net BaaS loan income (1) | $ | 36,803 | 8.27 | % | $ | 35,080 | 8.99 | % | ||||||||||||||||||
Average BaaS Loans(3) | $ | 1,764,957 | $ | 1,552,443 | ||||||||||||||||||||||
(1)A reconciliation of this non-GAAP measure is set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”
(2)Annualized calculations shown for periods presented.
(3)Includes loans held for sale.
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For the three months ended September 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 7.00% and 6.21%, respectively, compared to 7.42% and 6.47%, respectively, for the three months ended September 30, 2024.
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 fees, net of costs included in interest income totaled $2.6 million and $2.3 million for the three months ended September 30, 2025 and 2024, respectively. For the three months ended September 30, 2025 and 2024, the amount of interest income not recognized on nonaccrual loans was not material.
| Average Balance Sheets For the Three Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | ||||||||||||||||||||||||||||||||
| Consolidated | ||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Interest earning assets: | ||||||||||||||||||||||||||||||||||||||
| Interest earning deposits with other banks | $ | 719,191 | $ | 8,007 | 4.42 | % | $ | 350,915 | $ | 4,781 | 5.42 | % | ||||||||||||||||||||||||||
Investment securities, available-for-sale (2) | 33 | — | — | 40 | — | — | ||||||||||||||||||||||||||||||||
Investment securities, held-to-maturity (2) | 45,030 | 616 | 5.43 | 48,945 | 675 | 5.49 | ||||||||||||||||||||||||||||||||
| Other investments | 12,730 | 37 | 1.15 | 11,140 | 33 | 1.18 | ||||||||||||||||||||||||||||||||
Loans receivable (3) | 3,636,545 | 100,367 | 10.95 | 3,464,871 | 99,676 | 11.44 | ||||||||||||||||||||||||||||||||
| Total interest earning assets | 4,413,529 | 109,027 | 9.80 | 3,875,911 | 105,165 | 10.79 | ||||||||||||||||||||||||||||||||
| Noninterest earning assets: | ||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses | (158,525) | (151,292) | ||||||||||||||||||||||||||||||||||||
| Other noninterest earning assets | 286,002 | 268,903 | ||||||||||||||||||||||||||||||||||||
| Total assets | $ | 4,541,006 | $ | 3,993,522 | ||||||||||||||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 3,394,664 | $ | 30,466 | 3.56 | % | $ | 2,966,527 | $ | 32,083 | 4.30 | % | ||||||||||||||||||||||||||
| FHLB advances and other borrowings | — | — | — | 9,717 | 140 | 5.73 | ||||||||||||||||||||||||||||||||
| Subordinated debt | 44,383 | 598 | 5.35 | 44,234 | 598 | 5.38 | ||||||||||||||||||||||||||||||||
| Junior subordinated debentures | 3,592 | 62 | 6.85 | 3,591 | 71 | 7.87 | ||||||||||||||||||||||||||||||||
| Total interest bearing liabilities | 3,442,639 | 31,126 | 3.59 | 3,024,069 | 32,892 | 4.33 | ||||||||||||||||||||||||||||||||
| Noninterest bearing deposits | 577,820 | 588,178 | ||||||||||||||||||||||||||||||||||||
| Other liabilities | 52,447 | 60,101 | ||||||||||||||||||||||||||||||||||||
| Total shareholders' equity | 468,100 | 321,174 | ||||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 4,541,006 | $ | 3,993,522 | ||||||||||||||||||||||||||||||||||
| Net interest income | $ | 77,901 | $ | 72,273 | ||||||||||||||||||||||||||||||||||
| Interest rate spread | 6.21 | % | 6.47 | % | ||||||||||||||||||||||||||||||||||
Net interest margin (4) | 7.00 | % | 7.42 | % | ||||||||||||||||||||||||||||||||||
(1)Yields and costs are annualized.
(2)For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(3)Includes loans held for sale and nonaccrual loans.
(4)Net interest margin represents net interest income divided by the average total interest earning assets.
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The following table presents an analysis of certain average balances, interest income and expense by segment:
| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||||||||
| (dollars in thousands, unaudited) | Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | |||||||||||||||||||||||||||||
| Community Bank | |||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Interest earning assets: | |||||||||||||||||||||||||||||||||||
Loans receivable (2) | $ | 1,871,588 | $ | 30,724 | 6.51 | % | $ | 1,912,428 | $ | 31,898 | 6.64 | % | |||||||||||||||||||||||
| Total interest earning assets | 1,871,588 | 30,724 | 6.51 | 1,912,428 | 31,898 | 6.64 | |||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 1,096,883 | $ | 7,136 | 2.58 | % | $ | 982,280 | $ | 7,264 | 2.94 | % | |||||||||||||||||||||||
| Intrabank liability | 271,961 | 3,028 | 4.42 | 406,641 | 5,540 | 5.42 | |||||||||||||||||||||||||||||
| Total interest bearing liabilities | 1,368,844 | 10,164 | 2.95 | 1,388,921 | 12,804 | 3.67 | |||||||||||||||||||||||||||||
| Noninterest bearing deposits | 502,744 | 523,507 | |||||||||||||||||||||||||||||||||
| Net interest income | $ | 20,560 | $ | 19,094 | |||||||||||||||||||||||||||||||
Net interest margin(3) | 4.36 | % | 3.97 | % | |||||||||||||||||||||||||||||||
| CCBX | |||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Interest earning assets: | |||||||||||||||||||||||||||||||||||
Loans receivable (2)(4) | $ | 1,764,957 | $ | 69,643 | 15.65 | % | $ | 1,552,443 | $ | 67,778 | 17.37 | % | |||||||||||||||||||||||
| Intrabank asset | 607,900 | 6,768 | 4.42 | 496,475 | 6,764 | 5.42 | |||||||||||||||||||||||||||||
| Total interest earning assets | 2,372,857 | 76,411 | 12.78 | 2,048,918 | 74,542 | 14.47 | |||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | |||||||||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 2,297,781 | $ | 23,330 | 4.03 | % | $ | 1,984,247 | $ | 24,819 | 4.98 | % | |||||||||||||||||||||||
| Total interest bearing liabilities | 2,297,781 | 23,330 | 4.03 | 1,984,247 | 24,819 | 4.98 | |||||||||||||||||||||||||||||
| Noninterest bearing deposits | 75,076 | 64,671 | |||||||||||||||||||||||||||||||||
| Net interest income | $ | 53,081 | $ | 49,723 | |||||||||||||||||||||||||||||||
Net interest margin(3) | 8.88 | % | 9.65 | % | |||||||||||||||||||||||||||||||
Net interest margin, net of BaaS loan expense (5) | 3.38 | % | 3.31 | % | |||||||||||||||||||||||||||||||
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| For the Three Months Ended | |||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||||||||
| (dollars in thousands, unaudited) | Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | |||||||||||||||||||||||||||||
| Treasury & Administration | |||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Interest earning assets: | |||||||||||||||||||||||||||||||||||
| Interest earning deposits with other banks | $ | 719,191 | $ | 8,007 | 4.42 | % | $ | 350,915 | $ | 4,781 | 5.42 | % | |||||||||||||||||||||||
Investment securities, available for sale (6) | 33 | — | — | 40 | — | — | |||||||||||||||||||||||||||||
Investment securities, held to maturity (6) | 45,030 | 616 | 5.43 | 48,945 | 675 | 5.49 | |||||||||||||||||||||||||||||
| Other investments | 12,730 | 37 | 1.15 | 11,140 | 33 | 1.18 | |||||||||||||||||||||||||||||
| Total interest earning assets | 776,984 | 8,660 | 4.42 | 411,040 | 5,489 | 5.31 | |||||||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | |||||||||||||||||||||||||||||||||||
| FHLB advances and borrowings | $ | — | $ | — | — | % | 9,717 | 140 | 5.73 | % | |||||||||||||||||||||||||
| Subordinated debt | 44,383 | 598 | 5.35 | 44,234 | 598 | 5.38 | |||||||||||||||||||||||||||||
| Junior subordinated debentures | 3,592 | 62 | 6.85 | 3,591 | 71 | 7.87 | |||||||||||||||||||||||||||||
Intrabank liability, net (7) | 335,939 | 3,740 | 4.42 | 89,834 | 1,224 | 5.42 | |||||||||||||||||||||||||||||
| Total interest bearing liabilities | 383,914 | 4,400 | 4.55 | 147,376 | 2,033 | 5.49 | |||||||||||||||||||||||||||||
| Net interest income | $ | 4,260 | $ | 3,456 | |||||||||||||||||||||||||||||||
Net interest margin(3) | 2.18 | % | 3.34 | % | |||||||||||||||||||||||||||||||
(1)Yields and costs are annualized.
(2)Includes loans held for sale and nonaccrual loans.
(3)Net interest margin represents net interest income divided by the average total interest earning assets.
(4)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. See the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” for a reconciliation of the impact of BaaS loan expense on CCBX loan yield.
(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.”
(6)For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(7)Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the table above.
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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 increase in loan interest income which is attributed to an $5.0 million increase in loan volume partially offset by a $4.3 million decrease in loan rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to volume.
| Three months ended September 30, 2025 Compared to Three months ended September 30, 2024 | ||||||||||||||||||||
| Increase (Decrease) Due to | Total Increase (Decrease) | |||||||||||||||||||
| (dollars in thousands; unaudited) | Volume | Rate | ||||||||||||||||||
| Interest income: | ||||||||||||||||||||
| Interest earning deposits | $ | 4,113 | $ | (887) | $ | 3,226 | ||||||||||||||
| Investment securities, available-for-sale | — | — | — | |||||||||||||||||
| Investment securities, held-to-maturity | (52) | (7) | (59) | |||||||||||||||||
| Other investments | 5 | (1) | 4 | |||||||||||||||||
| Loans receivable | 5,011 | (4,320) | 691 | |||||||||||||||||
| Total increase in interest income | 9,077 | (5,215) | 3,862 | |||||||||||||||||
| Interest expense: | ||||||||||||||||||||
| Interest bearing deposits | 3,930 | (5,547) | (1,617) | |||||||||||||||||
| FHLB advances and other borrowings | — | (140) | (140) | |||||||||||||||||
| Subordinated debt | 4 | (4) | — | |||||||||||||||||
| Junior subordinated debentures | — | (9) | (9) | |||||||||||||||||
| Total increase in interest expense | 3,934 | (5,700) | (1,766) | |||||||||||||||||
| Increase in net interest income | $ | 5,143 | $ | 485 | $ | 5,628 | ||||||||||||||
Comparison of the nine months ended September 30, 2025 to the comparable period in the prior year
Net interest income for the nine months ended September 30, 2025, was $230.7 million, compared to $200.7 million for the nine months ended September 30, 2024, an increase of $30.0 million, or 15.0%. The increase in net interest income compared to the nine months ended September 30, 2024 was largely related to growth in CCBX loans and a decrease in interest expense as a result of lower interest rates.
Interest and fees on loans totaled $297.4 million for the nine months ended September 30, 2025 compared to $276.4 million for the nine months ended September 30, 2024. The $20.9 million increase in interest and fees on loans for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, was largely due to growth in CCBX loans. Total average loans receivable for the nine months ended September 30, 2025 was $3.57 billion, compared to $3.29 billion for the nine months ended September 30, 2024.
CCBX average loans receivable grew to $1.70 billion for the nine months ended September 30, 2025, compared to $1.39 billion for the nine months ended September 30, 2024, an increase of $300.9 million, or 21.6%. Average CCBX yield of 16.23% was earned on CCBX loans for the nine months ended September 30, 2025, compared to 17.61% for the nine months ended September 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 $73.6 million higher compared to September 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.
Community bank average loans receivable was $1.88 billion for the nine months ended September 30, 2025, a decrease of $15.8 million, or 0.8%, compared to the prior year period. Average yield of 6.52% was earned on community bank loans for the nine months ended September 30, 2025, compared to 6.54% for the nine months ended September 30, 2024.
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Interest income from interest earning deposits with other banks was $22.2 million for the nine months ended September 30, 2025, an increase of $6.9 million due to an increase in balances, compared to the nine months ended September 30, 2024. The average balance of interest earning deposits invested with other banks for the nine months ended September 30, 2025 was $668.0 million, compared to $373.2 million for the nine months ended September 30, 2024. Interest income on investment securities decreased $503,000 to $1.9 million at September 30, 2025, compared to $2.4 million at September 30, 2024. Average investment securities decreased $25.1 million from $71.3 million for the nine months ended September 30, 2024 to $46.2 million for the nine months ended September 30, 2025 as a result of maturing securities and principal paydowns.
Interest expense was $91.0 million for the nine months ended September 30, 2025, a $2.6 million decrease from the nine months ended September 30, 2024. Interest expense on deposits was $89.1 million for the nine months ended September 30, 2025, compared to $91.5 million for the nine months ended September 30, 2024. The $2.5 million decrease in interest expense on deposits was due to a decrease in interest rates despite an increase in average interest bearing deposits of $460.6 million. Interest on borrowed funds was $2.0 million for the nine months ended September 30, 2025 and $170,000 less than the nine months ended September 30, 2024 as a result of a decrease in interest rates on the junior subordinated debt, which decreased 1.08%, to 6.81% for the nine months ended September 30, 2025 compared to 7.89% for the nine months ended September 30, 2024.
Net interest margin was 7.17% for the nine months ended September 30, 2025, compared to 7.16% for the nine months ended September 30, 2024. The slight increase in net interest margin compared to the nine months ended September 30, 2024 was largely a result of a decrease of 0.11% for yield on loans partially offset by a decrease of 0.48% for cost of deposits. Interest bearing deposits increased an average of $460.6 million for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, many of which were impacted by a lower Fed Funds rate for all nine months of 2025.
Cost of funds was 3.10% for the nine months ended September 30, 2025, compared to 3.58% for the nine months ended September 30, 2024. Cost of deposits for the nine months ended September 30, 2025 was 3.07%, which was a 0.48% decrease, from 3.55% for the nine months ended September 30, 2024. These decreases were largely due lower interest rates compared to the prior year period.
Total yield on loans receivable for the nine months ended September 30, 2025 was 11.13%, compared to 11.23% for the nine months ended September 30, 2024. This decrease in yield on loans receivable is primarily attributed to lower interest rates and a change in loan mix. For the nine months ended September 30, 2025, average CCBX loans increased $300.9 million, or 21.6%. There was a decrease in average community bank loans of $15.8 million, or 0.8%, compared to the nine months ended September 30, 2024. Average yield on community bank loans for the nine months ended September 30, 2025 was 6.52%. compared to 6.54% for the nine months ended September 30, 2024.
The following tables show the average yield on loans and cost of deposits by segment and also illustrates the impact of BaaS loan expense on CCBX yield on loans:
| For the Nine Months Ended | ||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||
| (unaudited) | Yield on Loans (2) | Cost of Deposits (2) | Yield on Loans (2) | Cost of Deposits (2) | ||||||||||||||||||||||
| Community Bank | 6.52% | 1.77% | 6.54% | 1.78% | ||||||||||||||||||||||
CCBX (1) | 16.23% | 3.95% | 17.61% | 4.89% | ||||||||||||||||||||||
| Consolidated | 11.13% | 3.07% | 11.23% | 3.55% | ||||||||||||||||||||||
(1)CCBX yield on loans 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. To determine net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at net BaaS loan income which can be compared to interest income on the Company’s community bank 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.”
(2)Annualized calculations shown for periods presented.
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| For the Nine Months Ended | ||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Income / Expense | Income / expense divided by average CCBX loans (2) | Income / Expense | Income / expense divided by average CCBX loans (2) | ||||||||||||||||||||||
| BaaS loan interest income | $ | 205,762 | 16.23 | % | $ | 183,754 | 17.61 | % | ||||||||||||||||||
| Less: BaaS loan expense | 97,830 | 7.72 | % | 87,816 | 8.41 | % | ||||||||||||||||||||
Net BaaS loan income (1) | $ | 107,932 | 8.51 | % | $ | 95,938 | 9.19 | % | ||||||||||||||||||
Average BaaS Loans(3) | $ | 1,695,006 | $ | 1,394,127 | ||||||||||||||||||||||
(1)A reconciliation of this non-GAAP measure is set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”
(2)Annualized calculations shown for periods presented.
(3)Includes loans held for sale.
For the nine months ended September 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 7.17% and 6.38%, respectively, compared to 7.16% and 6.19%, respectively, for the nine months ended September 30, 2024.
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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 fees, net of loan costs, included in interest income totaled $6.8 million and $6.5 million for the nine months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025 and 2024, the amount of interest income not recognized on nonaccrual loans was not material.
| Average Balance Sheets For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | ||||||||||||||||||||||||||||||||
| Consolidated | ||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Interest earning assets: | ||||||||||||||||||||||||||||||||||||||
| Interest earning deposits with other banks | $ | 668,019 | $ | 22,162 | 4.44 | % | $ | 373,234 | $ | 15,244 | 5.46 | % | ||||||||||||||||||||||||||
Investment securities, available-for-sale (2) | 35 | 1 | 3.82 | 21,575 | 350 | 2.17 | ||||||||||||||||||||||||||||||||
Investment securities, held-to-maturity (2) | 46,139 | 1,891 | 5.48 | 49,721 | 2,045 | 5.49 | ||||||||||||||||||||||||||||||||
| Other investments | 12,441 | 296 | 3.18 | 10,666 | 244 | 3.06 | ||||||||||||||||||||||||||||||||
Loans receivable (3) | 3,572,487 | 297,381 | 11.13 | 3,287,378 | 276,446 | 11.23 | ||||||||||||||||||||||||||||||||
| Total interest earning assets | 4,299,121 | 321,731 | 10.01 | 3,742,574 | 294,329 | 10.50 | ||||||||||||||||||||||||||||||||
| Noninterest earning assets: | ||||||||||||||||||||||||||||||||||||||
| Allowance for credit losses | (168,318) | (134,977) | ||||||||||||||||||||||||||||||||||||
| Other noninterest earning assets | 293,857 | 251,248 | ||||||||||||||||||||||||||||||||||||
| Total assets | $ | 4,424,660 | $ | 3,858,845 | ||||||||||||||||||||||||||||||||||
| Liabilities and Shareholders’ Equity | ||||||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 3,311,043 | $ | 89,051 | 3.60 | % | $ | 2,850,420 | $ | 91,528 | 4.29 | % | ||||||||||||||||||||||||||
| FHLB advances and other borrowings | 1 | 2 | — | 3,812 | 143 | 5.01 | ||||||||||||||||||||||||||||||||
| Subordinated debt | 44,346 | 1,795 | 5.41 | 44,197 | 1,795 | 5.43 | ||||||||||||||||||||||||||||||||
| Junior subordinated debentures | 3,592 | 183 | 6.81 | 3,590 | 212 | 7.89 | ||||||||||||||||||||||||||||||||
| Total interest bearing liabilities | 3,358,982 | 91,031 | 3.62 | 2,902,019 | 93,678 | 4.31 | ||||||||||||||||||||||||||||||||
| Noninterest bearing deposits | 561,384 | 589,506 | ||||||||||||||||||||||||||||||||||||
| Other liabilities | 48,852 | 59,070 | ||||||||||||||||||||||||||||||||||||
| Total shareholders' equity | 455,442 | 308,250 | ||||||||||||||||||||||||||||||||||||
| Total liabilities and shareholders' equity | $ | 4,424,660 | $ | 3,858,845 | ||||||||||||||||||||||||||||||||||
| Net interest income | $ | 230,700 | $ | 200,651 | ||||||||||||||||||||||||||||||||||
| Interest rate spread | 6.38 | % | 6.19 | % | ||||||||||||||||||||||||||||||||||
Net interest margin (4) | 7.17 | % | 7.16 | % | ||||||||||||||||||||||||||||||||||
(1)Yields and costs are annualized.
(2)For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(3)Includes loans held for sale and nonaccrual loans.
(4)Net interest margin represents net interest income divided by the average total interest earning assets.
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The following table presents an analysis of certain average balances, interest income and interest expense by segment:
| For the Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | ||||||||||||||||||||||||||||||||
| Community Bank | ||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Interest earning assets: | ||||||||||||||||||||||||||||||||||||||
Loans receivable (2) | $ | 1,877,481 | $ | 91,619 | 6.52 | % | $ | 1,893,251 | $ | 92,692 | 6.54 | % | ||||||||||||||||||||||||||
| Total interest earning assets | 1,877,481 | 91,619 | 6.52 | 1,893,251 | 92,692 | 6.54 | ||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 1,063,973 | $ | 20,523 | 2.58 | % | $ | 947,677 | $ | 19,736 | 2.78 | % | ||||||||||||||||||||||||||
| Intrabank liability | 323,200 | 10,729 | 4.44 | 415,663 | 16,975 | 5.46 | ||||||||||||||||||||||||||||||||
| Total interest bearing liabilities | 1,387,173 | 31,252 | 3.01 | 1,363,340 | 36,711 | 3.60 | ||||||||||||||||||||||||||||||||
| Noninterest bearing deposits | 490,308 | 529,911 | ||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 60,367 | $ | 55,981 | ||||||||||||||||||||||||||||||||||
Net interest margin(3) | 4.30 | % | 3.95 | % | ||||||||||||||||||||||||||||||||||
| CCBX | ||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Interest earning assets: | ||||||||||||||||||||||||||||||||||||||
Loans receivable (2)(4) | $ | 1,695,006 | $ | 205,762 | 16.23 | % | $ | 1,394,127 | $ | 183,754 | 17.61 | % | ||||||||||||||||||||||||||
| Intrabank asset | 623,140 | 20,678 | 4.44 | 568,211 | 23,214 | 5.46 | ||||||||||||||||||||||||||||||||
| Total interest earning assets | 2,318,146 | 226,440 | 13.06 | 1,962,338 | 206,968 | 14.09 | ||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
| Interest bearing deposits | $ | 2,247,070 | $ | 68,528 | 4.08 | % | $ | 1,902,743 | $ | 71,792 | 5.04 | % | ||||||||||||||||||||||||||
| Total interest bearing liabilities | 2,247,070 | 68,528 | 4.08 | 1,902,743 | 71,792 | 5.04 | ||||||||||||||||||||||||||||||||
| Noninterest bearing deposits | 71,076 | 59,595 | ||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 157,912 | $ | 135,176 | ||||||||||||||||||||||||||||||||||
Net interest margin(3) | 9.11 | % | 9.20 | % | ||||||||||||||||||||||||||||||||||
Net interest margin, net of BaaS loan expense (5) | 3.47 | % | 3.22 | % | ||||||||||||||||||||||||||||||||||
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| For the Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Average Balance | Interest & Dividends | Yield / Cost (1) | Average Balance | Interest & Dividends | Yield / Cost (1) | ||||||||||||||||||||||||||||||||
| Treasury & Administration | ||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Interest earning assets: | ||||||||||||||||||||||||||||||||||||||
| Interest earning deposits with other banks | $ | 668,019 | $ | 22,162 | 4.44 | % | $ | 373,234 | $ | 15,244 | 5.46 | % | ||||||||||||||||||||||||||
Investment securities, available for sale (6) | 35 | 1 | 3.82 | 21,575 | 350 | 2.17 | ||||||||||||||||||||||||||||||||
Investment securities, held to maturity (6) | 46,139 | 1,891 | 5.48 | 49,721 | 2,045 | 5.49 | ||||||||||||||||||||||||||||||||
| Other investments | 12,441 | 296 | 3.18 | 10,666 | 244 | 3.06 | ||||||||||||||||||||||||||||||||
| Total interest earning assets | 726,634 | 24,350 | 4.48 | % | 455,196 | 17,883 | 5.25 | % | ||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||
| Interest bearing liabilities: | ||||||||||||||||||||||||||||||||||||||
| FHLB advances and borrowings | $ | 1 | $ | 2 | — | % | $ | 3,812 | $ | 143 | 5.01 | % | ||||||||||||||||||||||||||
| Subordinated debt | 44,346 | 1,795 | 5.41 | 44,197 | 1,795 | 5.43 | ||||||||||||||||||||||||||||||||
| Junior subordinated debentures | 3,592 | 183 | 6.81 | 3,590 | 212 | 7.89 | ||||||||||||||||||||||||||||||||
Intrabank liability, net (7) | 299,940 | 9,949 | 4.43 | 152,548 | 6,239 | 5.46 | ||||||||||||||||||||||||||||||||
| Total interest bearing liabilities | 347,879 | 11,929 | 4.58 | 204,147 | 8,389 | 5.49 | ||||||||||||||||||||||||||||||||
| Net interest income | $ | 12,421 | $ | 9,494 | ||||||||||||||||||||||||||||||||||
Net interest margin(3) | 2.29 | % | 2.79 | % | ||||||||||||||||||||||||||||||||||
(1)Yields and costs are annualized.
(2)Includes loans held for sale and nonaccrual loans.
(3)Net interest margin represents net interest income divided by the average total interest earning assets.
(4)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. See the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” for a reconciliation of the impact of BaaS loan expense on CCBX loan yield.
(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.”
(6)For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(7)Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the table above.
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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 $23.5 million increase in loan interest income attributed to an increase in loan volume partially offset by a decrease of $2.5 million in loan interest income attributed to a decrease in loan rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to volume.
| Nine Months Ended September 30, 2025 compared to Nine Months Ended September 30, 2024 | ||||||||||||||||||||
| Increase (Decrease) Due to | Total Increase (Decrease) | |||||||||||||||||||
| (dollars in thousands; unaudited) | Volume | Rate | ||||||||||||||||||
| Interest income: | ||||||||||||||||||||
| Interest earning deposits | $ | 9,766 | $ | (2,848) | $ | 6,918 | ||||||||||||||
| Investment securities, available-for-sale | (616) | 267 | (349) | |||||||||||||||||
| Investment securities, held-to-maturity | (149) | (5) | (154) | |||||||||||||||||
| Other Investments | 42 | 10 | 52 | |||||||||||||||||
| Loans receivable | 23,479 | (2,544) | 20,935 | |||||||||||||||||
| Total increase in interest income | 32,522 | (5,120) | 27,402 | |||||||||||||||||
| Interest expense: | ||||||||||||||||||||
| Interest bearing deposits | 12,304 | (14,781) | (2,477) | |||||||||||||||||
| FHLB advances | (7,622) | 7,481 | (141) | |||||||||||||||||
| Subordinated debt | 4 | (4) | — | |||||||||||||||||
| Junior subordinated debentures | — | (29) | (29) | |||||||||||||||||
| Total increase in interest expense | 4,686 | (7,333) | (2,647) | |||||||||||||||||
| Increase in net interest income | $ | 27,836 | $ | 2,213 | $ | 30,049 | ||||||||||||||
Provision for Credit Losses
The provision for credit losses - loans is an expense we incur to maintain an allowance for credit losses at a level that management deems appropriate to absorb expected losses on existing loans in accordance with GAAP. For a description of the factors taken into account by our management in determining the allowance for credit losses see “—Financial Condition—Allowance for Credit Losses.”
The macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, the U.S. government shutdown, 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 $3.70 billion at September 30, 2025. The allowance for credit losses as a percentage of loans was 4.69% at September 30, 2025, compared to 5.03% at September 30, 2024.
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 that are incurred over the life of the loan. 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.
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Comparison of the quarter ended September 30, 2025 to the comparable quarter in the prior year
The provision for credit losses for the three months ended September 30, 2025 was $56.6 million, compared to $70.3 million for the three months ended September 30, 2024. This includes a provision for credit losses - loans for the three months ended September 30, 2025 of $58.3 million, compared to $71.6 million for the three months ended September 30, 2024. The decrease in the Company’s provision for credit losses - loans during the quarter ended September 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 higher quality loans become a greater proportion of the CCBX portfolio, resulting in an improvement in expected losses and lower provision. During the quarter ended September 30, 2025, a $58.8 million provision for credit losses - loans was recorded for CCBX partner loans. The factors used in management’s analysis for community bank credit losses indicated that a provision recapture for credit losses - loans of $583,000 was needed for the quarter ended September 30, 2025, largely due to updated prepayment speeds, partially offset by a slight increase in economic uncertainty, and loan mix of the community bank portfolio. Additionally, a provision recapture for unfunded commitments of $1.7 million was recorded for the quarter ended September 30, 2025, primarily as a result of a change in the loan mix of available balance, compared to a $1.3 million recapture for the three months ended September 30, 2024. No provision for accrued interest receivable was recorded for the quarter ended September 30, 2025 and September 30, 2024 on CCBX loans.
The following table shows the provision expense for loans by segment for the periods indicated:
| Three Months Ended | ||||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | September 30, 2024 | ||||||||||||
| Community bank | $ | (583) | $ | (519) | ||||||||||
| CCBX | 58,847 | 72,104 | ||||||||||||
| Total provision expense | $ | 58,264 | $ | 71,585 | ||||||||||
Net charge-offs for the quarter ended September 30, 2025 totaled $49.2 million, or 5.37% of total average loans, compared to $48.8 million, or 5.60% of total average loans, for the quarter ended September 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 $297.4 million loan portfolio; prior to April 1, 2024, the Company was responsible for 10% of that portfolio. At September 30, 2025, our portion of this portfolio represented $20.7 million in loans. For the three months ended September 30, 2025, $49.2 million of net charge-offs were recognized for CCBX loans and $1,000 net recoveries were recognized on community bank loans. For the three months ended September 30, 2024, $48.4 million of net charge-offs were recognized on CCBX loans and $395,000 net charge-offs were recognized for community bank loans.
Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by indemnifying or reimbursing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligation then the Bank would be exposed to additional loan and deposit losses (counterparty risk) if the cash flows on the loans were not sufficient to fund the reimbursement of loan losses. If a CCBX partner does not replenish their cash reserve account the Bank may consider an alternative plan for funding the cash reserve, such as adjusting the funding amounts or timelines to better align with the partner's specific situation. If a mutually agreeable funding plan is not achieved then the Bank could declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. The Bank would evaluate any remaining credit enhancement asset from the CCBX partner in the event the partner failed to determine if a write-off is appropriate. If a write-off occurs, the Bank would retain the full yield and any fee income on the loan portfolio going forward, and our BaaS loan expense would decrease once default occurs and payments to the CCBX partner are stopped.
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The following table shows the total charge-off activity by segment for the periods indicated:
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Community Bank | CCBX | Total | Community Bank | CCBX | Total | ||||||||||||||||||||||||||||||||
| Gross charge-offs | $ | 18 | $ | 54,516 | $ | 54,534 | $ | 398 | $ | 52,907 | $ | 53,305 | ||||||||||||||||||||||||||
| Gross recoveries | (19) | (5,270) | (5,289) | (3) | (4,513) | (4,516) | ||||||||||||||||||||||||||||||||
| Net charge-offs (recoveries) | $ | (1) | $ | 49,246 | $ | 49,245 | $ | 395 | $ | 48,394 | $ | 48,789 | ||||||||||||||||||||||||||
Net charge-offs to average loans (1) | 0.00 | % | 11.07 | % | 5.37 | % | 0.08 | % | 12.40 | % | 5.60 | % | ||||||||||||||||||||||||||
(1) Annualized calculations shown for periods presented.
Comparison of the nine months ended September 30, 2025 to the comparable period in the prior year
The provision for credit losses - loans for the nine months ended September 30, 2025 was $143.6 million, compared to $213.0 million for the nine months ended September 30, 2024. The decrease in the Company’s provision for credit losses - loans during the quarter ended September 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. During the nine months ended September 30, 2025, a $144.1 million provision for credit losses - loans was recorded for loans originated through CCBX partners based on management’s analysis. The factors used in management’s analysis for community bank credit losses indicated that a provision recapture of $565,000 was needed for the nine months ended September 30, 2025, due to a change in loan mix and updated prepayment speeds, partially offset by a slight increase in economic uncertainty.
The following table shows the provision expense by segment for the periods indicated:
| Nine Months Ended | ||||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | September 30, 2024 | ||||||||||||
| Community bank | $ | (565) | $ | (1,059) | ||||||||||
| CCBX | 144,142 | 214,052 | ||||||||||||
| Total provision expense | $ | 143,577 | $ | 212,993 | ||||||||||
Net charge-offs for the nine months ended September 30, 2025 totaled $146.8 million, or 5.49% of total average loans, as compared to net charge-offs of $158.7 million, or 6.45% of total average loans, for the nine months ended September 30, 2024. Net charge-offs decreased in the first nine months of 2025 compared to the same period of 2024 as a result of the improvement in the performance of loans originated through CCBX partners and our focus on originating higher quality CCBX loans. In accordance with GAAP, CCBX loan losses are recorded as charge-offs, but CCBX partner agreements provide for a credit enhancement that indemnifies the Bank, and CCBX partners reimburse 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 is responsible for credit losses on approximately 5% of a $297.4 million loan portfolio. At September 30, 2025, our portion of this portfolio represented $20.7 million in loans. For the nine months ended September 30, 2025, $146.8 million of net charge-offs were recognized for CCBX loans and $5,000 of net charge-offs recognized for community bank loans. For the nine months ended September 30, 2024, $158.3 million of net charge-offs were recognized for CCBX and $404,000 of net charge-offs were recognized for community bank loans.
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Community Bank | CCBX | Total | Community Bank | CCBX | Total | ||||||||||||||||||||||||||||||||
| Gross charge-offs | $ | 33 | $ | 161,967 | $ | 162,000 | $ | 415 | $ | 167,091 | $ | 167,506 | ||||||||||||||||||||||||||
| Gross recoveries | (28) | (15,214) | (15,242) | (11) | (8,795) | (8,806) | ||||||||||||||||||||||||||||||||
| Net charge-offs | $ | 5 | $ | 146,753 | $ | 146,758 | $ | 404 | $ | 158,296 | $ | 158,700 | ||||||||||||||||||||||||||
Net charge-offs to average loans(1) | 0.00 | % | 11.58 | % | 5.49 | % | 0.03 | % | 15.17 | % | 6.45 | % | ||||||||||||||||||||||||||
(1) Annualized calculations shown for periods presented.
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Noninterest Income
Our primary sources of recurring noninterest income are BaaS indemnification income, BaaS program income and service charges and fees. Noninterest income does not include loan origination fees, which are generally recognized over the life of the related loan as an adjustment to yield using the interest or similar method.
Comparison of the quarter ended September 30, 2025 to the comparable quarter in the prior year
For the three months ended September 30, 2025, noninterest income totaled $66.8 million, a decrease of $12.0 million, or 15.2%, compared to $78.8 million for the three months ended September 30, 2024. The decrease is primarily attributed to lower BaaS indemnification income which is related to lower provision for credit losses on CCBX loans based on improved credit quality, partially offset by an increase in BaaS program income.
The following table presents, for the periods indicated, the major categories of noninterest income:
| Three Months Ended September 30, | Increase (Decrease) | Percent Change | ||||||||||||||||||||||||
| (dollars in thousands; unaudited) | 2025 | 2024 | ||||||||||||||||||||||||
| Service charges and fees | $ | 903 | $ | 952 | $ | (49) | (5.1) | % | ||||||||||||||||||
| Unrealized gain (loss) on equity securities, net | 9 | 2 | 7 | 350.0 | ||||||||||||||||||||||
| Other | 772 | 486 | 286 | 58.8 | ||||||||||||||||||||||
Noninterest income, excluding BaaS program income and BaaS indemnification income | 1,684 | 1,440 | 244 | 16.9 | ||||||||||||||||||||||
| Servicing and other BaaS fees | 1,264 | 1,044 | 220 | 21.1 | ||||||||||||||||||||||
| Transaction and interchange fees | 4,878 | 3,549 | 1,329 | 37.4 | ||||||||||||||||||||||
| Reimbursement of expenses | 1,412 | 565 | 847 | 149.9 | ||||||||||||||||||||||
| BaaS program income | 7,554 | 5,158 | 2,396 | 46.5 | ||||||||||||||||||||||
| BaaS credit enhancements | 55,412 | 70,108 | (14,696) | (21.0) | ||||||||||||||||||||||
| BaaS fraud enhancements | 2,127 | 2,084 | 43 | 2.1 | ||||||||||||||||||||||
| BaaS indemnification income | 57,539 | 72,192 | (14,653) | (20.3) | ||||||||||||||||||||||
| Total BaaS income | 65,093 | 77,350 | (12,257) | (15.8) | ||||||||||||||||||||||
| Total noninterest income | $ | 66,777 | $ | 78,790 | $ | (12,013) | (15.2 | %) | ||||||||||||||||||
Comparison of the nine months ended September 30, 2025 to the comparable period in the prior year
For the nine months ended September 30, 2025, noninterest income totaled $172.9 million, a decrease of $61.2 million, or 26.1%, compared to $234.1 million for the nine months ended September 30, 2024. The decrease is largely attributed to lower BaaS indemnification income which is related to lower provision for credit losses on CCBX loans, partially offset by an increase of $6.6 million in BaaS program income.
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The following table presents, for the periods indicated, the major categories of noninterest income:
| Nine Months Ended September 30, | Increase (Decrease) | Percent Change | ||||||||||||||||||||||||
| (dollars in thousands; unaudited) | 2025 | 2024 | ||||||||||||||||||||||||
| Service charges and fees | $ | 2,676 | $ | 2,806 | $ | (130) | (4.6) | % | ||||||||||||||||||
| Loan referral fees | — | 168 | (168) | (100.0) | ||||||||||||||||||||||
| Unrealized gain (loss) on equity securities, net | (414) | 26 | (440) | (1692.3) | ||||||||||||||||||||||
| Other | 2,307 | 1,051 | 1,256 | 119.5 | ||||||||||||||||||||||
| Noninterest income, excluding BaaS program income and BaaS indemnification income | 4,569 | 4,051 | 518 | 12.8 | ||||||||||||||||||||||
| Servicing and other BaaS fees | 4,222 | 3,700 | 522 | 14.1 | ||||||||||||||||||||||
| Transaction and interchange fees | 13,820 | 9,144 | 4,676 | 51.1 | ||||||||||||||||||||||
| Reimbursement of expenses | 3,084 | 1,677 | 1,407 | 83.9 | ||||||||||||||||||||||
| BaaS program income | 21,126 | 14,521 | 6,605 | 45.5 | ||||||||||||||||||||||
| BaaS credit enhancements | 140,328 | 210,742 | (70,414) | (33.4) | ||||||||||||||||||||||
| BaaS fraud enhancements | 6,924 | 4,791 | 2,133 | 44.5 | ||||||||||||||||||||||
| BaaS indemnification income | 147,252 | 215,533 | (68,281) | (31.7) | ||||||||||||||||||||||
| Total BaaS income | 168,378 | 230,054 | (61,676) | (26.8) | ||||||||||||||||||||||
| Total noninterest income | $ | 172,947 | $ | 234,105 | $ | (61,158) | (26.1 | %) | ||||||||||||||||||
Summary of significant noninterest income for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024
A description of our largest noninterest income categories are below:
BaaS Income. Our CCBX segment provides BaaS offerings that enable digital financial service providers, companies and brands to provide financial services to their customers through the Bank's CCBX segment. In exchange for providing these services, we earn fixed fees, volume-based fees and reimbursement of costs depending on the program agreement. Servicing and other BaaS fees are typically higher with new partners who have minimum contractual fees. Transaction and interchange fees increase as partner activity increases and gradually replaces the minimum contractual fee charge. As a result, we generally expect servicing and other fees to decrease and transaction and interchange fees to increase as partner activity grows and contracted minimum fees are replaced with recurring fees which then exceed the minimum contractual fees. Increases in BaaS reimbursement of fees offsets increases in noninterest expense from BaaS expenses covered by CCBX partners. In accordance with GAAP, we recognize the indemnification requirement for reimbursement of noncredit fraud losses on loans and deposits originated through partners and credit enhancements related to the allowance for credit losses and reserve for unfunded commitments provided by the partner as revenue in BaaS income. CCBX credit losses are recognized in the allowance for credit losses -loans and fraud losses are expensed in noninterest expense under BaaS fraud expense. Also in accordance with GAAP, we establish a credit enhancement asset for expected future credit losses through the recognition of BaaS credit enhancement revenue at the same time we establish an allowance for those loans though a provision for credit losses - loans. 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.”
Service Charges and Fees. Service charges and fees include service charges on accounts, point-of-sale fees, merchant services fees and overdraft fees. Together they constitute the largest component of our noninterest income, outside of BaaS income.
Loan Referral Fees. We earn loan referral fees when we originate a variable rate loan and the borrower enters into an interest rate swap agreement with a third party to fix the interest rate for an extended period, usually 20 or 25 years. We recognize a loan referral fee for arranging the interest rate swap. By facilitating interest rate swaps to our clients, we are able to provide them with a long-term, fixed interest rate without the Bank assuming the interest rate risk. Interest rate volatility, swap rates, and the timing of loan closings all impact the demand for long-term fixed rate swaps. The recognition of loan referral fees fluctuates in response to these market conditions and as a result we may recognize more or less, or may not recognize any, loan referral fees in some periods. Current market conditions have made interest rate swap agreements less attractive.
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Unrealized (loss)/gain on equity securities, net. During the three and nine months ended September 30, 2025, we recognized an unrealized net gain on equity securities of $9,000 and net loss on equity securities of $414,000, respectively, compared to the three and nine months ended September 30, 2024, when there was an unrealized gain of $2,000 and $26,000, respectively, 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.
Other. This category includes a variety of other income-producing activities, credit card fee income, wire transfer fees, interest earned on bank owned life insurance (“BOLI”), and SBA and USDA servicing fees.
Noninterest Expense
Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest components of noninterest expense are BaaS loan and fraud expense and salaries and employee benefits. Noninterest expense also includes operational expenses, such as legal and professional expenses, data processing and software licenses, occupancy, points of sale expense, FDIC assessment, director and staff expenses, marketing, excise taxes and other expenses.
Comparison of the quarter ended September 30, 2025 to the comparable quarter in the prior year
The increase in noninterest expenses for the quarter ended September 30, 2025 compared to the quarter ended September 30, 2024 was largely due to a $3.1 million increase in salary and employee benefits, a $1.5 million increase in data processing and software licenses, a $680,000 increase in legal and professional expenses, and a $142,000 increase in BaaS loan 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.
The following table presents, for the periods indicated, the major categories of noninterest expense:
| Three Months Ended September 30, | Increase (Decrease) | Percent Change | ||||||||||||||||||||||||
| (dollars in thousands; unaudited) | 2025 | 2024 | ||||||||||||||||||||||||
| Salaries and employee benefits | $ | 20,146 | $ | 17,060 | $ | 3,086 | 18.1 | % | ||||||||||||||||||
| Legal and professional expenses | 3,957 | 3,277 | 680 | 20.8 | ||||||||||||||||||||||
| Data processing and software licenses | 6,114 | 4,658 | 1,456 | 31.3 | ||||||||||||||||||||||
| Occupancy | 952 | 964 | (12) | (1.2) | ||||||||||||||||||||||
| Point of sale expense | 69 | 73 | (4) | (5.5) | ||||||||||||||||||||||
| FDIC assessments | 815 | 740 | 75 | 10.1 | ||||||||||||||||||||||
| Director and staff expenses | 544 | 559 | (15) | (2.7) | ||||||||||||||||||||||
| Marketing | 272 | 67 | 205 | 306.0 | ||||||||||||||||||||||
| Excise taxes | 696 | 762 | (66) | (8.7) | ||||||||||||||||||||||
| Other | 1,640 | 1,482 | 158 | 10.7 | ||||||||||||||||||||||
Noninterest expense, excluding BaaS loan and BaaS fraud expense | 35,205 | 29,642 | 5,563 | 18.8 | ||||||||||||||||||||||
| BaaS loan expense | 32,840 | 32,698 | 142 | 0.4 | ||||||||||||||||||||||
| BaaS fraud expense | 2,127 | 2,084 | 43 | 2.1 | ||||||||||||||||||||||
| BaaS loan and fraud expense | 34,967 | 34,782 | 185 | 0.5 | ||||||||||||||||||||||
| Total noninterest expense | $ | 70,172 | $ | 64,424 | $ | 5,748 | 8.9 | % | ||||||||||||||||||
Comparison of the nine months ended September 30, 2025 to the comparable period in the prior year
For the nine months ended September 30, 2025, noninterest expense totaled $215.0 million, an increase of $36.0 million, or 20.2%, compared to $178.9 million for the nine months ended September 30, 2024. The $11.1 million increase in salaries and employee benefits, $5.6 million increase in legal and professional expenses and $4.4 million increase in data processing and software licenses are all related to growth and enhancements in technology all of which are related to the growth of the Company and investments in technology and risk management. Additionally, excise taxes increased $1.7
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million primarily as a result of a $1.2 million refund recorded during the nine months ended September 30, 2024, for which there was no similar entry in 2025.
The following table presents, for the periods indicated, the major categories of noninterest expense:
| Nine Months Ended September 30, | Increase (Decrease) | Percent Change | ||||||||||||||||||||||||
| (dollars in thousands; unaudited) | 2025 | 2024 | ||||||||||||||||||||||||
| Salaries and employee benefits | $ | 63,029 | $ | 51,973 | $ | 11,056 | 21.3 | % | ||||||||||||||||||
| Legal and professional expenses | 15,807 | 10,207 | 5,600 | 54.9 | ||||||||||||||||||||||
| Data processing and software licenses | 16,537 | 12,113 | 4,424 | 36.5 | ||||||||||||||||||||||
| Occupancy | 2,901 | 2,978 | (77) | (2.6) | ||||||||||||||||||||||
| FDIC assessments | 2,360 | 2,113 | 247 | 11.7 | ||||||||||||||||||||||
| Excise taxes | 2,099 | 376 | 1,723 | 458.2 | ||||||||||||||||||||||
| Director and staff expenses | 1,787 | 1,429 | 358 | 25.1 | ||||||||||||||||||||||
| Point of sale expense | 245 | 235 | 10 | 4.3 | ||||||||||||||||||||||
| Marketing | 372 | 134 | 238 | 177.6 | ||||||||||||||||||||||
| Other | 5,102 | 4,733 | 369 | 7.8 | ||||||||||||||||||||||
Noninterest expense, excluding BaaS loan and BaaS fraud expense | 110,239 | 86,291 | 23,948 | 27.8 | ||||||||||||||||||||||
| BaaS loan expense | 97,830 | 87,816 | 10,014 | 11.4 | ||||||||||||||||||||||
| BaaS fraud expense | 6,924 | 4,791 | 2,133 | 44.5 | ||||||||||||||||||||||
| BaaS loan and fraud expense | 104,754 | 92,607 | 12,147 | 13.1 | ||||||||||||||||||||||
| Total noninterest expense | $ | 214,993 | $ | 178,898 | $ | 36,095 | 20.2 | % | ||||||||||||||||||
Summary of significant noninterest expense for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024
A description of our largest noninterest expense categories are below:
Salaries and Employee Benefits. Salaries and employee benefits are one of the largest components of noninterest expense and include payroll expense, incentive compensation costs, equity compensation, benefit plans, health insurance and payroll taxes. Salaries and employee benefits expense continues to increase, primarily due to hiring staff for our CCBX segment and additional staff for our ongoing growth initiatives. As our CCBX activities grow, and we invest more in technology we expect some continued growth in employees to support these lines of business but we are also working to automate our processes to reduce and/or slow future growth in hiring.
Legal and Professional Expenses. Legal and professional costs include legal, audit and accounting expenses, consulting fees, and fees for recruiting and hiring employees. These expenses fluctuate with the development of contracts for CCBX customers, audit and accounting needs, and are impacted by our reporting cycle and timing of legal and professional services. The expenses also reflect the costs associated with our infrastructure enhancement projects to improve our processing, automate processes, reduce compliance costs and enhance our data management.
Data Processing and Software Licenses. Data processing and software licenses includes expenses related to obtaining and maintaining software required for our various functions and includes the amortization of software development costs. Data processing costs include all of our customer transaction processing and data storage, computer processing, and network costs. Data processing costs grow as we grow and add new products, customers and branches and enhance technology. Additionally, CCBX data processing expenses and software that aids in the reporting of CCBX activities and monitoring of transactions that help automate and create current and expected future efficiencies in reporting have resulted in increased expenses in the category. These expenses are expected to increase as we invest more in automated processing and as we grow product lines and our CCBX segment.
Occupancy. Occupancy expenses include rent, utilities, janitorial and other maintenance expenses, property insurances and taxes. Also included is depreciation on building, leasehold, furniture, fixtures and equipment. Our hybrid and remote
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workforce has increased, which helps keep some occupancy expenses down, however we do expect occupancy expenses to increase as we continue to grow.
Point of Sale Expenses. Point of sale expenses are incurred as part of the process that allows businesses to accept payment for goods or services. Generally, point of sale expense increases as point of sale activity increases, as does point of sale income which is recognized in other income. Point of sale expenses are primarily incurred by the community bank.
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 1.36% as of June 30, 2025, which exceeds the statutory minimum, therefore the FDIC is no longer operating under the restoration plan. The reserve ratio is negatively affected by growth in assets and bank failures.
Director and Staff Expenses. Director and staff expenses includes compensation for director service, continuing education for employees and other director and staff related expenses. Expenses will fluctuate depending upon conferences and other professional events that are attended by employees as well as expenses related to employee travel, and continuing education.
Excise Taxes. Excise taxes are assessed on Washington state income and are based on gross income. Gross income is reduced by certain allowed deductions and income attributed to other states is also removed to arrive at the taxable base. Excise taxes increased primarily as a result of increased income subject to excise taxes. CCBX income is sourced to the state where the partner does business, and the majority of partners are located outside the state of Washington.
Marketing. Marketing and promotion costs will vary depending upon the deployment of branding and targeted advertising for the community bank and CCBX. We are using more cost-effective advertising options, but expect costs to increase as we expand our marketing plan.
Other. This category includes dues and memberships, office supplies, mail services, telephone, examination fees, internal loan expenses, services charges from banks, operational losses, directors and officer’s insurance, donations, and other expenses.
BaaS loan and fraud expense. Our CCBX segment provides BaaS offerings that enable digital financial service providers, companies and brands to provide financial services to their customers through the Bank's CCBX segment. Included in BaaS loan and fraud expense is partner loan expense including overdraft balances and BaaS fraud expense. Partner loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. BaaS fraud expense represents noncredit fraud losses on loans and deposits originated through partners. Fraud losses are recorded when incurred or projected as losses in noninterest expense, and the reimbursement from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement. For more information on the accounting for BaaS loan and fraud expenses see the section titled “CCBX – BaaS Reporting Information.”
The following table presents, for the periods indicated, the BaaS loan and fraud expenses:
| Three Months Ended | ||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||
| BaaS loan expense | $ | 32,840 | $ | 32,698 | ||||||||||||||||||||||
| BaaS fraud expense | 2,127 | 2,084 | ||||||||||||||||||||||||
| Total BaaS loan and fraud expense | $ | 34,967 | $ | 34,782 | ||||||||||||||||||||||
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Income Tax Expense
The amount of income tax expense we incur is impacted by the amounts of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce our deferred tax assets to the amount expected to be realized. The Company is subject to various state taxes that are assessed as CCBX activities and employees expand into new states, which increases the overall tax rate used in calculating the provision for income taxes in the current and future periods.
On July 4, 2025, the President signed H.R. 1, the “One Big Beautiful Bill Act, (the "Act") into law. The legislation includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense. The Act also made certain changes to the deductibility of the cost of meals and charitable contributions that are effective for tax years beginning after Dec. 31, 2025. The Company is taking advantage of the immediate deductibility of R&D expenditures, which has positively impacted the tax provision and resulted in a deferred tax liability as of September 30, 2025.
Comparison of the quarter ended September 30, 2025 to the comparable quarter in the prior year
For the three months ended September 30, 2025, income tax expense totaled $4.3 million an increase of $1.4 million compared to the three months ended September 30, 2024. The $1.4 million increase in income tax expense is the result of higher net income as well as an increase in state income tax rates. Also impacting income tax expense is the deductibility of certain equity awards. The effective tax rate was 24.1% for the three months ended September 30, 2025, compared to 17.9% for the three months ended September 30, 2024. The effective tax rate was higher for the three months ended September 30, 2025, largely due to an 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.
Comparison of the nine months ended September 30, 2025 to the comparable period in the prior year
For the nine months ended September 30, 2025 income tax expense totaled $9.7 million, compared to $8.3 million for the nine months ended September 30, 2024. The $1.4 million increase in income tax expense is the result of higher net income partially offset by the deductibility of certain equity awards. Our effective tax rates for the nine months ended September 30, 2025 and 2024 were 22.0% and 20.6%, respectively. Before any adjustments for deductions that reduce the effective tax rate, the increase in the aforementioned state tax rate resulted in an overall income tax rate for the Company of 24.4%, this is up from 22.5% for tax year 2024.
Segment Information
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). We also have a loan production office which is located in King 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 in various stages as of September 30, 2025. The treasury & administration segment includes treasury management, overall administration and all other aspects of the Company.
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
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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. 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.
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The following table presents summary financial information for each segment for the periods indicated:
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Community Bank | CCBX | Treasury & Administration | Consolidated | Community Bank | CCBX | Treasury & Administration | Consolidated | ||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and due from banks | $ | 5,050 | $ | 127 | $ | 637,081 | $ | 642,258 | $ | 4,510 | $ | 10,894 | $ | 437,109 | $ | 452,513 | ||||||||||||||||||||||||||||||||||
| Intrabank asset | — | 500,653 | (500,653) | — | — | 411,768 | (411,768) | — | ||||||||||||||||||||||||||||||||||||||||||
| Securities | — | — | 43,942 | 43,942 | — | — | 47,321 | 47,321 | ||||||||||||||||||||||||||||||||||||||||||
| Loans held for sale | — | 42,894 | — | 42,894 | — | 20,600 | — | 20,600 | ||||||||||||||||||||||||||||||||||||||||||
| Total loans receivable | 1,899,673 | 1,804,175 | — | 3,703,848 | 1,882,988 | 1,603,577 | — | 3,486,565 | ||||||||||||||||||||||||||||||||||||||||||
Allowance for credit losses | (18,354) | (155,459) | — | (173,813) | (18,924) | (158,070) | — | (176,994) | ||||||||||||||||||||||||||||||||||||||||||
| All other assets | 29,662 | 219,971 | 44,314 | 293,947 | 28,272 | 211,039 | 51,892 | 291,203 | ||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 1,916,031 | $ | 2,412,361 | $ | 224,684 | $ | 4,553,076 | $ | 1,896,846 | $ | 2,099,808 | $ | 124,554 | $ | 4,121,208 | ||||||||||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total deposits | $ | 1,597,601 | $ | 2,374,962 | $ | — | $ | 3,972,563 | $ | 1,521,244 | $ | 2,064,088 | $ | — | $ | 3,585,332 | ||||||||||||||||||||||||||||||||||
| Total borrowings | — | — | 47,999 | 47,999 | — | — | 47,884 | 47,884 | ||||||||||||||||||||||||||||||||||||||||||
| Intrabank liability | 312,962 | — | (312,962) | — | 367,540 | — | (367,540) | — | ||||||||||||||||||||||||||||||||||||||||||
| All other liabilities | 5,468 | 37,399 | 14,370 | 57,237 | 8,062 | 35,720 | 5,506 | 49,288 | ||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | $ | 1,916,031 | $ | 2,412,361 | $ | (250,593) | $ | 4,077,799 | $ | 1,896,846 | $ | 2,099,808 | $ | (314,150) | $ | 3,682,504 | ||||||||||||||||||||||||||||||||||
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Community Bank
Community bank total assets as of September 30, 2025 increased $19.2 million, or 1.0%, to $1.92 billion, compared to $1.90 billion as of December 31, 2024. Loans receivable net of deferred fees for the community bank segment increased $16.7 million, or 0.9%, to $1.90 billion as of September 30, 2025, compared to $1.88 billion as of December 31, 2024. The increase in community bank loans receivable is the result of loan growth and normal balance fluctuations. Total community bank deposits increased $76.4 million, or 5.02%, as of September 30, 2025, compared to $1.52 billion as of December 31, 2024. Our cost of deposits for the community bank was 1.77% for the nine months ended September 30, 2025.
CCBX
CCBX total assets as of September 30, 2025 increased $312.6 million, or 14.9%, to $2.41 billion, compared to $2.10 billion as of December 31, 2024. During the nine months ended September 30, 2025, $3.68 billion in CCBX loans were transferred to loans held for sale, with $3.66 billion in loans sold and $42.9 million loans remaining in loans held for sale as of September 30, 2025 compared to $20.6 million at December 31, 2024. We continue to reposition ourselves by managing CCBX credit and concentration levels in an effort to optimize our loan portfolio earnings and generate off balance sheet fee income. 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 $200.6 million, or 12.5%, to $1.80 billion as of September 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 $3.66 billion in loan sales. As a result of an increase in the difference of average deposits compared to average loans the intrabank asset increased $88.8 million to $500.7 million as of September 30, 2025, compared to $411.8 million as of December 31, 2024. CCBX allowance for credit losses decreased to $155.5 million as of September 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 $158.5 million, or 97.7%, of the total gross charge-offs on CCBX loans for the nine months ended September 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 $310.9 million, or 15.1%, to $2.37 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 $672.3 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.
Treasury & Administration
Treasury & administration total assets as of September 30, 2025 increased $100.1 million, or 80.4%, to $224.7 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 $3.4 million, or 7.1%, to $43.9 million as of September 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 September 30, 2025 and December 31, 2024.
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The following tables present summary financial information for each segment for the periods indicated:
| Three Months Ended September 30, 2025 | Three Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Community Bank | CCBX | Treasury & Administration | Consolidated | Community Bank | CCBX | Treasury & Administration | Consolidated | ||||||||||||||||||||||||||||||||||||||||||
| INTEREST INCOME AND EXPENSE | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | $ | 30,724 | $ | 69,643 | $ | 8,660 | $ | 109,027 | $ | 31,898 | $ | 67,778 | $ | 5,489 | $ | 105,165 | ||||||||||||||||||||||||||||||||||
| Interest (expense) income intrabank transfer | (3,028) | 6,768 | (3,740) | — | (5,540) | 6,764 | (1,224) | — | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 7,136 | 23,330 | 660 | 31,126 | 7,264 | 24,819 | 809 | 32,892 | ||||||||||||||||||||||||||||||||||||||||||
| Net interest income | 20,560 | 53,081 | 4,260 | 77,901 | 19,094 | 49,723 | 3,456 | 72,273 | ||||||||||||||||||||||||||||||||||||||||||
| Provision/(Recapture) for credit losses | (107) | 56,705 | — | 56,598 | (1,767) | 72,024 | — | 70,257 | ||||||||||||||||||||||||||||||||||||||||||
| Net interest income/(expense) after provision for credit losses - loans and unfunded commitments | 20,667 | (3,624) | 4,260 | 21,303 | 20,861 | (22,301) | 3,456 | 2,016 | ||||||||||||||||||||||||||||||||||||||||||
| NONINTEREST INCOME | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Service charges and fees | 871 | 32 | — | 903 | 939 | 13 | — | 952 | ||||||||||||||||||||||||||||||||||||||||||
| Other income | 134 | 316 | 331 | 781 | 156 | 1 | 331 | 488 | ||||||||||||||||||||||||||||||||||||||||||
| BaaS program income | — | 7,554 | — | 7,554 | — | 5,158 | — | 5,158 | ||||||||||||||||||||||||||||||||||||||||||
| BaaS indemnification income | — | 57,539 | — | 57,539 | — | 72,192 | — | 72,192 | ||||||||||||||||||||||||||||||||||||||||||
| Noninterest income | 1,005 | 65,441 | 331 | 66,777 | 1,095 | 77,364 | 331 | 78,790 | ||||||||||||||||||||||||||||||||||||||||||
| NONINTEREST EXPENSE | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | 7,023 | 9,334 | 3,789 | 20,146 | 6,130 | 6,990 | 3,940 | 17,060 | ||||||||||||||||||||||||||||||||||||||||||
| Occupancy | 801 | 84 | 67 | 952 | 838 | 78 | 48 | 964 | ||||||||||||||||||||||||||||||||||||||||||
| Data processing and software licenses | 1,204 | 4,047 | 863 | 6,114 | 1,391 | 1,481 | 1,786 | 4,658 | ||||||||||||||||||||||||||||||||||||||||||
| Legal and professional expenses | 399 | 1,754 | 1,804 | 3,957 | 28 | 2,039 | 1,210 | 3,277 | ||||||||||||||||||||||||||||||||||||||||||
| Other expense | 1,500 | 1,573 | 963 | 4,036 | 960 | 1,321 | 1,402 | 3,683 | ||||||||||||||||||||||||||||||||||||||||||
| BaaS loan expense | — | 32,840 | — | 32,840 | — | 32,698 | — | 32,698 | ||||||||||||||||||||||||||||||||||||||||||
| BaaS fraud expense | — | 2,127 | — | 2,127 | — | 2,084 | — | 2,084 | ||||||||||||||||||||||||||||||||||||||||||
| Total noninterest expense | 10,927 | 51,759 | 7,486 | 70,172 | 9,347 | 46,691 | 8,386 | 64,424 | ||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) before income taxes | 10,745 | 10,058 | (2,895) | 17,908 | 12,609 | 8,372 | (4,599) | 16,382 | ||||||||||||||||||||||||||||||||||||||||||
| Income taxes | 2,085 | 2,834 | (603) | 4,316 | 2,041 | 1,747 | (862) | 2,926 | ||||||||||||||||||||||||||||||||||||||||||
| Net income/(loss) | $ | 8,660 | $ | 7,224 | $ | (2,292) | $ | 13,592 | $ | 10,568 | $ | 6,625 | $ | (3,737) | $ | 13,456 | ||||||||||||||||||||||||||||||||||
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| Nine Months Ended September 30, 2025 | Nine Months Ended September 30, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Community Bank | CCBX | Treasury & Administration | Total | Community Bank | CCBX | Treasury & Administration | Total | ||||||||||||||||||||||||||||||||||||||||||
| INTEREST INCOME AND EXPENSE | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest income | $ | 91,619 | $ | 205,762 | $ | 24,350 | $ | 321,731 | $ | 92,692 | $ | 183,754 | $ | 17,883 | $ | 294,329 | ||||||||||||||||||||||||||||||||||
| Interest (expense)/income intrabank transfer | (10,729) | 20,678 | (9,949) | — | (16,975) | 23,214 | (6,239) | — | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 20,523 | 68,528 | 1,980 | 91,031 | 19,736 | 71,792 | 2,150 | 93,678 | ||||||||||||||||||||||||||||||||||||||||||
| Net interest income | 60,367 | 157,912 | 12,421 | 230,700 | 55,981 | 135,176 | 9,494 | 200,651 | ||||||||||||||||||||||||||||||||||||||||||
| Provision for credit losses | 184 | 144,406 | — | 144,590 | 165 | 215,575 | — | 215,740 | ||||||||||||||||||||||||||||||||||||||||||
| Net interest income/(expense) after provision for credit losses - loans and unfunded commitments | 60,183 | 13,506 | 12,421 | 86,110 | 55,816 | (80,399) | 9,494 | (15,089) | ||||||||||||||||||||||||||||||||||||||||||
| NONINTEREST INCOME | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Service charges and fees | 2,644 | 32 | — | 2,676 | 2,770 | 36 | — | 2,806 | ||||||||||||||||||||||||||||||||||||||||||
| Other income | 464 | 673 | 756 | 1,893 | 570 | 72 | 603 | 1,245 | ||||||||||||||||||||||||||||||||||||||||||
| BaaS program income | — | 21,126 | — | 21,126 | — | 14,521 | — | 14,521 | ||||||||||||||||||||||||||||||||||||||||||
| BaaS indemnification income | — | 147,252 | — | 147,252 | — | 215,533 | — | 215,533 | ||||||||||||||||||||||||||||||||||||||||||
| Noninterest income | 3,108 | 169,083 | 756 | 172,947 | 3,340 | 230,162 | 603 | 234,105 | ||||||||||||||||||||||||||||||||||||||||||
| NONINTEREST EXPENSE | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Salaries and employee benefits | 21,189 | 26,075 | 15,765 | 63,029 | 18,171 | 21,388 | 12,414 | 51,973 | ||||||||||||||||||||||||||||||||||||||||||
| Occupancy | 2,449 | 243 | 209 | 2,901 | 2,564 | 255 | 159 | 2,978 | ||||||||||||||||||||||||||||||||||||||||||
| Data processing and software licenses | 4,587 | 9,629 | 2,321 | 16,537 | 3,554 | 3,474 | 5,085 | 12,113 | ||||||||||||||||||||||||||||||||||||||||||
| Legal and professional expenses | 1,143 | 6,800 | 7,864 | 15,807 | 55 | 5,992 | 4,160 | 10,207 | ||||||||||||||||||||||||||||||||||||||||||
| Other expense | 4,540 | 4,724 | 2,701 | 11,965 | 2,893 | 3,154 | 2,973 | 9,020 | ||||||||||||||||||||||||||||||||||||||||||
| BaaS loan expense | — | 97,830 | — | 97,830 | — | 87,816 | — | 87,816 | ||||||||||||||||||||||||||||||||||||||||||
| BaaS fraud expense | — | 6,924 | — | 6,924 | — | 4,791 | — | 4,791 | ||||||||||||||||||||||||||||||||||||||||||
| Total noninterest expense | 33,908 | 152,225 | 28,860 | 214,993 | 27,237 | 126,870 | 24,791 | 178,898 | ||||||||||||||||||||||||||||||||||||||||||
| Net income before income taxes | 29,383 | 30,364 | (15,683) | 44,064 | 31,919 | 22,893 | (14,694) | 40,118 | ||||||||||||||||||||||||||||||||||||||||||
| Income taxes | 5,809 | 7,583 | (3,679) | 9,714 | 6,176 | 5,452 | (3,362) | 8,266 | ||||||||||||||||||||||||||||||||||||||||||
| Net Income/(Loss) | $ | 23,574 | $ | 22,781 | $ | (12,004) | $ | 34,350 | $ | 25,743 | $ | 17,441 | $ | (11,332) | $ | 31,852 | ||||||||||||||||||||||||||||||||||
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Comparison of the quarter ended September 30, 2025 to the comparable quarter in the prior year
Community Bank
Net interest income for the community bank was $20.6 million for the quarter ended September 30, 2025, an increase of $1.5 million, or 7.7%, compared to $19.1 million for the quarter ended September 30, 2024. As a result of the community bank having higher average loans than deposits the community bank's intrabank expense allocation was $3.0 million for the quarter ended September 30, 2025, compared to intrabank interest expense of $5.5 million for the quarter ended September 30, 2024, which positively impacted net interest income for the current quarter. The decrease compared to the previous year period is due to a lower intrabank liability and lower interest rates. There was a provision recapture for credit losses - loans for the community bank of $107,000 for the quarter ended September 30, 2025, compared to a provision recapture of $1.8 million for the quarter ended September 30, 2024; the recapture in the current period was largely due to a change in the prepayment speeds partially offset by an increase in economic uncertainty whereas the prior year period's recapture was primarily the result of improved economic conditions reducing projected credit/loan losses. Net charge-offs to average loans for the community bank segment was 0.00% and 0.08% for the quarters ended September 30, 2025, and September 30, 2024, respectively. Noninterest income for the community bank was $1.0 million, for the quarter ended September 30, 2025, a decrease of $90,000, or 8.2%, compared to the quarter ended September 30, 2024. Noninterest expenses for the community bank increased $1.6 million, or 16.9%, to $10.9 million as of September 30, 2025, compared to $9.3 million as of September 30, 2024. The increase in noninterest expense is largely due to higher salaries and employee benefits and legal and professional expenses which are related to the growth of Company and investments risk management.
CCBX
Net interest income for CCBX was $53.1 million for the quarter ended September 30, 2025, an increase of $3.4 million, or 6.8%, compared to $49.7 million for the quarter ended September 30, 2024. The increase in net interest income is primarily due to loan growth from active CCBX relationships. During the quarter ended September 30, 2025 we sold $1.62 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 CCBX having higher average deposits than loans the amount allocated to intrabank interest income for CCBX was $6.8 million for the quarters ended September 30, 2025 and September 30, 2024. Provision for credit losses - loans was $56.7 million for the quarter ended September 30, 2025, compared to $72.0 million for the quarter ended September 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 $48.2 million, or 97.9% of total gross charge-offs on CCBX loans for the quarter ended September 30, 2025. The $58.8 million provision on CCBX loans includes $57.5 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 $297.4 million loan portfolio, or $20.7 million in partner loans at September 30, 2025. Noninterest income for CCBX was $65.4 million for the quarter ended September 30, 2025, a decrease of $11.9 million, or 15.4%, compared to $77.4 million for the quarter ended September 30, 2024, largely due to a decrease of $14.7 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 $2.4 million increase in BaaS program income, which was the result of increased activity with digital financial services. Noninterest expenses for CCBX increased $5.1 million, or 10.9%, to $51.8 million as of September 30, 2025, compared to $46.7 million as of September 30, 2024. The increase in noninterest expense is largely due to an increase in 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. Additionally, data processing and software license expenses were evaluated and directly expensed to the CCBX segment as applicable. BaaS loan expense increased $142,000 compared to the prior year period and is related to the increase in interest income on loans. For more information on the accounting for BaaS income and expenses see the section titled “CCBX – BaaS Reporting Information.”
Treasury & Administration
Net interest income for treasury & administration was $4.3 million for the quarter ended September 30, 2025, an increase of $804,000, or 23.3%, compared to $3.5 million for the quarter ended September 30, 2024, primarily as a result of higher interest earning deposits with other banks and to a lesser degree lower interest expense. Noninterest income was flat at
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$331,000 for the quarter ended September 30, 2025, compared to the quarter ended September 30, 2024. Noninterest expense was $7.5 million for the quarter ended September 30, 2025, and $8.4 million for the quarter ended September 30, 2024, largely due to a decrease in data processing and software licenses as more of these expenses have been directly expensed to the other segments.
Comparison of the nine months ended September 30, 2025 to the comparable period in the prior year
Community Bank
Net interest income for the community bank was $60.4 million for the nine months ended September 30, 2025, an increase of $4.4 million, or 7.8%, compared to $56.0 million for the nine months ended September 30, 2024. The increase in net interest income is due to the community bank having higher average loans than deposits for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, resulting in intrabank interest expense for the community bank of $10.7 million for the nine months ended September 30, 2025, compared to intrabank interest expense of $17.0 million for the nine months ended September 30, 2024, partially offset by lower interest income on loans due to a change in loan mix and increased interest expense on deposit accounts due to an increase in interest bearing deposits. There was a provision for credit losses - loans for the community bank of $184,000 for the nine months ended September 30, 2025, compared to a provision for credit losses of $165,000 for the nine months ended September 30, 2024. Net charge-offs to average loans for the community bank segment have remained consistently low and was 0.00% and 0.03% for the nine months ended September 30, 2025 and September 30, 2024, respectively. Noninterest income for the community bank was $3.1 million for the nine months ended September 30, 2025, a decrease of $232,000, or 6.9%, compared to $3.3 million for the nine months ended September 30, 2024. Loan referral fees decreased $168,000 for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The recognition of loan referral fees fluctuates in response to market conditions and as a result we may recognize more or less, or may not recognize any, loan referral fees in some periods. Noninterest expenses for the community bank increased $6.7 million, or 24.5%, to $33.9 million as of September 30, 2025, compared to $27.2 million as of September 30, 2024. The increase in noninterest expense is largely due to higher 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. We continue to invest in our infrastructure and the automation of our processes so that they are scalable.
CCBX
Net interest income for CCBX was $157.9 million for the nine months ended September 30, 2025, an increase of $22.8 million, or 16.9%, compared to $135.2 million for the nine months ended September 30, 2024. The increase in net interest income is due to loan growth from active CCBX relationships. During the nine months ended September 30, 2025, we sold $3.66 billion in CCBX loans as part of our strategy to optimize our CCBX portfolio, manage growth, credit quality, portfolio and partner limits. We are retaining a portion of the transaction processing fee income on sold credit card receivables which provides on-going and recurring income without balance sheet risk. As a result of having higher average deposits than loans, but lower interest rates, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 intrabank interest income for CCBX was $20.7 million for the nine months ended September 30, 2025, compared to $23.2 million for the nine months ended September 30, 2024. Provision for credit losses - loans was $144.4 million for the nine months ended September 30, 2025, compared to $215.6 million for the nine months ended September 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. Noninterest income for CCBX was $169.1 million for the nine months ended September 30, 2025, a decrease of $61.1 million, or 26.5%, compared to $230.2 million for the nine months ended September 30, 2024, due to a decrease of $70.4 million in BaaS credit enhancements related to the allowance for credit losses, partially offset by a $6.6 million increase in total BaaS program income, which was the result of increased activity with our CCBX partners and $2.1 million increase in BaaS fraud enhancements. Noninterest expenses for CCBX increased $25.4 million, or 20.0%, to $152.2 million as of September 30, 2025, compared to $126.9 million as of September 30, 2024. The increase in noninterest expense is largely due to growth from active CCBX relationships resulting in an increase in BaaS loan expense and increased salaries and 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 the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. For more information on the accounting for BaaS income and expenses see the section titled “CCBX – BaaS Reporting Information.”
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Treasury & Administration
Net interest income for treasury & administration was $12.4 million for the nine months ended September 30, 2025, an increase of $2.9 million, or 30.8%, compared to $9.5 million for the nine months ended September 30, 2024, largely as a result of an increase in the average balance of interest earning deposits with other banks. Noninterest income increased $153,000, or 25.4%, to $756,000 for the nine months ended September 30, 2025, compared to $603,000 for the nine months ended September 30, 2024. Noninterest expense increased $4.1 million, or 16.4%, to $28.9 million for the nine months ended September 30, 2025, compared to $24.8 million for the nine months ended September 30, 2024, largely as a result of increased salaries and employee benefits and legal and professional expenses as a result of growth of the Company and investments in risk management. Data processing and software expenses decreased $2.8 million compared to the nine months ended September 30, 2024 as more of these expenses have been directly expensed to the other segments.
Financial Condition
Our total assets increased $431.9 million, or 10.5%, to $4.55 billion at September 30, 2025 from $4.12 billion at December 31, 2024. The increase is primarily comprised of a $217.3 million increase in loans receivable and a $191.4 million increase in interest earning deposits with other banks.
Loans Held For Sale
During the nine months ended September 30, 2025, $3.68 billion in CCBX loans were transferred to loans held for sale, with $3.66 billion in loans sold, $2.88 billion of which is new activity on previously sold credit card receivables. As of September 30, 2025 there were $42.9 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, we retain a portion of the fee income for our role in processing new transactions on previously sold credit card receivables, which continues to grow and is expected to provide increased and on-going revenue with no on balance sheet risk or capital requirement.
Loan Portfolio
Our primary source of income is derived through interest earned on loans. A substantial portion of our loan portfolio consists of commercial real estate loans and commercial and industrial loans in the Puget Sound region. Our consumer and other loans also represent a significant portion of our loan portfolio with the growth of our CCBX segment. Our loan portfolio represents the highest yielding component of our earning assets.
As of September 30, 2025, loans receivable totaled $3.70 billion, an increase of $217.3 million, or 6.2%, compared to December 31, 2024. Total loans receivable is net of $7.3 million in net deferred origination fees. The increase includes gross CCBX loan growth of $200.7 million, or 12.5%, and an increase in gross community bank loans of $17.4 million, or 0.9%.
Loans as a percentage of deposits were 94.3% as of September 30, 2025, compared to 97.8% as of December 31, 2024. We remain focused on serving our communities and markets by growing loans and funding those loans with customer deposits.
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The following table summarizes our loan portfolio by type of loan as of the dates indicated:
| As of September 30, 2025 | As of December 31, 2024 | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Amount | Percent | Amount | Percent | ||||||||||||||||||||||
| Commercial and industrial loans: | ||||||||||||||||||||||||||
| Capital call lines | $ | 177,530 | 4.8 | % | $ | 109,017 | 3.1 | % | ||||||||||||||||||
| All other commercial & industrial loans | 193,557 | 5.2 | 184,356 | 5.3 | ||||||||||||||||||||||
| Total commercial and industrial loans: | 371,087 | 10.0 | 293,373 | 8.4 | ||||||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||||||||
| Construction, land and land development | 218,061 | 5.9 | 148,198 | 4.2 | ||||||||||||||||||||||
| Residential real estate | 577,108 | 15.6 | 469,771 | 13.4 | ||||||||||||||||||||||
| Commercial real estate | 1,300,335 | 35.0 | 1,374,801 | 39.4 | ||||||||||||||||||||||
| Consumer and other loans | 1,244,567 | 33.5 | 1,206,876 | 34.6 | ||||||||||||||||||||||
| Gross loans receivable | 3,711,158 | 100.0 | % | 3,493,019 | 100.0 | % | ||||||||||||||||||||
| Net deferred origination fees | (7,310) | (6,454) | ||||||||||||||||||||||||
| Loans receivable | $ | 3,703,848 | $ | 3,486,565 | ||||||||||||||||||||||
Loan Yield (1) | 10.95 | % | 11.12 | % | ||||||||||||||||||||||
(1)Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.
The following tables detail the loans by segment which are included in the total loan portfolio table above:
| Community Bank | As of | |||||||||||||||||||||||||
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Balance | % to Total | Balance | % to Total | ||||||||||||||||||||||
| Commercial and industrial loans: | ||||||||||||||||||||||||||
| Commercial and industrial loans | $ | 170,847 | 9.0 | % | $ | 150,395 | 8.0 | % | ||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||||||||
| Construction, land and land development loans | 218,061 | 11.4 | 148,198 | 7.8 | ||||||||||||||||||||||
| Residential real estate loans | 202,979 | 10.7 | 202,064 | 10.7 | ||||||||||||||||||||||
| Commercial real estate loans | 1,300,335 | 68.2 | 1,374,801 | 72.8 | ||||||||||||||||||||||
| Consumer and other loans: | ||||||||||||||||||||||||||
| Other consumer and other loans | 14,181 | 0.7 | 13,542 | 0.7 | ||||||||||||||||||||||
| Gross Community Bank loans receivable | 1,906,403 | 100.0 | % | 1,889,000 | 100.0 | % | ||||||||||||||||||||
| Net deferred origination fees | (6,731) | (6,012) | ||||||||||||||||||||||||
| Loans receivable | $ | 1,899,672 | $ | 1,882,988 | ||||||||||||||||||||||
Loan Yield(1) | 6.51 | % | 6.53 | % | ||||||||||||||||||||||
(1)Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.
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| CCBX | As of | |||||||||||||||||||||||||
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Balance | % to Total | Balance | % to Total | ||||||||||||||||||||||
| Commercial and industrial loans: | ||||||||||||||||||||||||||
| Capital call lines | $ | 177,530 | 9.8 | % | $ | 109,017 | 6.8 | % | ||||||||||||||||||
All other commercial & industrial loans | 22,710 | 1.3 | 33,961 | 2.1 | ||||||||||||||||||||||
| Real estate loans: | ||||||||||||||||||||||||||
| Residential real estate loans | 374,129 | 20.7 | 267,707 | 16.7 | ||||||||||||||||||||||
| Consumer and other loans: | ||||||||||||||||||||||||||
| Credit cards | 563,324 | 31.2 | 528,554 | 33.0 | ||||||||||||||||||||||
| Other consumer and other loans | 667,062 | 37.0 | 664,780 | 41.4 | ||||||||||||||||||||||
| Gross CCBX loans receivable | 1,804,755 | 100.0 | % | 1,604,019 | 100.0 | % | ||||||||||||||||||||
| Net deferred origination fees | (579) | (442) | ||||||||||||||||||||||||
| Loans receivable | $ | 1,804,176 | $ | 1,603,577 | ||||||||||||||||||||||
Loan Yield - CCBX (1)(2) | 15.65 | % | 16.81 | % | ||||||||||||||||||||||
(1)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. To determine net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at net BaaS loan income which can be compared to interest income on the Company’s community bank loans. Net BaaS loan income is a non-GAAP measure. See the reconciliation of non-GAAP measures set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” for the impact of BaaS loan expense on CCBX yield.
(2)Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.
Commercial and Industrial Loans. Commercial and industrial loans increased $77.7 million, or 26.5%, to $371.1 million as of September 30, 2025, from $293.4 million as of December 31, 2024. The increase in commercial and industrial loans receivable over December 31, 2024 was largely due to an increase of $68.5 million in capital call lines combined with a $9.2 million increase in other commercial and industrial loans.
Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. These loans are primarily made based on the borrower’s ability to service the debt from income. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable, inventory or equipment, and we generally obtain personal guarantees on these loans. Commercial and industrial loans includes $71.5 million and $48.6 million in loans to financial institutions as of September 30, 2025 and December 31, 2024, respectively.
Included in the commercial and industrial loan balance is $177.5 million and $109.0 million in capital call lines resulting from relationships with our CCBX partners as of September 30, 2025 and December 31, 2024, respectively, and $22.7 million and $34.0 million in CCBX other commercial loans as of September 30, 2025 and December 31, 2024, respectively. As of September 30, 2025 there was $170.8 million in community bank commercial and industrial loans compared to $150.4 million at December 31, 2024.
Construction, Land and Land Development Loans. Construction, land and land development loans increased $69.9 million, or 47.1%, to $218.1 million as of September 30, 2025, from $148.2 million as of December 31, 2024. The increase is attributed to some new construction and development projects.
Unfunded loan commitments for construction, land and land development loans were $106.9 million at September 30, 2025, compared to $47.8 million at December 31, 2024. Although we have seen a strong commercial and residential real estate market in the Puget Sound region thus far in 2025, the macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, the U.S. government shutdown, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters, and trade issues that have resulted in economic uncertainty.
Construction, land and land development loans are comprised of loans to fund construction, land acquisition and land development construction. The properties securing these loans are primarily located in the Puget Sound region and are comprised of both residential and commercial properties, including owner occupied properties and investor properties. As of September 30, 2025, construction, land and land development loans included $124.2 million in commercial construction
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loans, $35.9 million in residential construction loans, $37.3 million in other construction, land and land development loans and $20.6 million in undeveloped land loans, compared to $83.2 million in commercial construction loans, $40.9 million in residential construction loans, $8.7 million in undeveloped land loans, and $15.4 million in other construction, land and land development loans as of December 31, 2024.
Residential Real Estate Loans. Our one-to-four family residential real estate loans increased $107.3 million, or 22.8%, to $577.1 million as of September 30, 2025, from $469.8 million as of December 31, 2024, primarily due to an increase of $106.4 million in CCBX loans combined with an increase of $915,000 in community bank loans.
As of September 30, 2025, there were $374.1 million in CCBX home equity loans included in residential real estate, compared to $267.7 million at December 31, 2024. These home equity lines of credit are secured by residential real estate and are accessed by using a credit card. These are first, second, and third lien residential loans and require 18 months of home ownership for non-owner occupied. Term lengths are up to 30 years and lines range from $5,000 to $400,000. We sold $494.9 million in CCBX residential real estate loans year to date as of September 30, 2025.
In the past, we have purchased residential mortgages originated through other financial institutions to hold for investment for purposes of diversifying our residential mortgage loan portfolio, meeting certain regulatory requirements and increasing our interest income. We last purchased residential mortgage loans in 2018. As of September 30, 2025 and December 31, 2024, we held $4.4 million and $6.1 million, respectively in purchased residential real estate mortgage loans. These loans purchased typically have a fixed rate with a term of 15 to 30 years and are collateralized by one-to-four family residential real estate. We have a defined set of credit guidelines that we use when evaluating these loans. Although purchased loans were originated and underwritten by another institution, our mortgage, credit, and compliance departments conducted an independent review of each underlying loan that includes re-underwriting each of these loans to our credit and compliance standards.
Like our commercial real estate loans, our residential real estate loans are secured by real estate, the value of which may fluctuate significantly over a short period of time primarily as a result of market conditions in the area in which the real estate is located. Adverse developments affecting real estate values in our market areas could therefore increase the credit risk associated with these loans, impair the value of property pledged as collateral on loans, and affect our ability to sell the collateral upon foreclosure without a loss or additional losses.
Commercial Real Estate Loans. Commercial real estate loans decreased $74.5 million, or 5.4%, to $1.30 billion as of September 30, 2025, from $1.37 billion as of December 31, 2024.
We are committed to growing the community bank portfolio in the Puget Sound region. We actively seek commercial real estate loans in our markets and our lenders are experienced in competing for these loans and managing these relationships.
We make commercial mortgage loans collateralized by owner-occupied and non-owner-occupied real estate, as well as multi-family residential loans. The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as manufacturing and processing facilities, business parks, warehouses, retail centers, convenience stores, hotels and motels, low rise office buildings, mixed-use residential and commercial, and other properties. We originate both fixed- and adjustable-rate loans with terms up to 20 years. Fixed-rate loans typically amortize over a 10 to 25 year period with balloon payments due at the end of five to ten years. Adjustable-rate loans are generally based on the prime rate and adjust with the prime rate or are based on term equivalent FHLB rates. At September 30, 2025, approximately 33.1% of the commercial real estate loan portfolio consisted of fixed rate loans. Commercial real estate loans represented 35.0% of our loan portfolio at September 30, 2025 and are a large source of revenue. As of September 30, 2025, we held $15.7 million in purchased commercial real estate loans, compared to $20.1 million at December 31, 2024. Our credit administration team has substantial experience in underwriting, managing, monitoring and working out commercial real estate loans, and remains diligent in communicating and proactively working with borrowers to help mitigate potential credit deterioration.
Consumer and Other. Consumer and other loans increased $37.8 million, or 3.1%, to $1.24 billion, from $1.21 billion as of December 31, 2024, primarily as a result of growth in CCBX loans originated through our partners. We sold $2.97 billion in CCBX credit cards loans, $2.88 billion of which is new activity on previously sold credit card receivables, and $193.1 million in CCBX consumer and other loans year to date as of September 30, 2025. We expect that we will continue to sell CCBX loans as part of our on-going strategy to manage the loan portfolio and credit quality. New loans are being booked with enhanced credit standards, which typically results in a lower interest rate than some of the higher risk loans that have paid off or that we have chosen to sell.
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CCBX consumer loans totaled $1.23 billion as of September 30, 2025, compared to $1.19 billion at December 31, 2024. CCBX consumer loans include installment loans, credit cards, lines of credit and other loans. CCBX consumer loans include cash secured and unsecured consumer loans, loan products designed to help consumers build credit, lines of credit, credit cards, other loans and overdrafts. Consumer credit cards are open-ended and have interest rates ranging from a promotional rate of 0.00% to the maximum rate allowable by state. For short-term consumer loans, both secured and unsecured options are available and typically have fully-amortizing terms ranging from two months to six years. Interest rates can be fixed or variable up to the maximum allowable rate by state.
Our community bank consumer and other loans totaled $14.2 million as of September 30, 2025, compared to $13.5 million at December 31, 2024 and are comprised of personal lines of credit, automobile, boat, and recreational vehicle loans, and secured term loans.
Industry Exposure and Categories of Loans
We have a diversified loan portfolio, representing a wide variety of industries. Our major categories of loans are commercial real estate, consumer and other loans, residential real estate, commercial and industrial, and construction, land and land development loans. Together they represent $3.71 billion in outstanding loan balances. When combined with $2.41 billion in unused commitments the total of these categories is $6.12 billion. However, total exposure on CCBX loans is subject to portfolio and partner maximum limits and adjusted for those limits, unused commitments are limited to $622.6 million. See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.
The following table summarizes our community bank loan commitments by industry for our commercial real estate portfolio as of September 30, 2025:
| (dollars in thousands; unaudited) | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans (Outstanding Balance & Available Commitment) | Average Loan Balance | Number of Loans | ||||||||||||||||||||||||||||||||
| Community bank commercial real estate loans | ||||||||||||||||||||||||||||||||||||||
| Apartments | $ | 360,742 | $ | 2,977 | $ | 363,719 | 5.9 | % | $ | 3,964 | 91 | |||||||||||||||||||||||||||
| Hotel/Motel | 153,478 | 1,071 | 154,549 | 2.5 | 6,673 | 23 | ||||||||||||||||||||||||||||||||
| Convenience Store | 135,908 | 4,345 | 140,253 | 2.3 | 2,228 | 61 | ||||||||||||||||||||||||||||||||
| Office | 115,058 | 2,784 | 117,842 | 1.9 | 1,354 | 85 | ||||||||||||||||||||||||||||||||
| Warehouse | 101,166 | — | 101,166 | 1.7 | 1,873 | 54 | ||||||||||||||||||||||||||||||||
| Retail | 92,273 | 812 | 93,085 | 1.5 | 932 | 99 | ||||||||||||||||||||||||||||||||
| Mixed use | 87,308 | 6,803 | 94,111 | 1.5 | 1,027 | 85 | ||||||||||||||||||||||||||||||||
| Mini Storage | 80,181 | 303 | 80,484 | 1.3 | 4,009 | 20 | ||||||||||||||||||||||||||||||||
| Strip Mall | 43,255 | — | 43,255 | 0.7 | 6,179 | 7 | ||||||||||||||||||||||||||||||||
| Manufacturing | 33,991 | 895 | 34,886 | 0.6 | 1,360 | 25 | ||||||||||||||||||||||||||||||||
| Groups < 0.70% of total | 96,975 | 4,361 | 101,336 | 1.7 | 1,259 | 77 | ||||||||||||||||||||||||||||||||
| Total | $ | 1,300,335 | $ | 24,351 | $ | 1,324,686 | 21.6 | % | $ | 2,074 | 627 | |||||||||||||||||||||||||||
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As illustrated in the table below, our CCBX partners originate a large number of mostly smaller dollar loans, resulting in an average consumer loan balance of just $900.
The following table summarizes our loan commitments by category for our consumer and other loan portfolio as of September 30, 2025:
| (dollars in thousands; unaudited) | Outstanding Balance | Available Loan Commitments (1) | Total Outstanding Balance & Available Commitment (1) | % of Total Loans (Outstanding Balance & Available Commitment) | Average Loan Balance | Number of Loans | ||||||||||||||||||||||||||||||||
| CCBX consumer loans | ||||||||||||||||||||||||||||||||||||||
| Credit cards | $ | 563,324 | $ | 1,002,383 | $ | 1,565,707 | 25.6 | % | $ | 1.4 | 398,380 | |||||||||||||||||||||||||||
| Installment loans | 646,721 | 31,066 | 677,787 | 11.1 | 0.8 | 779,645 | ||||||||||||||||||||||||||||||||
| Lines of credit | 1,851 | 522 | 2,373 | 0.0 | 0.4 | 4,923 | ||||||||||||||||||||||||||||||||
| Other loans | 18,490 | — | 18,490 | 0.3 | 0.1 | 258,532 | ||||||||||||||||||||||||||||||||
| Community bank consumer loans | ||||||||||||||||||||||||||||||||||||||
| Installment loans | 1,793 | 2 | 1,795 | 0.0 | 69.0 | 26 | ||||||||||||||||||||||||||||||||
| Lines of credit | 144 | 384 | 528 | 0.0 | 4.4 | 33 | ||||||||||||||||||||||||||||||||
| Other loans | 12,244 | 13,262 | 25,506 | 0.4 | 35.8 | 342 | ||||||||||||||||||||||||||||||||
| Total | $ | 1,244,567 | $ | 1,047,619 | $ | 2,292,186 | 37.4 | % | $ | 0.9 | 1,441,881 | |||||||||||||||||||||||||||
(1)Total exposure on CCBX loans is subject to portfolio maximum limits. See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.
The following table summarizes our loan commitments by category for our residential real estate portfolio as of September 30, 2025:
| (dollars in thousands; unaudited) | Outstanding Balance | Available Loan Commitments | Total Exposure (1) | % of Total Loans (Outstanding Balance & Available Commitment) | Average Loan Balance | Number of Loans | ||||||||||||||||||||||||||||||||
| CCBX residential real estate loans | ||||||||||||||||||||||||||||||||||||||
| Home equity line of credit | $ | 374,129 | $ | 606,219 | $ | 980,348 | 16.0 | % | $ | 29 | 12,954 | |||||||||||||||||||||||||||
| Community bank residential real estate loans | ||||||||||||||||||||||||||||||||||||||
| Closed end, secured by first liens | 166,116 | 1,064 | 167,180 | 2.8 | 557 | 298 | ||||||||||||||||||||||||||||||||
| Home equity line of credit | 31,545 | 48,718 | 80,263 | 1.3 | 123 | 257 | ||||||||||||||||||||||||||||||||
| Closed end, second liens | 5,318 | 1,706 | 7,024 | 0.1 | 190 | 28 | ||||||||||||||||||||||||||||||||
| Total | $ | 577,108 | $ | 657,707 | $ | 1,234,815 | 20.2 | % | $ | 43 | 13,537 | |||||||||||||||||||||||||||
(1)Total exposure on CCBX loans is subject to portfolio maximum limits. See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.
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The following table summarizes our loan commitments by industry for our commercial and industrial loan portfolio as of September 30, 2025:
| (dollars in thousands; unaudited) | Outstanding Balance | Available Loan Commitments (1) | Total Outstanding Balance & Available Commitment (1) | % of Total Loans (Outstanding Balance & Available Commitment) | Average Loan Balance | Number of Loans | ||||||||||||||||||||||||||||||||||||||
| CCBX C&I loans | ||||||||||||||||||||||||||||||||||||||||||||
| Capital call lines | $ | 177,530 | $ | 488,755 | $ | 666,285 | 10.9 | % | $ | 1,467 | 121 | |||||||||||||||||||||||||||||||||
| Retail and other loans | 22,710 | 22,955 | 45,665 | 0.7 | 8 | 2,701 | ||||||||||||||||||||||||||||||||||||||
| Community bank C&I loans | ||||||||||||||||||||||||||||||||||||||||||||
| Construction/Contractor services | 33,285 | 31,091 | 64,376 | 1.1 | 173 | 192 | ||||||||||||||||||||||||||||||||||||||
| Financial institutions | 71,518 | — | 71,518 | 1.2 | 3,973 | 18 | ||||||||||||||||||||||||||||||||||||||
| Medical / Dental / Other care | 5,482 | 3,327 | 8,809 | 0.1 | 498 | 11 | ||||||||||||||||||||||||||||||||||||||
| Manufacturing | 4,671 | 4,214 | 8,885 | 0.1 | 126 | 37 | ||||||||||||||||||||||||||||||||||||||
| Groups < 0.20% of total | 55,891 | 24,098 | 79,989 | 1.3 | 236 | 237 | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 371,087 | $ | 574,440 | $ | 945,527 | 15.4 | % | $ | 112 | 3,317 | |||||||||||||||||||||||||||||||||
(1)Total exposure on CCBX loans is subject to portfolio maximum limits. See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.
The following table details our community bank loan commitments by category for our construction, land and land development loan portfolio as of September 30, 2025:
| (dollars in thousands; unaudited) | Outstanding Balance | Available Loan Commitments | Total Outstanding Balance & Available Commitment | % of Total Loans (Outstanding Balance & Available Commitment) | Average Loan Balance | Number of Loans | ||||||||||||||||||||||||||||||||
| Community bank construction, land and land development loans | ||||||||||||||||||||||||||||||||||||||
| Commercial construction | $ | 124,240 | $ | 65,052 | $ | 189,292 | 3.1 | % | $ | 7,765 | 16 | |||||||||||||||||||||||||||
| Residential construction | 35,929 | 29,207 | 65,136 | 1.1 | 1,996 | 18 | ||||||||||||||||||||||||||||||||
| Developed land loans | 22,756 | 420 | 23,176 | 0.4 | 1,264 | 18 | ||||||||||||||||||||||||||||||||
| Undeveloped land loans | 20,584 | 174 | 20,758 | 0.3 | 1,372 | 15 | ||||||||||||||||||||||||||||||||
| Land development | 14,552 | 12,085 | 26,637 | 0.4 | 1,455 | 10 | ||||||||||||||||||||||||||||||||
| Total | $ | 218,061 | $ | 106,938 | $ | 324,999 | 5.3 | % | $ | 2,832 | 77 | |||||||||||||||||||||||||||
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Nonperforming Assets
Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by applicable regulations. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. Installment (closed end) consumer loans and revolving (open-ended loans, such as credit cards) originated through CCBX partners typically continue to accrue interest until they are charged-off at 120 days past due for installment loans (primarily unsecured loans to consumers) and 180 days past due for revolving loans (primarily credit cards). These consumer loans are reported out as substandard loans, 90+ days past due and still accruing. As a result of the type of loans (primarily consumer loans) originated through our CCBX partners, we anticipate that balances 90 days past due or more and still accruing will increase as those loans grow. Additionally, some CCBX partners have instituted a collection practice that places certain loans on nonaccrual status to improve collectability. As of September 30, 2025, $18.9 million in CCBX nonaccrual loans were less than 90 days past due.
When loans are placed on nonaccrual status, all unpaid accrued interest is reversed from income and all interest accruals are stopped. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal balance. Loans are returned to accrual status if we believe that all remaining principal and interest is fully collectible and there has been at least six months of sustained repayment performance since the loan was placed on nonaccrual status. We define nonperforming loans as loans on nonaccrual status and accruing loans 90 days or more past due. Nonperforming assets also include other real estate owned and repossessed assets.
We believe our lending practices and active approach to managing nonperforming assets has resulted in sound asset quality and timely resolution of problem assets. We have procedures in place to assist us in maintaining the overall credit quality of our loan portfolio. We have established underwriting guidelines, concentration limits and we also monitor our delinquency levels for any negative or adverse trends. We actively manage problem assets to reduce our risk for loss.
We had $59.8 million in nonperforming assets as of September 30, 2025, compared to $62.7 million as of December 31, 2024. This includes $32.9 million in CCBX loans more than 90 days past due and still accruing interest as of September 30, 2025, compared to $43.1 million at December 31, 2024. All of our nonperforming assets were nonperforming loans as of September 30, 2025 and December 31, 2024. Our accruing loans past due 90 days or more decreased $10.2 million and was partially offset by an increase of $3.2 million in CCBX nonaccrual loans primarily as a result of a new collection practice employed by certain CCBX partners that places specific loans on nonaccrual status to enhance collectability, $18.9 million of these loans are less than 90 days past due as of September 30, 2025. Additionally, there was an increase in community bank nonaccrual loans of $4.1 million during the nine months ended September 30, 2025. Our nonperforming loans to loans receivable ratio was 1.61% at September 30, 2025, compared to 1.80% at December 31, 2024.
Our community bank credit quality remains strong, as demonstrated by the low level of community bank nonperforming loans to total loans receivable of 0.11% as of September 30, 2025. CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by indemnifying or reimbursing incurred losses, when accruing consumer loans originated through CCBX partners are charged-off at 120 days past due for installment loans (primarily unsecured loans to consumers) and 180 days past due for revolving loans (primarily credit cards). 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 this alignment of interests ensures that CCBX partners are motivated to implement robust risk management practices and maintain the overall health of the portfolio.
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The following table presents information regarding nonperforming assets at the dates indicated:
| (dollars in thousands; unaudited) | September 30, 2025 | December 31, 2024 | ||||||||||||
| Nonaccrual loans: | ||||||||||||||
| Commercial and industrial loans | $ | 2,297 | $ | 334 | ||||||||||
| Real estate loans: | ||||||||||||||
| Construction, land and land development | 1,697 | — | ||||||||||||
| Commercial real estate | 348 | — | ||||||||||||
| Consumer and other loans: | ||||||||||||||
| Credit cards | 19,677 | 10,262 | ||||||||||||
| Other consumer and other loans | 2,820 | 8,967 | ||||||||||||
| Total nonaccrual loans | 26,839 | 19,563 | ||||||||||||
| Accruing loans past due 90 days or more: | ||||||||||||||
Commercial & industrial loans | 910 | 1,006 | ||||||||||||
| Real estate loans: | ||||||||||||||
| Residential real estate loans | 1,575 | 2,608 | ||||||||||||
| Consumer and other loans: | ||||||||||||||
| Credit cards | 22,626 | 34,490 | ||||||||||||
| Other consumer and other loans | 7,813 | 4,989 | ||||||||||||
| Total accruing loans past due 90 days or more | 32,924 | 43,093 | ||||||||||||
| Total nonperforming loans | 59,763 | 62,656 | ||||||||||||
| Real estate owned | — | — | ||||||||||||
| Repossessed assets | — | — | ||||||||||||
| Total nonperforming assets | $ | 59,763 | $ | 62,656 | ||||||||||
| Total nonaccrual loans to loans receivable | 0.72 | % | 0.56 | % | ||||||||||
| Total nonperforming loans to loans receivable | 1.61 | % | 1.80 | % | ||||||||||
| Total nonperforming assets to total assets | 1.31 | % | 1.52 | % | ||||||||||
The following tables detail nonperforming assets by segment which are included in the total nonperforming assets table above:
| Community Bank | As of | |||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | December 31, 2024 | ||||||||||||
| Nonaccrual loans: | ||||||||||||||
| Commercial and industrial loans | $ | 2,140 | $ | 100 | ||||||||||
| Real estate: | ||||||||||||||
| Construction, land and land development | 1,697 | — | ||||||||||||
| Commercial real estate | 348 | — | ||||||||||||
| Total nonaccrual loans | 4,185 | 100 | ||||||||||||
| Accruing loans past due 90 days or more: | ||||||||||||||
| Total accruing loans past due 90 days or more | — | — | ||||||||||||
| Total nonperforming loans | 4,185 | 100 | ||||||||||||
| Other real estate owned | — | — | ||||||||||||
| Repossessed assets | — | — | ||||||||||||
| Total nonperforming assets | $ | 4,185 | $ | 100 | ||||||||||
| Total nonperforming community bank loans to total loans receivable | 0.11 | % | — | % | ||||||||||
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| CCBX | As of | |||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | December 31, 2024 | ||||||||||||
| Nonaccrual loans: | ||||||||||||||
| Commercial and industrial loans: | ||||||||||||||
All other commercial & industrial loans | $ | 157 | $ | 234 | ||||||||||
| Consumer and other loans: | ||||||||||||||
| Credit cards | 19,677 | 10,262 | ||||||||||||
| Other consumer and other loans | 2,820 | 8,967 | ||||||||||||
| Total nonaccrual loans | 22,654 | 19,463 | ||||||||||||
| Accruing loans past due 90 days or more: | ||||||||||||||
Commercial & industrial loans | 910 | 1,006 | ||||||||||||
| Real estate loans: | ||||||||||||||
| Residential real estate loans | 1,575 | 2,608 | ||||||||||||
| Consumer and other loans: | ||||||||||||||
| Credit cards | 22,626 | 34,490 | ||||||||||||
| Other consumer and other loans | 7,813 | 4,989 | ||||||||||||
| Total accruing loans past due 90 days or more | 32,924 | 43,093 | ||||||||||||
| Total nonperforming loans | 55,578 | 62,556 | ||||||||||||
| Other real estate owned | — | — | ||||||||||||
| Repossessed assets | — | — | ||||||||||||
| Total nonperforming assets | $ | 55,578 | $ | 62,556 | ||||||||||
| Total nonperforming CCBX loans to total loans receivable | 1.50 | % | 1.79 | % | ||||||||||
As of September 30, 2025, $53.8 million of the $55.6 million in nonperforming CCBX loans were covered by CCBX partner credit enhancements. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by indemnifying or reimbursing incurred losses. Under the agreement, the CCBX partner will indemnify or reimburse the Bank for its loss/charge-off on these loans.
Allowance for credit losses
The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost. The ACL is evaluated and calculated on a collective basis for those loans which share similar risk characteristics. At each reporting period, the Company evaluates whether the loans in a pool continue to exhibit similar risk characteristics as the other loans in the pool and whether it needs to evaluate the allowance on an individual basis. The Bank must estimate expected credit losses over the loans’ contractual terms, adjusted for expected prepayments. In estimating the life of the loan, the Bank cannot extend the contractual term of the loan for expected extensions, renewals, and modifications, unless the extension or renewal options are included in the contract at the reporting date and are not unconditionally cancellable by the Bank. Because expected credit losses are estimated over the contractual life adjusted for estimated prepayments, determination of the life of the loan may significantly affect the ACL. The Company has chosen to segment its portfolio consistent with the manner in which it manages the risk of the type of credit.
•Community Bank Portfolio: The ACL calculation is derived for loan segments utilizing loan level information and relevant information from internal and external sources related to past events and current conditions. In addition, the Company incorporates a reasonable and supportable forecast.
•CCBX Portfolio: The Bank calculates the ACL on loans on an aggregate basis based on each partner and product level, segmenting the risk inherent in the CCBX portfolio based on qualitative and quantitative trends in the portfolio.
Also included in the ACL are qualitative reserves to cover losses that are expected, but in the Company’s assessment may not be adequately represented in the quantitative method. For example, factors that the Company considers include environmental business conditions, borrower’s financial condition, credit rating and the volume and severity of past due loans and nonaccrual loans. Based on this analysis, the Company records a provision for credit losses to maintain the allowance at appropriate levels.
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As of September 30, 2025, the allowance for credit losses totaled $173.8 million, or 4.69% of total loans. As of December 31, 2024, the allowance for credit losses totaled $177.0 million, or 5.08% of total loans.
The decrease in the Company’s allowance for credit losses for the nine months ended September 30, 2025 compared to December 31, 2024, is largely related to improved credit quality decreasing the provision for CCBX partner loans. During the nine months ended September 30, 2025, an $144.4 million provision for credit losses - loans was recorded for CCBX partner loans. 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 and future projected loss factors. As we continue to originate higher quality loans, these higher quality loans become a greater proportion of the CCBX portfolio, resulting in a decrease in expected losses and a reduced allowance. In general, CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses. The factors used in management’s analysis for community bank credit losses indicated that a provision for credit losses - loans of $184,000 was needed for the nine months ended September 30, 2025, largely due to a change in the mix of community bank loans and updated prepayment speeds, offset by a slight increase in economic uncertainty. The macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, the U.S. government shutdown, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters, and trade issues that have resulted in economic uncertainty. As described above, CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses.
Agreements with our CCBX partners provide for a credit enhancement provided by the partner which protects the Bank by indemnifying or reimbursing incurred losses. In accordance with accounting guidance, we estimate and record a provision for expected losses for CCBX loans, unfunded commitments, accrued interest receivable on CCBX loans and negative deposit accounts. When the provision for credit losses - loans and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements) in recognition of the CCBX partner legal commitment to indemnify or reimburse losses. The credit enhancement asset is relieved as credit enhancement payments and recoveries are received from the CCBX partner or taken from the partner's cash reserve account. Agreements with our CCBX partners also provide protection to the Bank from fraud by indemnifying or reimbursing incurred fraud losses. BaaS fraud includes noncredit fraud losses on loans and deposits originated through partners. Fraud losses are recorded when incurred as losses in noninterest expense, and the enhancement received from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement.
Many CCBX partners also pledge a cash reserve account at the Bank as collateral for loss exposure which the Bank can collect from when losses occur that is then replenished by the partner on a regular interval. Credit losses and recoveries typically flow through the cash reserve account. These cash reserve accounts are included in total deposits on the balance sheet. Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by indemnifying or reimbursing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligation then the Bank would be exposed to additional loan and deposit losses if the cash flows on the loans were not sufficient to fund the reimbursement of loan losses, largely as a result of this counterparty risk. If a CCBX partner does not replenish their cash reserve account the Bank may consider an alternative plan for funding the cash reserve, such as adjusting the funding amounts or timelines to better align with the partner's specific situation. If a mutually agreeable funding plan is not achieved then the Bank could declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. The Bank would evaluate any remaining credit enhancement asset from the CCBX partner in the event the partner failed to fulfill its obligations and would determine if a write-off is appropriate. If a write-off occurs, the Bank would retain the full yield and any fee income on the loan portfolio going forward, and our BaaS loan expense would decrease once default occurs and payments to the CCBX partner are stopped.
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The following table presents, as of and for the periods indicated, net charge-off information by segment:
| Three Months Ended | ||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Community Bank | CCBX | Total | Community Bank | CCBX | Total | ||||||||||||||||||||||||||||||||
| Gross charge-offs | $ | 18 | $ | 54,516 | $ | 54,534 | $ | 398 | $ | 52,907 | $ | 53,305 | ||||||||||||||||||||||||||
| Gross recoveries | (19) | (5,270) | (5,289) | (3) | (4,513) | (4,516) | ||||||||||||||||||||||||||||||||
| Net charge-offs (recoveries) | $ | (1) | $ | 49,246 | $ | 49,245 | $ | 395 | $ | 48,394 | $ | 48,789 | ||||||||||||||||||||||||||
Net charge-offs to average loans (1) | 0.00 | % | 11.07 | % | 5.37 | % | 0.08 | % | 12.40 | % | 5.60 | % | ||||||||||||||||||||||||||
| % of CCBX charge-offs covered by credit enhancement | 97.9 | % | 97.8 | % | ||||||||||||||||||||||||||||||||||
(1)Annualized calculations shown for periods presented.
| Nine Months Ended | ||||||||||||||||||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Community Bank | CCBX | Total | Community Bank | CCBX | Total | ||||||||||||||||||||||||||||||||
| Gross charge-offs | $ | 33 | $ | 161,967 | $ | 162,000 | $ | 415 | $ | 167,091 | $ | 167,506 | ||||||||||||||||||||||||||
| Gross recoveries | (28) | (15,214) | (15,242) | (11) | (8,795) | (8,806) | ||||||||||||||||||||||||||||||||
| Net charge-offs | $ | 5 | $ | 146,753 | $ | 146,758 | $ | 404 | $ | 158,296 | $ | 158,700 | ||||||||||||||||||||||||||
Net charge-offs to average loans (1) | 0.00 | % | 11.58 | % | 5.49 | % | 0.03 | % | 15.17 | % | 6.45 | % | ||||||||||||||||||||||||||
| % of CCBX charge-offs covered by credit enhancement | 97.7 | % | 97.2 | % | ||||||||||||||||||||||||||||||||||
(1)Annualized calculations shown for periods presented.
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The following table presents, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data:
| As of or for the Three Months Ended September 30, | As of or for the Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Allowance at beginning of period | $ | 164,794 | $ | 148,878 | $ | 176,994 | $ | 117,381 | ||||||||||||||||||
| Provision for credit losses | 58,264 | 71,585 | 143,577 | 212,993 | ||||||||||||||||||||||
| Charge-offs: | ||||||||||||||||||||||||||
| Commercial and industrial loans | 1,641 | 3,852 | 5,286 | 12,419 | ||||||||||||||||||||||
| Residential real estate | 1,031 | 1,290 | 4,188 | 3,297 | ||||||||||||||||||||||
| Commercial real estate | — | 223 | — | 223 | ||||||||||||||||||||||
| Consumer and other | 51,862 | 47,940 | 152,526 | 151,567 | ||||||||||||||||||||||
| Total charge-offs | 54,534 | 53,305 | 162,000 | 167,506 | ||||||||||||||||||||||
| Recoveries: | ||||||||||||||||||||||||||
| Commercial and industrial loans | 228 | 432 | 789 | 926 | ||||||||||||||||||||||
| Residential real estate | 2 | 3 | 98 | 7 | ||||||||||||||||||||||
| Commercial real estate | — | — | 4 | — | ||||||||||||||||||||||
| Consumer and other | 5,059 | 4,081 | 14,351 | 7,873 | ||||||||||||||||||||||
| Total recoveries | 5,289 | 4,516 | 15,242 | 8,806 | ||||||||||||||||||||||
| Net charge-offs | 49,245 | 48,789 | 146,758 | 158,700 | ||||||||||||||||||||||
| Allowance at end of period | $ | 173,813 | $ | 171,674 | $ | 173,813 | $ | 171,674 | ||||||||||||||||||
| Allowance for credit losses to nonaccrual loans | 647.61 | % | 813.39 | % | 647.61 | % | 813.39 | % | ||||||||||||||||||
| Allowance to nonperforming loans | 290.84 | % | 258.66 | % | 290.84 | % | 258.66 | % | ||||||||||||||||||
| Allowance to loans receivable | 4.69 | % | 5.03 | % | 4.69 | % | 5.03 | % | ||||||||||||||||||
The allowance for credit losses to nonaccrual loans ratio decreased as of September 30, 2025, compared to September 30, 2024, primarily as a result of an increase in nonaccrual loans of $5.7 million, largely due to an increase in CCBX nonaccrual loans as a result of a new collection practice that certain CCBX partners employ that places specific loans on nonaccrual status to enhance collectability, combined with a $3.1 million increase in nonaccrual community bank loans. The allowance for credit losses decreased $3.2 million as of September 30, 2025 compared to December 31, 2024 largely due to lower loss historical rates and a change in loan mix. Agreements with our CCBX partners provide for a credit enhancement 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 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. Net charge-offs on CCBX loans for the nine months ended September 30, 2025 that were covered by credit enhancements were $48.2 million. At September 30, 2025, the allowance for credit losses for CCBX partner loans totaled $155.5 million, compared to $158.1 million at December 31, 2024.
The following table presents the loans receivable and allowance for credit losses by segment for the periods indicated:
| As of September 30, 2025 | As of December 31, 2024 | |||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Community Bank | CCBX | Total | Community Bank | CCBX | Total | ||||||||||||||||||||||||||||||||
| Loans receivable | $ | 1,899,673 | $ | 1,804,175 | $ | 3,703,848 | $ | 1,882,988 | $ | 1,603,577 | $ | 3,486,565 | ||||||||||||||||||||||||||
| Allowance for credit losses | (18,354) | (155,459) | (173,813) | (18,924) | (158,070) | (176,994) | ||||||||||||||||||||||||||||||||
| Allowance for credit losses to total loans receivable | 0.97 | % | 8.62 | % | 4.69 | % | 1.00 | % | 9.86 | % | 5.08 | % | ||||||||||||||||||||||||||
Although we believe that we have established our allowance for credit losses in accordance with GAAP and that the allowance for credit losses was adequate to provide for expected losses in the portfolio at all times shown above, future provisions for credit losses will be subject to ongoing evaluations of the risks in our loan portfolio. We continue to have a
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low level of community bank charge-offs and nonperforming loans, however, the macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, the U.S. government shutdown, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters, and trade issues that have resulted in economic uncertainty. If economic conditions worsen then Washington state and Puget Sound region may experience a more severe economic downturn, and our asset quality could deteriorate, which may require material additional provisions for credit losses.
Securities
We use our securities portfolio primarily as a source of liquidity and collateral that can be readily sold or pledged for public deposits, for CRA purposes or other business purposes. At September 30, 2025, our securities portfolio was invested in U.S. Agency collateralized mortgage obligations and U.S. Agency residential mortgage-backed securities for Community Reinvestment Act ("CRA") purposes. Because we target a loan-to-deposit ratio in the range of 90% to 100%, we prioritize liquidity over the earnings of our securities portfolio. At September 30, 2025, our loan-to-deposit ratio was 94.3%, due primarily to our growth in both loans and deposits. When our securities portfolio represents less than 5% of assets we focus on liquid securities. To the extent our securities represent more than 5% of assets, absent an immediate need for liquidity, we may invest excess funds to provide a higher return.
As of September 30, 2025, the amortized cost of our investment securities totaled $43.9 million, a decrease of $3.4 million, or 7.1%, compared to $47.3 million as of December 31, 2024. The decrease in the securities portfolio was due to principal paydowns during the nine months ended September 30, 2025.
Our investment portfolio consists of only $31,000 in securities classified as available-for-sale ("AFS") and $43.9 million in held-to-maturity securities for CRA purposes. The carrying values of our investment securities classified as AFS are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity. As of September 30, 2025 our AFS portfolio had an unrealized loss of $1,000 compared to an unrealized loss of $2,000 as of December 31, 2024.
The following table summarizes the amortized cost and estimated fair value of our investment securities as of the dates shown:
| As of September 30, 2025 | As of December 31, 2024 | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||||
| Securities available-for-sale: | ||||||||||||||||||||||||||
| U.S. Treasury securities | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| U.S. Agency collateralized mortgage obligations | 32 | 31 | 37 | 35 | ||||||||||||||||||||||
| Total available-for-sale securities | 32 | 31 | 37 | 35 | ||||||||||||||||||||||
| Securities held-to-maturity: | ||||||||||||||||||||||||||
U.S. Agency residential mortgage-backed securities | 43,911 | 44,324 | 47,286 | 46,705 | ||||||||||||||||||||||
| Total held-to-maturity securities | 43,911 | 44,324 | 47,286 | 46,705 | ||||||||||||||||||||||
| Total investment securities | $ | 43,943 | $ | 44,355 | $ | 47,323 | $ | 46,740 | ||||||||||||||||||
We have the following equity investments which do not have a readily determinable fair value and are held at cost minus impairment if any, plus or minus observable price changes in orderly transactions for an identical or similar investment of the same issuer. This method will be applied until the investments do not qualify for the measurement election (e.g., if the investment has a readily determinable fair value). We will reassess at each reporting period whether the equity investments without a readily determinable fair value qualifies to be measured at cost minus impairment.
•The Company had a $1.8 million and $2.2 million equity interest in a specialized bank technology company as of the quarters ended September 30, 2025, and September 30, 2024, respectively.
•The Company had a $350,000 equity interest in a technology company as of the quarters ended September 30, 2025, and September 30, 2024.
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•The Company had a $42,000 and $47,000 equity interest in a technology company as of the quarters ended September 30, 2025, and September 30, 2024, respectively.
The following table shows the activity in equity investments without a readily determinable fair value for the dates shown:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Carrying value, beginning of period | $ | 2,176 | $ | 2,622 | $ | 2,619 | $ | 2,622 | ||||||||||||||||||
| Purchases | — | — | — | — | ||||||||||||||||||||||
| Observable price change | (5) | (3) | (448) | (3) | ||||||||||||||||||||||
| Carrying value, end of period | $ | 2,171 | $ | 2,619 | $ | 2,171 | $ | 2,619 | ||||||||||||||||||
We invest in investment funds that are accelerating technology adoption by banks. These equity investments are held at fair value as reported by the funds. During the nine months ended September 30, 2025, we had a net capital investment of $503,000 with investment funds designed to help accelerate technology adoption at banks, and recognized net earnings of $23,000, resulting in an equity interest of $1.4 million at September 30, 2025. The Company has committed up to $1.2 million in capital for these investment funds, however, the Company is not obligated to fund these commitments prior to a capital call.
The following table shows the activity in investment funds for the dates shown:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Carrying value, beginning of period | $ | 1,233 | $ | 827 | $ | 910 | $ | 809 | ||||||||||||||||||
| Purchases/capital calls/capital returns, net | 201 | 63 | 503 | 57 | ||||||||||||||||||||||
| Net change recognized in earnings | 2 | 4 | 23 | 28 | ||||||||||||||||||||||
| Carrying value, end of period | $ | 1,436 | $ | 894 | $ | 1,436 | $ | 894 | ||||||||||||||||||
Other Assets
Deferred tax assets, net was zero as we moved to a deferred tax liability, net largely due to the impact of the One Big Beautiful Bill Act ("OBBBA"), which permits the immediate expense of R&D costs for tax purposes. Other assets decreased $5.4 million to $19.0 million as of September 30, 2025, compared to December 31, 2024.
Deposits
We offer a variety of deposit products that have a wide range of interest rates and terms, including demand, money market, savings, and time accounts as well as IntraFi network sweep deposits. Sweep deposits enable us to provide an FDIC insured deposit option to customers that have balances in excess of the FDIC insurance limit. This service trades our customers’ funds as certificates of deposit or interest bearing demand deposits in increments under the FDIC insured amount to other participating financial institutions and in exchange we receive time deposit or interest bearing demand investments from participating financial institutions. We rely primarily on competitive pricing policies, convenient locations, electronic delivery channels (internet and mobile), and personalized service to attract new deposits and retain existing deposits. Sweep deposits allow us to sweep excess deposits off and on our balance and provide additional flexibility in managing our liquidity. Additionally, we offer deposit products through our CCBX segment. CCBX deposits are generally classified as interest bearing demand and money market accounts. CCBX deposit products allow us to offer a broader range of partner specific products, which include products designed to reach specific under-served or under-banked populations served by our CCBX partners.
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Total deposits as of September 30, 2025 were $3.97 billion, an increase of $387.2 million, or 10.8%, compared to $3.59 billion as of December 31, 2024. The increase in deposits was largely due to an increase of $310.9 million in CCBX deposits. Core deposits ended the quarter at $3.96 billion compared to $3.12 billion at December 31, 2024. We define core deposits as all deposits except time deposits and brokered deposits. Our cost of deposits was 1.77% for the community bank and 3.90% for CCBX for the three months ended September 30, 2025. Additionally, as of September 30, 2025 there was $672.3 million in CCBX deposits that were transferred off balance sheet for increased FDIC insurance coverage and liquidity purposes.
Included in total deposits is $2.37 billion in CCBX deposits, an increase of $310.9 million, or 15.1%, compared to $2.06 billion as of December 31, 2024. CCBX customer deposit relationships include deposits with CCBX end customers, operating and non-operating deposit accounts. The deposits from our CCBX segment are generally classified as interest bearing demand and money market accounts.
Total noninterest bearing deposits as of September 30, 2025 were $564.4 million, an increase of $36.9 million, or 7.0%, compared to $527.5 million as of December 31, 2024. Noninterest bearing deposits represent 14.2% and 14.7% of total deposits for September 30, 2025 and December 31, 2024, respectively. Community bank noninterest bearing deposits totaled $499.7 million and $471.8 million at September 30, 2025 and December 31, 2024, respectively.
Total interest bearing balances, excluding time deposits, as of September 30, 2025 were $3.39 billion, an increase of $354.7 million, or 11.7%, compared to $3.04 billion as of December 31, 2024. The $354.7 million increase is primarily due to CCBX growth in interest bearing deposits combined with an increase in community bank interest bearing deposits of $52.8 million. Included in total deposits is $466.9 million in IntraFi network interest bearing demand and money market sweep accounts as of September 30, 2025, which provides our customers with fully insured deposits through a sweep and exchange of deposits with other financial institutions. The increase in community bank deposits is a result of deposit growth and normal balance fluctuations.
Total time deposit balances as of September 30, 2025 were $13.2 million, a decrease of $4.3 million, or 24.8%, from $17.5 million as of December 31, 2024. The decrease is largely due to our focus on core deposits and letting higher rate time deposits run off as they mature. We have seen competitors increase rates on time deposits, and have not globally matched their rates in response as we focus on growing and retaining less costly core deposits.
The following table sets forth deposit balances at the dates indicated:
| As of September 30, 2025 | As of December 31, 2024 | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Amount | Percent of Total Deposits | Amount | Percent of Total Deposits | ||||||||||||||||||||||
| Demand, noninterest bearing | $ | 564,403 | 14.2 | % | $ | 527,524 | 14.7 | % | ||||||||||||||||||
| Interest bearing demand and money market | 3,326,042 | 83.8 | 2,529,084 | 70.5 | ||||||||||||||||||||||
| Savings | 68,915 | 1.7 | 66,826 | 1.9 | ||||||||||||||||||||||
| Total core deposits | 3,959,360 | 99.7 | 3,123,434 | 87.1 | ||||||||||||||||||||||
| Other deposits | 1 | — | 444,351 | 12.4 | ||||||||||||||||||||||
| Time deposits less than $100,000 | 4,834 | 0.1 | 5,920 | 0.2 | ||||||||||||||||||||||
| Time deposits $100,000 and over | 8,368 | 0.2 | 11,627 | 0.3 | ||||||||||||||||||||||
| Total | $ | 3,972,563 | 100.0 | % | $ | 3,585,332 | 100.0 | % | ||||||||||||||||||
Cost of deposits (1) | 3.04 | % | 3.21 | % | ||||||||||||||||||||||
(1)Cost of deposits is annualized for the three months ended for each period presented.
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The following tables detail the deposits for the segments which are included in the total deposit portfolio table above:
| Community Bank | As of | |||||||||||||||||||||||||
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Balance | % to Total | Balance | % to Total | ||||||||||||||||||||||
| Demand, noninterest bearing | $ | 499,722 | 31.3 | % | $ | 471,838 | 31.0 | % | ||||||||||||||||||
| Interest bearing demand and money market | 1,025,929 | 64.2 | 570,625 | 37.5 | ||||||||||||||||||||||
| Savings | 58,747 | 3.7 | 61,116 | 4.0 | ||||||||||||||||||||||
| Total core deposits | 1,584,398 | 99.2 | 1,103,579 | 72.5 | ||||||||||||||||||||||
| Other deposits | 1 | 0.0 | 400,118 | 26.3 | ||||||||||||||||||||||
| Time deposits less than $100,000 | 4,834 | 0.3 | 5,920 | 0.4 | ||||||||||||||||||||||
| Time deposits $100,000 and over | 8,368 | 0.5 | 11,627 | 0.8 | ||||||||||||||||||||||
| Total Community Bank deposits | $ | 1,597,601 | 100.0 | % | $ | 1,521,244 | 100.0 | % | ||||||||||||||||||
Cost of deposits(1) | 1.77 | % | 1.86 | % | ||||||||||||||||||||||
(1)Cost of deposits is annualized for the three months ended for each period presented.
| CCBX | As of | |||||||||||||||||||||||||
| September 30, 2025 | December 31, 2024 | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Balance | % to Total | Balance | % to Total | ||||||||||||||||||||||
| Demand, noninterest bearing | $ | 64,681 | 2.7 | % | $ | 55,686 | 2.7 | % | ||||||||||||||||||
| Interest bearing demand and money market | 2,300,113 | 96.8 | 1,958,459 | 94.9 | ||||||||||||||||||||||
| Savings | 10,168 | 0.4 | 5,710 | 0.3 | ||||||||||||||||||||||
| Total core deposits | 2,374,962 | 100.0 | 2,019,855 | 97.9 | ||||||||||||||||||||||
| Other deposits | — | — | 44,233 | 2.1 | ||||||||||||||||||||||
| Total CCBX deposits | $ | 2,374,962 | 100.0 | % | $ | 2,064,088 | 100.0 | % | ||||||||||||||||||
Cost of deposits (1) | 3.90 | % | 4.19 | % | ||||||||||||||||||||||
(1)Cost of deposits is annualized for the three months ended for each period presented.
The following table sets forth the Company’s time deposits of $100,000 or more by time remaining until maturity as of the dates indicated:
| (dollars in thousands; unaudited) | As of September 30, 2025 | As of December 31, 2024 | ||||||||||||
| Maturity Period: | ||||||||||||||
| Three months or less | $ | 3,630 | $ | 3,381 | ||||||||||
| Over three through six months | 1,541 | 2,857 | ||||||||||||
| Over six through twelve months | 1,709 | 3,473 | ||||||||||||
| Over twelve months | 1,488 | 1,916 | ||||||||||||
| Total | $ | 8,368 | $ | 11,627 | ||||||||||
| Weighted average maturity (in years) | 0.73 | 0.73 | ||||||||||||
Average deposits for the three months ended September 30, 2025 were $3.97 billion, an increase of 11.8% compared to $3.55 billion for the three months ended September 30, 2024. The increase in average deposits was primarily in interest bearing deposits. We expect deposits to increase with continued growth in our primary market areas, the increase in commercial lending relationships for which we also seek deposit balances and the results of business development efforts by branch managers, treasury service personnel and lenders.
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The average rate paid on total deposits was 3.04% for the three months ended September 30, 2025, compared to 3.59% for the three months ended September 30, 2024. The average rate paid on interest bearing demand and money market accounts decreased 0.85% for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. The average rate paid on other deposits decreased 0.36% for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. The average rate paid on time deposits of less than $100,000 decreased 0.04% for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. The average rate paid on time deposits greater than $100,000 decreased 0.14% for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The average rate paid on savings increased 1.13% for the three months ended September 30, 2025 compared to the three months ended September 30, 2024 as a result of an increase in CCBX savings deposit products. The overall lower average rate of 3.04% paid on interest bearing accounts in the three months ended September 30, 2025 compared to 3.59% for the three months ended September 30, 2024 is due to lower interest rates.
The average rate paid on total deposits was 3.07% for the nine months ended September 30, 2025, compared to 3.55% for the nine months ended September 30, 2024. The average rate paid on interest bearing demand and money market accounts decreased 0.83% for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The average rate paid on other deposits increased 0.31% for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. The average rate paid on time deposits of less than $100,000 increased 0.11% for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. The average rate paid on time deposits greater than $100,000 increased 0.59% for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The average rate paid on savings was 1.12% for the nine months ended September 30, 2025, compared to 0.40% for the nine months ended September 30, 2024 as a result of CCBX savings deposit products. The overall lower average rate paid on interest bearing accounts in the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 is due to a lower interest rate environment.
The following table presents the average balances and average rates paid on deposits for the periods indicated:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Average Balance | Average Rate(1) | Average Balance | Average Rate(1) | Average Balance | Average Rate(1) | Average Balance | Average Rate(1) | ||||||||||||||||||||||||||||||||||||||||||
| Demand, noninterest bearing | $ | 577,820 | 0.00 | % | $ | 588,178 | 0.00 | % | $ | 561,384 | 0.00 | % | $ | 589,506 | 0.00 | % | ||||||||||||||||||||||||||||||||||
| Interest bearing demand and money market | 3,290,100 | 3.63 | 2,512,686 | 4.48 | 3,191,842 | 3.67 | 2,412,176 | 4.49 | ||||||||||||||||||||||||||||||||||||||||||
| Savings | 90,931 | 1.54 | 68,070 | 0.41 | 85,834 | 1.12 | 71,192 | 0.40 | ||||||||||||||||||||||||||||||||||||||||||
| Other deposits | 110 | 3.61 | 370,136 | 3.97 | 18,511 | 4.12 | 351,186 | 3.82 | ||||||||||||||||||||||||||||||||||||||||||
| Time deposits less than $100,000 | 5,034 | 0.71 | 6,399 | 0.75 | 5,373 | 0.75 | 6,963 | 0.63 | ||||||||||||||||||||||||||||||||||||||||||
| Time deposits $100,000 and over | 8,489 | 1.45 | 9,236 | 1.59 | 9,483 | 1.78 | 8,903 | 1.19 | ||||||||||||||||||||||||||||||||||||||||||
| Total deposits | $ | 3,972,484 | 3.04 | % | $ | 3,554,705 | 3.59 | % | $ | 3,872,427 | 3.07 | % | $ | 3,439,926 | 3.55 | % | ||||||||||||||||||||||||||||||||||
(1)Annualized calculations shown for periods presented.
The ratio of average noninterest bearing deposits to average total deposits for the nine months ended September 30, 2025 was 14.5% compared to 16.5% nine months ended September 30, 2024.
Uninsured Deposits
The FDIC insures our deposits up to $250,000 per depositor, per insured bank for each account ownership category. Deposits that exceed insurance limits are uninsured. At September 30, 2025, deposits totaled $3.97 billion, of which total estimated uninsured deposits were $617.9 million, or 15.6% of total deposits, compared to $543.0 million, or 15.1% of total deposits as of December 31, 2024. The Bank is using sweep deposits to provide our customers with fully insured deposits through a sweep and exchange of deposits with other financial institutions.
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Estimated uninsured time deposits totaled $1.5 million as of September 30, 2025. The table below shows the estimated uninsured time deposits, by account, for the maturity periods indicated:
| (dollars in thousands; unaudited) | As of September 30, 2025 | |||||||
| Maturity Period: | ||||||||
| Three months or less | $ | 886 | ||||||
| Over three through six months | 403 | |||||||
| Over six through twelve months | 20 | |||||||
| Over twelve months | 224 | |||||||
| Total | $ | 1,533 | ||||||
Borrowings
We have the ability to utilize short-term to long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.
Federal Reserve Bank Line of Credit. The Federal Reserve allows us to borrow against our line of credit through a borrower in custody agreement utilizing the discount window, which is collateralized by certain loans. As of September 30, 2025 and September 30, 2024, total borrowing capacity of $458.1 million and $477.0 million, respectively, was available under this arrangement. As of September 30, 2025 and 2024, Federal Reserve advances totaled zero. Additional loans were pledged in 2023 to significantly increase the borrowing capacity of the Bank in the event of a liquidity crisis.
Federal Home Loan Bank Advances. The FHLB allows us to borrow against our line of credit, which is collateralized by certain loans. As of September 30, 2025 and September 30, 2024, we had borrowing capacity of $199.0 million and $179.3 million, respectively, with the FHLB. As of September 30, 2025 and 2024, FHLB advances totaled zero.
Junior Subordinated Debentures. In 2004, we issued $3.6 million in junior subordinated debentures to Coastal (WA) Statutory Trust I (the “Trust”), of which we own all of the outstanding common securities. The Trust used the proceeds from the issuance of its underlying common securities and preferred securities to purchase the debentures issued by the Company. These debentures are the Trust’s only assets and the interest payments from the debentures finance the distributions paid on the preferred securities. Prior to June 30, 2023, the debentures bore interest at a rate per annum equal to the three-month LIBOR plus 2.10%. Beginning with rate adjustments subsequent to June 30, 2023, the rate is based off three-month CME Term SOFR plus a spread adjustment of 0.26% and margin of 2.10%. The effective rate as of September 30, 2025 and December 31, 2024 was 6.39% and 6.72%, respectively. We generally have the right to defer payment of interest on the debentures at any time or from time to time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the debentures. During any such extension period, distributions on the Trust’s preferred securities will also be deferred, and our ability to pay dividends on our common stock will be restricted. The Trust’s preferred securities are mandatorily redeemable upon maturity of the debentures, or upon earlier redemption as provided in the indenture, subject to Federal Reserve approval. If the debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest. We unconditionally guarantee payment of accrued and unpaid distributions required to be paid on the Trust securities subject to certain exceptions, the redemption price with respect to any Trust securities called for redemption and amounts due if the Trust is liquidated or terminated.
Subordinated Debt. In August 2021, the Company issued a subordinated note in the amount of $25.0 million. The note matures on September 1, 2031, and bears interest at the rate of 3.375% per year for five years and, thereafter, reprices quarterly beginning September 1, 2026, at a rate equal to the three-month SOFR plus 2.76%. The five-year 3.375% interest period ends on September 1, 2026. We may redeem the subordinated note, in whole or in part, without premium or penalty, in principal redemption multiples of $1,000, after August 18, 2026, subject to any required regulatory approvals. Proceeds were used to repay $10.0 million in existing 5.65% interest subordinated debt on August 9, 2021 and $11.5 million was contributed to the Bank as capital during the quarter ended September 30, 2021.
In November 2022, the Company issued subordinated notes in the aggregate amount of $20.0 million. The notes mature on November 1, 2032, and bear interest at the rate of 7.00% per year for five years and, thereafter, reprices quarterly beginning November 1, 2027, at a rate equal to the three-month SOFR plus 2.9%. The five-year 7.00% interest period ends
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on November 1, 2027. We may redeem the subordinated notes, in whole or in part, without premium or penalty, in principal redemption multiples of $1,000, after November 1, 2027, subject to any required regulatory approvals.
Other Liabilities
Deferred tax liability, net increased to $799,000 from a net deferred asset as of September 30, 2025, largely due to the impact of the OBBBA, which permits the immediate expense of R&D costs for tax purposes.
Liquidity and Capital Resources
Liquidity Management
Liquidity refers to our capacity to meet our cash obligations at a reasonable cost. Our cash obligations require us to have cash flow that is adequate to fund loan growth and maintain on-balance sheet liquidity while meeting present and future obligations of deposit withdrawals, borrowing maturities and other contractual cash obligations. In managing our cash flows, management regularly confronts situations that can give rise to increased liquidity risk. These include funding mismatches, market constraints in accessing sources of funds and the ability to convert assets into cash. Changes in economic conditions or exposure to credit, market, and operational, legal and reputational risks also could affect the Bank’s liquidity risk profile and are considered in the assessment of liquidity management. Deposits obtained through our CCBX segment are a significant source of liquidity for us. If a relationship with a large CCBX partner terminates, the exit of those deposits could have an adverse impact on liquidity. Partner program agreements govern the relationship and are valid for a given period of time. Prior to exiting, the partner would need to provide us adequate notice as stipulated in the agreement that they were not going to renew the program agreement and intend to move the deposits. The movement to an alternate BaaS provider is cumbersome and would be over a period of time, which would allow us the opportunity to put alternate liquidity in place; those options are more fully discussed below. As of September 30, 2025, we have two partners with deposits that are in excess of 10% of total deposits and represent 44% of total deposits.
We continually monitor our liquidity position to ensure that our assets and liabilities are managed in a manner to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands. Management has established a comprehensive process for identifying, measuring, monitoring and controlling liquidity risk. Because of its critical importance to the viability of the Bank, liquidity risk management is fully integrated into our risk management processes. Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the board of directors and active involvement by management; appropriate strategies, policies, procedures, and limits used to manage and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems that are commensurate with the complexity of our business activities; active management of intraday liquidity and collateral; an appropriately diverse mix of existing and potential future funding sources; adequate levels of readily available cash, deposits and highly liquid marketable securities free of legal, regulatory, or operational impediments, that can be used to meet liquidity needs in stressful situations; contingency funding policies and plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the Bank’s liquidity risk management process. Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.
Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our liquidity requirements are met primarily through our deposits and the principal and interest payments we receive on loans and investment securities. Cash on hand, cash at third-party banks, investments available-for-sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are routinely available to us include funds from retail, commercial, and BaaS deposits, advances from the FHLB and proceeds from the sale of loans. Less commonly used sources of funding include borrowings from the Federal Reserve discount window, draws on established federal funds lines from unaffiliated commercial banks, funds from online rate services, brokered deposits, a one-way buy through an ICS account, and the issuance of debt or equity securities. We believe we have ample liquidity resources to fund future growth and meet other cash needs as necessary and are closely monitoring liquidity in this uncertain economic environment.
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The Company has pledged loans and securities totaling $976.5 million and $957.9 million at September 30, 2025 and December 31, 2024, respectively, for borrowing lines at the FHLB and FRB. The Bank had the ability and capacity to borrow up to $657.1 million from FHLB and the FRB discount window at September 30, 2025. There were no borrowings taken for funding under these facilities during the twelve-months ended September 30, 2025 so the Bank has the maximum borrowing capacity in the event of a liquidity emergency.
The Bank’s current liquidity position is supported by liquid assets (cash and investments on the balance sheet), liabilities (capacity to borrow funds the same day), low levels of uninsured deposits ($617.9 million, or only 15.6% of total deposits, at September 30, 2025) and alternative sources of funds including the capacity to borrow up to $657.1 million from FHLB, the FRB discount window, on a same day basis and a $50.0 million line of credit with a banker’s bank. Cash on the balance sheet and borrowing capacity totaled $1.35 billion and represented 34.0% of total deposits and significantly exceeded the $617.9 million in uninsured deposits as of September 30, 2025. The board of directors and management is cognizant of the risk of uninsured deposits and has used fully insured IntraFi Network reciprocal deposits to reduce uninsured deposit. Fully insured IntraFi network reciprocal deposits totaled $466.9 million and $414.0 million at September 30, 2025 and December 31, 2024, respectively. Uninsured deposits totaled $617.9 million at September 30, 2025 and totaled $543.0 million at December 31, 2024.
The Company is a corporation separate and apart from our Bank and, therefore, must provide for its own liquidity, including liquidity required to meet its debt service requirements on its subordinated note and junior subordinated debentures. The Company’s main source of cash flow has been through equity and debt offerings. The Company has consistently retained a portion of the funds from equity and debt offerings so that is has sufficient funds for its operating and debt costs. During the quarter ended December 31, 2024, the Company completed a public offering of 1,380,000 shares of its common stock at a price to the public of $71.00 per share. Gross proceeds from the offering of $98.0 million, before deducting underwriting discounts and offering expenses, will be used for general corporate purposes, including, without limitation, to support investment opportunities and the Bank’s growth. A total of $50.0 million of those proceeds were contributed to the Bank in 2024, and the balance of the amount was retained in cash at the Company level. The Company currently holds $43.9 million in cash for debt servicing and operating purposes. In addition, the Bank can declare and pay dividends to the Company to meet the Company’s debt and operating expenses. There are statutory and regulatory limitations that affect the ability of the Bank to pay dividends to the Company. We believe that these limitations will not impact the ability of the Bank to pay dividends to the Company to meet ongoing operating needs.
For contingency purposes, the Company maintains a minimum level of cash to fund one year’s projected operating cash flow needs and targets a minimum liquidity ratio of 15%. Both of these minimum liquidity levels are on-balance sheet sources. Per policy and the Bank’s liquidity contingency plan, in event of a liquidity emergency the Bank can utilize wholesale funds in an amount up to 30% of assets. Since the Bank uses only a small portion of its borrowing or wholesale funding capacity, the Bank has access to borrow substantial funds and in excess of 15% of deposits if needed in a liquidity emergency.
Capital Adequacy
Capital management consists of providing equity and other instruments that qualify as regulatory capital to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital levels relative to the amount and types of assets they hold. We are subject to regulatory capital requirements at the bank level. Because the Company’s consolidated assets exceeded $3.0 billion as of September 30, 2022, the Company is no longer eligible for the Federal Reserve’s Small Bank Holding Company Policy Statement and is evaluated relative to the capital adequacy standards established by the Federal Reserve.
As of September 30, 2025, and December 31, 2024, the Company and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as "well capitalized" for purposes of the Federal Reserve's prompt corrective action regulations. As we deploy capital and continue to grow operations, regulatory capital levels may decrease depending on our level of earnings; however, the capital raise completed in December 2024 strengthened our regulatory capital levels. We expect to monitor and control growth in order to remain in compliance with all regulatory capital standards applicable to us. In addition, the Company maintains an effective registration statement on Form S-3 with the Securities and Exchange Commission which allows the Company to raise additional capital in an amount up to $102.0 million. The Company raised $98.0 million in December 2024 and $34.5 million in December 2021. The Company, through a private placement, raised $25.0 million in subordinated debt in 2021 and repaid $10.0 million of subordinated debt with the proceeds and used the remainder for general corporate purposes. On November 1, 2022 the Company,
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through a private placement, raised $20.0 million of subordinated debt with the proceeds to be used for general corporate purposes. The Company contributed $15.0 million of the capital raised to the Bank in March 2023.
The following table presents the Company’s and the Bank’s regulatory capital ratios as of the dates presented, as well as the regulatory capital ratios that are required by Federal Reserve regulations to maintain “well-capitalized” status:
| Actual | Minimum Required for Capital Adequacy Purposes(1) | Required to be Well Capitalized Under the Prompt Corrective Action Provisions | ||||||||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Amount | Ratio | Amount | Ratio | Amount | Ratio | ||||||||||||||||||||||||||||||||
| September 30, 2025 | ||||||||||||||||||||||||||||||||||||||
| Tier 1 Leverage Capital (to average assets) | ||||||||||||||||||||||||||||||||||||||
| Company | $ | 478,771 | 10.54 | % | $ | 181,640 | 4.00 | % | N/A | N/A | ||||||||||||||||||||||||||||
| Bank Only | 476,178 | 10.49 | % | 181,497 | 4.00 | % | 226,871 | 5.00 | % | |||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital (to risk-weighted assets) | ||||||||||||||||||||||||||||||||||||||
| Company | 475,271 | 12.33 | % | 173,447 | 4.50 | % | N/A | N/A | ||||||||||||||||||||||||||||||
| Bank Only | 476,178 | 12.37 | % | 173,184 | 4.50 | % | 250,154 | 6.50 | % | |||||||||||||||||||||||||||||
| Tier 1 Capital (to risk-weighted assets) | ||||||||||||||||||||||||||||||||||||||
| Company | 478,771 | 12.42 | % | 231,263 | 6.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||
| Bank Only | 476,178 | 12.37 | % | 230,912 | 6.00 | % | 307,882 | 8.00 | % | |||||||||||||||||||||||||||||
| Total Capital (to risk-weighted assets) | ||||||||||||||||||||||||||||||||||||||
| Company | 573,546 | 14.88 | % | 308,350 | 8.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||
| Bank Only | 525,881 | 13.66 | % | 307,882 | 8.00 | % | 384,853 | 10.00 | % | |||||||||||||||||||||||||||||
| December 31, 2024 | ||||||||||||||||||||||||||||||||||||||
| Tier 1 Leverage Capital (to average assets) | ||||||||||||||||||||||||||||||||||||||
| Company | $ | 442,193 | 10.78 | % | $ | 164,052 | 4.00 | % | N/A | N/A | ||||||||||||||||||||||||||||
| Bank Only | 436,116 | 10.64 | % | 163,919 | 4.00 | % | 204,899 | 5.00 | % | |||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital (to risk-weighted assets) | ||||||||||||||||||||||||||||||||||||||
| Company | 438,693 | 12.04 | % | 163,952 | 4.50 | % | N/A | N/A | ||||||||||||||||||||||||||||||
| Bank Only | 436,116 | 11.99 | % | 163,717 | 4.50 | % | 236,480 | 6.50 | % | |||||||||||||||||||||||||||||
| Tier 1 Capital (to risk-weighted assets) | ||||||||||||||||||||||||||||||||||||||
| Company | 442,193 | 12.14 | % | 218,602 | 6.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||
| Bank Only | 436,116 | 11.99 | % | 218,289 | 6.00 | % | 291,052 | 8.00 | % | |||||||||||||||||||||||||||||
| Total Capital (to risk-weighted assets) | ||||||||||||||||||||||||||||||||||||||
| Company | 534,390 | 14.67 | % | 291,470 | 8.00 | % | N/A | N/A | ||||||||||||||||||||||||||||||
| Bank Only | 483,247 | 13.28 | % | 291,052 | 8.00 | % | 363,816 | 10.00 | % | |||||||||||||||||||||||||||||
(1)Presents the minimum capital adequacy requirements that apply to the Bank (excluding the capital conservation buffer) and the Company. The capital conservation buffer is an additional 2.5% of the amount necessary to meet the minimum risk-based capital requirements for total, tier 1, and common equity tier 1 risk-based capital. Prior to September 30, 2022, the Company operated under the Small Bank Holding Company Policy Statement and therefore was not subject to Basel III capital adequacy requirements.
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Material Cash Requirements and Capital Resources
The following table provides the material cash requirements from known contractual and other obligations as of September 30, 2025:
| Payments Due by Period | ||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | Total | Less than 1 Year | Over 1 year | Other (1) | ||||||||||||||||||||||
| Cash requirements | ||||||||||||||||||||||||||
| Time Deposits | $ | 13,202 | $ | 10,627 | $ | 2,575 | $ | — | ||||||||||||||||||
| Subordinated notes | 45,000 | — | 45,000 | — | ||||||||||||||||||||||
| Junior subordinated debentures | 3,609 | — | 3,609 | — | ||||||||||||||||||||||
| Deferred compensation plans | 323 | 78 | 245 | — | ||||||||||||||||||||||
| Operating and finance leases | 5,760 | 1,113 | 4,647 | — | ||||||||||||||||||||||
| Non-maturity deposits | 3,959,360 | — | — | 3,959,360 | ||||||||||||||||||||||
| Equity investment commitment | 1,215 | 1,215 | — | — | ||||||||||||||||||||||
(1)Represents the undefined maturity of non-maturing deposits, including noninterest bearing demand deposits, interest bearing demand deposits, money market accounts, savings accounts and brokered deposits, which can generally be withdrawn on demand.
We maintain sufficient cash and cash equivalents and investment securities to meet short-term cash requirements and the levels of these assets are dependent on our operating, investing and financing activities during any given period. Cash on hand, cash at third-party banks, investments available-for-sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are routinely available to us include funds from retail, commercial, and BaaS deposits, advances from the FHLB and proceeds from the sale of loans. Less commonly used sources of funding include borrowings from the Federal Reserve discount window, draws on established federal funds lines from unaffiliated commercial banks, funds from online rate services, brokered funds, a one-way buy through an ICS account, and the issuance of debt or equity securities.
In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheet.
Our commitments associated with outstanding commitments to extend credit and standby and commercial letters of credit are summarized in the following table. Since commitments associated with commitments to extend credit and letters of credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.
As of September 30, 2025 we had $2.41 billion in commitments to extend credit, compared to $1.96 billion as of December 31, 2024. The $448.2 million increase is largely attributed to a $285.2 million increase in credit cards, related to CCBX loans, a $158.2 million increase in residential real estate commitments, related to CCBX loans, an increase of $26.7 million in consumer and other loan commitments, related to CCBX consumer loans, and a $40.9 million increase in commercial construction loans, partially offset by a $62.2 million decrease in commercial and industrial capital call line commitments.
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The following table presents commitments associated with outstanding commitments to extend credit, standby and commercial letters of credit and equity investment commitments as of the periods indicated:
| (dollars in thousands; unaudited) | As of September 30, 2025 | As of December 31, 2024 | ||||||||||||
| Commitments to extend credit: | ||||||||||||||
| Commercial and industrial loans | $ | 85,686 | $ | 94,589 | ||||||||||
| Commercial and industrial loans - capital call lines | 488,755 | 550,948 | ||||||||||||
| Construction – commercial real estate loans | 77,731 | 36,873 | ||||||||||||
| Construction – residential real estate loans | 29,207 | 10,929 | ||||||||||||
| Residential real estate loans | 657,707 | 499,516 | ||||||||||||
| Commercial real estate loans | 24,351 | 34,222 | ||||||||||||
| Credit cards | 1,002,383 | 717,198 | ||||||||||||
| Consumer and other loans | 45,236 | 18,553 | ||||||||||||
| Total commitments to extend credit | $ | 2,411,056 | $ | 1,962,828 | ||||||||||
| Standby letters of credit | $ | 1,042 | $ | 1,042 | ||||||||||
| Equity investment commitment | $ | 1,215 | $ | 480 | ||||||||||
We have portfolio limits with each of our partners to manage loan concentration risk, liquidity risk, and counter-party partner risk. For example, as of September 30, 2025, capital call lines outstanding balance totaled $177.5 million, and while commitments totaled $488.8 million the commitments are cancelable, and are also limited to a maximum of $350.0 million by agreement with the partner. These limits allow us to manage portfolio concentrations with partners and by loan type.
The following table shows the CCBX maximum portfolio sizes by loan category as of September 30, 2025.
| As of September 30, 2025 | As of December 31, 2024 | |||||||||||||
| (dollars in thousands; unaudited) | Type of Lending | Maximum Portfolio Size | Increase/(decrease) | |||||||||||
| Commercial and industrial loans: | ||||||||||||||
| Capital call lines | Business - Venture Capital | $ | 350,000 | $ | 350,000 | $ | — | |||||||
All other commercial & industrial loans | Business - Small Business | 518,406 | 480,069 | 38,337 | ||||||||||
| Real estate loans: | ||||||||||||||
| Home equity lines of credit | Home Equity - Secured Credit Cards | 400,000 | 375,000 | 25,000 | ||||||||||
| Consumer and other loans: | ||||||||||||||
| Credit cards | Credit Cards - Primarily Consumer | 825,000 | 820,000 | 5,000 | ||||||||||
| Installment loans | Consumer | 1,964,713 | 1,774,533 | 190,180 | ||||||||||
| Other consumer and other loans | Consumer - Secured Credit Builder & Unsecured consumer | 236,881 | 5,398 | 231,483 | ||||||||||
| $ | 4,295,000 | $ | 3,805,000 | $ | 490,000 | |||||||||
| Total Existing Portfolio Size | $ | 1,804,176 | $ | 1,603,577 | $ | 200,599 | ||||||||
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management’s credit evaluation of the customer. As of September 30, 2025, $1.55 billion in commitments to extend credit are unconditionally cancelable, compared to $1.30 billion at December 31, 2024. The increase in unconditionally cancelable commitments is attributed to growth and a change in the mix of the CCBX loan portfolio. Commitments that are unconditionally cancelable allow us to better manage loan growth, credit concentrations
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and liquidity. We also limit CCBX partners to a maximum aggregate customer loan balance originated and held on our balance sheet, as shown in the table above.
Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, we have rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and/or marketable securities. Our credit risk associated with issuing letters of credit is essentially the same as the risk involved in extending loan facilities to our customers.
We believe that we will be able to meet our long-term cash requirements as they come due. Adequate cash levels are generated through profitability, repayments from loans and securities, deposit gathering activity, access to borrowing sources and periodic loan sales.
Critical Accounting Policies
Our accounting policies are integral to understanding our results of operations. Our accounting policies are described in greater detail in “Note 1 - Description of Business and Summary of Significant Accounting Policies” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” of our Form 10-K. We have procedures and processes in place to facilitate making these judgments. Actual results in these areas could differ from management’s estimates. There have been no significant changes concerning our critical accounting policies as described in our Form 10-K except as indicated in Note 1 of the condensed consolidated financial statements included elsewhere in this report.
Selected Financial Data
The following table shows the Company’s key performance ratios for the periods indicated.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||
| (unaudited) | September 30, 2025 | June 30, 2025 | March 31, 2025 | December 31, 2024 | September 30, 2024 | September 30, 2025 | September 30, 2024 | |||||||||||||||||||||||||||||||||||||
Return on average assets (1) | 1.19 | % | 0.99 | % | 0.93 | % | 1.30 | % | 1.34 | % | 1.04 | % | 1.10 | % | ||||||||||||||||||||||||||||||
Return on average equity (1) | 11.52 | % | 9.72 | % | 8.91 | % | 14.90 | % | 16.67 | % | 10.08 | % | 13.80 | % | ||||||||||||||||||||||||||||||
Yield on earnings assets (1) | 9.80 | % | 9.92 | % | 10.32 | % | 10.24 | % | 10.79 | % | 10.01 | % | 10.50 | % | ||||||||||||||||||||||||||||||
Yield on loans receivable (1) | 10.95 | % | 11.11 | % | 11.33 | % | 11.12 | % | 11.44 | % | 11.13 | % | 11.23 | % | ||||||||||||||||||||||||||||||
Cost of funds (1) | 3.07 | % | 3.13 | % | 3.11 | % | 3.24 | % | 3.62 | % | 3.10 | % | 3.58 | % | ||||||||||||||||||||||||||||||
Cost of deposits (1) | 3.04 | % | 3.10 | % | 3.08 | % | 3.21 | % | 3.59 | % | 3.07 | % | 3.55 | % | ||||||||||||||||||||||||||||||
Net interest margin (1) | 7.00 | % | 7.06 | % | 7.48 | % | 7.23 | % | 7.42 | % | 7.17 | % | 7.16 | % | ||||||||||||||||||||||||||||||
Noninterest expense to average assets (1) | 6.13 | % | 6.52 | % | 6.87 | % | 6.54 | % | 6.42 | % | 6.50 | % | 6.19 | % | ||||||||||||||||||||||||||||||
Noninterest income to average assets (1) | 5.83 | % | 3.82 | % | 6.06 | % | 7.19 | % | 7.85 | % | 5.23 | % | 8.10 | % | ||||||||||||||||||||||||||||||
| Efficiency ratio | 48.50 | % | 60.98 | % | 51.59 | % | 46.02 | % | 42.65 | % | 53.26 | % | 41.15 | % | ||||||||||||||||||||||||||||||
Loans receivable to deposits (2) | 94.32 | % | 92.01 | % | 93.89 | % | 97.82 | % | 94.33 | % | 94.32 | % | 94.33 | % | ||||||||||||||||||||||||||||||
(1)Annualized calculations shown for periods presented.
(2)Including loans held for sale.
The volatility in the efficiency ratio and noninterest income to average asset performance metrics was driven by a higher-quality CCBX loan-mix from a credit quality perspective, which effectively reduced the credit enhancement required within non-interest income due to lower net-charge off activity as a percent of total loans which lowered our provision expense. These items have a neutral impact to net income although impacted the quarter-to-quarter metrics due to lower reported noninterest income.
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CCBX – BaaS Reporting Information
During the three and nine months ended September 30, 2025, $55.4 million and $70.1 million, respectively, were recognized in noninterest income BaaS credit enhancements related to the establishment of a credit enhancement asset for credit losses indemnified by our strategic partners and reserved for unfunded commitments for CCBX partner loans and deposits. Agreements with our CCBX partners provide for a credit enhancement provided by the partner which protects the Bank by indemnifying or reimbursing incurred losses. In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans, unfunded commitments, negative deposit accounts and accrued interest receivable for CCBX loans. When the provision for credit losses - loans and provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements) in recognition of the CCBX partner legal commitment to indemnify or reimburse losses over the life of the loans. The credit enhancement asset is relieved as credit enhancement payments and recoveries are received from the CCBX partner or taken from the partner's cash reserve account. Agreements with our CCBX partners also provide protection to the Bank from fraud by indemnifying or reimbursing incurred fraud losses. BaaS fraud includes noncredit fraud losses on loans and deposits originated through partners. Fraud losses are recorded when incurred as losses in noninterest expense, and the enhancement received from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement. CCBX partners bear most of the responsibility for credit and fraud 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. Many CCBX partners also pledge a cash reserve account at the Bank which the Bank can collect from when losses occur that is then replenished by the partner on a regular interval. Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by indemnifying or reimbursing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligation then the Bank would be exposed to additional loan and deposit losses if the cash flows on the loans were not sufficient to fund the reimbursement of loan losses, as a result of this counterparty risk. If a CCBX partner does not replenish their cash reserve account the Bank may consider an alternative plan for funding the cash reserve. This may involve the possibility of adjusting the funding amounts or timelines to better align with the partner's specific situation. If a mutually agreeable funding plan is not achieved then the Bank could declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. The Bank would evaluate any remaining credit enhancement asset from the CCBX partner in the event the partner failed to determine if a write-off is appropriate. If a write-off occurs the Bank would retain the full yield and any fee income on the loan portfolio going forward, and our BaaS loan expense would decrease once default occurred and payments to the CCBX partner were stopped.
For CCBX partner loans the Bank records contractual interest earned from the borrower on loans in interest income, adjusted for origination costs which are paid or payable to the CCBX partner. BaaS loan expense represents the amount paid or payable to partners for credit and fraud enhancements and servicing CCBX loans. To determine net BaaS loan income earned from CCBX loan relationships, the Bank takes BaaS loan interest income and deducts BaaS loan expense to arrive at net BaaS loan income which can then be compared to interest income on the Company’s community bank loans.
The following table illustrates how CCBX partner loan income and expenses are recorded in the financial statements:
| Loan income and related loan expense | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||
| BaaS loan interest income | $ | 69,643 | $ | 67,778 | $ | 205,762 | $ | 183,754 | ||||||||||||||||||
| Less: BaaS loan expense | 32,840 | 32,698 | 97,830 | 87,816 | ||||||||||||||||||||||
Net BaaS loan income (2) | 36,803 | 35,080 | 107,932 | 95,938 | ||||||||||||||||||||||
Net BaaS loan income divided by average BaaS loans (1)(2) | 8.27 | % | 8.99 | % | 8.51 | % | 9.19 | % | ||||||||||||||||||
Yield on loans (1) | 15.65 | % | 17.37 | % | 16.23 | % | 17.61 | % | ||||||||||||||||||
(1)Annualized calculations shown for periods presented.
(2)A reconciliation of this non-GAAP measure is set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”
The increased activity of CCBX partners has resulted in increases in program fees and interest for the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024. The following tables
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are a summary of the direct fees, expenses and interest components of BaaS for the periods indicated and are not inclusive of all income and expense related to BaaS.
| Interest income | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||
| Loan interest income | $ | 69,643 | $ | 67,778 | $ | 205,762 | $ | 183,754 | ||||||||||||||||||
| Total BaaS interest income | $ | 69,643 | $ | 67,778 | $ | 205,762 | $ | 183,754 | ||||||||||||||||||
| Interest expense | Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||
| BaaS interest expense | $ | 23,330 | $ | 24,819 | $ | 68,528 | $ | 71,792 | ||||||||||||||||||
| Total BaaS interest expense | $ | 23,330 | $ | 24,819 | $ | 68,528 | $ | 71,792 | ||||||||||||||||||
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||
| BaaS program income: | ||||||||||||||||||||||||||
| Servicing and other BaaS fees | $ | 1,264 | $ | 1,044 | $ | 4,222 | $ | 3,700 | ||||||||||||||||||
| Transaction and interchange fees | 4,878 | 3,549 | 13,820 | 9,144 | ||||||||||||||||||||||
| Reimbursement of expenses | 1,412 | 565 | 3,084 | 1,677 | ||||||||||||||||||||||
| Total BaaS program income | 7,554 | 5,158 | 21,126 | 14,521 | ||||||||||||||||||||||
| BaaS indemnification income: | ||||||||||||||||||||||||||
| BaaS credit enhancements | 55,412 | 70,108 | 140,328 | 210,742 | ||||||||||||||||||||||
| BaaS fraud enhancements | 2,127 | 2,084 | 6,924 | 4,791 | ||||||||||||||||||||||
| BaaS indemnification income | 57,539 | 72,192 | 147,252 | 215,533 | ||||||||||||||||||||||
| Total noninterest BaaS income | $ | 65,093 | $ | 77,350 | $ | 168,378 | $ | 230,054 | ||||||||||||||||||
Servicing and other BaaS fees increased $220,000 and $522,000, respectively, in the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024, while transaction and interchange fees increased $1.3 million and $4.7 million, respectively, in the three and nine months ended September 30, 2025 compared to the three and nine months ended September 30, 2024. Transaction and interchange fees for the nine months ended September 30, 2025 includes $504,000 in nonrecurring revenue, recorded during the second quarter of 2025. We expect servicing and other BaaS fees to decrease and transaction and interchange fees to increase as partner activity grows and contracted minimum fees are replaced with recurring fees, which exceed those minimum fees. Additionally, we expect reimbursement of expenses to increase as we continue to bill partners for incurred expenses.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||
| BaaS loan and fraud expense: | ||||||||||||||||||||||||||
| BaaS loan expense | $ | 32,840 | $ | 32,698 | $ | 97,830 | $ | 87,816 | ||||||||||||||||||
| BaaS fraud expense | 2,127 | 2,084 | 6,924 | 4,791 | ||||||||||||||||||||||
| Total BaaS loan and fraud expense | $ | 34,967 | $ | 34,782 | $ | 104,754 | $ | 92,607 | ||||||||||||||||||
GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.
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The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense on net loan income and yield on CCBX loans.
Net BaaS loan income divided by average CCBX loans is a non-GAAP measure that includes the impact BaaS loan expense on net BaaS loan income and the yield on CCBX loans. The most directly comparable GAAP measure is yield on CCBX loans.
The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense on net interest income and net interest margin.
Net interest income net of BaaS loan expense is a non-GAAP measure that includes the impact BaaS loan expense on net interest income. The most directly comparable GAAP measure is net interest income.
Net interest margin, net of BaaS loan expense is a non-GAAP measure that includes the impact of BaaS loan expense on net interest rate margin. The most directly comparable GAAP measure is net interest margin.
Reconciliations of the GAAP and non-GAAP measures are presented in the following table.
| As of and for the Three Months Ended | As of and for the Nine Months Ended | |||||||||||||||||||||||||||||||
| (dollars in thousands; unaudited) | September 30, 2025 | September 30, 2024 | September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||||||||
| Net BaaS loan income divided by average CCBX loans: | ||||||||||||||||||||||||||||||||
CCBX loan yield (GAAP)(1) | 15.65 | % | 17.37 | % | 16.23 | % | 17.61 | % | ||||||||||||||||||||||||
| Total average CCBX loans receivable | $ | 1,764,957 | $ | 1,552,443 | $ | 1,695,006 | $ | 1,394,127 | ||||||||||||||||||||||||
| Interest and earned fee income on CCBX loans (GAAP) | 69,643 | 67,778 | 205,762 | 183,754 | ||||||||||||||||||||||||||||
| BaaS loan expense | (32,840) | (32,698) | (97,830) | (87,816) | ||||||||||||||||||||||||||||
| Net BaaS loan income | $ | 36,803 | $ | 35,080 | $ | 107,932 | $ | 95,938 | ||||||||||||||||||||||||
Net BaaS loan income divided by average CCBX loans (1) | 8.27 | % | 8.99 | % | 8.51 | % | 9.19 | % | ||||||||||||||||||||||||
| CCBX net interest margin, net of BaaS loan expense: | |||||||||||||||||||||||
CCBX net interest margin (1) | 8.88 | % | 9.65 | % | 9.11 | % | 9.20 | % | |||||||||||||||
| CCBX earning assets | 2,372,857 | 2,048,918 | 2,318,146 | 1,962,338 | |||||||||||||||||||
| Net interest income (GAAP) | 53,081 | 49,723 | 157,912 | 135,176 | |||||||||||||||||||
| Less: BaaS loan expense | (32,840) | (32,698) | (97,830) | (87,816) | |||||||||||||||||||
| Net interest income, net of BaaS loan expense | $ | 20,241 | $ | 17,025 | $ | 60,082 | $ | 47,360 | |||||||||||||||
CCBX net interest margin, net of BaaS loan expense (1) | 3.38 | % | 3.31 | % | 3.47 | % | 3.22 | % | |||||||||||||||
(1) Annualized calculations for periods presented.
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Item 3. Quantitative and Qualitative Disclosure about Market Risk
Quantitative and Qualitative Disclosures about Market Risk
As a financial institution, our primary component of market risk is interest rate volatility. Our asset liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines.
Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest earning assets and interest bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential for economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a decrease in current fair market values. Our objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. The FOMC raised interest rates 0.25% in mid-March 2022, 1.25% in the second quarter of 2022, 1.50% in the third quarter of 2022, 1.25% in the fourth quarter of 2022, 0.50% in the first quarter 2023, and 0.25% in the second quarter 2023 and 0.25% in the third quarter of 2023. During the third quarter 2024, the FOMC lowered interest rates, for the first time since 2023, by 0.50% resulting with a Fed Funds target rate of 5.00%. After both the November 7th and December 18th FOMC meeting, the Fed Funds target rate was lowered by 0.25%, resulting in the top end of the Fed Funds target rate to be at 4.50%. After no changes were made to the Fed Funds target rate during the first or second quarter of 2025, the FOMC lowered the target range by 0.25% at the September 16, 2025 meeting, with the top end of the target range now at 4.25% as of September 30, 2025. Subsequent to quarter end the FOMC again lowered the target range by 0.25% at the October 29, 2025 meeting, bringing the top end of the target range to 4.00 as of the filing date of this report. The timing and magnitude of any future and potential rate changes, expected to be further rate cuts, remains uncertain but will likely be closely tied to future inflationary trends. The impact of this and any future increases or decreases will impact financial results.
We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.
Our exposure to interest rate risk is managed by the Asset Liability Committee (“ALCO”), of the Bank and reviewed by the Asset Liability and Investment Committee of our board of directors in accordance with policies approved by our board of directors. ALCO formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, ALCO considers the impact on earnings and capital on the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, ALCO reviews liquidity, cash flows, maturities of deposits and consumer and commercial deposit activity. Management employs various methodologies to manage interest rate risk including an analysis of relationships between interest earning assets and interest bearing liabilities and interest rate simulations using a model. The Asset Liability and Investment Committee of our board of directors meets regularly to review the Bank’s interest rate risk profile, liquidity position, including contingent liquidity, and investment portfolio.
We use interest rate risk simulation models to test interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model, as are prepayment assumptions, maturity data and call options within the investment portfolio. Average life of non-maturity deposit accounts are based on historical decay rates and assumptions and are incorporated into the model. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies. To help ensure the accuracy of the model, we perform a quarterly back test against our actual results.
On a quarterly basis, we run multiple simulations under two different premises of which one is a static balance sheet and the other is a dynamic growth balance sheet. The static balance sheet approach produces results that show the interest risk currently inherent in our balance sheet at that point in time. The dynamic balance sheet includes our projected growth levels going forward and produces results that shows how net income, net interest income, and interest risk change based
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on our projected growth. These simulations test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static and dynamic approaches, rates are shocked instantaneously and ramped over a 12-month horizon assuming parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulations are also conducted and involve analysis of interest income and expense under various changes in the shape of the yield curve including a forward curve, flat curve, steepening curve, and an inverted curve. Our internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one- and two-year period should not decline by more than 10% for a 100 basis point shift, 15% for a 200 basis point shift, 20% for a 300 basis point shift, and 25% for a 400 basis point shift.
The following tables summarize the simulated change in net interest income over a 12-month horizon as of the dates indicated:
| (unaudited) | ||||||||||||||
| Change in Market Interest Rates | Twelve Month Projection As of September 30, 2025 | Twelve Month Projection As of December 31, 2024 | ||||||||||||
| Static Balance Sheet and Rate Shifts | ||||||||||||||
| +400 basis points | (4.2)% | (8.0)% | ||||||||||||
| +300 basis points | (3.4)% | (5.9)% | ||||||||||||
| +200 basis points | (2.2)% | (3.9)% | ||||||||||||
| +100 basis points | (1.1)% | (1.9)% | ||||||||||||
| -100 basis points | 0.9% | 1.8% | ||||||||||||
| -200 basis points | 1.8% | 3.4% | ||||||||||||
| -300 basis points | 2.7% | 4.8% | ||||||||||||
| -400 basis points | 2.1% | 5.7% | ||||||||||||
| Dynamic Balance Sheet and Rate Shifts | ||||||||||||||
| +400 basis points | (2.2)% | (5.5)% | ||||||||||||
| +300 basis points | (1.9)% | (4.1)% | ||||||||||||
| +200 basis points | (1.2)% | (2.6)% | ||||||||||||
| +100 basis points | (0.6)% | (1.3)% | ||||||||||||
| -100 basis points | 0.4% | 1.2% | ||||||||||||
| -200 basis points | 0.8% | 2.2% | ||||||||||||
| -300 basis points | 1.2% | 3.0% | ||||||||||||
| -400 basis points | 0.1% | 3.3% | ||||||||||||
The results illustrate that the Company’s static balance sheet remains liability sensitive, however, the dynamic balance sheet is slightly more neutral to rate shifts. As the Company’s composition has shifted over time due to the growth of the CCBX segment to more variable/adjustable in nature, our interest rate risk profile has been mitigated, reducing variability in both rising and falling rate environments, as the community bank and CCBX segments work to offset one another. The community bank segment remains asset sensitive and generally performs better in an increasing interest rate environment. For the community bank, the drivers are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, offering rates on these community bank deposits change more slowly than changes in short-term market rates. For the CCBX segment, the offering rates on the loan portfolio are modeled using partner contractual net yields which mostly adjust immediately with market shifts. For this CCBX portfolio, the offering rates on approximately 75% of loans and the majority of deposits nearly fully reprice with changes in market rates. During 2023, one of the material CCBX lending partners contractual yields converted to a fixed rate product, continuing to reduce the overall variability in the Company’s balance sheet. As of September 30, 2025, the Company’s overall funding mix continues to be more heavily weighted towards the CCBX deposits which are primarily adjustable rate deposits aiding with the neutrality of the balance sheet and the overall shift to liability sensitive in the static model. The assumptions incorporated into the simulation model are inherently uncertain and, as a result, the model cannot precisely
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measure future net interest income or precisely predict the impact that fluctuations in market interest rates have on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions, the shape of the interest yield curve, and the application and timing of various assumptions and strategies.
Item 4. Controls and Procedures
Disclosure Controls and Procedures.
An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Company's Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
Previously Identified Material Weaknesses
As previously reported in our Annual Report on Form 10-K filed with the SEC on March 17, 2025, we have identified material weaknesses in internal control over financial reporting. These material weaknesses resulted from (i) an ineffective control environment, which did not maintain the risk assessment and control activities components of the COSO framework resulting in the Company not appropriately designing and implementing sufficient internal controls around the accounting and financial reporting related to information provided by BaaS partners; (ii) a deficiency in the design of controls related to the BaaS lending partner accounting policies reflected in BaaS partner reports that could impact the Company’s use of such reports to record interest income, BaaS loan expense and the related balance sheet accounts; and (iii) a deficiency in the design of controls related to the proper presentation of BaaS partner interchange fees on point of sale transactions that conforms with the Company’s adopted accounting policies. As a result, certain amounts included in interest income, non-interest income, BaaS loan expense, non-interest expense, and the related balance sheet accounts were not recognized in accordance with U.S. generally accepted accounting principles, which required a restatement of the financial statements for the year ended December 31, 2023, and the interim quarterly periods in 2024 and 2023.
Remediation Plan
Since identifying the material weaknesses, management, under the oversight of the Audit Committee has committed to remediate these deficiencies. The Company continues to execute on its remediation plan, which includes implementing controls to:
•Enhance our risk assessment procedures over third-party reports to identify whether additional control activities are needed to conform third party reports to the Company’s accounting policies.
•Periodically verify the accounting policies used by a specific BaaS partner
•Evaluate whether any entries are needed to adjust the interest income and BaaS loan expense reflected on the specific BaaS partner’s system reports
•Evaluate whether any adjustments are needed to third party revenue reports to comply with the Company’s accounting policies.
Change in Internal Control over Financial Reporting.
Other than the remediation efforts described above, there were no changes in the Company’s internal control over financial reporting occurred during the nine months ended September 30, 2025, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are a party to various litigation matters incidental to the conduct of our business. We do not believe that any currently pending legal proceedings will have a material adverse effect on our business, financial condition or earnings.
Item 1A. Risk Factors
For information regarding the Company’s risk factors, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, which are incorporated by reference herein. As of September 30, 2025, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of the Company’s equity securities during the nine months ended September 30, 2025.
The Company did not repurchase any of its equity securities during the nine months ended September 30, 2025 and does not have any authorized share repurchase programs.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended September 30, 2025, no director or officer of the Company adopted , modified or terminated
•On September 15, 2025 , Brian Hamilton , CCBX President , adopted a Rule 10b5-1 trading arrangement, intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), for the planned sell-to-cover of common stock for tax withholding purposes for any vesting events that occur while this plan is in effect, subject to certain conditions. The arrangement will terminate on the earlier of (a) January 1, 2027 , (b) the 2nd business day after Mr. Hamilton, or Broker, notifies the other in writing that it shall terminate, or (c) subject to certain conditions.
•On September 15, 2025 , Brian Hamilton , CCBX Presiden t, adopted a Rule 10b5-1 trading arrangement, intended to satisfy the affirmative defense conditions of Rule 10b5-1(c), for the potential sale of up to 10,079 shares of common stock, subject to certain conditions. The arrangement will terminate on the earlier of (a) January 1, 2027 , (b) the 2nd business day after Mr. Hamilton, or Broker, notifies the other in writing that it shall terminate, or (c) subject to certain conditions.
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Item 6. Exhibits
| 10.1+ | Employee Agreement by and among Coastal Financial Corporation, Coastal Community Bank, and Brandon Soto dated October 1, 2025. | ||||
| 10.2+ | Offer Letter by and among Coastal Financial Corporation, Coastal Community Bank, and Brandon Soto dated September 22, 2025. | ||||
| 10.3+ | RSU Award Agreement by and among Coastal Financial Corporation, Coastal Community Bank, and Brandon Soto dated September 22, 2025. | ||||
| 10.4+ | PSU Award Agreement by and among Coastal Financial Corporation, Coastal Community Bank, and Brandon Soto dated October 1, 2025. | ||||
| 10.5+ | Separation Agreement by and among Coastal Financial Corporation, Coastal Community Bank, and Curt Queyrouze dated September 9, 2025. | ||||
| 10.6+ | Separation Agreement by and among Coastal Financial Corporation, Coastal Community Bank, and Andy Stines dated September 29, 2025. | ||||
| 31.1 | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||
| 31.2 | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||
| 32.1 | Certifications of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||
| 32.2 | Certifications of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||
| 101 | The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter months ended September 30, 2025, formatted in inline XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statement of Changes in Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows and (vi) the Notes to the Consolidated Financial Statements. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. | ||||
| 104 | Cover Page Interactive Data (formatted as Inline XBRL and contained in Exhibit 101 filed herewith) | ||||
+ Management contract of compensatory plan, contract or arrangement.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| COASTAL FINANCIAL CORPORATION | |||||||||||
| Dated: | November 6, 2025 | By: | /s/ Eric M. Sprink | ||||||||
| Eric M. Sprink | |||||||||||
| Chief Executive Officer | |||||||||||
| (Principal Executive Officer) | |||||||||||
| Dated: | November 6, 2025 | By: | /s/ Brandon J. Soto | ||||||||
| Brandon J. Soto | |||||||||||
| Executive Vice President and | |||||||||||
| Chief Financial Officer | |||||||||||
| (Principal Financial Officer) | |||||||||||
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[8-K] COASTAL FINANCIAL CORP Reports Material Event
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[8-K] COASTAL FINANCIAL CORP Reports Material Event