Coastal Financial Corp.

05/08/2026 | Press release | Distributed by Public on 05/08/2026 07:25

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a bank holding company that operates through our wholly owned subsidiaries, Coastal Community Bank ("Bank") and Arlington Olympic LLC. We are headquartered in Everett, Washington, which by population is the largest city in, and the county seat of, Snohomish County. Our business is conducted through three reportable segments: The community bank, CCBX and treasury & administration. The community bank segment includes all community banking activities, with a primary focus on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application. We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties (one in King County and one in Island County). The CCBX segment provides banking as a service ("BaaS") that allows digital financial service providers, companies and brands to offer their customers banking services. The CCBX segment has 30 partners as of March 31, 2026. 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 March 31, 2026, we had total assets of $5.66 billion, total loans receivable of $3.86 billion, total deposits of $5.04 billion and total shareholders' equity of $503.8 million.
The following discussion and analysis presents our financial condition and results of operations on a consolidated basis. However, because we conduct all of our material business operations through the Bank, the discussion and analysis relate to activities primarily conducted by the Bank.
We generate most of our community bank revenue from interest on loans and CCBX revenue from BaaS fee income and interest on loans. Our primary source of funding for our loans is commercial and retail deposits from our customer relationships and from our partner deposit relationships. We place secondary reliance on wholesale funding, primarily borrowings from the Federal Home Loan Bank ("FHLB"). Less commonly used sources of funding include borrowings from the Federal Reserve System ("Federal Reserve") discount window, draws on established federal funds lines from unaffiliated commercial banks, brokered funds, which allows us to obtain deposits from sources that do not have a relationship with the Bank and can be obtained through certificate of deposit listing services, via the internet or through other advertising methods, or a one-way buy through an insured cash sweep ("ICS") account, which allows us to obtain funds from other institutions that have deposited funds through ICS. Our largest expenses are provision for credit losses on loans, interest on deposits and borrowings, BaaS loan expense, and salaries and employee benefits. Our principal lending products are commercial real estate loans, consumer loans, residential real estate, commercial and industrial loans and construction, land and land development loans.
Results of Operations
Net Income
Comparison of the quarter ended March 31, 2026 to the comparable quarter in the prior year
Net income for the three months ended March 31, 2026 was $12.0 million, or $0.78 per diluted share, compared to $9.7 million, or $0.63 per diluted share, for the three months ended March 31, 2025. The increase in net income over the comparable period in the prior year was primarily attributable to a $6.8 million increase in interest income due to an increase in average loans receivable and interest earning deposits with other banks, an increase in BaaS program income of $4.6 million and a decrease in interest expense of $521,000, partially offset by a $11.5 million increase in noninterest expenses combined with other less significant changes.
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Additionally, BaaS credit enhancement income decreased $2.9 million, which is directly related to and offsets the decrease in provision for credit losses of $4.4 million for the quarter ended March 31, 2026. The lower provision is due to improvement in the performance of the CCBX portfolio, change in loan mix, and our focus on originating higher quality CCBX loans resulting in lower historical loss factors. In accordance with GAAP, we recognize as revenue (1) the right to be indemnified or reimbursed for fraud losses on CCBX customer loans and deposits and (2) the right to be indemnified for credit losses by our partners for expected credit losses related to loans they originate and unfunded commitments from such loans. CCBX customer credit losses are recognized in the allowance for credit loss and fraud loss is recognized in BaaS noninterest expense. For more information on the accounting for BaaS allowance for credit losses, reserve for unfunded commitments, credit enhancements and fraud enhancements see the section titled "CCBX - BaaS Reporting Information."
Net Interest Income
Comparison of the quarter ended March 31, 2026 to the comparable quarter in the prior year
Net interest income for the three months ended March 31, 2026 was $83.4 million, compared to $76.1 million for the three months ended March 31, 2025, an increase of $7.3 million, or 9.6%. The increase in net interest income compared to the quarter ended March 31, 2025 was primarily related to an increase in interest earning deposits with other banks and growth in loans receivable. The average balance of loans was $366.9 million more and average interest earning deposits with other banks was $338.1 million higher for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.
Total interest and fees on loans were $102.9 million for the three months ended March 31, 2026 compared to $98.1 million for the three months ended March 31, 2025. The $4.7 million increase in interest and fees on loans for the quarter ended March 31, 2026, compared to the quarter ended March 31, 2025, was largely due to growth in loans, primarily from CCBX. Total loans receivable was $3.86 billion at March 31, 2026, compared to $3.52 billion at March 31, 2025. CCBX average loans receivable was $1.92 billion for the quarter ended March 31, 2026, compared to $1.63 billion for the quarter ended March 31, 2025, an increase of $292.5 million, or 17.9%. Average CCBX yield of 15.01% was earned on CCBX loans for the quarter ended March 31, 2026, compared to 16.88% for the quarter ended March 31, 2025. The lower loan yield is the result of lower rates compared to the prior year period as well as a change in the loan mix. The Federal Open Market Committee ("FOMC") of the Federal Reserve last lowered the targeted federal funds rate by 0.25% on December 11, 2025; a reduction of 0.75% compared to March 31, 2025. Additionally, lower rate capital call lines were $42.9 million higher compared to March 31, 2025. These loans earn a lower rate of interest, but have less credit risk due to the way the loans are structured compared to other commercial loans. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield.
Interest income from interest earning deposits with other banks was $8.1 million for the quarter ended March 31, 2026, an increase of $2.1 million, or 33.9%, primarily due to an increase in balances compared to the quarter ended March 31, 2025. The average balance of interest earning deposits invested with other banks for the three months ended March 31, 2026 was $891.5 million, compared to $553.4 million for the three months ended March 31, 2025. The yield on these interest earning deposits with other banks decreased 0.75%, which is in line with the reduction in Fed funds compared to the prior year period, to 3.70% compared to 4.45% at March 31, 2025. Interest income on investment securities decreased $28,000 to $622,000 at March 31, 2026, compared to $650,000 at March 31, 2025. Average investment securities increased $259,000 from $47.2 million for the three months ended March 31, 2025, to $47.5 million for the three months ended March 31, 2026, as a result of investments purchased for CRA purposes, partially offset by principal paydowns. Average yield on investment securities decreased to 5.32% for the three months ended March 31, 2026, compared to 5.59% for the three months ended March 31, 2025.
Interest expense was $28.3 million for the quarter ended March 31, 2026, a $521,000 decrease from the quarter ended March 31, 2025. Interest expense on deposits was $27.7 million for the quarter ended March 31, 2026, compared to $28.2 million for the quarter ended March 31, 2025. The $515,000 decrease in interest expense on deposits was largely due to lower interest rates despite an increase of $631.9 million in average interest bearing deposits compared to the quarter ended March 31, 2025. Interest on borrowed funds was $654,000 for the quarter ended March 31, 2026, compared to $660,000 for the quarter ended March 31, 2025.
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Cost of funds was 2.59% for the quarter ended March 31, 2026, which was a decrease of 0.52% from 3.11% for the quarter ended March 31, 2025. Cost of deposits for the quarter ended March 31, 2026 was 2.56%, which was a 0.52% decrease from 3.08% for the quarter ended March 31, 2025. These decreases were largely due to lower interest rates.
Net interest margin was 7.00% for the three months ended March 31, 2026, compared to 7.48% for the three months ended March 31, 2025. The decrease in net interest margin compared to the three months ended March 31, 2025 was largely due to a decrease in loan yield, partially offset by a decrease in cost of deposits.
Total yield on loans receivable for the quarter ended March 31, 2026 was 10.76%, compared to 11.33% for the quarter ended March 31, 2025. This decrease in yield on loans receivable is the result of lower rates compared to the prior year period as well as a change in the loan mix. Lower rate CCBX capital call lines were $42.9 million higher compared to March 31, 2025. The composition of the loan portfolio is shifting with CCBX average loans increasing to 49.6% of the total loan portfolio for the quarter ended March 31, 2026, compared to 46.4% for the quarter ended March 31, 2025, and the average community bank loans decreasing to 50.4% of the loan portfolio for the quarter ended March 31, 2026, compared to 53.6% for the quarter ended March 31, 2025. For the quarter ended March 31, 2026, average CCBX loans increased $292.5 million, or 17.9%, with an average CCBX yield of 15.01%, compared to 16.88% at the quarter ended March 31, 2025. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield. Average community bank loans increased $74.4 million, or 4.0% due to growth and normal balance fluctuations. Average yield on community bank loans for the three months ended March 31, 2026 was 6.58% compared to 6.53% for the three months ended March 31, 2025.
The following tables (1) show the average yield on loans and cost of deposits by segment and (2) illustrate how BaaS loan interest income is affected by BaaS loan expense resulting in net BaaS loan income and the associated yield for the periods indicated:
For the Three Months Ended
March 31, 2026 March 31, 2025
(unaudited)
Yield on
Loans (2)
Cost of
Deposits (2)
Yield on
Loans (2)
Cost of
Deposits (2)
Community Bank 6.58% 1.46% 6.53% 1.76%
CCBX(1)
15.01% 3.17% 16.88% 4.01%
Consolidated 10.76% 2.56% 11.33% 3.08%
(1)CCBX yield on loans does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. To determine net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at net BaaS loan income which can be compared to interest income on the Company's community bank loans. See the section titled "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures" for a reconciliation of the impact of BaaS loan expense on CCBX yield on loans.
(2)Annualized calculations shown for periods presented.
For the Three Months Ended
March 31, 2026 March 31, 2025
(dollars in thousands, unaudited) Income / Expense
Income / expense divided by average CCBX loans (2)
Income / Expense
Income / expense divided by average CCBX loans (2)
BaaS loan interest income $ 71,153 15.01 % $ 67,855 16.88 %
Less: BaaS loan expense 36,940 7.79 % 32,507 8.09 %
Net BaaS loan income (1)
$ 34,213 7.22 % $ 35,348 8.79 %
Average BaaS Loans(3)
$ 1,922,586 $ 1,630,088
(1)A reconciliation of this non-GAAP measure is set forth in the section titled "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures."
(2)Annualized calculations shown for periods presented.
(3)Includes loans held for sale.
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For the three months ended March 31, 2026, net interest margin (net interest income divided by the average total interest earning assets) and net interest spread (average yield on total interest earning assets minus average cost of total interest bearing liabilities) were 7.00% and 6.39%, respectively, compared to 7.48% and 6.68%, respectively, for the three months ended March 31, 2025.
The following table presents an analysis of the average balances of net interest income, net interest spread and net interest margin for the periods indicated. Loan fees, net of loan costs included in interest income totaled $2.5 million and $2.1 million for the three months ended March 31, 2026 and 2025, respectively. For the each of the three months ended March 31, 2026 and 2025, the amount of interest income not recognized on nonaccrual loans was not material.
Average Balance Sheets
For the Three Months Ended March 31,
2026 2025
(dollars in thousands; unaudited) Average
Balance 		Interest &
Dividends
Yield /
Cost (1)
Average
Balance 		Interest &
Dividends
Yield /
Cost (1)
Consolidated
Assets
Interest earning assets:
Interest earning deposits with
other banks 		$ 891,511 $ 8,128 3.70 % $ 553,393 $ 6,070 4.45 %
Investment securities,
available-for-sale (2)
30 1 13.52 37 1 10.96
Investment securities,
held-to-maturity (2)
47,420 621 5.31 47,154 649 5.58
Other investments 13,014 44 1.37 11,757 40 1.38
Loans receivable (3)
3,878,626 102,887 10.76 3,511,724 98,147 11.33
Total interest earning assets 4,830,601 111,681 9.38 4,124,065 104,907 10.32
Noninterest earning assets:
Allowance for credit losses (166,987) (170,542)
Other noninterest earning assets 324,660 296,993
Total assets $ 4,988,274 $ 4,250,516
Liabilities and Shareholders' Equity
Interest bearing liabilities:
Interest bearing deposits $ 3,798,235 $ 27,670 2.95 % $ 3,166,384 $ 28,185 3.61 %
FHLB advances and other borrowings - - - - 1 -
Subordinated debt 44,457 599 5.46 44,309 598 5.47
Junior subordinated debentures 3,593 55 6.21 3,592 61 6.89
Total interest bearing liabilities 3,846,285 28,324 2.99 3,214,285 28,845 3.64
Noninterest bearing deposits 585,211 543,784
Other liabilities 59,333 49,624
Total shareholders' equity 497,445 442,823
Total liabilities and shareholders' equity $ 4,988,274 $ 4,250,516
Net interest income $ 83,357 $ 76,062
Interest rate spread 6.39 % 6.68 %
Net interest margin (4)
7.00 % 7.48 %
(1)Yields and costs are annualized.
(2)For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(3)Includes loans held for sale and nonaccrual loans.
(4)Net interest margin represents net interest income divided by the average total interest earning assets.
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The following tables present an analysis of certain average balances, interest income and expense by segment:
For the Three Months Ended
March 31, 2026 March 31, 2025
(dollars in thousands, unaudited) Average
Balance 		Interest &
Dividends
Yield /
Cost (1)
Average
Balance 		Interest &
Dividends
Yield /
Cost (1)
Community Bank
Assets
Interest earning assets:
Loans receivable (2)
$ 1,956,040 $ 31,734 6.58 % $ 1,881,636 $ 30,292 6.53 %
Total interest earning assets 1,956,040 31,734 6.58 1,881,636 30,292 6.53
Liabilities
Interest bearing liabilities:
Interest bearing deposits $ 1,057,293 $ 5,571 2.14 % $ 1,045,971 $ 6,604 2.56 %
Intrabank liability 403,880 3,625 3.64 356,337 3,909 4.45
Total interest bearing liabilities 1,461,173 9,196 2.55 1,402,308 10,513 3.04
Noninterest bearing deposits 494,867 479,329
Net interest income $ 22,538 $ 19,779
Net interest margin(3)
4.67 % 4.26 %
CCBX
Assets
Interest earning assets:
Loans receivable (2)(4)
$ 1,922,586 $ 71,153 15.01 % $ 1,630,088 $ 67,855 16.88 %
Intrabank asset 908,700 8,156 3.64 554,781 6,085 4.45
Total interest earning assets 2,831,286 79,309 11.36 2,184,869 73,940 13.72
Liabilities
Interest bearing liabilities:
Interest bearing deposits $ 2,740,942 $ 22,099 3.27 % $ 2,120,413 $ 21,581 4.13 %
Total interest bearing liabilities 2,740,942 22,099 3.27 2,120,413 21,581 4.13
Noninterest bearing deposits 90,344 64,455
Net interest income $ 57,210 $ 52,359
Net interest margin(3)
8.19 % 9.72 %
Net interest margin, net of
BaaS loan expense (5)
2.90 % 3.68 %
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For the Three Months Ended
March 31, 2026 March 31, 2025
(dollars in thousands, unaudited) Average
Balance 		Interest &
Dividends 		Yield /
Cost (1) 		Average
Balance 		Interest &
Dividends 		Yield /
Cost (1)
Treasury & Administration
Assets
Interest earning assets:
Interest earning deposits with
other banks 		$ 891,511 $ 8,128 3.70 % $ 553,393 $ 6,070 4.45 %
Investment securities, available for
sale (6)
30 1 3.37 37 1 10.96
Investment securities, held to
maturity (6)
47,420 621 5.31 47,154 649 5.58
Other investments 13,014 44 1.37 11,757 40 1.38
Total interest earning assets 951,975 8,794 3.75 612,341 6,760 4.48
Liabilities
Interest bearing liabilities:
FHLB advances and borrowings $ - $ - - % - 1 - %
Subordinated debt 44,457 599 5.46 44,309 598 5.47
Junior subordinated debentures 3,593 55 6.21 3,592 61 6.89
Intrabank liability, net (7)
504,820 4,531 3.64 198,444 2,176 4.45
Total interest bearing liabilities 552,870 5,185 3.80 246,345 2,836 4.67
Net interest income $ 3,609 $ 3,924
Net interest margin(3)
1.54 % 2.60 %
(1)Yields and costs are annualized.
(2)Includes loans held for sale and nonaccrual loans.
(3)Net interest margin represents net interest income divided by the average total interest earning assets.
(4)CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. See the section titled "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures" for a reconciliation of the impact of BaaS loan expense on CCBX loan yield.
(5)Net interest margin, net of BaaS loan expense includes the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, and servicing CCBX loans. A reconciliation of this non-GAAP measure is set forth in the section titled "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures."
(6)For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.
(7)Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the tables above.
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The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest earning assets and interest bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. The table illustrates the increase in loan interest income which is attributed to a $9.9 million increase in loan volume, partially offset by a $3.4 million decrease in loan rates. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to volume.
Three months ended March 31, 2026
Compared to Three months ended March 31, 2025
Increase (Decrease)
Due to 		Total Increase
(Decrease)
(dollars in thousands; unaudited) Volume Rate
Interest income:
Interest earning deposits $ 3,083 $ (1,025) $ 2,058
Investment securities, available-for-sale - - -
Investment securities, held-to-maturity 3 (31) (28)
Other investments 4 - 4
Loans receivable 9,897 (3,419) 6,478
Total increase in interest income 12,987 (4,475) 8,512
Interest expense:
Interest bearing deposits 4,603 (5,118) (515)
FHLB advances and other borrowings (1) - (1)
Subordinated debt 2 (1) 1
Junior subordinated debentures - (6) (6)
Total increase in interest expense 4,604 (5,125) (521)
Increase in net interest income $ 8,383 $ 650 $ 9,033
Provision for Credit Losses
The provision for credit losses on loans is an expense we incur to maintain an allowance for credit losses at a level that management deems appropriate to absorb expected losses on existing loans in accordance with GAAP. For a description of the factors taken into account by our management in determining the allowance for credit losses see "-Financial Condition-Allowance for Credit Losses."
The macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters, and trade issues that may impact the provision and therefore the allowance. Gross loans, excluding loans held for sale, totaled $3.86 billion at March 31, 2026. The allowance for credit losses as a percentage of loans was 4.47% at March 31, 2026, compared to 5.21% at March 31, 2025.
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 on 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.
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Comparison of the quarter ended March 31, 2026 to the comparable quarter in the prior year
The provision for credit losses for the three months ended March 31, 2026 was $51.4 million, compared to $55.8 million for the three months ended March 31, 2025. This includes a provision for credit losses on loans for the three months ended March 31, 2026 of $52.5 million, compared to $54.4 million for the three months ended March 31, 2025. The decrease in the Company's provision for credit losses on loans during the quarter ended March 31, 2026 is largely related to improvement in the performance of the CCBX portfolio and changes in the composition of CCBX loan originations. The current mix of originations includes a greater proportion of loans with attributes that have historically demonstrated lower loss experience, which contributed to lower expected losses and a lower provision during the period. During the quarter ended March 31, 2026, a $52.6 million provision for credit losses on loans was recorded for CCBX partner loans. The factors used in management's analysis for community bank credit losses indicated that a provision recapture for credit losses on loans of $1.4 million was needed for the quarter ended March 31, 2026, largely due to improved economic outlook, partially offset by a change in the loan mix of the community bank portfolio. Additionally, a provision recapture for unfunded commitments of $1.3 million was recorded for the quarter ended March 31, 2026, primarily as a result of a change in the loan mix of available balance, compared to a $613,000 provision for the three months ended March 31, 2025. An $11,000 provision for accrued interest receivable on CCBX loans was recorded for the quarter ended March 31, 2026, compared to $784,000 for the three months ended March 31, 2025 and a $252,000 provision for other receivables was recorded for the quarter ended March 31, 2026 and there was no such provision for the quarter ended March 31, 2025.
The following table shows the provision expense for loans by segment for the periods indicated:
Three Months Ended
(dollars in thousands; unaudited) March 31, 2026 March 31, 2025
Community bank $ (1,428) $ 65
CCBX 52,563 54,319
Total provision expense $ 51,135 $ 54,384
Net charge-offs for the quarter ended March 31, 2026 totaled $49.6 million, or 5.18% of total average loans, compared to $48.2 million, or 5.57% of total average loans, for the quarter ended March 31, 2025. Net charge-offs as a percent of loans were down in 2026 compared to 2025, primarily due to our on-going efforts to improve the credit quality of CCBX loans. However, in general, loans originated through CCBX partners have a higher level of expected losses than our community bank loans as reflected in the factors for allowance for credit losses. In accordance with GAAP, CCBX losses are recorded as charge-offs, but CCBX partner agreements provide for a credit enhancement that indemnifies the Bank from incurred losses, and as a result CCBX partners reimburse the Bank for net-charge-offs on CCBX loans and negative deposit accounts, except in accordance with the program agreement for one partner where the Company is responsible for credit losses on approximately 5% of a $324.0 million loan portfolio. At March 31, 2026, our portion of this portfolio represented $22.0 million in loans. For the three months ended March 31, 2026, $49.6 million of net charge-offs were recognized for CCBX loans and $1,000 net recoveries were recognized on community bank loans. For the three months ended March 31, 2025, $48.2 million of net charge-offs were recognized on CCBX loans and $3,000 net recoveries were recognized for community bank loans.
The following table shows the total charge-off activity by segment for the periods indicated:
Three Months Ended
March 31, 2026 March 31, 2025
(dollars in thousands; unaudited) Community Bank CCBX Total Community Bank CCBX Total
Gross charge-offs $ 2 $ 54,521 $ 54,523 $ 4 $ 53,682 $ 53,686
Gross recoveries (3) (4,933) (4,936) (7) (5,479) (5,486)
Net charge-offs (recoveries) $ (1) $ 49,588 $ 49,587 $ (3) $ 48,203 $ 48,200
Net charge-offs to average loans (1)
0.00 % 10.46 % 5.18 % 0.00 % 11.99 % 5.57 %
(1) Annualized calculations shown for periods presented.
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Noninterest Income
Our primary sources of recurring noninterest income are BaaS indemnification income, BaaS program income and service charges and fees. Noninterest income does not include loan origination fees, which are generally recognized over the life of the related loan as an adjustment to yield using the interest or similar method.
Comparison of the quarter ended March 31, 2026 to the comparable quarter in the prior year
For the three months ended March 31, 2026, noninterest income totaled $66.1 million, an increase of $2.6 million, or 4.1%, compared to $63.5 million for the three months ended March 31, 2025. The decrease is primarily attributed to lower BaaS indemnification income which is related to lower provision for credit losses on CCBX loans based on improved credit quality, partially offset by an increase in BaaS program income.
The following table presents, for the periods indicated, the major categories of noninterest income:
Three Months Ended March 31, Increase
(Decrease) 		Percent
Change
(dollars in thousands; unaudited) 2026 2025
Service charges and fees $ 850 $ 860 $ (10) (1.2) %
Unrealized gain (loss) on equity securities, net 126 16 110 687.5
Other 410 682 (272) (39.9)
Noninterest income, excluding BaaS program income and BaaS indemnification income
1,386 1,558 (172) (11.0)
Servicing and other BaaS fees 2,623 1,419 1,204 84.8
Transaction and interchange fees 5,873 3,833 2,040 53.2
Reimbursement of expenses 2,392 1,026 1,366 133.1
BaaS program income 10,888 6,278 4,610 73.4
BaaS credit enhancements 50,744 53,648 (2,904) (5.4)
BaaS fraud enhancements 3,059 1,993 1,066 53.5
BaaS indemnification income 53,803 55,641 (1,838) (3.3)
Total BaaS income 64,691 61,919 2,772 4.5
Total noninterest income $ 66,077 $ 63,477 $ 2,600 4.1 %
Summary of significant noninterest income for the three months ended March 31, 2026 compared to the three months ended March 31, 2025
A description of our largest noninterest income categories are below:
BaaS Income. Our CCBX segment provides BaaS offerings that enable our digital financial service providers to offer their customers banking services. In exchange for providing these services, we earn fixed fees, volume-based fees and reimbursement of costs depending on the program agreement. Servicing and other BaaS fees are typically higher with new partners who have minimum contractual fees. Transaction and interchange fees increase as partner activity increases. As a result, we generally expect servicing and other fees to decrease and transaction and interchange fees to increase as partner activity grows and contracted minimum fees are replaced with recurring fees which then exceed the minimum contractual fees. Increases in BaaS reimbursement of fees offsets increases in noninterest expense from BaaS expenses covered by CCBX partners. In accordance with GAAP, we recognize the reimbursement of noncredit fraud losses on loans and deposits originated through partners and credit enhancements related to the allowance for credit losses and reserve for unfunded commitments provided by the partner as revenue in BaaS income. CCBX credit losses are recognized in the allowance for credit losses on 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 on 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 three months ended March 31, 2026, we earned $64.7 million in BaaS fees, which was an increase of $2.8 million, or 4.5%, over the three months ended March 31, 2025, when we earned $61.9 million in BaaS fees. The increase was primarily due to an increase of $4.6 million in total BaaS fee program income, which was the result of increased partner activity, and an increase of $1.1 million in BaaS fraud enhancements, partially offset by a decrease of $2.9 million in BaaS credit enhancements related to the allowance for credit losses.
Service Charges and Fees. Service charges and fees include service charges on accounts, point-of-sale fees, merchant services fees and overdraft fees. Together they constitute the largest component of our noninterest income, outside of BaaS income.
Service charges and fees were $850,000 for the three months ended March 31, 2026, a decrease of $10,000, or 1.2%, from the comparable quarter in the prior year.
Unrealized gain on equity securities, net. During the three months ended March 31, 2026, we recognized an unrealized net gain on equity securities of $126,000 compared to the three months ended March 31, 2025, when there was an unrealized gain of $16,000 recognized. We hold $4.4 million in total equity funds and investments, $3.5 million of which is in equity securities of entities that are focused on providing products to the BaaS and financial services space.
Other. This category includes a variety of other income-producing activities, credit card fee income, wire transfer fees, interest earned on bank owned life insurance ("BOLI"), and SBA and USDA servicing fees.
Noninterest Expense
Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest components of noninterest expense are BaaS loan and fraud expense combined and salaries and employee benefits. Noninterest expense also includes operational expenses, such as legal and professional expenses, data processing and software licenses, occupancy, point of sale expenses, FDIC assessments, director and staff expenses, excise taxes, marketing and other expenses.
Comparison of the quarter ended March 31, 2026 to the comparable quarter in the prior year
The $11.5 million increase in noninterest expenses for the quarter ended March 31, 2026 compared to the quarter ended March 31, 2025 was largely due to a $4.4 million increase in BaaS loan expense, a $3.4 million increase in data processing and software licenses, a $1.6 million increase in salary and employee benefits, and a $514,000 increase in legal and professional expenses. These increases are largely due to growth and enhancements in technology all of which are related to the growth of the Company and investments in technology and risk management.
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The following table presents, for the periods indicated, the major categories of noninterest expense:
Three Months Ended March 31, Increase
(Decrease) 		Percent
Change
(dollars in thousands; unaudited) 2026 2025
Salaries and employee benefits $ 23,122 $ 21,532 $ 1,590 7.4 %
Data processing and software licenses 7,643 4,232 3,411 80.6
Legal and professional expenses 7,002 6,488 514 7.9
Excise taxes 1,169 722 447 61.9
Occupancy 859 1,034 (175) (16.9)
Director and staff expenses 668 631 37 5.9
FDIC assessments 573 755 (182) (24.1)
Point of sale expense 445 107 338 315.9
Marketing 38 50 (12) (24.0)
Other 1,934 1,938 (4) (0.2)
Noninterest expense, excluding BaaS loan and BaaS fraud expense
43,453 37,489 5,964 15.9
BaaS loan expense 36,940 32,507 4,433 13.6
BaaS fraud expense 3,059 1,993 1,066 53.5
BaaS loan and fraud expense 39,999 34,500 5,499 15.9
Total noninterest expense $ 83,452 $ 71,989 $ 11,463 15.9 %
Summary of significant noninterest expense for the three months ended March 31, 2026 compared to the three months ended March 31, 2025
A description of our largest noninterest expense categories are below:
Salaries and Employee Benefits. Salaries and employee benefits are one of the largest components of noninterest expense and include payroll expense, incentive compensation costs, equity compensation, benefit plans, health insurance and payroll taxes. Salaries and employee benefits were $23.1 million for the three months ended March 31, 2026, an increase of $1.6 million, or 7.4%, compared to $21.5 million for the three months ended March 31, 2025. Salaries and employee benefits expense continues to increase, primarily due to hiring staff for our CCBX segment and additional staff for our ongoing growth initiatives. As our CCBX activities grow and we invest more in technology, we expect some continued growth in number of employees to support these lines of business but are also working to automate our processes to reduce and/or slow future growth in hiring.
Data Processing and Software Licenses. Data processing and software licenses include expenses related to obtaining and maintaining software required for our various functions and additional investments in software development and the amortization of those costs. Capitalized software totaled $16.8 million as of March 31, 2026, compared to $15.7 million as of March 31, 2025. 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 $1.3 million for the three months ended March 31, 2026, compared to $1.2 million for the three months ended March 31, 2025. Data processing costs were $7.6 million for the three months ended March 31, 2026, compared to $4.2 million for the three months ended March 31, 2025, an increase of $3.4 million, or 80.6%.
Legal and Professional Expenses. Legal and professional costs include legal, audit and accounting expenses, consulting fees, and fees for recruiting and hiring employees. These expenses fluctuate with the development of contracts and products for CCBX partners, 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
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professional expenses were $7.0 million for the three months ended March 31, 2026 compared to $6.5 million for the three months ended March 31, 2025, an increase of $514,000, or 7.9%.
Excise Taxes. Excise taxes are assessed on Washington state income and are based on gross income. Gross income is reduced by certain allowed deductions and income attributed to other states is also removed to arrive at the taxable base. Excise taxes increased primarily as a result of increased income subject to excise taxes. CCBX income is sourced to the state where the partner does business, and the majority of partners are located outside the state of Washington.
Occupancy. Occupancy expenses were $859,000 for the three months ended March 31, 2026, compared to $1.0 million for the three months ended March 31, 2025, a decrease of $175,000, or 16.9%. This category includes building, leasehold, furniture, fixtures and equipment depreciation totaling $153,000 for the three months ended March 31, 2026 and $350,000 for the three months ended March 31, 2025. Occupancy expenses include rent, utilities, janitorial and other maintenance expenses, property insurances and taxes. Also included is depreciation on building, leasehold, furniture, fixtures and equipment. Our hybrid and remote workforce has increased, which helps keep some occupancy expenses down, however we do expect occupancy expenses to increase as we continue to grow.
Director and Staff Expenses. Director and staff expenses includes compensation for director service, continuing education for employees and other director and staff related expenses. Expenses will fluctuate depending upon conferences and other professional events that are attended by employees as well as expenses related to employee travel and continuing education. Director and staff expenses were $668,000 for the three months ended March 31, 2026 compared to $631,000 for the three months ended March 31, 2025, an increase of $37,000, or 5.9%.
Marketing. Marketing and promotion costs were $38,000 for the three months ended March 31, 2026, compared to $50,000 for the three months ended March 31, 2025, a decrease of $12,000, or 24.0%. Marketing and promotion costs will vary depending upon the deployment of branding and targeted advertising for the community bank and CCBX. We expect costs to increase as we expand our marketing plan.
Other. This category includes dues and memberships, office supplies, mail services, telephone, examination fees, internal loan expenses, services charges from banks, operational losses, directors and officer's insurance, donations, and other expenses.
BaaS loan and fraud expense. Our CCBX segment provides BaaS offerings that enable digital financial service providers, companies and brands to provide financial services to their customers through the Bank's CCBX segment. Included in BaaS loan and fraud expense is partner loan expense including overdraft balances and BaaS fraud expense. Partner loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. BaaS fraud expense represents noncredit fraud losses on loans and deposits originated through partners. Fraud losses are recorded when incurred or projected as losses in noninterest expense, and the reimbursement from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement. For more information on the accounting for BaaS loan and fraud expenses see the section titled "CCBX - BaaS Reporting Information."
The following table presents, for the periods indicated, the BaaS loan and fraud expenses:
Three Months Ended
(dollars in thousands; unaudited) March 31,
2026 		March 31,
2025
BaaS loan expense $ 36,940 $ 32,507
BaaS fraud expense 3,059 1,993
Total BaaS loan and fraud expense $ 39,999 $ 34,500
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
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to various state taxes that are assessed as CCBX activities and employees expand into new states, which increases the overall tax rate used in calculating the provision for income taxes in the current and future periods.
On July 4, 2025, H.R. 1, the "One Big Beautiful Bill Act, (the "OBBBA") was signed into law. The OBBBA includes several changes to federal tax law that generally allow for more favorable deductibility of certain business expenses beginning in 2025, including the restoration of immediate expensing of domestic R&D expenditures, reinstatement of 100% bonus depreciation, and more favorable rules for determining the limitation on business interest expense. The OBBBA also made certain changes to the deductibility of the cost of meals and charitable contributions that are effective for tax years beginning after December 31, 2025. The Company is taking advantage of the immediate deductibility of R&D expenditures, which has positively impacted the tax provision and resulted in a deferred tax liability.
Comparison of the quarter ended March 31, 2026 to the comparable quarter in the prior year
For the three months ended March 31, 2026, income tax expense totaled $2.6 million, an increase of $526,000 compared to the three months ended March 31, 2025. The $526,000 increase in income tax expense is the result of higher net income as well as an increase in state income tax rates. Also impacting income tax expense is the deductibility of certain equity awards. The effective tax rate was 17.6% for the three months ended March 31, 2026, compared to 17.3% for the three months ended March 31, 2025. The effective tax rate was higher for the three months ended March 31, 2026, due to the impact of stock equity award deductions which fluctuate based on employee driven equity award activity, vesting terms and stock price. Additionally, the state rate increased in the quarter ended June 30, 2025 primarily as a result of a change in California's tax laws.
Segment Information
Based on the criteria of ASC 280, Segment Reporting, we have identified three segments: the community bank, CCBX and treasury & administration. The primary focus of the community bank is on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application. We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties (one in King County and one in Island County). We also have a loan production office which is located in King county. The CCBX segment provides BaaS that enables digital financial service providers, companies and brands to provide financial services to their customers. The CCBX segment has 30 partners in various stages as of March 31, 2026. 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 the Company's most recently filed 10-K report.
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The following table presents summary financial information for each segment for the periods indicated:
March 31, 2026 December 31, 2025
(dollars in thousands; unaudited) Community Bank CCBX Treasury & Administration Consolidated Community Bank CCBX Treasury & Administration Consolidated
Assets
Cash and due from banks $ 4,454 $ 1,441 $ 1,489,572 $ 1,495,467 $ 4,243 $ 750 $ 731,977 $ 736,970
Intrabank asset - 1,417,932 (1,417,932) - - 633,600 (633,600) -
Securities - - 46,169 46,169 - - 48,247 48,247
Loans held for sale - 124,039 - 124,039 - 71,216 - 71,216
Total loans receivable 1,975,255 1,884,124 - 3,859,379 1,941,979 1,807,552 - 3,749,531
Allowance for credit losses
(18,153) (154,274) - (172,427) (18,231) (151,299) - (169,530)
All other assets 29,503 240,799 40,900 311,202 29,809 235,137 40,057 305,003
Total assets $ 1,991,059 $ 3,514,061 $ 158,709 $ 5,663,829 $ 1,957,800 $ 2,596,956 $ 186,681 $ 4,741,437
Liabilities
Total deposits $ 1,572,942 $ 3,468,222 $ - $ 5,041,164 $ 1,586,359 $ 2,557,840 $ - $ 4,144,199
Total borrowings - - 48,074 48,074 - - 48,036 48,036
Intrabank liability 413,278 - (413,278) - 366,216 - (366,216) -
All other liabilities 4,839 45,839 20,151 70,829 5,225 39,116 13,902 58,243
Total liabilities $ 1,991,059 $ 3,514,061 $ (345,053) $ 5,160,067 $ 1,957,800 $ 2,596,956 $ (304,278) $ 4,250,478
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Community Bank
Community bank total assets as of March 31, 2026 increased $33.3 million, or 1.7%, to $1.99 billion, compared to $1.96 billion as of December 31, 2025. Loans receivable net of deferred fees for the community bank segment increased $33.3 million, or 1.7%, to $1.98 billion as of March 31, 2026, compared to $1.94 billion as of December 31, 2025. The increase in community bank loans receivable is the result of loan growth and normal balance fluctuations. Total community bank deposits decreased $13.4 million, or 0.85%, as of March 31, 2026, compared to $1.59 billion as of December 31, 2025. Our cost of deposits for the community bank was 1.46% for the three months ended March 31, 2026.
CCBX
CCBX total assets as of March 31, 2026 increased $917.1 million, or 35.3%, to $3.51 billion, compared to $2.60 billion as of December 31, 2025. During the three months ended March 31, 2026, $3.33 billion in CCBX loans were transferred to loans held for sale, with $3.28 billion in loans sold and $124.0 million loans remaining in loans held for sale as of March 31, 2026, compared to $71.2 million at December 31, 2025. We continue to reposition ourselves by managing CCBX credit and concentration levels in an effort to optimize our loan portfolio earnings and generate off balance sheet fee income. We retain a portion of the fee income for our role in processing transactions on sold credit card balances. This is expected to provide an on-going and recurring revenue stream without the additional on balance sheet risk. Total CCBX loans receivable increased $76.6 million, or 4.2%, to $1.88 billion as of March 31, 2026, compared to $1.81 billion as of December 31, 2025. The increase in loans receivable is the result of increased activity with CCBX partners, net of $3.28 billion in loan sales. As a result of an increase in the difference of average deposits compared to average loans the intrabank asset increased $784.3 million to $1.42 billion as of March 31, 2026, compared to $633.6 million as of December 31, 2025. The increase is attributed to an increase in deposits as a result of onboarding a new partner for which we provide correspondent services. Management expects balances associated with this relationship to decline during the second quarter of 2026 and then normalize. The allowance for credit losses increased to $154.3 million as of March 31, 2026, compared to $151.3 million as of December 31, 2025. The increase in the allowance is due to loan growth; however, an improvement in the performance of the CCBX portfolio and our focus on originating higher quality CCBX loans helped moderate the level of increase. CCBX partner agreements provide for credit enhancements that cover $48.6 million, or 97.9%, of the charge-offs on CCBX loans for the three months ended March 31, 2026. 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 $910.4 million, or 35.6%, to $3.47 billion, compared to $2.56 billion as of December 31, 2025, primarily as a result of growth within the CCBX relationships and the addition of new partners. Total CCBX deposits exclude an additional $2.81 billion that were swept off balance sheet to provide for increased FDIC insurance coverage to certain customers, compared to $843.6 million as of December 31, 2025.
Treasury & Administration
Treasury & administration total assets as of March 31, 2026 decreased $28.0 million, or 15.0%, to $158.7 million, compared to $186.7 million as of December 31, 2025, primarily due to a decrease in the intrabank asset, partially offset by an increase in cash and due from banks. Total securities decreased $2.1 million, or 4.3%, to $46.2 million as of March 31, 2026, compared to $48.2 million as of December 31, 2025, primarily as a result of principal repayments on securities. Total borrowings were $48.1 million as of both March 31, 2026 and December 31, 2025.
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The following table presents summary financial information for each segment for the periods indicated:
Three Months Ended March 31, 2026 Three Months Ended March 31, 2025
(dollars in thousands; unaudited) Community Bank CCBX Treasury & Administration Consolidated Community Bank CCBX Treasury & Administration Consolidated
INTEREST INCOME AND EXPENSE
Interest income $ 31,734 $ 71,153 $ 8,794 $ 111,681 $ 30,292 $ 67,855 $ 6,760 $ 104,907
Interest (expense) income
intrabank transfer 		(3,625) 8,156 (4,531) - (3,909) 6,085 (2,176) -
Interest expense 5,571 22,099 654 28,324 6,604 21,581 660 28,845
Net interest income 22,538 57,210 3,609 83,357 19,779 52,359 3,924 76,062
Provision/(Recapture) for credit losses (542) 51,940 - 51,398 507 55,274 - 55,781
Net interest income/(expense) after
provision for credit losses on loans
and unfunded commitments 		23,080 5,270 3,609 31,959 19,272 (2,915) 3,924 20,281
NONINTEREST INCOME
Service charges and fees 818 32 - 850 860 - - 860
Other income 114 (4) 426 536 156 - 542 698
BaaS program income - 10,888 - 10,888 - 6,278 - 6,278
BaaS indemnification income - 53,803 - 53,803 - 55,641 - 55,641
Noninterest income 932 64,719 426 66,077 1,016 61,919 542 63,477
NONINTEREST EXPENSE
Salaries and employee benefits 7,297 11,527 4,298 23,122 7,155 7,975 6,402 21,532
Occupancy 812 8 39 859 830 85 119 1,034
Data processing and software licenses 1,817 5,035 791 7,643 1,395 1,146 1,691 4,232
Legal and professional expenses 444 5,215 1,343 7,002 63 3,273 3,152 6,488
Other expense 1,012 2,949 866 4,827 910 1,626 1,667 4,203
BaaS loan expense - 36,940 - 36,940 - 32,507 - 32,507
BaaS fraud expense - 3,059 - 3,059 - 1,993 - 1,993
Total noninterest expense 11,382 64,733 7,337 83,452 10,353 48,605 13,031 71,989
Net income/(loss) before
income taxes 		12,630 5,256 (3,302) 14,584 9,935 10,399 (8,565) 11,769
Income taxes 1,918 1,218 (571) 2,565 1,587 2,007 (1,555) 2,039
Net income/(loss) $ 10,712 $ 4,038 $ (2,731) $ 12,019 $ 8,348 $ 8,392 $ (7,010) $ 9,730
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Comparison of the quarter ended March 31, 2026 to the comparable quarter in the prior year
Community Bank
Net interest income for the community bank was $22.5 million for the quarter ended March 31, 2026, an increase of $2.8 million, or 13.9%, compared to $19.8 million for the quarter ended March 31, 2025. As a result of the community bank having higher average loans than deposits the community bank's intrabank expense allocation was $3.6 million for the quarter ended March 31, 2026, compared to intrabank interest expense of $3.9 million for the quarter ended March 31, 2025, which positively impacted net interest income for the current quarter. The decrease compared to the previous year period is due to a lower intrabank liability and lower interest rates. There was a provision recapture for credit losses on loans for the community bank of $542,000 for the quarter ended March 31, 2026, compared to a provision of $507,000 for the quarter ended March 31, 2025; the recapture in the current period was largely due to a change in the loan mix for the community bank. Net charge-offs to average loans for the community bank segment was 0.00% for the quarters ended March 31, 2026 and 2025. Noninterest income for the community bank was $932,000, for the quarter ended March 31, 2026, a decrease of $84,000, or 8.3%, compared to the quarter ended March 31, 2025. Noninterest expenses for the community bank increased $1.0 million, or 9.9%, to $11.4 million as of March 31, 2026, compared to $10.4 million as of March 31, 2025. The increase in noninterest expense is largely due to higher legal and professional expenses and salaries and employee benefits which are related to the growth of Company and investments in risk management.
CCBX
Net interest income for CCBX was $57.2 million for the quarter ended March 31, 2026, an increase of $4.9 million, or 9.3%, compared to $52.4 million for the quarter ended March 31, 2025. The increase in net interest income is primarily due to loan growth from active CCBX relationships. During the quarter ended March 31, 2026 we sold $3.28 billion in CCBX loans as part of our strategy to optimize our CCBX portfolio and manage growth, credit quality, portfolio and partner limits. We are retaining a portion of the transaction processing fee income on sold credit card balances which provides an on-going and recurring income without balance sheet risk. As a result of CCBX having higher average deposits than loans the amount allocated to intrabank interest income for CCBX was $8.2 million and $6.1 million for the quarters ended March 31, 2026 and 2025, respectively. Provision for credit losses on loans was $51.9 million for the quarter ended March 31, 2026, compared to $55.3 million for the quarter ended March 31, 2025. The decrease in the provision is due to an improvement in the performance of the CCBX portfolio and our focus on originating higher quality CCBX loans resulting in lower historical loss factors. CCBX partner agreements provide for credit enhancements that cover $48.6 million, or 97.9% of total gross charge-offs on CCBX loans for the quarter ended March 31, 2026. The $52.6 million provision on CCBX loans includes $51.6 million for partner loans with credit enhancement on them and $918,000 on CCBX loans that the Company is responsible for. In accordance with the program agreement, the Company was responsible for credit losses on approximately 5% of a $324.0 million loan portfolio, or $22.0 million in partner loans at March 31, 2026. Noninterest income for CCBX was $64.7 million for the quarter ended March 31, 2026, an increase of $2.8 million, or 4.5%, compared to $61.9 million for the quarter ended March 31, 2025, largely due to a decrease of $2.9 million in BaaS credit enhancements to establish a credit enhancement asset for future credit losses due from our CCBX partners - which is directly related to the provision for credit losses, partially offset by a $4.6 million increase in BaaS program income, which was the result of increased activity with our CCBX partners. Noninterest expenses for CCBX increased $16.1 million, or 33.2%, to $64.7 million as of March 31, 2026, compared to $48.6 million as of March 31, 2025. The increase in noninterest expense is largely due to an increase in salaries and employee benefits, data processing and software licenses and legal and professional expenses, which are related to the growth of Company and investments in technology and risk management. BaaS loan expense increased $4.4 million compared to the prior year period and is related to the increase in interest income on loans and recent program agreement and pricing changes that reflect a strategic shift toward enhanced partner economics and more sustainable, risk-adjusted returns over time. For more information on the accounting for BaaS income and expenses see the section titled "CCBX - BaaS Reporting Information."
Treasury & Administration
Net interest income for treasury & administration was $3.6 million for the quarter ended March 31, 2026, a decrease of $315,000, or 8.0%, compared to $3.9 million for the quarter ended March 31, 2025, primarily as a result of an increase in intrabank interest expense, partially offset by higher interest from interest earning deposits with other banks and to a lesser degree lower interest expense. Noninterest income was $426,000 for the quarter ended March 31, 2026, compared to $542,000 for the quarter ended March 31, 2025. Noninterest expense was $7.3 million for the quarter ended March 31, 2026, and $13.0 million for the quarter ended March 31, 2025, largely due to a decrease in salaries and employee benefits and legal and professional expenses as more of these expenses have been directly expensed to the other segments.
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Financial Condition
Our total assets increased $922.4 million, or 19.5%, to $5.66 billion at March 31, 2026 from $4.74 billion at December 31, 2025. The increase is primarily comprised of a $109.8 million increase in loans receivable and a $740.0 million increase in interest earning deposits with other banks.
Loans Held For Sale
During the three months ended March 31, 2026, $3.33 billion in CCBX loans were transferred to loans held for sale, with $3.28 billion in loans sold, $2.63 billion of which is new activity on previously sold credit card receivables. As of March 31, 2026 there were $124.0 million in loans held for sale and $71.2 million as of December 31, 2025. We will continue to sell loans back to the originating partner as part of our strategy to optimize our CCBX portfolio, manage growth, credit quality, portfolio and partner limits. Additionally, we retain a portion of the fee income for our role in processing new transactions on previously sold credit card receivables, which continues to grow and is expected to provide increased and on-going revenue with no on balance sheet risk or capital requirement.
Loan Portfolio
Our primary source of income is derived through interest earned on loans. A substantial portion of our loan portfolio consists of commercial real estate loans and commercial and industrial loans in the Puget Sound region. Our consumer and other loans also represent a significant portion of our loan portfolio with the growth of our CCBX segment. Our loan portfolio represents the highest yielding component of our earning assets.
As of March 31, 2026, loans receivable totaled $3.86 billion, an increase of $109.8 million, or 2.9%, compared to December 31, 2025. Total loans receivable is net of $7.1 million in net deferred origination fees. The increase includes gross CCBX loan growth of $76.5 million, or 4.2%, and an increase in gross community bank loans of $33.1 million, or 1.7%.
Loans as a percentage of deposits were 79.0% as of March 31, 2026, compared to 92.2% as of December 31, 2025. 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 March 31, 2026 As of December 31, 2025
(dollars in thousands; unaudited) Amount Percent Amount Percent
Commercial and industrial loans:
Capital call lines $ 176,384 4.6 % $ 210,480 5.6 %
All other commercial & industrial loans 257,395 6.7 243,605 6.5
Total commercial and industrial loans 433,779 11.3 454,085 12.1
Real estate loans:
Construction, land and land development 234,911 6.1 222,075 5.9
Residential real estate 465,222 12.0 466,352 12.4
Commercial real estate 1,300,547 33.6 1,285,856 34.2
Consumer and other loans 1,432,015 37.0 1,328,461 35.4
Gross loans receivable 3,866,474 100.0 % 3,756,829 100.0 %
Net deferred origination fees (7,095) (7,298)
Loans receivable $ 3,859,379 $ 3,749,531
Loan Yield (1)
10.76 % 10.63 %
(1)Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.
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The following tables detail the loans by segment which are included in the total loan portfolio table above:
Community Bank As of
March 31, 2026 December 31, 2025
(dollars in thousands; unaudited) Balance % to Total Balance % to Total
Commercial and industrial loans:
Commercial and industrial loans $ 235,603 11.9 % $ 224,439 11.5 %
Real estate loans:
Construction, land and land development loans 234,911 11.8 222,075 11.4
Residential real estate loans 199,185 10.1 202,293 10.4
Commercial real estate loans 1,300,547 65.6 1,285,856 66.0
Consumer and other loans:
Other consumer and other loans 11,587 0.6 14,072 0.7
Gross community bank loans receivable 1,981,833 100.0 % 1,948,735 100.0 %
Net deferred origination fees (6,578) (6,756)
Loans receivable $ 1,975,255 $ 1,941,979
Loan Yield(1)
6.58 % 6.52 %
(1)Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.
CCBX As of
March 31, 2026 December 31, 2025
(dollars in thousands; unaudited) Balance % to Total Balance % to Total
Commercial and industrial loans:
Capital call lines $ 176,384 9.4 % $ 210,480 11.6 %
All other commercial & industrial loans
21,792 1.2 19,166 1.1
Real estate loans:
Residential real estate loans 266,037 14.1 264,059 14.6
Consumer and other loans:
Credit cards 693,485 36.8 622,681 34.4
Other consumer and other loans 726,943 38.5 691,708 38.3
Gross CCBX loans receivable 1,884,641 100.0 % 1,808,094 100.0 %
Net deferred origination fees (517) (542)
Loans receivable $ 1,884,124 $ 1,807,552
Loan Yield - CCBX (1)(2)
15.01 % 14.89 %
(1)CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. To determine net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at net BaaS loan income which can be compared to interest income on the Company's community bank loans. Net BaaS loan income is a non-GAAP measure. See the reconciliation of non-GAAP measures set forth in the section titled "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures" for the impact of BaaS loan expense on CCBX yield.
(2)Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.
Commercial and Industrial Loans. Commercial and industrial loans decreased $20.3 million, or 4.5%, to $433.8 million as of March 31, 2026, from $454.1 million as of December 31, 2025. The decrease in commercial and industrial loans receivable over December 31, 2025 was largely due to a decrease of $34.1 million in capital call lines, partially offset by a $13.8 million increase in other commercial and industrial loans.
Commercial and industrial loans are underwritten after evaluating and understanding the borrower's ability to operate profitably and effectively. These loans are primarily made based on the borrower's ability to service the debt from income. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable, inventory or equipment, and we generally obtain personal guarantees on these loans. Commercial and industrial
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loans includes $102.0 million and $92.0 million in loans to financial institutions as of March 31, 2026 and December 31, 2025, respectively.
Included in the commercial and industrial loan balance is $176.4 million and $210.5 million in capital call lines resulting from relationships with our CCBX partners as of March 31, 2026 and December 31, 2025, respectively, and $21.8 million and $19.2 million in CCBX other commercial loans as of March 31, 2026 and December 31, 2025, respectively. As of March 31, 2026 there was $235.6 million in community bank commercial and industrial loans compared to $224.4 million at December 31, 2025.
Construction, Land and Land Development Loans. Construction, land and land development loans increased $12.8 million, or 5.8%, to $234.9 million as of March 31, 2026, from $222.1 million as of December 31, 2025. The increase is attributed to some new construction and development projects.
Unfunded loan commitments for construction, land and land development loans were $90.0 million at March 31, 2026, compared to $98.2 million at December 31, 2025. Although we have seen a strong commercial and residential real estate market in the Puget Sound region thus far in 2026, the macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters, and trade issues that have resulted in economic uncertainty.
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 March 31, 2026, construction, land and land development loans included $138.2 million in commercial construction loans, $34.2 million in residential construction loans, $41.8 million in other construction, land and land development loans and $20.6 million in undeveloped land loans, compared to $124.9 million in commercial construction loans, $37.4 million in residential construction loans, $20.7 million in undeveloped land loans, and $39.1 million in other construction, land and land development loans as of December 31, 2025.
Residential Real Estate Loans. Our one-to-four family residential real estate loans decreased $1.1 million, or 0.2%, to $465.2 million as of March 31, 2026, from $466.4 million as of December 31, 2025, due to a decrease of $3.1 million in community bank loans, partially offset by an increase of $2.0 million in CCBX loans.
As of March 31, 2026, there were $266.0 million in CCBX home equity loans included in residential real estate, compared to $264.1 million at December 31, 2025. These home equity lines of credit are secured by residential real estate and are accessed by using a credit card. These are first, second and third lien residential loans and require 18 months of home ownership for non-owner occupied. Term lengths are up to 30 years and lines range from $5,000 to $400,000. We sold $249.4 million in CCBX residential real estate loans year to date as of March 31, 2026.
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 March 31, 2026 and December 31, 2025, we held $4.4 million and $4.4 million, respectively in purchased residential real estate mortgage loans. These loans purchased typically have a fixed rate with a term of 15 to 30 years and are collateralized by one-to-four family residential real estate. We have a defined set of credit guidelines that we use when evaluating these loans. Although purchased loans were originated and underwritten by another institution, our mortgage, credit, and compliance departments conducted an independent review of each underlying loan that includes re-underwriting each of these loans to our credit and compliance standards.
Like our commercial real estate loans, our residential real estate loans are secured by real estate, the value of which may fluctuate significantly over a short period of time primarily as a result of market conditions in the area in which the real estate is located. Adverse developments affecting real estate values in our market areas could therefore increase the credit risk associated with these loans, impair the value of property pledged as collateral on loans, and affect our ability to sell the collateral upon foreclosure without a loss or additional losses.
Commercial Real Estate Loans. Commercial real estate loans increased $14.7 million, or 1.1%, to $1.30 billion as of March 31, 2026, from $1.29 billion as of December 31, 2025.
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We are committed to growing the community bank portfolio in the Puget Sound region. We actively seek commercial real estate loans in our markets and our lenders are experienced in competing for these loans and managing these relationships.
We make commercial mortgage loans collateralized by owner-occupied and non-owner-occupied real estate, as well as multi-family residential loans. The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as manufacturing and processing facilities, business parks, warehouses, retail centers, convenience stores, hotels and motels, low rise office buildings, mixed-use residential and commercial, and other properties. We originate both fixed- and adjustable-rate loans with terms up to 20 years. Fixed-rate loans typically amortize over a 10 to 25 year period with balloon payments due at the end of five to ten years. Adjustable-rate loans are generally based on the prime rate and adjust with the prime rate or are based on term equivalent FHLB rates. At March 31, 2026, approximately 33.3% of the commercial real estate loan portfolio consisted of fixed rate loans. Commercial real estate loans represented 33.6% of our loan portfolio at March 31, 2026 and are a large source of revenue. As of March 31, 2026, we held $15.4 million in purchased commercial real estate loans, compared to $15.5 million at December 31, 2025. Our credit administration team has substantial experience in underwriting, managing, monitoring and working out commercial real estate loans, and remains diligent in communicating and proactively working with borrowers to help mitigate potential credit deterioration.
Consumer and Other. Consumer and other loans increased $103.6 million, or 7.8%, to $1.43 billion, from $1.33 billion as of December 31, 2025, primarily as a result of growth in CCBX loans originated through our partners. We sold $2.60 billion in CCBX credit cards loans and $96.7 million in CCBX consumer and other loans year to date as of March 31, 2026. 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.
CCBX consumer loans totaled $1.42 billion as of March 31, 2026, compared to $1.31 billion at December 31, 2025. CCBX consumer loans include installment loans, credit cards, lines of credit and other loans. CCBX consumer loans include cash secured and unsecured consumer loans, loan products designed to help consumers build credit, lines of credit, credit cards, other loans and overdrafts. Consumer credit cards are open-ended and have interest rates ranging from a promotional rate of 0.00% to the maximum rate allowable by state. For short-term consumer loans, both secured and unsecured options are available and typically have fully-amortizing terms ranging from two months to six years. Interest rates can be fixed or variable up to the maximum allowable rate by state.
Our community bank consumer and other loans totaled $11.6 million as of March 31, 2026, compared to $14.1 million at December 31, 2025 and are comprised of personal lines of credit, automobile, boat, and recreational vehicle loans, and secured term loans.
Industry Exposure and Categories of Loans
We have a diversified loan portfolio, representing a wide variety of industries. Our major categories of loans are commercial real estate, consumer and other loans, residential real estate, commercial and industrial, and construction, land and land development loans. Together they represent $3.87 billion in outstanding loan balances. When combined with $2.59 billion in unused commitments the total of these categories is $6.45 billion. However, total exposure on CCBX loans is subject to portfolio and partner maximum limits. See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.
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The following table summarizes our community bank loan commitments by industry for our commercial real estate portfolio as of March 31, 2026:
(dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments Total Outstanding Balance & Available Commitments
% of Total Loans
(Outstanding Balance &
Available Commitments)
Average Loan Balance Number of Loans
Community bank commercial real estate loans
Apartments $ 357,711 $ 13,442 $ 371,153 5.7 % $ 3,726 96
Hotel/Motel 178,339 862 179,201 2.8 7,134 25
Convenience Store 143,092 3,345 146,437 2.3 2,236 64
Warehouse 100,075 250 100,325 1.5 1,853 54
Retail 97,447 427 97,874 1.5 1,071 91
Mixed use 95,791 6,498 102,289 1.6 1,076 89
Office 84,678 4,216 88,894 1.4 1,045 81
Mini Storage 79,326 303 79,629 1.2 4,407 18
Strip Mall 42,779 - 42,779 0.7 6,111 7
Manufacturing 32,139 1,195 33,334 0.5 1,286 25
Groups < 0.50% of total 89,170 4,880 94,050 1.5 1,173 76
Total $ 1,300,547 $ 35,418 $ 1,335,965 20.7 % $ 2,078 626
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 between CCBX and our community bank of just $700. The following table summarizes our loan commitments by category for our consumer and other loan portfolio as of March 31, 2026:
(dollars in thousands; unaudited) Outstanding Balance
Available Loan Commitments (1)
Total Outstanding Balance & Available Commitments (1)
% of Total Loans
(Outstanding Balance &
Available Commitments)
Average Loan Balance Number of Loans
CCBX consumer loans
Credit cards $ 693,485 $ 1,008,183 $ 1,701,668 26.4 % $ 1.5 456,317
Installment loans 669,544 35,963 705,507 10.9 0.7 1,026,896
Lines of credit 29,956 26,968 56,924 0.9 0.1 303,549
Other loans 27,443 - 27,443 0.4 0.1 297,989
Community bank consumer loans
Installment loans 1,088 5 1,093 0.0 43.5 25
Lines of credit 163 387 550 0.0 5.3 31
Other loans 10,336 3,000 13,336 0.2 28.2 366
Total $ 1,432,015 $ 1,074,506 $ 2,506,521 38.8 % $ 0.7 2,085,173
(1)Total exposure on CCBX loans is subject to portfolio maximum limits. See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.
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The following table summarizes our loan commitments by category for our residential real estate portfolio as of March 31, 2026:
(dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments
Total Exposure (1)
% of Total Loans
(Outstanding Balance &
Available Commitment) 		Average Loan Balance Number of Loans
CCBX residential real estate loans
Home equity lines of credit $ 266,037 $ 661,716 $ 927,753 14.4 % $ 23 11,336
Community bank residential real estate loans
Closed end, secured by first liens 156,550 546 157,096 2.4 293 293
Home equity lines of credit 32,962 49,812 82,774 1.3 257 257
Closed end, second liens 9,673 1,605 11,278 0.2 28 28
Total $ 465,222 $ 713,679 $ 1,178,901 18.3 % $ 39 11,914
(1)Total exposure on CCBX loans is subject to portfolio maximum limits. See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.
The following table summarizes our loan commitments by industry for our commercial and industrial loan portfolio as of March 31, 2026:
(dollars in thousands; unaudited) Outstanding Balance
Available Loan Commitments (1)
Total Outstanding Balance & Available Commitments (1)
% of Total Loans
(Outstanding Balance &
Available Commitments)
Average Loan Balance Number of Loans
CCBX C&I loans
Capital call lines $ 176,384 $ 573,832 $ 750,216 11.6 % $ 1,446 122
Retail and other
loans
21,792 34,620 56,412 0.9 9 2,332
Community bank C&I loans
Financial institutions 102,025 - 102,025 1.6 4,251 24
Construction/Contractor services 32,716 30,889 63,605 1.0 186 176
Medical / Dental / Other care 5,387 282 5,669 0.1 449 12
Transportation 4,302 31 4,333 0.1 615 7
Manufacturing 4,144 4,007 8,151 0.1 115 36
Groups < 0.10% of total 87,029 29,605 116,634 1.8 418 208
Total $ 433,779 $ 673,266 $ 1,107,045 17.2 % $ 149 2,917
(1)Total exposure on CCBX loans is subject to portfolio maximum limits. See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.
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The following table details our community bank loan commitments by category for our construction, land and land development loan portfolio as of March 31, 2026:
(dollars in thousands; unaudited) Outstanding Balance Available Loan Commitments Total Outstanding Balance & Available Commitments
% of Total Loans
(Outstanding Balance &
Available Commitments)
Average Loan Balance Number of Loans
Community bank construction, land and land development loans
Commercial construction $ 138,232 $ 35,954 $ 174,186 2.7 % $ 9,215 15
Residential construction 34,241 42,322 76,563 1.2 1,105 31
Land development 22,950 11,316 34,266 0.5 2,295 10
Undeveloped land loans 20,633 - 20,633 0.3 1,376 15
Developed land loans 18,855 420 19,275 0.3 1,178 16
Total $ 234,911 $ 90,012 $ 324,923 5.0 % $ 2,700 87
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. Consumer loans originated through CCBX lending partners may continue to accrue interest beyond 90 days past due. Installment (closed-end) loans generally continue to accrue until 120 days past due while revolving (open-end) loans generally continue to accrue until 180 days past due. These consumer loans are reported out as substandard loans, 90+ days past due and still accruing. As a result of the type of loans (primarily consumer loans) originated through our CCBX partners, we anticipate that balances 90 days past due or more and still accruing will increase as those loans grow. Additionally, some CCBX partners have instituted a collection practice that places certain loans on nonaccrual status to improve collectability. As of March 31, 2026, $22.3 million in CCBX nonaccrual loans were less than 90 days past due.
When loans are placed on nonaccrual status, all unpaid accrued interest is reversed from income and all interest accruals are stopped. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal balance. Loans are returned to accrual status if we believe that all remaining principal and interest is fully collectible and there has been at least six months of sustained repayment performance since the loan was placed on nonaccrual status. We define nonperforming loans as loans on nonaccrual status and accruing loans 90 days or more past due. Nonperforming assets also include other real estate owned and repossessed assets.
We believe our lending practices and active approach to managing nonperforming assets has resulted in sound asset quality and timely resolution of problem assets. We have procedures in place to assist us in maintaining the overall credit quality of our loan portfolio. We have established underwriting guidelines, concentration limits and we also monitor our delinquency levels for any negative or adverse trends. We actively manage problem assets to reduce our risk for loss.
We had $67.6 million in nonperforming assets as of March 31, 2026, compared to $64.1 million as of December 31, 2025. This includes $35.2 million in CCBX loans more than 90 days past due and still accruing interest as of March 31, 2026, compared to $33.1 million at December 31, 2025. All of our nonperforming assets were nonperforming loans as of March 31, 2026 and December 31, 2025. Our accruing loans past due 90 days or more increased $2.1 million and our CCBX nonaccrual loans increased $3.2 million primarily as a result of a collection practice employed by certain CCBX partners that places specific loans on nonaccrual status to enhance collectability, $22.3 million of these loans are less than 90 days past due as of March 31, 2026. Additionally, there was a decrease in community bank nonaccrual loans of $1.7
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million during the three months ended March 31, 2026. Our nonperforming loans to loans receivable ratio was 1.75% at March 31, 2026, compared to 1.71% at December 31, 2025.
Our community bank credit quality remains strong, as demonstrated by the low level of community bank nonperforming loans to total loans receivable of 0.13% as of March 31, 2026. 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.
The following table presents information regarding nonperforming assets at the dates indicated:
(dollars in thousands; unaudited) March 31,
2026 		December 31,
2025
Nonaccrual loans:
Commercial and industrial loans $ 251 $ 2,278
Real estate loans:
Residential real estate 314 38
Commercial real estate 4,344 4,344
Consumer and other loans:
Credit cards 24,497 21,433
Other consumer and other loans 3,015 2,875
Total nonaccrual loans 32,421 30,968
Accruing loans past due 90 days or more:
Commercial & industrial loans
604 654
Real estate loans:
Residential real estate loans 2,241 1,961
Consumer and other loans:
Credit cards 24,149 22,536
Other consumer and other loans 8,205 7,993
Total accruing loans past due 90 days or more 35,199 33,144
Total nonperforming loans 67,620 64,112
Real estate owned - -
Repossessed assets - -
Total nonperforming assets $ 67,620 $ 64,112
Total nonaccrual loans to loans receivable 0.84 % 0.83 %
Total nonperforming loans to loans receivable 1.75 % 1.71 %
Total nonperforming assets to total assets 1.19 % 1.35 %
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The following tables detail nonperforming assets by segment which are included in the total nonperforming assets table above:
Community Bank As of
(dollars in thousands; unaudited) March 31,
2026 		December 31,
2025
Nonaccrual loans:
Commercial and industrial loans $ 170 $ 2,151
Real estate:
Residential real estate 314 38
Commercial real estate 4,344 4,344
Total nonaccrual loans 4,828 6,533
Accruing loans past due 90 days or more:
Total accruing loans past due 90 days or more - -
Total nonperforming loans 4,828 6,533
Other real estate owned - -
Repossessed assets - -
Total nonperforming assets $ 4,828 $ 6,533
Total nonperforming community bank loans to total loans receivable 0.13 % 0.17 %
CCBX As of
(dollars in thousands; unaudited) March 31,
2026 		December 31,
2025
Nonaccrual loans:
Commercial and industrial loans:
All other commercial & industrial loans
$ 81 $ 127
Consumer and other loans:
Credit cards 24,497 21,433
Other consumer and other loans 3,015 2,875
Total nonaccrual loans 27,593 24,435
Accruing loans past due 90 days or more:
Commercial & industrial loans
604 654
Real estate loans:
Residential real estate loans 2,241 1,961
Consumer and other loans:
Credit cards 24,149 22,536
Other consumer and other loans 8,205 7,993
Total accruing loans past due 90 days or more 35,199 33,144
Total nonperforming loans 62,792 57,579
Other real estate owned - -
Repossessed assets - -
Total nonperforming assets $ 62,792 $ 57,579
Total nonperforming CCBX loans to total loans receivable 1.63 % 1.54 %
As of March 31, 2026, $60.9 million of the $62.8 million in nonperforming CCBX loans were covered by CCBX partner credit enhancements. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by
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indemnifying or reimbursing incurred losses. Under the agreement, the CCBX partner will indemnify or reimburse the Bank for its loss/charge-off on these loans.
Allowance for credit losses
The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost. The ACL is evaluated and calculated on a collective basis for those loans which share similar risk characteristics. At each reporting period, the Company evaluates whether the loans in a pool continue to exhibit similar risk characteristics as the other loans in the pool and whether it needs to evaluate the allowance on an individual basis. The Bank must estimate expected credit losses over the loans' contractual terms, adjusted for expected prepayments. In estimating the life of the loan, the Bank cannot extend the contractual term of the loan for expected extensions, renewals, and modifications, unless the extension or renewal options are included in the contract at the reporting date and are not unconditionally cancellable by the Bank. Because expected credit losses are estimated over the contractual life adjusted for estimated prepayments, determination of the life of the loan may significantly affect the ACL. The Company has chosen to segment its portfolio consistent with the manner in which it manages the risk of the type of credit.
•Community Bank Portfolio: The ACL calculation is derived for loan segments utilizing loan level information and relevant information from internal and external sources related to past events and current conditions. In addition, the Company incorporates a reasonable and supportable forecast.
•CCBX Portfolio: The Bank calculates the ACL on loans on an aggregate basis based on each partner and product level, segmenting the risk inherent in the CCBX portfolio based on qualitative and quantitative trends in the portfolio.
Also included in the ACL are qualitative reserves to cover losses that are expected, but in the Company's assessment may not be adequately represented in the quantitative method. For example, factors that the Company considers include environmental business conditions, borrower's financial condition, credit rating and the volume and severity of past due loans and nonaccrual loans. Based on this analysis, the Company records a provision for credit losses to maintain the allowance at appropriate levels.
As of March 31, 2026, the allowance for credit losses totaled $172.4 million, or 4.47% of total loans. As of December 31, 2025, the allowance for credit losses totaled $169.5 million, or 4.52% of total loans.
The increase in the Company's allowance for credit losses for the three months ended March 31, 2026 compared to December 31, 2025, is largely related to loan growth, however improved performance in the CCBX portfolio helped moderate the level of increase. During the three months ended March 31, 2026, a $51.9 million provision for credit losses on loans was recorded for CCBX partner loans. In general, CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses. The factors used in management's analysis for community bank credit losses indicated that a provision recapture for credit losses on loans of $542,000 was needed for the three months ended March 31, 2026, largely due to a change in the mix of community bank loans. The macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters, and trade issues that have resulted in economic uncertainty. 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 March 31, 2026 the Company was responsible for credit losses on approximately 5% of a $324.0 million CCBX loan portfolio and represented $22.0 million in loans. The table below shows the activity in the credit enhancement asset for the periods indicated:
As of or for the Three Months Ended March 31,
(dollars in thousands) 2026 2025
Credit enhancement at beginning of period 177,657 181,890
CCBX Provision for credit losses - loans 52,563 54,319
CCBX Provision for credit losses - unfunded commitments (886) 171
Credit losses settled with partner during period (54,521) (53,682)
Credit recoveries settled with partner during period 4,933 5,479
Net change in pending partner settlements 1,063 (5,034)
Net (provision) charge-offs without credit enhancement (222) 234
Credit enhancement at end of period 180,587 183,377
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. In the event of a partner default, the Bank would evaluate any remaining credit enhancement asset associated with that partner to determine whether 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:
Three Months Ended
March 31, 2026 March 31, 2025
(dollars in thousands; unaudited) Community Bank CCBX Total Community Bank CCBX Total
Gross charge-offs $ 2 $ 54,521 $ 54,523 $ 4 $ 53,682 $ 53,686
Gross recoveries (3) (4,933) (4,936) (7) (5,479) (5,486)
Net charge-offs (recoveries) $ (1) $ 49,588 $ 49,587 $ (3) $ 48,203 $ 48,200
Net charge-offs to average loans (1)
0.00 % 10.46 % 5.18 % 0.00 % 11.99 % 5.57 %
% of CCBX net charge-offs covered by credit enhancement 97.9 % 97.8 %
(1)Annualized calculations shown for periods presented.
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The following table presents, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data:
As of or for the Three Months Ended March 31,
(dollars in thousands; unaudited) 2026 2025
Allowance at beginning of period $ 169,530 $ 176,994
Provision for credit losses 52,484 54,384
Charge-offs:
Commercial and industrial loans 1,146 1,907
Residential real estate 705 1,605
Consumer and other 52,672 50,174
Total charge-offs 54,523 53,686
Recoveries:
Commercial and industrial loans 162 356
Residential real estate 12 2
Commercial real estate - 4
Consumer and other 4,762 5,124
Total recoveries 4,936 5,486
Net charge-offs 49,587 48,200
Allowance at end of period $ 172,427 $ 183,178
Allowance for credit losses to nonaccrual loans 531.84 % 899.74 %
Allowance to nonperforming loans 254.99 % 324.97 %
Allowance to loans receivable 4.47 % 5.21 %
The allowance for credit losses to nonaccrual loans ratio decreased as of March 31, 2026, compared to March 31, 2025, primarily as a result of an increase in nonaccrual loans of $12.1 million, largely due to an increase in CCBX nonaccrual loans as a result of a collection practice that certain CCBX partners employ that places specific loans on nonaccrual status to enhance collectability, combined with a $4.6 million increase in nonaccrual community bank loans.
The allowance for credit losses increased $2.9 million as of March 31, 2026 compared to December 31, 2025 largely due to lower loss historical rates and a change in loan mix. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by indemnifying or reimbursing incurred losses. CCBX partners bear most of the responsibility for credit losses incurred which consequently gives them a vested interest in the performance of the portfolio. We believe that this alignment of interests ensures that CCBX partners are motivated to implement robust risk management practices and maintain the overall health of the portfolio. Net charge-offs on CCBX loans for the three months ended March 31, 2026 that were covered by credit enhancements were $48.6 million. At March 31, 2026, the allowance for credit losses for CCBX partner loans totaled $154.3 million, compared to $151.3 million at December 31, 2025.
The following table presents the loans receivable and allowance for credit losses by segment for the periods indicated:
As of March 31, 2026 As of December 31, 2025
(dollars in thousands; unaudited) Community Bank CCBX Total Community Bank CCBX Total
Loans receivable $ 1,975,255 $ 1,884,124 $ 3,859,379 $ 1,941,979 $ 1,807,552 $ 3,749,531
Allowance for credit losses (18,153) (154,274) (172,427) (18,231) (151,299) (169,530)
Allowance for credit losses
to total loans receivable 		0.92 % 8.19 % 4.47 % 0.94 % 8.37 % 4.52 %
Although we believe that we have established our allowance for credit losses in accordance with GAAP and that the allowance for credit losses was adequate to provide for expected losses in the portfolio at all times shown above, future provisions for credit losses will be subject to ongoing evaluations of the risks in our loan portfolio. We continue to have a
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low level of community bank charge-offs and nonperforming loans, however, the macro economic environment is continuously changing, primarily due to the pace of economic growth, inflation, changing interest rates, global trade tensions, tariffs, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, natural disasters, and trade issues that have resulted in economic uncertainty. If economic conditions worsen then Washington state and Puget Sound region may experience a more severe economic downturn, and our asset quality could deteriorate, which may require material additional provisions for credit losses.
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
March 31,
2026 		December 31,
2025
(dollars in thousands) Allowance
Allocated
to Loan
Portfolio 		Loan
Category
as a % of
Total
Loans 		Allowance
Allocated
to Loan
Portfolio 		Loan
Category
as a % of
Total
Loans
Commercial and industrial loans $ 7,728 11.3 % $ 8,757 12.1 %
Real estate loans:
Construction, land and land development loans 6,101 6.1 6,580 5.9
Residential real estate loans 8,498 12.0 11,100 12.4
Commercial real estate loans 6,010 33.6 5,496 34.2
Consumer and other loans 144,090 37.0 137,597 35.4
Total allowance for credit losses $ 172,427 $ 169,530
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 March 31, 2026, our securities portfolio was invested in U.S. Agency collateralized mortgage obligations and U.S. Agency residential mortgage-backed securities for Community Reinvestment Act ("CRA") purposes. Because we target a loan-to-deposit ratio in the range of 90% to 100%, we prioritize liquidity over the earnings of our securities portfolio. At March 31, 2026, our loan-to-deposit ratio was 79.0%, due to the significant deposit growth during the quarter. Securities represented 0.8% of total assets as of March 31, 2026, compared to 1.0% at December 31, 2025. 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 March 31, 2026, the amortized cost of our investment securities totaled $46.2 million, a decrease of $2.1 million, or 4.3%, compared to $48.2 million as of December 31, 2025. The decrease in the securities portfolio was due to principal paydowns during the three months ended March 31, 2026.
Our investment portfolio consists of only $28,000 in securities classified as available-for-sale ("AFS") and $46.1 million in held-to-maturity securities for CRA purposes. The carrying values of our investment securities classified as AFS are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders' equity. As of March 31, 2026 and December 31, 2025 our AFS portfolio had an unrealized loss of $1,000.
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The following table summarizes the amortized cost and estimated fair value of our investment securities as of the dates shown:
As of March 31, 2026 As of December 31, 2025
(dollars in thousands; unaudited) Amortized
Cost 		Fair
Value 		Amortized
Cost 		Fair
Value
Securities available-for-sale:
U.S. Agency collateralized mortgage obligations $ 29 $ 28 $ 30 $ 29
Total available-for-sale securities 29 28 30 29
Securities held-to-maturity:
U.S. Agency residential mortgage-backed securities
46,141 46,383 48,218 48,713
Total held-to-maturity securities 46,141 46,383 48,218 48,713
Total investment securities $ 46,170 $ 46,411 $ 48,248 $ 48,742
We have the following equity investments which do not have a readily determinable fair value and are held at cost minus impairment if any, plus or minus observable price changes in orderly transactions for an identical or similar investment of the same issuer. This method will be applied until the investments do not qualify for the measurement election (e.g., if the investment has a readily determinable fair value). We will reassess at each reporting period whether the equity investments without a readily determinable fair value qualifies to be measured at cost minus impairment.
•The Company had a $1.8 million and $2.2 million equity interest in a specialized bank technology company as of the quarters ended March 31, 2026 and 2025, respectively.
•The Company had a $350,000 equity interest in a technology company as of the quarters ended March 31, 2026 and 2025.
•The Company had a $500,000 equity interest in financial technology company as of the quarter ended March 31, 2026. This was a new equity investment, so there was no equity interest at March 31, 2025.
•The Company had a $42,000 and $47,000 equity interest in a technology company as of the quarters ended March 31, 2026 and 2025, respectively.
The following table shows the activity in equity investments without a readily determinable fair value for the dates shown:
For the Three Months Ended
March 31,
(dollars in thousands; unaudited) 2026 2025
Carrying value, beginning of period $ 2,171 $ 2,619
Purchases 500 -
Observable price change - -
Carrying value, end of period $ 2,671 $ 2,619
We invest in investment funds that are accelerating technology adoption by banks. These equity investments are held at fair value as reported by the funds. During the three months ended March 31, 2026, we had a net capital investment of $90,000 with investment funds designed to help accelerate technology adoption at banks, and recognized net earnings of $110,000, resulting in an equity interest of $1.7 million at March 31, 2026. The Company has committed up to $1.0 million in capital for these investment funds, however, the Company is not obligated to fund these commitments prior to a capital call.
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The following table shows the activity in investment funds for the dates shown:
For the Three Months Ended
March 31,
(dollars in thousands; unaudited) 2026 2025
Carrying value, beginning of period $ 1,500 $ 910
Purchases/capital calls/capital returns, net 90 12
Net change recognized in earnings 110 17
Carrying value, end of period $ 1,700 $ 939
Other Assets
Deferred tax assets, net was zero as we moved to a deferred tax liability, net during 2025 largely due to the impact of the OBBBA, which permits the immediate expense of R&D costs for tax purposes. Other assets decreased $1.6 million to $18.7 million as of March 31, 2026, compared to December 31, 2025.
Deposits
We offer a variety of deposit products that have a wide range of interest rates and terms, including demand, money market, savings, and time accounts as well as IntraFi network sweep deposits. Sweep deposits enable us to provide an FDIC insured deposit option to customers that have balances in excess of the FDIC insurance limit. This service trades our customers' funds as certificates of deposit or interest bearing demand deposits in increments under the FDIC insured amount to other participating financial institutions and in exchange we receive time deposit or interest bearing demand investments from participating financial institutions. We rely primarily on competitive pricing policies, convenient locations, electronic delivery channels (internet and mobile), and personalized service to attract new deposits and retain existing deposits. Sweep deposits allow us to sweep excess deposits off and on our balance and provide additional flexibility in managing our liquidity. Additionally, we offer deposit products through our CCBX segment. CCBX deposits are generally classified as interest bearing demand and money market accounts. CCBX deposit products allow us to offer a broader range of partner specific products, which include products designed to reach specific under-served or under-banked populations served by our CCBX partners.
Total deposits as of March 31, 2026 were $5.04 billion, an increase of $897.0 million, or 21.6%, compared to $4.14 billion as of December 31, 2025. The increase in deposits was due to an increase of $910.4 million in CCBX deposits largely driven largely by new CCBX partner growth. Management expects the newly added deposits to moderate and level out during the second quarter of 2026. Core deposits ended the quarter at $5.03 billion compared to $4.13 billion at December 31, 2025. We define core deposits as all deposits except time deposits and brokered deposits. Our cost of deposits was 1.46% for the community bank and 3.17% for CCBX for the three months ended March 31, 2026. Additionally, as of March 31, 2026 there was $2.81 billion in CCBX deposits that were swept off balance sheet for increased FDIC insurance coverage and liquidity purposes. Amounts in excess of FDIC insurance coverage are swept off-balance sheet, using a third-party facilitator/vendor sweep product, to participating financial institutions. These swept deposits generated fee income of $710,000 for the quarter ended March 31, 2026.
Included in total deposits is $3.47 billion in CCBX deposits, an increase of $910.4 million, or 35.6%, compared to $2.56 billion as of December 31, 2025. CCBX customer deposit relationships include deposits with CCBX end customers, as well as partner 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 March 31, 2026 were $579.2 million, a decrease of $455,000, or 0.1%, compared to $579.6 million as of December 31, 2025. Noninterest bearing deposits represent 11.5% and 14.0% of total deposits for March 31, 2026 and December 31, 2025, respectively. Community bank noninterest bearing deposits totaled $501.3 million and $493.0 million at March 31, 2026 and December 31, 2025, respectively.
Total interest bearing balances, excluding time deposits, as of March 31, 2026 were $4.45 billion, an increase of $897.5 million, or 25.3%, compared to $3.55 billion as of December 31, 2025. The $897.5 million increase is primarily due to an increase of $910.4 million in CCBX deposits, partially offset by a decrease in community bank interest bearing deposits of $21.6 million. The increase in CCBX deposits is largely due to new CCBX partner relationships. The newly added deposits are expected to moderate and level out during the second quarter of 2026. The decrease in community bank deposits is a
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result of deposit growth and normal balance fluctuations. Included in total deposits is $462.5 million in IntraFi network interest bearing demand and money market sweep accounts as of March 31, 2026, which provides our customers with fully insured deposits through a sweep and exchange of deposits with other financial institutions.
Total time deposit balances as of March 31, 2026 were $12.2 million, a decrease of $91,000, or 0.7%, from $12.3 million as of December 31, 2025. The decrease is largely due to our focus on core deposits and letting higher rate time deposits run off as they mature. We have seen competitors increase rates on time deposits, and have not globally matched their rates in response as we focus on growing and retaining less costly core deposits.
The following table sets forth deposit balances at the dates indicated:
As of March 31, 2026 As of December 31, 2025
(dollars in thousands; unaudited) Amount
Percent of
Total
Deposits
Amount
Percent of
Total
Deposits
Demand, noninterest bearing $ 579,161 11.5 % $ 579,616 14.0 %
Interest bearing demand and
money market 		4,128,511 81.9 3,450,679 83.2
Savings 321,295 6.4 101,616 2.5
Total core deposits 5,028,967 99.8 4,131,911 99.7
Other deposits 1 - 1 -
Time deposits less than $250,000 8,121 0.1 8,229 0.2
Time deposits $250,000 and over 4,075 0.1 4,058 0.1
Total $ 5,041,164 100.0 % $ 4,144,199 100.0 %
Cost of deposits (1)
2.56 % 2.74 %
(1)Cost of deposits is annualized for the three months ended for each period presented.
The following tables detail the deposits for the segments which are included in the total deposit portfolio table above:
Community Bank As of
March 31, 2026 December 31, 2025
(dollars in thousands; unaudited) Balance % to Total Balance % to Total
Demand, noninterest bearing $ 501,271 31.9 % $ 492,968 31.1 %
Interest bearing demand and
money market 		1,006,623 64.0 1,024,798 64.6
Savings 52,851 3.3 56,305 3.5
Total core deposits 1,560,745 99.2 1,574,071 99.2
Other deposits 1 0.0 1 0.0
Time deposits less than $250,000 8,121 0.5 8,229 0.5
Time deposits $250,000 and over 4,075 0.3 4,058 0.3
Total community bank deposits $ 1,572,942 100.0 % $ 1,586,359 100.0 %
Cost of deposits(1)
1.46 % 1.56 %
(1)Cost of deposits is annualized for the three months ended for each period presented.
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CCBX As of
March 31, 2026 December 31, 2025
(dollars in thousands; unaudited) Balance % to Total Balance % to Total
Demand, noninterest bearing $ 77,890 2.3 % $ 86,648 3.4 %
Interest bearing demand and
money market 		3,121,888 90.0 2,425,881 94.8
Savings 268,444 7.7 45,311 1.8
Total core deposits 3,468,222 100.0 2,557,840 100.0
Other deposits - - - -
Total CCBX deposits $ 3,468,222 100.0 % $ 2,557,840 100.0 %
Cost of deposits (1)
3.17 % 3.52 %
(1)Cost of deposits is annualized for the three months ended for each period presented.
The following table sets forth the Company's time deposits of $250,000 or more by time remaining until maturity as of the dates indicated:
(dollars in thousands; unaudited) As of March 31, 2026 As of December 31, 2025
Maturity Period:
Three months or less $ 854 $ 1,240
Over three through six months - 270
Over six through twelve months 2,235 1,568
Over twelve months 986 980
Total $ 4,075 $ 4,058
Weighted average maturity of all time deposits (in years) 0.90 0.77
Average deposits for the three months ended March 31, 2026 were $4.38 billion, an increase of 18.1%, compared to $3.71 billion for the three months ended March 31, 2025. The increase in average deposits was primarily in interest bearing deposits. We expect deposits to increase with continued growth in our primary market areas, the increase in commercial lending relationships for which we also seek deposit balances and the results of business development efforts by branch managers, treasury service personnel and lenders.
The average rate paid on total deposits was 2.56% for the three months ended March 31, 2026, compared to 3.08% for the three months ended March 31, 2025. The average rate paid on interest bearing demand and money market accounts decreased 0.77% for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The average rate paid on other deposits decreased 3.38% for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The average rate paid on time deposits of less than $250,000 decreased 0.24% for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The average rate paid on time deposits greater than $250,000 decreased 0.65% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The average rate paid on savings increased 2.30% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 as a result of an increase in CCBX savings deposit products. The overall lower average rate of 2.56% paid on interest bearing accounts in the three months ended March 31, 2026 compared to 3.08% for the three months ended March 31, 2025 is due to lower interest rates.
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The following table presents the average balances and average rates paid on deposits for the periods indicated:
For the Three Months Ended March 31,
2026 2025
(dollars in thousands; unaudited)
Average
Balance
Average
Rate(1)
Average
Balance
Average
Rate(1)
Demand, noninterest bearing $ 585,211 0.00 % $ 543,784 0.00 %
Interest bearing demand and
money market 		3,530,000 2.98 2,627,738 3.75
Savings 256,117 2.65 71,353 0.35
Other deposits 1 0.00 451,008 3.38
Time deposits less than $250,000 8,052 0.60 10,699 0.84
Time deposits $250,000 and over 4,065 2.49 5,586 3.14
Total deposits $ 4,383,446 2.56 % $ 3,710,168 3.08 %
(1)Annualized calculations shown for periods presented.
The ratio of average noninterest bearing deposits to average total deposits for the three months ended March 31, 2026 was 13.4% compared to 14.7% three months ended March 31, 2025.
Uninsured Deposits
The FDIC insures our deposits up to $250,000 per depositor, per insured bank for each account ownership category. Deposits that exceed insurance limits are uninsured. At March 31, 2026, deposits totaled $5.04 billion, of which total estimated uninsured deposits were $1.77 billion, or 35.1% of total deposits, compared to $641.3 million, or 15.5% of total deposits as of December 31, 2025. The increase in uninsured deposits is largely due to the timing of new partner deposits participating in sweep and reciprocal deposit networks. Management expects uninsured deposits to return to more typical levels in the second quarter of 2026. The Bank is using reciprocal deposits to provide many of our customers with fully insured deposits through an exchange of deposits with other financial institutions.
Estimated uninsured time deposits totaled $1.6 million as of March 31, 2026. The table below shows the estimated uninsured time deposits, by account, for the maturity periods indicated:
(dollars in thousands; unaudited) As of March 31, 2026
Maturity Period:
Three months or less $ 104
Over three through six months -
Over six through twelve months 1,235
Over twelve months 236
Total $ 1,575
Borrowings
We have the ability to utilize short-term to long-term borrowings to supplement deposits to fund our lending and investment activities, each of which is discussed below.
Federal Reserve Bank Line of Credit. The Federal Reserve allows us to borrow against our line of credit through a borrower in custody agreement utilizing the discount window, which is collateralized by certain loans. As of March 31, 2026 and 2025, total borrowing capacity of $417.0 million and $475.5 million, respectively, was available under this arrangement. As of March 31, 2026 and 2025, Federal Reserve advances totaled zero.
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Federal Home Loan Bank Advances. The FHLB allows us to borrow against our line of credit, which is collateralized by certain loans. As of March 31, 2026 and 2025, we had borrowing capacity of $219.6 million and $186.8 million, respectively, with the FHLB. As of March 31, 2026 and 2025, FHLB advances totaled zero.
Junior Subordinated Debentures. In 2004, we issued $3.6 million in junior subordinated debentures to Coastal (WA) Statutory Trust I (the "Trust"), of which we own all of the outstanding common securities. The Trust used the proceeds from the issuance of its underlying common securities and preferred securities to purchase the debentures issued by the Company. These debentures are the Trust's only assets and the interest payments from the debentures finance the distributions paid on the preferred securities. Prior to June 30, 2023, the debentures bore interest at a rate per annum equal to the three-month LIBOR plus 2.10%. Beginning with rate adjustments subsequent to June 30, 2023, the rate is based off three-month CME Term SOFR plus a spread adjustment of 0.26% and margin of 2.10%. The effective rate as of March 31, 2026 and December 31, 2025 was 6.04% and 6.08%, respectively. We generally have the right to defer payment of interest on the debentures at any time or from time to time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the debentures. During any such extension period, distributions on the Trust's preferred securities will also be deferred, and our ability to pay dividends on our common stock will be restricted. The Trust's preferred securities are mandatorily redeemable upon maturity of the debentures, or upon earlier redemption as provided in the indenture, subject to Federal Reserve approval. If the debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest. We unconditionally guarantee payment of accrued and unpaid distributions required to be paid on the Trust securities subject to certain exceptions, the redemption price with respect to any Trust securities called for redemption and amounts due if the Trust is liquidated or terminated.
Subordinated Debt. In August 2021, the Company issued a subordinated note in the amount of $25.0 million. The note matures on September 1, 2031, and bears interest at the rate of 3.375% per year for five years and, thereafter, reprices quarterly beginning September 1, 2026, at a rate equal to the three-month SOFR plus 2.76%. The five-year 3.375% interest period ends on September 1, 2026. We may redeem the subordinated note, in whole or in part, without premium or penalty, in principal redemption multiples of $1,000, after August 18, 2026, subject to any required regulatory approvals. Proceeds were used to repay $10.0 million in existing 5.65% interest subordinated debt on August 9, 2021 and $11.5 million was contributed to the Bank as capital during the quarter ended September 30, 2021.
In November 2022, the Company issued subordinated notes in the aggregate amount of $20.0 million. The notes mature on November 1, 2032, and bear interest at the rate of 7.00% per year for five years and, thereafter, reprices quarterly beginning November 1, 2027, at a rate equal to the three-month SOFR plus 2.9%. The five-year 7.00% interest period ends on November 1, 2027. We may redeem the subordinated notes, in whole or in part, without premium or penalty, in principal redemption multiples of $1,000, after November 1, 2027, subject to any required regulatory approvals.
Other Liabilities
Deferred tax liability, net increased to $803,000 as of March 31, 2026, largely due to the impact of the OBBBA, which permits the immediate expense of R&D costs for tax purposes.
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Liquidity and Capital Resources
Liquidity Management
Liquidity refers to our capacity to meet our cash obligations at a reasonable cost. Our cash obligations require us to have cash flow that is adequate to fund loan growth and maintain on-balance sheet liquidity while meeting present and future obligations of deposit withdrawals, borrowing maturities and other contractual cash obligations. In managing our cash flows, management regularly confronts situations that can give rise to increased liquidity risk. These include funding mismatches, market constraints in accessing sources of funds and the ability to convert assets into cash. Changes in economic conditions or exposure to credit, market, and operational, legal and reputational risks also could affect the Bank's liquidity risk profile and are considered in the assessment of liquidity management. Deposits obtained through our CCBX segment are a significant source of liquidity for us. If a relationship with a large CCBX partner terminates, the exit of those deposits could have an adverse impact on liquidity. Partner program agreements govern the relationship and are valid for a given period of time. Prior to exiting, the partner would need to provide us adequate notice as stipulated in the agreement that they were not going to renew the program agreement and intend to move the deposits. The movement to an alternate BaaS provider is cumbersome and would be over a period of time, which would allow us the opportunity to put alternate liquidity in place; those options are more fully discussed below. As of March 31, 2026, we had three partners with deposits that together represent 48.2% of total deposits. Management expects these partner balances to decline during the second quarter of 2026 and then normalize.
We continually monitor our liquidity position to ensure that our assets and liabilities are managed in a manner to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands. Management has established a comprehensive process for identifying, measuring, monitoring and controlling liquidity risk. Because of its critical importance to the viability of the Bank, liquidity risk management is fully integrated into our risk management processes. Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the board of directors and active involvement by management; appropriate strategies, policies, procedures, and limits used to manage and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems that are commensurate with the complexity of our business activities; active management of intraday liquidity and collateral; an appropriately diverse mix of existing and potential future funding sources; adequate levels of readily available cash, deposits and highly liquid marketable securities free of legal, regulatory, or operational impediments, that can be used to meet liquidity needs in stressful situations; contingency funding policies and plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the Bank's liquidity risk management process. Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.
Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our liquidity requirements are met primarily through our deposits and the principal and interest payments we receive on loans and investment securities. Cash on hand, cash at third-party banks, investments available-for-sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are routinely available to us include funds from retail, commercial, and BaaS deposits, advances from the FHLB and proceeds from the sale of loans. Less commonly used sources of funding include borrowings from the Federal Reserve discount window, draws on established federal funds lines from unaffiliated commercial banks, funds from online rate services, brokered deposits, a one-way buy through an ICS account, and the issuance of debt or equity securities. We believe we have ample liquidity resources to fund future growth and meet other cash needs as necessary and are closely monitoring liquidity in this uncertain economic environment.
The Company has pledged loans and securities totaling $933.6 million and $939.8 million at March 31, 2026 and December 31, 2025, respectively, for borrowing lines at the FHLB and FRB. The Bank had the ability and capacity to borrow up to $636.6 million from FHLB and the FRB discount window at March 31, 2026. There were no borrowings taken for funding under these facilities during the three months ended March 31, 2026 so the Bank has the maximum borrowing capacity in the event of a liquidity emergency.
The Bank's current liquidity position is supported by liquid assets (cash and investments on the balance sheet), liabilities (capacity to borrow funds the same day) and alternative sources of funds including the capacity to borrow up to $636.6 million from FHLB, the FRB discount window, on a same day basis and a $50.0 million line of credit with a banker's bank. Cash on the balance sheet and borrowing capacity totaled $2.18 billion and represented 43.3% of total deposits and significantly exceeded the $1.77 billion in uninsured deposits as of March 31, 2026. The board of directors and
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management is cognizant of the risk of uninsured deposits and has used fully insured IntraFi Network reciprocal deposits to reduce uninsured deposit. Fully insured IntraFi network reciprocal deposits totaled $462.5 million and $460.3 million at March 31, 2026 and December 31, 2025, respectively. Uninsured deposits totaled $1.77 billion at March 31, 2026 and totaled $641.3 million at December 31, 2025. The increase in uninsured deposits is largely due to the timing of new partner deposits participating in sweep and reciprocal deposit networks. Management expects uninsured deposits to return to more typical levels in the second quarter.
The Company is a corporation separate and apart from our Bank and, therefore, must provide for its own liquidity, including liquidity required to meet its debt service requirements on its subordinated note and junior subordinated debentures. The Company's main source of cash flow has been through equity and debt offerings. The Company has consistently retained a portion of the funds from equity and debt offerings so that is has sufficient funds for its operating and debt costs. During the quarter ended December 31, 2024, the Company completed a public offering of 1,380,000 shares of its common stock at a price to the public of $71.00 per share. Gross proceeds from the offering of $98.0 million, before deducting underwriting discounts and offering expenses, will be used for general corporate purposes, including, without limitation, to support investment opportunities and the Bank's growth. A total of $50.0 million of those proceeds were contributed to the Bank in 2024, and the balance of the amount was retained in cash at the Company level. The Company currently holds $40.2 million in cash for debt servicing and operating purposes. In addition, the Bank can declare and pay dividends to the Company to meet the Company's debt and operating expenses. There are statutory and regulatory limitations that affect the ability of the Bank to pay dividends to the Company. We believe that these limitations will not impact the ability of the Bank to pay dividends to the Company to meet ongoing operating needs.
For contingency purposes, the Company maintains a minimum level of cash to fund one year's projected operating cash flow needs and targets a minimum liquidity ratio of 15%. Both of these minimum liquidity levels are on-balance sheet sources. Per policy and the Bank's liquidity contingency plan, in event of a liquidity emergency the Bank can utilize wholesale funds in an amount up to 30% of assets. Since the Bank uses only a small portion of its borrowing or wholesale funding capacity, the Bank has access to borrow substantial funds and in excess of 15% of deposits if needed in a liquidity emergency.
Capital Adequacy
Capital management consists of providing equity and other instruments that qualify as regulatory capital to support current and future operations. Banking regulators view capital levels as important indicators of an institution's financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital levels relative to the amount and types of assets they hold. We are subject to regulatory capital requirements at the bank level. Because the Company's consolidated assets exceeded $3.0 billion as of September 30, 2022, the Company is no longer eligible for the Federal Reserve's Small Bank Holding Company Policy Statement and is evaluated relative to the capital adequacy standards established by the Federal Reserve.
As of March 31, 2026, and December 31, 2025, the Company and the Bank were in compliance with all applicable regulatory capital requirements, and the Bank was classified as "well capitalized" for purposes of the Federal Reserve's prompt corrective action regulations. As we deploy capital and continue to grow operations, regulatory capital levels may decrease depending on our level of earnings; however, the capital raise completed in December 2024 strengthened our regulatory capital levels. We expect to monitor and control growth in order to remain in compliance with all regulatory capital standards applicable to us. In addition, the Company maintains an effective registration statement on Form S-3 with the Securities and Exchange Commission which allows the Company to raise additional capital in an amount up to $102.0 million. The Company raised $98.0 million in December 2024.
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The following table presents the Company's and the Bank's regulatory capital ratios as of the dates presented, as well as the regulatory capital ratios that are required by Federal Reserve regulations to maintain "well-capitalized" status:
Actual
Minimum Required
for Capital
Adequacy Purposes(1)
Required to be Well
Capitalized
Under the Prompt
Corrective Action
Provisions
(dollars in thousands; unaudited) Amount Ratio Amount Ratio Amount Ratio
March 31, 2026
Tier 1 Leverage Capital
(to average assets)
Company $ 502,823 10.09 % $ 199,333 4.00 % N/A N/A
Bank Only 502,892 10.10 % 199,184 4.00 % 248,980 5.00 %
Common Equity Tier 1 Capital (to risk-weighted assets)
Company 499,323 12.08 % 186,001 4.50 % N/A N/A
Bank Only 502,892 12.19 % 185,678 4.50 % 268,201 6.50 %
Tier 1 Capital (to risk-weighted assets)
Company 502,823 12.17 % 248,001 6.00 % N/A N/A
Bank Only 502,892 12.19 % 247,570 6.00 % 330,094 8.00 %
Total Capital (to risk-weighted assets)
Company 601,036 14.54 % 330,668 8.00 % N/A N/A
Bank Only 556,016 13.48 % 330,094 8.00 % 412,617 10.00 %
December 31, 2025
Tier 1 Leverage Capital
(to average assets)
Company $ 489,918 10.62 % $ 184,550 4.00 % N/A N/A
Bank Only 488,585 10.60 % 184,383 4.00 % 230,478 5.00 %
Common Equity Tier 1 Capital (to risk-weighted assets)
Company 486,418 12.43 % 176,156 4.50 % N/A N/A
Bank Only 488,585 12.50 % 175,886 4.50 % 254,057 6.50 %
Tier 1 Capital (to risk-weighted assets)
Company 489,918 12.52 % 234,875 6.00 % N/A N/A
Bank Only 488,585 12.50 % 234,514 6.00 % 312,685 8.00 %
Total Capital (to risk-weighted assets)
Company 585,410 14.95 % 313,166 8.00 % N/A N/A
Bank Only 539,004 13.79 % 312,685 8.00 % 390,857 10.00 %
(1)Presents the minimum capital adequacy requirements that apply to the Bank (excluding the capital conservation buffer) and the Company. The capital conservation buffer is an additional 2.5% of the amount necessary to meet the minimum risk-based capital requirements for total, tier 1, and common equity tier 1 risk-based capital.
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Material Cash Requirements and Capital Resources
The following table provides the material cash requirements from known contractual and other obligations as of March 31, 2026:
Payments Due by Period
(dollars in thousands; unaudited) Total Less than
1 Year 		Over
1 year 		Other (1)
Cash requirements
Time deposits $ 12,196 $ 9,235 $ 2,961 $ -
Subordinated notes 45,000 - 45,000 -
Junior subordinated debentures 3,609 - 3,609 -
Deferred compensation plans 285 78 207 -
Operating and finance leases 5,128 1,079 4,049 -
Non-maturity deposits 5,028,967 - - 5,028,967
Equity investment commitment 1,035 1,035 - -
(1)Represents the undefined maturity of non-maturing deposits, including noninterest bearing demand deposits, interest bearing demand deposits, money market accounts, savings accounts and brokered deposits, which can generally be withdrawn on demand.
We maintain sufficient cash and cash equivalents and investment securities to meet short-term cash requirements and the levels of these assets are dependent on our operating, investing and financing activities during any given period. Cash on hand, cash at third-party banks, investments available-for-sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are routinely available to us include funds from retail, commercial, and BaaS deposits, advances from the FHLB and proceeds from the sale of loans. Less commonly used sources of funding include borrowings from the Federal Reserve discount window, draws on established federal funds lines from unaffiliated commercial banks, funds from online rate services, brokered funds, a one-way buy through an ICS account, and the issuance of debt or equity securities.
In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheet.
Our commitments associated with outstanding commitments to extend credit and standby and commercial letters of credit are summarized in the following table. Since commitments associated with commitments to extend credit and letters of credit may expire unused, the amounts shown do not necessarily reflect the actual future cash funding requirements.
As of March 31, 2026 we had $2.59 billion in commitments to extend credit, compared to $2.31 billion as of December 31, 2025. The $278.8 million increase is largely attributed to a $188.7 million increase in credit cards, related to CCBX loans, a $29.2 million increase in residential real estate commitments, related to CCBX loans, a decrease of $2.0 million in consumer and other loan commitments, related to CCBX consumer loans, and a $10.9 million increase in commercial construction loans, partially offset by a $54.7 million increase in commercial and industrial capital call line commitments.
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The following table presents commitments associated with outstanding commitments to extend credit, standby and commercial letters of credit and equity investment commitments as of the periods indicated:
(dollars in thousands; unaudited) As of March 31, 2026 As of December 31, 2025
Commitments to extend credit:
Commercial and industrial loans $ 99,434 $ 90,281
Commercial and industrial loans - capital call lines 573,832 519,135
Construction - commercial real estate loans 47,691 58,562
Construction - residential real estate loans 42,321 39,676
Residential real estate loans 713,679 684,485
Commercial real estate loans 35,418 28,108
Credit cards 1,008,183 819,495
Consumer and other loans 66,323 68,302
Total commitments to extend credit $ 2,586,881 $ 2,308,044
Standby letters of credit $ 2,224 $ 1,042
Equity investment commitment $ 1,035 $ 1,125
We have portfolio limits with each of our partners to manage loan concentration risk, liquidity risk and counter-party partner risk. For example, as of March 31, 2026, capital call lines outstanding balance totaled $176.4 million, and while commitments totaled $573.8 million the commitments are cancelable, and are also limited to a maximum of $350.0 million by agreement with the partner. These limits allow us to manage portfolio concentrations with partners and by loan type.
The following table shows the CCBX maximum portfolio sizes by loan category as of March 31, 2026.
As of March 31, 2026 As of December 31, 2025
(dollars in thousands; unaudited) Type of Lending Maximum Portfolio Size Increase/(decrease)
Commercial and industrial loans:
Capital call lines Business - Venture Capital $ 350,000 $ 350,000 $ -
All other commercial & industrial
loans
Business - Small Business 512,975 515,589 (2,614)
Real estate loans:
Home equity lines of credit Home Equity - Secured Credit Cards 450,000 400,000 50,000
Consumer and other loans:
Credit cards Credit Cards - Primarily Consumer 1,125,000 900,000 225,000
Installment loans Consumer 1,962,891 1,740,813 222,078
Other consumer and other loans Consumer - Secured
Credit Builder &
Unsecured consumer 		459,134 478,598 (19,464)
$ 4,860,000 $ 4,385,000 $ 475,000
Total Existing Portfolio Size $ 1,884,124 $ 1,603,577 $ 280,547
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being fully drawn upon, the total commitment amounts disclosed above do not necessarily represent future cash requirements. We evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management's credit evaluation of the customer. As of March 31, 2026, $1.68 billion in commitments
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to extend credit are unconditionally cancelable, compared to $1.42 billion at December 31, 2025. The increase in unconditionally cancelable commitments is attributed to growth and a change in the mix of the CCBX loan portfolio. Commitments that are unconditionally cancelable allow us to better manage loan growth, credit concentrations and liquidity. We also limit CCBX partners to a maximum aggregate customer loan balance originated and held on our balance sheet, as shown in the table above.
Standby and commercial letters of credit are conditional commitments issued by us to guarantee the performance of a customer to a third party. In the event of nonperformance by the customer, we have rights to the underlying collateral, which can include commercial real estate, physical plant and property, inventory, receivables, cash and/or marketable securities. Our credit risk associated with issuing letters of credit is essentially the same as the risk involved in extending loan facilities to our customers.
We believe that we will be able to meet our long-term cash requirements as they come due. Adequate cash levels are generated through profitability, repayments from loans and securities, deposit gathering activity, access to borrowing sources and periodic loan sales.
Critical Accounting Policies
Our accounting policies are integral to understanding our results of operations. Our accounting policies are described in greater detail in "Note 1 - Description of Business and Summary of Significant Accounting Policies" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates and Significant Accounting Policies" of our Form 10-K. We have procedures and processes in place to facilitate making these judgments. Actual results in these areas could differ from management's estimates. There have been no significant changes concerning our critical accounting policies as described in our Form 10-K except as indicated in Note 1 of the condensed consolidated financial statements included elsewhere in this report.
Selected Financial Data
The following table shows the Company's key performance ratios for the periods indicated.
Three Months Ended
(unaudited) March 31,
2026 		December 31,
2025 		September 30,
2025 		June 30,
2025 		March 31,
2025
Return on average assets (1)
0.98 % 1.09 % 1.19 % 0.99 % 0.93 %
Return on average equity (1)
9.80 % 10.41 % 11.52 % 9.72 % 8.91 %
Yield on earnings assets (1)
9.38 % 9.55 % 9.80 % 9.92 % 10.32 %
Yield on loans receivable (1)
10.76 % 10.63 % 10.95 % 11.11 % 11.33 %
Cost of funds (1)
2.59 % 2.77 % 3.07 % 3.13 % 3.11 %
Cost of deposits (1)
2.56 % 2.74 % 3.04 % 3.10 % 3.08 %
Net interest margin (1)
7.00 % 7.03 % 7.00 % 7.06 % 7.48 %
Noninterest expense to average assets (1)
6.78 % 6.25 % 6.13 % 6.52 % 6.87 %
Noninterest income to average assets (1)
5.37 % 5.04 % 5.83 % 3.82 % 6.06 %
Efficiency ratio 55.85 % 52.75 % 48.50 % 60.98 % 51.59 %
Loans receivable to deposits (2)
79.02 % 92.20 % 94.32 % 92.01 % 93.89 %
(1)Annualized calculations shown for periods presented.
(2)Including loans held for sale.
The volatility in the efficiency ratio and noninterest income to average asset performance metrics was driven by a higher-quality CCBX loan-mix from a credit quality perspective, which effectively reduced the credit enhancement required within non-interest income due to lower net-charge off activity as a percent of total loans which lowered our provision expense. These items have a neutral impact to net income although impacted the quarter-to-quarter metrics due to lower reported noninterest income.
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CCBX - BaaS Reporting Information
During the three months ended March 31, 2026 and 2025, $50.7 million and $53.6 million, respectively, were recognized in noninterest income BaaS credit enhancements related to the establishment of a credit enhancement asset for credit losses indemnified by our strategic partners and reserved for unfunded commitments for CCBX partner loans and deposits. Agreements with our CCBX partners provide for a credit enhancement provided by the partner which protects the Bank by indemnifying or reimbursing incurred losses. In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans, unfunded commitments 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. CCBX partners bear most of the responsibility for credit and fraud losses incurred which consequently gives them a vested interest in the performance of the portfolio. We believe that this alignment of interests ensures that CCBX partners are motivated to implement robust risk management practices and maintain the overall health of the portfolio.
Many CCBX partners also pledge a cash reserve account at the Bank, which the Bank can collect from when losses occur that is then replenished by the partner on a regular interval. Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses, if our partner is unable to fulfill their contractual obligation and if the cash flows on the loans were not sufficient to fund the reimbursement of loan losses, then the Bank would be exposed to additional loan and deposit losses as a result of this counterparty risk. If a CCBX partner does not replenish their cash reserve account, the Bank may consider an alternative plan for funding the cash reserve. This may involve the possibility of adjusting the funding amounts or timelines to better align with the partner's specific situation. If a mutually agreeable funding plan is not agreed to, the Bank could declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. In the event of a partner default, the Bank would evaluate any remaining credit enhancement asset associated with that partner to determine whether a write-off is appropriate. If a write-off occurs, the Bank would stop payments to the CCBX partner and retain the full yield and any fee income on the loan portfolio going forward, decreasing our BaaS loan expense.
For CCBX loans the Bank records contractual interest earned from the borrower on loans in interest income, adjusted for origination costs which are paid or payable to the CCBX partner. BaaS loan expense represents the amount paid or payable to partners for credit and fraud enhancements and servicing CCBX loans. To determine net BaaS loan income earned from CCBX loan relationships, the Bank takes BaaS loan interest income and deducts BaaS loan expense to arrive at net BaaS loan income which can then be compared to interest income on the Company's community bank loans.
The following table illustrates how CCBX partner loan income and expenses are recorded in the financial statements:
Loan income and related loan expense Three Months Ended
(dollars in thousands; unaudited) March 31,
2026 		March 31,
2025
BaaS loan interest income $ 71,153 $ 67,855
Less: BaaS loan expense 36,940 32,507
Net BaaS loan income (2)
34,213 35,348
Net BaaS loan income divided by average BaaS loans (1)(2)
7.22 % 8.79 %
Yield on loans (1)
15.01 % 16.88 %
(1)Annualized calculations shown for periods presented.
(2)A reconciliation of this non-GAAP measure is set forth in the section titled "GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures."
The increased activity of CCBX partners has resulted in increases in program fees and interest for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The following tables are a summary of the direct
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fees, expenses and interest components of BaaS for the periods indicated and are not inclusive of all income and expense related to BaaS.
Interest income Three Months Ended
(dollars in thousands; unaudited) March 31,
2026 		March 31,
2025
BaaS loan interest income $ 71,153 $ 67,855
Total BaaS loan interest income $ 71,153 $ 67,855
Interest expense Three Months Ended
(dollars in thousands; unaudited) March 31,
2026 		March 31,
2025
BaaS interest expense $ 22,099 $ 21,581
Total BaaS interest expense $ 22,099 $ 21,581
Three Months Ended
(dollars in thousands; unaudited) March 31,
2026 		March 31,
2025
BaaS program income:
Servicing and other BaaS fees $ 2,623 $ 1,419
Transaction and interchange fees 5,873 3,833
Reimbursement of expenses 2,392 1,026
Total BaaS program income 10,888 6,278
BaaS indemnification income:
BaaS credit enhancements 50,744 53,648
BaaS fraud enhancements 3,059 1,993
BaaS indemnification income 53,803 55,641
Total noninterest BaaS income $ 64,691 $ 61,919
Servicing and other BaaS fees increased $1,204,000 for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, while transaction and interchange fees increased $2.0 million for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. We expect servicing and other BaaS fees to decrease and transaction and interchange fees to increase as partner activity grows and contracted minimum fees are replaced with recurring fees, which exceed those minimum fees. Additionally, we expect reimbursement of expenses to increase as we continue to bill partners for incurred expenses.
Three Months Ended
(dollars in thousands; unaudited) March 31,
2026 		March 31,
2025
BaaS loan and fraud expense:
BaaS loan expense $ 36,940 $ 32,507
BaaS fraud expense 3,059 1,993
Total BaaS loan and fraud expense $ 39,999 $ 34,500
GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company's operational performance and to enhance investors' overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.
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The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense on net loan income and yield on CCBX loans.
Net BaaS loan income divided by average CCBX loans is a non-GAAP measure that includes the impact BaaS loan expense on net BaaS loan income and the yield on CCBX loans. The most directly comparable GAAP measure is yield on CCBX loans.
The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense on net interest income and net interest margin.
Net interest income net of BaaS loan expense is a non-GAAP measure that includes the impact BaaS loan expense on net interest income. The most directly comparable GAAP measure is net interest income.
Net interest margin, net of BaaS loan expense is a non-GAAP measure that includes the impact of BaaS loan expense on net interest rate margin. The most directly comparable GAAP measure is net interest margin.
Reconciliations of the GAAP and non-GAAP measures are presented in the following table.
As of and for the Three Months Ended
(dollars in thousands; unaudited) March 31,
2026 		March 31,
2025
Net BaaS loan income divided by average CCBX loans:
CCBX loan yield (GAAP)(1)
15.01 % 16.88 %
Total average CCBX loans receivable $ 1,922,586 $ 1,630,088
Interest and earned fee income on CCBX loans (GAAP) 71,153 67,855
BaaS loan expense (36,940) (32,507)
Net BaaS loan income $ 34,213 $ 35,348
Net BaaS loan income divided by average CCBX loans (1)
7.22 % 8.79 %
CCBX net interest margin, net of BaaS loan expense:
CCBX net interest margin (1)
8.19 % 9.72 %
CCBX earning assets 2,831,286 2,184,869
Net interest income (GAAP) 57,210 52,359
Less: BaaS loan expense (36,940) (32,507)
Net interest income, net of BaaS
loan expense
$ 20,270 $ 19,852
CCBX net interest margin, net of BaaS loan expense (1)
2.90 % 3.68 %
(1) Annualized calculations for periods presented.
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Coastal Financial Corp. published this content on May 08, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 08, 2026 at 13:25 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]