Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
This discussion should be read in conjunction with the consolidated financial statements and the related notes that appear elsewhere in this Form 10-K.
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. 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) and have one loan production office in King County. The CCBX segment provides banking as a service (“BaaS”) that allows our digital financial service partners to offer their customers banking services. The CCBX segment had 28 partners as of December 31, 2025. The treasury & administration segment includes investments, debt and other reporting items that are not specific to the community bank or CCBX segments. The Bank’s deposits are insured in whole or in part by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to regulation by the Federal Reserve and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has supervisory authority over the Company.
As of December 31, 2025, we had total assets of $4.74 billion, total loans receivable of $3.75 billion, total deposits of $4.14 billion and total shareholders’ equity of $491.0 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. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and the accompanying notes presented elsewhere in this Annual Report on Form 10-K.
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, salaries and employee benefits, BaaS fraud expense, legal and professional expenses, data processing and software licenses and occupancy expense. 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.
Key Factors Affecting our Business
Average Balances and Interest Rates
Our operating results depend primarily on our net interest income, which is the largest contributor to our net income and is the difference between the interest and fees earned on interest-earning assets (such as loans and securities) and the interest expense incurred in connection with interest-bearing liabilities (such as deposits and borrowings). Net interest income is primarily a function of the average balances of interest-earning assets and interest-bearing liabilities and the yields and costs with respect to these assets and liabilities. Average balances are influenced by internal considerations such as the types of products we offer and the amount of risk that we are willing to assume as well as external influences
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such as economic conditions, competition for loans and deposits, and interest rates. The yields generated by our loans and securities are typically affected by short-term and long-term interest rates and, in the case of loans, competition for similar products in our market area. Interest rates are often impacted by the actions of the Federal Reserve. The cost of our deposits and short-term borrowings is primarily based on short-term interest rates, which are largely driven by competition and by the actions of the Federal Reserve. The level of net interest income is influenced by movements in interest rates and the pace at which such movements occur, as well as the relationship between short- and long-term interest rates.
Credit Quality
We have well established loan policies and underwriting practices that have resulted in low levels of charge-offs and nonperforming assets for the community bank. Through our thorough underwriting process, we strive to originate quality loans that will maintain and enhance the overall credit quality of our loan portfolio, and through our careful monitoring of our community bank loan portfolio and prompt attention to delinquencies, we seek to minimize the impact of problem loans. However, credit trends in the markets in which we operate are largely impacted by economic conditions beyond our control and can adversely impact our financial condition. We originate loans through our CCBX partners and while these loans will have higher levels of charge-offs and nonperforming assets, agreements with our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses. For additional information on credit enhancements see Item 1. Business - Concentrations of Credit Risk section. If our partners are unable to fulfill their contracted obligations then the Bank would be to additional credit as a result of this counterparty risk. Management regularly evaluates and manages this counterparty risk.
Operating Efficiency
The largest component of noninterest expense is BaaS loan expense and salaries and employee benefits. Other significant operating expenses include BaaS fraud expense, legal and professional expenses, data processing and software licenses and occupancy expense. Our operating efficiency, as measured by our efficiency ratio, has gradually improved primarily because the growth of our deposits and loans has enabled our net interest income and noninterest income to outpace the growth of our expenses. When we make substantial investments in our infrastructure and make investments to increase our operating capacity, our operating efficiency ratio decreases until we generate enough revenue growth to offset the increased costs however, prior to making such investments, we focus on how best and most expediently we can achieve the revenue growth necessary to offset the costs of these investments or new branches. Our efficiency ratio has been impacted by the increase in CCBX income and CCBX expense. Our efficiency ratio was 53.13% at December 31, 2025, compared to 42.38% at December 31, 2024. This ratio increased as a result of an increase in net interest income, decrease in credit income and higher noninterest expenses for the year ended December 31, 2025 compared to the year ended December 31, 2024.
Economic Conditions
Our business and financial performance are affected by economic conditions generally in the United States for CCBX and more directly for the community bank in the markets in the Puget Sound region where we operate. The significant economic factors that are most relevant to our business and our financial performance include, but are not limited to, real estate values, interest rates and unemployment rates. In recent years, the Puget Sound region has experienced significant population gain, fueled in large part by the region’s technology industry, low unemployment and rising real estate values, all of which positively impacted our business. The macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters and trade issues that contribute to economic uncertainty which has caused increased market volatility and may lead to a significant decrease in consumer confidence and business generally.
Critical Accounting Estimates and Significant Accounting Policies
Our accounting policies are integral to understanding our results of operations. Our accounting policies are described in greater detail in Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. Our critical accounting estimates are included and discussed below. These assumptions, estimates and judgments we use can be influenced by a number of factors, including the general economic environment. Actual results could differ from these judgments and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of
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operations. We believe that of our accounting policies, the following accounting policies may involve a higher degree of judgment and complexity:
Allowance for Credit Losses
The allowance for credit losses ("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 Company must estimate expected credit losses over the loans’ contractual terms, adjusted for expected prepayments. In estimating the life of the loan, the Company 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 Company. 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 from loan segments utilizing loan level information and relevant available 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.
Determining the amount of the allowance is considered a critical accounting estimate, as it requires significant judgment and the use of subjective measurements, including management’s assessment of overall portfolio quality. The Company maintains the allowance at an amount the Company believes is sufficient to provide for estimated losses expected to occur in the Company’s loan portfolio at each balance sheet date, and fluctuations in the provision for credit losses may result from management’s assessment of the adequacy of the allowance. Changes in these estimates and assumptions are possible and may have a material impact on the Company’s allowance, and therefore the Company’s financial position, liquidity or results of operations. The Company has elected to exclude accrued interest receivable from the amortized cost basis in its ACL calculation as accrued interest is written off in a timely manner when deemed uncollectible.
The Company decreased the allowance from $177.0 million at December 31, 2024 to $169.5 million at December 31, 2025. The change is largely related to improved credit quality decreasing the provision for CCBX loans. The Company uses CCBX partner data, industry data and its own credit loss data to develop an appropriate allowance for the risk inherent in the CCBX loan portfolio. For more information and discussion related to the allowance for credit losses, see “ Note 4 - Loans and Allowance for Credit Losses” in the Consolidated Financial Statements.
Revenue Recognition
We record revenue from contracts with customers in accordance with ASU 2014-09, Revenue from Contracts with Customers (“Topic 606”). Under Topic 606, the Company must identify the contract with a customer, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract and recognize revenue when (or as) the Company satisfies a performance obligation. Significant revenue has not been recognized in the current reporting period that results from performance obligations satisfied in previous periods. A large portion of the Company’s revenue are derived from interest and fees earned on loans, investment securities and other financial instruments that are not within the scope of Topic 606. The Company generally fully satisfies its performance obligations on its contracts with customers as services are rendered and the transaction prices are typically fixed, charged either on a periodic basis or based on activity. Because performance obligations are satisfied as services are
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rendered and the transaction prices are fixed, there is little judgment involved in applying Topic 606 that significantly affects the determination of the amount and timing of revenue from contracts with customers.
The recording of BaaS income and expense is in accordance with accounting guidance, and is dependent upon the contractual agreement with each partner with certain components of BaaS income being consistent across agreements. Agreements with many of our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred credit and fraud losses. In accordance with accounting guidance, we estimate and record a provision for probable losses 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 enhancement). Incurred losses are recorded in the allowance for credit losses, and the credit enhancement asset is relieved when credit enhancement payments and recoveries are received from the CCBX partner. Many agreements with our CCBX partners also provide protection to the Bank from by absorbing incurred . are recorded when incurred in noninterest expense, and the recovery received from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement. that provide protection to the Bank from credit and are not within the scope of Topic 606.
For the year ended December 31, 2025, noninterest income subject to Topic 606 increased $9.7 million to $34.3 million, compared to $24.7 million for the year ended December 31, 2024. The increase was largely due to an increase in BaaS program income resulting from increased activity and growth with active CCBX partners. For more information and discussion related to revenue recognition, see “ Note 19 – Revenue Recognition” in the Consolidated Financial Statements.
Recent Pronouncements
For a discussion of the expected impact of accounting pronouncements recently adopted and accounting pronouncements recently issued but not yet adopted by us as of December 31, 2025, see “ Note 2 – Recent Accounting Standards ” in the accompanying notes to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Results of Operations
The following discussion is intended to assist in understanding the financial condition and results of operations of the Company as of and for the year ended December 31, 2025. The information contained in this section should be read together with the December 31, 2025 audited Consolidated Financial Statements and the accompanying Notes included in Item 8. Financial Statements and Supplementary Data of this Form 10-K.
This section of this Form 10-K generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussions of 2023 items and year-to-year comparisons between 2024 and 2023 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.
Net Income
Year Ended December 31, 2025, Compared to Year Ended December 31, 2024 . Net income for the year ended December 31, 2025 was $47.0 million, or $3.06 per diluted share, compared to $45.2 million, or $3.26 per diluted share, for the year ended December 31, 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 $37.0 million in net interest income, partially offset by an increase of $10.6 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 $9.4 million. The increase is partially offset by a $15.8 million increase in salaries and employee benefits, a $4.7 million increase in legal and professional expenses and an $8.0 million increase in data processing and software licenses all related to growth and investments in technology. Additionally, there was an increase in the provision for income taxes of $2.2 million as a result of higher net income, an increase in effective tax rate resulting from an increase in state taxes, and the taxability of certain equity awards.
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Net Interest Income
Year Ended December 31, 2025, Compared to Year Ended December 31, 2024 . Net interest income for the year ended December 31, 2025, was $310.1 million, compared to $273.0 million for the year ended December 31, 2024, an increase of $37.0 million, or 13.6%. The increase in net interest income compared to the year ended December 31, 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 $397.6 million for the year ended December 31, 2025 compared to $372.0 million for the year ended December 31, 2024. The $25.6 million increase in interest and fees on loans for the year ended December 31, 2025, compared to the year ended December 31, 2024, was largely due to growth in CCBX and community bank loans. Total average loans receivable for the year ended December 31, 2025 was $3.61 billion, compared to $3.32 billion for the year ended December 31, 2024.
CCBX average loans receivable grew to $1.73 billion for the year ended December 31, 2025, compared to $1.43 billion for the year ended December 31, 2024, an increase of $302.4 million, or 21.2%. Average CCBX yield of 15.87% and 17.39% was earned on CCBX loans for the years ended December 31, 2025 and December 31, 2024, respectively. 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 $101.5 million higher compared to December 31, 2024. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield.
Community bank average loans receivable was fairly flat at $1.88 billion for the year ended December 31, 2025, compared to $1.89 billion for the year ended December 31, 2024, representing a decrease of $8.5 million, or 0.4%. Average yield of 6.52% was earned on community bank loans for the year ended December 31, 2025, compared to 6.54% for the year ended December 31, 2024.
Interest income from interest earning deposits with other banks was $29.0 million for the year ended December 31, 2025, an increase of $7.7 million largely due to an increase in balances, compared to the year ended December 31, 2024. The average balance of interest earning deposits invested with other banks for the year ended December 31, 2025 was $671.7 million, compared to $405.5 million for the year ended December 31, 2024. Interest income on investment securities decreased $529,000 to $2.5 million. Average investment securities decreased $19.2 million from $65.5 million for the year ended December 31, 2024 to $46.2 million for the year ended December 31, 2025 as a result of maturing securities and principal paydowns.
Interest expense was $119.6 million for the year ended December 31, 2025, a $4.2 million decrease from the year ended December 31, 2024. Interest expense on deposits was $116.9 million for the year ended December 31, 2025, compared to $120.9 million for the year ended December 31, 2024. The $4.0 million decrease in interest expense on deposits was due to decreases in interest rates despite an increase in average interest bearing deposits of $439.2 million. Interest on borrowed funds was $2.6 million for the year ended December 31, 2025 and $2.8 million for the year ended December 31, 2024. The $179,000 decrease in interest expense on borrowed funds from the year ended December 31, 2024 is primarily the result of a decrease in interest rates on the junior subordinated debt, which decreased 1.00% to 6.77% for the year ended December 31, 2025, compared to 7.77% for the year ended December 31, 2024.
Net interest margin was 7.14% for the year ended December 31, 2025, compared to 7.18% for the year ended December 31, 2024. The decrease in net interest margin compared to the year ended December 31, 2024 was largely a result of a decrease of 0.20% for yield on loans and a decrease of 0.93% on interest bearing deposits with other banks partially offset by a decrease of 0.48% for cost of deposits, despite a $439.2 million increase in average interest bearing deposits, many of which were impacted by a lower Fed Funds rate for all of 2025.
Cost of funds was 3.02% for the year ended December 31, 2025, compared to 3.49% for the year ended December 31, 2024. Cost of deposits for the year ended December 31, 2025 was 2.99%, which was a 0.48% decrease, from 3.46% for the year ended December 31, 2024. These decreases were largely due to lower interest rates compared to the prior year period.
Total yield on loans receivable for the year ended December 31, 2025 was 11.00%, compared to 11.20% for the year ended December 31, 2024. This decrease in yield on loans receivable is primarily attributed to lower interest rates and a change in loan mix. For the year ended December 31, 2025, average CCBX loans increased $302.4 million, or 21.2%,
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with an average CCBX yield of 15.87%, compared to 17.39% for the year ended December 31, 2024. There was a decrease in average community bank loans of $8.5 million, or 0.4%, compared to the year ended December 31, 2024. Average yield on community bank loans for the year ended December 31, 2025 was 6.52%. compared to 6.54% for the year ended December 31, 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 Year Ended
December 31, 2025
December 31, 2024
December 31, 2023
Yield on
Loans
Cost of
Deposits
Yield on
Loans
Cost of
Deposits
Yield on
Loans
Cost of
Deposits
Community Bank
CCBX (1)
Consolidated
(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.”
For the Year Ended
December 31, 2025
December 31, 2024
December 31, 2023
(dollars in thousands)
Income / Expense
Income / expense divided by average CCBX loans
Income / Expense
Income / expense divided by average CCBX loans
Income / Expense
Income / expense divided by average CCBX loans
BaaS loan interest income
Less: BaaS loan expense
Net BaaS loan income (1)
Average BaaS Loans (2)
(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) Includes loans held for sale.
For the year ended December 31, 2025, net interest margin (net interest income divided by the average total interest earning assets) and net interest spread (average yield on total interest earning assets minus average cost of total interest bearing liabilities) were 7.14% and 6.36%, respectively, compared to 7.18% and 6.25%, respectively, for the year ended December 31, 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 loan costs included in interest income, totaled $9.3 million, $8.9 million and $6.3 million for the years ended December 31, 2025, 2024 and 2023, respectively.
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Average Balance Sheets
For the Year Ended December 31,
(dollars in thousands)
Average
Balance
Interest &
Dividends
Yield /
Cost
Average
Balance
Interest &
Dividends
Yield /
Cost
Average
Balance
Interest &
Dividends
Yield /
Cost
Assets
Interest earning assets:
Interest earning deposits with
other banks
Investment securities, available for sale (1)
Investment securities, held to maturity (1)
Other investments
Loans receivable (2)
Total interest earning assets
Noninterest earning assets:
Allowance for credit losses
Other noninterest earning assets
Total assets
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Interest bearing deposits
FHLB advances and other borrowings
Subordinated debt
Junior subordinated debentures
Total interest bearing liabilities
Noninterest bearing deposits
Other liabilities
Total shareholders' equity
Total liabilities and shareholders' equity
Net interest income
Interest rate spread
Net interest margin (3)
(1) 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.
(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.
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The following table presents an analysis of certain average balances, interest income and interest expense that are specific to each segment. Items that are not directly attributed to the segment are not listed:
For the Year Ended
December 31, 2025
December 31, 2024
December 31, 2023
(dollars in thousands)
Average
Balance
Interest &
Dividends
Yield /
Cost
Average
Balance
Interest &
Dividends
Yield /
Cost
Average
Balance
Interest &
Dividends
Yield /
Cost
Community Bank
Assets
Interest earning assets:
Loans receivable (1)
Total interest earning assets
Liabilities
Interest bearing liabilities:
Interest bearing deposits
Intrabank liability, net (6)
Total interest bearing liabilities
Noninterest bearing deposits
Net interest income
Net interest margin (2)
CCBX
Assets
Interest earning assets:
Loans receivable (1)(3)
Intrabank asset, net (6)
Total interest earning assets
Liabilities
Interest bearing liabilities:
Interest bearing deposits
Total interest bearing liabilities
Noninterest bearing deposits
Net interest income
Net interest margin (2)
Net interest margin, net of
BaaS loan expense (4)
For the Year Ended
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December 31, 2025
December 31, 2024
December 31, 2023
(dollars in thousands)
Average
Balance
Interest &
Dividends
Yield /
Cost
Average
Balance
Interest &
Dividends
Yield /
Cost
Average
Balance
Interest &
Dividends
Yield /
Cost
Treasury & Administration
Assets
Interest earning assets:
Loans receivable (1)
Interest earning deposits with
other banks
Investment securities, available
for sale (5)
Investment securities, held to
maturity (5)
Other investments
Total interest earning assets
Liabilities
Interest bearing liabilities:
FHLB advances and borrowings
Subordinated debt
Junior subordinated debentures
Intrabank liability, net (6)
Total interest bearing liabilities
Net interest income
Net interest margin (2)
(1) Includes loans held for sale and nonaccrual loans.
(2) Net interest margin represents net interest income divided by the average total interest earning assets.
(3) 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.
(4) 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. ”
(5) 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.
(6) 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 $32.4 million increase in loan interest income that is attributable to an increase in loan volume partially offset by a decrease of $6.8 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.
Year Ended December 31, 2025
Compared to
Year Ended December 31, 2024
Year Ended December 31, 2024
Compared to
Year Ended December 31, 2023
Increase (Decrease)
Due to
Total Increase
(Decrease)
Increase (Decrease)
Due to
Total Increase
(Decrease)
(dollars in thousands)
Volume
Rate
Volume
Rate
Interest income:
Interest earning deposits
Investment securities, available-for-sale
Investment securities, held-to-maturity
Other Investments
Loans receivable
Total increase in interest income
Interest expense:
Interest bearing deposits
FHLB advances
Subordinated debt
Junior subordinated debentures
Total increase in interest expense
Increase in net interest income
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 is deemed appropriate by management to absorb expected losses on existing loans. For a description of the factors taken into account by our management in determining the allowance for credit losses see “Item 7. Management’s Discussion and Analysis of Financial Condition and Operations—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, 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 $3.75 billion at December 31, 2025. The allowance for credit losses as a percentage of loans was 4.52% at December 31, 2025, compared to 5.08% at December 31, 2024.
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Agreements with our CCBX partners provide for a credit enhancement provided by the partner which protects the Bank by indemnifying or reimbursing incurred losses. CCBX partners bear most of the responsibility for credit losses incurred which consequently gives them vested interests in the performance of the portfolio. We believe that this alignment of interests ensures that CCBX partners are motivated to implement robust risk management practices and maintain the overall health of the portfolio. In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans and reclassified negative deposit accounts. When the provision for credit losses - loans and provision for unfunded commitments are recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements) in recognition of the CCBX partner's legal commitment to indemnify or reimburse losses. The credit enhancement asset is relieved as credit payments are received from the CCBX partner or taken from the partner's cash reserve account.
Year Ended December 31, 2025, Compared to Year Ended December 31, 2024 . The provision for credit losses - loans for the year ended December 31, 2025, was $189.4 million compared to $275.7 million for the year ended December 31, 2024. The decrease in the Company’s provision for credit losses - loans during the year ended December 31, 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 year ended December 31, 2025, a $190.0 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 recapture of $666,000 was needed for the year ended December 31, 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:
Year Ended
(dollars in thousands)
December 31, 2025
December 31, 2024
December 31, 2023
Community bank
CCBX
Total provision expense
Net charge-offs for the year ended December 31, 2025 totaled $196.8 million, or 5.45% of total average loans, as compared to net charge-offs of $216.1 million, or 6.51% of total average loans, for the year ended December 31, 2024. Net charge-offs decreased in 2025 compared to 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 losses are recorded as charge-offs, but CCBX partner agreements provide for a credit enhancement that indemnifies the Bank from incurred losses, and as a result CCBX partners reimburse the Bank for net-charge-offs on CCBX loans and negative deposit accounts, except in accordance with the program agreement for one partner where the Company is responsible for credit losses on approximately 5% of a $321.3 million loan portfolio. At December 31, 2025, our portion of this portfolio represented $22.1 million in loans. Provision expense on these loans was $4.9 million and $6.0 million for the years ended December 31, 2025 and 2024, respectively, with net charge-offs of $4.6 million in 2025 and $5.6 million in 2024. In 2025, $196.8 million of net-charge-offs were recognized for CCBX loans and $27,000 of net charge-offs were recognized for community bank loans. In 2024, $215.5 million of charge-offs were recognized for CCBX loans and $540,000 of net charge-offs were recognized for community bank loans.
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The following table show the total charge-off activity by segment for the periods indicated:
Year Ended
December 31, 2025
Year Ended
December 31, 2024
Year Ended
December 31, 2023
(dollars in thousands)
Community Bank
CCBX
Total
Community Bank
CCBX
Total
Community Bank
CCBX
Total
Gross charge-offs
Gross recoveries
Net charge-offs
Net charge-offs to
average loans
% of CCBX net
charge-offs
covered by credit
enhancement
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.
For the year ended December 31, 2025, noninterest income totaled $231.6 million, a decrease of $76.6 million, or (24.9)%, compared to $308.2 million for the year ended December 31, 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 $9.4 million in BaaS program income.
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The following table presents, for the periods indicated, the major categories of noninterest income:
Year Ended
December 31,
2025 compared to 2024
2024 compared to 2023
(dollars in thousands)
Increase
(Decrease)
Percent
Change
Increase
(Decrease)
Percent
Change
Service charges and fees
Loan referral fees
Gain on sales of loans, net
Unrealized gain (loss) on equity securities, net
Other
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 BaaS income
Total noninterest income
A description of our largest noninterest income categories are below:
BaaS Income . Our CCBX segment provides BaaS offerings that enable our digital financial service providers to offer their customers banking services. 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. 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 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 are expensed in noninterest expense under BaaS expense. Also in accordance with GAAP, we establish a credit asset for expected future credit through the recognition of BaaS credit revenue at the same time we establish an allowance for those loans though a provision for credit - loans. For more information on the accounting for BaaS allowance for credit , reserve for commitments, credit and see the section titled “CCBX – BaaS Reporting Information.”
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For the year ended December 31, 2025, we earned $225.2 million in BaaS fees, which was a decrease of $77.6 million, or 25.6%, over the year ended December 31, 2024, when we earned $302.7 million in BaaS fees. The decrease from the year ended December 31, 2024 was primarily due to a decrease of $85.2 million in BaaS credit enhancements related to the allowance for credit losses and reserve for unfunded commitments and a decrease of $1.8 million in BaaS fraud enhancements, partially offset by an increase of $9.4 million in total BaaS fee program income, which was the result of increased partner activity.
Service Charges and Fees. S ervice 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 fee income. Service charges and fees were $3.6 million for the year ended December 31, 2025, a decrease of $180,000, or 4.8%, from the prior year primarily due to decreases in point-of-sale fees of $194,000 partially offset by an increase in service charges on deposit accounts of $9,000.
The following table presents service charges and fees for the periods indicated:
Year Ended
December 31,
2025 compared to 2024
2024 compared to 2023
(dollars in thousands)
Increase
(Decrease)
Percent
Change
Increase
(Decrease)
Percent
Change
Point of sale fees
Service charges on accounts
Merchant services
ATM fees
Overdraft and NSF fees
Cash management fees
Other
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 the 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 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 are making interest rate swap agreements less attractive in the higher rate environment. Loan referral fees were $0 for the year ended December 31, 2025, a decrease of $168,000, or 100.0%, from the year ended December 31, 2024. Interest rate volatility, swap rates, and the timing of loan closings all impact the demand for long-term fixed rate swaps.
Gain on Sale of Loans, net . Gain on sales of loans occurs when we sell certain CCBX loans to the originating partner, in accordance with partner agreements, however most partner loan sales are at par. Gain on sale of loans may also occur when we sell in the secondary market the guaranteed portion (generally 75% of the principal balance) of the SBA and U.S. Department of Agriculture (“USDA”) loans that we originate. This activity fluctuates based on SBA and USDA loan activity.
Unrealized gain (loss) on equity securities, net. During the year ended December 31, 2025, we recognized an unrealized loss on equity securities of $414,000, compared to the year ended December 31, 2024, when we recognized a $27,000 unrealized holding gain on equity securities. We hold $3.3 million in equity securities focused on entities providing products to the BaaS and financial services space.
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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. Other noninterest income increased $1.8 million, or 116.9%, for the year ended December 31, 2025 compared to the year ended December 31, 2024, due in large part to the addition of sweep fee income in 2025.
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 combined and salaries and employee benefits. Noninterest expense also includes operational expenses, such as legal and professional expenses, data processing and software licenses, occupancy, point of sale expenses, FDIC assessments, director and staff expenses, excise taxes, marketing and other expenses.
For the year ended December 31, 2025, noninterest expense totaled $287.8 million, an increase of $41.5 million, or 16.8%, compared to $246.3 million for the year ended December 31, 2024. Noninterest expense, excluding BaaS loan and BaaS fraud expense totaled $150.7 million and increased $32.8 million, or 27.8%. The $15.8 million increase in salaries and employee benefits, $4.7 million increase in legal and professional expenses and $8.0 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.
The following table presents, for the periods indicated, the major categories of noninterest expense:
Year Ended
December 31,
2025 compared to 2024
2024 compared to 2023
(dollars in thousands)
Increase
(Decrease)
Percent
Change
Increase
(Decrease)
Percent
Change
Salaries and employee benefits
Legal and professional expenses
Data processing and software licenses
Point of sale expense
Occupancy
FDIC assessments
Director and staff expenses
Excise taxes
Marketing
Other
Noninterest expense, excluding BaaS loan and BaaS fraud expense
BaaS loan expense
BaaS fraud expense
BaaS loan and fraud expense
Total noninterest expense
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Salaries and Employee Benefits. Salaries and employee benefits are the largest component of noninterest expense, excluding BaaS loan expense, and include payroll expense, incentive compensation costs, benefit plans, health insurance and payroll taxes. Salaries and employee benefits were $85.8 million for the year ended December 31, 2025, an increase of $15.8 million, or 22.7%, compared to $69.9 million for the year ended December 31, 2024. Contributing to the year-over-year variance in salaries and employee benefits was $2.1 million of employee restructuring costs related to organizational changes, including severance and other termination-related expenses. These costs included approximately $2.5 million of non-recurring stock-based compensation associated with accelerated vesting and modification-date fair value adjustments of equity awards in connection with employee departures, partially offset by a $2.0 million credit to salaries and employee benefits due to the forfeiture of other equity awards. As our CCBX activities grow and we invest more in technology, we expect some continued growth in number of employees to support these lines of business but 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. Legal and professional expenses were $20.3 million for the year ended December 31, 2025 compared to $15.5 million for the year ended December 31, 2024, which is an increase of $4.7 million, or 30.6%.
Data Processing and Software Licenses. Data processing and software licenses include expenses related to obtaining and maintaining software required for our various functions and additional investments in software development and the amortization of those costs. Capitalized software totaled $17.3 million as of December 31, 2025, compared to $15.7 million as of December 31, 2024. 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 helps to automate and create other 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. Amortization of capitalized software totaled $5.1 million for the year ended December 31, 2025, compared to $3.0 million for the year ended December 31, 2024. Data processing costs were $23.5 million for the year ended December 31, 2025, compared to $15.5 million for the year ended December 31, 2024, an increase of $8.0 million, or 52.0%.
Occupancy Expenses. Occupancy expenses were $4.0 million for the year ended December 31, 2025, compared to $3.9 million for the year ended December 31, 2024, an increase of $56,000, or 1.4%. This category includes building, leasehold, furniture, fixtures and equipment depreciation totaling $1.5 million for years ended December 31, 2025 and 2024. 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 workforce has increased, which helps keep some occupancy expenses down, however we do expect occupancy expenses to increase as we continue to grow.
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. Director and staff expenses were $2.7 million for the year ended December 31, 2025 compared to $2.1 million for the year ended December 31, 2024, an increase of $545,000, or 25.8%.
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. The year-over-year $1.7 million increase is largely due to a $1.2 million refund recorded during the year ended December 31, 2024, for which there was no similar entry in 2025. Excise taxes were $2.9 million for the year ended December 31, 2025, compared to $1.2 million for the year ended December 31, 2024, an increase of $1.7 million, or 147.4%.
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Marketing. Marketing and promotion costs were $631,000 for the year ended December 31, 2025, compared to $162,000 for the year ended December 31, 2024, an increase of $469,000, or 289.5%. Marketing and promotion costs will vary depending upon the deployment of branding and targeted advertising for the community bank and CCBX. We 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. Other noninterest expense increased to $7.5 million for the year ended December 31, 2025, compared to $6.5 million for the year ended December 31, 2024, an increase of $1.0 million, or 15.5%. Contributing to the increase was the $700,000 recognition of a payable related to the settlement of an employment-related matter.
BaaS loan and fraud expense. Our CCBX segment provides BaaS offerings that enable our digital financial service providers to offer their customers banking services. 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 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 the year ended December 31, 2025, BaaS loan and expense was $137.1 million, compared to $128.4 million for the year ended December 31, 2024 as a result of increased partner activity. For more information on the accounting for BaaS loan and expenses see the section titled “CCBX – BaaS Reporting Information.”
The following table presents, for the periods indicated, the BaaS loan and fraud expenses:
Year Ended
December 31,
2025 compared to 2024
2024 compared to 2023
(dollars in thousands)
Increase
(Decrease)
Increase
(Decrease)
BaaS loan expense
BaaS fraud expense
Total BaaS loan and fraud expense
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 December 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 December 31, 2025.
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Year Ended December 31, 2025, Compared to Year Ended December 31, 2024. For the year ended December 31, 2025, income tax expense totaled $14.3 million, compared to $12.1 million for the year ended December 31, 2024. Our effective tax rates for the years ended December 31, 2025, and 2024, was 23.3% and 21.1%, respectively. The $2.2 million increase in income tax expense was largely due to an increase in the state income tax rate used to calculate provision for income taxes and higher net income before income taxes. The deductibility of certain equity awards also impacts income tax expense.
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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 banking as a service (“BaaS”) that allows our digital financial service partners to offer their customers banking services. The CCBX segment had 28 relationships, at varying stages, including one signed letter of intent as of December 31, 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 items to the Company’s various segments to support strategic business decisions by the Company’s executive leadership. The difference in total loans receivable and total deposits in the community bank and CCBX segments is recorded on the balance sheet of each segment as an intrabank asset or intrabank liability, with the treasury & administration segment as the offset to those entries. Income and expenses that are specific to a segment are directly posted to each segment. Additionally, certain indirect expenses are allocated to each segment utilizing various metrics, such as number of employees, utilization of space, and allocations based on loan and deposit balances. We have implemented a transfer pricing process that credits or charges the community bank and CCBX segments with intrabank interest income or expense for the difference in average loans and average deposits, with the treasury & administration segment as the offset for those entries. The accounting policies of the segments are the same as those described in “ Note 1 – Description of Business and Summary of Significant Accounting Policies ” in the accompanying notes to the consolidated financial statements included in this report.
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The following table presents summary financial information for each segment for the periods indicated:
December 31, 2025
December 31, 2024
(dollars in thousands)
Community Bank
CCBX
Treasury & Administration
Consolidated
Community Bank
CCBX
Treasury & Administration
Consolidated
Assets
Cash and due from banks
Intrabank asset
Securities
Loans held for sale
Total loans receivable
Allowance for credit losses
All other assets
Total assets
Liabilities
Total deposits
Total borrowings
Intrabank liability
All other liabilities
Total liabilities
Community Bank
Community bank total assets as of December 31, 2025 increased $61.0 million, or 3.2%, to $1.96 billion, compared to $1.90 billion as of December 31, 2024. Loans receivable net of deferred fees for the community bank segment increased $59.0 million, or 3.1%, to $1.94 billion as of December 31, 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 $65.1 million, or 4.28%, as of December 31, 2025, compared to $1.52 billion as of December 31, 2024. Our cost of deposits for the community bank was 1.71% for the year ended December 31, 2025.
CCBX
CCBX total assets as of December 31, 2025 increased $497.1 million, or 23.7%, to $2.60 billion, compared to $2.10 billion as of December 31, 2024. During the year ended December 31, 2025, $6.69 billion in CCBX loans were transferred to loans held for sale, with $6.64 billion in loans sold and $71.2 million loans remaining in loans held for sale as of December 31, 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 $204.0 million, or 12.7%, to $1.81 billion as of December 31, 2025, compared to $1.60 billion as of December 31, 2024. The increase in loans receivable is the result of increased activity with CCBX partners, net of $6.64 billion in loan sales. As a result of an increase in the difference of average
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deposits compared to average loans the intrabank asset increased $221.8 million to $633.6 million as of December 31, 2025, compared to $411.8 million as of December 31, 2024. CCBX allowance for credit losses decreased to $151.3 million as of December 31, 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 $192.2 million, or 97.7%, of the charge-offs on CCBX loans for the year ended December 31, 2025. CCBX partners bear most of the responsibility for credit losses incurred which consequently gives them a vested interest in the performance of the portfolio. We believe that this alignment of interests ensures that CCBX partners are motivated to implement robust risk management practices and maintain the overall health of the portfolio. Total CCBX deposits increased $493.8 million, or 23.9%, to $2.56 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 $843.6 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 total assets as of December 31, 2025 increased $62.1 million, or 49.9%, to $186.7 million, compared to $124.6 million as of December 31, 2024, primarily due to an increase in cash and due from banks. Total securities increased $926,000, or 2.0%, to $48.2 million as of December 31, 2025, compared to $47.3 million as of December 31, 2024, due to the purchase of CRA securities, partially offset by principal repayments on securities. Total borrowings were $48.0 million as of both December 31, 2025 and December 31, 2024.
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The following table presents summary financial information for each segment for the periods indicated.
Year Ended
December 31, 2025
December 31, 2024
December 31, 2023
(dollars in thousands)
Community Bank
CCBX
Treasury & Admin
Total
Community Bank
CCBX
Treasury & Admin
Total
Community Bank
CCBX
Treasury & Admin
Total
INTEREST INCOME AND EXPENSE
Interest income
Interest (expense)
income intrabank
transfer
Interest expense
Net interest income
Provision for credit
losses
Net interest income
(expense) after
provision
(recapture) for
credit losses
NONINTEREST INCOME
Service charges and fees
Other income
BaaS program income
BaaS indemnification
income
Noninterest income
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Year Ended
December 31, 2025
December 31, 2024
December 31, 2023
(dollars in thousands)
Community Bank
CCBX
Treasury & Admin
Total
Community Bank
CCBX
Treasury & Admin
Total
Community Bank
CCBX
Treasury & Admin
Total
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 (loss)
Community Bank
Year Ended December 31, 2025, Compared to Year Ended December 31, 2024. Net interest income for the community bank was $82.4 million for the year ended December 31, 2025, an increase of $6.8 million, or 9.0%, compared to $75.6 million for the year ended December 31, 2024. The increase in net interest income is due to lower interest expense, due largely to lower interest rates, on the intrabank transfer. As a result of the community bank having higher average loans than deposits for the year ended December 31, 2025 compared to the year ended December 31, 2024, an intrabank interest expense for the community bank of $13.8 million was recorded for the year ended December 31, 2025, compared to intrabank interest expense of $21.3 million for the year ended December 31, 2024. This was partially offset by lower interest income on loans due to a change in loan mix. There was a provision recapture for credit losses for the community bank of $504,000 for the year ended December 31, 2025, compared to a provision recapture for credit losses of $1.4 million for the year ended December 31, 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 year ended December 31, 2025 and December 31, 2024, respectively. Noninterest income for the community bank was $4.1 million for the year ended December 31, 2025, a decrease of $345,000, or 7.8%, compared to $4.4 million for the year ended December 31, 2024. Loan referral fees decreased $168,000 for the year ended December 31, 2025 compared to the year ended December 31, 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 $11.3 million, or 31.0%, to $47.9 million as of December 31, 2025, compared to $36.5 million as of December 31, 2024. The increase in noninterest expense is largely due to higher salaries and employee benefits, data processing and software licenses and legal and
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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
Year Ended December 31, 2025, Compared to Year Ended December 31, 2024. Net interest income for CCBX was $211.2 million for the year ended December 31, 2025, an increase of $26.7 million, or 14.5%, compared to $184.5 million for the year ended December 31, 2024. The increase in net interest income is due to loan growth from active CCBX relationships. During the year ended December 31, 2025, we sold $6.64 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 ongoing and recurring income without balance sheet risk. As a result of having higher average deposits than loans, but lower interest rates, for the year ended December 31, 2025 compared to the year ended December 31, 2024 intrabank interest income for CCBX was $26.7 million for the year ended December 31, 2025, compared to $30.2 million for the year ended December 31, 2024. Provision for credit losses was $193.1 million for the year ended December 31, 2025, compared to $279.0 million for the year ended December 31, 2024. The decrease in the provision is due to a change in loan mix and 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 in expected and lower provision expense. Noninterest income for CCBX was $226.4 million for the year ended December 31, 2025, a decrease of $76.4 million, or 25.2%, compared to $302.9 million for the year ended December 31, 2024, due to a decrease of $85.2 million in BaaS credit related to the allowance for credit and a $1.8 million decrease in BaaS , partially offset by a $9.4 million increase in total BaaS program income, which was the result of increased activity with our CCBX partners. Noninterest expenses for CCBX increased $28.1 million, or 16.1%, to $203.4 million for the year ended December 31, 2025, compared to $175.3 million for the year ended December 31, 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 year ended December 31, 2025, compared to the year ended December 31, 2024. For more information on the accounting for BaaS income and expenses see the section titled “ CCBX – BaaS Reporting Information. ”
Treasury & Administration
Year Ended December 31, 2025, Compared to Year Ended December 31, 2024. Net interest income for treasury & administration was $16.5 million for the year ended December 31, 2025, an increase of $3.5 million, or 27.3%, compared to $13.0 million for the year ended December 31, 2024, as a result of increased balances on interest earning assets. Noninterest income increased $191,000, or 21.4%, to $1.1 million for the year ended December 31, 2025, compared to $892,000 for the year ended December 31, 2024. Noninterest expense increased $2.0 million, or 5.8%, to $36.5 million for the year ended December 31, 2025, compared to $34.5 million for the year ended December 31, 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 $3.4 million compared to the year ended December 31, 2024 as more of these expenses have been directly expensed to the other segments.
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Financial Condition
Our total assets increased $620.2 million, or 15.0%, to $4.74 billion at December 31, 2025 from $4.12 billion at December 31, 2024. The increase is primarily comprised of a $263.0 million increase in loans receivable and a $286.7 million increase in interest earning deposits with other banks.
Loans Held For Sale
During the year ended December 31, 2025, $6.69 billion in CCBX loans were transferred to loans held for sale, with $6.64 billion in loans sold, $5.14 billion of which is new activity on previously sold credit card receivables. As of December 31, 2025 there were $71.2 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 primarily 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 December 31, 2025, loans receivable totaled $3.75 billion, an increase of $263.0 million, or 7.5%, compared to December 31, 2024. Total loans receivable is net of $7.3 million in net deferred origination fees. The increase includes CCBX loan growth of $204.0 million, or 12.7%, and community bank loan growth of $59.7 million, or 3.2%.
Loans as a percentage of deposits were 92.2% as of December 31, 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.
The following table summarizes our loan portfolio by type of loan as of the dates indicated:
As of December 31,
(dollars in thousands)
Amount
Percent
Amount
Percent
Commercial and industrial loans:
Capital call lines
All other commercial & industrial loans
Total commercial and industrial loans
Real estate loans:
Construction, land and land development
Residential real estate
Commercial real estate
Consumer and other loans
Gross loans receivable
Net deferred origination fees
Loans receivable
Loan Yield
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The following tables detail the loans by segment which are included in the total loan portfolio table above:
Community Bank
December 31, 2025
December 31, 2024
(dollars in thousands)
Balance
% to Total
Balance
% to Total
Commercial and industrial loans:
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
Net deferred origination fees
Loans receivable
Loan Yield
CCBX
December 31, 2025
December 31, 2024
(dollars in thousands)
Balance
% to Total
Balance
% to Total
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
Net deferred origination fees
Loans receivable
Loan Yield (1)
(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.
Commercial and Industrial Loans . Commercial and industrial loans increased $160.7 million, or 54.8%, to $454.1 million as of December 31, 2025, from $293.4 million as of December 31, 2024. The increase in commercial and industrial loans receivable over December 31, 2024 was due to an increase of $101.5 million in capital call lines combined with a $59.2 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
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industrial loans included $92.0 million and $48.6 million in loans to financial institutions as of December 31, 2025, and December 31, 2024, respectively.
Included in the commercial and industrial loan balance is $210.5 million and $109.0 million in capital call lines resulting from relationships with our CCBX partners as of December 31, 2025 and December 31, 2024, respectively, and $19.2 million and $34.0 million in CCBX other commercial loans as of December 31, 2025 and December 31, 2024, respectively. As of December 31, 2025 there was $224.4 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 $73.9 million, or 49.9%, to $222.1 million as of December 31, 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 $98.2 million at December 31, 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 in 2025, the macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters, and trade issues that have resulted in economic uncertainty and slowing in construction lending.
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 December 31, 2025, construction, land and land development loans included $124.9 million in commercial construction loans, $39.1 million in other construction, land and land development loans, $37.4 million in residential construction loans and $20.7 million in undeveloped land loans, compared to $83.2 million in commercial construction loans, $40.9 million in residential construction loans and $15.4 million in other construction, land and land development loans and $8.7 million in undeveloped land loans as of December 31, 2024.
Residential Real Estate Loans . Our one-to-four family residential real estate loans decreased $3.4 million, or 0.7%, to $466.4 million as of December 31, 2025, from $469.8 million as of December 31, 2024 due to a decrease of $3.6 million in CCBX loans partially offset by an increase of $229,000 in community bank loans.
As of December 31, 2025, there were $264.1 million in CCBX home equity loans included in residential real estate, compared to $267.7 million at December 31, 2024. 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 $927.1 million in CCBX residential real estate loans during the year ended December 31, 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 December 31, 2025 and December 31, 2024, we held $4.4 million, 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 conduct 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 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 $88.9 million, or 6.5%, to $1.29 billion as of December 31, 2025, from $1.37 billion as of December 31, 2024.
These increases, which occurred across the various segments of our portfolio, were due to our commitment to continue growing the 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.
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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 December 31, 2025, approximately 32.1% of the commercial real estate loan portfolio consisted of fixed rate loans. Commercial real estate loans represented 34.2% of our loan portfolio at December 31, 2025 and are a large source of revenue. As of December 31, 2025, we held $15.5 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 Loans . Consumer and other loans increased $121.7 million, or 10.1%, to $1.33 billion, from $1.21 billion as of December 31, 2024, as a result of growth in CCBX loans originated through our partners. We sold $5.27 billion in CCBX credit cards loans and $281.8 million in CCBX consumer and other loans during the year ended December 31, 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.
CCBX consumer loans totaled $1.31 billion as of December 31, 2025, compared to $1.19 billion at December 31, 2024. 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 $14.1 million as of December 31, 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.
Contractual Maturity Ranges . The contractual maturity ranges of loans in our loan portfolio and the amount of such loans with fixed and floating interest rates in each maturity range as of date indicated are summarized in the following table:
As of December 31, 2025
(dollars in thousands)
Due in One
Year or Less
Due after One
Year Through
Five Years
Due after Five
Years Through
Fifteen Years
Due After
Fifteen Years
Gross
Loans
Commercial and industrial loans:
Capital call lines
All other 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
Total
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The following table sets forth all loans at December 31, 2025, that are due after December 31, 2026, and have either fixed interest rates or floating or adjustable interest rates:
(dollars in thousands)
Fixed Rates
Floating or
Adjustable
Rates
Total
Commercial and industrial loans:
Capital call lines
All other 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
Total
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 $3.76 billion in outstanding loan balances. When combined with $2.31 billion in unused commitments the total of these categories is $6.06 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 $560.8 million . See " Material Cash Requirements and Capital Resources " for maximum limits on CCBX loans by category.
The following table summarizes our exposure by industry for our commercial real estate portfolio as of December 31, 2025:
(dollars in thousands)
Outstanding Balance
Available Loan Commitments
Total Outstanding Balance & Available Commitments
% of Total Loans
(Outstanding Balance &
Available Commitments)
Average Loan Balance
Number of Loans
Community bank commercial real estate loans
Apartments
Hotel/Motel
Convenience Store
Office
Retail
Warehouse
Mixed use
Mini Storage
Strip Mall
Manufacturing
Groups < 0.60% of total
Total
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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 $800.
The following table summarizes our exposure by category for our consumer and other loan portfolio as of December 31, 2025:
(dollars in thousands)
Outstanding Balance
Available Loan Commitments (1)
Total Outstanding Balance & Available Commitments (1)
CCBX Portfolio Maximum Limit (1)
% of Total Loans
(Outstanding Balance &
Available Commitments)
Average Loan Balance
Number of Loans
CCBX consumer loans
Installment loans
Credit cards
Lines of credit
Other loans
Community bank consumer loans
Lines of credit
Installment loans
Other loans
Total
(1) Total exposure on CCBX loans is subject to portfolio maximum limits.
The following table summarizes our exposure by category for our residential real estate portfolio as of December 31, 2025:
(dollars in thousands)
Outstanding Balance
Available Loan Commitments (1)
Total Outstanding Balance & Available Commitments (1)
CCBX Portfolio Maximum Limit (1)
% of Total Loans
(Outstanding Balance &
Available Commitments)
Average Loan Balance
Number of Loans
CCBX residential real estate loans
Home equity lines of credit
Community bank residential real estate loans
Closed end, secured by first liens
Home equity lines of credit
Closed end, second liens
Total
(1) Total exposure on CCBX loans is subject to portfolio maximum limits.
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The following table summarizes our concentration by industry for our commercial and industrial loan portfolio as of December 31, 2025:
(dollars in thousands)
Outstanding Balance
Available Loan Commitments (1)
Total Outstanding Balance & Available Commitments (1)
CCBX Portfolio Maximum Limit (1)
% of Total Loans
(Outstanding Balance &
Available Commitments)
Average Loan Balance
Number of Loans
CCBX C&I loans
Capital call lines
Retail and other
loans
Community bank C&I loans
Construction/Contractor services
Financial institutions
Medical / Dental / Other care
Manufacturing
Maintenance and repair
Groups < 0.10% of total
Total
(1) Total exposure on CCBX loans is subject to portfolio maximum limits.
The following table details our concentration by category for our construction, land and land development loan portfolio as of December 31, 2025:
(dollars in thousands)
Outstanding Balance
Available Loan Commitments
Total Outstanding Balance & Available Commitments
% of Total Loans
(Outstanding Balance &
Available Commitments)
Average Loan Balance
Number of Loans
Community bank construction, land and land development loans
Commercial construction
Residential construction
Undeveloped land loans
Developed land loans
Land development
Total
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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 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 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 collectability. As of December 31, 2025, $20.3 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 $64.1 million in nonperforming assets as of December 31, 2025, compared to $62.7 million as of December 31, 2024. This includes $33.1 million in CCBX loans more than 90 days past due and still accruing interest as of December 31, 2025, compared to $43.1 million at December 31, 2024. All of our nonperforming assets were nonperforming loans as of December 31, 2025 and December 31, 2024. Our accruing loans past due 90 days or more decreased $9.9 million and was partially offset by an increase of $5.0 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, $20.3 million of these loans are less than 90 days past due as of December 31, 2025. Additionally, there was an increase in community bank nonaccrual loans of $6.4 million during the year ended December 31, 2025. Our nonperforming loans to loans receivable ratio was 1.71% at December 31, 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 0.17% as of December 31, 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 community bank and CCBX nonperforming assets at the dates indicated:
(dollars in thousands)
December 31,
December 31,
Nonaccrual loans:
Commercial and industrial loans
Real estate loans:
Residential real estate
Commercial real estate
Consumer and other loans:
Credit cards
Other consumer and other loans
Total nonaccrual loans
Accruing loans past due 90 days or more:
Commercial & industrial loans
Real estate loans:
Residential real estate loans
Consumer and other loans:
Credit cards
Other consumer and other loans
Total accruing loans past due 90 days or more
Total nonperforming loans
Real estate owned
Repossessed assets
Total nonperforming assets
Total nonaccrual loans to loans receivable
Total nonperforming loans to loans receivable
Total nonperforming assets to total assets
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The following tables detail the community bank and CCBX nonperforming assets which are included in the total nonperforming assets table above.
Community Bank
(dollars in thousands)
December 31,
December 31,
Nonaccrual loans:
Commercial and industrial loans
Real estate:
Residential real estate
Commercial real estate
Total nonaccrual loans
Accruing loans past due 90 days or more:
Total accruing loans past due 90 days or more
Total nonperforming loans
Other real estate owned
Repossessed assets
Total nonperforming assets
Total nonperforming community bank loans to total loans receivable
CCBX
(dollars in thousands)
December 31,
December 31,
Nonaccrual loans:
Commercial and industrial loans:
All other commercial & industrial loans
Consumer and other loans:
Credit cards
Other consumer and other loans
Total nonaccrual loans
Accruing loans past due 90 days or more:
Commercial & industrial loans
Real estate loans:
Residential real estate loans
Consumer and other loans:
Credit cards
Other consumer and other loans
Total accruing loans past due 90 days or more
Total nonperforming loans
Other real estate owned
Repossessed assets
Total nonperforming assets
Total nonperforming CCBX loans to total loans receivable
As of December 31, 2025, $55.7 million of the $57.6 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
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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 - Loans
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 - loans to maintain the allowance at appropriate levels.
As of December 31, 2025, the allowance for credit losses totaled $169.5 million, or 4.52% 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 year ended December 31, 2025 compared to December 31, 2024, is largely related to improved credit quality decreasing the provision for CCBX loans. During the year ended December 31, 2025, a $193.1 million provision for credit losses was recorded for CCBX loans. The decrease in the allowance is due to a change in loan mix, 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 recapture for credit - loans of $504,000 was needed for the year ended December 31, 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, tariffs, , global , the war in Ukraine, in the Middle East, political uncertainty, natural , and trade issues that have resulted in economic uncertainty. As described above, CCBX loans have a higher level of expected than our community bank loans, which is reflected in the factors for the allowance for credit .
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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 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 by indemnifying or reimbursing incurred . BaaS includes noncredit on loans and deposits originated through partners. are recorded when incurred as in noninterest expense, and the received from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement.
The credit enhancement asset is an amount due from CCBX partners related to losses in the loan portfolio. It is determined by the provision for credit and other losses, such as fraud, and increases due to credit loss recoveries, which is ultimately reduced as partners reimburse for incurred losses. Identified below is the portion of incurred losses that are pending settlement with partners as of each period indicated. The CCBX provision for credit losses and CCBX net-charge-offs include partner accounts that are not covered by credit enhancement, therefore those items are included on a separate line item to reflect the exclusion from the credit enhancement asset. At December 31, 2025 the Company was responsible for credit losses on approximately 5% of a $321.3 million CCBX loan portfolio and represented $22.1 million in loans. The table below shows the activity in the credit enhancement asset for the periods indicated:
As of or for the Year Ended December 31,
(dollars in thousands)
Credit enhancement at beginning of period
CECL Day 1 Adjustment
CCBX Provision for credit losses - loans
CCBX Provision for credit losses - unfunded commitments
Credit losses settled with partner during period
Credit recoveries settled with partner during period
Net change in pending partner settlements
Net (provision) charge-offs without credit enhancement
Credit enhancement at end of period
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, 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 align with the partner's specific situation. If a mutually agreeable funding plan is not then the Bank could declare the agreement in , take over servicing and paying the partner for servicing the loan and providing credit . The Bank would evaluate any remaining credit asset from the CCBX partner in the event the partner 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 occurs and payments to the CCBX partner are .
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The following tables present, as of and for the periods indicated, net charge-off information by segment:
Year Ended
December 31, 2025
December 31, 2024
(dollars in thousands)
Community Bank
CCBX
Total
Community Bank
CCBX
Total
Gross charge-offs
Gross recoveries
Net charge-offs
Net charge-offs to
average loans
% of CCBX net
charge-offs
covered by credit
enhancement
Year Ended
December 31, 2023
(dollars in thousands)
Community Bank
CCBX
Total
Gross charge-offs
Gross recoveries
Net charge-offs
Net charge-offs to average loans
% of CCBX net charge-offs covered
by credit enhancement
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The following tables present, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data:
As of or for the Year Ended December 31,
(dollars in thousands)
Allowance at beginning of period
Impact of adopting CECL (ASC 326)
Provision for credit losses
Charge-offs:
Commercial and industrial loans
Residential real estate
Commercial real estate
Consumer and other
Total charge-offs
Recoveries:
Commercial and industrial loans
Residential real estate
Commercial real estate
Consumer and other
Total recoveries
Net charge-offs
Allowance at end of period
Allowance for credit losses to nonaccrual loans
Allowance to nonperforming loans
Allowance to loans receivable
The allowance for credit losses to nonaccrual loans ratio decreased as of December 31, 2025, compared to December 31, 2024, primarily as a result of an increase in nonaccrual loans of $11.4 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 $6.4 million increase in nonaccrual community bank loans. The allowance for credit losses decreased $7.5 million as of December 31, 2025 compared to December 31, 2024 largely due to a change in loan mix, 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. 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 year ended December 31, 2025 that were covered by credit were $192.2 million. At December 31, 2025, the allowance for credit for CCBX loans totaled $151.3 million, compared to $158.1 million at December 31, 2024.
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The following table presents the loans receivable and allowance for credit losses by segment for the period indicated:
As of December 31, 2025
As of December 31, 2024
(dollars in thousands)
Community Bank
CCBX
Total
Community Bank
CCBX
Total
Loans receivable
Allowance for credit losses
Allowance for credit losses
to total loans receivable
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 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, 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 , which may require material additional provisions for credit .
The following table shows the allocation of the allowance for credit losses among loan categories and certain other information as of the dates indicated. The allocation of the allowance for credit losses as shown in the table should neither be interpreted as an indication of future charge-offs, nor as an indication that charge-offs in future periods will necessarily occur in these amounts or in the indicated proportions. The total allowance is available to absorb losses from any loan category.
At December 31,
(dollars in thousands)
Allowance
Allocated
to Loan
Portfolio
Loan
Category
Total
Loans
Allowance
Allocated
to Loan
Portfolio
Loan
Category
Total
Loans
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
Total allowance 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 December 31, 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 December 31, 2025, our loan-to-deposit ratio was 92.2%, 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.
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As of December 31, 2025, the amortized cost of our investment securities totaled $48.2 million, an increase of $925,000, or 2.0%, compared to $47.3 million as of December 31, 2024. The increase in the securities portfolio was due to the purchase of CRA securities partially offset by principal paydowns during the year ended December 31, 2025.
Our investment portfolio consists of only $29,000 in securities classified as available-for-sale ("AFS") and $48.2 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 December 31, 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 certain of our investment securities as of the dates shown:
As of December 31,
(dollars in thousands)
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Securities available-for-sale:
U.S. Agency collateralized mortgage obligations
Total available-for-sale securities
Securities held-to-maturity:
U.S. Agency residential mortgage-backed securities
Total held-to-maturity securities
Total investment securities
All of our U.S. Agency residential mortgage-backed securities and U.S. Agency collateralized mortgage obligations are U.S. Government agency securities. As of December 31, 2025, we did not hold any Fannie Mae or Freddie Mac preferred stock, collateralized debt obligations, collateralized loan obligations, structured investment vehicles, private label collateralized mortgage obligations, subprime, or second lien elements in our investment portfolio.
As of December 31, 2025 and 2024, we did not own securities of any one issuer, other than the U.S. Government and its agencies, for which aggregate adjusted cost exceeded 10.0% of consolidated shareholders’ equity.
Restricted equity securities totaled $9.2 million as of December 31, 2025 and $7.3 million as of December 31, 2024 The increase was attributable to the amount of FHLB stock that we are required to hold. Federal Reserve and FHLB stock are carried at par and do not have a readily determinable fair value. Ownership of FHLB stock is restricted to the FHLB and member institutions, and can only be purchased and redeemed at par.
The Company has 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). The Company 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 December 31, 2025, and December 31, 2024, respectively.
• The Company had a $350,000 equity interest in a technology company as of the quarters ended December 31, 2025, and December 31, 2024.
• The Company had a $42,000 and $47,000 equity interest in a technology company as of the quarters ended December 31, 2025, and December 31, 2024, respectively.
The following table shows the activity in equity investments without a readily determinable fair value for the dates shown:
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Year Ended
December 31,
(dollars in thousands)
Carrying value, beginning of period
Purchases
Observable price change
Carrying value, end of period
Additionally, the Company has invested in technology-focused funds, including those targeting innovation and adoption within the banking industry. These equity investments are held at fair value, as reported by the funds. During the year ended December 31, 2025, the Company contributed $556,000 in these funds and recognized net gains of $34,000, resulting in an equity interest of $1.5 million at December 31, 2025. The Company has committed up to $1.1 million in capital for these equity funds, however, the Company is not obligated to fund these commitments prior to a capital call.
The following table shows the activity in equity fund investments held at fair value for the dates shown:
Year Ended
December 31,
(dollars in thousands)
Carrying value, beginning of period
Purchases/capital calls/capital returns, net
Net change recognized in earnings
Carrying value, end of period
The following table sets forth the amortized cost of held to maturity securities and the fair value of available for sale securities, maturities and approximated weighted average yield based on estimated annual income divided by the average amortized cost of our securities portfolio as of the dates indicated. The contractual maturity of a mortgage-backed security is the date at which the last underlying mortgage matures.
As of December 31, 2025
More than Ten Years
Total
(dollars in thousands)
Carrying
Value
Weighted
Average
Yield
Carrying
Value
Weighted
Average
Yield
Securities 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 held to maturity
Total
Other Assets
Deferred tax assets, net was zero as we moved to a deferred tax liability, net largely due to the impact of the Act, which permits the immediate expense of R&D costs for tax purposes. Other assets decreased $6.6 million to $20.3 million as of December 31, 2025, compared to December 31, 2024.
During the year ended December 31, 2025, the Company completed a small asset acquisition that included the purchase of certain identifiable intangible assets. The transaction was accounted for as an asset acquisition. The acquired intangible asset is finite-lived and is being amortized over its estimated useful life. The carrying amount of the intangible
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asset was $4.5 million at December 31, 2025. The acquisition did not have a material impact on the Company’s consolidated financial statements.
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 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. 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.
Total deposits as of December 31, 2025 were $4.14 billion, an increase of $558.9 million, or 15.6%, compared to $3.59 billion as of December 31, 2024. The increase in deposits was largely due to an increase of $493.8 million in CCBX deposits. Core deposits ended the quarter at $4.13 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 1.56% for the community bank and 3.52% for CCBX for the three months ended December 31, 2025. Additionally, as of December 31, 2025 there was $843.6 million in CCBX deposits that were transferred off balance sheet for increased FDIC insurance coverage and liquidity purposes.
Included in total deposits is $2.56 billion in CCBX deposits, an increase of $493.8 million, or 23.9%, 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 December 31, 2025 were $579.6 million, an increase of $52.1 million, or 9.9%, compared to $527.5 million as of December 31, 2024. Noninterest bearing deposits represent 14.0% and 14.7% of total deposits for December 31, 2025 and December 31, 2024, respectively. Community bank noninterest bearing deposits totaled $493.0 million and $471.8 million at December 31, 2025 and December 31, 2024, respectively. CCBX noninterest bearing deposits totaled $86.6 million and $55.7 million at December 31, 2025 and December 31, 2024, respectively.
Total interest bearing balances, excluding time deposits, as of December 31, 2025 were $3.55 billion, an increase of $512.0 million, or 16.8%, compared to $3.04 billion as of December 31, 2024. The $512.0 million increase is primarily due to $507.0 million increase in CCBX interest bearing deposits combined with an increase in community bank interest bearing deposits of $49.2 million. Included in total deposits is $460.3 million in IntraFi network interest bearing demand and money market sweep accounts as of December 31, 2025, which provides our customers with fully insured deposits through a sweep and exchange of deposits with other financial institutions.
Total time deposit balances as of December 31, 2025 were $12.3 million, a decrease of $5.3 million, or 30.0%, 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.
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The following table sets forth deposit balances at the dates indicated.
As of December 31,
(dollars in thousands)
Amount
Percent of
Total
Deposits
Amount
Percent of
Total
Deposits
Demand, noninterest bearing
Interest bearing demand and
money market
Savings
Total core deposits
Other deposits
Time deposits less than $100,000
Time deposits $100,000 and over
Total
Cost of deposits
The following table presents the community bank deposits which are included in the total deposit portfolio table above:
Community Bank
December 31, 2025
December 31, 2024
(dollars in thousands)
Balance
% to Total
Balance
% to Total
Demand, noninterest bearing
Interest bearing demand and
money market
Savings
Total core deposits
Other deposits
Time deposits less than $100,000
Time deposits $100,000 and over
Total community bank deposits
Cost of deposits
The following table presents the CCBX deposits which are included in the total deposit portfolio table above:
CCBX
December 31, 2025
December 31, 2024
(dollars in thousands)
Balance
% to Total
Balance
% to Total
Demand, noninterest bearing
Interest bearing demand and
money market
Savings
Total core deposits
Other deposits
Total CCBX deposits
Cost of deposits
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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:
As of December 31,
(dollars in thousands)
Maturity Period:
Three months or less
Over three through six months
Over six through twelve months
Over twelve months
Total
Weighted average maturity (in years)
Average deposits for the year ended December 31, 2025, were $3.91 billion, an increase of $421.4 million, or 12.1%, compared to $3.49 billion for the year ended December 31, 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 for the community bank and CCBX, through increases 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.
The average rate paid on total deposits was 2.99% for the year ended December 31, 2025, compared to 3.46% for the year ended December 31, 2024. The average rate paid on interest bearing demand and money market accounts decreased 0.78% for the year ended December 31, 2025 compared to the year ended December 31, 2024. The average rate paid on other deposits increased 0.35% for the year ended December 31, 2025, compared to the year ended December 31, 2024. The average rate paid on time deposits of less than $100,000 was unchanged for the year ended December 31, 2025, compared to the year ended December 31, 2024. The average rate paid on time deposits greater than $100,000 increased 0.43% for the year ended December 31, 2025 compared to the year ended December 31, 2024. The average rate paid on savings increased 0.68% for the year ended December 31, 2025, compared to the year ended December 31, 2024. The overall lower average rate paid on interest bearing accounts in the year ended December 31, 2025 compared to the year ended December 31, 2024 was 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 Year Ended December 31,
(dollars in thousands)
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Average
Balance
Average
Rate
Demand, noninterest bearing
Interest bearing demand and
money market
Savings
Other deposits
Time deposits less than $100,000
Time deposits $100,000 and over
Total deposits
The ratio of average noninterest-bearing deposits to average total deposits for the years ended December 31, 2025 and 2024, was 14.5% and 16.8%, respectively.
Factors affecting the cost of funding interest-bearing assets include the volume of noninterest- and interest-bearing deposits, changes in market interest rates and economic conditions in the Puget Sound region and their impact on interest paid on deposits, competition from other financial institutions, as well as the ongoing execution of our growth strategies. Cost of
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total interest-bearing liabilities is calculated as total interest expense divided by average total interest-bearing deposits plus average total borrowings. Our cost of total interest-bearing liabilities was 3.52% and 4.19% for the years ended December 31, 2025 and 2024, respectively. The decrease in our cost of deposits in 2025 was primarily due to rate decreases from the FOMC. We actively manage our interest rates on deposits, however, rate changes from the FOMC and competition can and do impact our deposit costs.
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 December 31, 2025, deposits totaled $4.14 billion, of which total estimated uninsured deposits were $641.3 million, or 15.5% of total deposits. At December 31, 2024, deposits totaled $3.59 billion, of which total estimated uninsured deposits were $543.0 million, or 15.1% of total deposits. 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.
Estimated uninsured time deposits totaled $1.6 million as of December 31, 2025. The table below shows the estimated uninsured time deposits, by account, for the maturity periods indicated:
(dollars in thousands)
As of December 31, 2025
Maturity Period:
Three months or less
Over three through six months
Over six through twelve months
Over twelve months
Total
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 December 31, 2025, and December 31, 2024, total borrowing capacity of $416.7 million and $468.7 million, respectively, was available under this arrangement. As of December 31, 2025, and December 31, 2024, Federal Reserve borrowings against our line of credit totaled zero. Additional loans were pledged during 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 December 31, 2025 and December 31, 2024, we had borrowing capacity of $225.4 million and $173.3 million, respectively, with the FHLB. As of December 31, 2025 and 2024, FHLB advances totaled zero.
The following table presents details on FHLB advance borrowings for the periods indicated:
As of and For the Years
Ended December 31,
(dollars in thousands)
Maximum amount outstanding at any month-end during period:
Average outstanding balance during period:
Weighted average interest rate during period:
Balance outstanding at end of period:
Weighted average interest rate at end of period:
(1) No borrowings were outstanding during the period, except for an immaterial borrowing incurred to test the advance line.
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Junior Subordinated Debentures. In 2004, we issued $3.6 million in junior subordinated debentures to Coastal (WA) Statutory Trust (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 3-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 December 31, 2025 and 2024, was 6.08% 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 interest. We unconditionally guarantee payment of accrued and 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 or .
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.
In November 2022, the Company issued a subordinated note in the amount of $20.0 million. The note matures on November 1, 2032, and bears 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 2.90%. The five-year 7.00% interest period ends on November 1, 2027. We may redeem the subordinated note, 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.
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Other Liabilities
Deferred tax liability, net increased to $853,000 from a net deferred asset as of December 31, 2025, largely due to the impact of the Act, 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 to put alternate liquidity in place; those options are more fully discussed below. As of December 31, 2025, we had two partners with deposits that together represent 45% 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, FHLB advances 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 macro economic environment.
The Company has pledged loans and securities totaling $939.8 million and $957.9 million at December 31, 2025 and December 31, 2024, respectively, for borrowing lines at the FHLB and FRB. Additional loans were pledged during 2023 to significantly increase the borrowing capacity of the Bank in the event of a liquidity crisis. The Bank had the ability and capacity to borrow up to $642.2 million from FHLB and the FRB discount window at December 31, 2025. There were no borrowings taken under these facilities during the twelve-months ended December 31, 2025 so the Bank has the maximum capacity in the event of a liquidity emergency.
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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 ($641.3 million at December 31, 2025 and $543.0 million at December 31, 2024) and alternative sources of funds including the capacity to borrow up to $642.2 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 of $1.43 billion represented 34.5% of total deposits and exceeded the $641.3 million in uninsured deposits as of December 31, 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 deposits. Fully insured IntraFi network reciprocal deposits totaled $460.3 million and $414.0 million at December 31, 2025 and December 31, 2024, respectively.
The board of directors adopted a policy requiring management take various actions, in its discretion, to return the liquidity ratio to 10% or greater within 10 business days of the liquidity ratio being below 10% before the Bank’s liquidity contingency funding plan would be invoked. If the liquidity ratio goes below 7.5% then the board of directors will be notified immediately, and the liquidity contingency funding plan would be invoked until the ratio is returned to 10% or more. These liquidity risk measures provide the board of directors and management with a framework for managing liquidity risk and taking action early so liquidity events are avoided or managed in a timely manner.
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, is 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 $42.3 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 the Bank established a minimum (regulatory calculation) liquidity ratio of 10%, and usually targets a liquidity ratio between 12% and 15%. Both of these minimum liquidity levels are on-balance sheet sources. Per the Bank’s policies and its 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 funds 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 and holding company level.
As of December 31, 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
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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.
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)
Amount
Ratio
Amount
Ratio
Amount
Ratio
December 31, 2025
Tier 1 Leverage Capital
(to average assets)
Company
Bank Only
Common Equity Tier 1 Capital (to risk-weighted assets)
Company
Bank Only
Tier 1 Capital (to risk-weighted assets)
Company
Bank Only
Total Capital (to risk-weighted assets)
Company
Bank Only
December 31, 2024
Tier 1 Leverage Capital
(to average assets)
Company
Bank Only
Common Equity Tier 1 Capital (to risk-weighted assets)
Company
Bank Only
Tier 1 Capital (to risk-weighted assets)
Company
Bank Only
Total Capital (to risk-weighted assets)
Company
Bank Only
(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.
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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 December 31, 2025:
Payments Due by Period
(dollars in thousands)
Total
Less than
1 Year
Over
1 year
Other (1)
Cash requirements
Time Deposits
Subordinated notes
Junior subordinated debentures
Deferred compensation plans
Operating and finance leases
Non-maturity deposits
Equity investment commitment
(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 sheets.
Our commitments associated with outstanding commitments to extend credit and standby and commercial letters of credit are summarized below. 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 December 31, 2025 we had $2.31 billion in commitments to extend credit, compared to $1.96 billion as of December 31, 2024. The $345.2 million increase is largely attributed to a $102.3 million increase in credit cards, related to CCBX loans, a $185.0 million increase in residential real estate commitments, related to CCBX loans, an increase of $49.7 million in consumer and other loan commitments, related to CCBX consumer loans, and a $21.7 million increase in commercial construction loans, partially offset by a $31.8 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)
As of December 31, 2025
As of December 31, 2024
Commitments to extend credit:
Commercial and industrial loans
Commercial and industrial loans – capital call lines
Construction – commercial real estate loans
Construction – residential real estate loans
Residential real estate loans
Commercial real estate loans
Credit cards
Consumer and other loans
Total commitments to extend credit
Standby letters of credit
Equity investment commitment
Commitments to extend credit on CCBX loans are included in the table above and are summarized below:
(dollars in thousands)
As of December 31, 2025
As of December 31, 2024
Commitments to extend credit:
Commercial and industrial loans
Commercial and industrial loans - capital call lines
Residential real estate loans
Credit cards, consumer and other loans
Total commitments to extend credit
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We have portfolio limits with our each of our partners to manage loan concentration risk, liquidity risk, and counter-party partner risk. For example, as of December 31, 2025, capital call lines outstanding balance totaled $210.5 million, and while commitments totaled $519.1 million the commitments are cancelable, and are also limited to a maximum of $350.0 million by agreement with the partner.
The following table shows the CCBX maximum portfolio sizes by loan category as of December 31, 2025.
As of December 31, 2025
As of December 31, 2024
(dollars in thousands)
Type of Lending
Maximum Portfolio Size
Increase/(decrease)
Commercial and industrial loans:
Capital call lines
Business - Venture Capital
All other commercial & industrial
loans
Business - Small Business
Real estate loans:
Home equity lines of credit
Home Equity - Secured Credit
Cards
Consumer and other loans:
Credit cards
Credit Cards - Primarily Consumer
Installment loans
Consumer
Other consumer and other loans
Consumer - Secured Credit Builder
& Unsecured consumer
Total Existing Portfolio Size
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 December 31, 2025, $1.42 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 in CCBX loans. Commitments that are unconditionally cancelable allow us to better manage loan growth, credit concentrations 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.
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Selected Financial Information
The following table shows the Company’s key performance ratios for the periods indicated.
Year Ended
December 31,
December 31,
December 31,
December 31,
December 31,
Return on average assets
Return on average equity
Yield on earnings assets
Yield on loans receivable
Cost of funds
Cost of deposits
Net interest margin
Noninterest expense to average assets
Noninterest income to average assets
Efficiency ratio
Loans receivable to deposits (1)
(1) Including loans held for sale
CCBX – BaaS Reporting Information
During the year ended December 31, 2025, $47.3 million was 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 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 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 . The credit asset is relieved as credit 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 by indemnifying or reimbursing incurred . BaaS includes noncredit on loans and deposits originated through partners. are recorded when incurred as in noninterest expense, and the 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 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, if our partner is unable to fulfill their contractual obligation and if the cash flows on the loans were not sufficient to fund the reimbursement of loan losses, then the Bank would be exposed to additional loan and deposit 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 agreed to, the Bank could declare the agreement in default, take over servicing and paying the partner for servicing the loan and providing credit . The Bank would evaluate any remaining credit asset from the CCBX partner in the event the partner to determine if a write-off is appropriate. If a write-off occurs, the Bank would stop payments to the CCBX partner and retain the full yield and any fee income on the loan portfolio going forward, decreasing our BaaS loan expense.
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For CCBX 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
Year. Ended
(dollars in thousands)
December 31,
December 31,
December 31,
BaaS loan interest income
Less: BaaS loan expense
Net BaaS loan income (1)
Net BaaS loan income divided by average BaaS loans (1)
Yield on loans
(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. ”
The increased activity of CCBX partners has resulted in increases in direct fees, expenses and interest for the year ended December 31, 2025 compared to the year ended December 31, 2024. The following tables 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
Year Ended
(dollars in thousands)
December 31,
December 31,
December 31,
BaaS loan interest income
Total BaaS loan interest income
Interest expense
Year Ended
(dollars in thousands)
December 31,
December 31,
December 31,
BaaS interest expense
Total BaaS interest expense
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Year Ended
(dollars in thousands)
December 31,
December 31,
December 31,
BaaS program income:
Servicing and other BaaS fees
Transaction and interchange fees
BaaS program income before reimbursement of expenses
Reimbursement of expenses
Total BaaS program income
BaaS indemnification income:
BaaS credit enhancements
BaaS fraud enhancements
BaaS indemnification income
Total noninterest BaaS income
Servicing and other BaaS fees increased $1,052,000 in the year ended December 31, 2025 compared to the year ended December 31, 2024, while transaction and interchange fees increased $5.9 million, in the year ended December 31, 2025 compared to the year ended December 31, 2024. 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.
Year Ended
(dollars in thousands)
December 31,
December 31,
December 31,
BaaS loan expense
BaaS fraud expense
Total BaaS loan and fraud expense
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.
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.
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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 Year Ended
(dollars in thousands)
December 31,
December 31,
December 31,
Net BaaS loan income divided by average CCBX loans:
CCBX loan yield (GAAP)
Total average CCBX loans receivable
Interest and earned fee income on CCBX loans (GAAP)
BaaS loan expense
Net BaaS loan income
Net BaaS loan income divided by average CCBX loans
CCBX net interest margin, net of BaaS loan expense:
CCBX interest margin
CCBX earning assets
Net interest income (GAAP)
Less: BaaS loan expense
Net interest income, net of BaaS
loan expense
CCBX net interest margin, net of BaaS loan expense
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 lowered the Fed Funds target range of 4.25%-4.50% by 0.25% in the third quarter of 2025 and by 0.50% in the fourth quarter of 2025, bringing the top end of the target range to 3.75% as of the filing date of this Annual Report on Form 10-K. 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
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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 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.
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The following tables summarize the simulated change in net interest income over a 12-month horizon as of the dates indicated:
Change in Market Interest Rates
Twelve Month Projection
As of December 31, 2025
Twelve Month Projection
As of December 31, 2024
Static Balance Sheet and Rate Shifts
+400 basis points
+300 basis points
+200 basis points
+100 basis points
-100 basis points
-200 basis points
-300 basis points
-400 basis points
Dynamic Balance Sheet and Rate Shifts
+400 basis points
+300 basis points
+200 basis points
+100 basis points
-100 basis points
-200 basis points
-300 basis points
-400 basis points
The results illustrate that the Company’s static balance sheet has now become asset sensitive, with the dynamic balance sheet displaying slightly more asset sensitivity due to most of the loan growth assumptions coming from fully adjustable-rate CCBX products. The community bank segment remains asset sensitive and performs better in an increasing interest rate environment. For the community bank, the loan portfolio is only approximately 20-25% adjustable rate, meaning the asset sensitivity is driven by the lower level of deposit repricing in rising rate environments. 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 97% of loans and the majority of deposits fully reprice with changes in market rates. During 2025, one of the material CCBX lending partners contractual yields converted to an adjustable-rate product, causing the Company’s balance sheet to become slightly asset sensitive. As of December 31, 2025, the Company’s overall funding mix continues to be more heavily weighted towards the CCBX deposits, which are primarily adjustable-rate deposits and work to partially offset some of the asset sensitivity in the static model. The assumptions incorporated into the simulation model are inherently uncertain and, as a result, the model cannot precisely 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.
Impact of Inflation
Our consolidated financial statements and related notes to those financial statements included elsewhere in this Annual Report on Form 10-K have been prepared in accordance with GAAP. GAAP requires the measurement of financial position and operating results in terms of historical dollars, without considering changes in the relative value of money over time due to inflation or recession.
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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.
For further discussion of the risks to our business resulting from inflation, see “Item 1A. Risk Factors” and the section captioned “Risks Related to Credit Matters-We are subject to interest rate risk and fluctuations in interest rates may adversely affect our earnings.”
