What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-16 · 779 added, 416 removed, 1150 unchanged (51% of the section changed)

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The information required by this item follows.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Coastal Financial Corporation and Subsidiary (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022 and 2021, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Coastal Financial Corporation and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2024 expressed an unqualified opinion on the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, in the year ended December 31, 2023, the Company adopted new accounting guidance Accounting Standards Update 2016-13 Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Statements.

Basis for Opinion

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Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting in accordance with the standards of the PCAOB.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

As described in Notes 1 and 4 to the consolidated financial statements, the balance of the Company’s allowance for credit losses – loans was $117 million at December 31, 2023.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans held for investment to present the net carrying value at the amount expected to be collected.

The allowance for credit losses – loans is maintained at a level sufficient to provide for expected credit losses over the lives of the loans based on evaluating historical credit loss experience and making qualitative reserve factor adjustments to historical loss information for each loan category for differences in the specific risk characteristics in the current loan portfolio based on reasonable and supportable forecasts.

These qualitative reserve factors include

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borrower’s financial condition and credit rating, volume and severity of delinquent and classified loans, and environmental business conditions to capture general and economic market conditions.

We identified the estimation of qualitative reserve factors used in the allowance for credit losses – loans, as a critical audit matter.

The qualitative reserve factors are used to estimate credit losses related to matters that are not captured in the historical loss component of the allowance for credit losses – loans, and are based on management’s evaluation of available internal and external data.

Auditing management’s judgments regarding the qualitative reserve factors applied to the allowance for credit losses - loans involved especially challenging and subjective auditor judgment when performing audit procedures and evaluating the results of those procedures.

The primary procedures we performed to address this critical audit matter included:

• Testing the design, implementation, and operating effectiveness of controls relating to management’s calculation of the allowance for credit losses - loans, including controls over the identification and assessment of the qualitative reserve factors used.

• Obtaining management’s analysis and supporting documentation related to the qualitative reserve factors, and testing whether the factors used in the calculation of the allowance for credit losses – loans, are supported by the analysis provided by management.

• Testing the appropriateness of the methodology and significant assumptions used in the calculation of the allowance for credit losses – loans, testing completeness and accuracy of the data used in the calculation, testing estimation and application of the qualitative reserve factors determined by management and used in the calculation, and recalculating the balance of the allowance for credit losses – loans.

/s/ Moss Adams LLP

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We have served as the Company’s auditor since 2016.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Coastal Financial Corporation

Opinion on Internal Control over Financial Reporting

We have audited Coastal Financial Corporation and subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of Coastal Financial Corporation and subsidiaries as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated March 15, 2024 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting included in Item 9A.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Moss Adams LLP

Everett, Washington,

March 15, 2024

We have served as the Company’s auditor since 2016.

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COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

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Loans receivable 3,026,092 2,627,256

Allowance for loan losses ( 74,029 ) ( 28,632 )

Allowance for credit losses ( 116,958 ) ( 74,029 )

Total loans receivable, net 2,909,134 2,553,227

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Deposits $ 3,360,363 $ 2,817,521

Federal Home Loan Bank ("FHLB") advances — 24,999

Subordinated debt, net

Principal amount $ 45,000 and $ 25,000 (less unamortized debt issuance costs of $ 1,001 and $ 712 ) at December 31, 2022 and December 31, 2021, respectively

Principal amount $ 45,000 (less unamortized debt issuance costs of $ 856 and $ 1,001 ) at December 31, 2023 and December 31, 2022, respectively

44,144 43,999

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Retained earnings 165,311 119,998

Accumulated other comprehensive (loss) income, net of tax ( 2,334 ) 4

Accumulated other comprehensive loss, net of tax ( 469 ) ( 2,334 )

Total shareholders’ equity 294,978 243,494

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See accompanying Notes to Consolidated Financial Statements.

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COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

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Year Ended December 31,

2023 2022 2021

INTEREST AND DIVIDEND INCOME

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Net interest income 238,727 171,775 79,437

PROVISION FOR LOAN LOSSES 79,064 9,915

Net interest income after provision for loan losses 92,711 69,522

PROVISION FOR CREDIT LOSSES 183,992 79,064 9,915

Net interest income after provision for credit losses - loans

and unfunded commitments 54,735 92,711 69,522

NONINTEREST INCOME

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Gain on sales of loans, net 253 — 396

Mortgage broker fees 257 920

Unrealized (loss) gain on equity securities, net ( 153 ) 1,469

Unrealized gain (loss) on equity securities, net 279 ( 153 ) 1,469

Gain on sale of bank branch including deposits and loans, net — — 1,263

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Noninterest income, excluding BaaS program income and BaaS indemnification income

5,953 5,805 10,811

Servicing and other BaaS fees 3,855 4,408 4,467

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Other expense 5,224 4,652 3,921

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Noninterest expense, excluding BaaS loan and BaaS fraud expense 110,712 83,909 58,782

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See accompanying Notes to Consolidated Financial Statements.

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COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

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Year Ended December 31,

2023 2022 2021

NET INCOME $ 44,579 $ 40,625 $ 27,005

OTHER COMPREHENSIVE LOSS, before tax

OTHER COMPREHENSIVE INCOME (LOSS), before tax

Securities available-for-sale

Unrealized holding (loss) income during the period ( 2,959 ) ( 38 )

Income tax benefit related to unrealized holding loss 621 8

OTHER COMPREHENSIVE LOSS, net of tax ( 2,338 ) ( 30 )

Unrealized holding income (loss) during the period 2,418 ( 2,959 ) ( 38 )

Income tax (expense) benefit related to unrealized holding gain/loss ( 553 ) 621 8

OTHER COMPREHENSIVE INCOME (LOSS), net of tax 1,865 ( 2,338 ) ( 30 )

COMPREHENSIVE INCOME $ 46,444 $ 38,287 $ 26,975

See accompanying Notes to Consolidated Financial Statements.

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COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

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Stock-based compensation — 2,517 — — 2,517

Stock issuance and net proceeds from

public offering — — — — —

Other comprehensive loss, net of tax — — — ( 2,338 ) ( 2,338 )

BALANCE, December 31, 2022 13,161,147 $ 125,830 $ 119,998 $ ( 2,334 ) $ 243,494

Net income — — 44,579 — 44,579

Adjustment to retained earnings;

adoption of ASU 2016- 13 — 0 — 734 — 734

Issuance of restricted stock awards 13,538 — — — —

Vesting of restricted stock units 46,520 — — — —

Exercise of stock options 83,134 618 — — 618

Stock-based compensation — 3,688 — — 3,688

Other comprehensive income,

net of tax — — — 1,865 1,865

BALANCE, December 31, 2023 13,304,339 $ 130,136 $ 165,311 $ ( 469 ) $ 294,978

See accompanying Notes to Consolidated Financial Statements.

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COASTAL FINANCIAL CORPORATION AND SUBSIDIARY

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Year Ended December 31,

2023 2022 2021

CASH FLOWS FROM OPERATING ACTIVITIES

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Adjustments to reconcile net income to net cash provided by operating activities:

Provision for loan losses 79,064 9,915

Provision for credit losses 183,992 79,064 9,915

Depreciation and amortization 2,328 1,809 1,587

Loss on disposition of fixed assets 39 35 —

Decrease in operating lease right-of-use assets 1,087 1,056

Decrease in operating lease liabilities ( 1,086 ) ( 1,044 )

Increase in operating lease right-of-use assets 833 1,087 1,056

Increase in operating lease liabilities ( 857 ) ( 1,086 ) ( 1,044 )

Gain on sales of loans ( 253 ) — ( 396 )

Net (discount accretion)/premium amortization on investment securities ( 50 ) 32

Unrealized holding loss (gain) on equity investment 153 ( 1,469 )

Net discount accretion on investment securities ( 25 ) ( 50 ) 32

Unrealized holding (gain) loss on equity investment ( 279 ) 153 ( 1,469 )

Stock-based compensation 3,688 2,517 1,284

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Increase in bank-owned life insurance value 27 ( 360 ) ( 172 )

Deferred tax benefit ( 11,018 ) ( 3,011 )

Deferred tax benefit (expense) 13,879 ( 11,018 ) ( 3,011 )

Net change in CCBX receivable 1,328 ( 9,150 ) ( 1,096 )

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Purchase of investment securities available for sale — ( 134,912 ) ( 117,493 )

Purchase of investment securities held for investment ( 50,244 ) — —

Change in other investments, net 607 ( 2,230 ) ( 950 )

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Net cash used by investing activities ( 598,985 ) ( 987,948 ) ( 239,639 )

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CASH FLOWS FROM FINANCING ACTIVITIES

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CASH, DUE FROM BANKS AND RESTRICTED CASH, beginning of year 342,139 813,161 163,117

CASH, DUE FROM BANKS AND RESTRICTED CASH, end of year $ 342,139 $ 813,161

CASH, DUE FROM BANKS AND RESTRICTED CASH, end of quarter $ 483,128 $ 342,139 $ 813,161

SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES

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Fair value adjustment of securities available-for-sale, gross $ 2,418 $ ( 2,959 ) $ ( 37 )

In conjunction with ASU 2016-02 as detailed in Note 6 to the Unaudited Consolidated Financial Statements, the following assets and liabilities were recognized:

Operating lease right-of-use assets $ 1,747 $ — $ 41

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Transfer from loans to loans held for sale $ 599,946 $ 152,546 $ —

Adjustment to retained earnings - adoption of ASU 2016-13,

net of deferred tax $ ( 734 ) $ — $ —

See accompanying Notes to Consolidated Financial Statements.

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COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES

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The Bank was incorporated and commenced operations in 1997 and is a Washington state-chartered commercial bank and Federal Reserve System (“Federal Reserve”) state member bank.

Arlington Olympic LLC was formed in 2020 and owns the Arlington branch, which the Bank leases from the LLC.

Arlington Olympic LLC was formed in 2021 and owns the Arlington branch site, which the Bank leases from the LLC.

The Company operates through the Bank and is headquartered in Everett, Washington, which by population is the largest city in, and the county seat of, Snohomish County.

The Company’s business is conducted through two reportable segments:

The community bank and CCBX.

The Company’s business is conducted through three reportable segments:

The community bank, CCBX and treasury & administration.

The community bank offers a full range of banking services to small and medium-sized businesses, professionals, and individuals throughout the greater Puget Sound region through its 14 branches in Snohomish, Island and King Counties, the Internet, and its mobile banking application.

The Company also has a CCBX segment which provides Banking as a Service (“BaaS”) enabling broker dealers and digital financial service providers to offer their clients banking services.

The CCBX segment provides Banking as a Service (“BaaS”) that allows our broker dealers and digital financial service partners to offer their customers banking services.

Through CCBX’s partners the Company is able to offer banking services and products across the nation.

The treasury & administration segment includes treasury management, overall administration and all other aspects of the Company.

The Bank’s deposits are insured in whole or in part by the Federal Deposit Insurance Corporation (“FDIC”).

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Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Management believes that its critical accounting estimates include determining the allowance for loan losses, the fair value of the Company’s financial instruments, and the valuation of deferred tax assets, financial instruments, and other fair value measurements.

Management believes that its critical accounting estimates include determining the allowance for credit losses, the fair value of the Company’s financial instruments, and the valuation of deferred tax assets, financial instruments, and other fair value measurements.

Actual results could differ significantly from those estimates.

Subsequent Events - The Company has evaluated events and transactions subsequent to December 31, 2023 for potential recognition or disclosure .

On January 31, 2023 the Company extended its lease agreement for the Everett location.

This renewal was for less square footage, at reduced monthly expense and was extended for an additional ten years.

As discussed in Note 6, this facility is leased from a group of investors, one of which is a director.

Cash equivalents and cash flows - For purposes of reporting cash flows, cash and cash equivalents include cash on hand and in banks and interest-bearing deposits.

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CDs with other financial institutions, federal funds sold and cash flows from loans and deposits are reported as net increases or decreases under cash flows from investing activities or from financing activities.

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The Company maintains its cash in depository institution accounts, which, at times, may exceed federally insured limits.

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Gains and losses on sales of securities are recorded on the trade date and are determined on the specific-identification method.

Declines in the fair value of individual held-to-maturity and available-for-sale securities below their amortized cost that are other than temporary result in write-downs of the individual securities to their fair value.

The related write-downs are included in earnings as realized losses.

In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

For available-for-sale debt securities, if fair value is below amortized cost, the security is considered impaired.

When the Company does not intend to sell the debt security, and it is more likely than not the Company will not have to sell the security before recovery of its cost basis, then the Company assesses the security for potential expected credit losses.

Impairment related to a credit loss is measured using the discounted cash flow method.

Credit loss recognition is limited to the fair value of the security.

The impairment is recognized by establishing an ACL through provision for credit losses.

Impairment related to noncredit factors is recognized in accumulated other comprehensive income, net of applicable taxes.

The Company evaluates AFS security impairment on a quarterly basis.

For held-to-maturity debt securities, expected losses are evaluated and calculated on a collective basis for those securities which share risk characteristics.

The Company aggregates similar securities and reports the security portfolio segments based on shared risk characteristics.

The only segment included in the held-to-maturity portfolio are U.S.

Agency Residential Mortgage Backed Securities which have an expected zero credit loss and were purchased for CRA purposes.

Other investments - Other investments on the balance sheet consists of direct equity investments in stock of the Federal Home Loan Bank of Des Moines (“FHLB”), the Federal Reserve Bank of San Francisco (“FRB”), Pacific Coast Banker’s Bancshares, as well as investments in bank technology funds.

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These equity investments without a readily determined fair value include:

• As of December 31, 2022 and December 31, 2021 the Company has a $ 2.2 million equity interest in a specialized bank technology company.

During the year ended December 31, 2021, the Company reassessed the value and recognized a $ 1.5 million unrealized holding gain as a result of an observable price change.

• During the year ended December 31, 2022 the Company re-evaluated the value and recorded an impairment of $ 100,000 on a $ 500,000 equity investment in a technology company that was valued at $ 100,000 on December 31, 2021, bringing the carrying value to zero as of December 31, 2022.

This investment has been written off and is no longer carried on the Company’s books.

• The Company contributed $ 350,000 in a technology company during the year ended December 31, 2022.

There was no equity ownership in this company as of December 31, 2021.

• The Company has a $ 2.2 million equity interest in a specialized bank technology company as of December 31, 2023 and December 31, 2022 .

• The Company has a $ 350,000 equity interest in a technology company as of the years ended December 31, 2023 and December 31, 2022.

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• The Company contributed $ 50,000 to a technology company during the year ended December 31, 2023, there was no equity ownership as of December 31, 2022.

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

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These equity investments are held at fair value, as reported by the funds.

During the year ended December 31, 2022, the Company contributed $ 349,000 with investment funds designed to help accelerate technology adoption at banks, and recognized net losses of $ 53,000 , resulting in an equity interest of $ 456,000 at December 31, 2022.

During the year ended December 31, 2023, the Company contributed $ 74,500 with investment funds designed to help accelerate technology adoption at banks, and recognized net gains of $ 278,000 , resulting in an equity interest of $ 809,000 at December 31, 2023.

The Company has committed up to $ 653,000 in capital for these equity funds.

One firm decided to wind down their technology fund and their fund balance decreased $ 176,000 in 2023, leaving $ 22,000 in that fund as of December 31, 2023.

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

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Carrying value, beginning of period $ 456 $ 160 —

Purchases/capital calls, net 349 163

Purchases/capital calls/capital returns, net 75 349 163

Net change recognized in earnings 278 ( 53 ) ( 3 )

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

Loans and allowance for loan losses – Loans are stated at the principal amount outstanding less the allowance for loan losses and net of any deferred fees or costs on originated loans, and unamortized premiums or discounts on purchased loans.

Loans and allowance for credit losses – Loans are stated at the principal amount outstanding less the allowance for credit losses and net of any deferred fees or costs on originated loans, and unamortized premiums or discounts on purchased loans.

Loan fees and certain direct loan origination costs are deferred, and the net fee or cost is recognized as an adjustment to interest income using the level yield methodology and a method that approximates the level yield methodology.

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Loans are returned to accrual status when all principal and interest amounts contractually due are brought current, borrower has demonstrated ability to make regular payments, generally a period of at least six months, and future payments are reasonably assured.

For installment/closed-end, and revolving/open-end consumer loans originated through CCBX lending partners loans will accrue interest until 120 and 180 days past due, respectively, which is consistent with regulatory guidelines for consumer loans of this nature, and an allowance is recorded through provision expense for these probable incurred losses.

For installment/closed-end and revolving/open-end consumer loans originated through CCBX lending partners with balances outstanding beyond 120 days and 180 days, respectively, principal and capitalized interest outstanding is charged off against the allowance and accrued interest outstanding is reversed against interest income.

The allowance for loan losses is comprised of amounts charged against income in the form of the provision for loan losses, less charged-off loans, net of recoveries.

When available information confirms that specific loans or portions thereof are uncollectible, identified amounts are charged against the allowance for loan losses.

The allowance for credit losses is comprised of amounts charged against income in the form of the provision for credit losses, less charged-off loans, net of recoveries.

When available information confirms that specific loans or portions

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thereof are uncollectible, identified amounts are charged against the allowance for credit losses.

The existence of some or all of the following criteria will generally confirm that a loss has been incurred:

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(2) the Company has no recourse to the borrower or if it does, the borrower has insufficient assets to pay the debt;

(3) the estimated fair value of the loan collateral

is significantly below the current loan balance;

(3) the estimated fair value of the loan collateral is significantly below the current loan balance;

and (4) there is little or no near-term prospect for improvement.

Subsequent recoveries, if any, are credited to the allowance for loan losses.

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.

This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

The allowance consists of specific and general components.

The specific component relates to loans that are determined to be impaired.

For such loans (including troubled debt restructurings), an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan.

The general component covers various loans and is based on the probability of default and loss given default, type of loan, peer information, risk rating and adjusted for qualitative and quantitative trends in the portfolio, including the internal risk classification of loans, historical loss rates, changes in the nature and volume of the loan portfolio, industry or borrower concentrations, delinquency trends, detailed reviews of significant loans with identified weaknesses and the impacts of local, regional and national economic factors on the quality of the loan portfolio.

Community bank and CCBX loans are assessed at either the individual loan level or pooled, depending on loan type and characteristics of the loan.

Consumer loans and smaller balance loans are typically assessed as homogeneous loan pools.

Based on management’s analysis, the Company records a provision for loan losses to maintain the allowance at appropriate levels.

CCBX lending partners originate various loan types, and as of December 31, 2022, include consumer, commercial and home equity loans.

CCBX consumer loans typically have a higher level of expected losses than community bank loans which is reflected in the higher loss factors for the allowance for loan losses.

Estimated loss rates for CCBX loans vary by partner, and might be based on actual partner experience, realized losses or losses for comparable products, industry averages, or the Company’s loss rate for similar loans.

Many of the agreements with our CCBX partners provide for a credit enhancement which helps protect the Bank by absorbing incurred losses.

CCBX credit enhancements are free-standing and are accounted separately from the allowance for loan loss.

In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans, without regard to the credit enhancement.

When the provision for loan losses is recorded, a free-standing credit enhancement asset is recorded on the balance sheet through noninterest income (BaaS fees -credit enhancement).

Charge-offs of CCBX partner loans are recorded against the allowance for loan losses.

When collected from the credit enhancement cash reserve account or the CCBX partner, the credit enhancement asset is relieved.

If a CCBX lending partner is unable to fulfill its contractual obligations under the credit enhancement, then the Bank would be exposed to additional loan losses as a result of this counterparty risk and would have to absorb any loan losses associated with the CCBX partner that cannot fulfill its contractual obligations.

Management believes the balance would be recoverable in the event of bankruptcy of the partner, but there are no guarantees that bankruptcy court will rule in the Company’s favor.

Additionally, CCBX partners are required to maintain and/or regularly replenish funding in their cash reserve accounts.

Credit-worthiness of CCBX partners are evaluated as part of initial due diligence and quarterly thereafter.

The Company has not incurred any counterparty losses to date.

A community bank loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral-dependent.

CCBX loans are treated as homogenous pools and are not subject to individual impairment analysis.

A troubled debt restructuring (“TDR”) is a loan for which the Company, for reasons related to the borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider.

TDRs are individually evaluated for impairment and included in the separately identified impairment disclosures.

TDRs are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.

If a TDR is considered to be a collateral-dependent loan, the loan is reported, net, at the fair value of the collateral.

For TDRs that subsequently default,

the Company determines the amount of allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired.

The Company incorporates recent historical experience with TDRs including the performance of TDRs that subsequently default into the calculation of the allowance by loan portfolio segment.

Subsequent recoveries, if any, are credited to the allowance for credit losses.

The allowance for credit losses ("ACL") is an estimate of the expected credit losses on financial assets measured at amortized cost.

The ACL is evaluated and calculated on a collective basis for those loans which share similar risk characteristics.

At each reporting period, the Company evaluates whether the loans in a pool continue to exhibit similar risk characteristics as the other loans in the pool and whether it needs to evaluate the allowance on an individual basis.

The Company must estimate expected credit losses over the loans’ contractual terms, adjusted for expected prepayments.

In estimating the life of the loan, the Company cannot extend the contractual term of the loan for expected extensions, renewals, and modifications, unless the extension or renewal options are included in the contract at the reporting date and are not unconditionally cancellable by the Company.

Because expected credit losses are estimated over the contractual life adjusted for estimated prepayments, determination of the life of the loan may significantly affect the ACL.

The Company has chosen to segment its portfolio consistent with the manner in which it manages the risk of the type of credit.

• Community Bank Portfolio:

The ACL calculation is derived from loan segments utilizing loan level information and relevant available information from internal and external sources related to past events and current conditions.

In addition, the Company incorporates a reasonable and supportable forecast.

• CCBX Portfolio:

The Bank calculates the ACL on loans on an aggregate basis based on each partner and product level, segmenting the risk inherent in the CCBX portfolio based on qualitative and quantitative trends in the portfolio.

Also included in the ACL are qualitative reserves to cover losses that are expected, but in the Company’s assessment may not be adequately represented in the quantitative method.

For example, factors that the Company considers include environmental business conditions, borrower’s financial condition, credit rating and the volume and severity of past due loans and non-accrual loans.

Based on this analysis, the Company records a provision for credit losses to maintain the allowance at appropriate levels.

Determining the amount of the allowance is considered a critical accounting estimate, as it requires significant judgment and the use of subjective measurements, including management’s assessment of overall portfolio quality.

The Company maintains the allowance at an amount the Company believes is sufficient to provide for estimated losses expected to occur in the Company’s loan portfolio at each balance sheet date, and fluctuations in the provision for credit losses may result from management’s assessment of the adequacy of the allowance.

Changes in these estimates and assumptions are possible and may have a material impact on the Company’s allowance, and therefore the Company’s financial position, liquidity or results of operations.

The Company has elected to exclude accrued interest receivable from the amortized cost basis in its ACL calculation as accrued interest is written off in a timely manner when deemed uncollectible.

For more information and discussion related to the allowance for credit losses on loans, see “Note 4 - Loans and Allowance for Credit Losses” in the Consolidated Financial Statements.

In addition to the ACL on loans held for investment, CECL requires a balance sheet liability for expected losses on unfunded commitments, which is recognized if both the following conditions are met:

(1) the Company has a present contractual obligation to extend credit;

and (2) the obligation is not unconditionally cancellable by the Company.

Loan commitments may have a funded and unfunded portion, of which the liability for unfunded commitments is derived based upon the commitments to extend credit to a borrower.

The expected credit losses for funded portions are reported in the previously discussed ACL.

The unfunded commitments that are not unconditionally cancelable by the Company are allowed for using the same loss rate as the funded commitment applied against the estimated utilization of these commitments and the probability of funding.

Loans held-for-sale - During the year ended December 31, 2023, the Company transferred $ 599.9 million in CCBX loans receivable to loans held for sale.

These CCBX loans held for sale consist of the portion of loans originated by CCBX partners that the Company intends to sell back to the CCBX partner or affiliated entity generally at par.

The loans sold to the originating partners are in accordance with partner agreements and are sold for credit risk and concentration management and other purposes.

The loans sold to the originating partners are in accordance with partner

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agreements and are primarily sold for credit and concentration management.

As of December 31, 2023 and 2022 there were no loans held for sale.

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The gain or loss on the sold portion of the loan is based on the difference between the sale proceeds and the allocated investment in the sold portion of the loan.

A discount is recorded against the carrying value of the retained portion of the loan to offset the fair value allocation of said retained portion.

A discount is recorded against the carrying value of the retained portion of the loan to offset the decrease in the fair value allocation of said retained portion.

The Company retains the servicing on the sold guaranteed portion of SBA and USDA loans.

The Company receives a fee for servicing the loan.

The Company also retains the servicing on the sold guaranteed portion of MSLP loans.

The Company also retains the servicing on the sold guaranteed portion of Main Street Lending Program (“MSLP”) loans.

The net deferred fee on the sold portion of the loan is recognized when sold.

The Company does not retain the servicing on sold CCBX loans.

SBA and USDA servicing - The Company accounts for SBA and USDA servicing rights as separately recognized servicing rights and initially measures them at fair value.

Fair value is based on market prices for comparable servicing contracts, when available, or alternatively, is based on a valuation model that calculates the present value of estimated future net servicing income.

The Company subsequently measures each SBA and USDA servicing asset using the amortization method.

Under the amortization method, servicing assets are amortized into noninterest income in proportion to, and over the period of, estimated net servicing income.

The amortized assets are assessed for impairment or increased obligations, at the loan level, based on the fair value of each reporting date.

As of December 31, 2022 and 2021, SBA and USDA servicing assets totaled $ 183,000 and $ 269,000 , respectively, and are included in other assets on the consolidated balance sheets, and SBA and USDA loans serviced totaled $ 14.3 million and $ 19.3 million, as of December 31, 2022 and 2021 respectively.

Reserve for unfunded commitments - A reserve for unfunded commitments is maintained at a level that, in the opinion of management, is adequate to absorb probable losses associated with the Company’s commitment to lend funds under existing agreements, such as letters or lines of credit.

Management determines the adequacy of the reserve for unfunded commitments based on review of individual credit facilities, current economic conditions, and risk characteristics of the various categories of commitments and other relevant factors.

The reserve is based on estimates, and ultimate losses may vary from the current estimates.

These estimates are evaluated on a regular basis and adjustments are reported in earnings in the periods in which they become known.

Draws on unfunded commitments that are considered uncollectible at the time funds are advanced are charged to the allowance for loan losses.

Provision for unfunded commitments losses are added to the reserve for unfunded commitments, which is included in the other liabilities section of the consolidated balance sheets.

The reserve for unfunded commitments was $ 974,000 and $ 1.3 million as of December 31, 2022 and 2021, respectively, and includes a reserve for community bank loans and CCBX loans.

The Company has determined that no allowance is necessary for the portion of the unfunded commitment of the loan portfolio that is unconditionally cancelable.

Additionally, agreements with our CCBX partners provide for a credit enhancement against losses.

When the provision for unfunded commitments is recorded, a credit enhancement asset is also recorded on the consolidated balance sheet through noninterest income (BaaS fees -credit enhancement).

Any incurred losses would be recorded in the allowance for loan losses, and as the credit enhancement recoveries are received from the CCBX partner, the credit enhancement asset on the balance sheet is relieved.

Reserve for unfunded commitments - The Company maintains a balance sheet liability for expected losses on unfunded commitments, which is recognized if both the following conditions are met:

(1) the Company has a present contractual obligation to extend credit;

and (2) the obligation is not unconditionally cancellable by the Company.

Loan commitments may have a funded and unfunded portion, of which the liability for unfunded commitments is derived based upon the commitments to extend credit to a borrower.

An estimate of expected credit losses is not established for unfunded portions of loan commitment that are unconditionally cancellable by the Company.

The expected credit losses for funded portions are reported in the previously discussed ACL.

The Company segments its unfunded commitment portfolio consistent with the ACL calculation, separating between unfunded lines and commitments to originate.

The Company incorporates the probability of funding (i.e.

estimate of utilization) for each segment and then utilizes the ACL loss rates for each segment on an aggregate basis to calculate the allowance for unfunded commitments.

The reserve for unfunded commitments was $ 582,000 and $ 974,000 as of December 31, 2023 and 2022, respectively, and includes a reserve for community bank loans and CCBX loans.

Premises and equipment - Premises and equipment are stated at cost less accumulated depreciation.

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Asset lives range from three to thirty-nine years .

Leasehold improvements are amortized over the expected term of the lease or the estimated useful life of the improvement, whichever is less.

Leasehold improvements are amortized over the expected term of the lease including options to extend which are reasonably certain to be exercised or the estimated useful life of the improvement, whichever is less.

The Company capitalizes internal and external costs related to internal-use software during the application development stage, including consulting costs and compensation expenses related to employees who devote time to the development of the projects.

The Company records capitalized software development costs in premises and equipment in the Consolidated Balance Sheets.

Costs incurred in preliminary stages of development activities and post implementation activities are expensed in the period incurred.

The Company may also capitalize costs related to specific upgrades and enhancements when it is probable the expenditures will result in additional functionality.

Once the software is substantially complete and ready for its intended use, capitalization ceases and the asset is amortized straight line over its estimated useful life, which is typically three years.

Maintenance and repairs are charged to operating expenses.

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Depreciable assets sold or retired are removed from the asset and related accumulated depreciation accounts and any gain or loss is reflected in the income statement.

These assets are reviewed for impairment when events indicate their carrying value may not be recoverable.

These assets are

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reviewed for impairment when events indicate their carrying value may not be recoverable.

If management determines impairment exists, the asset is reduced with an offsetting charge to the income statement.

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Other real estate owned and repossessed assets - Other real estate owned and repossessed assets are foreclosed property held pending disposition and are initially recorded at fair value less estimated selling costs when acquired, establishing a new cost basis.

At foreclosure, if the fair value of the asset acquired less estimated selling costs is less than the Company’s recorded investment in the related loan, a write-down is recognized through a charge to the allowance for loan losses.

Costs of significant property improvements that increase the value of the property are capitalized, whereas costs relating to holding the property are expensed.

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The Company and Bank maintain their records on the accrual basis of accounting for financial reporting and for income tax reporting purposes.

As of December 31, 2022 and 2021, the Company had no unrecognized income tax benefits.

As of December 31, 2023 and 2022, the Company had no material unrecognized income tax benefits.

The Company recognizes interest accrued and penalties related to unrecognized tax benefits in other noninterest expense.

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Application of the two-class method resulted in the equivalent earnings per share to the treasury method.

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Basic earnings per common share is computed by dividing net earnings allocated to common shareholders by the weighted-average number of common shares outstanding during the applicable period, excluding outstanding participating securities.

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unrealized gains or losses on investment securities available-for-sale.

Business Segments – For financial reporting purposes, the Company has two segments:

The community bank and CCBX.

Business Segments – For financial reporting purposes, the Company has three segments:

The community bank, CCBX and treasury & administration.

The community bank business is that of a traditional banking institution, gathering deposits and originating loans for portfolio in its market areas.

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Interest income on loans is the Company’s primary source of revenue, and is supplemented by interest income from investment securities, deposit service charges, and other service provided activities.

In addition to traditional banking services the Company also has a CCBX segment which provides BaaS offerings that enable broker dealers and digital financial service providers to offer their clients banking services.

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 December 31, 2023.

The treasury & administration segment includes treasury management, overall administration and all other aspects of the Company.

The performance of the Company is reviewed and monitored by the Company’s executive management on a daily basis and the Board of Directors reviews and monitors the performance of the Company at minimum, on a monthly basis.

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Advertising costs in the amount of $ 517,000 and $ 351,000 were expensed during the year ended December 31, 2023 and 2022, respectively .

Reclassifications - Certain amounts reported in prior years' consolidated financial statements have been reclassified to conform to the current presentation with no effect on shareholders’ equity or net income.

Reclassifications - Certain amounts reported in prior years' consolidated financial statements may have been reclassified to conform to the current presentation with no effect on shareholders’ equity or net income.

Note 2 - Recent accounting standards

Recent Accounting Guidance Not Yet Effective

In September 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The amendments replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The amendment is effective for annual periods beginning after December 15, 2020 and interim period within those annual periods.

Our implementation was effective January 1, 2023 and was determined when we were a smaller reporting company.

The Company is in the final steps of implementing a CECL allowance model which calculates reserves over the life of the loan and is largely driven by portfolio characteristics, economic outlook, and other key methodology assumptions versus the current accounting practice that utilizes the incurred loss model.

The adoption of this ASU will result in a one-time cumulative-effect adjustment to the allowance for loan losses as of the day of adoption.

The Company currently estimates a combined

increase to our allowance for credit losses and reserve for unfunded loan commitments from 3 % to 10 %.

This change will decrease the opening retained earnings balance as of January 1, 2023.

The above range is disclosed due to the fact that the Company is still in the process of finalizing the CECL allowance model, including the review of assumptions related to qualitative adjustments and economic forecasts;

finalizing the execution of internal controls;

and evaluating the impact to our financial statement disclosures.

The Company does not expect a material allowance for credit losses to be recorded on its available-for-sale debt securities for losses expected over the life of the security under the newly codified available-for-sale debt security impairment model, as the majority of these securities are government agency-backed securities for which the risk of credit loss is minimal.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting , to provide temporary optional expedients and exceptions to the U.S.

GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate.

Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met.

An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination.

Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform.

The amendments in this ASU are effective for all entities upon issuance through December 31, 2022.

The Company expects to be able to use other expedients in this guidance to manage through the transition away from LIBOR, specifically as they relate to loans and borrowing relationships.

The adoption of this accounting guidance is not expected to have a material impact on the Company’s consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures.

The ASU eliminates the accounting guidance for TDR loans by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

Implementation of ASU 2016-13 - On January 1, 2023, the Company adopted ASU 2016-13, Financial Instruments — Credit Losses (Topic 326) :

Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized costs, including loan receivables and held-to-maturity debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in certain leases.

In addition, ASC 326 made changes to the accounting for available-for-sale debt securities.

One such change is to require increases or decreases in credit losses be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believe it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis.

The Company adopted ASC 326 using the modified retrospective method.

Results for the reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The day one CECL adjustment for community bank loans included a reduction of $ 310,000 to the community bank allowance in the first quarter of 2023 and a reduction of $ 340,000 related to the community bank unfunded commitment reserve in the first quarter of 2023.

This was offset by an increase to the CCBX allowance for $ 4.2 million in the same period.

There was a CECL day one increase to the indemnification asset in the amount of $ 4.5 million due to the mirror image approach related to the credit enhancement for CCBX loans.

Net, the day one impact for the Bank’s transition to CECL was an increase of $ 954,000 in the first quarter of 2023, which included an income tax impact of $ 220,000 , resulting in an increase to retained earnings of $ 734,000 , net of income taxes.

Management has separately evaluated its held-to-maturity investment securities and determined that no loss reserves were required.

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The following table illustrates the impact of ASU 2016-13:

January 1, 2023

under ASC 326 Pre-ASC 326

Adoption Impact of

ASC 326 Adoption

Allowance for credit losses $ 77,881 $ 74,029 $ 3,852

CCBX credit enhancement asset 57,842 53,377 4,465

Deferred tax asset 18,238 18,458 ( 220 )

Unfunded commitment reserve 634 974 ( 340 )

Shareholders' Equity:

Retained earnings 120,732 119,998 734

Implementation of ASU 2022-02 - On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings ("TDR") and Vintage Disclosures.

The ASU eliminated the accounting guidance for TDR loans by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

Additionally, the ASU requires public business entities to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases.

This ASU is effective upon adoption of ASU 2016-13.

The Company is in the process of implementing this ASU and evaluating the impact adoption will have on the Company’s consolidated financial statement disclosures.

This ASU was effective upon adoption of ASU 2016-13 and was applied on a prospective basis.

See “ Note 4 - Loans and Allowance for Credit Losses (“ACL”)” for more information on loans that were modified to borrowers experiencing financial difficulty during the twelve months ended months ended December 31, 2023.

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Note 3 - Investment Securities

The amortized cost and fair values of investment securities at the date indicated are as follows:

The following table summarizes the amortized cost, fair value, and allowance for credit losses and the corresponding amounts of gross unrealized gains and losses of available-for-sale securities recognized in accumulated other comprehensive income (loss) and gross unrecognized gains and losses of held-to-maturity securities:

Value Allowance for Credit Losses

(dollars in thousands;

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Treasury securities $ 99,996 $ — $ ( 535 ) $ 99,461 $ —

Agency collateralized mortgage obligations 54 — ( 3 ) 51

Agency residential mortgage-backed securities 1 — — 1

Municipal bonds 250 — — 250

Total available-for-sale securities 100,272 — ( 2,955 ) 97,317

Agency collateralized

mortgage obligations 45 — ( 2 ) 43 —

Total available-for-sale

securities 100,041 — ( 537 ) 99,504 —

Held-to-maturity

Agency residential mortgage-backed securities 1,036 — ( 120 ) 916

Agency residential

mortgage-backed securities 50,860 467 ( 286 ) 51,041 —

Total investment securities $ 150,901 $ 467 $ ( 823 ) $ 150,545 $ —

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Total investment securities $ 101,308 $ — $ ( 3,075 ) $ 98,233

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The amortized cost and fair value of debt securities at December 31, 2023, by contractual maturity, are shown below.

Expected maturities will differ from contractual maturities because borrowers in mortgage backed securities or

obligations may have the right to call or prepay obligations with or without call or prepayment penalties.

Expected maturities will differ from contractual maturities because borrowers in mortgage backed securities or obligations may have the right to call or prepay obligations with or without call or prepayment penalties.

Mortgage-backed securities and collateralized mortgage obligations are shown separately, since they are not due at a single maturity date.

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$ 100,041 $ 99,504 $ 50,860 $ 54,041

Investment securities with amortized cost of $ 37.8 million and $ 36.0 million at December 31, 2022 and December 31, 2021 respectively, were pledged to secure public deposits and for other purposes as required or permitted by law.

During the year ended December 31, 2022, a total of five U.S.

Treasury Bills were purchased for a total of $ 135.0 million, to replace maturing securities and to pledge as security for public deposits, and $ 70.0 million in U.S.

Treasury securities matured during the year ended December 31, 2022.

Investment securities with amortized cost of $21.8 million and $ 37.8 million at December 31, 2023 and December 31, 2022 respectively, were pledged to secure public deposits and for other purposes as required or permitted by law and an additional $25.0 million in securities were pledged for borrowing lines at December 31, 2023, with no securities pledged for borrowing lines at December 31, 2022.

During the year ended December 31, 2023, a total of 16 U.S.

Agency mortgage backed securities were purchased for a total of $ 50.2 million, for CRA purposes during the year ended December 31, 2023.

There were no sales of investments during the year ended December 31, 2023 or December 31, 2022.

Information pertaining to securities with gross unrealized losses at the dates indicated, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

At December 31, 2023 and December 31, 2022, there were nine and six securities, respectively, in an unrealized loss position.

The following table shows the investments’ gross unrealized losses and fair values, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position for which an allowance for credit losses has not been recorded:

Less Than 12 Months 12 Months or Greater Total

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Total investment securities $ 11,236 $ 173 $ 100,386 $ 650 $ 111,622 $ 823

At December 31, 2022 and December 31, 2021, there were six and four securities, respectively, in an unrealized loss position.

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Management has evaluated the above securities and does not believe that any individual unrealized loss as of December 31, 2023, will be recognized into income.

Unrealized losses have not been recognized into income because management does not intend to sell and does not expect it will be required to sell the investments.

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The fair value is expected to recover as the underlying securities in the portfolio approach maturity date and market conditions improve.

The Company does not consider these securities to be other than temporarily impaired at December 31, 2022.

Note 4 - Loans and Allowance for Loan Losses (“ALLL”)

Management believes there is a high probability of collecting all contractual amounts due, because the majority of the securities in the portfolio are backed by government agencies or government sponsored enterprises.

However, a recovery in value may not occur for some time, if at all, and may be delayed for greater than the one year time horizon or perhaps even until maturity.

Based on management's analysis no allowance for credit losses was required on these securities.

Note 4 - Loans and Allowance for Credit Losses (“ACL”)

During the year ended December 31, 2023, $ 599.9 million in CCBX loans were transferred to loans held for sale, with $ 599.9 million in loans sold.

A portion of these loans were sold at par and a portion were sold with a gain on sale of $ 253,000 .

Pricing is dependent upon the agreement with the partner.

The Company sells CCBX loans to manage loan portfolio size by partner and by loan category.

Partner loan limits are established and documented in the relevant partner agreement.

As of December 31, 2023 and December 31, 2022, there were no loans held for sale.

The Company adopted the CECL methodology for measuring credit losses as of January 1, 2023.

All disclosures as of and for the twelve months ended months ended December 31, 2023 are presented in accordance with Topic 326.

The Company did not recast comparative financial periods and has presented those disclosures under previously applicable GAAP.

The composition of the loan portfolio is as follows as of the periods indicated:

December 31, December 31,

(dollars in thousands)

Community Bank

Commercial and industrial loans $ 149,502

Real estate loans:

Construction, land and land development loans 157,100

Residential real estate loans 225,391

Commercial real estate loans 1,303,533

Consumer and other loans:

Other consumer and other loans 1,628

Gross Community Bank loans receivable 1,837,154

Commercial and industrial loans:

Capital call lines $ 87,494

All other commercial & industrial loans

Real estate loans:

Residential real estate loans 238,035

Consumer and other loans:

Credit cards 505,837

Other consumer and other loans 310,574

Gross CCBX loans receivable 1,196,238

Total gross loans receivable 3,033,392

Net deferred origination fees and premiums ( 7,300 )

Loans receivable $ 3,026,092

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Consolidated (dollars in thousands)

Commercial and industrial loans $ 312,628

Real estate loans:

Construction, land, and land development 214,055

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Loans receivable $ 2,627,256

Accrued interest on loans, which is excluded from the balances in the preceding table of loans receivable, was $ 25.6 million and $ 17.0 million at December 31, 2023 and December 31, 2022, respectively, and was included in accrued interest receivable on the Company's consolidated balance sheets.

Included in commercial and industrial loans is $ 87.5 million and $ 146.0 million in capital call lines, as of December 31, 2023 and December 31, 2022, respectively, provided to venture capital firms through one of our BaaS clients.

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Community bank overdrafts were $ 255,000 and $ 94,000 at December 31, 2023 and December 31, 2022, respectively and CCBX overdrafts were $ 2.5 million and $ 2.6 million at December 31, 2023 and December 31, 2022, respectively.

The Company has pledged loans totaling $ 220.1 million and $ 183.5 million at December 31, 2022 and December 31, 2021, respectively, for borrowing lines at the FHLB and FRB.

The Company has pledged loans totaling $ 1.01 billion and $ 220.1 million at December 31, 2023 and December 31, 2022, respectively, for borrowing lines at the FHLB and FRB.

The balance of SBA and USDA loans and participations serviced for others totaled $ 8.7 million and $ 14.3 million at December 31, 2023 and December 31, 2022, respectively.

The balance of Main Street Lending Program (“MSLP”) loans participated and serviced for others totaled $ 58.0 million and $ 56.3 million at December 31, 2022 and December 31, 2021, respectively, with $ 3.1 million and $ 4.8 million outstanding and included in commercial and industrial loans as of December 31, 2022 and December 31, 2021, respectively.

The Company, at times, purchases individual loans through the community bank at fair value as of the acquisition date.

The balance of MSLP loans participated and serviced for others totaled $ 53.4 million and $ 58.0 million at December 31, 2023 and December 31, 2022, respectively, with $ 2.8 million and $ 3.1 million outstanding and included in commercial and industrial loans as of December 31, 2023 and December 31, 2022, respectively.

The Company, through the community bank, at times, purchases individual loans at fair value as of the acquisition date.

The Company held purchased loans with remaining balances totaled $ 8.1 million and $ 9.6 million as of December 31, 2023 and December 31, 2022, respectively.

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These loans are included in the applicable loan category depending upon the collateral and purpose of the individual loan.

The Company has purchased participation loans with remaining balances totaling $ 63.9 million and $ 27.9 million as of December 31, 2022 and December 31, 2021, respectively.

The Company, through the community bank, has purchased participation loans with remaining balances totaling $ 53.5 million and $ 63.9 million as of December 31, 2023 and December 31, 2022, respectively.

These loans are included in the applicable loan category depending upon the collateral and purpose of the individual loan.

The Company purchased loans from CCBX partners, at par, through agreements with those CCBX partners, and those loans had a remaining balance of $ 157.4 million as of December 31, 2022 and $ 59.7 million as of December 31, 2021.

As of December 31, 2022, $ 146.1 million is included in consumer and other loans and $ 11.3 million is included in commercial and industrial loans, compared to $ 59.4 million in consumer and other loans and $ 281,000 in commercial and industrial loans as of December 31, 2021.

The Company, through the community bank, purchased loans from CCBX partners, at par, through agreements with those CCBX partners, and those loans had a remaining balance of $ 46.5 million as of December 31, 2023 and $ 157.4 million as of December 31, 2022.

As of December 31, 2023, $ 40.2 million is included in consumer and other loans and $ 6.3 million is included in commercial and industrial loans, compared to $ 146.1 million in consumer and other loans and $ 11.3 million in commercial and industrial loans as of December 31, 2022.

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The following is a summary of the Company’s loan portfolio segments:

Commercial and industrial loans - Commercial and industrial loans are secured by business assets including inventory, receivables and machinery and equipment of businesses located generally in the Company’s primary market area and capital calls on venture and investment funds.

Also included in commercial and industrial loans are $ 14.9 million in unsecured loans originated through CCBX partners as of December 31, 2022, compared to zero as of December 31, 2021.

Loan types include PPP loans, revolving lines of credit, term loans, and loans secured by liquid collateral such as cash deposits or marketable securities.

Also included in commercial and industrial loans are loans to other financial institutions.

Also included in commercial and industrial loans are $ 54.3 million in unsecured loans originated through CCBX partners as of December 31, 2023, compared to $ 14.9 million as of December 31, 2022.

Loan types in this segment include PPP loans, revolving lines of credit, term loans, and loans secured by liquid collateral such as cash deposits or marketable securities.

In addition, included in commercial and industrial loans are loans to other financial institutions.

Additionally, the Company issues letters of credit on behalf of its customers.

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As of December 31, 2023 $ 816.4 million in CCBX loans are included in consumer and other loans, compared to $ 607.0 million at December 31, 2022.

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Past due and Nonaccrual Loans

The following table illustrates an age analysis of past due loans as of the dates indicated:

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Past Due Current Total

Loans Recorded

Loans 90 Days or

(dollars in thousands;

December 31, 2023

Commercial and industrial loans $ 393 $ 486 $ 879 $ 311,749 $ 312,628 $ 404

Community Bank

Commercial and industrial

loans $ — $ — $ — $ 149,502 $ 149,502 $ —

Real estate loans:

Construction, land and land development

— — — 157,100 157,100 —

Residential real estate 44 — 44 225,347 225,391 —

1 unchanged sentence

Consumer and other loans 2 — 2 1,626 1,628 —

Total community bank $ 46 $ 7,145 $ 7,191 $ 1,829,963 $ 1,837,154 $ —

Commercial and industrial loans:

Capital call lines $ — $ — $ — $ 87,494 $ 87,494 $ —

All other commercial &

industrial loans

3,433 2,086 5,519 48,779 54,298 2,086

Less net deferred origination fees and premiums ( 6,107 )

Real estate loans:

Residential real

estate loans 3,198 1,115 4,313 $ 233,722 $ 238,035 1,115

Consumer and other loans:

Credit cards 28,383 34,835 63,218 $ 442,619 $ 505,837 34,835

Other consumer and

other loans 29,645 8,488 38,133 272,441 310,574 8,488

Total CCBX $ 64,659 $ 46,524 $ 111,183 $ 1,085,055 $ 1,196,238 $ 46,524

Total Consolidated $ 64,705 $ 53,669 $ 118,374 $ 2,915,018 3,033,392 $ 46,524

Less net deferred origination fees and

Loans receivable $ 3,026,092

Table of Content s

Consolidated 30-89

Past Due Total

Past Due Current Total

Loans Recorded

Loans 90 Days or

(dollars in thousands)

11 unchanged sentences

The increase is attributed to loans originated through CCBX lending partners which continue to accrue interest up to 180 days past due.

The following table is a summary of information pertaining to impaired loans as of the period indicated.

Loans originated through CCBX partners are reported using pool accounting and are not subject to individual impairment analysis, therefore CCBX loans are not included in this table.

Balance Recorded

Allowance Recorded

Allowance Total

Investment Related

(dollars in thousands)

December 31, 2022

Commercial and industrial loans $ 124 $ — $ 113 $ 113 $ 95

Real estate loans:

Construction, land and land development 67 66 — 66 —

Residential real estate — — — — —

Commercial real estate 6,901 6,901 — 6,901 —

Total $ 7,092 $ 6,967 $ 113 $ 7,080 $ 95

December 31, 2021

Commercial and industrial loans $ 173 $ — $ 166 $ 166 $ 132

Real estate loans:

Residential real estate 69 55 — 55 —

Total $ 242 $ 55 $ 166 $ 221 $ 132

The following tables summarize the average recorded investment and interest income recognized on impaired loans by loan class for the year ended December 31, 2022 and 2021:

December 31, 2022 December 31, 2021

Investment Interest Income

Recognized Average

Investment Interest Income

(dollars in thousands)

Commercial and industrial loans $ 121 $ — $ 498 $ —

Real estate loans:

Construction, land and land development 40 — — —

Residential real estate 32 — 143 —

Commercial real estate 1,395 — — —

Total $ 1,588 $ — $ 641 $ —

In some circumstances, the Company grants restructurings in response to borrower financial difficulty, and generally provides for a temporary modification of loan repayment terms.

The restructured loans on accrual status represent the only impaired loans accruing interest.

In order for a restructured loan to be considered for accrual status, the loan’s collateral coverage generally will be greater than or equal to 100 % of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow for an extended period of time, usually at least six months in duration.

No loans were restructured in the year ended December 31, 2022 and December 31, 2021 that qualified as troubled debt restructurings.

The Company has no commitments to loan additional funds to borrowers whose loans were classified as troubled debt restructurings at December 31, 2022, as there were no outstanding troubled debt restructurings at December 31, 2022 and December 31, 2021.

Pursuant to guidance from the federal bank regulatory agencies, the Company deferred or modified payments on existing loans to assist customers financially during the COVID-19 pandemic and economic shutdown.

As of December 31, 2022 all deferred and modified loans during the COVID-19 pandemic have either returned to active status or paid off.

In accordance with GAAP, the CARES Act, as amended by the Consolidated Appropriations Act, 2021, and interagency guidance issued on March 22, 2020 and April 7, 2020, these short-term modifications, made on a good faith basis in response to the COVID-19 pandemic to borrowers that were current prior to any relief, were not considered TDRs.

The accrual of interest on community bank loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due or when they are 90 days past due as to either principal or interest, unless they are well secured and in the process of collection.

Installment/closed-end, and revolving/open-end consumer loans originated through CCBX lending partners will continue to accrue interest until 120 and 180 days past due, respectively and an allowance is recorded through provision expense for these probable incurred losses.

For installment/closed-end and revolving/open-end consumer loans originated through CCBX lending partners with balances outstanding beyond 120 days and 180 days past due, respectively, principal and capitalized interest outstanding is charged off against the allowance and accrued interest outstanding is reversed against interest income.

These consumer loans are reported as substandard, 90 days or more days past due and still accruing.

These consumer loans are reported as nonperforming/substandard, 90 days or more days past due and still accruing.

When loans are placed on nonaccrual status, all accrued interest is reversed from current period earnings.

2 unchanged sentences

Loans may be returned to accruing status if the Company believes that all remaining principal and interest is fully collectible and there has been at least six months of sustained repayment performance since the loan was placed on nonaccrual.

Table of Content s

An analysis of nonaccrual loans by category consisted of the following at the periods indicated:

December 31, December 31,

Total Nonaccrual Nonaccrual with No ACL Total Nonaccrual

(dollars in thousands;

Community Bank

Commercial and industrial loans $ — $ — $ 113

3 unchanged sentences

Commercial real estate 7,145 7,145 6,901

Consumer and other loans — — —

Total nonaccrual loans $ 7,315 $ 7,315 $ 7,080

Table of Content s

In some circumstances, the Company modifies loans in response to borrower financial difficulty, and generally provides for a temporary modification of loan repayment terms.

In order for a modified loan to be considered for accrual status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow for an extended period of time, usually at least six months in duration.

In January 2023, the Company adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures” (“ASU 2022-02”), which eliminated the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty.

This guidance was applied on a prospective basis.

No loans were modified for community bank borrowers experiencing financial difficulty in the twelve months ended months ended December 31, 2023 .

The following table presents the CCBX loans at December 31, 2023 that were both experiencing financial difficulty and were modified during the year ended December 31, 2023 by class and by type of modification.

The percentage of the loans that were modified to borrowers in financial distress as compared to the total of each class of loans is also presented below.

Principal Forgiveness Term Extension Interest Rate Reduction Principal Forgiveness & Payment Delay Principal Forgiveness, Payment Delay & Term Extension Total Total Class of Financing Receivable

(dollars in thousands;

Commercial and industrial loans:

All other commercial & industrial loans

$ — $ 1,247 $ — $ 27 $ 18 $ 1,292 2.38 %

Consumer and other loans:

Credit cards 1 — 4,201 — — 4,202 0.83

Other consumer and other loans — 13,571 — 3,838 2,846 20,255 6.52

Total $ 1 $ 14,818 $ 4,201 $ 3,865 $ 2,864 $ 25,749 0.85 %

The Company has committed to lend additional amounts totaling $320,000 to the borrowers included in the previous table.

The performance of loans modified is monitored to understand the effectiveness of the modification efforts.

The following table presents the performance of such loans that have been modified in the last 12 months:

Table of Content s

Past Due Total Past Due

(dollars in thousands)

Commercial and industrial loans:

All other commercial & industrial loans

$ 268 $ 219 $ 487

Consumer and other loans:

Credit cards 1,747 1,436 3,183

Other consumer and other loans 3,436 716 4,152

Total CCBX $ 5,451 $ 2,371 $ 7,822

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the year ended December 31, 2023:

Principal Forgiveness Weighted Average Interest Rate Reduction Weighted Average Term Extension (years)

(dollars in thousands)

Commercial and industrial loans:

All other commercial & industrial loans

Real estate loans:

Residential real estate loans 42 — n/a

Consumer and other loans:

Credit cards — 20.5 n/a

Other consumer and other loans — — 0.8

Total CCBX $ 42 20.5 % 0.8

The following table presents the total of loans that had a payment default during the year ended December 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty.

Table of Content s

Term Extension Interest Rate Reduction Principal Forgiveness & Payment Delay Principal Forgiveness, Payment Delay & Term Extension Total

(dollars in thousands;

Commercial and industrial loans:

All other commercial & industrial loans

$ 487 $ — $ 5 $ — $ 492

Consumer and other loans:

Credit cards — 3,924 — — 3,924

Other consumer and other loans 3,155 — 1,143 619 4,917

Total $ 3,642 $ 3,924 $ 1,148 $ 619 $ 9,333

Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is written off.

Therefore, the loan balance is reduced by the uncollectible amount and the allowance for credit losses is adjusted by the same amount.

Credit Quality and Credit Risk

1 unchanged sentence

In addition, the Company’s regulatory agencies have authority to identify problem loans and, if appropriate, require them to be reclassified.

The Company establishes loan grades for loans at the origination of the loan.

Changes to community bank loan grades are considered at the time new information about the performance of a loan becomes available, including the receipt of updated financial information from the borrower and after loan reviews.

For consumer loans, the Bank follows the Federal Financial Institutions Examination Council’s Uniform Retail Credit Classification and Account Management Policy for subsequent classification in the event of payment delinquencies or default.

Typically, an individual loan grade will not be changed from the prior period unless there is a specific indication of credit deterioration or improvement.

Credit deterioration is evidenced by delinquency, direct communications with the borrower or other borrower information that becomes known to management.

Credit improvements are evidenced by known facts regarding the borrower or the collateral property.

The Company classifies some loans as Watch or Other Loans Especially Mentioned (“OLEM”).

8 unchanged sentences

A loan classified as Loss is considered uncollectible and of such little value that continued classification of the credit as a loan is not warranted.

If a loan or a portion thereof is classified as Loss, it must be charged-off, meaning the amount of the loss is charged against the allowance for loan losses, thereby reducing that reserve.

Loans by credit quality risk rating are as follows as of the periods indicated:

Pass Other Loans

Mentioned Sub-

Standard Doubtful Total

If a loan or a portion thereof is classified as Loss, it must be charged-off, meaning the amount of the loss is charged against the allowance for credit losses, thereby reducing that reserve.

Table of Content s

Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination.

As of December 31, 2023 and December 31, 2022, based on the most recent analysis performed, the risk category of community bank loans by year of origination is as follows:

Term Loans Amortized Cost Basis by Origination Year

Community Bank 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted To Term Total

(dollars in thousands)

December 31, 2022

As of December 31, 2023

Commercial and industrial loans

Pass $ 15,882 $ 56,428 $ 15,566 $ 10,044 $ 12,429 $ 1,442 $ 33,412 $ 1,020 $ 146,223

Other Loan Especially Mentioned — — — 111 — — 3,168 — $ 3,279

Substandard — — — — — — — — $ —

Doubtful — — — — — — — — —

Total commercial and industrial

loans - All other commercial and

industrial loans $ 15,882 $ 56,428 $ 15,566 $ 10,155 $ 12,429 $ 1,442 $ 36,580 $ 1,020 $ 149,502

Current period gross write-offs $ — $ — $ — $ — $ — $ 46 $ — $ — $ 46

Real estate loans -

Construction, land, and land development 206,304 7,685 66 — 214,055

Residential real estate 448,185 96 876 — 449,157

Commercial real estate 1,030,650 11,201 6,901 — 1,048,752

Construction, land and land

development loans

Pass $ 75,129 $ 49,275 $ 20,811 $ 2,859 $ 914 $ 1,598 $ — $ — $ 150,586

Other Loan Especially Mentioned — — 3,589 2,325 — — — — $ 5,914

Substandard — — — — — — 600 — $ 600

Doubtful — — — — — — — — $ —

Total real estate loans -

Construction, land and land

development loans $ 75,129 $ 49,275 $ 24,400 $ 5,184 $ 914 $ 1,598 $ 600 $ — $ 157,100

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Table of Content s

Term Loans Amortized Cost Basis by Origination Year

Community Bank 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted To Term Total

(dollars in thousands)

As of December 31, 2023

Real estate loans -

Residential real estate loans

Pass $ 32,352 $ 41,362 $ 39,137 $ 30,259 $ 31,982 $ 22,429 $ 24,396 $ 18 $ 221,935

Other Loan Especially Mentioned — 1,098 2,020 28 — 40 100 — $ 3,286

Substandard — — — — — — — 170 $ 170

Doubtful — — — — — — — — $ —

Total real estate loans -

Residential real estate loans $ 32,352 $ 42,460 $ 41,157 $ 30,287 $ 31,982 $ 22,469 $ 24,496 $ 188 $ 225,391

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Real estate loans -

Commercial real estate loans

Pass $ 244,169 $ 303,329 $ 222,287 $ 144,602 $ 126,437 $ 233,482 $ 7,509 $ 1,719 $ 1,283,534

Other Loan Especially Mentioned — 3,257 5,891 171 506 2,099 100 — $ 12,024

Substandard — — — 924 6,900 — 151 — $ 7,975

Doubtful — — — — — — — — —

Total real estate loans -

Commercial real estate loans $ 244,169 $ 306,586 $ 228,178 $ 145,697 $ 133,843 $ 235,581 $ 7,760 $ 1,719 $ 1,303,533

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Consumer and other loans -

$ 2,573,935 $ 26,201 $ 33,227 $ — 2,633,363

Less net deferred origination fees ( 6,107 )

Loans receivable $ 2,627,256

Other consumer and other loans

Pass $ 323 $ 272 $ 5 $ 679 $ 38 $ 164 $ 147 $ — $ 1,628

Other Loan Especially Mentioned — — — — — — — — $ —

Substandard — — — — — — — — $ —

Doubtful — — — — — — — — —

Total consumer and other

loans - Other consumer and

other loans $ 323 $ 272 $ 5 $ 679 $ 38 $ 164 $ 147 $ — $ 1,628

Current period gross write-offs $ 18 $ — $ — $ — $ — $ — $ — $ — $ 18

Table of Content s

Term Loans Amortized Cost Basis by Origination Year

Community Bank 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted To Term Total

(dollars in thousands)

As of December 31, 2023

Total community bank loans receivable

Pass $ 367,855 $ 450,666 $ 297,806 $ 188,443 $ 171,800 $ 259,115 $ 65,464 $ 2,757 $ 1,803,906

Other Loan Especially Mentioned — 4,355 11,500 2,635 506 2,139 3,368 — $ 24,503

Substandard — — — 924 6,900 — 751 170 $ 8,745

Doubtful — — — — — — — — —

Total community bank loans $ 367,855 $ 455,021 $ 309,306 $ 192,002 $ 179,206 $ 261,254 $ 69,583 $ 2,927 $ 1,837,154

Current period gross write-offs $ 18 $ — $ — $ — $ — $ 46 $ — $ — $ 64

The Company considers the performance of the CCBX loan portfolio and its impact on the allowance for credit losses.

For CCBX loans, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

The following table presents the loans in CCBX based on payment activity:

Term Loans Amortized Cost Basis by Origination Year

CCBX 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted To Term Total

(dollars in thousands)

As of December 31, 2023

Commercial and industrial loans -

Capital call lines

Payment performance

Performing $ — $ — $ — $ — $ — $ — $ 87,494 $ — $ 87,494

Nonperforming — — — — — — — — —

Total commercial and industrial

loans - Capital call lines $ — $ — $ — $ — $ — $ — $ 87,494 $ — $ 87,494

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Commercial and industrial loans -

All other commercial and industrial loans

Payment performance

Performing $ 42,267 $ 6,835 $ 9 $ 11 $ — $ — $ 3,090 $ — $ 52,212

Nonperforming 1,333 277 — — — — 476 — 2,086

Total commercial and industrial

loans - All other commercial and

industrial loans $ 43,600 $ 7,112 $ 9 $ 11 $ — $ — $ 3,566 $ — $ 54,298

Current period gross write-offs $ 3,848 $ 2,502 $ 15 $ 16 $ — $ — $ 224 $ — $ 6,605

Table of Content s

Term Loans Amortized Cost Basis by Origination Year

CCBX 2023 2022 2021 2020 2019 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted To Term Total

(dollars in thousands)

As of December 31, 2023

Real estate loans -

Residential real estate loans

Payment performance

Performing $ — $ — $ — $ — $ — $ — $ 212,435 $ 24,485 $ 236,920

Nonperforming — — — — — — 1,115 — 1,115

Total real estate loans -

Residential real estate loans $ — $ — $ — $ — $ — $ — $ 213,550 $ 24,485 $ 238,035

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ 4,641 $ — $ 4,641

Consumer and other loans -

Payment performance

Performing $ — $ — $ — $ — $ — $ — $ 469,049 $ 1,953 $ 471,002

Nonperforming — — — — — — 33,655 1,180 34,835

Total consumer and other

loans - Credit cards $ — $ — $ — $ — $ — $ — $ 502,704 $ 3,133 $ 505,837

Current period gross write-offs $ — $ — $ — $ — $ — $ — $ 61,358 $ — $ 61,358

Consumer and other loans -

Other consumer and other loans

Payment performance

Performing $ 216,024 $ 50,732 $ 6,888 $ 98 $ 418 $ 317 $ 27,609 $ — $ 302,086

Nonperforming 4,229 3,074 477 — 7 10 691 — 8,488

Total consumer and other

loans - Other consumer and

other loans $ 220,253 $ 53,806 $ 7,365 $ 98 $ 425 $ 327 $ 28,300 $ — $ 310,574

Current period gross write-offs $ 17,815 $ 43,115 $ 11,574 $ 84 $ 346 $ 217 $ 6,178 $ — $ 79,329

Total CCBX loans receivable

Payment performance

Performing $ 258,291 $ 57,567 $ 6,897 $ 109 $ 418 $ 317 $ 799,677 $ 26,438 $ 1,149,714

Nonperforming 5,562 3,351 477 — 7 10 35,937 1,180 46,524

Total CCBX loans $ 263,853 $ 60,918 $ 7,374 $ 109 $ 425 $ 327 $ 835,614 $ 27,618 $ 1,196,238

Current period gross write-offs $ 21,663 $ 45,617 $ 11,589 $ 100 $ 346 $ 217 $ 72,401 $ — $ 151,933

Table of Content s

Loans by credit quality risk ratings are as follows as of the periods indicated:

Consolidated Pass Other Loans

Mentioned Sub-

Standard Doubtful Total

(dollars in thousands)

December 31, 2022

8 unchanged sentences

Loans receivable $ 2,627,256

Allowance for Loan Losses

The Company’s ALLL covers estimated credit losses on individually evaluated loans that are determined to be impaired as well as estimated probable losses inherent in the remainder of the loan portfolio.

The ALLL for the community bank is prepared using the information provided by the Company’s credit review process and our historical loss data, together with data from peer institutions and economic information gathered from published sources.

The loan portfolio is segmented into groups of loans with similar risk profiles.

Each segment possesses varying degrees of risk based on the type of loan, the type of collateral, and the sensitivity of the borrower or industry to changes in external factors such as economic conditions.

An estimated loss rate calculated from the community bank’s actual historical loss rates adjusted for current portfolio trends, economic conditions, and other relevant internal and external factors, is applied to each group’s aggregate loan balances.

CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for loan losses.

Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by absorbing incurred losses.

In accordance with accounting guidance, we estimate and record a provision for probable losses for these CCBX loans and reclassified negative deposit accounts.

When the provision for CCBX loan losses and provision for unfunded commitments are recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements).

Incurred losses are recorded in the allowance for loan losses.

The credit enhancement asset is relieved when credit enhancement recoveries are received from the CCBX partner.

Although agreements with our CCBX partners include credit enhancements that provide protection to the Bank from credit and fraud losses, the Bank would be exposed to additional loan losses if our partner is unable to fulfill its contracted obligations.

In accordance with the program agreement for one CCBX partner, the Company is responsible for credit losses on approximately 10 % of a $ 114.5 million loan portfolio.

Table of Content s

Allowance for Credit Losses ("ACL")

On January 1, 2023, the Company adopted ASU 2016-13, which replaces the incurred loss methodology with an expected loss methodology that is referred to as CECL.

See Note 1, Description of Business and Summary of Significant Accounting Policies.

As a result of implementing CECL, there was a one-time adjustment to the 2023 opening allowance balance of $ 3.9 million.

CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses.

Agreements with our CCBX partners provide for a credit enhancement which protects the Bank by reimbursing most losses.

In accordance with accounting guidance, we estimate and record a provision for expected losses for these CCBX loans and reclassified negative deposit accounts.

When the provision for CCBX credit losses and provision for unfunded commitments are recorded, a credit enhancement asset is also recorded on the balance sheet through noninterest income (BaaS credit enhancements).

Expected losses are recorded in the allowance for credit losses.

The credit enhancement asset is reduced when credit enhancement payments are received from the CCBX partner or taken from the partner's cash reserve account.

CCBX partners provide for credit enhancements that provide protection to the Bank from credit and fraud losses by reimbursing the Bank for the losses.

If the partner is unable to fulfill its contracted obligations then the Bank could be exposed to the loss of the reimbursement and credit enhancement income.

In accordance with the program agreement for one CCBX partner, the Company is responsible for credit losses on approximately 10 % of a $ 288.1 million loan portfolio that are without credit enhancement reimbursements.

At December 31, 2023, 10 % of this portfolio represented $ 29.1 million in loans.

The partner is responsible for credit losses on approximately 90 % of this portfolio and for fraud losses on 100 % of this portfolio.

The Company earns 100 % of the revenue on the aforementioned $ 11.5 million of loans.

For the year ended December 31, 2022, there were $ 216,000 in net charge-offs on the portion of loans for which the Company is responsible for credit losses.

The following tables summarize the allocation of the allowance for loan loss, as well as the activity in the allowance for loan loss attributed to various segments in the loan portfolio, as of and for the year ended December 31, 2022.

The partner is responsible for reimbursing credit losses on approximately 90 % of this portfolio and for fraud losses on 100 % of this portfolio.

The Company earns 100 % of the interest income on the aforementioned $ 29.1 million of loans.

Table of Content s

The following tables summarize the allocation of the ACL, as well as the activity in the ACL attributed to various segments in the loan portfolio, as of and for the year ended December 31, 2023 and the allocation and activity of the loans and allowance for loan losses ("ALLL ") attributed to the various segments in the loan portfolio for the year ended December 31, 2022:

Industrial Construction,

6 unchanged sentences

ALLL balance, December 31, 2022 $ 4,831 $ 7,425 $ 4,142 $ 5,470 $ 50,996 $ 1,165 $ 74,029

Provision for loan losses or (recapture) 2,125 441 ( 4 ) ( 1,120 ) 76,604 1,018 79,064

Impact of adopting CECL (ASC 326) 1,428 ( 1,589 ) 1,623 1,240 2,315 ( 1,165 ) $ 3,852

Provision for credit losses or (recapture) 9,264 550 11,921 731 161,577 — 184,043

15,523 6,386 17,686 7,441 214,888 — 261,924

1 unchanged sentence

Recoveries of loans previously charged-off 5 — 4 — 7,022 — 7,031

Net (charge-offs) recoveries ( 515 ) — ( 452 ) — ( 32,700 ) — ( 33,667 )

Net charge-offs ( 6,646 ) — ( 4,637 ) — ( 133,683 ) — ( 144,966 )

ACL balance, December 31, 2023 $ 8,877 $ 6,386 $ 13,049 $ 7,441 $ 81,205 $ — $ 116,958

Twelve Months Ended December 31, 2022

ALLL Balance, December 31, 2021 $ 3,221 $ 6,984 $ 4,598 $ 6,590 $ 7,092 $ 147 $ 28,632

As of December 31, 2022

ALLL amounts allocated to

Individually evaluated for impairment $ 95 $ — $ — $ — $ — $ — $ 95

Collectively evaluated for impairment 4,736 7,425 4,142 5,470 50,996 1,165 73,934

Provision for credit losses or (recapture) 2,125 441 ( 4 ) ( 1,120 ) 76,604 1,018 79,064

5,346 7,425 4,594 5,470 83,696 1,165 107,696

Loans charged-off ( 555 ) — ( 452 ) — ( 32,742 ) — ( 33,749 )

Recoveries of loans previously charged-off 40 — — — 42 — 82

Net charge-offs ( 515 ) — ( 452 ) — ( 32,700 ) — ( 33,667 )

ALLL Balance, December 31, 2022 $ 4,831 $ 7,425 $ 4,142 $ 5,470 $ 50,996 $ 1,165 $ 74,029

Loans individually evaluated for impairment $ 113 $ 66 $ — $ 6,901 $ — $ 7,080

Loans collectively evaluated for impairment 312,515 213,989 449,157 1,041,851 608,771 2,626,283

Loan balance, December 31, 2022 $ 312,628 $ 214,055 $ 449,157 $ 1,048,752 $ 608,771 $ 2,633,363

As of December 31, 2021

Loan balance, December 31, 2021 $ 419,060 $ 183,594 $ 204,389 $ 835,587 $ 108,871 $ 1,751,501

Industrial Construction,

Development Residential

Estate Commercial

Real Estate Consumer

and Other Unallocated Total

(dollars in thousands)

Twelve Months Ended December 31, 2021

Balance, December 31, 2020 $ 3,353 $ 3,545 $ 3,410 $ 7,810 $ 127 $ 1,017 $ 19,262

Provision for loan losses or (recapture) 23 3,439 1,267 ( 1,220 ) 7,276 ( 870 ) 9,915

ALLL balance, December 31, 2020 $ 3,353 $ 3,545 $ 3,410 $ 7,810 $ 127 $ 1,017 $ 19,262

Provision for credit losses or (recapture) 23 3,439 1,267 ( 1,220 ) 7,276 ( 870 ) 9,915

3,376 6,984 4,677 6,590 7,403 147 29,177

1 unchanged sentence

Recoveries of loans previously charged-off 67 — — — 28 — 95

Net (charge-offs) recoveries ( 155 ) — ( 79 ) — ( 311 ) — ( 545 )

Balance, December 31, 2021 $ 3,221 $ 6,984 $ 4,598 $ 6,590 $ 7,092 $ 147 $ 28,632

As of December 31, 2021

ALLL amounts allocated to

Individually evaluated for impairment $ 132 $ — $ — $ — $ — $ — $ 132

Collectively evaluated for impairment 3,089 6,984 4,598 6,590 7,092 147 28,500

Net charge-offs ( 155 ) — ( 79 ) — ( 311 ) — ( 545 )

ALLL balance, December 31, 2021 $ 3,221 $ 6,984 $ 4,598 $ 6,590 $ 7,092 $ 147 $ 28,632

Loans individually evaluated for impairment $ 166 $ — $ 55 $ — $ — $ 221

Loans collectively evaluated for impairment 418,894 183,594 204,334 835,587 108,871 1,751,280

Loan balance, December 31, 2021 $ 419,060 $ 183,594 $ 204,389 $ 835,587 $ 108,871 $ 1,751,501

As of December 31, 2020

Loan balance, December 31, 2020 $ 539,200 $ 94,423 $ 143,869 $ 774,925 $ 3,916 $ 1,556,333

Table of Content s

The following table presents the collateral dependent loans, which are individually evaluated to determine expected credit losses, and the related ACL allocated to these loans:

Real Estate Business Assets Total ACL

(dollars in thousands;

December 31, 2023

Real estate loans:

Residential real estate $ 170 $ — $ 170 $ —

Commercial real estate 7,145 — 7,145 —

Total $ 7,315 $ — $ 7,315 $ —

The following table is a summary of information pertaining to impaired loans as of the period indicated.

Loans originated through CCBX partners are reported using pool accounting and are not subject to individual impairment analysis, therefore CCBX loans are not included in this table.

Balance Recorded

Allowance Recorded

Allowance Total

Investment Related

(dollars in thousands)

December 31, 2022

Commercial and industrial loans $ 124 $ — $ 113 $ 113 $ 95

Real estate loans:

Construction, land and land development 67 66 — 66 —

Residential real estate — — — — —

Commercial real estate 6,901 6,901 — 6,901 —

Total $ 7,092 $ 6,967 $ 113 $ 7,080 $ 95

The following tables summarize the average recorded investment and interest income recognized on impaired loans by loan class for the period indicated:

Twelve Months Ended

December 31, 2022 December 31, 2021

Investment Interest Income

Recognized Average

Investment Interest Income

(dollars in thousands)

Commercial and industrial loans $ 121 $ — $ 498 $ —

Real estate loans:

Construction, land and land development 40 — — —

Residential real estate 32 — 143 —

Commercial real estate 1,395 — — —

Total $ 1,588 $ — $ 641 $ —

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Note 5 – Premises and Equipment

17 unchanged sentences

Any new operating leases entered into will be recognized as an operating lease ROU asset and operating lease liability at the commencement date of the new lease.

The Company’s leases do not provide an implicit interest rate, therefore the Company used its incremental collateralized borrowing rates commensurate with the underlying lease terms to determine the present value of operating lease liabilities.

The weighted average discount rate used to discount operating lease liabilities at December 31, 2022 was 3.4 %.

The weighted average discount rate of operating lease liabilities at December 31, 2023 was 4.0 %.

The Company’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately.

2 unchanged sentences

Operating lease terms include options to extend when it is reasonably certain that the Company will exercise such options, determined on a lease-by-lease basis.

At December 31, 2022, lease expiration dates ranged from less than one month to 22 years, with additional renewal options on certain leases typically ranging from 5 to 10 years.

At December 31, 2023, lease expiration dates ranged from less than two months to 21.2 years, with additional renewal options on certain leases typically ranging from 5 to 10 years.

At December 31, 2023, the dollar weighted average remaining lease term for the Company’s operating leases was 9.0 years.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $ 1.4 million for the years ended December 31, 2022 and 2021.

Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $ 1.2 million and $ 1.4 million for the years ended December 31, 2023 and 2022, respectively.

Variable lease components, such as fair market value adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities.

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The following sets forth, as of December 31, 2023, the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew:

4 unchanged sentences

Present value of lease liabilities $ 6,124

The Company leases its Downtown Everett facility from related parties (Note 12).

Office space at a small number of branches is leased and sub-leased to a few tenants on month-to-month and multi-year leases.

4 unchanged sentences

2023 December 31,

2022 December 31,

Lease expense:

12 unchanged sentences

Savings 76,562 107,117

BaaS-brokered deposits 101,546 70,757

Brokered deposits 1 101,546

Time deposits less than $250,000 13,917 21,942

1 unchanged sentence

Total deposits $ 3,360,363 $ 2,817,521

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The following table presents the maturity distribution of time deposits as of December 31, 2023:

5 unchanged sentences

Four to five years 650

CCBX deposits are originated through CCBX partners for true depositor and FDIC insurance purposes.

CCBX deposits were primarily noninterest bearing prior to the rate increases in 2022 by the Federal Open Market Committee (“FOMC”).

As a result of the interest rate increases, a significant portion of CCBX deposits that were not earning interest were reclassified to interest bearing deposits from noninterest bearing deposits during the first and second quarters of 2022.

These CCBX deposits were reclassified because the current interest rate exceeded the minimum interest rate set in their respective program agreements, as a result of the first and second quarter 2022 interest rate increases by the FOMC, we needed to pay interest to the CCBX partners for these deposits.

We do not expect additional CCBX deposits will be reclassified as a result of future rate increases.

Included in total deposits is $ 340.1 million in IntraFi network reciprocal NOW and money market sweep accounts as of December 31, 2023, which provides our customers with fully insured deposits through a sweep and exchange of deposits with other financial institutions.

Note 8 – Federal Home Loan Bank Advances and Other Borrowings

At December 31, 2022 the Company had no overnight or term FHLB advances.

During the year ended December 31, 2022, the Company repaid a total of $ 25.0 million in FHLB advances.

This includes a $ 10.0 million advance that would have matured in March 2023 and a $ 15.0 million advance that would have matured in March 2027.

We have sufficient liquidity for our current loan demand, and with no prepayment penalty for early repayment, management opted to repay these term advances and save the unnecessary interest expense.

At December 31, 2021 the Company had no FHLB overnight advances and $ 25.0 million in term advances.

At December 31, 2023 and December 31, 2022 the Company had no overnight or term FHLB advances.

FHLB advances are secured by a blanket pledge of eligible collateral including first lien single family and multi-family mortgages with a carrying value of $ 321.5 million and $ 175.1 million at December 31, 2023 and 2022, respectively.

4 unchanged sentences

Maximum amount outstanding at any month-end during period:

$ 24,999 $ 24,999

Average outstanding balance during period:

$ 6,029 $ 24,999

Weighted average interest rate during period:

2 unchanged sentences

Weighted average interest rate at end of period:

The Company has established an $ 50.0 million unsecured line of credit with interest payable at the then-stated rate, with PCBB, which expires in June 2023.

The Company has established a $ 50.0 million unsecured line of credit with interest payable at the then-stated rate, with PCBB, which expires in June 2024.

There were no borrowings on this line at December 31, 2023 or 2022.

3 unchanged sentences

There were no borrowings outstanding on this line of credit at December 31, 2023 or 2022.

To bolster the effectiveness of the SBA’s PPP loan program, the Federal Reserve supplied liquidity to participating financial institutions through term financing backed by PPP loans to small businesses.

The PPP provided loans to small businesses so that they could keep their employees on the payroll and pay for other allowed expenses.

If the borrowers met certain criteria, the loan may be forgiven.

The PPPLF extended credit to eligible financial institutions that originated PPP loans, taking the loans as collateral at face value.

The interest rate was 0.35 % and as PPP loans were paid down, the borrowing line also had to be paid down.

The Company paid the PPPLF borrowing line in full in June 2021, therefore there was no outstanding balance as of December 31, 2022 or 2021.

The following tables provides details on PPPLF advance borrowings for the periods indicated:

Year Ended December 31,

(dollars in thousands) 2021

Maximum amount outstanding at any month-end during period:

Average outstanding balance during period:

Weighted average interest rate during period:

Balance outstanding at end of period:

Weighted average interest rate at end of period:

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Note 9 – Subordinated Debt

12 unchanged sentences

The note matures on November 1, 2032 , is fixed for five years at 7.000 %, and thereafter is variable at a floating rate, calculated quarterly, based on the 3-month SOFR + 2.90 %.

Subordinated debt interest expense of $ 1.2 million and $ 711,000 was recognized during 2022 and 2021, respectively, and accrued interest payable on these notes totaled $ 535,000 and $ 286,000 at December 31, 2022 and 2021, respectively.

Subordinated debt interest expense of $ 2.4 million and $ 1.2 million was recognized during 2023 and 2022, respectively, and accrued interest payable on these notes totaled $ 515,000 and $ 535,000 at December 31, 2023 and 2022, respectively.

Note 10 – Junior Subordinated Debentures

9 unchanged sentences

On December 15, 2004, the Company issued $ 3.6 million floating rate junior subordinated debentures to Coastal (WA) Statutory Trust I, which was formed for the issuance of trust preferred securities.

The debentures bear interest at three-month LIBOR plus 2.10 % (fully indexed rate of 6.87 % and 2.30 % at December 31, 2022 and 2021, respectively).

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 December 31, 2023 and December 31, 2022 was 7.75 % and 6.87 %, respectively.

Interest is payable quarterly.

5 unchanged sentences

The trust preferred securities issued by the trust rank equally with the common securities in right of payment, except that if an event of default under the indenture governing the note has occurred and is continuing, the preferred securities will rank senior to the common securities in right of payment.

On December 16, 2022, the Federal Reserve Board adopted a final rule that implements the LIBOR Act by identifying benchmark rates based on SOFR (Secured Overnight Financing Rate) that will replace LIBOR formerly known as the London Interbank Offered Rate, in certain financial contracts after June 30, 2023.

Congress enacted the LIBOR Act, which was signed into law in March 2022, to provide a uniform, nationwide solution for so-called tough legacy contracts that do not have clear and practicable provisions for replacing LIBOR after June 30, 2023.

The LIBOR Act also establishes a litigation safe harbor for lenders that select a LIBOR replacement under certain situations, including the use of a replacement rate selected by the Federal Reserve.

As required by the law, the final rule identifies replacement benchmark

rates based on SOFR to replace overnight, one-month, three-month, six-month, and 12-month LIBOR in contracts subject to the Act.

These contracts include U.S.

contracts that do not mature before LIBOR ends and that lack adequate "fallback" provisions that would replace LIBOR with a practicable replacement benchmark rate.

We believe that we will be able to use the benchmark replacements and transition protections provided by the LIBOR Act and Federal Reserve rule to manage through the transition away from LIBOR.

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Note 11 – Income Taxes

The components of the income tax for the Company consisted of the following at December 31:

2023 2022 2021

(dollars in thousands)

2 unchanged sentences

Total tax expense $ 12,554 $ 9,996 $ 7,372

At December 31, 2022 the current net income tax receivable was $ 1.3 million and at December 31, 2021 the net income tax payable was $ 1.2 million.

At December 31, 2023 the current net income tax receivable was $ 9.1 million and at December 31, 2022 the net income tax receivable was $ 1.3 million.

The significant change in current and deferred tax expense from 2022 to 2023 is related to the Company filing income tax refund claims related to the tax treatment of the credit enhancement recovery.

A reconciliation of the income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate to the income before income taxes is as follows for the year ended December 31:

2023 2022 2021

(dollars in thousands)

Amount Rate Amount Rate

Amount Rate Amount Rate Amount Rate

Federal income tax at statutory rate $ 11,998 21.0 % $ 10,630 21.0 % $ 7,219 21.0 %

State income taxes 1,275 2.2 523 1.0 256 0.7

Excess executive compensation 145 0.3 128 0.3 58 0.1

Bank owned life insurance earnings ( 39 ) ( 0.1 ) ( 76 ) ( 0.2 ) ( 36 ) ( 0.1 )

Effect of tax-exempt interest income ( 77 ) ( 0.1 ) ( 84 ) ( 0.2 ) ( 100 ) ( 0.3 )

Stock-based compensation ( 728 ) ( 1.3 ) ( 987 ) ( 1.9 ) ( 43 ) ( 0.1 )

Bank owned life insurance earnings ( 76 ) ( 0.2 ) ( 36 ) ( 0.1 )

Excess executive compensation 128 0.3 58 0.1

Other ( 20 ) — ( 138 ) ( 0.3 ) 18 0.1

3 unchanged sentences

The intent of this agreement is that each member of the consolidated group will incur no greater tax liability than it would have incurred on a stand-alone basis.

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The net deferred tax asset consists of the following temporary differences and carryforward items at December 31:

1 unchanged sentence

Deferred tax assets:

Allowance for loan losses $ 17,076 $ 6,223

Allowance for credit losses $ 27,244 $ 17,076

Lease liability 1,431 1,212

Stock based compensation 983 630

Accrued expenses 755 708

Deferred compensation 112 142

Allowance for unfunded commitments 225 277

Nonqualified stock options 108 107

Interest on nonaccrual loans — 10

Restricted stock options 522 196

Deferred income 79 58

Net unrealized loss on available-for-sale securities 69 621

Other 544 522

Total deferred tax assets 31,138 20,911

Deferred tax liabilities:

Credit enhancement recovery ( 25,030 ) -

Right of use asset ( 1,386 ) ( 1,162 )

Depreciation and amortization ( 693 ) ( 977 )

Net unrealized gain on equity security ( 314 ) ( 233 )

Net unrealized gain on available-for-sale securities — ( 1 )

Other ( 223 ) ( 314 )

Total deferred tax liabilities ( 27,332 ) ( 2,453 )

5 unchanged sentences

Based upon its analysis of available evidence, including recent profitability, management has determined that it is “more likely than not” that the Company’s deferred income tax assets as of December 31, 2023 will be fully realized and therefore no valuation allowance was recorded.

CCBX partners reimburse the Bank for credit losses on loans covered by credit enhancements, therefore the credit enhancement recovery deferred tax liability partially offsets the allowance for credit losses deferred tax asset.

At December 31, 2023, the Company had no federal net operating loss carryforwards or tax credit carryforwards.

7 unchanged sentences

All loans included in such transactions were made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable transactions with other persons, and did not, in the opinion of management, involve more than normal credit risk or present other unfavorable features.

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A summary of loan transactions follows:

6 unchanged sentences

All deposits included in such transactions were made on substantially the same terms, including interest rate, as those prevailing at the time for comparable transactions with other persons.

As discussed in Note 6, the Company leased one facility from a related party in 2022 and 2021.

The Everett branch facility is leased from a group of investors, one of which is a director.

The Everett lease originated in 1997 for ten years and has been renewed through March 2024.

Monthly rent under the Everett lease is $ 46,000 for the remaining lease term.

Rents paid during 2022 and 2021 for the related party Everett lease totaled $ 546,000 for each year.

The Company utilizes Adams and Duncan, Inc.

for legal services in which one of the Company’s directors is a partner.

The Company obtains legal services from Adams and Duncan, Inc.

P.S., a law firm in which one of the Company’s directors is a partner.

The services provided include general legal counsel and specialized CCBX agreement counsel.

The Company also uses other law firms for legal counsel and specialties such as regulatory and SEC counsel.

For fiscal year ended December 31, 2022 and 2021, total payments for legal services were $ 864,000 and $ 816,000 , respectively.

For fiscal year ended December 31, 2023 and 2022, total payments for legal services were $ 1.0 million and $ 864,000 , respectively.

The Company leased one facility from a related party in 2023 and 2022.

The Everett branch facility is leased from a group of investors, one of which was a director until he retired from the board in May 2023.

The Everett lease originated in 1997 and has been extended multiple times.

The current lease is through March 2034.

Monthly rent under the Everett lease was $ 46,000 through March 2023 and decreased to $ 19,000 a month beginning in May 2023, due to a lower lease rate and a reduction in the square footage leased;

rent for April of 2023 was a blended rate.

Rents paid during 2023 and 2022 for the related party Everett lease totaled $ 316,000 and $ 546,000 , respectively.

Note 13 – Commitments and Contingencies

2 unchanged sentences

The Company uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated balance sheets.

At December 31, 2022 and 2021, the Company had a reserve for unfunded commitments of $ 974,000 and $ 1.3 million, respectively, included in other liabilities on the consolidated balance sheet.

Financial instruments whose contract amount represents credit or funding risk were as follows at December 31:

Table of Content s

At December 31, 2023 and 2022, the Company had a reserve for unfunded commitments of $ 582,000 and $ 974,000 , respectively, included in other liabilities on the consolidated balance sheet.

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;

14 unchanged sentences

Since many of the commercial and industrial loan commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

As of December 31, 2022, $ 1.57 billion of the $ 2.20 billion in total commitments to extend credit were unconditionally cancelable.

The Company evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation.

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.

The type of collateral held varies but may include accounts receivable, inventory, property and equipment, and income- producing commercial properties.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.

Standby letters of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The Company’s policy for obtaining collateral, and the nature of such collateral, is essentially the same as that involved in making commitments to extend credit.

In the event the customer does not perform in accordance with the terms of the agreement with the third party, the Company would be required to fund the commitment.

As of December 31, 2023, $ 1.63 billion of the $ 2.34 billion in total commitments to extend credit were unconditionally cancelable.

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.

No losses were incurred in 2023 or 2022 under these commitments.

8 unchanged sentences

Total commitments to extend credit $ 2,051,898 $ 1,895,324

As of December 31, 2022, $ 1.57 billion in CCBX commitments to extend credit are unconditionally cancelable, compared to $ 162.3 million at December 31, 2021.

As of December 31, 2023, $ 1.63 billion in CCBX commitments to extend credit are unconditionally cancelable, compared to $ 1.57 billion at December 31, 2022.

The increase in unconditionally cancelable commitments is attributed to growth in CCBX loans.

1 unchanged sentence

We also limit CCBX partners to a maximum aggregate customer loan balance originated and held on our balance sheet, as shown in the table below.

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(dollars in thousands;

38 unchanged sentences

Compensation expense related to unvested stock option awards is reversed at date of forfeiture.

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There were no new options granted in the year ended December 31, 2023.

15 unchanged sentences

The intrinsic value of options exercised during the year ended December 31, 2022 was $ 10.3 million.

As of December 31, 2022, there was $ 1.1 million of total unrecognized compensation cost related to nonvested stock options granted under the Plan.

As of December 31, 2023, there was $ 804,000 of total unrecognized compensation cost related to nonvested stock options granted under the Plan.

Total unrecognized compensation costs is adjusted for unvested forfeitures.

3 unchanged sentences

In the first quarter of 2023, the Company granted 73,611 restricted stock units under the 2018 Plan to employees, which vest ratably over 4 years and 1,084 restricted stock units which vest ratably over 5 years.

In the second quarter of 2022, the Company granted 9,831 restricted stock units under the 2018 Plan to employees, which vest ratably over 5 years and 7,000 restricted stock units that vest ratably over 3 years.

Additionally, the Company granted 53,000 performance-based restricted stock units under the 2018 Plan to an employee, that vest on June 1, 2028, the quantity of which is dependent upon achievement of specified performance goals.

In the third quarter of 2022, the Company granted 20,000 restricted stock units under the 2018 Plan to employees, which vest in two blocks:

10,000 vest after 5 years and the remaining 10,000 vest after 7.5 years.

In the fourth quarter of 2022, the Company granted 1,054 restricted stock units under the 2018 Plan to an employee which vests in two blocks:

527 shares vest after three years and the remaining 527 shares vest after five years .

In the second quarter of 2023, the Company granted 9,827 restricted stock units under the 2018 Plan to employees, which vest ratably over 5 years.

In the third quarter of 2023, the Company granted 4,000 restricted stock units under the 2018 Plan to employees, which vest ratably over 3 years and 2,150 restricted stock units that vest ratably over 5 years.

In the fourth quarter of 2023, the Company granted no restricted stock units under the 2018 Plan.

Restricted stock units provide for an interest in Company common stock to the recipient, the underlying stock is not issued until certain conditions are met.

2 unchanged sentences

The fair value of time-based and performance-based units is equal to the fair market value of the Company’s common stock on the grant date.

The fair value of market-based units is estimated on the grant date using the Monte Carlo simulation model.

The fair value of market-based units is estimated on the grant date using a Monte Carlo simulation model.

Compensation expense is recognized over the vesting period that the awards are based.

2 unchanged sentences

The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately 3.7 years.

Compensation expense recorded related to restricted stock units was $ 1.9 million and $ 616,000 for the year ended December 31, 2022 and 2021, respectively.

Compensation expense recorded related to restricted stock units was $ 2.9 million and $ 1.9 million for the year ended December 31, 2023 and 2022, respectively.

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A summary of the Company’s nonvested restricted stock units at December 31, 2023 and changes during the year is presented below:

Nonvested shares - RSUs Shares Weighted-

Value Total or Aggregate

Intrinsic Value

(dollars in thousands, except per share amounts)

4 unchanged sentences

Nonvested shares at December 31, 2023 409,271 $ 31.22

The fair value of restricted stock awards is equal to the fair value of the Company’s stock at the date of grant.

Compensation expense is recognized over the vesting period that the awards are based.

Restricted stock awards are participating securities.

Restricted Stock Awards

5 unchanged sentences

The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately 4.1 years.

Compensation expense recorded related to restricted stock awards was $ 9,000 and $ 134,000 for the years ended December 31, 2022 and 2021, respectively.

Compensation expense recorded related to restricted stock awards was $ 9,000 for the years ended December 31, 2023 and 2022.

Director’s Stock Bonus

Under the 2018 Plan, in May 2022 eligible directors were each granted stock with a total market value of $ 35,000 , and the Board Chair was granted stock with a total market value of $ 55,000 .

Committee chairs received additional stock with a market value of $ 2,500 for each committee chaired at the time of the award.

Stock is granted as of each annual meeting date and will cliff vest one day prior to the next annual meeting date.

Under the 2018 Plan, eligible directors are granted stock with a total market value of approximately $ 45,000 , and the Board Chair is granted stock with a total market value of approximately $ 75,000 .

Committee chairs receive additional stock in an amount that varies depending upon the nature and frequency of the committee meetings.

The audit committee chair receives additional stock with a market value of approximately $ 10,000 , non-financial risk and compensation committee chairs receive additional stock with a market value of approximately $ 7,500 , and the asset liability & investment, credit and nominating & governance chairs receive additional stock with a market value of approximately $ 5,000 .

Stock is granted as of each annual meeting date and vest one day prior to the next annual meeting date.

During the vesting period, the grants are considered participating securities.

2 unchanged sentences

Compensation expense related to the Plan totaled $ 432,000 and $ 295,000 for the years ended December 31, 2023 and 2022, respectively.

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A summary of the Company’s nonvested shares at December 31, 2023 and changes during the year is presented below:

Nonvested shares - RSAs Shares Weighted-

Value Total or Aggregate

Intrinsic Value

(dollars in thousands, except per share amounts)

24 unchanged sentences

Historically, the Company had been operating under the Small Bank Holding Company Policy Statement, which exempts bank holding companies that have total consolidated assets of less than $3.0 billion and meet other criteria from the Federal Reserve’s risk-based- and leverage capital rules.

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 will also be evaluated relative to the capital adequacy standards established by the Federal Reserve going forward.

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.

A bank holding company that crosses the $3.0 billion total consolidated assets threshold as of June 30 of a particular year is no longer permitted to file reports as a small holding company beginning the following March.

The Company was not in excess of $3.0 billion as of June 30, 2022, and accordingly prepared and filed financial reports with the Federal Reserve as a small bank holding company.

Currently, the Federal Reserve assesses the capital position of the Company based on these reports by reviewing its debt-to-equity ratio and its capacity to serve as a source of strength to the Bank.

If the Company’s total consolidated assets remain in excess of $3.0 billion as of June 30, 2023, starting in March 2024 the Company will cease filing financial reports with the Federal Reserve as though it were a small bank holding company.

The Company’s total consolidated assets were in excess of $3.0 billion as of June 30, 2023, and as a consequence, beginning in March 2024, the Company will no longer prepare and file financial reports with the Federal Reserve as a small bank holding company.

Under the regulatory capital adequacy guidelines, the Company and Bank must meet specific capital adequacy guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.

The Company’s and Bank’s capital ratios and the Bank’s classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The Company’s and Bank’s capital ratios and the Bank’s classification under the

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prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of total risk-based capital, Tier 1 capital and common equity Tier 1 capital to risk- weighted assets (as defined in the regulations), and Tier 1 capital to average adjusted total consolidated assets (as defined).

6 unchanged sentences

Management believes the Company and the Bank exceed all capital adequacy requirements to which they are subject, including the ratios described below and the capital conservation buffer, as of December 31, 2023.

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The Company and Bank’s actual and required capital amo unts and ratios are as follows:

33 unchanged sentences

(1) Presents the minimum capital adequacy requirements that apply to the Bank (excluding the capital conservation buffer) and the Company.

The capital conservation buffer is an additional 2.5% of the amount necessary to meet the minimum risk-based capital requirements for total, tier 1, and common equity tier 1 risk-based capital.

Prior to September 30, 2022, the Company operated under the Small Bank Holding Company Policy Statement and therefore was not subject to Basel III capital adequacy requirements.

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Note 18 - Fair Value Measurements

16 unchanged sentences

Accrued interest payable 892 892 — 892 —

_______________________________________

December 31, 2022 Fair Value Measurements Using

20 unchanged sentences

Observable inputs reflect market data obtained from independent sources, while

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unobservable inputs reflect the Company’s estimates for market assumptions.

19 unchanged sentences

Agency collateralized mortgage obligations — 43 — 43

Agency residential mortgage-backed securities — 1 — 1

Municipals — 250 — 250

$ 99,461 $ 43 $ — $ 99,504

10 unchanged sentences

The factors used in the fair values estimates are subject to change subsequent to the dates the fair value estimates are completed, therefore, current estimates of fair value may differ significantly from the amounts presented herein.

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Items measured at fair value on a nonrecurring basis – The following table presents financial assets and liabilities measured at fair value on a nonrecurring basis and the level within the fair value hierarchy of the fair value measurements for those assets at the dates indicated:

2 unchanged sentences

December 31, 2023

Impaired loans $ — $ — $ 7,080 $ 7,080

Collateral dependent loans $ — $ — $ 7,315 $ 7,315

Equity securities 2,622 2,622

4 unchanged sentences

Total $ — $ — $ 9,652 $ 9,652

Impaired loans - A loan is considered impaired when it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement.

Impairment is measured based on the fair value of the underlying collateral or the discounted cash expected future cash flows.

Subsequent changes in the value of impaired loans are included within the provision for loan losses in the same manner in which impairment initially was recognized or as a reduction in the provision that would otherwise be reported.

Impaired loans are evaluated quarterly to determine if valuation adjustments should be recorded.

Individually evaluated loans - Fair values for individually evaluated loans are estimated using the fair value of the collateral less selling costs if the loan results in a Level 3 classification.

Individually evaluated loan amounts are initially valued at the lower of cost or fair value.

Individually evaluated loans carried at fair value generally receive specific allocations of the allowance for credit losses.

For collateral dependent real estate loans, fair value is commonly based on recent real estate appraisals.

These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.

Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.

Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification.

Individually evaluated loans are evaluated on a quarterly basis for additional credit losses and adjusted accordingly.

The estimated fair values of financial instruments disclosed above follow the guidance in ASU 2016-01 which prescribes an “exit price” approach in estimating and disclosing fair value of financial instruments incorporating discounts for credit, liquidity, and marketability factors.

Valuation is measured based on the fair value of the underlying collateral or the discounted cash expected future cash flows.

Subsequent changes in the value of loans are included within the provision for credit losses - loans in the same manner in which it initially was recognized or as a reduction in the provision that would otherwise be reported.

Loans are evaluated quarterly to determine if valuation adjustments should be recorded.

The need for valuation adjustments arises when observable market prices or current appraised values of collateral indicate a shortfall in collateral value compared to current carrying values of the related loan.

If the Company determines that the value of the impaired loan is less than the carrying value of the loan, the Company either establishes an impairment reserve as a specific component of the allowance for loan losses or charges off the impairment amount.

If the Company determines that the value of the individually evaluated loan is less than the carrying value of the loan, the Company either establishes a reserve as a specific component of the allowance for credit losses or charges off that amount.

These valuation adjustments are considered nonrecurring fair value adjustments.

Equity securities – The Company measures equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, with price changes recognized in earnings .

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Assets measured at fair value using significant unobservable inputs (Level 3)

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Assets measured at fair value using significant unobservable inputs (Level 3)

The following table provides a description of the valuation technique, unobservable inputs, and qualitative information about the unobservable inputs for the Company’s assets and liabilities classified as Level 3 and measured at fair value on a nonrecurring basis at the dates indicated:

(unaudited) Valuation Technique Unobservable Inputs December 31, 2022 Weighted Average Rate December 31, 2021 Weighted Average Rate

(unaudited) Valuation Technique Unobservable Inputs December 31, 2023 Weighted Average Rate

Collateral dependent loans Collateral valuations Discount to appraised value 8.0 %

(unaudited) Valuation Technique Unobservable Inputs December 31, 2022 Weighted Average Rate

Impaired loans Collateral valuations Discount to appraised value 8.0 %

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Note 19 – Revenue from Contracts with Customers

1 unchanged sentence

The following table presents the Company’s noninterest income by revenue stream for the years ended December 31:

2023 2022 2021

(dollars in thousands)

5 unchanged sentences

Loan referral fees 683 810 2,126

Mortgage broker fees 257 920

BaaS program income (1)

16,293 12,934 6,716

Other income (2)

323 603 1,313

Total noninterest income subject to Topic 606 21,153 18,151 13,853

11 unchanged sentences

(2) Includes the following immaterial income streams that are within the scope of Topic 606:

wire transfer fees, annuity fees, and brokerage fees.

wire transfer fees, annuity fees, mortgage broker fees and brokerage fees.

A description of the Company’s revenue streams accounted for under Topic 606 is as follows:

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Merchant service fees are included in Services Charges on Deposit Accounts in the consolidated statements of income.

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Loan Referral Fees:

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The Company recognizes the loan referral fee for arranging the interest rate swap.

Mortgage Broker Fees:

Mortgage broker fees are governed by contract arrangements executed with a third-party mortgage company.

The Company earns broker fees by partially underwriting mortgage loans and referring qualified loans to the third-party mortgage company.

Revenue is recognized at the date the mortgage company funds the mortgage loan.

The contract arrangement includes a fee reimbursement requirement for funded mortgage loans that pay off within three months of origination.

The Company earns fees and is reimbursed for certain expenses, as specified in the program agreement, for providing banking services to broker-dealers and digital financial service providers.

2 unchanged sentences

The following tables presents the BaaS fees that are within and not within the scope of Topic 606:

December 31, Increase

(dollars in thousands) 2022 2021

December 31, 2023 compared to 2022 2022 compared to 2021

(dollars in thousands) 2023 2022 2021 Increase

(Decrease) Increase

Program income - within the scope of Topic 606

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The following is a computation of basic and diluted earnings per common share at the periods indicated:

(dollars in thousands, except per share data) December 31, 2022 December 31, 2021

(dollars in thousands, except per share data) December 31, 2023 December 31, 2022 December 31, 2021

Net Income $ 44,579 $ 40,625 $ 27,005

7 unchanged sentences

Under the two-class method, earnings available to common shareholders for the period are allocated between common shareholders and participating securities according to dividends declared (or accumulated) and participation rights in undistributed earnings, however the difference in the two-class method was not significant.

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Note 21 – Segment Reporting

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The accounting policies applicable to our segments are those that apply to our preparation of the accompanying Consolidated Financial Statements.

Based on these criteria, we have identified two segments:

The community bank and CCBX.

Income and expenses that are specific to CCBX are recorded to the CCBX segment.

Included in noninterest expense for the community bank is administrative overhead of $ 27.2 million and $ 19.0 million for the year ended December 31, 2022 and December 31, 2021, respectively.

Both the community bank and the CCBX segment benefit from this administrative overhead and services, which includes shared operational activities such as data management, compliance monitoring and other administration functions.

Summarized financial information concerning the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables for the periods indicated:

Based on these criteria, we have identified three segments:

The community bank, CCBX and treasury & administration.

Financial information concerning the Company's reportable segments and the reconciliation to the consolidated financial results is shown in the following tables for the periods indicated.

The segment structure changed after 2021, therefore some items are reported as “N/A” for the year ended December 31, 2021.

December 31, 2023 December 31, 2022

Bank CCBX Total Bank CCBX Total

(dollars in thousands)

Total assets $ 2,097,885 $ 1,046,582 $ 3,144,467 $ 2,282,514 $ 353,003 $ 2,635,517

Community Bank CCBX Treasury & Administration Consolidated Community Bank CCBX Treasury & Administration Consolidated

Assets (dollars in thousands)

Cash and Due from Banks $ 4,702 $ 9,601 $ 468,825 $ 483,128 $ 4,603 $ 12,899 $ 324,637 $ 342,139

Intrabank assets — 653,178 ( 653,178 ) — — 254,096 ( 254,096 ) —

Securities — — 150,364 150,364 — — 98,353 98,353

Total loans receivable 1,830,154 1,195,938 — 3,026,092 1,614,752 1,012,504 — 2,627,256

Allowance for loan losses

Allowance for credit losses

( 21,595 ) ( 95,363 ) — ( 116,958 ) ( 20,636 ) ( 53,393 ) — ( 74,029 )

All other assets 30,169 136,931 43,640 210,740 25,508 76,111 49,129 150,748

Total assets $ 1,843,430 $ 1,900,285 $ 9,651 $ 3,753,366 $ 1,624,227 $ 1,302,217 $ 218,023 $ 3,144,467

Total deposits $ 1,497,601 $ 1,862,762 $ — $ 3,360,363 1,538,218 1,279,303 — 2,817,521

Total borrowings — — 47,734 47,734 — — 47,587 47,587

Intrabank liabilities 338,614 — ( 338,614 ) — 80,392 — ( 80,392 ) —

All other liabilities 7,215 37,523 5,553 50,291 5,617 22,914 7,334 35,865

Total liabilities $ 1,843,430 $ 1,900,285 $ ( 285,327 ) $ 3,458,388 $ 1,624,227 $ 1,302,217 $ ( 25,471 ) $ 2,900,973

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Year Ended December 31, 2023 Year Ended December 31, 2022

Bank CCBX Total Bank CCBX Total

Community Bank CCBX Treasury & Administration Consolidated Community Bank CCBX Treasury & Administration Consolidated

(dollars in thousands)

INTEREST INCOME AND EXPENSE

Interest income $ 106,983 $ 204,458 $ 18,930 $ 330,371 $ 80,544 $ 102,808 $ 8,818 $ 192,170

Interest income (expense)

intrabank transfer ( 10,404 ) 19,071 ( 8,667 ) — 796 4,106 ( 4,902 ) —

Interest expense 17,354 71,646 2,644 91,644 2,896 16,108 1,391 20,395

Net interest income 79,225 151,883 7,619 238,727 78,444 90,806 2,525 171,775

Provision for loan losses $ 719 78,345 79,064 1,275 8,640 9,915

Provision for credit

losses - loans 1,322 182,721 — 184,043 719 78,345 — 79,064

(Recapture)/Provision for

unfunded commitments ( 211 ) 160 — ( 51 ) — — — —

Net interest income after

provision for credit

losses - loans and

unfunded commitments 78,114 ( 30,998 ) 7,619 54,735 77,725 12,461 2,525 92,711

NONINTEREST INCOME

Deposit service charges and fees 3,810 44 — 3,854 3,757 47 — 3,804

Other income 1,165 433 501 2,099 1,411 356 234 2,001

BaaS program income — 16,293 — 16,293 — 12,934 — 12,934

BaaS indemnification income — 184,929 — 184,929 — 105,945 — 105,945

Noninterest income (1)

4,975 201,699 501 207,175 5,168 119,282 234 124,684

NONINTEREST EXPENSE

(1) For the year ended December 31, 2022, CCBX noninterest income includes credit enhancement recovery of $ 76.4 million, fraud recovery of $ 29.6 million, servicing and other BaaS fees of $ 7.6 million, reimbursement of expenses of $ 2.7 million, and interchange income of $ 2.6 million.

For the year ended December 31, 2021, CCBX noninterest income includes credit enhancement recovery of $ 9.1 million, fraud recovery of $ 1.5 million, servicing and other BaaS fees of $ 5.0 million, reimbursement of expenses of $ 1.0 million, and interchange income of $ 701,000 .

Salaries and employee benefits 24,104 25,159 17,198 66,461 20,476 18,007 13,745 52,228

Occupancy 3,815 339 772 4,926 3,956 317 275 4,548

Data processing and software licenses 4,521 2,303 1,771 8,595 3,172 1,746 1,569 6,487

Legal and professional expenses 1,580 9,645 3,578 14,803 213 3,163 3,384 6,760

Other expense 3,954 6,812 5,161 15,927 5,202 3,026 5,658 13,886

BaaS loan expense — 86,900 — 86,900 — 53,294 — 53,294

BaaS fraud expense — 7,165 — 7,165 — 29,571 — 29,571

Total noninterest expense 37,974 138,323 28,480 204,777 33,019 109,124 24,631 166,774

Net income before income taxes 45,115 32,378 ( 20,360 ) 57,133 49,874 22,619 ( 21,872 ) 50,621

Income taxes 9,913 7,116 ( 4,475 ) 12,554 10,068 4,248 ( 4,320 ) 9,996

Net Income $ 35,202 $ 25,262 $ ( 15,885 ) $ 44,579 39,806 18,371 ( 17,552 ) 40,625

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Year Ended December 31, 2021

Community Bank CCBX Treasury & Administration Consolidated

(dollars in thousands)

INTEREST INCOME AND EXPENSE

Interest income $ 76,551 $ 6,532 N/A $ 83,083

Interest income (expense)

intrabank transfer N/A N/A N/A —

Interest expense 3,547 99 N/A 3,646

Net interest income 73,004 6,433 N/A 79,437

Provision for credit

losses - loans 1,275 8,640 N/A 9,915

(Recapture)/Provision for

unfunded commitments — — N/A —

Net interest income after

provision for credit

losses - loans and

unfunded commitments 71,729 ( 2,207 ) N/A 69,522

NONINTEREST INCOME

Deposit service charges and fees 3,698 — N/A 3,698

Other income 7,015 98 N/A 7,113

BaaS program income — 6,716 N/A 6,716

BaaS indemnification income — 10,591 N/A 10,591

Noninterest income (1)

10,713 17,405 N/A 28,118

NONINTEREST EXPENSE

Salaries and employee benefits 32,562 4,539 N/A 37,101

Occupancy 4,039 89 N/A 4,128

Data processing and software licenses 4,509 442 N/A 4,951

Legal and professional expenses 2,654 479 N/A 3,133

Other expense 7,783 1,686 N/A 9,469

BaaS loan expense — 2,976 N/A 2,976

BaaS fraud expense — 1,505 N/A 1,505

Total noninterest expense 51,547 11,716 N/A 63,263

Net income before income taxes 30,895 3,482 N/A 34,377

Income taxes 6,638 734 N/A 7,372

Net Income 24,257 2,748 N/A 27,005

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Note 22 – Parent Company Only Condensed Financial Information

5 unchanged sentences

Other investments 3,430 3,028

Total loans receivable — 350

Other assets 532 ( 150 )

8 unchanged sentences

Year ended December 31,

2023 2022 2021

INTEREST INCOME

6 unchanged sentences

Net interest expense ( 2,636 ) ( 1,332 ) ( 778 )

PROVISION FOR LOAN LOSSES 350 —

Net interest expense after provision for loan losses ( 1,682 ) ( 778 )

PROVISION FOR CREDIT LOSSES — 350 —

Net interest expense after provision for credit losses ( 2,636 ) ( 1,682 ) ( 778 )

NONINTEREST INCOME

Unrealized (loss) gain on equity investment ( 153 ) 1,469

Unrealized gain (loss) on equity investment 279 ( 153 ) 1,469

Other income 30 23 —

7 unchanged sentences

NET INCOME $ 44,579 $ 40,625 $ 27,005

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Year ended December 31,

2023 2022 2021

CASH FLOWS FROM OPERATING ACTIVITIES:

23 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data