Coastal Financial Corp: Form 10-Q for the period ended Jun 30, 2024

Filed with the SEC on Aug 8, 2024 and accepted by EDGAR at Aug 7, 2024, 20:46 ET.

Share this page

Link

Story card, 1080 × 1920

Management's discussion and analysis

As filed, 200,990 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.

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 our broker-dealer and digital financial service partners to offer their customers banking services. The CCBX segment has 21 partners as of June 30, 2024. The treasury & administration segment includes investments, debt and other reporting items that are not specific to the community bank or CCBX segments. The Bank’s deposits are insured in whole or in part by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is subject to regulation by the Federal Reserve and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has supervisory authority over the Company.

As of June 30, 2024, we had total assets of $3.96 billion, total loans receivable of $3.33 billion, total deposits of $3.54 billion and total shareholders’ equity of $316.7 million.

The following discussion and analysis presents our financial condition and results of operations on a consolidated basis. However, because we conduct all of our material business operations through the Bank, the discussion and analysis relate to activities primarily conducted by the Bank.

We generate most of our community bank revenue from interest on loans and CCBX revenue from BaaS fee income and interest on loans. Our primary source of funding for our loans is commercial and retail deposits from our customer relationships and from our partner deposit relationships. We place secondary reliance on wholesale funding, primarily borrowings from the Federal Home Loan Bank (“FHLB”). Less commonly used sources of funding include borrowings from the Federal Reserve System (“Federal Reserve”) discount window, draws on established federal funds lines from unaffiliated commercial banks, brokered funds, which allows us to obtain deposits from sources that do not have a relationship with the Bank and can be obtained through certificate of deposit listing services, via the internet or through other advertising methods, or a one-way buy through an insured cash sweep (“ICS”) account, which allows us to obtain funds from other institutions that have deposited funds through ICS. Our largest expenses are provision for credit losses - loans, BaaS loan expense, BaaS fraud expense, salaries and employee benefits, interest on deposits and borrowings, legal and professional expenses and data processing. Our principal lending products are commercial real estate loans, consumer loans, residential real estate, commercial and industrial loans and construction, land and land development loans.

Brokered Deposits Rulemaking

On July 30, 2024, the Board of Directors of the FDIC approved a proposed rule that would amend the FDIC’s regulations governing the classification and treatment of brokered deposits. The proposal would, among other changes, broaden the definition of deposit broker to include agents that place or facilitate the placement of third-party deposits at only one insured depository institution and narrow the exception to the definition of deposit broker for agents whose primary purpose is not the placement of funds with depository institutions. While the Company is evaluating the potential impact of the proposed rule, if the rule is finalized as proposed, the Bank may be required to classify a greater amount of its deposits obtained with the involvement of third parties, such as CCBX partners, as brokered deposits. An increase in the amount of brokered deposits on the Bank’s balance sheet could, among other consequences, increase the Bank’s deposit insurance assessment costs.

Third-Party Deposit Arrangements Guidance

On July 25, 2024, the Federal Reserve, FDIC, and Office of the Comptroller of the Currency released a joint statement discussing potential risks related to arrangements between banks and third parties to deliver bank deposit products and services to end users, as well as examples of effective practices for the management of those risks. Additionally, the agencies issued a request for information and comment on the nature of banks’ relationships with financial technology companies and effective risk management practices for those relationships. The agencies also indicated that they are considering whether additional steps, such as enhancements to supervisory guidance, could help ensure that banks effectively manage risks associated with these various types of arrangements.

Financial Indicators

Below are a select number of financial highlights from our second quarter.

Net income of $11.6 million, or $0.84 per diluted common share, for the three months ended June 30, 2024.
Net interest margin increased to 7.13% for the quarter ended June 30, 2024.
Total loans, net of deferred fees increased $126.9 million, or 4.0%, to $3.33 billion for the quarter ended June 30, 2024
Community bank loans increased $28.8 million, or 1.5%, to $1.91 billion.
CCBX loans increased $98.1 million, or 7.4%, to $1.41 billion.
Enhanced credit standards on new CCBX loan originations.
Effective April 1, 2024, exposure was reduced from 10% to 5% on a CCBX portfolio that the Company is responsible for losses on.
Total of $155.2 million in CCBX loans sold back to partners during the quarter ended June 30, 2024 as management continued to sell loans as part of our strategy to reduce risk, optimize the CCBX loan portfolio, maintain strong credit quality, and manage portfolio and partner limits.
Deposits increased $80.5 million, or 2.3%, to $3.54 billion as of June 30, 2024 compared to $3.46 billion as of March 31, 2024.
CCBX deposit growth of $27.5 million, or 1.4%, to $2.06 billion.
CCBX deposit growth is net of an additional $117.7 million in CCBX deposits that were transferred off balance sheet to provide increased Federal Deposit Insurance Corporation ("FDIC") insurance coverage purposes, compared to $92.2 million for the quarter ended March 31, 2024. Amounts in excess of FDIC insurance coverage are transferred, using a third party facilitator/vendor sweep product, to participating financial institutions.
Community bank deposits increased $52.9 million, or 3.7%, to $1.49 billion after 2 quarters of declining balances.
Includes noninterest bearing deposits of $531.6 million or 35.7% of total community bank deposits.
Community bank cost of deposits was 1.77%.
Uninsured deposits of $532.9 million, or 15.0% of total deposits as of June 30, 2024, compared to $495.6 million, or 14.3% of total deposits as of March 31, 2024.
Liquidity/Borrowings as of June 30, 2024:
Capacity to borrow up to $650.1 million from Federal Home Loan Bank and the Federal Reserve Bank discount window with no borrowings taken under these facilities during the quarter or six months ended June 30, 2024 and only minimal borrowings, taken to test the lines, under these facilities since the first quarter of 2022.
Cost of deposits of 3.58% for the quarter ended June 30, 2024.

Deposits increased $80.5 million, or 2.3% to $3.54 billion as of June 30, 2024 compared to $3.46 billion as of March 31, 2024. Fully insured IntraFi network reciprocal deposits increased $15.5 million to $352.3 million as of June 30, 2024, compared to $336.8 million as of March 31, 2024. These fully insured sweep deposits allow the Bank to fully insure their larger customer deposits through a sweep and exchange of deposits with other financial institutions. Total loans, net of deferred fees increased $126.9 million, or 4.0%, during the three months ended June 30, 2024 to $3.33 billion, compared to $3.20 billion at March 31, 2024. Community bank loans increased $28.8 million, or 1.5%, and CCBX loans increased $98.1 million, or 7.4%. CCBX loan growth is net of $155.2 million in CCBX loans sold during the quarter ended June 30, 2024. We continue to monitor and manage the CCBX loan portfolio, and will continue to sell CCBX loans in the coming months as we work to reduce risk, optimize the CCBX loan portfolio, maintain strong credit quality, and manage portfolio and partner limits. At the same time we will be focused on increasing our efficiency and using technology to reduce future expense growth. Our liquidity position is supported by diligent management of our liquid assets and liabilities as well as maintaining access to alternative sources of funds. As of June 30, 2024 we had $487.2 million in cash on the balance sheet and the capacity to borrow up to $650.1 million from Federal Home Loan Bank and the Federal Reserve Bank discount window. We did not draw down on either facility at any point in the six months ending June 30, 2024. Cash on the balance sheet and borrowing capacity total $1.14 billion and represented 32.1% of total deposits and exceeded our $532.9 million in uninsured deposits as of June 30, 2024. Our AFS securities portfolio of $39,000 has a weighted average remaining maturity of just 2.7 years. Unrealized losses on the AFS securities portfolio were $2,000, or 0.001%, of shareholders' equity as of June 30, 2024.

As we continue to focus on our BaaS business, we intend to concentrate on working with larger partners and optimizing our CCBX loan portfolio so we can grow and advance our presence in the BaaS space. Our strategy for new CCBX partnerships is to focus on larger, more established partners, including national and publicly-traded companies with experienced management teams, existing customer bases and strong financial positions. This strategy will likely yield fewer, but larger, CCBX partnerships moving forward. We are being more intentional in our selection of products and partnerships that best serve our customers and shareholders in order to achieve our long term profitability objectives. We anticipate continuing to look for opportunities to grow our Company and will focus on the long term, holding down deposits costs when possible and managing expense through efficient use of technology. We launched two new lending products through our CCBX segment in the first quarter of 2024 that can reach wide, established customer bases. One was a point-of-sale installment loan program. These loans are fully disclosed and offered as standard credit products, which we believe will minimize the concerns raised with respect to more typical point of sale "Buy Now Pay Later" offerings. The second product was a new credit card that will be marketed to CCBX partner customers who satisfy heightened underwriting standards.

Results of Operations

Net Income

Comparison of the quarter ended June 30, 2024 to the comparable quarter in the prior year

Net income for the three months ended June 30, 2024 was $11.6 million, or $0.84 per diluted share, compared to $12.9 million, or $0.95 per diluted share, for the three months ended June 30, 2023. The decrease in net income over the comparable period in the prior year was primarily attributable to a $9.9 million increase in interest expense due to an increase in average interest bearing deposits and an increase of in cost of deposits as a result of higher interest rates, an increase in the provision for credit losses - loans of $10.1 million, related to CCBX loan growth, and $6.9 million more in noninterest expense, also largely related to CCBX loan growth, increases in salary expense and professional fees. These increases in expense were partially offset by a $13.8 million increase in interest income and $11.3 million increase in noninterest income. The increase in noninterest income, provision expense and noninterest expense are all largely related to increased CCBX loan and deposit activity. In accordance with GAAP, we recognize as revenue (1) the right to be indemnified or reimbursed for fraud losses on CCBX customer loans and deposits and (2) the right to be indemnified for credit losses by our partners for expected credit losses related to loans they originate and unfunded commitments from such loans. CCBX customer credit losses are recognized in the allowance for credit loss and fraud loss is recognized in BaaS noninterest expense. For more information on the accounting for BaaS allowance for credit losses, reserve for unfunded commitments, credit enhancements and fraud enhancements see the section titled “CCBX – BaaS Reporting Information.”

Comparison of the six months ended June 30, 2024 to the comparable period in the prior year

Net income for the six months ended June 30, 2024 was $18.4 million, or $1.34 per diluted share, compared to $25.3 million, or $1.86 per diluted share, for the six months ended June 30, 2023. The decrease in net income over the comparable period in the prior year was primarily attributable to an increase in the provision for credit losses - loans of $49.5 million, related primarily to CCBX loan growth, $23.8 million increase in interest expense and $18.3 million more in noninterest expense. These were partially offset by a $34.2 million increase in interest income and $49.0 million increase in noninterest income. The increase in noninterest income, provision expense and noninterest expense are largely related to CCBX loan and deposit growth. The increase in interest expense is related to higher average interest bearing deposits and an increase in cost of deposits as a result of higher interest rates.

Net Interest Income

Net interest income for the three months ended June 30, 2024 was $66.2 million, compared to $62.4 million for the three months ended June 30, 2023, an increase of $3.9 million, or 6.2%. Yield on loans receivable was 11.23% for the three months ended June 30, 2024, compared to 10.85% for the three months ended June 30, 2023. The increase in net interest income compared to the quarter ended June 30, 2023 was largely related to increased yield on loans from growth in higher yielding loans, primarily from CCBX, and the overall increase in interest rates resulting from the Federal Open Market Committee (“FOMC”) raising rates 0.25% since June 30, 2023 to 5.50%, with the last increase during such period on July 26, 2023. As of June 30, 2023, the FOMC had set the interest rates at 5.25%. The increase in interest rates impacts our existing variable rate loans as well as rates on new loans. Total average loans receivable for the three months ended June 30, 2024 was $3.26 billion, compared to $2.97 billion for the three months ended June 30, 2023.

Total interest and fees on loans totaled $90.9 million for the three months ended June 30, 2024 compared to $80.2 million for the three months ended June 30, 2023. The $10.7 million increase in interest and fees on loans for the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023, was largely due to increased yield on loans from growth in higher yielding loans, primarily from CCBX, combined with the overall increase in interest rates. After several quarters of selling loans with higher credit risk, interest and fees on loans have increased as volume increased. Total loans receivable was $3.33 billion at June 30, 2024, compared to $3.01 billion at June 30, 2023. CCBX average loans receivable was $1.36 billion for the quarter ended June 30, 2024, compared to $1.27 billion for the quarter ended June 30, 2023, an increase of $92.9 million, or 7.3%. Average CCBX yield of 17.77% was earned on CCBX loans for the quarter ended June 30, 2024, compared to 16.95% for the quarter ended June 30, 2023. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield. Also impacting the increase in loan interest is the increase in interest rates on variable rate loans resulting from the continued high interest rate environment. The FOMC has increased interest rates from 5.25% as of June 30, 2023 to 5.50% as of June 30, 2024. We continue to monitor the impact of these increases in interest rates.

Interest income from interest earning deposits with other banks was $5.7 million for the quarter ended June 30, 2024, an increase of $3.0 million, or 112.2%, due to an increase in balances and higher interest rates, compared to the quarter ended June 30, 2023. The average balance of interest earning deposits invested with other banks for the three months ended June 30, 2024 was $418.2 million, compared to $211.4 million for the three months ended June 30, 2023. The yield on these interest earning deposits with other banks increased 0.38%, to 5.47% compared to 5.08% at June 30, 2023. Interest income on investment securities increased $33,000 to $686,000 at June 30, 2024, compared to $653,000 at June 30, 2023. Average investment securities decreased $60.5 million from $110.3 million for the three months ended June 30, 2023, to $49.8 million for the three months ended June 30, 2024 as a result of $100.0 million in AFS U.S. Treasury securities that matured near the end of the quarter ended March 31, 2024, partially offset by an increase of $39.7 million in held-to-maturity ("HTM") securities due to purchasing additional U.S. Agency mortgage backed securities for CRA purposes. Average yield on investment securities increased to 5.55% for the three months ended June 30, 2024, compared to 2.37% for the three months ended June 30, 2023.

Interest expense was $31.3 million for the quarter ended June 30, 2024, a $9.9 million increase from the quarter ended June 30, 2023. Interest expense on deposits was $30.6 million for the quarter ended June 30, 2024, compared to $20.7 million for the quarter ended June 30, 2023. The $9.9 million increase in interest expense on deposits was due to an increase of $527.9 million in interest bearing deposits as well as a 0.74% increase in interest rates on deposit accounts. Interest expense on interest bearing deposits increased compared to the quarter ended June 30, 2023 largely as a result of an increase in higher rate CCBX deposits that are tied to FOMC rate changes. Additionally, we saw an increase in community bank interest rates as a result of exception pricing tactics that were added as a strategy at the end of the first quarter of 2024 to retain and more effectively compete in the market. Interest expense will be impacted by any additional FOMC interest rate changes in future periods. While we continue working to hold down deposit costs, higher short-term interest rates for longer and future interest rate changes will impact our cost of deposits. Interest on borrowed funds was $672,000 for the quarter ended June 30, 2024, compared to $661,000 for the quarter ended June 30, 2023.

Net interest margin was 7.13% for the three months ended June 30, 2024, compared to 7.58% for the three months ended June 30, 2023. The decrease in net interest margin compared to the three months ended June 30, 2023 was largely due to an increase in cost of deposits. Increases in rates on interest bearing deposits by our competitors and the growth in higher cost CCBX deposits contributed to an overall increase in interest expense on interest bearing deposits. Additionally, the actions we took in an effort to strengthen our balance sheet by selling higher risk and higher yielding loans or letting such loans mature during the quarters ended September 30, 2023, December 31, 2023 and March 31, 2024 impacted net interest margin this quarter and we expect it to continue to impact net interest margin in future quarters.

Cost of funds was 3.60% for the quarter ended June 30, 2024, which is an increase of 0.83% from the quarter ended June 30, 2023. Cost of deposits for the quarter ended June 30, 2024 was 3.58%, which was a 0.85% increase, from 2.72% for the quarter ended June 30, 2023. These increases were largely due to an increase in higher cost CCBX deposits and a continued higher interest rate environment compared to June 30, 2023 as the FOMC raised the Fed funds rate 0.25% from June 30, 2023 to June 30, 2024.

Total yield on loans receivable for the quarter ended June 30, 2024 was 11.23%, compared to 10.85% for the quarter ended June 30, 2023. This increase in yield on loans receivable is primarily attributed to an increase in higher rate CCBX and community bank loans compared to June 30, 2023. For the quarter ended June 30, 2024, average CCBX loans increased $92.9 million, or 7.3%, with an average CCBX yield of 17.77%, compared to 16.95% at the quarter ended June 30, 2023. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield. Average community bank loans increased $199.8 million, or 11.8%. Average yield on community bank loans for the three months ended June 30, 2024 was 6.52% compared to 6.28% for the three months ended June 30, 2023.

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:

(unaudited)

	For the Three Months Ended June 30, 2024 Yield on Loans (2)	Cost of Deposits (2)	June 30, 2023 Yield on Loans (2)	Cost of Deposits (2)
Community Bank	6.52%	1.77%	6.28%	0.98%
CCBX(1)	17.77%	4.92%	16.95%	4.42%
Consolidated	11.23%	3.58%	10.85%	2.72%

(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.

(dollars in thousands, unaudited)

	For the Three Months Ended June 30, 2024 Income / Expense	Income / expense divided by average CCBX loans (2)	June 30, 2023 Income / Expense	Income / expense divided by average CCBX loans (2)
BaaS loan interest income	$60,203	17.77%	$53,632	16.95%
Less: BaaS loan expense	29,076	8.58%	22,033	6.96%
Net BaaS loan income (1)	$31,127	9.19%	$31,599	9.98%
Average BaaS Loans(3)	$1,362,343		$1,269,406

(1) A reconciliation of this non-GAAP measure is set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”

(2) Annualized calculations shown for periods presented.

(3) Includes loans held for sale.

For the three months ended June 30, 2024, 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 7.13% and 6.17%, respectively, compared to 7.58% and 6.57%, respectively, for the three months ended June 30, 2023.

The following table presents an analysis of the average balances of net interest income, net interest spread and net interest margin for the periods indicated. Loan costs, net of fees included in interest income totaled $2.3 million and $1.2 million for the three months ended June 30, 2024 and 2023, respectively. For the three months ended June 30, 2024 and 2023, the amount of interest income not recognized on nonaccrual loans was not material.

(dollars in thousands; unaudited)

Assets Interest earning assets:	Average Balance Sheets For the Three Months Ended June 30, 2024 Average Balance	Interest & Dividends	Yield / Cost (1)	2023 Average Balance	Interest & Dividends	Yield / Cost (1)
Interest earning deposits with other banks	$418,165	$5,683	5.47%	$211,369	$2,678	5.08%
Investment securities, available for sale (2)	43	—	3.13	100,278	534	2.14
Investment securities, held to maturity (2)	49,737	686	5.55	10,047	119	4.75
Other investments	10,592	174	6.61	11,773	156	5.31
Loans receivable (3)	3,258,042	90,944	11.23	2,965,287	80,199	10.85
Total interest earning assets	3,736,579	97,487	10.49	3,298,754	83,686	10.18
Noninterest earning assets:
Allowance for credit losses	(138,472)			(87,713)
Other noninterest earning assets	255,205			194,747
Total assets	$3,853,312			$3,405,788
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Interest bearing deposits	$2,854,575	$30,578	4.31%	$2,326,702	$20,675	3.56%
FHLB advances and other borrowings	1,648	3	0.73	—	—	—
Subordinated debt	44,197	598	5.44	44,047	596	5.43
Junior subordinated debentures	3,590	71	7.95	3,589	65	7.26
Total interest bearing liabilities	2,904,010	31,250	4.33	2,374,338	21,336	3.60
Noninterest bearing deposits	584,661			717,256
Other liabilities	58,267			49,085
Total shareholders' equity	306,374			265,109
Total liabilities and shareholders' equity	$3,853,312			$3,405,788
Net interest income		$66,237			$62,350
Interest rate spread			6.17%			6.57%
Net interest margin (4)			7.13%			7.58%

(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.

The following table presents an analysis of certain average balances, interest income and expense by segment:

(dollars in thousands, unaudited)

Community Bank Assets Interest earning assets:	For the Three Months Ended June 30, 2024 Average Balance	Interest & Dividends	Yield / Cost (1)	June 30, 2023 Average Balance	Interest & Dividends	Yield / Cost (1)
Loans receivable (2)	$1,895,699	$30,741	6.52%	$1,695,881	$26,567	6.28%
Total interest earning assets	1,895,699	30,741	6.52	1,695,881	26,567	6.28
Liabilities
Interest bearing liabilities:
Interest bearing deposits	$938,033	$6,459	2.77%	$875,760	$3,663	1.68%
Intrabank liability	429,452	5,836	5.47	196,552	2,490	5.08
Total interest bearing liabilities	1,367,485	12,295	3.62	1,072,312	6,153	2.30
Noninterest bearing deposits	528,214			623,570
Net interest income		$18,446			$20,414
Net interest margin(3)			3.91%			4.83%
CCBX
Assets
Interest earning assets:
Loans receivable (2)(4)	$1,362,343	$60,203	17.77%	$1,269,406	$53,632	16.95%
Intrabank asset	610,646	8,299	5.47	275,222	3,487	5.08
Total interest earning assets	1,972,989	68,502	13.96	1,544,628	57,119	14.83
Liabilities
Interest bearing liabilities:
Interest bearing deposits	$1,916,542	$24,119	5.06%	$1,450,942	$17,012	4.70%
Total interest bearing liabilities	1,916,542	24,119	5.06	1,450,942	17,012	4.70
Noninterest bearing deposits	56,447			93,686
Net interest income		$44,383			$40,107
Net interest margin(3)			9.05%			10.41%
Net interest margin, net of Baas loan expense (5)			3.12%			4.69%

(dollars in thousands, unaudited)

Treasury & Administration Assets Interest earning assets:	For the Three Months Ended June 30, 2024 Average Balance	Interest & Dividends	Yield / Cost (1)	June 30, 2023 Average Balance	Interest & Dividends	Yield / Cost (1)
Interest earning deposits with other banks	$418,165	$5,683	5.47%	$211,369	$2,678	5.08%
Investment securities, available for sale (6)	43	—	3.13	100,278	534	2.14
Investment securities, held to maturity (6)	49,737	686	5.55	10,047	119	4.75
Other investments	10,592	174	6.61	11,773	156	5.31
Total interest earning assets	478,537	6,543	5.50	333,467	3,487	4.19
Liabilities
Interest bearing liabilities:
FHLB advances and borrowings	$1,648	$3	0.73%	—	—	—%
Subordinated debt	44,197	598	5.44	44,047	596	5.43
Junior subordinated debentures	3,590	71	7.95	3,589	65	7.26
Intrabank liability, net (7)	181,194	2,463	5.47	78,670	997	5.08
Total interest bearing liabilities	230,629	3,135	5.47	126,306	1,658	5.27
Net interest income		$3,408			$1,829
Net interest margin(3)			2.86%			2.20%

(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, servicing CCBX loans. A reconciliation of this non-GAAP measure is set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”

(6) For presentation in this table, average balances and the corresponding average rates for investment securities are based upon historical cost, adjusted for amortization of premiums and accretion of discounts.

(7) Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the table above.

The following table presents information regarding the dollar amount of changes in interest income and interest expense for the periods indicated for each major component of interest earning assets and interest bearing liabilities and distinguishes between the changes attributable to changes in volume and changes attributable to changes in interest rates. The table illustrates the $2.8 million increase in loan interest income that is attributed to an increase in loan rates and $7.9 million increase in loan interest income that is attributed to an increase in loan volume. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to volume.

(dollars in thousands; unaudited)

Interest income:	Three months ended June 30, 2024 Compared to Three months ended June 30, 2023 Increase (Decrease) Due to Volume	Rate	Total Increase (Decrease)
Interest earning deposits	$2,803	$202	$3,005
Investment securities, available for sale	(783)	249	(534)
Investment securities, held to maturity	547	20	567
Other Investments	(20)	38	18
Loans receivable	7,945	2,800	10,745
Total increase in interest income	10,492	3,309	13,801
Interest expense:
Interest bearing deposits	5,586	4,317	9,903
FHLB advances and other borrowings	3	—	3
Subordinated debt	—	2	2
Junior subordinated debentures	—	6	6
Total increase in interest expense	5,589	4,325	9,914
Increase in net interest income	$4,903	$(1,016)	$3,887

Comparison of the six months ended June 30, 2024 to the comparable period in the prior year

Net interest income for the six months ended June 30, 2024, was $127.2 million, compared to $116.8 million for the six months ended June 30, 2023, an increase of $10.4 million, or 8.9%. Yield on loans receivable was 11.04% for the six months ended June 30, 2024, compared 10.42% for the six months ended June 30, 2023. The increase in net interest income compared to the six months ended June 30, 2023 was largely related to increased yield on loans from growth in higher yielding loans primarily from CCBX combined with overall higher interest rates. Total average loans receivable for the six months ended June 30, 2024 was $3.20 billion, compared to $2.84 billion for the six months ended June 30, 2023.

Interest and fees on loans totaled $175.6 million for the six months ended June 30, 2024 compared to $146.6 million for the six months ended June 30, 2023. The $29.0 million increase in interest and fees on loans for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was largely due to increased yield on loans from growth in higher yielding CCBX loans and an overall increase in interest rates. CCBX average loans receivable grew to $1.31 billion for the six months ended June 30, 2024, compared to $1.17 billion for the six months ended June 30, 2023, an increase of $146.7 million, or 12.6%. Average CCBX yield of 17.56% was earned on CCBX loans for the six months ended June 30, 2024, compared to 16.56% for the six months ended June 30, 2023. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield. Community bank average loans receivable grew to $1.88 billion for the six months ended June 30, 2024, compared to $1.67 billion for the six months ended June 30, 2023, an increase of $213.5 million, or 12.8%. Average yield of 6.49% was earned on community bank loans for the six months ended June 30, 2024, compared to 6.13% for the six months ended June 30, 2023. Also impacting the increase in loan interest is the increase in interest rates on variable rate loans resulting from the FOMC raising rates from 5.25% as of June 30, 2023 to 5.50% as of June 30, 2024, with the most recent increase during such period on July 26, 2023.

Interest income from interest earning deposits with other banks was $10.5 million for the six months ended June 30, 2024, an increase of $4.7 million due to higher interest rates, combined with an increase in balances, compared to the six months ended June 30, 2023. The average balance of interest earning deposits invested with other banks for the six months ended June 30, 2024 was $384.5 million, compared to $241.4 million for the six months ended June 30, 2023. Additionally, the yield on these interest earning deposits with other banks increased 0.64%, compared to the six months ended June 30, 2023. Interest income on investment securities increased $514,000 to $1.7 million, with a yield of 4.19% at June 30, 2024, compared to $1.2 million, and a yield of 2.29%, at June 30, 2023. Average investment securities decreased $23.7 million from $106.3 million for the six months ended June 30, 2023 to $82.6 million for the six months ended June 30, 2024 as a result of $100.0 million in AFS U.S. Treasury securities that matured on February 29, 2024, partially offset by an increase of $36.6 million in HTM securities resulting from securities purchased for CRA purposes in the second half of 2023.

Interest expense was $60.8 million for the six months ended June 30, 2024, a $23.8 million increase from the six months ended June 30, 2023. Interest expense on deposits was $59.4 million for the six months ended June 30, 2024, compared to $35.6 million for the six months ended June 30, 2023. The $23.8 million increase in interest expense on deposits was due to an increase in average interest bearing deposits of $592.6 million and an increase in interest rates. Interest on borrowed funds was $1.3 million for the six months ended June 30, 2024 and June 30, 2023. The $18,000 increase in interest expense on borrowed funds from the six months ended June 30, 2023 is the result of an increase in interest rates on the junior subordinated debt, which increased 0.76%, to 7.95% for the six months ended June 30, 2024 compared to 7.19% for the six months ended June 30, 2023.

Net interest margin was 6.96% for the six months ended June 30, 2024, compared to 7.37% for the six months ended June 30, 2023. The decrease in net interest margin compared to the six months ended June 30, 2023 was largely a result of an increase of 1.10% for cost of deposits, partially offset by an increase of 0.62% for yield on loans. Interest expense has increased and net interest margin was compressed as a result of the continued higher interest rate environment, requiring us to increase the interest rates on interest bearing deposits to compete with rates offered by our competitors and due to CCBX deposit pricing increasing as a result of interest rates being tied to the Fed Funds rate, which is 0.25% higher than it was at June 30, 2023. Additionally, the sale of higher risk and higher yielding loans during the quarters ended September 2023, December 2023 and March 2024 in an effort to optimize and strengthen the balance sheet impacted net interest margin in the current quarter and will continue to impact future quarters.

Cost of funds was 3.56% for the six months ended June 30, 2024, compared to 2.49% for the six months ended June 30, 2023. Cost of deposits for the six months ended June 30, 2024 was 3.53%, which was a 1.09% increase, from 2.44% for the six months ended June 30, 2023. These increases were largely due to an increase in interest rates and an increase in interest bearing deposits. CCBX deposit growth also contributed to the increase in interest expense.

Total yield on loans receivable for the six months ended June 30, 2024 was 11.04%, compared to 10.42% for the six months ended June 30, 2023. This increase in yield on loans receivable is primarily attributed to an increase in higher rate CCBX loans. For the six months ended June 30, 2024, average CCBX loans increased $146.7 million, or 12.6%, with an average CCBX yield of 17.56%, compared to 16.56% for the six months ended June 30, 2023. CCBX yield does not include the impact of BaaS loan expense. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. The tables later in this section illustrate the impact of BaaS loan expense on CCBX loan yield. In light of our recent efforts to optimize and strengthen the balance sheet by selling higher yield CCBX loans, total yield on loans have and may continue to flatten out as new CCBX loans are replacing higher risk and higher yielding loans that were sold or allowed to mature during the quarters ended September 30, 2023, December 31, 2023 and March 31, 2024. There was an increase in average community bank loans of $213.5 million, or 12.8%, compared to the six months ended June 30, 2023. Average yield on community bank loans for the six months ended June 30, 2024 was 6.49%. compared to 6.13% for the six months ended June 30, 2023.

The following tables show the average yield on loans and cost of deposits by segment and also illustrates the impact of BaaS loan expense on CCBX yield on loans:

(unaudited)

	For the Six Months Ended June 30, 2024 Yield on Loans (2)	Cost of Deposits (2)	June 30, 2023 Yield on Loans (2)	Cost of Deposits (2)
Community Bank	6.49%	1.71%	6.13%	0.82%
CCBX (1)	17.56%	4.92%	16.56%	4.18%
Consolidated	11.04%	3.53%	10.42%	2.44%

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

(2) Annualized calculations shown for periods presented.

(dollars in thousands; unaudited)

	For the Six Months Ended June 30, 2024 Income / Expense	Income / expense divided by average CCBX loans (2)	June 30, 2023 Income / Expense	Income / expense divided by average CCBX loans (2)
BaaS loan interest income	$114,772	17.56%	$95,851	16.56%
Less: BaaS loan expense	53,913	8.25%	39,587	6.84%
Net BaaS loan income (1)	$60,859	9.31%	$56,264	9.72%
Average BaaS Loans(3)	$1,314,099		$1,167,366

(1) A reconciliation of this non-GAAP measure is set forth in the section titled “GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures.”

(2) Annualized calculations shown for periods presented.

(3) Includes loans held for sale.

For the six months ended June 30, 2024, 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 6.96% and 5.98%, respectively, compared to 7.37% and 6.39%, respectively, for the six months ended June 30, 2023.

The following table presents an analysis of the average balances of net interest income, net interest spread and net interest margin for the periods indicated. Loan costs, net of loan fees, included in interest income totaled $4.2 million and $2.3 million for the six months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023, the amount of interest income not recognized on nonaccrual loans was not material.

(dollars in thousands; unaudited)

Assets Interest earning assets:	Average Balance Sheets For the Six Months Ended June 30, 2024 Average Balance	Interest & Dividends	Yield / Cost (1)	2023 Average Balance	Interest & Dividends	Yield / Cost (1)
Interest earning deposits with other banks	$384,517	$10,463	5.47%	$241,368	$5,775	4.82%
Investment securities, available for sale (2)	32,460	349	2.16	100,276	1,069	2.15
Investment securities, held to maturity (2)	50,114	1,371	5.50	6,023	137	4.59
Other investments	10,427	211	4.07	11,206	186	3.35
Loans receivable (3)	3,197,656	175,565	11.04	2,837,442	146,630	10.42
Total interest earning assets	3,675,174	187,959	10.28	3,196,315	153,797	9.70
Noninterest earning assets:
Allowance for credit losses	(126,729)			(84,417)
Other noninterest earning assets	242,321			183,516
Total assets	$3,790,766			$3,295,414
Liabilities and Shareholders’ Equity
Interest bearing liabilities:
Interest bearing deposits	$2,791,729	$59,445	4.28%	$2,199,168	$35,633	3.27%
FHLB advances and other borrowings	827	3	0.73	—	—	—
Subordinated debt	44,178	1,196	5.44	44,028	1,195	5.47
Junior subordinated debentures	3,590	142	7.95	3,588	128	7.19
Total interest bearing liabilities	2,840,324	60,786	4.30	2,246,784	36,956	3.32
Noninterest bearing deposits	590,177			746,436
Other liabilities	58,548			43,299
Total shareholders' equity	301,718			258,895
Total liabilities and shareholders' equity	$3,790,767			$3,295,414
Net interest income		$127,173			$116,841
Interest rate spread			5.98%			6.39%
Net interest margin (4)			6.96%			7.37%

(1) Yields and costs are annualized.

(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.

The following table presents an analysis of certain average balances, interest income and interest expense by segment:

(dollars in thousands; unaudited)

Community Bank Assets Interest earning assets:	For the Six Months Ended June 30, 2024 Average Balance	Interest & Dividends	Yield / Cost (1)	June 30, 2023 Average Balance	Interest & Dividends	Yield / Cost (1)
Loans receivable (2)	$1,883,557	$60,793	6.49%	$1,670,076	$50,779	6.13%
Total interest earning assets	1,883,557	60,793	6.49	1,670,076	50,779	6.13
Liabilities
Interest bearing liabilities:
Interest bearing deposits	$930,186	$12,472	2.70%	$864,518	$6,197	1.45%
Intrabank liability	420,224	11,435	5.47	145,890	3,569	4.93
Total interest bearing liabilities	1,350,410	23,907	3.56	1,010,408	9,766	1.95
Noninterest bearing deposits	533,147			659,668
Net interest income		$36,886			$41,013
Net interest margin(3)			3.94%			4.95%
CCBX
Assets
Interest earning assets:
Loans receivable (2)(4)	$1,314,099	$114,772	17.56%	$1,167,366	$95,851	16.56%
Intrabank asset	604,474	16,450	5.47	254,052	6,139	4.87
Total interest earning assets	1,918,573	131,222	13.75	1,421,418	101,990	14.47
Liabilities
Interest bearing liabilities:
Interest bearing deposits	$1,861,543	$46,973	5.07%	$1,334,650	$29,436	4.45%
Total interest bearing liabilities	1,861,543	46,973	5.07	1,334,650	29,436	4.45
Noninterest bearing deposits	57,030			86,768
Net interest income		$84,249			$72,554
Net interest margin(3)			8.83%			10.29%
Net interest margin, net of Baas loan expense (5)			3.18%			4.68%

Treasury & Administration Assets Interest earning assets:	For the Six Months Ended June 30, 2024 Average Balance	Interest & Dividends	Yield / Cost (1)	June 30, 2023 Average Balance	Interest & Dividends	Yield / Cost (1)
Interest earning deposits with other banks	$384,517	$10,463	5.47%	$241,368	$5,775	4.82%
Investment securities, available for sale (6)	32,460	349	2.16	100,276	1,069	2.15
Investment securities, held to maturity (6)	50,114	1,371	5.50	6,023	137	4.59
Other investments	10,427	211	4.07	11,206	186	3.35
Total interest earning assets	477,518	12,394	5.22%	358,873	7,167	4.03%
Liabilities
Interest bearing liabilities:
FHLB advances and borrowings	$827	$3	0.73%	$—	$—	—%
Subordinated debt	44,178	1,196	5.44	44,028	1,195	5.47
Junior subordinated debentures	3,590	142	7.95	3,588	128	7.19
Intrabank liability, net (7)	184,250	5,015	5.47	108,162	2,570	4.79
Total interest bearing liabilities	232,845	6,356	5.49	155,778	3,893	5.04
Net interest income		$6,038			$3,274
Net interest margin(3)			2.54%			1.84%

(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.

(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.”

(7) Intrabank assets and liabilities are consolidated for period calculations and presented as intrabank asset, net or intrabank liability, net in the table above.

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 $8.8 million increase in loan interest income that is attributed to an increase in loan rates and $20.2 million increase in loan interest income that is attributed to an increase in loan volume. For purposes of this table, changes attributable to both rate and volume that cannot be segregated have been allocated to volume.

(dollars in thousands; unaudited)

Interest income:	Six Months Ended June 30, 2024 compared to Six Months Ended June 30, 2023 Increase (Decrease) Due to Volume	Rate	Total Increase (Decrease)
Interest earning deposits	$3,909	$779	$4,688
Investment securities, available for sale	(726)	6	(720)
Investment securities, held to maturity	1,207	27	1,234
Other Investments	(15)	40	25
Loans receivable	20,161	8,774	28,935
Total increase in interest income	24,536	9,626	34,162
Interest expense:
Interest bearing deposits	12,686	11,126	23,812
FHLB advances	3	—	3
Subordinated debt	7	(6)	1
Junior subordinated debentures	—	14	14
Total increase in interest expense	12,696	11,134	23,830
Increase in net interest income	$11,840	$(1,508)	$10,332

Provision for Credit Losses

The provision for credit losses - loans is an expense we incur to maintain an allowance for credit losses at a level that management deems appropriate to absorb inherent 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 economic environment is continuously changing, due to the pace of economic growth, inflation, higher interest rates, unemployment, global unrest, the war in Ukraine, conflicts in the Middle East, the political environment, upcoming elections in the United States, and trade issues that may impact the provision and therefore the allowance. Gross loans, excluding loans held for sale, totaled $3.33 billion at June 30, 2024. The allowance for credit losses as a percentage of loans was 4.45% at June 30, 2024, compared to 3.68% at June 30, 2023.

The provision for credit losses - loans for the three months ended June 30, 2024 was $61.9 million, compared to $52.6 million for the three months ended June 30, 2023. The increase in the Company’s provision for credit losses - loans during the quarter ended June 30, 2024, is largely related to the provision for CCBX partner loans. During the quarter ended

June 30, 2024, a $62.2 million provision for credit losses - loans was recorded for CCBX partner loans based on management’s analysis. The factors used in management’s analysis for community bank credit losses indicated that a recapture for credit losses - loans of $341,000 was needed for the quarter ended June 30, 2024.

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

(dollars in thousands; unaudited)

	Three Months Ended June 30, 2024	June 30, 2023
Community bank	$(341)	$(47)
CCBX	62,231	52,645
Total provision expense	$61,890	$52,598

Net charge-offs for the quarter ended June 30, 2024 totaled $53.2 million, or 6.57% of total average loans, compared to $31.0 million, or 4.19% of total average loans, for the quarter ended June 30, 2023. Net charge-offs were up in 2024 compared to 2023 due to an increase in loans originated through CCBX partners which have a higher level of expected losses than our community bank loans as reflected in the factors for allowance for credit losses. In accordance with GAAP, CCBX losses are recorded as charge-offs, but CCBX partner agreements provide for a credit enhancement that indemnifies or reimburses the Bank for net-charge-offs on CCBX loans and negative deposit accounts, except in accordance with the program agreement for one partner where, effective April 1, 2024, the Company was responsible for credit losses on approximately 5% of a $353.6 million loan portfolio instead of 10%. At June 30, 2024, our portion of this portfolio represented $17.7 million in loans. For the three months ended June 30, 2024, $53.2 million of net charge-offs were recognized for CCBX loans and $2,000 net recoveries were recognized on community bank loans. For the three months ended June 30, 2023, $31.0 million of net charge-offs were recognized on CCBX loans and $9,000 of net charge-offs were recognized for community bank loans.

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

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

(dollars in thousands; unaudited)

	Three Months Ended June 30, 2024 Community Bank	CCBX	Total	June 30, 2023 Community Bank	CCBX	Total
Gross charge-offs	$2	$55,205	$55,207	$9	$32,290	$32,299
Gross recoveries	(4)	(1,969)	(1,973)	—	(1,340)	(1,340)
Net charge-offs	$(2)	$53,236	$53,234	$9	$30,950	$30,959
Net charge-offs to average loans (1)	0.00%	15.72%	6.57%	0.00%	9.78%	4.19%

(1) Annualized calculations shown for periods presented.

Comparison of the six months ended June 30, 2024 to the comparable period in the prior year

The provision for credit losses - loans for the six months ended June 30, 2024 was $141.4 million, compared to $96.1 million for the six months ended June 30, 2023. The increase in the Company’s provision for credit losses - loans during the quarter ended June 30, 2024, is largely related to the provision for CCBX partner loans due to significant loan growth, a change in the mix of loans and an increase in loan balances with higher loss rates. During the six months ended June 30,

2024, a $141.9 million provision for credit losses - loans was recorded for loans originated through CCBX partners based on management’s analysis. The factors used in management’s analysis for community bank credit losses indicated that a recapture of $540,000 was needed for the six months ended June 30, 2024.

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

(dollars in thousands; unaudited)

	Six Months Ended June 30, 2024	June 30, 2023
Community bank	$(540)	$381
CCBX	141,948	95,761
Total provision expense	$141,408	$96,142

Net charge-offs for the six months ended June 30, 2024 totaled $110.5 million, or 6.95% of total average loans, as compared to net charge-offs of $63.3 million, or 4.50% of total average loans, for the six months ended June 30, 2023. Net charge-offs increased in the first six months of 2024 compared to the same period of 2023 as a result of the growth in loans originated through CCBX partners, which have higher loss rates than community bank loans. In accordance with GAAP, CCBX losses are recorded as charge-offs, but CCBX partner agreements provide for a credit enhancement that indemnifies, and 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 $353.6 million loan portfolio. At June 30, 2024, our portion of this portfolio represented $17.7 million in loans. For the six months ended June 30, 2024, $110.4 million of net charge-offs were recognized for CCBX loans and $9,000 of net charge-offs recognized for community bank loans. For the six months ended June 30, 2023, $63.2 million of net charge-offs were recognized for CCBX and $54,000 of net charge-offs were recognized for community bank loans.

(dollars in thousands; unaudited)

	Six Months Ended June 30, 2024 Community Bank	CCBX	Total	June 30, 2023 Community Bank	CCBX	Total
Gross charge-offs	$17	$114,184	$114,201	$59	$66,407	$66,466
Gross recoveries	(8)	(3,741)	(3,749)	(5)	(3,200)	(3,205)
Net charge-offs	$9	$110,443	$110,452	$54	$63,207	$63,261
Net charge-offs to average loans(1)	0.00%	16.90%	6.95%	0.01%	10.92%	4.50%

(1) Annualized calculations shown for periods presented.

Noninterest Income

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

For the three months ended June 30, 2024, noninterest income totaled $69.9 million, an increase of $11.3 million, or 19.3%, compared to $58.6 million for the three months ended June 30, 2023.

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

(dollars in thousands; unaudited)

	Three Months Ended June 30, 2024	2023	Increase (Decrease)	Percent Change
Deposit service charges and fees	$946	$989	$(43)	(4.3)%
Unrealized gain (loss) on equity securities, net	9	155	(146)	(94.2)
Gain on sales of loans, net	—	23	(23)	(100.0)
Loan referral fees	—	682	(682)	(100.0)
Other	257	234	23	9.8
Noninterest income, excluding BaaS program income and BaaS indemnification income	1,212	2,083	(871)	(41.8)
Servicing and other BaaS fees	1,525	895	630	70.4
Transaction fees	1,309	1,052	257	24.4
Interchange fees	1,625	975	650	66.7
Reimbursement of expenses	1,637	1,026	611	59.6
BaaS program income	6,096	3,948	2,148	54.4
BaaS credit enhancements	60,826	51,027	9,799	19.2
Baas fraud enhancements	1,784	1,537	247	16.1
BaaS indemnification income	62,610	52,564	10,046	19.1
Total BaaS income	68,706	56,512	12,194	21.6
Total noninterest income	$69,918	$58,595	$11,323	19.3%

Comparison of the six months ended June 30, 2024 to the comparable period in the prior year

For the six months ended June 30, 2024, noninterest income totaled $156.9 million, an increase of $49.0 million, or 45.4%, compared to $107.9 million for the six months ended June 30, 2023.

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

(dollars in thousands; unaudited)

	Six Months Ended June 30, 2024	2023	Increase (Decrease)	Percent Change
Deposit service charges and fees	$1,854	$1,899	$(45)	(2.4)%
Loan referral fees	168	682	(514)	(75.4)
Gain on sales of loans, net	—	146	(146)	(100.0)
Unrealized gain (loss) on equity securities, net	24	194	(170)	(87.6)
Other	565	533	32	6.0
Noninterest income, excluding BaaS program income and BaaS indemnification income	2,611	3,454	(843)	(24.4)
Servicing and other BaaS fees	2,656	1,843	813	44.1
Transaction fees	2,431	1,969	462	23.5
Interchange fees	3,164	1,764	1,400	79.4
Reimbursement of expenses	2,670	1,947	723	37.1
BaaS program income	10,921	7,523	3,398	45.2
BaaS credit enhancements	140,634	93,389	47,245	50.6
BaaS fraud enhancements	2,707	3,536	(829)	(23.4)
BaaS indemnification income	143,341	96,925	46,416	47.9
Total BaaS income	154,262	104,448	49,814	47.7
Total noninterest income	$156,873	$107,902	$48,971	45.4%

Summary of significant noninterest income for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023

A description of our largest noninterest income categories are below:

BaaS Income. Our CCBX segment provides BaaS offerings that enable our broker dealer and digital financial service providers to offer their customers banking services. In exchange for providing these services, we earn fixed fees, volume-based fees and reimbursement of costs depending on the program agreement. In accordance with GAAP, we recognize the reimbursement of noncredit fraud losses on loans and deposits originated through partners and credit enhancements related to the allowance for credit losses and reserve for unfunded commitments provided by the partner as revenue in BaaS income. CCBX credit losses are recognized in the allowance for credit losses - loans and fraud losses are expensed in noninterest expense under BaaS fraud expense. Also in accordance with GAAP, we establish a credit enhancement asset for expected future credit losses through the recognition of BaaS credit enhancement revenue at the same time we establish an allowance for those loans though a provision for credit losses - loans. For more information on the accounting for BaaS allowance for credit losses, reserve for unfunded commitments, credit enhancements and fraud enhancements see the section titled “CCBX – BaaS Reporting Information.”

Our CCBX segment continues to evolve, and we now have 21 relationships, at varying stages, as of June 30, 2024. We continue to refine the criteria for CCBX partnerships and are exiting relationships where it makes sense and are focusing on expanding and developing relationships with larger and more established partners, with experienced management teams, existing customer bases and strong financial positions.

The following table illustrates the activity and evolution in CCBX relationships for the periods presented.

(unaudited)

	As of June 30, 2024	June 30, 2023
Active	19	18
Friends and family / testing	1	1
Implementation / onboarding	1	1
Signed letters of intent	0	1
Wind down - active but preparing to exit relationship	0	1
Total CCBX relationships	21	22

Deposit Service Charges and Fees. Deposit service charges and fees include service charges on accounts, point-of-sale fees, merchant services fees and overdraft fees. Together they constitute the largest component of our noninterest income, outside of BaaS income.

Loan Referral Fees. We earn loan referral fees when we originate a variable rate loan and the borrower enters into an interest rate swap agreement with a third party to fix the interest rate for an extended period, usually 20 or 25 years. We recognize a loan referral fee for arranging the interest rate swap. By facilitating interest rate swaps to our clients, we are able to provide them with a long-term, fixed interest rate without the Bank assuming the interest rate risk. Interest rate volatility, swap rates, and the timing of loan closings all impact the demand for long-term fixed rate swaps. The recognition of loan referral fees fluctuates in response to these market conditions and as a result we may recognize more or less, or may not recognize any, loan referral fees in some periods. Current market conditions are making interest rate swap agreements less attractive in the higher rate environment.

Unrealized (loss)/gain on equity securities, net. During the three and six months ended June 30, 2024, we recognized an unrealized gain on equity securities of $9,000 and $24,000 respectively, compared to the same period ended June 30, 2023, when there was an unrealized gain of $155,000 and $194,000 respectively, recognized. We hold $3.0 million in equity securities of entities that are focused on providing products to the BaaS and financial services space.

Gain on Sales of Loans, net. Gain on sales of loans occurs when we sell certain CCBX loans to the originating partner, in accordance with partner agreements. Gain on sale of loans may also occur when we sell in the secondary market the guaranteed portion (generally 75% of the principal balance) of the SBA and U.S. Department of Agriculture (“USDA”) loans that we originate. This activity fluctuates based on SBA and USDA loan activity.

Other. This category includes a variety of other income-producing activities, credit card fee income, wire transfer fees, interest earned on bank owned life insurance (“BOLI”), and SBA and USDA servicing fees.

Noninterest Expense

Generally, noninterest expense is composed of all employee expenses and costs associated with operating our facilities, obtaining and retaining customer relationships and providing bank services. The largest components of noninterest expense are BaaS loan and fraud expense and salaries and employee benefits. Noninterest expense also includes operational expenses, such as legal and professional expenses, data processing and software licenses, occupancy, points of sale expense, FDIC assessment, director and staff expenses, marketing, excise taxes and other expenses.

For the three months ended June 30, 2024, noninterest expense totaled $58.8 million, an increase of $6.9 million, or 13.3%, compared to $51.9 million for the three months ended June 30, 2023. The increase was primarily the result of an increase of $7.0 million in BaaS loan expense. Compared to the three months ended June 30, 2023, there was a $1.2 million decrease in excise taxes due to the recording of $1.2 million refund from the State of Washington as a result of an apportionment study we completed to quantify revenue earned outside of the state of Washington. CCBX income is sourced to the state the partner is headquartered, and the majority of partners are located outside the state of Washington, therefore taxes we paid on CCBX income sourced to other states was in excess of what was actually owed. While we continue to invest in our infrastructure and the automation of our processes so that they are scalable there was also a $1.0 million decrease in legal and professional expenses as some of our risk management infrastructure projects are being completed. Partially offsetting these decreases is a $1.0 million increase in data processing and software licenses due to enhancements in technology and a $696,000 increase in salaries and employee benefits related to hiring staff for CCBX and additional staff for our ongoing growth initiatives.

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

(dollars in thousands; unaudited)

	Three Months Ended June 30, 2024	2023	Increase (Decrease)	Percent Change
Salaries and employee benefits	$17,005	$16,309	$696	4.3%
Legal and professional expenses	3,631	4,645	(1,014)	(21.8)
Data processing and software licenses	2,924	1,972	952	48.3
Occupancy	1,686	1,143	543	47.5
Point of sale expense	852	814	38	4.7
FDIC assessments	690	570	120	21.1
Director and staff expenses	470	519	(49)	(9.4)
Marketing	14	115	(101)	(87.8)
Excise taxes	(706)	531	(1,237)	(233.0)
Other	1,383	1,722	(339)	(19.7)
Noninterest expense, excluding BaaS loan and BaaS fraud expense	27,949	28,340	(391)	(1.4)
BaaS loan expense	29,076	22,033	7,043	32.0
BaaS fraud expense	1,784	1,537	247	16.1
BaaS loan and fraud expense	30,860	23,570	7,290	30.9
Total noninterest expense	$58,809	$51,910	$6,899	13.3%

Comparison of the six months ended June 30, 2024 to the comparable period in the prior year

For the six months ended June 30, 2024, noninterest expense totaled $114.8 million, an increase of $18.2 million, or 18.9%, compared to $96.6 million for the six months ended June 30, 2023.

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

(dollars in thousands; unaudited)

	Six Months Ended June 30, 2024	2023	Increase (Decrease)	Percent Change
Salaries and employee benefits	$34,989	$31,884	$3,105	9.7%
Legal and professional expenses	7,303	7,707	(404)	(5.2)
Data processing and software licenses	5,816	3,812	2,004	52.6
Occupancy	3,204	2,362	842	35.6
Point of sale expense	1,721	1,567	154	9.8
FDIC assessments	1,373	1,165	208	17.9
Director and staff expenses	870	1,145	(275)	(24.0)
Marketing	67	210	(143)	(68.1)
Excise taxes	(386)	986	(1,372)	(139.1)
Other	3,250	2,612	638	24.4
Noninterest expense, excluding BaaS loan and BaaS fraud expense	58,207	53,450	4,757	8.9
BaaS loan expense	53,913	39,587	14,326	36.2
BaaS fraud expense	2,707	3,536	(829)	(23.4)
BaaS loan and fraud expense	56,620	43,123	13,497	31.3
Total noninterest expense	$114,827	$96,573	$18,254	18.9%

Summary of significant noninterest expense for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023

A description of our largest noninterest expense categories are below:

Salaries and Employee Benefits. Salaries and employee benefits are one of the largest components of noninterest expense and include payroll expense, incentive compensation costs, equity compensation, benefit plans, health insurance and payroll taxes. Salaries and employee benefits expense growth has slowed and continues to increase primarily due to hiring staff for our CCBX segment and additional staff for our ongoing growth initiatives. As our CCBX activities grow, and we invest more in technology we expect some continued growth in employees to support these lines of business but we are also working to automate our processes to reduce and/or slow future growth in hiring.

Legal and Professional Expenses. Legal and professional costs include legal, audit and accounting expenses, consulting fees, fees for recruiting and hiring employees, and IT related security expenses. These expenses fluctuate with the consulting costs related to risk management, development of contracts for CCBX customers, audit and accounting needs, and are impacted by our reporting cycle and timing of legal and professional services. The expenses also reflect the costs associated with our infrastructure enhancement projects to improve our processing, automate processes, reduce compliance costs and enhance our data management.

Data Processing and Software Licenses. Data processing and software licenses includes expenses related to obtaining and maintaining software required for our various functions. 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 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.

Occupancy. Occupancy expenses include rent, utilities, janitorial and other maintenance expenses, property insurances and taxes. Also included is depreciation on building, leasehold, furniture, fixtures and equipment. Although our hybrid and remote workforce is increasing, which helps keep some occupancy expenses down, we do expect occupancy expenses to increase as we continue to grow.

Point of Sale Expenses. Point of sale expenses are incurred as part of the process that allows businesses to accept payment for goods or services. Generally, point of sale expense increases as point of sale activity increases, as does point of sale income which is recognized in other income.

FDIC Assessments. FDIC assessments are assessed to fund the Deposit Insurance Fund (“DIF”) to insure and protect the depositors of insured banks and to resolve failed banks. The assessment rate is based on a number of factors and recalculated each quarter. As deposits increase, the FDIC assessment expense will generally increase. On October 18, 2022 the FDIC finalized an increase of 2 basis points in the initial base deposit insurance assessment rates schedules, beginning with the first quarterly assessment period of 2023. The rise is intended to increase the reserve ratio of the Deposit Insurance Fund to 1.35%, the statutory requirement. The increase in the base rates will remain in place until the reserve ratio reaches or exceeds 2.0%. The reserve ratio is 1.17% as of March 31, 2024. The reserve ratio is negatively affected by growth in assets and bank failures.

Director and Staff Expenses. Director and staff expenses includes compensation for director service, continuing education for employees and other director and staff related expenses. Expenses will fluctuate depending upon conferences and other professional events that are attended by employees as well as expenses related to employee travel, and continuing education.

Excise Taxes. Excise taxes are assessed on Washington state income and are based on gross income. Gross income is reduced by certain allowed deductions and income attributed to other states is also removed to arrive at the taxable base. Excise taxes increased as a result of increased income subject to excise taxes. We completed an apportionment study to quantify revenue earned outside the state of Washington that resulted in a $1.2 million refund during the second quarter of 2024. CCBX income is sourced to the state the partner is headquartered, and the majority of partners are located outside the state of Washington, therefore taxes we paid on CCBX income sourced to other states was in excess of what was actually owed.

Marketing. Marketing and promotion costs will vary depending upon the deployment of branding and targeted advertising for the community bank and CCBX. We are using more cost-effective advertising options, but expect costs to increase as we expand our marketing plan.

Other. This category includes dues and memberships, office supplies, mail services, telephone, examination fees, internal loan expenses, services charges from banks, operational losses, directors and officer’s insurance, donations, and miscellaneous other expenses.

BaaS loan and fraud expense. Our CCBX segment provides BaaS offerings that enable our broker dealer and digital financial service providers to offer their customers banking services. Included in BaaS loan and fraud expense is partner loan expense including overdraft balances and BaaS fraud expense. Partner loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements and servicing CCBX loans. BaaS fraud expense represents noncredit fraud losses on loans and deposits originated through partners. Fraud losses are recorded when incurred as losses in noninterest expense, and the reimbursement from the CCBX partner is recorded in noninterest income, resulting in a net impact of zero to the income statement. For 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:

(dollars in thousands; unaudited)

	Three Months Ended June 30, 2024	June 30, 2023	Six Months Ended June 30, 2024	June 30, 2023
BaaS loan expense	$29,076	$22,033	$53,913	$39,587
BaaS fraud expense	1,784	1,537	2,707	3,536
Total BaaS loan and fraud expense	$30,860	$23,570	$56,620	$43,123

Income Tax Expense

The amount of income tax expense we incur is impacted by the amounts of our pre-tax income, tax-exempt income and other nondeductible expenses. Deferred tax assets and liabilities are reflected at current income tax rates in effect for the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are established when necessary to reduce our deferred tax assets to the amount expected to be realized. The Company is subject to various state taxes that are assessed as CCBX activities and employees expand into other states, which increases the overall tax rate used in calculating the provision for income taxes in the current and future periods.

For the three months ended June 30, 2024, income tax expense totaled $3.4 million, compared to $3.9 million for the three months ended June 30, 2023. The $451,000 decrease in income tax expense is the result of lower net income. The effective tax rate was 22.8% for the three months ended June 30, 2024, compared to 23.1% for the three months ended June 30, 2023. The effective tax rate was higher for the three months ended June 30, 2024 due to impact of stock equity award deductions which fluctuates based on activity.

Comparison of the six months ended June 30, 2024 to the comparable period in the prior year

For the six months ended June 30, 2024 income tax expense totaled $5.3 million, compared to $6.9 million for the six months ended June 30, 2023. The $1.6 million decrease in income tax expense is the result of lower net income. Our effective tax rates for the six months ended June 30, 2024 and 2023 were 22.5% and 21.5%, respectively.

Segment Information

Based on the criteria of ASC 280, Segment Reporting, we have identified three segments: the community bank, CCBX and treasury & administration. The primary focus of the community bank is on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application. We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties (one in King County and one in Island County). The CCBX segment provides BaaS that allows our broker-dealer and digital financial service partners to offer their customers banking services. The CCBX segment provides BaaS that allows our broker-dealer and digital financial service partners to offer their customers banking services. The CCBX segment has 21 partners as of June 30, 2024, 19 that are active with two more currently in the testing or implementation stage as of June 30, 2024. The treasury & administration segment includes treasury management, overall administration and all other aspects of the Company.

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

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

(dollars in thousands; unaudited)

Assets	June 30, 2024 Community Bank	CCBX	Treasury & Administration	Consolidated	December 31, 2023 Community Bank	CCBX	Treasury & Administration	Consolidated
Cash and due from banks	$4,743	$8,487	$474,015	$487,245	$4,702	$9,601	$468,825	$483,128
Intrabank asset	—	626,783	(626,783)	—	—	653,178	(653,178)	—
Securities	—	—	49,213	49,213	—	—	150,364	150,364
Total loans receivable	1,912,034	1,414,426	—	3,326,460	1,830,154	1,195,938	—	3,026,092
Allowance for credit losses	(21,045)	(126,869)	—	(147,914)	(21,595)	(95,363)	—	(116,958)
All other assets	29,400	172,350	44,792	246,542	30,169	136,931	43,640	210,740
Total assets	$1,925,132	$2,095,177	$(58,763)	$3,961,546	$1,843,430	$1,900,285	$9,651	$3,753,366
Liabilities
Total deposits	$1,486,943	$2,056,489	$—	$3,543,432	$1,497,601	$1,862,762	$—	$3,360,363
Total borrowings	—	—	47,810	47,810	—	—	47,734	47,734
Intrabank liability	428,629	—	(428,629)	—	338,614	—	(338,614)	—
All other liabilities	9,560	38,688	5,363	53,611	7,215	37,523	5,553	50,291
Total liabilities	$1,925,132	$2,095,177	$(375,456)	$3,644,853	$1,843,430	$1,900,285	$(285,327)	$3,458,388

Community Bank

Community bank total assets as of June 30, 2024 increased $81.7 million, or 4.4%, to $1.93 billion, compared to $1.84 billion as of December 31, 2023. Loans receivable net of deferred fees for the community bank segment increased $81.9 million, or 4.5%, to $1.91 billion as of June 30, 2024, compared to $1.83 billion as of December 31, 2023. The increase in community bank loans receivable is the result of gross loan growth of $82.2 million. Total community bank deposits decreased $10.7 million, or 0.71%, to $1.49 billion, as of June 30, 2024, compared to $1.50 billion as of December 31, 2023. The overall decrease in community bank deposits was a result of pricing disciplines as some customers sought higher rate products elsewhere and we let higher rate deposits run off as they matured. Additional exception pricing tactics were added as a strategy at the end of the first quarter of 2024 to retain deposits and more effectively compete in the market and community bank deposits increased in the second quarter of 2024, compared to the first quarter of 2024. Our cost of deposits for the community bank increased to 1.77% for the three months ended June 30, 2024 partially as a result of such measures.

CCBX

CCBX total assets as of June 30, 2024 increased $194.9 million, or 10.3%, to $2.10 billion, compared to $1.90 billion as of December 31, 2023. During the six months ended June 30, 2024, $255.7 million in CCBX loans were transferred to loans held for sale, with $255.7 million in loans sold and no loans remaining in loans held for sale as of June 30, 2024 and December 31, 2023. The Company sells CCBX loans to manage loan portfolio size by partner and by loan category, with such limits established and documented in the relevant partner agreements. Total CCBX loans receivable increased $218.5 million, or 18.3%, to $1.41 billion as of June 30, 2024, compared to $1.20 billion as of December 31, 2023. The increase in loans receivable is the result of increased activity with CCBX partners. After deliberately reducing our other consumer and other loans portfolio during the third and fourth quarters of 2023 and first quarter of 2024 in an effort to optimize our loan portfolio, we have built back the CCBX portfolio with new loans, subject to enhanced credit standards, with lower potential risk of credit deterioration that are more aligned with our long term objectives. CCBX allowance for credit losses increased to $126.9 million as of June 30, 2024, compared to $95.4 million as of December 31, 2023 as a result of increased loan balances and the mix of loans with increased loss rates which has increased the allowance calculation/requirement. CCBX partner agreements provide for credit enhancements that cover the $114.2 million in gross charge-offs on CCBX loans for the six months ended June 30, 2024. Total CCBX deposits increased $193.7 million, or 10.4%, to $2.06 billion, compared to $1.86 billion as of December 31, 2023 as a result of growth within the CCBX relationships. This does not include an additional $117.7 million in CCBX deposits that were transferred off balance sheet to provide for increased FDIC insurance coverage to certain customers, compared to $69.4 million as of December 31, 2023.

Treasury & Administration

Treasury & administration total assets as of June 30, 2024 decreased $68.4 million, or 708.9%, to $(58.8) million, compared to $9.7 million as of December 31, 2023. Total securities decreased $101.2 million, or 67.3%, to $49.2 million as of June 30, 2024, compared to $150.4 million as of December 31, 2023, as a result of maturing AFS securities. Total borrowings were $47.8 million as of June 30, 2024 and $47.7 million as of December 31, 2023.

The following tables present summary financial information for each segment for the periods indicated:

(dollars in thousands; unaudited)

INTEREST INCOME AND EXPENSE	Three Months Ended June 30, 2024 Community Bank	CCBX	Treasury & Administration	Consolidated	Three Months Ended June 30, 2023 Community Bank	CCBX	Treasury & Administration	Consolidated
Interest income	$30,741	$60,203	$6,543	$97,487	$26,567	$53,632	$3,487	$83,686
Interest (expense) income intrabank transfer	(5,836)	8,299	(2,463)	—	(2,490)	3,487	(997)	—
Interest expense	6,459	24,119	672	31,250	3,663	17,012	661	21,336
Net interest income	18,446	44,383	3,408	66,237	20,414	40,107	1,829	62,350
Provision/(Recapture) for credit losses - loans	(341)	62,231	—	61,890	(47)	52,645	—	52,598
Provision/(Recapture) for unfunded commitments	262	173	—	435	(340)	(5)	—	(345)
Net interest income/(expense) after provision for credit losses - loans and unfunded commitments	18,525	(18,021)	3,408	3,912	20,801	(12,533)	1,829	10,097
NONINTEREST INCOME
Deposit service charges and fees	935	11	—	946	978	11	—	989
Other income	129	2	135	266	635	195	264	1,094
BaaS program income	—	6,096	—	6,096	—	3,948	—	3,948
BaaS indemnification income	—	62,610	—	62,610	—	52,564	—	52,564
Noninterest income (1)	1,064	68,719	135	69,918	1,613	56,718	264	58,595
NONINTEREST EXPENSE
Salaries and employee benefits	5,993	7,047	3,965	17,005	5,939	6,172	4,198	16,309
Occupancy	937	95	654	1,686	958	75	110	1,143
Data processing and software licenses	1,070	919	935	2,924	953	590	429	1,972
Legal and professional expenses	31	2,164	1,436	3,631	815	2,831	999	4,645
Other expense	898	1,812	(7)	2,703	927	1,958	1,386	4,271
BaaS loan expense	—	29,076	—	29,076	—	22,033	—	22,033
BaaS fraud expense	—	1,784	—	1,784	—	1,537	—	1,537
Total noninterest expense	8,929	42,897	6,983	58,809	9,592	35,196	7,122	51,910
Net income/(loss) before income taxes	10,660	7,801	(3,440)	15,021	12,822	8,989	(5,029)	16,782
Income taxes	2,310	2,074	(959)	3,425	2,949	2,089	(1,162)	3,876
Net income/(loss)	$8,350	$5,727	$(2,481)	$11,596	$9,873	$6,900	$(3,867)	$12,906

(1) For the three months ended June 30, 2024, CCBX noninterest income includes credit enhancements of $60.8 million, fraud enhancements of $1.8 million, and BaaS program income of $6.1 million. For the three months ended June 30, 2023, CCBX noninterest income includes credit enhancements of $51.0 million, fraud enhancements of $1.5 million and BaaS program income of $3.9 million.

(dollars in thousands; unaudited)

INTEREST INCOME AND EXPENSE	Six Months Ended June 30, 2024 Community Bank	CCBX	Treasury & Administration	Total	Six Months Ended June 30, 2023 Community Bank	CCBX	Treasury & Administration	Total
Interest income	$60,793	$114,772	$12,394	$187,959	$50,779	$95,851	$7,167	$153,797
Interest (expense)/income intrabank transfer	(11,435)	16,450	(5,015)	—	(3,569)	6,139	(2,570)	—
Interest expense	12,472	46,973	1,341	60,786	6,197	29,436	1,323	36,956
Net interest income	36,886	84,249	6,038	127,173	41,013	72,554	3,274	116,841
Provision/(Recapture) for credit losses - loans	(540)	141,948	—	141,408	381	95,761	—	96,142
Provision/(Recapture) for unfunded commitments	2,471	1,604	—	4,075	(203)	11	—	(192)
Net interest income/(expense) after provision for credit losses - loans and unfunded commitments	34,955	(59,303)	6,038	(18,310)	40,835	(23,218)	3,274	20,891
NONINTEREST INCOME
Deposit service charges and fees	1,831	23	—	1,854	1,876	23	—	1,899
Other income	415	71	271	757	828	327	400	1,555
BaaS program income	—	10,921	—	10,921	—	7,523	—	7,523
BaaS indemnification income	—	143,341	—	143,341	—	96,925	—	96,925
Noninterest income	2,246	154,356	271	156,873	2,704	104,798	400	107,902
NONINTEREST EXPENSE
Salaries and employee benefits	12,041	14,398	8,550	34,989	11,793	11,554	8,537	31,884
Occupancy	1,781	195	1,228	3,204	1,992	161	209	2,362
Data processing and software licenses	2,094	1,822	1,900	5,816	1,872	1,125	815	3,812
Legal and professional expenses	50	4,418	2,835	7,303	1,069	4,600	2,038	7,707
Other expense	1,932	3,392	1,571	6,895	1,959	3,071	2,655	7,685
BaaS loan expense	—	53,913	—	53,913	—	39,587	—	39,587
BaaS fraud expense	—	2,707	—	2,707	—	3,536	—	3,536
Total noninterest expense	17,898	80,845	16,084	114,827	18,685	63,634	14,254	96,573
Net income before income taxes	19,303	14,208	(9,775)	23,736	24,854	17,946	(10,580)	32,220
Income taxes	4,134	3,655	(2,449)	5,340	5,340	3,856	(2,273)	6,923
Net Income/(Loss)	$15,169	$10,553	$(7,326)	$18,396	$19,514	$14,090	$(8,307)	$25,297

Community Bank

Net interest income before intrabank interest expense for the community bank was $18.4 million for the quarter ended June 30, 2024, a decrease of $2.0 million, or 9.6%, compared to $20.4 million for the quarter ended June 30, 2023. The decrease in net interest income is largely due to increased cost of deposits resulting from deposit growth and higher interest rates. As a result of the community bank having higher average loans than deposits for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023, intrabank interest expense for the community bank was $5.8 million for the quarter ended June 30, 2024, compared to intrabank interest expense of $2.5 million for the quarter ended June 30, 2023. There was a provision recapture for credit losses - loans for the community bank of $341,000 for the quarter ended June 30, 2024, compared to a recapture of $47,000 for the quarter ended June 30, 2023. Net charge-offs to average loans for the community bank segment have remained consistently low and were 0.00% for the quarter ended June 30, 2024 and June 30, 2023. Noninterest income for the community bank was $1.1 million, for the quarter ended June 30, 2024, a decrease of $549,000, or 34.0%, compared to $1.6 million for the quarter ended June 30, 2023. Noninterest expenses for the community bank decreased $663,000, or 6.9%, to $8.9 million as of June 30, 2024, compared to $9.6 million as of June 30, 2023. The decrease in noninterest expense is largely due to lower legal and professional expenses as some of our risk management infrastructure projects are being completed. We continue to invest in our infrastructure and the automation of our processes so that they are scalable.

CCBX

Net interest income for CCBX was $44.4 million for the quarter ended June 30, 2024, an increase of $4.3 million, or 10.7%, compared to $40.1 million for the quarter ended June 30, 2023. The increase in net interest income is due to loan growth and higher interest rates from active CCBX relationships. During the quarter ended June 30, 2024 we sold $155.2 million in CCBX loans as part of our strategy to reduce risk, optimize the CCBX loan portfolio, maintain strong credit quality, and manage portfolio and partner limits. As a result of having higher average deposits than loans for the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023 intrabank interest income for CCBX was $8.3 million for the quarter ended June 30, 2024, compared to $3.5 million for the quarter ended June 30, 2023. Provision for credit losses - loans was $62.2 million as a result of loan origination growth and and the mix of loans with increased loss rates for the quarter ended June 30, 2024, compared to $52.6 million for the quarter ended June 30, 2023. CCBX partner agreements provide for credit enhancements that cover the $53.2 million in net charge-offs on CCBX loans for the quarter ended June 30, 2024. The $62.2 million provision on CCBX loans includes $60.7 million for partner loans with credit enhancement on them and $1.5 million on CCBX loans that the Company is responsible for. In accordance with the program agreement, the Company was responsible for credit losses on approximately 5% of a $353.6 million loan portfolio, or $17.7 million in partner loans at June 30, 2024. Effective April 1, 2024, the agreement was modified and the Company is responsible for 5% of the credit losses on this portfolio, previously the Company was responsible for 10% of the credit losses on this portfolio. Noninterest income for CCBX was $68.7 million for the quarter ended June 30, 2024, an increase of $12.0 million, or 21.2%, compared to $56.7 million for the quarter ended June 30, 2023, due to an increase of $9.8 million in BaaS credit enhancements to establish a credit enhancement asset for future credit losses due from our CCBX partners, $247,000 increase in BaaS fraud enhancements and $2.1 million in BaaS program income, which was the result of increased activity with broker dealers and digital financial service providers. Noninterest expenses for CCBX increased $7.7 million, or 21.9%, to $42.9 million as of June 30, 2024, compared to $35.2 million as of June 30, 2023. The increase in noninterest expense is largely due to growth from active CCBX relationships resulting in an increase in BaaS loan expense, BaaS fraud expense from increased CCBX loan originations and increased salaries and benefits, for the quarter ended June 30, 2024, compared to the quarter ended June 30, 2023. 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 $3.4 million for the quarter ended June 30, 2024, an increase of $1.6 million, or 86.3%, compared to $1.8 million for the quarter ended June 30, 2023, as a result of increased interest rates. Noninterest income decreased $129,000, or 48.9%, to $135,000 for the quarter ended June 30, 2024, compared to $264,000 for the quarter ended June 30, 2023. Noninterest expense was $7.0 million for the quarter ended June 30, 2024 and $7.1 million for the quarter ended June 30, 2023, and was impacted by the $1.2 million credit in excise taxes due to the refund from the State of Washington as a result of an apportionment study we completed to quantify revenue earned outside of the state of Washington

Comparison of the six months ended June 30, 2024 to the comparable period in the prior year

Community Bank

Net interest income for the community bank was $36.9 million for the six months ended June 30, 2024, a decrease of $4.1 million, or 10.1%, compared to $41.0 million for the six months ended June 30, 2023. The decrease in net interest income is largely due to increased interest expense on deposit accounts due to higher interest rates, partially offset by an increase in interest on loans receivable resulting from growth and higher loan yield. As a result of the community bank having higher average loans than deposits for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, intrabank interest expense for the community bank was $11.4 million for the six months ended June 30, 2024, compared to intrabank interest expense of $3.6 million for the six months ended June 30, 2023. There was a recapture of the provision for credit losses - loans for the community bank of $540,000 for the six months ended June 30, 2024, compared to a provision for credit losses of $381,000 for the six months ended June 30, 2023. Net charge-offs to average loans for the community bank segment have remained consistently low and was 0.00% and 0.01% for the six months ended June 30, 2024, and 2023, respectively. Noninterest income for the community bank was $2.2 million for the six months ended June 30, 2024, a decrease of $458,000, or 16.9%, compared to $2.7 million for the six months ended June 30, 2023. Loan referral fees decreased $514,000 for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The recognition of loan referral fees fluctuates in response to market conditions and as a result we may recognize more or less, or may not recognize any, loan referral fees in some periods. Additionally, in the six months ended June 30, 2023, there was a $194,000 net unrealized gain on equity securities recognized compared to an unrealized gain of $24,000 in the six months ended June 30, 2024. Noninterest expenses for the community bank decreased $787,000, or 4.2%, to $17.9 million as of June 30, 2024, compared to $18.7 million as of June 30, 2023. The decrease in noninterest expense is largely due to lower legal and professional expenses as some of our risk management infrastructure projects are being completed. We continue to invest in our infrastructure and the automation of our processes so that they are scalable.

CCBX

Net interest income for CCBX was $84.2 million for the six months ended June 30, 2024, an increase of $11.6 million, or 16.0%, compared to $72.6 million for the six months ended June 30, 2023. The increase in net interest income is due to loan growth from active CCBX relationships. During the six months ended June 30, 2024, we sold $255.7 million in CCBX loans as part of our strategy to reduce risk, optimize the CCBX loan portfolio, maintain strong credit quality, and manage portfolio and partner limits. As a result of having higher average deposits than loans for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 intrabank interest income for CCBX was $16.5 million for the six months ended June 30, 2024, compared to $6.1 million for the six months ended June 30, 2023. Provision for credit losses - loans was $141.9 million for the six months ended June 30, 2024, compared to $95.8 million for the six months ended June 30, 2023, as a result of loan origination growth and as a result of the mix of loan balances with increased loss rates which has impacted the allowance calculation. Noninterest income for CCBX was $154.4 million for the six months ended June 30, 2024, an increase of $49.6 million, or 47.3%, compared to $104.8 million for the six months ended June 30, 2023, due to an increase of $47.2 million in BaaS credit enhancements related to the allowance for credit losses, $3.4 million increase in total BaaS program income, which was the result of increased activity with broker dealers and digital financial service providers partially offset by a $829,000 decrease in BaaS fraud enhancements as a result of lower fraud. Noninterest expenses for CCBX increased $17.2 million, or 27.0%, to $80.8 million as of June 30, 2024, compared to $63.6 million as of June 30, 2023. The increase in noninterest expense is largely due to growth from active CCBX relationships resulting in an increase in BaaS loan expense and increased salaries and benefits, for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. 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 $6.0 million for the six months ended June 30, 2024, an increase of $2.7 million, or 84.4%, compared to $3.3 million for the six months ended June 30, 2023, as a result of increased interest rates. Noninterest income decreased $129,000, or 32.3%, to $271,000 for the six months ended June 30, 2024, compared to $400,000 for the six months ended June 30, 2023. Noninterest expense increased $1.8 million, or 12.8%, to $16.1 million for the six months ended June 30, 2024, compared to $14.3 million for the six months ended June 30, 2023, largely as a result of increased data processing and software license expense as a result of growth, partially offset by the $1.2 million credit in excise taxes due to the refund from the State of Washington as a result of an apportionment study we completed to quantify revenue earned outside of the state of Washington

Financial Condition

Our total assets increased $208.2 million, or 5.5%, to $3.96 billion at June 30, 2024 from $3.75 billion at December 31, 2023. The increase is primarily the result of $300.4 million increase in loans receivable offset by a decrease of $99.5 million in AFS securities during the six months ended June 30, 2024.

Loans Held For Sale

During the six months ended June 30, 2024, $255.7 million in CCBX loans were transferred to loans held for sale, with $255.7 million in loans sold. As of June 30, 2024 and December 31, 2023 there were no loans in loans held for sale. We will continue to sell loans as part of our strategy to reduce risk, optimize the CCBX loan portfolio, maintain strong credit quality, and manage portfolio and partner limits.

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 June 30, 2024, loans receivable totaled $3.33 billion, an increase of $300.4 million, or 9.9%, compared to December 31, 2023. Total loans receivable is net of $7.7 million in net deferred origination fees. The increase includes gross CCBX loan growth of $218.6 million, or 18.3%, and gross community bank loan growth of $82.2 million, or 4.5%.

Loans as a percentage of deposits were 93.9% as of June 30, 2024, compared to 90.1% as of December 31, 2023. We remain focused on serving our communities and markets by growing loans and funding those loans with customer deposits.

The following table summarizes our loan portfolio by type of loan as of the dates indicated:

(dollars in thousands; unaudited)

Commercial and industrial loans:	As of June 30, 2024 Amount	Percent	As of December 31, 2023 Amount	Percent
Capital call lines	$109,133	3.3%	$87,494	2.9%
All other commercial & industrial loans	186,167	5.6	203,800	6.7
Total commercial and industrial loans:	295,300	8.9	291,294	9.6
Real estate loans:
Construction, land and land development	173,064	5.2	157,100	5.2
Residential real estate	517,589	15.5	463,426	15.3
Commercial real estate	1,357,979	40.7	1,303,533	43.0
Consumer and other loans	990,270	29.7	818,039	26.9
Gross loans receivable	3,334,202	100.0%	3,033,392	100.0%
Net deferred origination fees	(7,742)		(7,300)
Loans receivable	$3,326,460		$3,026,092
Loan Yield (1)	11.23%		10.71%

(1) Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.

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

(dollars in thousands; unaudited)

Community Bank Commercial and industrial loans:	As of June 30, 2024 Balance	% to Total	December 31, 2023 Balance	% to Total
Commercial and industrial loans	$144,436	7.5%	$149,502	8.2%
Real estate loans:
Construction, land and land development loans	173,064	9.0	157,100	8.5
Residential real estate loans	229,639	12.0	225,391	12.3
Commercial real estate loans	1,357,979	70.8	1,303,533	70.9
Consumer and other loans:
Other consumer and other loans	14,220	0.7	1,628	0.1
Gross Community Bank loans receivable	1,919,338	100.0%	1,837,154	100.0%
Net deferred origination fees	(7,304)		(7,000)
Loans receivable	$1,912,034		$1,830,154
Loan Yield(1)	6.52%		6.32%

(1) Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.

(dollars in thousands; unaudited)

CCBX Commercial and industrial loans:	As of June 30, 2024 Balance	% to Total	December 31, 2023 Balance	% to Total
Capital call lines	$109,133	7.7%	$87,494	7.3%
All other commercial & industrial loans	41,731	3.0	54,298	4.5
Real estate loans:
Residential real estate loans	287,950	20.4	238,035	19.9
Consumer and other loans:
Credit cards	549,241	38.7	505,837	42.3
Other consumer and other loans	426,809	30.2	310,574	26.0
Gross CCBX loans receivable	1,414,864	100.0%	1,196,238	100.0%
Net deferred origination (fees) costs	(438)		(300)
Loans receivable	$1,414,426		$1,195,938
Loan Yield - CCBX (1)(2)	17.77%		17.36%

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

(2) Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.

Commercial and Industrial Loans. Commercial and industrial loans increased $4.0 million, or 1.4%, to $295.3 million as of June 30, 2024, from $291.3 million as of December 31, 2023. The increase in commercial and industrial loans receivable over December 31, 2023 was due to an increase of $21.6 million in capital call lines partially offset by a $17.6 million decrease in other commercial and industrial loans.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and effectively. These loans are primarily made based on the borrower’s ability to service the debt from income. Most commercial and industrial loans are secured by the assets being financed or other business assets, such as accounts receivable, inventory or equipment, and we generally obtain personal guarantees on these loans. Commercial and industrial loans includes $48.6 million in loans to financial institutions as of June 30, 2024 and December 31, 2023.

Included in the commercial and industrial loan balance is $109.1 million and $87.5 million in capital call lines resulting from relationships with our CCBX partners as of June 30, 2024 and December 31, 2023, respectively, and $41.7 million and $54.3 million in CCBX other commercial loans as of June 30, 2024 and December 31, 2023, respectively. As of June 30, 2024 there was $144.4 million in community bank commercial and industrial loans compared to $149.5 million at December 31, 2023.

Construction, Land and Land Development Loans. Construction, land and land development loans increased $16.0 million, or 10.2%, to $173.1 million as of June 30, 2024, from $157.1 million as of December 31, 2023. The increase is attributed to some new construction and development projects.

Unfunded loan commitments for construction, land and land development loans were $90.1 million at June 30, 2024, compared to $113.5 million at December 31, 2023. Although we have seen a strong commercial and residential real estate market in the Puget Sound region thus far in 2024, the economic environment is continuously changing with bank failures, inflation, higher interest rates, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, the upcoming elections in the United States and trade issues that have resulted in some economic uncertainty and slowing in construction lending.

Construction, land and land development loans are comprised of loans to fund construction, land acquisition and land development construction. The properties securing these loans are primarily located in the Puget Sound region and are comprised of both residential and commercial properties, including owner occupied properties and investor properties. As of June 30, 2024, construction, land and land development loans included $110.4 million in commercial construction loans, $34.7 million in residential construction loans, $19.7 million in other construction, land and land development loans and $8.4 million in undeveloped land loans, compared to $81.5 million in commercial construction loans, $7.9 million in undeveloped land loans, $34.2 million in residential construction loans and $33.5 million in other construction, land and land development loans as of December 31, 2023.

Residential Real Estate Loans. Our one-to-four family residential real estate loans increased $54.2 million, or 11.7%, to $517.6 million as of June 30, 2024, from $463.4 million as of December 31, 2023 due to an increase of $49.9 million in CCBX loans combined with an increase of $4.2 million in community bank loans.

As of June 30, 2024, there were $288.0 million in CCBX home equity loans included in residential real estate, compared to $238.0 million at December 31, 2023, as a result of increased activity. These home equity lines of credit are secured by residential real estate and are accessed by using a credit card.

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 June 30, 2024 and December 31, 2023, we held $6.2 million and $8.1 million, respectively, in purchased residential real estate mortgage loans. These loans purchased typically have a fixed rate with a term of 15 to 30 years and are collateralized by one-to-four family residential real estate. We have a defined set of credit guidelines that we use when evaluating these loans. Although purchased loans were originated and underwritten by another institution, our mortgage, credit, and compliance departments conduct an independent review of each underlying loan that includes re-underwriting each of these loans to our credit and compliance standards.

Like our commercial real estate loans, our residential real estate loans are secured by real estate, the value of which may fluctuate significantly over a short period of time as a result of market conditions in the area in which the real estate is located. Adverse developments affecting real estate values in our market areas could therefore increase the credit risk associated with these loans, impair the value of property pledged as collateral on loans, and affect our ability to sell the collateral upon foreclosure without a loss or additional losses.

Commercial Real Estate Loans. Commercial real estate loans increased $54.4 million, or 4.2%, to $1.36 billion as of June 30, 2024, from $1.30 billion as of December 31, 2023.

These increases, which occurred across the various segments of our community bank portfolio, were due to our commitment to grow the portfolio in the Puget Sound region. We actively seek commercial real estate loans in our markets and our lenders are experienced in competing for these loans and managing these relationships.

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 June 30, 2024, approximately 35.9% of the commercial real estate loan portfolio consisted of fixed rate loans. Commercial real estate loans represented 40.7% of our loan portfolio at June 30, 2024 and are a large source of revenue. As of June 30, 2024, we held $39.6 million in purchased commercial real estate loans, compared to $43.0 million at December 31, 2023. Our credit administration team has substantial experience in underwriting, managing, monitoring and working out commercial real estate loans, and remains diligent in communicating and proactively working with borrowers to help mitigate potential credit deterioration.

Consumer and Other. Consumer and other loans increased $172.3 million, or 21.1%, to $990.3 million, from $818.0 million as of December 31, 2023, as a result of growth in CCBX loans originated through our partners.

CCBX consumer loans totaled $976.1 million as of June 30, 2024, compared to $816.4 million at December 31, 2023. CCBX consumer loans include installment loans, credit cards, lines of credit and other loans. Our community bank consumer and other loans totaled $14.2 million as of June 30, 2024, compared to $1.6 million at December 31, 2023 and are comprised of personal lines of credit, automobile, boat, and recreational vehicle loans, and secured term loans.

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 $3.33 billion in outstanding loan balances. When combined with $2.81 billion in unused commitments the total of these categories is $6.15 billion. However, total exposure on CCBX loans is subject to portfolio and partner maximum limits and adjusted for those limits, unused commitments are limited to $786.2 million. See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.

The following table summarizes our community bank loan commitments by industry for our commercial real estate portfolio as of June 30, 2024:

(dollars in thousands; unaudited)

Community bank commercial real estate loans

	Outstanding Balance	Available Loan Commitments	Total Outstanding Balance & Available Commitment	% of Total Loans (Outstanding Balance & Available Commitment)	Average Loan Balance	Number of Loans
Apartments	$356,303	$6,339	$362,642	5.9%	$3,426	104
Hotel/Motel	168,659	592	169,251	2.8	6,746	25
Convenience Store	143,007	885	143,892	2.3	2,307	62
Office	124,462	8,177	132,639	2.2	1,383	90
Warehouse	117,498	2,000	119,498	1.9	1,958	60
Retail	104,936	644	105,580	1.7	999	105
Mixed use	92,480	8,236	100,716	1.6	1,075	86
Mini Storage	79,728	18,998	98,726	1.6	3,322	24
Strip Mall	44,260	—	44,260	0.7	6,323	7
Manufacturing	34,837	1,200	36,037	0.6	1,201	29
Groups < 0.70% of total	91,809	3,415	95,224	1.6	1,120	82
Total	$1,357,979	$50,486	$1,408,465	22.9%	$2,015	674

As illustrated in the table below, our CCBX partners originate a large number of mostly smaller dollar loans, resulting in an average consumer loan balance of just $1,100.

The following table summarizes our loan commitments by category for our consumer and other loan portfolio as of June 30, 2024:

(dollars in thousands; unaudited)

CCBX consumer loans

	Outstanding Balance	Available Loan Commitments	Total Outstanding Balance & Available Commitment (1)	% of Total Loans (Outstanding Balance & Available Commitment)	Average Loan Balance	Number of Loans
Credit cards	$549,241	$1,517,881	$2,067,122	33.6%	$1.6	352,248
Installment loans	418,358	900	419,258	6.8	1.0	404,850
Lines of credit	7,568	6,990	14,558	0.3	—	159,987
Other loans	883	—	883	0.0	0.1	8,163
Community bank consumer loans
Installment loans	1,256	—	1,256	0.0	59.8	21
Lines of credit	215	343	558	0.0	6.1	35
Other loans	12,749	—	12,749	0.2	39.8	320
Total	$990,270	$1,526,114	$2,516,384	40.9%	$1.1	925,624

(1) Total exposure on CCBX loans is subject to portfolio maximum limits. See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.

The following table summarizes our loan commitments by category for our residential real estate portfolio as of June 30, 2024:

(dollars in thousands; unaudited)

CCBX residential real estate loans

	Outstanding Balance	Available Loan Commitments	Total Exposure (1)	% of Total Loans (Outstanding Balance & Available Commitment)	Average Loan Balance	Number of Loans
Home equity line of credit	$287,950	$474,603	$762,553	12.4%	$25	11,514
Community bank residential real estate loans
Closed end, secured by first liens	193,976	2,959	196,935	3.2	606	320
Home equity line of credit	26,639	46,091	72,730	1.2	113	236
Closed end, second liens	9,024	885	9,909	0.2	291	31
Total	$517,589	$524,538	$1,042,127	17.0%	$43	12,101

(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 June 30, 2024:

(dollars in thousands; unaudited)

Consolidated C&I loans

	Outstanding Balance	Available Loan Commitments	Total Outstanding Balance & Available Commitment (1)	% of Total Loans (Outstanding Balance & Available Commitment)	Average Loan Balance	Number of Loans
Capital Call Lines	$109,133	$515,045	$624,178	10.2%	$774	141
Construction/Contractor Services	26,467	36,818	63,285	1.0	136	195
Financial Institutions	48,648	—	48,648	0.8	4,054	12
Retail	38,720	6,015	44,735	0.7	16	2,448
Manufacturing	6,844	5,332	12,176	0.2	159	43
Medical / Dental / Other Care	9,053	1,126	10,179	0.2	604	15
Groups < 0.20% of total	56,435	56,261	112,696	1.8	55	1,026
Total	$295,300	$620,597	$915,897	14.9%	$76	3,880

(1) Total exposure on CCBX loans is subject to portfolio maximum limits. See "Material Cash Requirements and Capital Resources" for maximum limits on CCBX loans by category.

The following table details our community bank loan commitments by category for our construction, land and land development loan portfolio as of June 30, 2024:

(dollars in thousands; unaudited)

Community bank construction, land and land development loans

	Outstanding Balance	Available Loan Commitments	Total Outstanding Balance & Available Commitment	% of Total Loans (Outstanding Balance & Available Commitment)	Average Loan Balance	Number of Loans
Commercial construction	$110,372	$60,912	$171,284	2.8%	$7,358	15
Residential construction	34,652	23,805	58,457	1.0	1,824	19
Developed land loans	13,954	1,269	15,223	0.2	734	19
Undeveloped land loans	8,372	3,760	12,132	0.2	558	15
Land development	5,714	345	6,059	0.1	571	10
Total	$173,064	$90,091	$263,155	4.3%	$2,219	78

Nonperforming Assets

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by applicable regulations. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. In general, we place loans on nonaccrual status when they become 90 days past due. We also place loans on nonaccrual status if they are less than 90 days past due if the collection of principal or interest is in doubt. Installment (closed end) consumer loans and revolving (open-ended loans, such as credit cards) originated through CCBX partners continue to accrue interest until they are charged-off at 120 days past due for installment loans (primarily unsecured loans to consumers) and 180 days past due for revolving loans (primarily credit cards). These consumer loans are reported out as substandard loans, 90+ days past due and still accruing. As a result of the type of loans (primarily consumer loans) originated through our CCBX partners, we anticipate that balances 90 days past due or more and still accruing will increase as those loans grow.

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 $53.2 million in nonperforming assets as of June 30, 2024, compared to $53.8 million as of December 31, 2023. This includes $45.2 million in CCBX loans more than 90 days past due and still accruing interest as of June 30, 2024, compared to $46.5 million at December 31, 2023. All of our nonperforming assets were nonperforming loans as of June 30, 2024 and December 31, 2023. The decrease in nonperforming assets was due to a $1.3 million decrease in CCBX partner loans that are 90 days or more past due and still accruing interest, partially offset by a slight increase in community bank nonaccrual loans of $629,000 during the six months ended June 30, 2024 to $7.9 million, with the addition of two loans partially offset by the payoff of two nonaccrual loans. The balance of our nonperforming assets decreased as did the overall percentage of nonperforming loans to total assets and total loans receivable. Our nonperforming loans to loans receivable ratio was 1.60% at June 30, 2024, compared to 1.78% at December 31, 2023.

Our community bank credit quality remains strong, as demonstrated by the low level of community bank charge-offs and nonperforming loan balance for the six months ended June 30, 2024. CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by indemnifying or reimbursing incurred losses, when accruing consumer loans originated through CCBX partners are charged-off at 120 days past due for installment loans (primarily unsecured loans to consumers) and 180 days past due for revolving loans (primarily credit cards).

The following table presents information regarding nonperforming assets at the dates indicated:

(dollars in thousands; unaudited)

Nonaccrual loans: Real estate loans:	As of June 30, 2024	December 31, 2023
Residential real estate	$213	$170
Commercial real estate	7,731	7,145
Total nonaccrual loans	7,944	7,315
Accruing loans past due 90 days or more:
Commercial & industrial loans	1,278	2,086
Real estate loans:
Residential real estate loans	2,722	1,115
Consumer and other loans:
Credit cards	36,465	34,835
Other consumer and other loans	4,779	8,488
Total accruing loans past due 90 days or more	45,244	46,524
Total nonperforming loans	53,188	53,839
Real estate owned	—	—
Repossessed assets	—	—
Total nonperforming assets	$53,188	$53,839
Total nonaccrual loans to loans receivable	0.24%	0.24%
Total nonperforming loans to loans receivable	1.60%	1.78%
Total nonperforming assets to total assets	1.34%	1.43%

The following tables detail nonperforming assets by segment which are included in the total nonperforming assets table above:

(dollars in thousands; unaudited)

Community Bank Nonaccrual loans: Real estate:	As of June 30, 2024	December 31, 2023
Residential real estate	$213	$170
Commercial real estate	7,731	7,145
Total nonaccrual loans	7,944	7,315
Accruing loans past due 90 days or more:
Total accruing loans past due 90 days or more	—	—
Total nonperforming loans	7,944	7,315
Other real estate owned	—	—
Repossessed assets	—	—
Total nonperforming assets	$7,944	$7,315
Total nonperforming community bank loans to total loans receivable	0.24%	0.24%

(dollars in thousands; unaudited)

CCBX	As of June 30, 2024	December 31, 2023
Nonaccrual loans	$—	$—
Accruing loans past due 90 days or more:
Commercial & industrial loans	1,278	2,086
Real estate loans:
Residential real estate loans	2,722	1,115
Consumer and other loans:
Credit cards	36,465	34,835
Other consumer and other loans	4,779	8,488
Total accruing loans past due 90 days or more	45,244	46,524
Total nonperforming loans	45,244	46,524
Other real estate owned	—	—
Repossessed assets	—	—
Total nonperforming assets	$45,244	$46,524
Total nonperforming CCBX loans to total loans receivable	1.36%	1.54%

As of June 30, 2024, $43.9 million of the $45.2 million in nonperforming CCBX loans were covered by CCBX partner credit enhancements. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by indemnifying or reimbursing incurred losses. Under the agreement, the CCBX partner will indemnify or reimburse the Bank for its loss/charge-off on these loans.

Allowance for credit losses

The ACL is an estimate of the expected credit losses on financial assets measured at amortized cost. The ACL is evaluated and calculated on a collective basis for those loans which share similar risk characteristics. At each reporting period, the Company evaluates whether the loans in a pool continue to exhibit similar risk characteristics as the other loans in the pool and whether it needs to evaluate the allowance on an individual basis. The Bank must estimate expected credit losses over the loans’ contractual terms, adjusted for expected prepayments. In estimating the life of the loan, the Bank cannot extend the contractual term of the loan for expected extensions, renewals, and modifications, unless the extension or renewal options are included in the contract at the reporting date and are not unconditionally cancellable by the Bank. Because expected credit losses are estimated over the contractual life adjusted for estimated prepayments, determination of the life of the loan may significantly affect the ACL. The Company has chosen to segment its portfolio consistent with the manner in which it manages the risk of the type of credit.

Community Bank Portfolio: The ACL calculation is derived for loan segments utilizing loan level information and relevant information from internal and external sources related to past events and current conditions. In addition, the Company incorporates a reasonable and supportable forecast.
CCBX Portfolio: The Bank calculates the ACL on loans on an aggregate basis based on each partner and product level, segmenting the risk inherent in the CCBX portfolio based on qualitative and quantitative trends in the portfolio.

Also included in the ACL are qualitative reserves to cover losses that are expected, but in the Company’s assessment may not be adequately represented in the quantitative method. For example, factors that the Company considers include environmental business conditions, borrower’s financial condition, credit rating and the volume and severity of past due loans and non-accrual loans. Based on this analysis, the Company records a provision for credit losses to maintain the allowance at appropriate levels.

As of June 30, 2024, the allowance for credit losses totaled $147.9 million, or 4.45% of total loans. As of December 31, 2023, the allowance for credit losses totaled $117.0 million, or 3.86% of total loans.

The increase in the Company’s allowance for credit losses for the six months ended June 30, 2024 compared to December 31, 2023, is largely related to the provision for CCBX partner loans. During the six months ended June 30, 2024, a $141.9 million provision for credit losses - loans was recorded for CCBX partner loans based on management’s analysis. The factors used in management’s analysis for community bank credit losses indicated that a recapture for credit losses - loans of $540,000 was needed for the six months ended June 30, 2024. The economic environment is continuously changing with bank failures, inflation, higher interest rates, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, including upcoming elections in United States, and trade issues that have resulted in some 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. Many CCBX partners also pledge a cash reserve account at the Bank which the Bank can collect from when losses occur that is then replenished by the partner on a regular interval. Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by indemnifying or reimbursing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligation then the Bank would be exposed to additional loan and deposit losses if the cash flows on the loans were not sufficient to fund the reimbursement of loan losses, as a result of this counterparty risk. If a CCBX partner does not replenish their cash reserve account the Bank may consider an alternative plan for funding the cash reserve. This may involve the possibility of adjusting the funding amounts or timelines to better align with the partner's specific situation. If a mutually agreeable funding plan is not achieved then the Bank could declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. The Bank would evaluate any remaining credit enhancement asset from the CCBX partner in the event the partner failed to fulfill its obligations and would determine if a write-off is appropriate. If a write-off occurs, the Bank would retain the full yield and any fee income on the loan portfolio going forward, and our BaaS loan expense would decrease once default occurred and payments to the CCBX partner were stopped.

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

(dollars in thousands; unaudited)

	Three Months Ended June 30, 2024 Community Bank	CCBX	Total	June 30, 2023 Community Bank	CCBX	Total
Gross charge-offs	$2	$55,205	$55,207	$9	$32,290	$32,299
Gross recoveries	(4)	(1,969)	(1,973)	—	(1,340)	(1,340)
Net charge-offs	$(2)	$53,236	$53,234	$9	$30,950	$30,959
Net charge-offs to average loans (1)	0.00%	15.72%	6.57%	0.00%	9.78%	4.19%
% of CCBX charge-offs covered by credit enhancement		97.6%			97.0%

(1) Annualized calculations shown for periods presented.

(dollars in thousands; unaudited)

	Six Months Ended June 30, 2024 Community Bank	CCBX	Total	June 30, 2023 Community Bank	CCBX	Total
Gross charge-offs	$17	$114,184	$114,201	$59	$66,407	$66,466
Gross recoveries	(8)	(3,741)	(3,749)	(5)	(3,200)	(3,205)
Net charge-offs	$9	$110,443	$110,452	$54	$63,207	$63,261
Net charge-offs to average loans (1)	0.00%	16.90%	6.95%	0.01%	10.92%	4.50%
% of CCBX charge-offs covered by credit enhancement		96.9%			97.6%

(1) Annualized calculations shown for periods presented.

The following table presents, as of and for the periods indicated, an analysis of the allowance for credit losses and other related data:

(dollars in thousands; unaudited)

	As of or for the Three Months Ended June 30, 2024	2023	As of or for the Six Months Ended June 30, 2024	2023
Allowance at beginning of period	$139,258	$89,123	$116,958	$74,029
Impact of adopting CECL (ASC 326)	—	—	—	3,852
Provision for credit losses	61,890	52,598	141,408	96,142
Charge-offs:
Commercial and industrial loans	3,870	411	8,567	1,187
Residential real estate	864	945	2,007	1,682
Consumer and other	50,473	30,943	103,627	63,597
Total charge-offs	55,207	32,299	114,201	66,466
Recoveries:
Commercial and industrial loans	215	—	414	3
Residential real estate	2	—	4	—
Consumer and other	1,756	1,340	3,331	3,202
Total recoveries	1,973	1,340	3,749	3,205
Net charge-offs	53,234	30,959	110,452	63,261
Allowance at end of period	$147,914	$110,762	$147,914	$110,762
Allowance for credit losses to nonaccrual loans	1861.96%	1496.99%	1861.96%	1496.99%
Allowance to nonperforming loans	278.10%	328.41%	278.10%	328.41%
Allowance to loans receivable	4.45%	3.68%	4.45%	3.68%

The allowance for credit losses to nonaccrual loans ratio increased as of June 30, 2024, compared to June 30, 2023 as a result of an increase of $37.2 million in the allowance for credit losses and was partially impacted by an increase of $545,000 in nonaccrual community bank loans. The increase in the allowance for credit losses for the six months ended June 30, 2024 compared to the six months ended June 30, 2023, is largely related to the increase in the allowance for loans originated through our CCBX partners. Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by indemnifying or reimbursing incurred losses. Net charge-offs on CCBX loans for the six months ended June 30, 2024 that were covered by credit enhancements were $52.0 million and $110.8 million respectively. At June 30, 2024, the allowance for credit losses for CCBX partner loans totaled $126.9 million, compared to $95.4 million at December 31, 2023.

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

(dollars in thousands; unaudited)

	As of June 30, 2024 Community Bank	CCBX	Total	As of December 31, 2023 Community Bank	CCBX	Total
Loans receivable	$1,912,034	$1,414,426	$3,326,460	$1,830,154	$1,195,938	$3,026,092
Allowance for credit losses	(21,045)	(126,869)	(147,914)	(21,595)	(95,363)	(116,958)
Allowance for credit losses to total loans receivable	1.10%	8.97%	4.45%	1.18%	7.97%	3.86%

Although we believe that we have established our allowance for credit losses in accordance with GAAP and that the allowance for credit losses was adequate to provide for expected losses in the portfolio at all times shown above, future provisions for credit losses will be subject to ongoing evaluations of the risks in our loan portfolio. We continue to have a low level of community bank charge-offs and nonperforming loans, however, the economic environment is continuously changing with potential for bank failures, inflation, higher interest rates, global unrest, the war in Ukraine, conflicts in the Middle East, political uncertainty, the upcoming elections in the United States and trade issues that have resulted in some economic uncertainty. If economic conditions worsen then Washington state and Puget Sound region may experience a more severe economic downturn, and our asset quality could deteriorate, which may require material additional provisions for credit losses.

Securities

We use our AFS 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 June 30, 2024, our securities portfolio was invested in U.S. Agency collateralized mortgage obligations and U.S. Agency residential mortgage-backed securities. Because we target a loan-to-deposit ratio in the range of 90% to 100%, we prioritize liquidity over the earnings of our securities portfolio. At June 30, 2024, our loan-to-deposit ratio was 93.9% due to our strong growth in both loans and deposits. When our securities portfolio represents less than 5% of assets we focus on liquid securities. To the extent our securities represent more than 5% of assets, absent an immediate need for liquidity, we may invest excess funds to provide a higher return.

As of June 30, 2024, the amortized cost of our investment securities totaled $49.2 million, a decrease of $101.7 million, or 67.4%, compared to $150.9 million as of December 31, 2023. The decrease in the securities portfolio was due to $100.0 million of securities in the AFS portfolio maturing during the six months ended June 30, 2024.

Our investment portfolio consists of only $39,000 in securities classified as AFS and $49.2 million in held-to-maturity. The carrying values of our investment securities classified as AFS are adjusted for unrealized gain or loss, and any gain or loss is reported on an after-tax basis as a component of other comprehensive income in shareholders’ equity. As of June 30, 2024, our AFS portfolio has an unrealized loss of $2,000, compared to an unrealized loss of $537,000 as of December 31, 2023.

The following table summarizes the amortized cost and estimated fair value of our investment securities as of the dates shown:

(dollars in thousands; unaudited)

Securities available-for-sale:	As of June 30, 2024 Amortized Cost	Fair Value	As of December 31, 2023 Amortized Cost	Fair Value
U.S. Treasury securities	$—	$—	$99,996	$99,461
U.S. Agency collateralized mortgage obligations	41	39	45	43
Total available-for-sale securities	41	39	100,041	99,504
Securities held-to-maturity:
U.S. Agency residential mortgage-backed securities	49,174	48,526	50,860	51,041
Total held-to-maturity securities	49,174	48,526	50,860	51,041
Total investment securities	$49,215	$48,565	$150,901	$150,545

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.

As of June 30, 2024 and December 31, 2023, we had a $2.2 million equity interest in a specialized bank technology company.
We had a $350,000 equity interest in a technology company as of June 30, 2024 and December 31, 2023.
We had a $50,000 equity interest in an additional technology company as of June 30, 2024 and December 31, 2023.

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

(dollars in thousands; unaudited)

	For the Three Months Ended June 30, 2024	2023	For the Six Months Ended June 30, 2024	2023
Carrying value, beginning of period	$2,622	$2,572	$2,622	$2,572
Purchases	—	—	—	—
Observable price change	—	—	—	—
Carrying value, end of period	$2,622	$2,572	$2,622	$2,572

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 six months ended June 30, 2024, we had a net capital return of $6,000 with investment funds designed to help accelerate technology adoption at banks, and recognized net earnings of $24,000, resulting in an equity interest of $827,000 at June 30, 2024. The Company has committed up to $593,000 in capital for these investment funds, however, the Company is not obligated to fund these commitments prior to a capital call.

(dollars in thousands; unaudited)

	For the Three Months Ended June 30, 2024	2023	For the Six Months Ended June 30, 2024	2023
Carrying value, beginning of period	777	617	809	456
Purchases/capital calls/capital returns, net	41	58	(6)	180
Net change recognized in earnings	9	155	24	194
Carrying value, end of period	$827	$830	827	830

Other Assets

Deferred tax assets, net decreased $1.6 million to $2.2 million and other assets decreased $245,000 to $11.7 million as of June 30, 2024, compared to December 31, 2023.

Deposits

We offer a variety of deposit products that have a wide range of interest rates and terms, including demand, money market, savings, and time accounts as well as IntraFi network reciprocal 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 in a reciprocal agreement. We rely primarily on competitive pricing policies, convenient locations, electronic delivery channels (internet and mobile), and personalized service to attract new deposits and retain existing deposits. Additionally, we offer deposit products through our CCBX segment. CCBX deposits are generally classified as interest bearing demand and money market accounts. CCBX deposit products allow us to offer a broader range of partner specific products, which include products designed to reach specific under-served or under-banked populations served by our CCBX partners.

Total deposits as of June 30, 2024 were $3.54 billion, an increase of $183.1 million, or 5.4%, compared to $3.36 billion as of December 31, 2023. The increase in deposits was largely in core deposits, which increased $186.3 million to $3.53 billion from $3.34 billion at December 31, 2023. We define core deposits as all deposits except time deposits and brokered deposits. The $186.3 million increase in core deposits was largely a result of growth in CCBX interest bearing deposits, and movement in community bank deposits from noninterest bearing to interest bearing accounts. Our cost of deposits for the community bank was 1.77% for the three months ended June 30, 2024. Additionally, during the quarter the amount of CCBX deposits that were transferred off balance sheet for increased FDIC insurance coverage, which totaled $117.7 million as of June 30, 2024.

Included in total deposits is $2.06 billion in CCBX deposits, an increase of $193.7 million, or 10.4%, compared to $1.86 billion as of December 31, 2023. CCBX customer deposit relationships include deposits with CCBX end customers, operating and non-operating deposit accounts. The deposits from our CCBX segment are generally classified as interest bearing demand and money market accounts.

Total noninterest bearing deposits as of June 30, 2024 were $593.8 million, a decrease of $31.4 million, or 5.0%, compared to $625.2 million as of December 31, 2023. Noninterest bearing deposits represent 16.8% and 18.6% of total deposits for June 30, 2024 and December 31, 2023, respectively. Community bank noninterest bearing deposits totaled $531.6 million and $561.6 million at June 30, 2024 and December 31, 2023, respectively.

Total interest bearing account balances, excluding time deposits, as of June 30, 2024 were $2.93 billion, an increase of $217.7 million, or 8.0%, compared to $2.72 billion as of December 31, 2023. The $217.7 million increase is due to CCBX growth in interest bearing deposits combined with an increase in community bank interest bearing deposits of $22.6 million. Included in total deposits is $352.3 million in IntraFi network reciprocal interest bearing demand and money market sweep accounts as of June 30, 2024, which provides our customers with fully insured deposits through a sweep and exchange of deposits with other financial institutions. The decrease in community bank deposits is a result of managing our deposit rates; the addition of some exception pricing tactics as a strategy at the end of the first quarter of 2024 to retain accounts and more effectively compete in the market, increased community bank deposits in the second quarter of 2024, compared to the quarter ending March 31, 2024.

Total time deposit balances as of June 30, 2024 were $15.1 million, a decrease of $3.3 million, or 17.8%, from $18.4 million as of December 31, 2023. The decrease is due to our focus on core deposits and letting higher rate time deposits run off as they mature. We have seen competitors increase rates on time deposits, and we have not globally matched their rates in response as we focus on growing and retaining less costly core deposits.

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

(dollars in thousands; unaudited)

	As of June 30, 2024 Amount	Percent of Total Deposits	As of December 31, 2023 Amount	Percent of Total Deposits
Demand, noninterest bearing	$593,789	16.8%	$625,202	18.6%
Interest bearing demand and money market	2,865,773	80.9	2,640,240	78.6
Savings	68,777	1.9	76,562	2.3
Total core deposits	3,528,339	99.6	3,342,004	99.5
Brokered deposits	1	—	1	—
Time deposits less than $100,000	6,741	0.2	8,109	0.2
Time deposits $100,000 and over	8,351	0.2	10,249	0.3
Total	$3,543,432	100.0%	$3,360,363	100.0%
Cost of deposits (1)	3.58%		3.36%

(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:

(dollars in thousands; unaudited)

Community Bank	As of June 30, 2024 Balance	% to Total	December 31, 2023 Balance	% to Total
Demand, noninterest bearing	$531,555	35.7%	$561,572	37.5%
Interest bearing demand and money market	876,668	59.0	846,072	56.5
Savings	63,627	4.3	71,598	4.8
Total core deposits	1,471,850	99.0	1,479,242	98.8
Brokered deposits	1	0.0	1	0.0
Time deposits less than $100,000	6,741	0.5	8,109	0.5
Time deposits $100,000 and over	8,351	0.5	10,249	0.7
Total Community Bank deposits	$1,486,943	100.0%	$1,497,601	100.0%
Cost of deposits(1)	1.77%		1.57%

(1) Cost of deposits is annualized for the three months ended for each period presented.

(dollars in thousands; unaudited)

CCBX	As of June 30, 2024 Balance	% to Total	December 31, 2023 Balance	% to Total
Demand, noninterest bearing	$62,234	3.0%	$63,630	3.4%
Interest bearing demand and money market	1,989,105	96.7	1,794,168	96.3
Savings	5,150	0.3	4,964	0.3
Total core deposits	2,056,489	100.0	1,862,762	100.0
Total CCBX deposits	$2,056,489	100.0%	$1,862,762	100.0%
Cost of deposits (1)	4.92%		4.90%

(1) Cost of deposits is annualized for the three months ended for each period presented.

The following table sets forth the Company’s time deposits of $100,000 or more by time remaining until maturity as of the dates indicated:

(dollars in thousands; unaudited)

Maturity Period:	As of June 30, 2024	As of December 31, 2023
Three months or less	$2,138	$5,068
Over three through six months	1,426	1,457
Over six through twelve months	2,691	1,595
Over twelve months	2,096	2,129
Total	$8,351	$10,249
Weighted average maturity (in years)	0.90	0.75

Average deposits for the three months ended June 30, 2024 were $3.44 billion, an increase of 13.0% compared to $3.04 billion for the three months ended June 30, 2023. The increase in average deposits was primarily due to an increase in core deposits, 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 3.58% for the three months ended June 30, 2024, compared to 2.72% for the three months ended June 30, 2023. The average rate paid on interest bearing demand and money market accounts increased 0.68% for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The average rate paid on time deposits of less than $100,000 increased 0.30% for the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The average rate paid on time deposits greater than $100,000 increased 0.98% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The average rate paid on savings increased 0.17% for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The overall higher average rate of 3.58% paid on interest bearing accounts in the three months ended June 30, 2024 compared to 2.72% for the three months ended June 30, 2023 is due to the continued high interest rate environment.

The average rate paid on total deposits was 3.53% for the six months ended June 30, 2024, compared to 2.44% for the six months ended June 30, 2023. The average rate paid on NOW and money market accounts increased 0.97% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The average rate paid on time deposits of less than $100,000 increased 0.28% for the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The average rate paid on time deposits greater than $100,000 increased 0.68% for the six months ended June 30, 2024 compared to the six months ended June 30, 2023. The average rate paid on savings was 0.39% for the six months ended June 30, 2024, compared to 0.19% for the six months ended June 30, 2023. The overall higher average rate paid on interest bearing accounts in the six months ended June 30, 2024 compared to the six months ended June 30, 2023 is due to a higher interest rate environment.

The following table presents the average balances and average rates paid on deposits for the periods indicated:

(dollars in thousands; unaudited)

	For the Three Months Ended June 30, 2024 Average Balance	Average Rate(1)	2023 Average Balance	Average Rate(1)	For the Six Months Ended June 30, 2024 Average Balance	Average Rate(1)	2023 Average Balance	Average Rate(1)
Demand, noninterest bearing	$584,661	0.00%	$717,256	0.00%	$590,177	0.00%	$746,436	0.00%
Interest bearing demand and money market	2,769,146	4.43	2,206,791	3.74	2,702,975	4.41	2,020,946	3.44
Savings	70,100	0.41	93,818	0.24	72,771	0.39	98,828	0.19
BaaS-brokered deposits	1	0.00	1	0.00	1	0.00	52,367	4.08
Time deposits less than $100,000	6,906	0.64	10,517	0.34	7,248	0.55	11,174	0.27
Time deposits $100,000 and over	8,422	1.34	15,575	0.36	8,734	0.99	15,853	0.31
Total deposits	$3,439,236	3.58%	$3,043,958	2.72%	$3,381,906	3.53%	$2,945,604	2.44%

(1) Annualized calculations shown for periods presented.

The ratio of average noninterest bearing deposits to average total deposits for the three and six months ended June 30, 2024 was 17.0% and 17.5% respectively, compared to 23.6% and 25.3% respectively, for the three months ended June 30, 2023.

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 June 30, 2024, deposits totaled $3.54 billion, of which total estimated uninsured deposits were $532.9 million, or 15.0% of total deposits, compared to $558.6 million, or 16.6% of total deposits as of December 31, 2023. At June 30, 2023, deposits totaled $3.16 billion, of which total estimated uninsured deposits were $632.1 million, or 20.0% of total deposits. The Bank is using sweep deposits to provide our customers with fully insured deposits through a sweep and exchange of deposits with other financial institutions.

Estimated uninsured time deposits totaled $1.0 million as of June 30, 2024. The table below shows the estimated uninsured time deposits, by account, for the maturity periods indicated:

(dollars in thousands; unaudited)

Maturity Period:	As of June 30, 2024
Three months or less	$118
Over three through six months	9
Over six through twelve months	748
Over twelve months	161
Total	$1,036

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 June 30, 2024 and June 30, 2023, total borrowing capacity of $472.5 million and $433.8 million, respectively, was available under this arrangement. As of June 30, 2024 and 2023, Federal Reserve advances totaled zero. Additional loans were pledged in 2023 to significantly increase the borrowing capacity of the Bank in the event of a liquidity crisis.

Federal Home Loan Bank Advances. The FHLB allows us to borrow against our line of credit, which is collateralized by certain loans. As of June 30, 2024 and June 30, 2023, we had borrowing capacity of $177.6 million and $126.0 million, respectively, with the FHLB. As of June 30, 2024 and 2023, 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 3-month LIBOR plus 2.10%. Beginning with rate adjustments subsequent to June 30, 2023, the rate is based off three-month CME Term SOFR plus 0.26%. The effective rate as of June 30, 2024 and December 31, 2023 was 7.70% and 7.75%, 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.

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 June 30, 2024, we have two partners with deposits that are in excess of 10% of total deposits and represent 44% of total deposits.

We continually monitor our liquidity position to ensure that our assets and liabilities are managed in a manner to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands. Management has established a comprehensive process for identifying, measuring, monitoring and controlling liquidity risk. Because of its critical importance to the viability of the Bank, liquidity risk management is fully integrated into our risk management processes. Critical elements of our liquidity risk management include: effective corporate governance consisting of oversight by the board of directors and active involvement by management; appropriate strategies, policies, procedures, and limits used to manage and mitigate liquidity risk; comprehensive liquidity risk measurement and monitoring systems that are commensurate with the complexity of our business activities; active management of intraday liquidity and collateral; an appropriately diverse mix of existing and potential future funding sources; adequate levels of readily available cash, deposits and highly liquid marketable securities free of legal, regulatory, or operational impediments, that can be used to meet liquidity needs in stressful situations; contingency funding policies and plans that sufficiently address potential adverse liquidity events and emergency cash flow requirements; and internal controls and internal audit processes sufficient to determine the adequacy of the Bank’s liquidity risk management process. Unlike many industrial companies, substantially all of our assets and liabilities are monetary in nature. As a result, interest rates have a more significant impact on our performance than the effects of general levels of inflation. Interest rates may not necessarily move in the same direction or in the same magnitude as the prices of goods and services. However, other operating expenses do reflect general levels of inflation.

Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our liquidity requirements are met primarily through our deposits, FHLB advances and the principal and interest payments we receive on loans and investment securities. Cash on hand, cash at third-party banks, investments available-for-sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are routinely available to us include funds from retail, commercial, and BaaS deposits, advances from the FHLB and proceeds from the sale of loans. Less commonly used sources of funding include borrowings from the Federal Reserve discount window, draws on established federal funds lines from unaffiliated commercial banks, funds from online rate services, brokered deposits, a one-way buy through an ICS account, and the issuance of debt or equity securities. We believe we have ample liquidity resources to fund future growth and meet other cash needs as necessary and are closely monitoring liquidity in this uncertain economic environment.

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. The Company currently holds $5.3 million in cash for debt servicing and operating purposes. In addition, the Bank can declare and pay dividends to the Company to meet the Company’s debt and operating expenses. There are statutory and regulatory limitations that affect the ability of the Bank to pay dividends to the Company. We believe that these limitations will not impact the ability of the Bank to pay dividends to the Company to meet ongoing operating needs.

For contingency purposes, the Company maintains a minimum level of cash to fund one year’s projected operating cash flow needs and targets a minimum liquidity ratio of 10%. 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 funds if needed in a liquidity emergency.

Capital Adequacy

Capital management consists of providing equity and other instruments that qualify as regulatory capital to support current and future operations. Banking regulators view capital levels as important indicators of an institution’s financial soundness. As a general matter, FDIC-insured depository institutions and their holding companies are required to maintain minimum capital levels relative to the amount and types of assets they hold. We are subject to regulatory capital requirements at the bank 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 June 30, 2024, and December 31, 2023, 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, 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 $200.0 million. The Company raised $34.5 million in December 2021 under a previously filed Form S-3. The Company, through a private placement, raised $25.0 million in subordinated debt in 2021 and repaid $10.0 million of subordinated debt with the proceeds and used the remainder for general corporate purposes. On November 1, 2022 the Company, through a private placement, raised $20.0 million of subordinated debt with the proceeds to be used for general corporate purposes. The Company contributed $15.0 million of the capital raised to the Bank in March 2023.

The following table presents the Company’s and the Bank’s regulatory capital ratios as of the dates presented, as well as the regulatory capital ratios that are required by Federal Reserve regulations to maintain “well-capitalized” status:

(dollars in thousands; unaudited)

June 30, 2024 Tier 1 Leverage Capital (to average assets)	Actual Amount	Ratio	Minimum Required for Capital Adequacy Purposes(1) Amount	Ratio	Required to be Well Capitalized Under the Prompt Corrective Action Provisions Amount	Ratio
Company	$320,173	8.31%	$154,132	4.00%	N/A	N/A
Bank Only	355,647	9.24%	153,995	4.00%	192,494	5.00%
Common Equity Tier 1 Capital (to risk-weighted assets)
Company	316,673	9.03%	157,861	4.50%	N/A	N/A
Bank Only	355,647	10.15%	157,617	4.50%	227,669	6.50%
Tier 1 Capital (to risk-weighted assets)
Company	320,173	9.13%	210,481	6.00%	N/A	N/A
Bank Only	355,647	10.15%	210,156	6.00%	280,208	8.00%
Total Capital (to risk-weighted assets)
Company	410,366	11.70%	280,641	8.00%	N/A	N/A
Bank Only	400,773	11.44%	280,208	8.00%	350,260	10.00%
December 31, 2023
Tier 1 Leverage Capital (to average assets)
Company	$298,920	8.10%	$147,616	4.00%	N/A	N/A
Bank Only	333,848	9.06%	147,469	4.00%	184,336	5.00%
Common Equity Tier 1 Capital (to risk-weighted assets)
Company	295,450	9.10%	146,137	4.50%	N/A	N/A
Bank Only	333,848	10.30%	145,875	4.50%	210,708	6.50%
Tier 1 Capital (to risk-weighted assets)
Company	298,920	9.20%	194,849	6.00%	N/A	N/A
Bank Only	333,848	10.30%	194,500	6.00%	259,334	8.00%
Total Capital (to risk-weighted assets)
Company	385,464	11.87%	259,799	8.00%	N/A	N/A
Bank Only	375,320	11.58%	259,334	8.00%	324,167	10.00%

(1) Presents the minimum capital adequacy requirements that apply to the Bank (excluding the capital conservation buffer) and the Company. The capital conservation buffer is an additional 2.5% of the amount necessary to meet the minimum risk-based capital requirements for total, tier 1, and common equity tier 1 risk-based capital. Prior to September 30, 2022, the Company operated under the Small Bank Holding Company Policy Statement and therefore was not subject to Basel III capital adequacy requirements.

Material Cash Requirements and Capital Resources

The following table provides the material cash requirements from known contractual and other obligations as of as of June 30, 2024:

(dollars in thousands; unaudited)

Cash requirements	Total	Payments Due by Period Less than 1 Year	Over 1 year	Other (1)
Time Deposits	$15,092	$10,959	$4,133	$—
Subordinated notes	45,000	—	45,000	—
Junior subordinated debentures	3,609	—	3,609	—
Deferred compensation plans	672	175	497	—
Operating and finance leases	6,919	1,041	5,878	—
Non-maturity deposits	3,528,339	—	—	3,528,339
Equity investment commitment	593	593	—	—

(1) Represents the undefined maturity of non-maturing deposits, including noninterest bearing demand deposits, interest bearing demand deposits, money market accounts, savings accounts and brokered deposits, which can generally be withdrawn on demand.

We maintain sufficient cash and cash equivalents and investment securities to meet short-term cash requirements and the levels of these assets are dependent on our operating, investing and financing activities during any given period. Cash on hand, cash at third-party banks, investments available-for-sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are routinely available to us include funds from retail, commercial, and BaaS deposits, advances from the FHLB and proceeds from the sale of loans. Less commonly used sources of funding include borrowings from the Federal Reserve discount window, draws on established federal funds lines from unaffiliated commercial banks, funds from online rate services, brokered funds, a one-way buy through an ICS account, and the issuance of debt or equity securities.

In the normal course of business, we enter into various transactions, which, in accordance with GAAP, are not included in our consolidated balance sheets. We enter into these transactions to meet the financing needs of our customers. These transactions include commitments to extend credit and standby and commercial letters of credit, which involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amounts recognized in our consolidated balance sheets.

Our commitments associated with outstanding commitments to extend credit and standby and commercial letters of credit are summarized 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 June 30, 2024 we had $2.81 billion in commitments to extend credit, compared to $2.34 billion as of December 31, 2023. The $467.4 million increase is largely attributed to a $502,922 increase in credit cards, a $58.7 million increase in residential real estate commitments, related to CCBX loans, and an increase of $7.5 million in consumer and other loan commitments, related to CCBX consumer loans, partially offset by a $93.8 million decrease in commercial and industrial capital call line commitments and a $26.8 million decrease in commercial construction loans.

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)

Commitments to extend credit:	As of June 30, 2024	As of December 31, 2023
Commercial and industrial loans	$105,552	$86,134
Commercial and industrial loans - capital call lines	515,045	608,837
Construction – commercial real estate loans	65,941	92,709
Construction – residential real estate loans	24,150	20,825
Residential real estate loans	524,538	465,887
Commercial real estate loans	50,486	54,289
Credit cards	1,517,881	1,014,959
Consumer and other loans	8,233	779
Total commitments to extend credit	$2,811,826	$2,344,419
Standby letters of credit	$1,249	$1,096
Equity investment commitment	$593	$653

We have portfolio limits with our each of our partners to manage loan concentration risk, liquidity risk, and counter-party partner risk. For example, as of June 30, 2024, capital call lines outstanding balance totaled $109.1 million, and while commitments totaled $515.0 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 June 30, 2024.

(dollars in thousands; unaudited)

Commercial and industrial loans:	Type of Lending	As of June 30, 2024 Maximum Portfolio Size	As of December 31, 2023	Increase/(decrease)
Capital call lines	Business - Venture Capital	$350,000	$350,000	$—
All other commercial & industrial loans	Business - Small Business	293,901	305,905	(12,004)
Real estate loans:
Home equity lines of credit	Home Equity - Secured Credit Cards	375,000	375,000	—
Consumer and other loans:
Credit cards	Credit Cards - Primarily Consumer	782,024	756,614	25,410
Installment loans	Consumer	1,501,381	933,374	568,007
Other consumer and other loans	Consumer - Secured Credit Builder & Unsecured consumer	127,694	709,108	(581,414)
		$3,430,000	$3,430,001	$(1)
Total Existing Portfolio Size		$1,414,426	$1,195,938	$218,488

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 June 30, 2024, $2.06 billion in commitments to extend credit are unconditionally cancelable, compared to $1.63 billion at December 31, 2023. The increase in unconditionally cancelable commitments is attributed to loan growth in 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 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.

(unaudited)

	Three Months Ended June 30, 2024	March 31, 2024	December 31, 2023	September 30, 2023	June 30, 2023	Six Months Ended June 30, 2024	June 30, 2023
Return on average assets (1)	1.21%	0.73%	0.97%	1.13%	1.52%	0.98%	1.55%
Return on average equity (1)	15.22%	9.21%	12.35%	14.60%	19.53%	12.26%	19.70%
Yield on earnings assets (1)	10.49%	10.07%	9.77%	10.08%	10.18%	10.28%	9.70%
Yield on loans receivable (1)	11.23%	10.85%	10.71%	10.84%	10.85%	11.04%	10.42%
Cost of funds (1)	3.60%	3.52%	3.39%	3.18%	2.77%	3.56%	2.49%
Cost of deposits (1)	3.58%	3.49%	3.36%	3.14%	2.72%	3.53%	2.44%
Net interest margin (1)	7.13%	6.78%	6.61%	7.10%	7.58%	6.96%	7.37%
Noninterest expense to average assets (1)	6.14%	6.04%	5.56%	6.23%	6.11%	6.09%	5.91%
Noninterest income to average assets (1)	7.30%	9.38%	6.95%	3.81%	6.90%	8.32%	6.60%
Efficiency ratio	43.19%	37.88%	41.58%	58.36%	42.92%	40.43%	42.97%
Loans receivable to deposits (2)	93.88%	92.42%	90.05%	90.19%	96.23%	93.88%	96.23%

(1) Annualized calculations shown for periods presented.

(2) Including loans held for sale.

CCBX – BaaS Reporting Information

During the three and six months ended June 30, 2024, $60.8 million was recognized in noninterest income BaaS credit enhancements related to the establishment of a credit enhancement asset for credit losses indemnified by our strategic partners and reserved for unfunded commitments for CCBX 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. Many CCBX partners also pledge a cash reserve account at the Bank which the Bank can collect from when losses occur that is then replenished by the partner on a regular interval. Although agreements with our CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by indemnifying or reimbursing incurred credit and fraud losses, if our partner is unable to fulfill their contracted obligation then the Bank would be exposed to additional loan and deposit losses if the cash flows on the loans were not sufficient to fund the reimbursement of loan losses, as a result of this counterparty risk. If a CCBX partner does not replenish their cash reserve account the Bank may consider an alternative plan for funding the cash reserve. This may involve the possibility of adjusting the funding amounts or timelines to better align with the partner's specific situation. If a mutually agreeable funding plan is not achieved then the Bank could declare the agreement in default, take over servicing and cease paying the partner for servicing the loan and providing credit enhancements. The Bank would evaluate any remaining credit enhancement asset from the CCBX partner in the event the partner failed to determine if a write-off is appropriate. If a write-off occurs the Bank would retain the full yield and any fee income on the loan portfolio going forward, and our BaaS loan expense would decrease once default occurred and payments to the CCBX partner were stopped.

For CCBX partner loans the Bank records contractual interest earned from the borrower on loans in interest income, adjusted for origination costs which are paid or payable to the CCBX partner. BaaS loan expense represents the amount paid or payable to partners for credit and fraud enhancements and servicing CCBX loans. To determine net BaaS loan income earned from CCBX loan relationships, the Bank takes BaaS loan interest income and deducts BaaS loan expense to arrive at net BaaS loan income which can then be compared to interest income on the Company’s community bank loans.

The following table illustrates how CCBX partner loan income and expenses are recorded in the financial statements:

(dollars in thousands; unaudited)

Loan income and related loan expense	Three Months Ended June 30, 2024	June 30, 2023	Six Months Ended June 30, 2024	June 30, 2023
BaaS loan interest income	$60,203	$53,632	$114,772	$95,851
Less: BaaS loan expense	29,076	22,033	53,913	39,587
Net BaaS loan income (2)	31,127	31,599	60,859	56,264
Net BaaS loan income divided by average BaaS loans (1)(2)	9.19%	9.98%	9.31%	9.72%
Yield on loans (1)	17.77%	16.95%	17.56%	16.56%

(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 direct fees, expenses and interest for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023. The following tables are a summary of the direct fees, expenses and interest components of BaaS for the periods indicated and are not inclusive of all income and expense related to BaaS.

(dollars in thousands; unaudited)

Interest income	Three Months Ended June 30, 2024	June 30, 2023	Six Months Ended June 30, 2024	June 30, 2023
Loan interest income	$60,203	$53,632	$114,772	$95,851
Total BaaS interest income	$60,203	$53,632	$114,772	$95,851

(dollars in thousands; unaudited)

Interest expense	Three Months Ended June 30, 2024	June 30, 2023	Six Months Ended June 30, 2024	June 30, 2023
BaaS interest expense	$24,119	$17,012	$46,973	$29,436
Total BaaS interest expense	$24,119	$17,012	$46,973	$29,436

102

(dollars in thousands; unaudited)

BaaS program income:	Three Months Ended June 30, 2024	June 30, 2023	Six Months Ended June 30, 2024	June 30, 2023
Servicing and other BaaS fees	$1,525	$895	$2,656	$1,843
Transaction fees	1,309	1,052	2,431	1,969
Interchange fees	1,625	975	3,164	1,764
Reimbursement of expenses	1,637	1,026	2,670	1,947
BaaS program income	6,096	3,948	10,921	7,523
BaaS indemnification income:
BaaS credit enhancements	60,826	51,027	140,634	93,389
BaaS fraud enhancements	1,784	1,537	2,707	3,536
BaaS indemnification income	62,610	52,564	143,341	96,925
Total noninterest BaaS income	$68,706	$56,512	$154,262	$104,448

(dollars in thousands; unaudited)

BaaS loan and fraud expense:	Three Months Ended June 30, 2024	June 30, 2023	Six Months Ended June 30, 2024	June 30, 2023
BaaS loan expense	$29,076	$22,033	$53,913	$39,587
BaaS fraud expense	1,784	1,537	2,707	3,536
Total BaaS loan and fraud expense	$30,860	$23,570	$56,620	$43,123

GAAP Reconciliation and Management Explanation of Non-GAAP Financial Measures

The Company uses certain non-GAAP financial measures to provide meaningful supplemental information regarding the Company’s operational performance and to enhance investors’ overall understanding of such financial performance. However, these non-GAAP financial measures are supplemental and are not a substitute for an analysis based on GAAP measures. As other companies may use different calculations for these adjusted measures, this presentation may not be comparable to other similarly titled adjusted measures reported by other companies.

The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense on net loan income and yield on CCBX loans.

Net BaaS loan income divided by average CCBX loans is a non-GAAP measure that includes the impact BaaS loan expense on net BaaS loan income and the yield on CCBX loans. The most directly comparable GAAP measure is yield on CCBX loans.

The following non-GAAP measure is presented to illustrate the impact of BaaS loan expense on net interest income and net interest margin.

Net interest income net of BaaS loan expense is a non-GAAP measure that includes the impact BaaS loan expense on net interest income. The most directly comparable GAAP measure is net interest income.

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.

(dollars in thousands; unaudited)

Net BaaS loan income divided by average CCBX loans:	As of and for the Three Months Ended June 30, 2024	June 30, 2023	As of and for the Six Months Ended June 30, 2024	June 30, 2023
CCBX loan yield (GAAP)(1)	17.77%	16.95%	17.56%	16.56%
Total average CCBX loans receivable	$1,362,343	$1,269,406	$1,314,099	$1,167,366
Interest and earned fee income on CCBX loans (GAAP)	60,203	53,632	114,772	95,851
BaaS loan expense	(29,076)	(22,033)	(53,913)	(39,587)
Net BaaS loan income	$31,127	$31,599	$60,859	$56,264
Net BaaS loan income divided by average CCBX loans (1)	9.19%	9.98%	9.31%	9.72%

Net interest margin, net of BaaS loan expense:
CCBX interest margin (1)	9.05%	10.41%	8.83%	10.29%
CCBX earning assets	1,972,989	1,544,628	1,918,573	1,421,418
Net interest income	44,383	40,107	84,249	72,554
Less: BaaS loan expense	(29,076)	(22,033)	(53,913)	(39,587)
Net interest income, net of BaaS loan expense	$15,307	$18,074	$30,336	$32,967
CCBX net interest margin, net of BaaS loan expense (1)	3.12%	4.69%	3.18%	4.68%

(1) Annualized calculations for periods presented.

Market risk

As filed, 9,487 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.

Quantitative and Qualitative Disclosures about Market Risk

As a financial institution, our primary component of market risk is interest rate volatility. Our asset liability and funds management policy provides management with the guidelines for effective funds management, and we have established a measurement system for monitoring our net interest rate sensitivity position. We have historically managed our sensitivity position within our established guidelines.

Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest earning assets and interest bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential for economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a decrease in current fair market values. Our objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. The FOMC raised interest rates 0.25% in mid-March 2022, 1.25% in the second quarter of 2022, 1.50% in the third quarter of 2022, 1.25% in the fourth quarter of 2022, 0.50% in the first quarter 2023, and 0.25% in the second quarter 2023 and 0.25% in the third quarter of 2023. The FOMC has subsequently held interest rates flat as inflation continues to remain elevated. The timing and magnitude of any potential rate changes, expected to be rate cuts in the event inflation decreases, remains uncertain but will likely be closely tied to future inflationary trends. The impact of this and any future increases or decreases will impact financial results.

We manage our exposure to interest rates by structuring our balance sheet in the ordinary course of business. We do not enter into instruments such as leveraged derivatives, financial options, financial future contracts or forward delivery contracts for the purpose of reducing interest rate risk. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

Our exposure to interest rate risk is managed by the Asset Liability Committee (“ALCO”), of the Bank and reviewed by the Asset Liability and Investment Committee of our board of directors in accordance with policies approved by our board of directors. ALCO formulates strategies based on appropriate levels of interest rate risk. In determining the appropriate level of interest rate risk, ALCO considers the impact on earnings and capital on the current outlook on interest rates, potential changes in interest rates, regional economies, liquidity, business strategies and other factors. ALCO meets regularly to review, among other things, the sensitivity of assets and liabilities to interest rate changes, the book and market values of assets and liabilities, unrealized gains and losses, purchase and sale activities, commitments to originate loans and the maturities of investments and borrowings. Additionally, ALCO reviews liquidity, cash flows, maturities of deposits and consumer and commercial deposit activity. Management employs various methodologies to manage interest rate risk including an analysis of relationships between interest earning assets and interest bearing liabilities and interest rate simulations using a model. The Asset Liability and Investment Committee of our board of directors meets regularly to review the Bank’s interest rate risk profile, liquidity position, including contingent liquidity, and investment portfolio.

We use interest rate risk simulation models to test interest rate sensitivity of net interest income and fair value of equity, and the impact of changes in interest rates on other financial metrics. Contractual maturities and re-pricing opportunities of loans are incorporated in the model, as are prepayment assumptions, maturity data and call options within the investment portfolio. Average life of non-maturity deposit accounts are based on historical decay rates and assumptions and are incorporated into the model. The assumptions used are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact of fluctuations in market interest rates on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude and frequency of interest rate changes as well as changes in market conditions and the application and timing of various management strategies. To help ensure the accuracy of the model, we perform a quarterly back test against our actual results.

On a quarterly basis, we run multiple simulations under two different premises of which one is a static balance sheet and the other is a dynamic growth balance sheet. The static balance sheet approach produces results that show the interest risk currently inherent in our balance sheet at that point in time. The dynamic balance sheet includes our projected growth levels going forward and produces results that shows how net income, net interest income, and interest risk change based on our projected growth. These simulations test the impact on net interest income and fair value of equity from changes in market interest rates under various scenarios. Under the static and dynamic approaches, rates are shocked instantaneously and ramped over a 12-month horizon assuming parallel yield curve shifts. Parallel shock scenarios assume instantaneous parallel movements in the yield curve compared to a flat yield curve scenario. Non-parallel simulations are also conducted and involve analysis of interest income and expense under various changes in the shape of the yield curve including a forward curve, flat curve, steepening curve, and an inverted curve. Our internal policy regarding internal rate risk simulations currently specifies that for instantaneous parallel shifts of the yield curve, estimated net income at risk for the subsequent one- and two-year period should not decline by more than 10% for a 100 basis point shift, 15% for a 200 basis point shift, 20% for a 300 basis point shift, and 25% for a 400 basis point shift.

The following tables summarize the simulated change in net interest income over a 12-month horizon as of the dates indicated:

(unaudited)

Change in Market Interest Rates Static Balance Sheet and Rate Shifts	Twelve Month Projection As of June 30, 2024	Twelve Month Projection As of December 31, 2023
+400 basis points	(10.7)%	(6.2)%
+300 basis points	(7.9)%	(4.6)%
+200 basis points	(5.2)%	(3.0)%
+100 basis points	(2.6)%	(1.4)%
-100 basis points	2.4%	1.1%
-200 basis points	4.6%	1.8%
-300 basis points	6.6%	2.1%
-400 basis points	8.0%	2.2%
Dynamic Balance Sheet and Rate Shifts
+400 basis points	(6.6)%	(1.3)%
+300 basis points	(4.9)%	(0.9)%
+200 basis points	(3.2)%	(0.5)%
+100 basis points	(1.6)%	(0.2)%
-100 basis points	1.4%	(0.1)%
-200 basis points	2.5%	(0.6)%
-300 basis points	3.4%	(1.5)%
-400 basis points	3.7%	(2.8)%

The results illustrate that the Company’s static balance sheet remains liability sensitive, however, the dynamic balance sheet is slightly more neutral to rate shifts. As the Company’s composition has shifted over time due to the growth of the CCBX segment to more variable/adjustable in nature, our interest rate risk profile has been mitigated, reducing variability in both rising and falling rate environments, as the community bank and CCBX segments work to offset one another. The community bank segment remains asset sensitive and generally performs better in an increasing interest rate environment. For the community bank, the drivers are primarily due to behavior of demand, money market and savings deposits during such rate fluctuations. We have found that, historically, offering rates on these community bank deposits change more slowly than changes in short-term market rates. For the CCBX segment, the offering rates on the loan portfolio are modeled using partner contractual net yields which mostly adjust with market shifts. For this CCBX portfolio, the offering rates on approximately 70% of loans and the majority of deposits nearly fully reprice with changes in market rates. During 2023, one of the material CCBX lending partners contractual yields converted to a fixed rate product, continuing to reduce the overall variability in the Company’s balance sheet. As of June 30, 2024, the Company’s overall funding mix continues to be more heavily weighted towards the CCBX deposits which are primarily variable rate deposits aiding with the neutrality of the balance sheet and the overall shift to liability sensitive. The assumptions incorporated into the simulation model are inherently uncertain and, as a result, the model cannot precisely measure future net interest income or precisely predict the impact that fluctuations in market interest rates have on net interest income. Actual results will differ from the model’s simulated results due to timing, magnitude, and frequency of interest rate changes as well as changes in market conditions, the shape of the interest yield curve, and the application and timing of various assumptions and strategies.

Controls and procedures

As filed, 1,469 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.

Disclosure Controls and Procedures. An evaluation was performed under the supervision and with the participation of the Company's management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, the Company's Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Change in Internal Control over Financial Reporting. There were no changes in the Company’s internal control over financial reporting occurred during the six months ended June 30, 2024, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Risk factors

As filed, 325 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.

For information regarding the Company’s risk factors, see “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which are incorporated by reference herein. As of June 30, 2024, the risk factors of the Company have not changed materially from those disclosed in the Form 10-K.

Figures reported in this filing

Standardized line items from the XBRL in this filing, for the period ended 2024-06-30. Comparative periods it repeats are left out.

Figures reported in this filing
Line item	Period	Value	XBRL concept
Interest expense	3 months2024-04-01 to 2024-06-30	$31.3m	us-gaap:InterestExpense
Interest expense	6 months2024-01-01 to 2024-06-30	$60.8m	us-gaap:InterestExpense
Income tax	3 months2024-04-01 to 2024-06-30	$3.4m	us-gaap:IncomeTaxExpenseBenefit
Income tax	6 months2024-01-01 to 2024-06-30	$5.3m	us-gaap:IncomeTaxExpenseBenefit
Net income	3 months2024-04-01 to 2024-06-30	$11.6m	us-gaap:NetIncomeLoss
Net income	6 months2024-01-01 to 2024-06-30	$18.4m	us-gaap:NetIncomeLoss
Diluted EPS	3 months2024-04-01 to 2024-06-30	$0.84	us-gaap:EarningsPerShareDiluted
Diluted EPS	6 months2024-01-01 to 2024-06-30	$1.34	us-gaap:EarningsPerShareDiluted
Basic EPS	3 months2024-04-01 to 2024-06-30	$0.86	us-gaap:EarningsPerShareBasic
Basic EPS	6 months2024-01-01 to 2024-06-30	$1.38	us-gaap:EarningsPerShareBasic
Diluted shares (weighted)	3 months2024-04-01 to 2024-06-30	13,736,508 shares	us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding
Diluted shares (weighted)	6 months2024-01-01 to 2024-06-30	13,706,713 shares	us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding
Operating cash flow	6 months2024-01-01 to 2024-06-30	$134.5m	us-gaap:NetCashProvidedByUsedInOperatingActivities
Capital expenditure	6 months2024-01-01 to 2024-06-30	$4.4m	us-gaap:PaymentsToAcquirePropertyPlantAndEquipment
Total assets	At period end2024-06-30	$3.96bn	us-gaap:Assets
Total liabilities	At period end2024-06-30	$3.64bn	us-gaap:Liabilities
Shareholders' equity	At period end2024-06-30	$316.7m	us-gaap:StockholdersEquity

Source: SEC EDGAR, the filing index for accession 0001437958-24-000109. Last ingested by Listed: Nov 5, 2026, 12:42 ET. Listed shows no prices and gives no investment advice.