CCB US Equity☆

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. The Company restated its financial statements for the year ended December 31, 2023 and the quarters ended March 31, June 30, and September 30, 2023 and 2024 for misstatements between the balance sheet, income statement and statement of cash flows that were determined to be material to previously issued financial statements. See “Note 23, Restatement of Prior Period Financial Statements” in Item 8 of this Form 10-K, for additional information related to the restatement, including descriptions of the misstatements and the impacts on our consolidated financial statements.

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). The CCBX segment provides banking as a service (“BaaS”) that allows our broker-dealer and digital financial service partners to offer their customers banking services. The CCBX segment had 24 partners as of December 31, 2024. 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, 2024, we had total assets of $4.12 billion, total loans receivable of $3.49 billion, total deposits of $3.59 billion and total shareholders’ equity of $438.7 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.

Brokered Deposits Rulemaking

On July 30, 2024, the Board of Directors of the FDIC approved a proposed rule that would amend the FDIC’s regulations governing the classification and treatment of brokered deposits. The proposal would, among other changes, broaden the definition of deposit broker to include agents that place or facilitate the placement of third-party deposits at

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only one insured depository institution and narrow the exception to the definition of deposit broker for agents whose primary purpose is not the placement of funds with depository institutions. While the Company is evaluating the potential impact of the proposed rule, if the rule is finalized as proposed, the Bank may be required to classify a greater amount of its deposits obtained with the involvement of third parties, such as CCBX partners, as brokered deposits. An increase in the amount of brokered deposits on the Bank’s balance sheet could, among other consequences, increase the Bank’s deposit insurance assessment costs.

Recordkeeping for Custodial Accounts

On September 17, 2024, the FDIC issued a proposed rule that would impose recordkeeping and other compliance requirements on custodial deposit accounts with transactional features. Under the proposed rule, FDIC-insured banks maintaining such custodial deposit accounts would be required to maintain updated and accurate account records identifying the beneficial owners of those deposits, the balance attributable to each beneficial owner, and the ownership category in which the deposited funds are held. While we are evaluating the potential impact of the proposed rule, if the rule is finalized as proposed, it could increase the costs of operating BaaS arrangements such as the partnerships in our CCBX segment.

Third Party Risk Management Guidance

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

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 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

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contracted obligations then the Bank would be exposed to additional credit losses 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 42.38% at December 31, 2024, compared to 44.66% at December 31, 2023. This ratio decreased as a result of the increase in net interest income and credit enhancement income for the year ended December 31, 2024 compared to the year ended December 31, 2023.

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 economic environment is continuously changing with bank failures, mergers, inflation, changing interest rates, global unrest, the war in Ukraine, conflicts in the Middle East, political environment, 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 operations. We believe that of our accounting policies, the following accounting policies may involve a higher degree of judgment and complexity:

Securities

Securities are classified as available for sale when they might be sold before maturity. Securities available for sale are carried at fair value. Unrealized gains and losses are excluded from earnings and reported in other comprehensive income. Securities within the available for sale portfolio may be used as part of our asset/liability strategy and may be pledged or sold in response to changes in interest rate risk, prepayment risk or other similar economic factors. Securities held to maturity are carried at cost, adjusted for the amortization of premiums and the accretion of discounts and may be pledged.

Interest earned on these assets is included in interest income. Interest income includes amortization of any purchase premium or discount. Premiums and discounts on securities are amortized using the level-yield method, except for mortgage backed securities where prepayments are anticipated. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

Management evaluates debt securities for credit losses, on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.

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Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as an impairment through earnings. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For more information and discussion related to securities, see “Note 3 - Investment Securities” in the Consolidated Financial Statements.

Loans Held for Investment

Loans held for investment are those that management has the intent and ability to hold for the foreseeable future or until maturity or payoff at the principal and interest balance outstanding, net of deferred loan fees and costs. Loans are typically secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. Interest income is accrued on the unpaid principal balance. Loan origination fees and certain direct origination costs are deferred and recognized as adjustments to interest income using a level yield methodology or a method approximating the level yield methodology.

As of December 31, 2024, loans receivable totaled $3.49 billion, an increase of $465.0 million, or 15.4%, compared to $3.02 billion as of December 31, 2023. Total loans receivable is net of $6.5 million in net deferred origination fees. The increase in loans is largely attributed to growth in our CCBX segment as a result of growth from existing and new partners, combined with loan growth in the community bank segment. For more information and discussion related to the loans held for investment, see “Note 4 - Loans and Allowance for Credit Losses” in the Consolidated Financial Statements.

Loans Held for Sale

CCBX loans held for sale consist of the portion of CCBX originated loans that the Company intends to sell back to the originating CCBX partner or its affiliate generally at par. The Company sells loans to manage credit positions and concentrations with partners and across loan categories. During the twelve months ended December 31, 2024, the Company transferred $1.55 billion in CCBX loans receivable to loans held for sale and subsequently sold $1.52 billion these loans. As of December 31, 2024 there were $20.6 million CCBX loans held for sale and no CCBX loans were held for sale as of December 31, 2023.

Community bank loans held-for-sale consist of the guaranteed portion of SBA loans and United States Department of Agriculture (“USDA”) loans the Company intends to sell after origination and are reflected at the lower of aggregate cost or fair value. Loans are generally sold with servicing of the sold portion retained by the Company when the sale of the loan occurs, the premium received is combined with the estimated present value of future cash flows on the related servicing asset and recorded as a gain on sale of loans in noninterest income. There were no community bank loans held for sale at December 31, 2024 and 2023.

Equity Investments

Equity investments include amounts invested in stock, venture capital funds, partnerships, and other business ventures. Some of these equity investments are in vendors/suppliers, private companies, government agencies, or government sponsored enterprises. The Company directly holds stock in organizations such as the Federal Reserve Bank, Federal Home Loan Bank of Des Moines, private companies, and venture capital funds. Equity investments are subject to the risk of loss if these organizations experience financial difficulties or fall on hard times. The Company carries these investments at market value or cost if market value is not readily determinable. During 2024, net contributions to private company equity investments totaled $72,000 and increased in value by $26,000. In 2023, net contributions to private company equity investments totaled $125,000 and increased in value by $278,000.

The assumptions underlying these valuations represent management’s best estimates, which involve inherent uncertainties and the application of management’s judgment. While we believe the assumptions and estimates we have made are reasonable and appropriate, different assumptions or estimates could have resulted in materially different fair values for these equity investments. For more information and discussion related to securities, see Note 3 - Investment Securities” in the Consolidated Financial Statements.

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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 increased the allowance from $117.4 million at December 31, 2023 to $177.0 million at December 31, 2024. The allowance was significantly increased in response to growth in 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 new loan volume. 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.

Stock-based Compensation

We grant stock options and restricted stock to our employees and directors. We record the related compensation expense based on the grant date fair value calculated in accordance with the authoritative guidance issued by FASB. We recognize these compensation costs on a straight-line basis over the requisite service period of the award. We estimate the grant date fair value of stock options using the Black-Scholes valuation model. Stock-based compensation expense related to awards of restricted stock and restricted stock units is based on the fair value at the grant date.

The determination of fair value using the Black-Scholes model is affected by the price of our common stock, as well as the input of other subjective assumptions. These assumptions include, but are not limited to, the expected term of stock options and our stock price volatility. The factors considered by our board of directors included the prices of known transactions in our common stock, the book value per share of our common stock, and our board of directors’ understanding of pricing multiples for comparable financial institutions that were not publicly traded.

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The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. As a result, if we had used different assumptions or estimates, the fair value of our common stock and our stock-based compensation expense could have been materially different. For more information and discussion related to stock-based compensation, see “Note 15 – Stock-based Compensation” 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 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 dependent upon the contractual agreement with each partner, however in accordance with accounting guidance the recording of certain components of BaaS income are consistent across agreements. Agreements with many of our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses. In accordance with accounting guidance, we estimate and record a provision for probable losses for these 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, the credit enhancement asset is relieved when credit enhancement recoveries are received from the CCBX partner. Many agreements with our CCBX partners also provide protection to the Bank from fraud by absorbing incurred fraud losses. Fraud losses 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. Enhancements that provide protection to the Bank from credit and fraud losses, are not within the scope of Topic 606.

For the year ended December 31, 2024, noninterest income subject to Topic 606 increased $6.6 million to $24.7 million, compared to $18.1 million for the year ended December 31, 2023. The increase was largely due to an increase in BaaS fee 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, 2024, 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, 2024. The information contained in this section should be read together with the December 31, 2024 audited Consolidated Financial Statements and the accompanying Notes included in Item 8. Financial Statements and Supplementary Data of this Form 10-K.

Net Income

Year Ended December 31, 2024, Compared to Year Ended December 31, 2023. Net income for the year ended December 31, 2024 was $45.2 million, or $3.26 per diluted share, compared to $44.6 million, or $3.27 per diluted share, for the year ended December 31, 2023. The increase in net income over the prior year was attributable to a $41.5 million increase in net interest income, $104.1 million increase in noninterest income partially offset by a $93.6 million increase in

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the provision for credit losses - loans and a $51.7 million increase in noninterest expense. The increase in noninterest income, provision expense and noninterest expense are largely related to CCBX loan and deposit growth. The increase in interest expense is related to higher average interest bearing deposits and an increase in cost of deposits as a result of higher interest rates.

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022. Net income for the year ended December 31, 2023 was $44.6 million, or $3.27 per diluted share, compared to $40.6 million, or $3.01 per diluted share, for the year ended December 31, 2022. The increase in net income over the prior year was attributable to a $59.8 million increase in net interest income, $81.2 million increase in noninterest income partially offset by a $104.9 million increase in the provision for credit losses - loans and a $29.5 million increase in noninterest expense. The increase in noninterest income, provision expense and noninterest expense are largely related to CCBX loan and deposit growth. The increase in interest expense is related to higher average interest bearing deposits and an increase in cost of deposits as a result of higher interest rates.

Net Interest Income

Year Ended December 31, 2024, Compared to Year Ended December 31, 2023. Net interest income for the year ended December 31, 2024, was $273.0 million, compared to $231.6 million for the year ended December 31, 2023, an increase of $41.6 million, or 17.9%. Yield on loans receivable was 11.20% for the year ended December 31, 2024, compared to 10.36% for the year ended December 31, 2023. The increase in net interest income compared to the year ended December 31, 2023 was largely related to growth in loans from CCBX and the community bank.

Interest and fees on loans totaled $372.0 million for the year ended December 31, 2024 compared to $304.3 million for the year ended December 31, 2023. The $67.8 million increase in interest and fees on loans for the year ended December 31, 2024, compared to the year ended December 31, 2023, was largely due to growth in CCBX and community bank loans. Total average loans receivable for the year ended December 31, 2024 was $3.32 billion, compared to $2.94 billion for the year ended December 31, 2023.

CCBX average loans receivable grew to $1.43 billion for the year ended December 31, 2024, compared to $1.21 billion for the year ended December 31, 2023, an increase of $217.2 million, or 17.9%. Average CCBX yield of 17.39% and 16.30% was earned on CCBX loans for the years ended December 31, 2024 and December 31, 2023, respectively. 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 grew to $1.89 billion for the year ended December 31, 2024, compared to $1.73 billion for the year ended December 31, 2023, an increase of $166.5 million, or 9.6%. Average yield of 6.54% was earned on community bank loans for the year ended December 31, 2024, compared to 6.20% for the year ended December 31, 2023.

Interest income from interest earning deposits with other banks was $21.3 million for the year ended December 31, 2024, an increase of $5.9 million largely due to an increase in balances, compared to the year ended December 31, 2023. The average balance of interest earning deposits invested with other banks for the year ended December 31, 2024 was $405.5 million, compared to $295.8 million for the year ended December 31, 2023. Additionally, the yield on these interest earning deposits with other banks increased 0.05%, compared to the year ended December 31, 2023. Interest income on investment securities decreased $141,000 to $3.1 million, with a yield of 4.67% at December 31, 2024, compared to $3.2 million, and a yield of 2.66%, at December 31, 2023. Average investment securities decreased $54.7 million from $120.2 million for the year ended December 31, 2023 to $65.5 million for the year ended December 31, 2024 as a result of available for sale (“AFS”) U.S. Treasury securities that matured earlier in the year, partially offset by an increase in HTM securities resulting from securities purchased for CRA purposes.

Interest expense was $123.7 million for the year ended December 31, 2024, a $32.1 million increase from the year ended December 31, 2023. Interest expense on deposits was $120.9 million for the year ended December 31, 2024, compared to $89.0 million for the year ended December 31, 2023. The $31.9 million increase in interest expense on deposits was due to an increase in average interest bearing deposits of $510.2 million and an increase in interest rates. Interest on borrowed funds was $2.8 million for the year ended December 31, 2024 and $2.6 millionfor the year ended December 31, 2023. The $173,000 increase in interest expense on borrowed funds from the year ended December 31, 2023

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is primarily the result of an increase in interest rates on the junior subordinated debt, which increased 0.22% to 7.77% for the year ended December 31, 2024, compared to 7.55% for the year ended December 31, 2023.

Net interest margin was 7.18% for the year ended December 31, 2024, compared to 6.88% for the year ended December 31, 2023. The increase in net interest margin compared to the year ended December 31, 2023 was largely a result of an increase of 0.84% for yield on loans partially offset by an increase of 0.59% for cost of deposits, primarily due to growth in CCBX deposits. Interest expense has increased and net interest margin was compressed as a result of growth in higher rate CCBX deposits. Interest bearing deposits increased an average of $510.2 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, and these deposits were tied to a higher Fed Funds rate for most of 2024. Also contributing is the sale of higher risk and higher yielding loans during the quarters ended September 30, 2023, December 31, 2023 and March 31, 2024 in an effort to optimize and strengthen the balance sheet which increased year to date net interest margin.

Cost of funds was3.49% for the year ended December 31, 2024, compared to 2.91% for the year ended December 31, 2023. Cost of deposits for the year ended December 31, 2024 was 3.46%, which was a 0.58% increase, from 2.87% for the year ended December 31, 2023. These increases were largely due to growth in CCBX interest bearing deposits tied to a higher Fed Funds rate for most of 2024, compared to the year ended December 31, 2023. We expect the recent decrease in the Fed Funds rate will help to decrease the cost of deposits.

Total yield on loans receivable for the year ended December 31, 2024 was 11.20%, compared to 10.36% for the year ended December 31, 2023. This increase in yield on loans receivable is primarily attributed to a 0.34% increase in yield and $166.5 million increase in average community bank loans compared to the year ended December 31, 2023. For the year ended December 31, 2024, average CCBX loans increased $217.2 million, or 17.9%, with an average CCBX yield of 17.39%, compared to 16.30% for the year ended December 31, 2023. 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. In light of our recent efforts to optimize and strengthen the balance sheet by selling higher yield CCBX loans back to the originating partners, combined with the recent decrease in the Fed Funds rate, total yield on loans have and may continue to flatten out as new CCBX loans are replacing higher risk and higher yielding loans that were sold or allowed to mature during the quarters ended September 30, 2023, December 31, 2023 and March 31, 2024.

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022. Net interest income for the year ended December 31, 2023 was $231.6 million, compared to $171.8 million for the year ended December 31, 2022, an increase of $59.8 million, or 34.8%. Yield on loans receivable was 10.36% for the year ended December 31, 2023, compared to 8.12% for the year ended December 31, 2022. The increase in net interest income compared to the year ended December 31, 2022 was largely related to increased yield on loans from growth in higher yielding CCBX and community bank loans and interest rate increases on variable rate and new loans. Average loans receivable for the year ended December 31, 2023 was $2.94 billion, compared to $2.26 billion for the year ended December 31, 2022.

Interest and fees on loans totaled $304.3 million for the year ended December 31, 2023 compared to $183.4 million for the year ended December 31, 2022. The $120.9 million increase in interest and fees on loans for the year ended December 31, 2023, compared to the year ended December 31, 2022, was largely due to increased yield on loans from growth in higher yielding CCBX and community bank loans and an overall increase in interest rates. Loan growth was $394.3 million, or 15.0%, for the year ended December 31, 2023, compared to December 31, 2022. CCBX average loans receivable grew to $1.21 billion for the year ended December 31, 2023, compared to $742.4 million for the year ended December 31, 2022, an increase of $468.0 million, or 63.0%. Average CCBX yield of 16.30% was earned on CCBX loans for the year ended December 31, 2023, compared to 13.85% for the year ended December 31, 2022. 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. Also impacting the increase in loan interest is the increase in interest rates on variable rate loans resulting from the FOMC raising rates from 4.50% as of December 31, 2022 to 5.50% as of December 31, 2023, with the most recent increase during such period on July 26, 2023.

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Interest income from interest earning deposits with other banks was $15.3 million at December 31, 2023, an increase of $8.6 million due to higher interest rates, compared to December 31, 2022. The average balance of interest earning deposits invested with other banks for the year ended December 31, 2023 was $295.8 million, compared to $516.0 million for the year ended December 31, 2022. This decrease was the result of increased loan demand. Additionally, the yield on these interest earning deposits with other banks increased 3.88%, compared to the year ended December 31, 2022. Interest income on investment securities increased to $3.2 million at December 31, 2023, compared to $1.7 million at December 31, 2022. Average investment securities increased $26.9 million from $93.2 million for the year ended December 31, 2022 to $120.2 million for the year ended December 31, 2023 as a result of purchasing additional securities to hold for CRA purposes, and average yield increased to 2.66% for the year ended December 31, 2023, compared to 1.87% for the year ended December 31, 2022.

Interest expense was $91.6 million for the year ended December 31, 2023, a $71.2 million increase from the year ended December 31, 2022. Interest expense on deposits was $89.0 million for the year ended December 31, 2023, compared to $19.0 million for the year ended December 31, 2022. The $70.0 million increase in interest expense on deposits was primarily due to an increase in average interest bearing deposits of $671.0 million. Interest on borrowed funds was $2.6 million for the year ended December 31, 2023, compared to $1.4 million for the year ended December 31, 2022. The $1.3 million increase in interest expense on borrowed funds from the year ended December 31, 2022 was the result of a $16.4 million average balance increase in subordinated debt, which increased during the quarter ended December 31, 2022 partially offset by a decrease in average FHLB borrowings, which were paid off in full during the quarter ended March 31, 2022. The FOMC increased the Fed Funds rate 1.00% during the twelve months ended December 31, 2023, with the most recent increase during such period on July 26, 2023.

Net interest margin was 6.88% for the year ended December 31, 2023, compared to 5.97% for the year ended December 31, 2022. The increase in net interest margin compared to the year ended December 31, 2022 was largely a result of an increase in higher rate loans. Average loans increased $679.1 million, compared to the year ended December 31, 2022. Also contributing to the increase in net interest margin compared to the year ended December 31, 2022 was a $8.6 million increase in interest earned on interest earning deposits invested in other banks. These interest earning deposits earned an average rate of 5.19% for the year ended December 31, 2023, compared to an average rate of 1.30% for the year ended December 31, 2022.

Cost of funds was 2.91% for the year ended December 31, 2023, compared to 0.75% for the year ended December 31, 2022. Cost of deposits for the year ended December 31, 2023 was 2.87%, which was a 2.16% increase, from 0.71% for the year ended December 31, 2022. These increases were largely due to an increase in interest rates and an increase in interest bearing deposits. CCBX deposit growth also contributed to the increase in interest expense.

Total yield on loans receivable for the year ended December 31, 2023 was 10.36%, compared to 8.12% for the year ended December 31, 2022. This increase in yield on loans receivable is primarily attributed to an increase in higher rate CCBX loans. As of the year ended December 31, 2023, average CCBX loans increased $468.0 million, or 63.0%, with an average CCBX yield of 16.30%, compared to 13.85% at December 31, 2022. 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. There was an increase in average community bank loans of $211.1 million, or 13.9%, which is net of an average $28.6 million decrease in PPP loans as a result of loan forgiveness and repayments, compared to the year ended December 31, 2022. Average yield on community bank loans for the year ended December 31, 2023 was 6.20% compared to 5.32% for the year ended December 31, 2022.

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The following tables (1) show the average yield on loans and cost of deposits by segment and (2)illustrate how BaaS loan interest income is affected by BaaS loan expense resulting in net BaaS loan income and the associated yield for the periods indicated:

For the Year Ended

(1)CCBX yield on loans does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. To determine net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at net BaaS loan income which can be compared to interest income on the Company’s community bank loans. A reconciliation of this non-GAAP measure is set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”

(2)See Note 23, Restatement of Prior Period Financial Statements.

For the Year Ended

(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.

(3)See Note 23, Restatement of Prior Period Financial Statements.

The following table presents an analysis of the average balances of net interest income, net interest spread and net interest margin for the periods indicated. Loan costs, net of fees included in interest income, totaled $8.9 million and $6.3 million for the years ended December 31, 2024 and 2023, respectively and loan fees, net of costs included in interest income totaled $3.2 million for the year ended December 31, 2022.

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Average Balance Sheets For the Year Ended December 31,

Assets

Interest earning assets:

Noninterest earning assets:

Liabilities and Shareholders’ Equity

Interest bearing liabilities:

(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.

(4) See Note 23, Restatement of Prior Period Financial Statements.

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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 are that not directly attributed to the segment are not listed:

For the Year Ended

Community Bank

Assets

Interest earning assets:

Liabilities

Interest bearing liabilities:

CCBX

Assets

Interest earning assets:

Liabilities

Interest bearing liabilities:

Net interest margin, net of Baas loan expense (4) 3.30 % 4.13 % 3.65 %

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For the Year Ended

Treasury & Administration

Assets

Interest earning assets:

Liabilities

Interest bearing liabilities:

(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.

(7)See Note 23, Restatement of Prior Period Financial Statements.

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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 $42.9 million increase in loan interest income that is attributable to an increase in loan volume and $24.8 million increase in loan interest income that is attributable to an increase in loan rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to volume.

(dollars in thousands) Volume Rate Volume Rate

Interest income:

Interest expense:

PPPLF borrowings — — — — — —

Junior subordinated debentures — 8 8 — 128 128

(1) See Note 23, Restatement of Prior Period Financial Statements

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.”

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The economic environment is continuously changing, due to the pace of economic growth, inflation, changing interest rates, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, the political environment, natural disasters, and trade issues that may impact the provision and therefore the allowance. Gross loans, excluding loans held for sale, totaled $3.49 billion at December 31, 2024. The allowance for credit losses as a percentage of loans was 5.08% at December 31, 2024, compared to 3.88% at December 31, 2023.

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

The Company adopted the Current Expected Credit Loss (“CECL”) accounting standard effective January 1, 2023. The CECL allowance model which calculates reserves over the life of the loan and is largely driven by portfolio characteristics, economic outlook, and other key methodology assumptions versus the prior accounting practice that utilized the incurred loss model. The adoption of this ASU resulted in a one-time cumulative-effect adjustment to the allowance for credit losses as of the day of adoption.

Year Ended December 31, 2024, Compared to Year Ended December 31, 2023. The provision for credit losses - loans for the year ended December 31, 2024, was $275.7 million compared to $184.0 million for the year ended December 31, 2023. The increase in the Company’s provision for credit losses - loans during the year ended December 31, 2024, is largely related to the provision for CCBX partner loans due to significant loan growth, a change in the mix of loans and an increase in loan balances with higher loss rates. During the year ended December 31, 2024, a $277.8 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 $2.1 million was needed for the year ended December 31, 2024 due in part to a change in remaining average lives.

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022. The provision for credit losses - loans for the year ended December 31, 2023, was $184.0 million compared to $79.1 million for the year ended December 31, 2022. The increase in the Company’s provision for credit losses - loans during the year ended December 31, 2023, is largely related to the provision for CCBX partner loans. During the year ended December 31, 2023, a $182.7 million provision for credit losses - loans was recorded for loans originated through CCBX partners based on management’s analysis. The factors used in management’s analysis for community bank credit losses indicated that a provision for credit losses - loans of $1.3 million was needed for the year ended December 31, 2023.

The following table shows the provision expense by segment for the periods indicated:

Year Ended

Net charge-offs for the year ended December 31, 2024 totaled $216.1 million, or 6.51% of total average loans, as compared to net charge-offs of $144.5 million, or 4.92% of total average loans, for the year ended December 31, 2023. Net charge-offs were up significantly in 2024 compared to 2023 as a result of the growth in loans originated through CCBX partners. In accordance with GAAP, CCBX losses are recorded as charge-offs, but CCBX partner agreements provide for a

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credit enhancement that indemnifies 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 $324.6 million loan portfolio. At December 31, 2024, our portion of this portfolio represented $20.6 million in loans. Provision expense on these loans was $6.0 million and $5.1 million for the years ended December 31, 2024 and 2023, respectively, with net charge-offs of $5.6 million in 2024 and $3.6 million in 2023. In 2024, $540,000 of net charge-offs were recognized for community bank loans and $215.5 million of net-charge-offs were recognized for CCBX loans. In 2023, $52,000 of net charge-offs were recognized for community bank loans and $144.5 million of charge-offs were recognized for CCBX loans.

Net charge-offs for the year ended December 31, 2023 totaled $144.5 million, or 4.92% of total average loans, as compared to net charge-offs of $33.7 million, or 1.49% of total average loans, for the year ended December 31, 2022. Net charge-offs were up significantly in 2023 compared to 2022 as a result of the growth in loans originated through CCBX partners. Provision expense for the one CCBX partner that the Company is responsible for credit losses for was $5.1 million and $1.4 million for the years ended December 31, 2023 and 2022, respectively, with net charge-offs of $3.6 million in 2023 and $216,000 in 2022. In 2023, $52,000 of net charge-offs were recognized for community bank loans and $144.5 million of net-charge-offs were recognized for CCBX loans. In 2022, $382,000 of net charge-offs were recognized for community bank loans and $33.3 million of charge-offs were recognized for CCBX loans.

Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by indemnifying or reimbursing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligation then the Bank would be exposed to additional loan and deposit losses (counterparty risk) if the cash flows on the loans were not sufficient to fund the reimbursement of loan losses. If a CCBX partner does not replenish their cash reserve account the Bank may consider an alternative plan for funding the cash reserve, such as adjusting the funding amounts or timelines to better align with the partner's specific situation. If a mutually agreeable funding plan is not achieved then the Bank could declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. The Bank would evaluate any remaining credit enhancement asset from the CCBX partner in the event the partner failed to determine if a write-off is appropriate. If a write-off occurs, the Bank would retain the full yield and any fee income on the loan portfolio going forward, and our BaaS loan expense would decrease once default occurs and payments to the CCBX partner are stopped. For more information on activity within the credit enhancement asset account, see the discussion and table in “Financial Condition - Allowance for Credit Losses - Loans”.

The following table show the total charge-off activity by segment for the periods indicated:

% of CCBX charge-offs covered by credit enhancement 97.4 % 97.5 % 99.4 %

(1) See Note 23, Restatement of Prior Period Financial Statements

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Noninterest Income

Our primary sources of recurring noninterest income are BaaS indemnification income, Baas program income and service charges and fees. Noninterest income does not include loan origination fees, which are generally recognized over the life of the related loan as an adjustment to yield using the interest or similar method.

For the year ended December 31, 2024, noninterest income totaled $308.2 million, an increase of $104.1 million, or 51.0%, compared to $204.1 million for the year ended December 31, 2023.

For the year ended December 31, 2023, noninterest income totaled $204.1 million, an increase of $81.2 million, or 66.0%, compared to $122.9 million for the year ended December 31, 2022.

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The following table presents, for the periods indicated, the major categories of noninterest income:

(1) See Note 23, Restatement of Prior Period Financial Statements

A description of our largest noninterest income categories are below:

BaaS Income. Our CCBX segment provides BaaS offerings that enable our broker dealer and 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 fraud losses are expensed in noninterest expense under BaaS fraud expense. Also in accordance with GAAP, we establish a credit enhancement asset for expected future credit losses through the recognition of BaaS credit enhancement revenue at the same time we establish an allowance for those loans though a provision for credit losses - loans. For more information on the accounting for BaaS allowance for credit losses, reserve for unfunded commitments, credit enhancements and fraud enhancements see the section titled “CCBX – BaaS Reporting Information.”

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For the year ended December 31, 2024, we earned $302.7 million in BaaS fees, which was an increase of $104.6 million, or 52.8%, over the year ended December 31, 2023, where we earned $198.2 million in BaaS fees. The increase over the year ended December 31, 2023 was primarily due to an increase of $95.1 million in BaaS credit enhancements related to the allowance for credit losses and reserve for unfunded commitments and an increase of $2.7 million in BaaS fraud enhancements, and an increase of $6.8 million in total BaaS fee program income, which was the result of increased partner activity.

For the year ended December 31, 2023, we earned $198.2 million in BaaS fees, which was an increase of $81.0 million, or 69.2%, over the year ended December 31, 2022, where we earned $117.1 million in BaaS fees. The increase over the year ended December 31, 2022 was primarily due to an increase of $101.4 million in BaaS credit enhancements related to the allowance for credit losses and reserve for unfunded commitments partially offset by $22.4 million less in BaaS fraud enhancements as a result of lower reported fraud, and an increase of $2.0 million in total BaaS fee program income, which was the result of increased partner activity.

Service Charges and Fees. Service charges and fees include service charges on accounts, point-of-sale fees, merchant services fees and overdraft fees. Together they constitute the largest component of our noninterest income, outside of BaaS fee income. Service charges and fees were $3.7 million for the year ended December 31, 2024, a decrease of $116,000, or 3.0%, over the prior year primarily due to decreases in point-of-sale fees of $174,000 partially offset by an increase in service charges on deposit accounts of $87,000.

Service charges and fees were $3.9 million for the year ended December 31, 2023, an increase of $50,000, or 1.3%, over the prior year primarily due to increases in point-of-sale fees of $121,000 and service charges on deposit accounts of $32,000, partially offset by a decrease in overdraft fees of $97,000.

The following table presents service charges and fees for the periods indicated:

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 $168,000 for the year ended December 31, 2024, a decrease of $515,000, or 75.4%, over the year ended December 31, 2023. Interest rate volatility, swap rates, and the timing of loan closings all impact the demand for long-term fixed rate swaps.

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Loan referral fees were $683,000 for the year ended December 31, 2023, a decrease of $127,000, or 15.7%, over the year ended December 31, 2022. 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, 2024, we recognized an unrealized gain on equity securities of $27,000, compared to the year ended December 31, 2023, when we recognized a $279,000 unrealized holding loss on equity securities. We hold $3.1 million in equity securities focused on entities providing products to the BaaS and financial services space.

During the year ended December 31, 2023, we recognized an unrealized gain on equity securities of $279,000, compared to the year ended December 31, 2022, when we recognized a $153,000 unrealized holding loss on equity securities. We hold $3.0 million in equity securities focused on entities providing products to the BaaS and financial services space.

Other. This category includes a variety of other income-producing activities, credit card fee income, wire transfer fees, interest earned on bank owned life insurance (“BOLI”), and SBA and USDA servicing fees. Other noninterest income increased $640,000, or 72.4%, for the year ended December 31, 2024 compared to the year ended December 31, 2023, due in part to increased Federal Reserve Bank fee income resulting from higher incoming ACH activity.

Other noninterest income decreased $460,000, or 34.2%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, due in part to the one-time cost of converting an existing BOLI policy to one that will yield higher returns in the future, which reduced BOLI earnings by $212,000.

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 expense, FDIC assessment, director and staff expenses, excise taxes, marketing and other expenses.

For the year ended December 31, 2024, noninterest expense totaled $246.3 million, an increase of $51.7 million, or 26.6%, compared to $194.6 million for the year ended December 31, 2023. Noninterest expense, excluding BaaS loan and BaaS fraud expense totaled $117.9 million and increased $10.3 million or 9.5%.

For the year ended December 31, 2023, noninterest expense totaled $194.6 million, an increase of $29.5 million, or 17.9%, compared to $165.0 million for the year ended December 31, 2022. Noninterest expense, excluding BaaS loan and BaaS fraud expense totaled $107.7 million and increased $25.5 million or 31.0%.

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The following table presents, for the periods indicated, the major categories of noninterest expense:

(1) See Note 23, Restatement of Prior Period Financial Statements

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 $70.1 million for the year ended December 31, 2024, an increase of $3.6 million, or 5.5%, compared to $66.5 million for the year ended December 31, 2023. Salaries and employee benefits expense growth has slowed but continues to increase primarily due to hiring staff for our CCBX segment and additional staff for our ongoing growth initiatives. As our CCBX activities grow, and we invest more in technology we expect some continued growth in number of employees to support these lines of business but we are also working to automate our processes to reduce and/or slow future growth in hiring. As of December 31, 2024, we had 488 full-time equivalent employees, compared to 507 at December 31, 2023.

Salaries and employee benefits were $66.5 million for the year ended December 31, 2023, an increase of $14.2 million, or 27.3%, compared to $52.2 million for the year ended December 31, 2022. The increase was primarily due to hiring staff for our CCBX segment and additional staff for our ongoing community bank related growth initiatives. As our CCBX segment grows, we expect to continue to add employees to support this line of business. As of December 31, 2023, we had 507 full-time equivalent employees, compared to 448 at December 31, 2022

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Legal and Professional Expenses. Legal and professional expenses include legal (for contracts, program agreements, regulatory and other business issues, etc.), audit and accounting expenses, consulting fees, fees for recruiting and hiring employees, and IT related security expenses. 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 $15.5 million for the year ended December 31, 2024 compared to $14.8 million for the year ended December 31, 2023, which is an increase of $703,000, or 4.7%.

Legal and professional expenses were $14.8 million for the year ended December 31, 2023 compared to $6.8 million for the year ended December 31, 2022, an increase of $8.0 million, or 119.0%. The increase in legal and professional expenses were primarily focused on building infrastructure for future growth.

Data Processing and Software Licenses. Data processing and software licenses includes 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 $15.7 million as of December 31, 2024, compared to $5.8 million as of December 31, 2023. 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 $3.0 million for the year ended December 31, 2024, compared to $754,000 for the year ended December 31, 2023. Data processing costs were $15.3 million for the year ended December 31, 2024, compared to $9.3 million for the year ended December 31, 2023, an increase of $6.0 million, or 63.8%.

Data processing costs were $9.3 million for the year ended December 31, 2023, compared to $6.8 million for the year ended December 31, 2022, an increase of $2.5 million, or 37.2% due to higher data processing expenses resulting from growth and the addition of new products as well as increased investments in technology to automate and create efficiencies.

Occupancy Expenses. Occupancy expenses were $3.9 million for the year ended December 31, 2024, compared to $4.2 million for the year ended December 31, 2023, a decrease of $236,000, or 5.7%. This category includes building, leasehold, furniture, fixtures and equipment depreciation totaling $1.5 million and $1.6 million for years ended December 31, 2024 and 2023, respectively. The decrease of $236,000 in occupancy expenses for 2024 compared to 2023, was primarily the result of $157,000 less in maintenance and repairs expenses. Occupancy expenses 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 do expect occupancy expenses to increase as we continue to grow.

Occupancy expenses were $4.2 million for the year ended December 31, 2023, compared to $4.2 million for the year ended December 31, 2022, a decrease of $47,000, or 1.1%. This category includes building, leasehold, furniture, fixtures and equipment depreciation totaling $2.3 million and $1.8 million for years ended December 31, 2023 and 2022, respectively.

Point of Sale Expenses. Point of sale expenses are incurred as part of the process that allows businesses to accept payment for goods or services. Generally, point of sale expense increases as point of sale activity increases, as does point of sale income which is recognized in other income for the community bank and in BaaS program income for CCBX. Point of sale expenses were $325,000 for the year ended December 31, 2024, compared to $481,000 for the year ended December 31, 2023, a decrease of $156,000, or 32.4%.

Point of sale expenses were $481,000 for the year ended December 31, 2023, compared to $368,000 for the year ended December 31, 2022, an increase of $113,000, or 30.7%

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FDIC Assessments. FDIC assessments are assessed to fund the Deposit Insurance Fund (“DIF”) to insure and protect the depositors of insured banks and to resolve failed banks. The assessment rate is based on a number of factors and recalculated each quarter. As deposits increase, the FDIC assessment expense will generally increase. On October 18, 2022 the FDIC finalized an increase of two basis points in the initial base deposit insurance assessment rates schedules, beginning with the first quarterly assessment period of 2023. The rise is intended to increase the reserve ratio of the Deposit Insurance Fund to 1.35%, the statutory requirement. The increase in the base rates will remain in place until the reserve ratio reaches or exceeds 2.0%. The reserve ratio is 1.21% as of June 30, 2024. The reserve ratio is negatively affected by growth in assets and bank failures. FDIC assessments were $2.9 million for the year ended December 31, 2024, compared to $2.5 million for the year ended December 31, 2023, an increase of $339,000, or 13.4%.

FDIC assessments were $2.5 million for the year ended December 31, 2023, compared to $2.9 million for the year ended December 31, 2022, a decrease of $335,000, or 11.7%

Director and Staff Expenses. Director and staff expenses includes compensation for director service, continuing education for employees and other director and staff related expenses. Director and staff expenses were $2.1 million for the year ended December 31, 2024 compared to $2.2 million for the year ended December 31, 2023, a decrease of $40,000, or 1.9%.

Director and staff expenses were $2.2 million for the year ended December 31, 2023 compared to $1.7 million for the year ended December 31, 2022, an increase of $441,000, or 25.8%. In 2023, we saw an increase in these expenses as the number of employees increased.

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. Although excise taxes increased as a result of increased income subject to excise taxes, expense was down compared to last year as a result of an apportionment study to quantify revenue earned outside the state of Washington that resulted in a $1.2 million refund during the second quarter of 2024. CCBX income is sourced to the state where the partner does business, and the majority of partners are located outside the state of Washington. Therefore, taxes we paid on CCBX income sourced to other states was in excess of what was actually owed. Excise taxes were $1.2 million for the year ended December 31, 2024, compared to $2.0 million for the year ended December 31, 2023, a decrease of $822,000, or 41.6%.

Excise taxes were $2.0 million for the year ended December 31, 2023, compared to $2.2 million for the year ended December 31, 2022, a decrease of $228,000, or 10.3%.

Marketing. Marketing and promotion costs were $162,000 for the year ended December 31, 2024, compared to $517,000 for the year ended December 31, 2023, a decrease of $355,000, or 68.7%. Marketing and promotion costs will vary depending upon the deployment of branding and targeted advertising for the community bank and CCBX. We are using more cost-effective advertising options, but expect costs to increase as we expand our marketing plan.

Marketing and promotion costs were $517,000 for the year ended December 31, 2023, compared to $351,000 for the year ended December 31, 2022, an increase of $166,000, or 47.3%

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, provision for unfunded commitments, and miscellaneous other expenses. The provision for unfunded commitments has increased with the addition of CCBX loan partners. Other noninterest expense increased to $6.5 million for the year ended December 31, 2024, compared to $5.2 million for the year ended December 31, 2023, an increase of $1.3 million, or 24.1%. The increase was due to $600,000 for exit costs associated with a fraud/compliance vendor, higher business development & sponsorships, and increased operational losses of which $120,000 was a nonrecurring one-time loss.

Other noninterest expense increased to $5.2 million for the year ended December 31, 2023, compared to $4.7 million for the year ended December 31, 2022, an increase of $572,000, or 12.3%. The increase was largely due to overall increases resulting from growth for the year ended December 31, 2023, as compared to the same period last year.

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BaaS loan and fraud expense. Our CCBX segment provides BaaS offerings that enable our broker dealer and 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, 2024, BaaS loan and fraud expense was $128.4 million, compared to $86.9 million for the year ended December 31, 2023 and $82.9 million for the year ended December 31, 2022 as a result of increased partner activity. as a result of increased partner activity. For more information on the accounting for BaaS loan and fraud expenses see the section titled “CCBX – BaaS Reporting Information.”

The following table presents, for the periods indicated, the BaaS loan and fraud expenses:

(1) See Note 23, Restatement of Prior Period Financial Statements

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 other states, which has increased the overall tax rate used in calculating the provision for income taxes in the current and future periods.

Year Ended December 31, 2024, Compared to Year Ended December 31, 2023. For the year ended December 31, 2024, income tax expense totaled $12.1 million, compared to $12.6 million for the year ended December 31, 2023. Our effective tax rates for the years ended December 31, 2024, and 2023, was 21.1% and 22.0%, respectively. The $456,000 decrease in income tax expense, despite higher net income, was a result of the deductibility of certain equity awards.

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022. For the year ended December 31, 2023, income tax expense totaled $12.6 million, compared to $10.0 million for the year ended December 31, 2022. Our effective tax rate for the year ended December 31, 2022 was 19.7%.

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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). The CCBX segment provides banking as a service (“BaaS”) that allows our broker-dealer and digital financial service partners to offer their customers banking services. The CCBX segment had 24 relationships, at varying stages, including three signed letters of intent as of December 31, 2024. 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:

Assets

Liabilities

(1)See Note 23, Restatement of Prior Period Financial Statements

Community Bank

Community bank total assets as of December 31, 2024 increased $53.4 million, or 2.9%, to $1.90 billion, compared to $1.84 billion as of December 31, 2023. Loans receivable net of deferred fees for the community bank segment increased $52.8 million, or 2.9%, to $1.88 billion as of December 31, 2024, compared to $1.83 billion as of December 31, 2023. The increase in community bank loans receivable was the result of gross loan growth of $51.8 million. Total community bank deposits increased $23.6 million, or 1.58%, to $1.52 billion, as of December 31, 2024, compared to $1.50 billion as of December 31, 2023. The overall increase in community bank deposits was a result of exception pricing tactics added as a strategy at the end of the first quarter of 2024 to retain deposits and more effectively compete in the market. Our cost of deposits for the community bank increased to 1.80% for the year ended December 31, 2024, compared to 1.14% for the year ended December 31, 2023, partially as a result of such measures and also due to higher interest rates.

CCBX

CCBX total assets as of December 31, 2024 increased $202.9 million, or 10.7%, to $2.10 billion, compared to $1.90 billion as of December 31, 2023. During the year ended December 31, 2024, $1.55 billion in CCBX loans were transferred to loans held for sale, with $1.52 billion in loans sold and $20.6 million loans remaining in loans held for sale as of December 31, 2024 compared to none at December 31, 2023. We continue to sell loans back to the originating partner as part of our strategy to balance partner and lending limits, and manage the loan portfolio and credit quality. Additionally, 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 passive revenue stream with no on balance sheet risk. Total CCBX loans receivable increased $412.2 million, or 34.6%, to $1.60 billion as of December 31, 2024, compared to $1.19 billion as of December 31, 2023. The increase in loans receivable was

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the result of increased activity with CCBX partners. After deliberately reducing our other consumer and other loans portfolio during the third and fourth quarters of 2023 and first quarter of 2024 in an effort to optimize our loan portfolio, we have built back the CCBX portfolio with new loans that are more aligned with our long term objectives. CCBX allowance for credit losses increased to $158.1 million as of December 31, 2024, compared to $95.8 million as of December 31, 2023, as a result of increased loan balances and the mix of loans with increased loss rates which has increased the allowance calculation/requirement. CCBX partner agreements provide for credit enhancements that cover $223.0 million, or 97.4%, of the total gross charge-offs on CCBX loans for the twelve months ended December 31, 2024. 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 $201.3 million, or 10.8%, to $2.06 billion, compared to $1.86 billion as of December 31, 2023, as a result of growth within the CCBX relationships. This does not include an additional $273.2 million in CCBX deposits that were transferred off balance sheet to provide for increased FDIC insurance coverage to certain customers and to manage concentration levels, compared to $69.4 million as of December 31, 2023.

Treasury & Administration

Treasury & administration total assets as of December 31, 2024 increased $114.9 million, or 1,190.6%, to $124.6 million, compared to $9.7 million as of December 31, 2023. Total securities decreased $103.0 million, or 68.5%, to $47.3 million as of December 31, 2024, compared to $150.4 million as of December 31, 2023, as a result of maturing AFS securities. Total borrowings were $47.9 million as of December 31, 2024 and $47.7 million as of December 31, 2023.

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The following table presents summary financial information for each segment for the periods indicated.

Year Ended

INTEREST INCOME AND EXPENSE

NONINTEREST INCOME

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Year Ended

NONINTEREST EXPENSE

(1)See Note 23, Restatement of Prior Period Financial Statements

Community Bank

Year Ended December 31, 2024, Compared to Year Ended December 31, 2023. Net interest income for the community bank was $75.6 million for the year ended December 31, 2024, a decrease of $3.7 million, or 4.6%, compared to $79.2 million for the year ended December 31, 2023. The decrease in net interest income was largely due to increased interest expense on deposit accounts due to higher interest rates, partially offset by an increase in interest on loans receivable resulting from growth and higher loan yield. As a result of the community bank having higher average loans than deposits for the year ended December 31, 2024 compared to the year ended December 31, 2023, intrabank interest expense for the community bank was $21.3 million for the year ended December 31, 2024, compared to intrabank interest expense of $10.4 million for the year ended December 31, 2023. There was a recapture of the provision for credit losses - loans for the community bank of $2.1 million for the year ended December 31, 2024, compared to a provision for credit losses -loans of $1.3 million for the year ended December 31, 2023. Net charge-offs to average loans for the community bank segment have remained consistently low and were 0.03% and 0.00% for the year ended December 31, 2024, and 2023, respectively. Noninterest income for the community bank was $4.4 million for the year ended December 31, 2024, a decrease of $533,000, or 10.7%, compared to $5.0 million for the year ended December 31, 2023. Loan referral fees decreased $515,000 for the year ended December 31, 2024 compared to the year ended December 31, 2023. 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 decreased $1.4 million, or 3.8%, to $36.5 million as of December 31, 2024, compared to $38.0 million as of December 31, 2023. The decrease in noninterest expense is largely due to lower legal and professional expenses as some of our risk management infrastructure projects are being completed. We continue to invest in our infrastructure and automation of our processes so that they are scalable.

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Year Ended December 31, 2023, Compared to Year Ended December 31, 2022. Net interest income for the community bank was $79.2 million for the year ended December 31, 2023, an increase of $781,000, or 1.0%, compared to $78.4 million for the year ended December 31, 2022. The increase in net interest income is largely due to loan growth and increased interest rates on new and variable rate loans. As a result of the community bank having higher average loans than deposits for the twelve months ended December 31, 2023 compared to the twelve months ended December 31, 2022, intrabank interest expense for the community bank was $10.4 million for the twelve months ended December 31, 2023, compared to intrabank interest income of $796,000 for the twelve months ended December 31, 2022. Increased interest rates also contributed to the increase in intrabank interest expense. Provision for credit losses - loans for the community bank was $1.3 million for the year ended December 31, 2023, compared to $719,000 for the year ended December 31, 2022, as a result of loan growth. Net charge-offs to average loans for the community bank segment have remained consistently low and were 0.00% and 0.03% for the twelve months ended December 31, 2023, and 2022, respectively. Noninterest income for the community bank was $5.0 million, for the year ended December 31, 2023, a decrease of $193,000, or 3.7%, compared to $5.2 million for the year ended December 31, 2022. Loan referral fees decreased $127,000 for the twelve months ended December 31, 2023 compared to the twelve months ended December 31, 2022. 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 $5.0 million, or 15.0%, to $38.0 million as of December 31, 2023, compared to $33.0 million as of December 31, 2022. The increase is largely due to increased salaries and employee benefits as a result of growth, higher data processing and software licensing costs related to new reporting software that helps monitor and assess risk and to automate and create efficiencies in reporting, and increased legal and professional fees associated with our infrastructure enhancement projects to improve processing, automate processes, reduce compliance costs, and enhance our data management.

CCBX

Year Ended December 31, 2024, Compared to Year Ended December 31, 2023. Net interest income for CCBX was $184.5 million for the year ended December 31, 2024, an increase of $39.8 million, or 27.5%, compared to $144.7 million for the year ended December 31, 2023. The increase in net interest income was due to loan growth from active CCBX relationships. During the year ended December 31, 2024, we sold $1.52 billion in CCBX loans as part of our strategy to optimize our CCBX portfolio and manage credit quality, portfolio limits and partner limits. We are retaining a portion of the transaction processing fee income on sold credit card balances which provides on-going passive income without balance sheet risk. As a result of having higher average deposits than loans for the year ended December 31, 2024 compared to the year ended December 31, 2023, intrabank interest income for CCBX was $30.2 million for the year ended December 31, 2024, compared to $19.1 million for the year ended December 31, 2023. Provision for credit losses - loans was $277.8 million for the year ended December 31, 2024, compared to $182.7 million for the year ended December 31, 2023, as a result of loan origination growth and as a result of the mix of loan balances with increased loss rates which has impacted the allowance calculation. Noninterest income for CCBX was $302.9 million for the year ended December 31, 2024, an increase of $104.2 million, or 52.5%, compared to $198.6 million for the year ended December 31, 2023, due to an increase of $95.1 million in BaaS credit enhancements related to the allowance for credit losses, $6.8 million increase in total BaaS program income, which was the result of increased activity with our CCBX partners, and a $2.7 million increase in BaaS fraud enhancements as a result of lower fraud. Noninterest expenses for CCBX increased $47.2 million, or 36.8%, to $175.3 million as of December 31, 2024, compared to $128.1 million as of December 31, 2023. The increase in noninterest expense was largely due to growth from active CCBX relationships resulting in an increase in BaaS loan expense and salaries and benefits, for the year ended December 31, 2024, compared to the year ended December 31, 2023. For more information on the accounting for BaaS income and expenses see the section titled “CCBX – BaaS Reporting Information.”

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022. Net interest income for CCBX was $144.7 million for the year ended December 31, 2023, an increase of $53.9 million, or 59.4%, compared to $90.8 million for the year ended December 31, 2022. The increase in net interest income is due largely to loan growth from CCBX relationships. During the year ended December 31, 2023, we sold $599.9 million in higher yielding CCBX loans that have a greater potential for credit deterioration in an effort to optimize our CCBX loan portfolio. The impact of these sales and the changes we are making in an effort to optimize and strengthen the balance sheet are expected to be reflected in our earnings in future periods. We expect to see lower net income in the short term with lower loan yields and compressed margins but we will work to continue growing the CCBX portfolio with loans that we believe will strengthen the balance sheet and provide for long term stability and profitability. As a result of having higher average deposits than loans for the twelve months ended December 31, 2023 compared to the twelve months ended December 31, 2022 intrabank interest income for CCBX was $19.1 million for the twelve months ended December 31, 2023, compared to $4.1 million for the twelve months ended December 31, 2022. Increased interest rates also contributed to the increase in intrabank interest income. Provision for credit losses - loans for CCBX was

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$182.7 million for the year ended December 31, 2023, compared to $78.3 million for the year ended December 31, 2022, as a result of loan growth and higher loss rates from CCBX partners. Noninterest income for CCBX was $198.6 million for the year ended December 31, 2023, an increase of $81.1 million, or 69.0%, compared to $117.5 million for the year ended December 31, 2022, due to an increase of $2.0 million in BaaS fee program income, which was the result of increased activity with Baas partners, including $101.4 million in BaaS credit enhancements related to the allowance for credit losses, and $22.4 million in BaaS fraud enhancements. Noninterest expenses for CCBX increased $20.7 million, or 19.3%, to $128.1 million as of December 31, 2023, compared to $107.4 million as of December 31, 2022. The increase in noninterest expense is largely due to growth from active CCBX relationships resulting in an increase in BaaS loan expense, BaaS fraud expense and increased salaries and benefits, for the twelve months ended December 31, 2023, compared to the twelve months ended December 31, 2022. Also contributing to the increase in noninterest expense is higher legal and professional fees associated with our infrastructure enhancement projects to improve processing, automate processes, reduce compliance costs, and enhance our data management.

Treasury & Administration

Year Ended December 31, 2024, Compared to Year Ended December 31, 2023. Net interest income for treasury & administration was $13.0 million for the year ended December 31, 2024, an increase of $5.3 million, or 70.4%, compared to $7.6 million for the year ended December 31, 2023, as a result of increased balances on interest earning assets and higher interest rates. Noninterest income increased $391,000, or 78.0%, to $892,000 for the year ended December 31, 2024, compared to $501,000 for the year ended December 31, 2023. Noninterest expense increased $6.0 million, or 21.1%, to $34.5 million for the year ended December 31, 2024, compared to $28.5 million for the year ended December 31, 2023, largely as a result of increased data processing and software license expense as a result of growth, partially offset by the $1.2 million credit in excise taxes due to the refund from the State of Washington as a result of an apportionment study we completed to quantify revenue earned outside of the state of Washington.

Year Ended December 31, 2023, Compared to Year Ended December 31, 2022. Net interest income for treasury & administration was $7.6 million for the twelve months ended December 31, 2023, an increase of $5.1 million, or 201.7%, compared to $2.5 million for the twelve months ended December 31, 2022, as a result of increased interest rates. Noninterest income increased $267,000, or 114.1%, to $501,000 for the twelve months ended December 31, 2023, compared to $234,000 for the twelve months ended December 31, 2022. Noninterest expense increased $3.8 million, or 15.6%, to $28.5 million for the twelve months ended December 31, 2023, compared to $24.6 million for the twelve months ended December 31, 2022, largely as a result of increased salaries and employee benefits and legal and professional fees as a result of growth.

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Financial Condition

Our total assets increased $371.2 million to $4.12 billion, or 9.9% at December 31, 2024, compared to $3.75 billion at December 31, 2023. This increase was largely the result of a $465.0 million increase in loans receivable, partially offset by a decrease of $99.5 million in AFS securities and a decrease of $35.8 million in interest earning deposits with other banks.

Loans Held For Sale

During the year ended December 31, 2024, $1.55 billion in CCBX loans were transferred to loans held for sale, with $1.52 billion in loans sold at par during the year ended December 31, 2024. As of December 31, 2024 there were $20.6 million in loans held for sale and none as of December 31, 2023.

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, 2024, loans receivable totaled $3.49 billion, an increase of $465.0 million, or 15.4%, compared to December 31, 2023. Total loans receivable is net of $6.5 million in net deferred origination fees. The increase includes CCBX loan growth of $412.2 million, or 34.6%, and community bank loan growth of $51.8 million, or 2.8%.

Loans as a percentage of deposits were 97.8% as of December 31, 2024, compared to 89.9% as of December 31, 2023. 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:

Real estate loans:

Net deferred origination fees (6,454) (7,300)

(1) See Note 23, Restatement of Prior Period Financial Statements

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The following tables detail the loans by segment which are included in the total loan portfolio table above:

Community Bank As of

(dollars in thousands) Balance % to Total Balance % to Total

Commercial and industrial loans:

Real estate loans:

Consumer and other loans:

Net deferred origination fees (6,012) (7,000)

CCBX As of

(dollars in thousands) Balance % to Total Balance % to Total

Commercial and industrial loans:

Real estate loans:

Consumer and other loans:

Net deferred origination (fees) costs (442) (300)

(1)CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. To determine net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at net BaaS loan income which can be compared to interest income on the Company’s community bank loans. Net BaaS loan income is a non-GAAP measure. See the reconciliation of non-GAAP measures set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures” for the impact of BaaS loan expense on CCBX yield.

(2)See Note 23, Restatement of Prior Period Financial Statements

Commercial and Industrial Loans. Commercial and industrial loans increased $2.1 million, or 0.7%, to $293.4 million as of December 31, 2024, from $291.3 million as of December 31, 2023. The increase in commercial and industrial loans receivable over December 31, 2023 was due to an increase of $21.5 million in capital call lines partially offset by a $19.4 million decrease in other commercial and industrial loans.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. These loans are primarily made based on the borrower’s ability to service the debt from income. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable, inventory or equipment, and we generally obtain personal guarantees on these loans. Commercial and industrial loans included $48.6 million in loans to financial institutions as of December 31, 2024, and December 31, 2023.

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Included in the commercial and industrial loan balance is $109.0 million and $87.5 million in capital call lines resulting from relationships with our CCBX partners as of December 31, 2024 and December 31, 2023, respectively, and $34.0 million and $54.3 million in CCBX other commercial loans as of December 31, 2024 and December 31, 2023, respectively. As of December 31, 2024 there was $150.4 million in community bank commercial and industrial loans compared to $149.5 million at December 31, 2023.

Construction, Land and Land Development Loans. Construction, land and land development loans decreased $8.9 million, or 5.7%, to $148.2 million as of December 31, 2024, from $157.1 million as of December 31, 2023. The decrease is attributed in part to the completion of projects related to these community bank loans.

Unfunded loan commitments for construction, land and land development loans were $47.8 million at December 31, 2024, compared to $113.5 million at December 31, 2023. Although we have seen a strong commercial and residential real estate market in the Puget Sound region in 2024, the economic environment is continuously changing with bank failures and mergers, inflation, higher interest rates, 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, 2024, construction, land and land development loans included $83.2 million in commercial construction loans, $40.9 million in residential construction loans, $15.4 million in other construction, land and land development loans and $8.7 million in undeveloped land loans, compared to $81.5 million in commercial construction loans, $34.2 million in residential construction loans and $33.5 million in other construction, land and land development loans and $7.9 million in undeveloped land loans as of December 31, 2023.

Residential Real Estate Loans. Our one-to-four family residential real estate loans increased $6.3 million, or 1.4%, to $469.8 million as of December 31, 2024, from $463.4 million as of December 31, 2023 due to a decrease of $23.3 million in community bank loans partially offset by an increase of $29.7 million in CCBX loans.

As of December 31, 2024, there were $267.7 million in CCBX home equity loans included in residential real estate, compared to $238.0 million at December 31, 2023. These home equity lines of credit are secured by residential real estate and are accessed by using a credit card. These are first and second lien residential loans and require 18 months of home ownership. Term lengths are up to 30 years and lines range from $50,000 to $400,000. We sold $506.7 million in CCBX residential real estate loans during the year ended December 31, 2024.

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, 2024 and December 31, 2023, we held $6.1 million and $8.1 million, respectively, in purchased residential real estate mortgage loans. These loans purchased typically have a fixed rate with a term of 15 to 30 years and are collateralized by one-to-four family residential real estate. We have a defined set of credit guidelines that we use when evaluating these loans. Although purchased loans were originated and underwritten by another institution, our mortgage, credit, and compliance departments 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 increased $71.3 million, or 5.5%, to $1.37 billion as of December 31, 2024, from $1.30 billion as of December 31, 2023.

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, 2024, approximately 33.0% of the commercial real estate loan portfolio consisted of fixed rate loans. Commercial real estate loans represented 39.4% of our loan portfolio at December 31, 2024 and are a large source of revenue. As of December 31, 2024, we held $20.1 million in purchased commercial real estate loans, compared to $43.0 million at December 31, 2023. 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 $393.5 million, or 48.4%, to $1.21 billion, from $813.5 million as of December 31, 2023, as a result of growth in CCBX loans originated through our partners. We sold $850.9 million in CCBX credit cards loans and $167.3 million in CCBX consumer and other loans during the year ended December 31, 2024. 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 $1.19 billion as of December 31, 2024, compared to $811.9 million at December 31, 2023. 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 7.75% 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 three months to five years. Interest rates can be fixed or variable and range from 3.99% to the maximum allowable rate by state.

Our community bank consumer and other loans totaled $13.5 million as of December 31, 2024, compared to $1.6 million at December 31, 2023 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 tables:

Commercial and industrial loans:

Real estate loans:

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The following table sets forth all loans at December 31, 2024, that are due after December 31, 2025, and have either fixed interest rates or floating or adjustable interest rates:

(dollars in thousands) Fixed Rates Floating or AdjustableRates Total

Commercial and industrial loans:

Real estate loans:

Industry Exposure and Categories of Loans

We have a diversified loan portfolio, representing a wide variety of industries. Our major categories of loans are commercial real estate, consumer and other loans, residential real estate, commercial and industrial, and construction, land and land development loans. Together they represent $3.49 billion in outstanding loan balances. When combined with $1.96 billion in unused commitments the total of these categories is $5.46 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 $750.8 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, 2024:

Community bank commercial real estate loans

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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 $1,000.

The following table summarizes our exposure by category for our consumer and other loan portfolio as of December 31, 2024:

CCBX consumer loans

Community bank consumer loans

(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, 2024:

CCBX residential real estate loans

Community bank residential real estate loans

(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, 2024:

CCBX C&I Loans

Community bank C&I Loans

(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, 2024:

Community bank construction, land and land development loans

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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 out as substandard loans, 90+ days past due and still accruing. As a result of the type of loans (primarily consumer loans) originated through our CCBX partners, we anticipate that balances 90 days past due or more and still accruing will increase as those loans grow. We continue to refine our credit approach with partners, widening the scope of loans that we are moving to nonaccrual status. Additionally, some CCBX partners have instituted a collection practice that places certain loans on nonaccrual status to improve collectability. As of December 31, 2024, $17.2 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 $62.7 million, or 1.52%, in nonperforming assets as of December 31, 2024, compared to $53.8 million, or 1.44%, as of December 31, 2023. This includes $43.1 million in CCBX loans more than 90 days past due and still accruing interest as of December 31, 2024, compared to $46.5 million at December 31, 2023. All of our nonperforming assets were nonperforming loans as of December 31, 2024 and December 31, 2023. The increase in nonperforming assets was due to an increase in CCBX nonaccrual loans of $19.5 million as a result of a new collection practice that places certain loans on nonaccrual status to improve collectability, $17.2 million of these loans are less than 90 days past due as of December 31, 2024. This increase was partially offset by a $3.4 million decrease in CCBX partner loans that are 90 days or more past due and still accruing interest, and a decrease in community bank nonaccrual loans of $7.2 million during the twelve months ended December 31, 2024. The balance of our nonperforming assets increased as a result of certain CCBX loans that are less than 90 days past due, which were placed on nonaccrual status. Our nonperforming loans to loans receivable ratio was 1.80% at December 31, 2024, compared to 1.78% at December 31, 2023.

Our community bank credit quality remains strong, as demonstrated by the low level of community bank nonperforming loan balances for the year ended December 31, 2024. 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:

Nonaccrual loans:

Commercial and industrial loans $ 334 $ —

Real estate loans:

Construction, land and land development — —

Residential real estate — 170

Commercial real estate — 7,145

Consumer and other loans:

Other consumer and other loans 8,967 —

Accruing loans past due 90 days or more:

Commercial & industrial loans 1,006 2,086

Real estate loans:

Residential real estate loans 2,608 1,115

Consumer and other loans:

Other consumer and other loans 4,989 8,486

Real estate owned — —

Repossessed assets — —

Total nonaccrual loans to loans receivable 0.56 % 0.24 %

Total nonperforming loans to loans receivable 1.80 % 1.78 %

Total nonperforming assets to total assets 1.52 % 1.44 %

(1) See Note 23, Restatement of Prior Period Financial Statements

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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 As of

Nonaccrual loans:

Commercial and industrial loans $ 100 $ —

Real estate:

Residential real estate — 170

Commercial real estate — 7,145

Accruing loans past due 90 days or more:

Total accruing loans past due 90 days or more — —

Other real estate owned — —

Repossessed assets — —

Total nonperforming assets $ 100 $ 7,315

Total nonperforming community bank loans to total loans receivable — % 0.24 %

CCBX As of

Nonaccrual loans:

Commercial and industrial loans:

All other commercial & industrial loans $ 234 $ —

Consumer and other loans:

Other consumer and other loans 8,967 —

Total nonaccrual loans 19,463 —

Accruing loans past due 90 days or more:

Commercial & industrial loans 1,006 2,086

Real estate loans:

Residential real estate loans 2,608 1,115

Consumer and other loans:

Other consumer and other loans 4,989 8,486

Other real estate owned — —

Repossessed assets — —

Total nonperforming CCBX loans to total loans receivable 1.79 % 1.54 %

(1) See Note 23, Restatement of Prior Period Financial Statements

As of December 31, 2024, $60.8 million of the $62.6 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, 2024, the allowance for credit losses totaled $177.0 million, or 5.08% of total loans. As of December 31, 2023, the allowance for credit losses totaled $117.4 million, or 3.88% of total loans.

The increase in the Company’s allowance for credit losses for the year ended December 31, 2024 compared to December 31, 2023, was largely related to the growth and composition for CCBX partner loans. During the year ended December 31, 2024, a $277.8 million provision for credit losses - loans was recorded for CCBX partner loans based on management’s analysis. The factors used in management’s analysis for community bank credit losses indicated that a recapture for credit losses - loans of $2.1 million was needed for the year ended December 31, 2024, largely due to the resolution and recapture of a specific allowance and a change in the average remaining life of community bank loans. The economic environment is continuously changing with bank failures and mergers, inflation, higher interest rates, global unrest, the war in Ukraine, conflicts in the Middle East, the political environment, natural disasters, and trade issues that have resulted in economic uncertainty. As described above, CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses.

Agreements with our CCBX partners provide for a credit enhancement provided by the partner which protects the Bank by indemnifying or reimbursing incurred losses. In accordance with accounting guidance, we estimate and record a provision for expected losses for 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 fraud by indemnifying or reimbursing incurred fraud losses. BaaS fraud includes noncredit fraud losses on loans and deposits originated through partners. Fraud losses are recorded when incurred as losses in noninterest expense, and the enhancement received from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement.

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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, 2024 the Company was responsible for credit losses on approximately 5% of a $324.6 million CCBX loan portfolio and represented $20.6 million in loans. The table below shows the activity in the credit enhancement asset for the periods indicated:

As of or for the Twelve Months Ended December 31,

Credit enhancement at beginning of period 112,894 53,377

CECL Day 1 Adjustment — 4,465

CCBX Provision for credit losses - unfunded commitments 1,187 160

Credit losses settled with partner during period (228,537) (151,933)

Credit recoveries settled with partner during period 13,027 7,442

Net losses pending settlement with partner 5,998 18,156

Net (provision) charge-offs without credit enhancement (472) (1,494)

(1) See Note 23, Restatement of Prior Period Financial Statements

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 better align with the partner's specific situation. If a mutually agreeable funding plan is not achieved then the Bank could declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. The Bank would evaluate any remaining credit enhancement asset from the CCBX partner in the event the partner failed to fulfill its obligations and would determine if a write-off is appropriate. If a write-off occurs, the Bank would retain the full yield and any fee income on the loan portfolio going forward, and our BaaS loan expense would decrease once default occurs and payments to the CCBX partner are stopped.

The following table presents, as of and for the periods indicated, net charge-off information by segment:

Year Ended

(dollars in thousands) Community Bank CCBX Total Community Bank CCBX Total

% of CCBX charge-offs covered by credit enhancement 97.4 % 97.5 %

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(1) See Note 23, Restatement of Prior Period Financial Statements

Year Ended

(dollars in thousands) Community Bank CCBX Total

Gross recoveries (46) (36) (82)

Net charge-offs to average loans 0.03 % 4.48 % 1.49 %

% of CCBX charge-offs covered by credit enhancement 99.4 %

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,

Impact of adopting CECL (ASC 326) — 3,852 —

Charge-offs:

Commercial real estate 264 — —

Recoveries:

Commercial and industrial loans 1,108 22 40

Residential real estate 8 4 —

Allowance to loans receivable 5.08 % 3.88 % 2.82 %

(1) See Note 23, Restatement of Prior Period Financial Statements

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The allowance for credit losses to nonaccrual loans ratio decreased as of December 31, 2024, compared to December 31, 2023 as a result of an increase in nonaccrual loans of $12.2 million due to an increase in CCBX nonaccrual loans as a result of a new collection practice that places certain loans on nonaccrual status to improve collectability, partially offset by a decrease in nonaccrual community bank loans and a decrease in CCBX loans past due 90 days or more. The allowance for credit losses increased $59.6 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, largely due to the increase in loans originated through our CCBX partners. 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, 2024 that were covered by credit enhancements was $223.0 million. At December 31, 2024, the allowance for credit losses for CCBX partner loans totaled $158.1 million, compared to $95.8 million at December 31, 2023.

The following table presents the loans receivable and allowance for credit losses by segment for the period indicated:

(dollars in thousands) Community Bank CCBX Total Community Bank CCBX Total

(1) See Note 23, Restatement of Prior Period Financial Statements

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 economic environment is continuously changing with potential for bank failures and mergers, inflation, higher interest rates, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters and trade issues that have resulted in economic uncertainty. If economic conditions worsen then Washington state and Puget Sound region may experience a more severe economic downturn, and our asset quality could deteriorate, which may require material additional provisions for credit losses.

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,

Real estate loans:

Construction, land and land development loans 3,439 4.2 6,386 5.2

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(1) See Note 23, Restatement of Prior Period Financial Statements

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, 2024, our securities portfolio was invested in U.S. Agency collateralized mortgage obligations and U.S. Agency residential mortgage-backed securities. 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, 2024, our loan-to-deposit ratio was 97.8% due to our growth in both loans and deposits. When our securities portfolio represents less than 5% of assets we focus on liquid securities. To the extent our securities represent more than 5% of assets, absent an immediate need for liquidity, we may invest excess funds to provide a higher return.

As of December 31, 2024, the amortized cost of our investment securities totaled $47.3 million, a decrease of $103.6 million, or 68.6%, compared to $150.9 million as of December 31, 2023. The decrease in the securities portfolio was due to $100.0 million of securities in the AFS portfolio maturing during the year ended December 31, 2024 partially offset by the purchase of HTM securities for CRA purposes.

Our investment portfolio consists of only $35,000 in securities classified as AFS and $47.3 million in held-to-maturity. 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, 2024, our AFS portfolio had an unrealized loss of $2,000, compared to an unrealized loss of $537,000 as of December 31, 2023.

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) AmortizedCost FairValue AmortizedCost FairValue

Securities available-for-sale:

U.S. Agency collateralized mortgage obligations 37 35 45 43

Securities held-to-maturity:

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, 2024, 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, 2024 and 2023, 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 $7.3 million as of December 31, 2024 and $6.8 million as of December 31, 2023 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

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(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 $2.2 million equity interest in a specialized bank technology company as of December 31, 2024 and December 31, 2023 .

•The Company had a $350,000 equity interest in a technology company as of the years ended December 31, 2024 and December 31, 2023.

•The Company had a $47,000 and $50,000 equity interest in a technology company as of the years ended December 31, 2024, and December 31, 2023, respectively.

The following table shows the activity in equity investments without a readily determinable fair value for the dates shown:

For the Twelve Months EndedDecember 31,

Observable price change (3) — (100)

The Company has invested in funds that are accelerating technology for adoption by banks. These equity investments are held at fair value, as reported by the funds. During the year ended December 31, 2024, the Company contributed $72,000 with investment funds designed to help accelerate technology adoption at banks, and recognized net gains of $29,000, resulting in an equity interest of $910,000 at December 31, 2024. The Company has committed up to $480,000 in capital for these equity funds.

The following table shows the activity in equity fund investments held at fair value for the dates shown:

For the Twelve Months EndedDecember 31,

Carrying value, beginning of period $ 809 $ 456 $ 160

Purchases/capital calls/capital returns, net 72 75 349

Net change recognized in earnings 29 278 (53)

Carrying value, end of period $ 910 $ 809 $ 456

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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.

More than Ten Years Total

Securities available-for-sale:

U.S. Agency collateralized mortgage obligations $ 37 3.091 % $ 37 3.091 %

Securities held to maturity:

Other Assets

Deferred tax assets, net decreased $206,000 to $3.6 million and other assets decreased $1.7 million to $13.6 million as of December 31, 2024, compared to December 31, 2023.

Deposits

We offer a variety of deposit products that have a wide range of interest rates and terms, including demand, money market, savings, and time accounts as well as IntraFi network sweep deposits. Sweep deposits enable us to provide an FDIC insured deposit option to customers that have balances in excess of the FDIC insurance limit. This service trades our customers’ funds as certificates of deposit or interest bearing demand deposits in increments under the FDIC insured amount to other participating financial institutions and in exchange we receive time deposit or interest bearing demand investments from participating financial institutions. We rely primarily on competitive pricing policies, convenient locations, electronic delivery channels (internet and mobile), and personalized service to attract new deposits and retain existing deposits. 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, 2024 were $3.59 billion, an increase of $225.0 million, or 6.7%, compared to $3.36 billion as of December 31, 2023. The increase in deposits was largely in due to an increase of $201.3 million in CCBX deposits. Core deposits ended the quarter at $3.12 billion compared to $3.34 billion at December 31, 2023. We define core deposits as all deposits except time deposits and brokered/other deposits. Our cost of deposits for the community bank was 1.80% for the year ended December 31, 2024. Additionally, as of December 31, 2024, there was $273.2 million in CCBX deposits that were transferred off balance sheet for increased FDIC insurance coverage and to manage deposit concentrations.

Included in total deposits is $2.06 billion in CCBX deposits, an increase of $201.3 million, or 10.8%, compared to $1.86 billion as of December 31, 2023. 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, 2024 were $527.5 million, a decrease of $97.7 million, or 15.6%, compared to $625.2 million as of December 31, 2023. Noninterest bearing deposits represent 14.7% and 18.6% of total deposits for December 31, 2024 and December 31, 2023, respectively. Community bank noninterest bearing deposits totaled $471.8 million and $561.6 million at December 31, 2024 and December 31, 2023, respectively.

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Total interest bearing balances, excluding time deposits, as of December 31, 2024 were $3.04 billion, an increase of $323.5 million, or 11.9%, compared to $2.72 billion as of December 31, 2023. The $323.5 million increase is due to CCBX growth in interest bearing deposits combined with an increase in community bank interest bearing deposits of $114.2 million. Included in total deposits is $414.0 million in IntraFi network interest bearing demand and money market sweep accounts as of December 31, 2024, which provides our customers with fully insured deposits through a sweep and exchange of deposits with other financial institutions. The increase in community bank deposits was a result of the addition of some exception pricing tactics as a strategy at the end of the first quarter of 2024 to retain accounts and more effectively compete in the market.

Total time deposit balances as of December 31, 2024 were $17.5 million, a decrease of $811,000, or 4.4%, from $18.4 million as of December 31, 2023. The decrease is 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 we have not globally matched their rates in response as we focus on growing and retaining less costly core deposits.

The following table sets forth deposit balances at the dates indicated.

As of December 31,

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The following table presents the community bank deposits which are included in the total deposit portfolio table above:

Community Bank As of

(dollars in thousands) Balance % to Total Balance % to Total

The following table presents the CCBX deposits which are included in the total deposit portfolio table above:

CCBX As of

(dollars in thousands) Balance % to Total Balance % to Total

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,

Maturity Period:

Over three through six months 2,857 1,457

Over six through twelve months 3,473 1,595

Weighted average maturity (in years) 0.73 0.75

Average deposits for the year ended December 31, 2024, were $3.49 billion, an increase of $389.0 million, or 12.5%, compared to $3.10 billion for the year ended December 31, 2023. The increase in average deposits was primarily in interest bearing deposits. We expect deposits to increase with continued growth in our primary market areas, increase in commercial lending relationships through which we seek deposit balances and continued business development efforts by branch managers, treasury service personnel and lenders.

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The average rate paid on total deposits was 3.46% for the year ended December 31, 2024, compared to 2.87% for the year ended December 31, 2023. The average rate paid on interest bearing demand and money market accounts increased 0.46% for the year ended December 31, 2024 compared to the year ended December 31, 2023. The average rate paid on other deposits decreased 0.31% for the year ended December 31, 2024, compared to the year ended December 31, 2023. The average rate paid on time deposits of less than $100,000 increased 0.42% for the year ended December 31, 2024, compared to the year ended December 31, 2023. The average rate paid on time deposits greater than $100,000 increased 0.91% for the year ended December 31, 2024 compared to the year ended December 31, 2023. The average rate paid on savings increased 0.15% for the year ended December 31, 2024, compared to the year ended December 31, 2023. The overall higher average rate paid on interest bearing accounts in the year ended December 31, 2024 compared to the year ended December 31, 2023 was due to a higher 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,

The ratio of average noninterest-bearing deposits to average total deposits for the years ended December 31, 2024 and 2023, was 16.8% and 22.8%, respectively.