COASTAL FINANCIAL CORP 10-K

Item 8. Financial Statements and Supplementary Data The information required by this item follows. 121 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors Coastal Financial Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Coastal Financial Corporation and subsidiaries (the “Company”) as of December 31, 2024 and 2023, 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, 2024, 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, 2024 and 2023, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, 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, 2024, 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 17, 2025 expressed an adverse opinion on the Company’s internal control over financial reporting due to material weaknesses. Restatement of Previously Issued Financial Statements As described in note 23 to the consolidated financial statements, the 2023 consolidated financial statements have been restated. Change in Accounting Principle During the year ended December 31, 2023, the Company changed its method of accounting for credit losses due to the adoption of Accounting Standards Update 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. 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 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 audits in accordance with the standards of the PCAOB. 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. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. 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 $177 million at December 31, 2024. The allowance for credit losses - loans 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 122 Table of Contents 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 borrowers’ financial condition and credit rating, volume and severity of delinquent and classified loans, and environmental and business factors 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. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. Our audit procedures related to qualitative reserve factors included the following, among others: • 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 the estimation and application of the qualitative reserve factors determined by management, and recalculating the balance of the allowance for credit losses – loans. /s/ Moss Adams LLP Everett, Washington, March 17, 2025 We have served as the Company’s auditor since 2016. 123 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors Coastal Financial Corporation Adverse 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, 2024, 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, because of the effect of the material weaknesses identified below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2024, 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, 2024 and 2023, 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, 2024, and the related notes (collectively referred to as the “consolidated financial statements”) and our report dated March 17, 2025, expressed an unqualified opinion on those consolidated financial statements. Basis for Adverse Opinion on Internal Control over Financial Reporting 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’s 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. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified and included in management’s assessment in Item 9A: • The Company has an ineffective control environment and did not maintain the risk assessment and control activities components of the COSO framework resulting in the Company not appropriately designing and implementing sufficient internal controls around the accounting and financial reporting related to information provided by BaaS partners. • A deficiency in the design of controls related to the BaaS lending partner accounting policies reflected in BaaS partner reports that could impact the Company’s use of such reports to record interest income, BaaS loan expense and the related balance sheet accounts. • A deficiency in the design of controls related to the proper presentation of BaaS partner interchange fees on point of sale transactions that conforms with the Company’s adopted accounting policies. We considered the material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the Company’s consolidated financial statements as of and for the year ended December 31, 2024, and our opinion on such consolidated financial statements was not affected. 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 124 Table of Contents 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 17, 2025 We have served as the Company’s auditor since 2016. 125 Table of Contents COASTAL FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (dollars in thousands) ASSETS December 31, 2024 December 31, 2023 (as restated - see Note 23) Cash and due from banks $ 36,533 $ 31,345 Interest earning deposits with other banks 415,980 451,783 Investment securities, available for sale, at fair value 35 99,504 Investment securities, held to maturity, at amortized cost 47,286 50,860 Other investments 10,800 10,227 Loans held for sale 20,600 — Loans receivable 3,486,565 3,021,542 Allowance for credit losses ( 176,994 ) ( 117,381 ) Total loans receivable, net 3,309,571 2,904,161 CCBX credit enhancement asset 181,890 112,894 CCBX receivable 14,138 9,088 Premises and equipment, net 27,431 22,090 Lease right-of-use assets 5,219 5,932 Accrued interest receivable 21,104 23,458 Bank-owned life insurance, net 13,375 12,870 Deferred tax asset, net 3,600 3,806 Other assets 13,646 11,987 Total assets $ 4,121,208 $ 3,750,005 LIABILITIES AND SHAREHOLDERS’ EQUITY LIABILITIES Deposits $ 3,585,332 $ 3,360,363 Subordinated debt, net Principal amount $ 45,000 (less unamortized debt issuance costs of $ 707 and $ 856 ) at December 31, 2024 and December 31, 2023, respectively 44,293 44,144 Junior subordinated debentures, net Principal amount $ 3,609 (less unamortized debt issuance costs of $ 18 and $ 19 at December 31, 2024 and December 31, 2023, respectively) 3,591 3,590 Deferred compensation 332 479 Accrued interest payable 962 892 Lease liabilities 5,398 6,124 CCBX payable 29,171 30,290 Other liabilities 13,425 9,145 Total liabilities 3,682,504 3,455,027 SHAREHOLDERS’ EQUITY Preferred stock, no par value: Authorized: 25,000,000 shares at December 31, 2024 and December 31, 2023; issued and outstanding: zero shares at December 31, 2024 and December 31, 2023 — — Common stock, no par value: Authorized: 300,000,000 shares at December 31, 2024 and December 31, 2023; 14,935,298 shares at December 31, 2024 issued and outstanding and 13,304,339 shares at December 31, 2023 issued and outstanding 228,177 130,136 Retained earnings 210,529 165,311 Accumulated other comprehensive loss, net of tax ( 2 ) ( 469 ) Total shareholders’ equity 438,704 294,978 Total liabilities and shareholders’ equity $ 4,121,208 $ 3,750,005 See accompanying Notes to Consolidated Financial Statements. 126 Table of Contents COASTAL FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except for per share data) Year Ended December 31, 2024 2023 2022 (as restated - see Note 23) INTEREST AND DIVIDEND INCOME Interest and fees on loans $ 372,021 $ 304,289 $ 183,352 Interest on interest earning deposits with other banks 21,265 15,346 6,728 Interest on investment securities 3,056 3,197 1,745 Dividends on other investments 435 387 345 Total interest income 396,777 323,219 192,170 INTEREST EXPENSE Interest on deposits 120,932 89,000 19,004 Interest on borrowed funds 2,817 2,644 1,391 Total interest expense 123,749 91,644 20,395 Net interest income 273,028 231,575 171,775 PROVISION FOR CREDIT LOSSES 277,607 183,992 79,064 Net interest income/(expense) after provision for credit losses ( 4,579 ) 47,583 92,711 NONINTEREST INCOME Service charges and fees 3,738 3,854 3,804 Loan referral fees 168 683 810 Gain on sales of loans, net — 253 — Unrealized gain (loss) on equity securities, net 27 279 ( 153 ) Other income 1,524 884 1,344 Noninterest income, excluding BaaS program income and BaaS indemnification income 5,457 5,953 5,805 Servicing and other BaaS fees 4,743 3,855 4,408 Transaction fees 5,910 4,011 3,211 Interchange fees 6,933 4,252 2,583 Reimbursement of expenses 2,489 1,122 991 BaaS program income 20,075 13,240 11,193 BaaS credit enhancements 272,839 177,764 76,374 BaaS fraud enhancements 9,834 7,165 29,571 BaaS indemnification income 282,673 184,929 105,945 Total noninterest income 308,205 204,122 122,943 NONINTEREST EXPENSE Salaries and employee benefits 70,084 66,461 52,228 Occupancy 3,936 4,172 4,219 Data processing and software licenses 15,313 9,349 6,816 Legal and professional expenses 15,506 14,803 6,760 Point of sale expense 325 481 368 Excise taxes 1,154 1,976 2,204 Federal Deposit Insurance Corporation ("FDIC") assessments 2,863 2,524 2,859 Director and staff expenses 2,112 2,152 1,711 Marketing 162 517 351 Other expense 6,484 5,224 4,652 127 Table of Contents Noninterest expense, excluding BaaS loan and BaaS fraud expense 117,939 107,659 82,168 BaaS loan expense 118,536 79,748 53,294 BaaS fraud expense 9,834 7,165 29,571 BaaS loan and fraud expense 128,370 86,913 82,865 Total noninterest expense 246,309 194,572 165,033 Income before provision for income taxes 57,317 57,133 50,621 PROVISION FOR INCOME TAXES 12,098 12,554 9,996 NET INCOME $ 45,219 $ 44,579 $ 40,625 Basic earnings per common share $ 3.35 $ 3.36 $ 3.14 Diluted earnings per common share $ 3.26 $ 3.27 $ 3.01 Weighted average number of common shares outstanding: Basic 13,508,047 13,261,664 12,949,266 Diluted 13,876,906 13,640,182 13,514,952 See accompanying Notes to Consolidated Financial Statements. 128 Table of Contents COASTAL FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (dollars in thousands) Year Ended December 31, 2024 2023 2022 NET INCOME $ 45,219 $ 44,579 $ 40,625 OTHER COMPREHENSIVE INCOME (LOSS), before tax Securities available-for-sale Unrealized holding income during the period 535 2,418 ( 2,959 ) Income tax expense related to unrealized holding gain/loss ( 69 ) ( 553 ) 621 OTHER COMPREHENSIVE INCOME, net of tax 466 1,865 ( 2,338 ) COMPREHENSIVE INCOME $ 45,685 $ 46,444 $ 38,287 See accompanying Notes to Consolidated Financial Statements. 129 Table of Contents COASTAL FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (dollars in thousands) Shares of Common Stock Amount of Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total BALANCE, December 31, 2021 12,875,315 $ 121,845 $ 79,373 $ 4 201,222 Net income — — 40,625 — 40,625 Issuance of restricted stock awards 10,396 — — — — Vesting of restricted stock units 28,215 — — — — Exercise of stock options 247,221 1,468 — — 1,468 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 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 loss, net of tax — — — 1,865 1,865 BALANCE, December 31, 2023 13,304,339 $ 130,136 $ 165,311 $ ( 469 ) $ 294,978 BALANCE, December 31, 2023 13,304,339 $ 130,136 $ 165,310 $ ( 468 ) $ 294,978 Net income — — 45,219 — 45,219 Issuance of restricted stock awards 16,698 — — — — Vesting of restricted stock units 66,806 — — — — Exercise of stock options 167,455 1,396 — — 1,396 Stock-based compensation — 4,844 — — 4,844 Stock issuance and net proceeds from public offering 1,380,000 91,801 — — 91,801 Other comprehensive income, net of tax — — — 466 466 BALANCE, December 31, 2024 14,935,298 $ 228,177 $ 210,529 $ ( 2 ) $ 438,704 See accompanying Notes to Consolidated Financial Statements. 130 Table of Contents COASTAL FINANCIAL CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) Year Ended December 31, 2024 2023 2022 (as restated - see Note 23) CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 45,219 $ 44,579 $ 40,625 Adjustments to reconcile net income to net cash provided by operating activities: Provision for credit losses 277,607 183,992 79,064 Depreciation and amortization 4,552 2,328 1,809 Loss on disposition of fixed assets — 39 35 Increase in operating lease right-of-use assets 835 833 1,087 Increase in operating lease liabilities ( 848 ) ( 857 ) ( 1,086 ) Gain on sales of loans — ( 253 ) — Net amortization (accretion) on investment securities 5 ( 25 ) ( 50 ) Unrealized holding (gain) loss on equity investment ( 27 ) ( 279 ) 153 Stock-based compensation 4,844 3,688 2,517 Increase in bank-owned life insurance value ( 485 ) 27 ( 360 ) Deferred tax benefit (expense) 138 13,879 ( 11,018 ) Net change in CCBX receivable ( 5,050 ) 1,328 ( 9,150 ) Net change in CCBX credit enhancement asset ( 68,995 ) ( 55,052 ) ( 44,665 ) Net change in CCBX payable ( 1,119 ) 9,871 18,578 Net change in other assets and liabilities 3,110 ( 12,558 ) ( 10,441 ) Total adjustments 214,567 146,961 26,473 Net cash provided by operating activities 259,786 191,540 67,098 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment securities available for sale — — ( 134,912 ) Purchase of investment securities held for investment — ( 50,244 ) — Change in other investments, net ( 546 ) 607 ( 2,230 ) Principal paydowns of investment securities available-for-sale 8 9 17 Principal paydowns of investment securities held-to-maturity 3,565 417 256 Maturities and calls of investment securities available-for-sale 100,000 250 70,000 Purchase of bank owned life insurance ( 20 ) ( 230 ) ( 53 ) Proceeds from sales of loans held for sale 1,524,870 600,199 152,546 Proceeds from sales of loan participations — — 10,300 Purchase of loans ( 201,995 ) ( 91,465 ) ( 168,464 ) Purchase of loan participations — — ( 52 ) Increase in loans receivable, net ( 2,024,548 ) ( 1,047,310 ) ( 912,518 ) Purchases of premises and equipment, net ( 9,900 ) ( 6,245 ) ( 2,838 ) Net cash used by investing activities ( 608,566 ) ( 594,012 ) ( 987,948 ) 131 Table of Contents CASH FLOWS FROM FINANCING ACTIVITIES Net increase in demand deposits, money market, and savings 225,779 553,932 467,744 Net decrease in time deposits ( 811 ) ( 11,089 ) ( 14,010 ) Net repayment from long term FHLB borrowing — — ( 24,999 ) Increase from subordinated debt proceeds — — 19,625 Proceeds from exercise of stock options 1,396 618 1,468 Proceeds from public offering 91,801 — — Net cash provided by financing activities 318,165 543,461 449,828 NET CHANGE IN CASH, DUE FROM BANKS AND RESTRICTED CASH ( 30,615 ) 140,989 ( 471,022 ) CASH, DUE FROM BANKS AND RESTRICTED CASH, beginning of year 483,128 342,139 813,161 CASH, DUE FROM BANKS AND RESTRICTED CASH, end of year $ 452,513 $ 483,128 $ 342,139 SUPPLEMENTAL SCHEDULE OF OPERATING AND INVESTING ACTIVITIES Interest paid $ 123,679 $ 91,436 $ 20,068 Income taxes paid $ 10,540 $ 6,843 $ 23,498 SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS Fair value adjustment of securities available-for-sale, gross $ 535 $ 2,418 $ ( 2,959 ) Lease liabilities arising from obtaining right-of-use assets $ 122 $ 1,747 $ — Transfer from loans to loans held for sale $ 1,545,470 $ 599,946 $ 152,546 Adjustment to retained earnings - adoption of ASU 2016-13, net of deferred tax $ — $ ( 734 ) $ — (1) See Note 23, Restatement of Prior Period Financial Statements. See accompanying Notes to Consolidated Financial Statements. 132 Table of Contents COASTAL FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Description of Business and Summary of Significant Accounting Policies Nature of operations - Coastal Financial Corporation (“Corporation” or “Company”) is a registered bank holding company whose wholly owned subsidiaries are Coastal Community Bank (“Bank”) and Arlington Olympic LLC. The Company is a Washington state corporation that was organized in 2003. 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 2019 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 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 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”). The community bank’s loans and deposits are primarily within the greater Puget Sound region, while CCBX loans and deposits are dependent upon the partner’s market. The Bank’s primary funding source is deposits from customers. The Bank is subject to regulation and supervision by the Board of Governors of the Federal Reserve System and the Washington State Department of Financial Institutions Division of Banks. The Federal Reserve also has regulatory and supervisory authority over the Company. Financial statement presentation - The accompanying audited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for reporting requirements and practices within the banking industry. Amounts presented in the consolidated financial statements and footnote tables are rounded and presented in thousands of dollars except per-share amounts, which are presented in dollars. In the narrative footnote discussion, amounts are rounded to thousands and presented in dollars. In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying consolidated financial statements have been made. These adjustments include normal and recurring accruals considered necessary for a fair and accurate presentation. Principles of consolidation - The consolidated financial statements include the accounts of the Company, the Bank and the LLC. All significant intercompany accounts have been eliminated in consolidation. 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 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, 2024 for potential recognition or disclosure . 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. All have original maturities of three months or less. 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. 133 Table of Contents The Company maintains its cash in depository institution accounts, which, at times, may exceed federally insured limits. The Company monitors these institutions and has not experienced any losses in such accounts. Investment securities - Debt securities that management has the ability and intent to hold to maturity are classified as held-to-maturity and carried at amortized cost. The amortization of premiums and accretion of discounts are recognized in interest income using the interest method or methods approximating the interest method over the period to maturity. Debt securities not classified as held-to-maturity are classified as available-for-sale. Such securities may be sold to facilitate the Company’s asset/liability management strategies and in response to changes in interest rates and similar forces. Securities available-for-sale are carried at fair value with unrealized gains and losses reported in other comprehensive income. Realized gains (losses) on securities available-for-sale are included in noninterest income and, when applicable, are reported as a reclassification adjustment in other comprehensive income. Gains and losses on sales of securities are recorded on the trade date and are determined on the specific-identification method. 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. As a Federal Reserve member bank, the Bank is required to own stock in the FRB in an amount based on the Bank’s capital. The recorded amount of the FRB stock equals its fair value because the shares can only be redeemed by the FRB at their par value. The Bank’s investment in FRB stock was $ 4.9 million and $ 4.8 million at December 31, 2024 and 2023, respectively. The Bank, as a member of the FHLB, is required to maintain an investment in capital stock of FHLB in an amount equal to 4.5 % of advances outstanding, plus 0.06 % of total assets from the prior fiscal year end. The recorded amount of FHLB stock equals its fair value because the shares can only be redeemed by FHLB at the $ 1 per share par value. The investment in FHLB stock was $ 2.2 million and $ 1.9 million at December 31, 2024 and 2023, respectively. The investment in Pacific Coast Banker’s Bancshares (“PCBB”) stock consists of an equity security. This investment is carried at its cost of $ 100,000 at December 31, 2024 and 2023, which approximates its fair value. The Company has the following equity investments which do not have a readily determinable fair value and are held at cost minus impairment if any, plus or minus observable price changes in orderly transactions for an identical or similar investment of the same issuer. This method will be applied until the investments do not qualify for the measurement election (e.g., if the investment has a readily determinable fair value). The Company will reassess at each reporting period whether the equity investments without a readily determinable fair value qualifies to be measured at cost minus impairment. These equity investments without a readily determined fair value include: • a $ 2.2 million equity interest in a specialized bank technology company as of December 31, 2024 and December 31, 2023; • a $ 350,000 equity interest in a technology company as of the years ended December 31, 2024 and December 31, 2023; and 134 Table of Contents • a $ 47,000 and $ 50,000 equity interest in a technology company as of the years ended December 31, 2024, and December 31, 2023, respectively. The following table shows the activity in equity investments without a readily determinable fair value for the dates shown: For the Twelve Months Ended December 31, (dollars in thousands) 2024 2023 2022 Carrying value, beginning of period $ 2,622 $ 2,572 $ 2,322 Purchases — 50 350 Observable price change ( 3 ) — ( 100 ) Carrying value, end of period $ 2,619 $ 2,622 $ 2,572 The Company has invested in funds that are accelerating technology for adoption by banks. These equity investments are held at fair value, as reported by the funds. During the year ended December 31, 2024, the Company contributed $ 72,000 with investment funds designed to help accelerate technology adoption at banks, and recognized net gains of $ 29,000 , resulting in an equity interest of $ 910,000 at December 31, 2024. The Company has committed up to $ 480,000 in capital for these equity funds. The following table shows the activity in equity fund investments held at fair value for the dates shown: For the Twelve Months Ended December 31, (dollars in thousands) 2024 2023 2022 Carrying value, beginning of period $ 809 $ 456 $ 160 Purchases/capital calls/capital returns, net 72 75 349 Net change recognized in earnings 29 278 ( 53 ) Carrying value, end of period $ 910 $ 809 $ 456 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. Interest income on loans is recognized based upon the principal amounts outstanding. 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. When interest accrual is discontinued, all unpaid accrued interest is reversed against current income. If management determines that the ultimate collectability of principal or interest is in doubt, cash receipts on nonaccrual loans are applied to reduce the principal balance on a cash-basis method, until the loans qualify for return to accrual status or principal is paid in full. 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 typically 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 expected 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. Partners may elect to stop accruing interest on loans prior to the days past due referenced above, and some CCBX partners have instituted a collection practice that places certain loans on nonaccrual status to improve collectibility, but interest will not continue accruing beyond those days. 135 Table of Contents 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 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: (1) the loan is significantly delinquent and the borrower has not demonstrated the ability or intent to bring the loan current; (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; (4) there is little or no near-term prospect for improvement; and (5) loan modification with principal reduction. 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 nonaccrual loans. Based on this analysis, the Company records a provision for credit losses to maintain the allowance at appropriate levels. Determining the amount of the allowance is considered a critical accounting estimate, as it requires significant judgment and the use of subjective measurements, including management’s assessment of overall portfolio quality. The Company maintains the allowance at an amount the Company believes is sufficient to provide for estimated losses expected to occur in the Company’s loan portfolio at each balance sheet date, and fluctuations in the provision for credit losses may result from management’s assessment of the adequacy of the allowance. Changes in these estimates and assumptions are possible and may have a material impact on the Company’s allowance, and therefore the Company’s financial position, liquidity or results of operations. The Company has elected to exclude accrued interest receivable from the amortized cost basis in its ACL calculation as accrued interest is written off in a timely manner when deemed uncollectible. For more information and discussion related to the allowance for credit losses on loans, see “Note 4 - Loans and Allowance for Credit Losses”. 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. 136 Table of Contents Loans held-for-sale - During the year ended December 31, 2024, the Company transferred $ 1.55 billion in CCBX loans receivable to loans held for sale. These loans are sold to the originating partners in accordance with partner agreements and are primarily sold for credit and concentration management. Credit card loans are sold to the originating partner while retaining a portion of the interchange or transaction fee income on these sold credit card accounts. The Company sells these loans to provide an additional source of noninterest income without adding on-balance-sheet risk. As of December 31, 2024 there were $ 20.6 million loans held for sale and no loans were held for sale as of December 31, 2023. Community bank loans held-for-sale consist of the guaranteed portion of SBA loans and USDA loans the Company intends to sell after origination and are reflected at the lower of aggregate cost or fair value. Loans are generally sold with servicing of the sold portion retained by the Company when the sale of the loan occurs, the premium received is combined with the estimated present value of future cash flows on the related servicing asset and recorded as a gain on sale of loans in noninterest income. There were no community bank loans held for sale at December 31, 2024 and 2023. Loan sales recognition - The Company recognizes a sale on loans if the transferred portion (or portions) and any portion that continues to be held by the transferor are participating interests. Participating interest is defined as a portion of a financial asset that (a) conveys proportionate ownership rights with equal priority to each participating interest holder, (b) involves no recourse (other than standard representations and warranties), and (c) does not entitle any participating interest holder to receive cash before any other participating interest holder. The transfer of the participating interest (or participating interests) must also meet the conditions for surrender of control. To determine the gain or loss on sale of loans, the Company’s investment in the loan is allocated among the retained portion of the loan, the servicing retained, and the sold portion of the loan, based on the relative fair market value of each portion. 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 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 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. 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 $ 2.5 million and $ 582,000 as of December 31, 2024 and 2023, respectively. The reserve for community bank loans was $ 1.2 million and the reserve for CCBX loans was $ 1.3 million as of December 31, 2024. Premises and equipment - Premises and equipment are stated at cost less accumulated depreciation. Depreciation expense is computed using the straight-line method based upon the estimated useful lives of the assets. Asset lives range from three to thirty-nine years . 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 137 Table of Contents useful life, which is typically three years. Amortization expense is included in data processing and software licenses in the Consolidated Statements of Income. Maintenance and repairs are charged to operating expenses. Renewals and betterments are added to the asset accounts and depreciated over the periods benefited. 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. If management determines impairment exists, the asset is reduced with an offsetting charge to the income statement. Transfers of financial assets - Transfers of an entire financial asset are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when: (1) a group of financial assets or a participating interest in an entire financial asset has been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. 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 credit losses. Costs of significant property improvements that increase the value of the property are capitalized, whereas costs relating to holding the property are expensed. Valuations are periodically performed by management, and a valuation allowance is established for subsequent declines, which are recorded as a charge to income, if necessary, to reduce the carrying value of the property to its fair value less estimated selling costs. Leases - The Company accounts for its leases in accordance with ASC 842 - Leases . Most leases are recognized on the balance sheet by recording a right-of-use asset and lease liability for each lease. The right-of-use asset represents the right to use the asset under lease for the lease term, and the lease liability represents the contractual obligation to make lease payments. The right-of-use asset is tested for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. As a lessee, the Company enters into operating leases for certain Bank branches. The right-of-use assets and lease liabilities are initially recognized based on the net present value of the remaining lease payments which include renewal options where the Company is reasonably certain they will be exercised. The net present value is determined using the incremental collateralized borrowing rate at commencement date. The right-of-use asset is measured at the amount of the lease liability adjusted for any prepaid rent, lease incentives and initial direct costs incurred. The right-of-use asset and lease liability are amortized over the individual lease terms. Lease expense for lease payments is recognized on a straight-line basis over the lease term. For additional information regarding leases, see Note 6. Income taxes - The Company and the Bank file a consolidated federal income tax return and state tax returns as applicable. Deferred income taxes result from temporary differences between the tax basis of assets and liabilities, and their reported amounts in the financial statements. Deferred taxes are temporary differences that will be recognized in future periods. As changes in tax law or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Federal taxes are paid by the Bank to the Company based on the separate taxable income of the Bank. 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, 2024 and 2023, 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. There were no interest and penalties assessed on income taxes during 2024 or 2023. Stock-based compensation - Compensation expense is recognized for stock options and restricted stock, based on the fair value of these awards at the grant date. A Black-Scholes model is utilized to estimate the fair value of stock options, while the market price of the Company’s common stock at the grant date is used for restricted stock awards and restricted stock units and is determined on the basis of objective criteria including trade data. The fair value of market-based units is estimated on the grant date using a Monte Carlo simulation model. Compensation cost is recognized over the requisite service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. 138 Table of Contents Earnings per common share - Earnings per common share (“EPS”) is computed under the two-class method. Pursuant to the two-class method, nonvested stock based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and are included in the computation of EPS. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Application of the two-class method resulted in the equivalent earnings per share to the treasury method. 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. Diluted earnings per common share is computed using the weighted-average number of shares determined for the basic earnings per common share computation plus the dilutive effect of stock using the treasury stock method. Stock awards that are anti-dilutive are not included in the calculation of diluted EPS. Comprehensive income - Accounting principles generally require that recognized revenue, expenses, gains, and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale investments, are reported as a separate component of the shareholders’ equity section of the balance sheets. Accumulated other comprehensive income consists of only one component: unrealized gains or losses on investment securities available-for-sale. 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. The community bank offers a wide variety of deposit products to their customers. Lending activities include the origination of real estate, commercial and industrial, and consumer loans. Interest income on loans is the Company’s primary source of revenue, and is supplemented by interest income from investment securities, service charges, and other service provided activities. 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 24 partners as of December 31, 2024. 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. For additional information regarding the business segments, see Note 21. Advertising costs - Advertising costs are expensed as incurred or over the period of the campaign/promotion. Advertising costs in the amount of $ 162,000 and $ 517,000 were expensed during the year ended December 31, 2024 and 2023, respectively . 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. Restatement of prior period Financial Statements - During the fourth quarter of 2024, the Company completed a review of the accounting treatment for certain CCBX loan types and concluded that it had not appropriately accounted for recognition of interest income and BaaS expense for certain BaaS partner loans in its CCBX segment. In addition, the Company concluded that reimbursement of expenses associated with certain BaaS partners had not been appropriately accounted for under Topic 606, where the Company acts as an agent. The Company determined the impacts of these misstatements were material to the previously issued financial statements as of and for the year ended December 31, 2023. The financial statements as of December 31, 2022 were also revised for certain immaterial items. See Note 23, Restatement of Prior Period Financial Statements, for additional information and quantification of prior period restatement impacts. 139 Table of Contents Note 2 - Recent accounting standards In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to provide financial statement users with more disaggregated expense information about a public entity’s reportable segments. The ASU addresses the concern that more segment information is needed, including allowing the disclosure of multiple measures of segment profit or loss, requiring the disclosure of significant segment expenses, and requiring the qualitative disclosure of other segment items. This ASU is effective for all entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024 and was implemented by the Company as of the fiscal year ended December 31, 2024. Note 3 - Investment Securities 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: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses (dollars in thousands) December 31, 2024 Available-for-sale U.S. Agency collateralized mortgage obligations $ 37 $ — $ ( 2 ) $ 35 $ — Total available-for-sale securities 37 — ( 2 ) 35 — Held-to-maturity U.S. Agency residential mortgage-backed securities 47,286 149 ( 730 ) 46,705 — Total investment securities $ 47,323 $ 149 $ ( 732 ) $ 46,740 $ — Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Allowance for Credit Losses (dollars in thousands) December 31, 2023 Available-for-sale U.S. Treasury securities $ 99,996 $ — $ ( 535 ) $ 99,461 $ — U.S. Agency collateralized mortgage obligations 45 — ( 2 ) 43 — Total available-for-sale securities 100,041 — ( 537 ) 99,504 — Held-to-maturity U.S. Agency residential mortgage-backed securities 50,860 467 ( 286 ) 51,041 — Total investment securities $ 150,901 $ 467 $ ( 823 ) $ 150,545 $ — 140 Table of Contents Accrued interest on available-for-sale securities was less than $1,000 and $ 718,000 at December 31, 2024 and December 31, 2023, respectively. Accrued interest on held-to-maturity securities was $ 218,000 and $ 234,000 at December 31, 2024 and December 31, 2023, respectively. Accrued interest on securities is excluded from the balances in the preceding table of securities receivable, and is included in accrued interest receivable on the Company's consolidated balance sheets. The amortized cost and fair value of debt securities at December 31, 2024, 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. Mortgage-backed securities and collateralized mortgage obligations are shown separately, since they are not due at a single maturity date. Available-for-Sale Held-to-Maturity Amortized Cost Fair Value Amortized Cost Fair Value (dollars in thousands) December 31, 2024 U.S. Agency residential mortgage-backed securities and collateralized mortgage obligations $ 37 $ 35 $ 47,286 $ 46,705 $ 37 $ 35 $ 47,286 $ 46,705 Investment securities with amortized cost of $ 19.2 million and $ 21.8 million at December 31, 2024 and December 31, 2023 respectively, were pledged to secure public deposits and for other purposes as required or permitted by law and an additional $ 24.0 million and $ 25.0 million in securities were pledged for borrowing lines at December 31, 2024 and December 31, 2023, respectively. During the twelve months ended December 31, 2024, two securities matured, consisting of a total of $ 100.0 million in AFS U.S. Treasury securities. During the twelve months ended December 31, 2024, no securities were purchased. There were no sales of investments during the year ended December 31, 2024, December 31, 2023 or December 31, 2022. At December 31, 2024 there were sixteen securities with a $ 732,000 unrealized loss. At December 31, 2023 there were nine securities with a $ 823,000 unrealized loss. 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 Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses Fair Value Gross Unrealized Losses (dollars in thousands) December 31, 2024 Available-for-sale U.S. Agency collateralized mortgage obligations $ — $ — $ 35 $ 2 $ 35 $ 2 Total available-for-sale securities — — 35 2 35 2 Held-to-maturity U.S. Agency residential mortgage-backed securities 27,781 219 10,292 511 38,073 730 Total investment securities $ 27,781 $ 219 $ 10,327 $ 513 $ 38,108 $ 732 141 Table of Contents Management has evaluated the above securities and does not believe that any individual unrealized loss as of December 31, 2024 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. The decline is largely due to changes in market conditions and interest rates, rather than credit quality. The fair value is expected to recover as the underlying securities in the portfolio approach maturity date and market conditions improve. 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. 142 Table of Contents Note 4 - Loans and Allowance for Credit Losses (“ACL”) Loans Held for Sale During the year ended December 31, 2024, $ 1.55 billion in CCBX loans were transferred to loans held for sale, with $ 1.52 billion in loans sold. These loans were sold at par. 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. There were $ 20.6 million loans held for sale as of December 31, 2024 and no loans held for sale as of December 31, 2023. Loans Held for Investment The composition of the loan portfolio is as follows as of the periods indicated: December 31, December 31, 2024 2023 (1) (dollars in thousands) Community Bank Commercial and industrial loans $ 150,395 $ 149,502 Real estate loans: Construction, land and land development loans 148,198 157,100 Residential real estate loans 202,064 225,391 Commercial real estate loans 1,374,801 1,303,533 Consumer and other loans: Other consumer and other loans 13,542 1,628 Gross Community Bank loans receivable 1,889,000 1,837,154 CCBX Commercial and industrial loans: Capital call lines $ 109,017 $ 87,494 All other commercial & industrial loans 33,961 54,295 Real estate loans: Residential real estate loans 267,707 238,035 Consumer and other loans: Credit cards 528,554 505,837 Other consumer and other loans 664,780 306,027 Gross CCBX loans receivable 1,604,019 1,191,688 Total gross loans receivable 3,493,019 3,028,842 Net deferred origination fees and premiums ( 6,454 ) ( 7,300 ) Loans receivable $ 3,486,565 3,021,542 (1) See Note 23, Restatement of Prior Period Financial Statements. Accrued interest on loans, which is excluded from the balances in the preceding table of loans receivable, was $ 20.5 million and $ 23.5 million at December 31, 2024 and December 31, 2023, respectively, and was included in accrued interest receivable on the Company's consolidated balance sheets. Included in commercial and industrial loans is $ 109.0 million and $ 87.5 million in capital call lines, as of December 31, 2024 and December 31, 2023, respectively, provided to venture capital firms through one of our BaaS clients. These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards and the underwriting is reviewed by the Bank on every line/loan. Consumer and other loans includes overdrafts of $ 7.4 million and $ 2.8 million at December 31, 2024 and December 31, 2023, respectively. Community bank overdrafts were $ 147,000 and $ 255,000 at December 31, 2024 and 143 Table of Contents December 31, 2023, respectively and CCBX overdrafts were $ 7.3 million and $ 2.5 million at December 31, 2024 and December 31, 2023, respectively. The Company has pledged loans totaling $ 933.9 million and $ 1.01 billion at December 31, 2024 and December 31, 2023, respectively, for borrowing lines at the FHLB and FRB. Loans are pledged to increase and maintain the borrowing capacity of the Bank in the event of a liquidity crisis. The balance of SBA and USDA loans and participations serviced for others totaled $ 4.1 million and $ 8.7 million at December 31, 2024 and December 31, 2023, respectively. The gross balance of MSLP loans participated and serviced for others totaled $ 50.3 million and $ 53.4 million at December 31, 2024 and December 31, 2023, respectively, with $ 2.6 million and $ 2.8 million in MSLP loans on the balance sheet and included in commercial and industrial loans at December 31, 2024 and December 31, 2023, respectively. Servicing is retained on the gross balance. 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 $ 6.1 million and $ 8.1 million as of December 31, 2024 and December 31, 2023, respectively. Unamortized premiums totaled $ 117,000 and $ 154,000 as of December 31, 2024 and December 31, 2023, respectively, and are amortized into interest income over the life of the loans. These loans are included in the applicable loan category depending upon the collateral and purpose of the individual loan. The Company, through the community bank, has purchased participation loans with remaining balances totaling $ 29.2 million and $ 53.5 million as of December 31, 2024 and December 31, 2023, respectively. These loans are included in the applicable loan category depending upon the collateral and purpose of the individual loan. 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 $ 208.0 million as of December 31, 2024 and $ 45.7 million as of December 31, 2023. As of December 31, 2024, $ 202.7 million is included in consumer and other loans and $ 5.4 million is included in commercial and industrial loans, compared to $ 39.4 million in consumer and other loans and $ 6.3 million in commercial and industrial loans as of December 31, 2023. 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 $ 29.9 million in unsecured loans originated through CCBX partners as of December 31, 2024, compared to $ 52.7 million as of December 31, 2023. Loan types include revolving lines of credit, term loans, PPP 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. Additionally, the Company issues letters of credit on behalf of its customers. Risk arises primarily due to the difference between expected and actual cash flows of the borrowers. In addition, the recoverability of the Company’s investment in these loans is also dependent on other factors primarily dictated by the type of collateral securing these loans. The fair value of the collateral securing these loans may fluctuate as market conditions change. In the case of loans secured by accounts receivable, the recovery of the Company’s investment is dependent upon the borrower’s ability to collect amounts due from its customers. For the year ended December 31, 2024, $ 109.0 million in CCBX capital call lines are included in commercial and industrial loans compared to $ 87.5 million at December 31, 2023. Capital call lines are provided to venture capital firms. These loans are secured by the capital call rights and are individually underwritten to the Bank’s credit standards and the underwriting is reviewed by the Bank on every line/loan. Construction, land and land development loans – The Company originates loans for the construction of 1-4 family, multifamily, and CRE properties in the Company’s market area. Construction loans are considered to have higher risks due to construction completion and timing risk, the ultimate repayment being sensitive to interest rate changes, government regulation of real property and the availability of long-term financing. Additionally, economic conditions may impact the Company’s ability to recover its investment in construction loans, as adverse economic conditions may negatively impact the real estate market, which could affect the borrower’s ability to complete and sell the project. Additionally, the fair value of the underlying collateral may fluctuate as market conditions change. The Company 144 Table of Contents occasionally originates land loans for the purpose of facilitating the ultimate construction of a home or commercial building. The primary risks include the borrower’s ability to pay and the inability of the Company to recover its investment due to a material decline in the fair value of the underlying collateral. Residential real estate - Residential real estate includes various types of loans for which the Company holds real property as collateral. Included in this segment are multi-family loans, first lien single family loans, which the Company occasionally purchases to diversify its loan portfolio, home equity lines of credit and rental portfolios secured by one-to-four family homes. The primary risks of residential real estate loans include the borrower’s inability to pay, material decreases in the value of the collateral, and significant increases in interest rates which may make the loan unprofitable. As of December 31, 2024, $ 267.7 million in loans originated through CCBX partners are included in residential real estate loans, compared to $ 238.0 million at December 31, 2023. These home equity lines of credit are secured by residential real estate and are accessed by using a credit card. Home equity lines of credit are classified as residential real estate per regulatory guidelines. Commercial real estate (includes owner occupied and nonowner occupied) - Commercial real estate loans include various types of loans for which the Company holds real property as collateral. We have commercial mortgage loans totaling $ 386.8 million that are collateralized by owner-occupied real-estate and $ 565.5 million that are collateralized by non-owner-occupied real estate, as well as $ 412.0 million of multi-family residential loans and $ 10.5 million of farmland loans, as of December 31, 2024. The primary risks of commercial real estate loans include the borrower’s inability to pay, material decreases in the value of the collateralized real estate and significant increases in interest rates, which may make the real estate loan unprofitable. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. Consumer and other loans – The community bank originates a limited number of consumer loans, generally for banking customers only, which consist primarily of lines of credit, saving account secured loans, and auto loans. CCBX originates consumer loans including credit cards, consumer term loans and secured and unsecured lines of credit. This loan category also includes overdrafts. Repayment of these loans is dependent on the borrower’s ability to pay and the fair value of the underlying collateral. As of December 31, 2024, $ 1.19 billion in CCBX loans are included in consumer and other loans compared to $ 811.9 million at December 31, 2023. Not included in this category is $ 267.7 million and $ 238.0 million as of December 31, 2024 and December 31, 2023, respectively, in home equity lines of credit that are secured by residential real estate and are accessed by using a credit card. These credit card accessed home equity lines of credit are classified as residential real estate per regulatory guidelines. 145 Table of Contents Past due and Nonaccrual Loans The following table illustrates an age analysis of past due loans as of the dates indicated: 30-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans 90 Days or More Past Due and Still Accruing (dollars in thousands) December 31, 2024 Community Bank Commercial and industrial loans $ 97 $ — $ 97 $ 150,298 $ 150,395 $ — Real estate loans: Construction, land and land development — — — 148,198 148,198 — Residential real estate — — — 202,064 202,064 — Commercial real estate — — — 1,374,801 1,374,801 — Consumer and other loans 7 — 7 13,535 13,542 — Total community bank $ 104 $ — $ 104 $ 1,888,896 $ 1,889,000 $ — CCBX Commercial and industrial loans: Capital call lines $ — $ — $ — $ 109,017 $ 109,017 $ — All other commercial & industrial loans 1,950 1,006 2,956 31,005 33,961 1,006 Real estate loans: Residential real estate loans 3,335 2,608 5,943 $ 261,764 $ 267,707 2,608 Consumer and other loans: Credit cards 27,652 36,505 64,157 $ 464,397 $ 528,554 34,490 Other consumer and other loans 19,840 5,224 25,064 639,716 664,780 4,989 Total CCBX $ 52,777 $ 45,343 $ 98,120 $ 1,505,899 $ 1,604,019 $ 43,093 Total Consolidated $ 52,881 $ 45,343 $ 98,224 $ 3,394,795 3,493,019 $ 43,093 Less net deferred origination fees and premiums ( 6,454 ) Loans receivable $ 3,486,565 146 Table of Contents 30-89 Days Past Due 90 Days or More Past Due Total Past Due Current Total Loans 90 Days or More Past Due and Still Accruing (dollars in thousands) December 31, 2023 (1) 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 — Commercial real estate — 7,145 7,145 1,296,388 1,303,533 — Consumer and other loans 2 — 2 1,626 1,628 — Total community bank $ 46 $ 7,145 $ 7,191 $ 1,829,963 $ 1,837,154 $ — CCBX Commercial and industrial loans: Capital call lines $ — $ — $ — $ 87,494 $ 87,494 $ — All other commercial & industrial loans 3,432 2,086 5,518 48,777 54,295 2,086 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 29,603 8,486 38,089 $ 267,938 $ 306,027 $ 8,486 Total CCBX 64,616 46,522 111,138 1,080,550 1,191,688 46,522 Total Consolidated 64,662 53,667 118,329 2,910,513 3,028,842 46,522 Less net deferred origination fees and premiums ( 7,300 ) Loans receivable $ 3,021,542 (1) See Note 23, Restatement of Prior Period Financial Statements. There were $ 43.1 million in loans past due 90 days or more and still accruing interest as of December 31, 2024, and $ 46.5 million as of December 31, 2023. The balance is attributed to loans originated through CCBX lending partners which continue to accrue interest up to 180 days past due. As of December 31, 2024 and December 31, 2023, $ 41.8 million and $ 44.3 million, respectively of loans past due 90 days or more and still accruing interest are covered by credit enhancements provided by our CCBX partners that protect the Bank against losses. Some CCBX partners have instituted a collection practice that places certain loans on nonaccrual status to improve collectability and amounts projected to not be collected are written-off. 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 expected 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 147 Table of Contents and accrued interest outstanding is reversed against interest income. 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. Payments received on nonaccrual loans are generally applied as a reduction to the loan principal balance. If the likelihood of further loss is removed, the Company will recognize interest on a cash basis only. 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. An analysis of nonaccrual loans by category consisted of the following at the periods indicated: December 31, December 31, 2024 2023 Total Nonaccrual Nonaccrual with No ACL Nonaccrual with ACL Total Nonaccrual Nonaccrual with No ACL (dollars in thousands) Community Bank Commercial and industrial loans $ 100 $ 100 $ — $ — $ — Real estate loans: Residential real estate — — — 170 170 Commercial real estate — — — 7,145 7,145 Total Community Bank nonaccrual loans $ 100 $ 100 $ — $ 7,315 $ 7,315 CCBX Commercial and industrial loans $ 234 $ — $ 234 $ — $ — Consumer and other loans: Credit cards 10,262 — 10,262 — — Consumer and other consumer loans 8,967 — 8,967 — — Total CCBX nonaccrual loans $ 19,463 $ — $ 19,463 $ — $ — Total Consolidated nonaccrual loans $ 19,563 $ 100 $ 19,463 $ 7,315 $ 7,315 148 Table of Contents 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. One loan was modified for a community bank borrower experiencing financial difficulty in the twelve months ended months ended December 31, 2024, and no community bank loans were modified in the twelve months ended December 31, 2023 . The Company has no commitment to lend additional amounts to this borrower. The following table presents the community bank loan that was both experiencing financial difficulty and was modified during the year by class and by type of modification for the periods indicated with the percentage of community bank loans that were modified to borrowers in financial distress as compared to the total of each class of community bank loans. Also presented is the financial effect of the loan modification to the borrower experiencing financial difficulty for the year ended as indicated. Financial Effect of the Loan Modifications December 31, 2024 Principal Forgiveness & Interest Rate Reduction Total Total Class of Financing Receivable Principal Forgiveness Weighted Average Interest Rate Reduction (dollars in thousands) Community Bank Commercial and industrial loans $ 101 $ 101 0.07 % $ 82 9.75 % Total $ 101 $ 101 0.01 % $ 82 9.75 % The Company has no commitment to lend additional amounts to the borrower in the table above. No community bank modified loans to borrowers experiencing financial difficulty were past due as of December 31, 2024 and there were no payment defaults on this loan during the year ended December 31, 2024. 149 Table of Contents The following table presents the CCBX loans that were both experiencing financial difficulty and were modified during the years ended December 31, 2024 and 2023 by class and by type of modification for the periods indicated. The percentage of the CCBX loans that were modified to borrowers in financial distress as compared to the total of each class of CCBX loans is also presented below. December 31, 2024 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) CCBX Commercial and industrial loans: All other commercial & industrial loans $ — $ 1,790 $ — $ 235 $ — $ 2,025 5.96 % Consumer and other loans: Credit cards 11,067 — 17,287 — — 28,354 5.36 Other consumer and other loans — 6,873 — 8,645 34 15,552 2.34 Total $ 11,067 $ 8,663 $ 17,287 $ 8,880 $ 34 $ 45,931 1.32 % December 31, 2023 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) CCBX 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 6.62 Total $ 1 $ 14,818 $ 4,201 $ 3,865 $ 2,864 $ 25,749 0.85 % The Company has committed to lend additional amounts totaling $ 201,000 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 as of the periods indicated: 150 Table of Contents December 31, 2024 30-89 Days Past Due 90 Days or More Past Due Total Past Due (dollars in thousands) CCBX Commercial and industrial loans: All other commercial & industrial loans $ 281 $ 139 $ 420 Consumer and other loans: Credit cards 9,436 11,181 20,617 Other consumer and other loans 1,055 388 1,443 Total CCBX $ 10,772 $ 11,708 $ 22,480 December 31, 2023 30-89 Days Past Due 90 Days or More Past Due Total Past Due (dollars in thousands) CCBX 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 $ 7,822 151 Table of Contents The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty for the years ended as indicated below: December 31, 2024 Principal Forgiveness Weighted Average Interest Rate Reduction Weighted Average Term Extension (years) (dollars in thousands) CCBX Commercial and industrial loans: All other commercial & industrial loans $ 138 — % 1.4 Consumer and other loans: Credit cards 7,938 14.6 n/a Other consumer and other loans 6,001 — 1.7 Total CCBX $ 14,077 14.6 % 1.6 December 31, 2023 Principal Forgiveness Weighted Average Interest Rate Reduction Weighted Average Term Extension (years) (dollars in thousands) CCBX Commercial and industrial loans: All other commercial & industrial loans $ — — % 0.9 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 % 0.8 152 Table of Contents The following table presents the total of loans that had a payment default during the periods indicated and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty. December 31, 2024 Principal Forgiveness Term Extension Interest Rate Reduction Principal Forgiveness & Payment Delay Total (dollars in thousands) CCBX Commercial and industrial loans: All other commercial & industrial loans — $ 1,070 $ — $ 77 $ 1,147 Consumer and other loans: Credit cards 10,417 — 12,050 — 22,467 Other consumer and other loans — 4,184 — 1,715 5,899 Total $ 10,417 $ 5,254 $ 12,050 $ 1,792 $ 29,513 December 31, 2023 Term Extension Interest Rate Reduction Principal Forgiveness & Payment Delay Principal Forgiveness, Payment Delay & Term Extension Total (dollars in thousands) CCBX 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 Federal regulations require that the Company periodically evaluate the risks inherent in its loan portfolio. 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 153 Table of Contents 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”). Loans classified as Watch are performing assets but have elements of risk that require more monitoring than other performing loans and are reported in the OLEM column in the following table. Loans classified as OLEM are assets that continue to perform but have shown deterioration in credit quality and require close monitoring. There are three classifications for problem loans: Substandard, Doubtful, and Loss. Substandard loans have one or more defined weaknesses and are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Revolving (open-ended loans, such as credit cards) and installment (closed end) consumer loans originated through CCBX partners continue to accrue interest until they are charged-off at 120 days past due for installment loans (primarily unsecured loans to consumers) and 180 days past due for revolving loans (primarily credit cards) and are classified as substandard. Doubtful loans have the weaknesses of loans classified as Substandard, with additional characteristics that suggest the weaknesses make collection or recovery in full after liquidation of collateral questionable on the basis of currently existing facts, conditions, and values. There is a high possibility of loss in loans classified as Doubtful. 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 credit losses, thereby reducing that reserve. Management considers the guidance in ASC 310-20 when determining whether a modification, extension, or renewal of loan constitutes a current period origination. The following tables show the risk category of community bank loans by year of origination for the periods indicated, based on the most recent analysis performed as of each period end: Term Loans Amortized Cost Basis by Origination Year Community Bank 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted To Term Total (dollars in thousands) As of December 31, 2024 Commercial and industrial loans Risk rating Pass $ 12,016 $ 11,654 $ 43,490 $ 13,139 $ 8,109 $ 7,634 $ 31,022 $ 21,496 $ 148,560 Other Loan Especially Mentioned — 18 — 38 — — 1,679 — $ 1,735 Substandard — — — — — — 100 — $ 100 Doubtful — — — — — — — — — Total commercial and industrial loans - All other commercial and industrial loans $ 12,016 $ 11,672 $ 43,490 $ 13,177 $ 8,109 $ 7,634 $ 32,801 $ 21,496 $ 150,395 Current period gross charge-offs $ — $ 92 $ — $ — $ — $ 167 $ — $ — $ 259 Real estate loans - Construction, land and land development loans Risk rating Pass $ 34,089 $ 70,297 $ 34,937 $ 4,501 $ 755 $ 2,180 $ 600 $ — $ 147,359 Other Loan Especially Mentioned — 160 — 679 — — — — $ 839 Substandard — — — — — — — — $ — 154 Table of Contents Term Loans Amortized Cost Basis by Origination Year Community Bank 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted To Term Total (dollars in thousands) As of December 31, 2024 Doubtful — — — — — — — — $ — Total real estate loans - Construction, land and land development loans $ 34,089 $ 70,457 $ 34,937 $ 5,180 $ 755 $ 2,180 $ 600 $ — $ 148,198 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real estate loans - Residential real estate loans Risk rating Pass $ 13,194 $ 30,332 $ 37,576 $ 37,834 $ 25,838 $ 27,159 $ 26,565 $ 15 $ 198,513 Other Loan Especially Mentioned — — 1,084 — 6 — 180 — $ 1,270 Substandard 2,281 — — — — — — — $ 2,281 Doubtful — — — — — — — — $ — Total real estate loans - Residential real estate loans $ 15,475 $ 30,332 $ 38,660 $ 37,834 $ 25,844 $ 27,159 $ 26,745 $ 15 $ 202,064 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real estate loans - Commercial real estate loans Risk rating Pass $ 96,199 $ 302,470 $ 279,902 $ 219,503 $ 129,904 $ 310,251 $ 8,982 $ 1,657 $ 1,348,868 Other Loan Especially Mentioned 15,359 — 3,184 5,248 156 1,986 — — $ 25,933 Substandard — — — — — — — — $ — Doubtful — — — — — — — — — Total real estate loans - Commercial real estate loans $ 111,558 $ 302,470 $ 283,086 $ 224,751 $ 130,060 $ 312,237 $ 8,982 $ 1,657 $ 1,374,801 Current period gross charge-offs $ — $ — $ — $ — $ 41 $ 223 $ — $ — $ 264 Consumer and other loans - Other consumer and other loans Risk rating Pass $ 1,447 $ 53 $ 8,269 $ 2 $ 249 $ 3,337 $ 185 $ — $ 13,542 Other Loan Especially Mentioned — — — — — — — — $ — Substandard — — — — — — — — $ — Doubtful — — — — — — — — — Total consumer and other loans - Other consumer and other loans $ 1,447 $ 53 $ 8,269 $ 2 $ 249 $ 3,337 $ 185 $ — $ 13,542 Current period gross charge-offs $ 31 $ — $ — $ — $ — $ — $ — $ — $ 31 155 Table of Contents Term Loans Amortized Cost Basis by Origination Year Community Bank 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted To Term Total (dollars in thousands) As of December 31, 2024 Total community bank loans receivable Risk rating Pass $ 156,945 $ 414,806 $ 404,174 $ 274,979 $ 164,855 $ 350,561 $ 67,354 $ 23,168 $ 1,856,842 Other Loan Especially Mentioned 15,359 178 4,268 5,965 162 1,986 1,859 — $ 29,777 Substandard 2,281 — — — — — 100 — $ 2,381 Doubtful — — — — — — — — — Total community bank loans $ 174,585 $ 414,984 $ 408,442 $ 280,944 $ 165,017 $ 352,547 $ 69,313 $ 23,168 $ 1,889,000 Current period gross charge-offs $ 31 $ 92 $ — $ — $ 41 $ 390 $ — $ — $ 554 156 Table of Contents 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 Commercial and industrial loans Risk rating 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 charge-offs $ — $ — $ — $ — $ — $ 46 $ — $ — $ 46 Real estate loans - Construction, land and land development loans Risk rating 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 charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Real estate loans - Residential real estate loans Risk rating 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 charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — 157 Table of Contents 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 - Commercial real estate loans Risk rating 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 charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer and other loans - Other consumer and other loans Risk rating 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 charge-offs $ 18 $ — $ — $ — $ — $ — $ — $ — $ 18 Total community bank loans receivable Risk rating 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 charge-offs $ 18 $ — $ — $ — $ — $ 46 $ — $ — $ 64 158 Table of Contents 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 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted To Term Total (dollars in thousands) As of December 31, 2024 Commercial and industrial loans - Capital call lines Payment performance Performing $ — $ — $ — $ — $ — $ — $ 109,017 $ — $ 109,017 Nonperforming — — — — — — — — — Total commercial and industrial loans - Capital call lines $ — $ — $ — $ — $ — $ — $ 109,017 $ — $ 109,017 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial and industrial loans - All other commercial and industrial loans Payment performance Performing $ 1,049 $ 22,974 $ 3,952 $ 5 $ 12 $ — $ 4,729 $ — $ 32,721 Nonperforming — 856 141 — — — 243 — 1,240 Total commercial and industrial loans - All other commercial and industrial loans $ 1,049 $ 23,830 $ 4,093 $ 5 $ 12 $ — $ 4,972 $ — $ 33,961 Current period gross charge-offs $ 503 $ 11,845 $ 1,956 $ 2 $ 5 $ — $ 986 $ — $ 15,297 Real estate loans - Residential real estate loans Payment performance Performing $ — $ — $ — $ — $ — $ — $ 255,779 $ 9,320 $ 265,099 Nonperforming — — — — — — 2,608 — 2,608 Total real estate loans - Residential real estate loans $ — $ — $ — $ — $ — $ — $ 258,387 $ 9,320 $ 267,707 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ 5,006 $ — $ 5,006 Consumer and other loans - Credit cards Payment performance Performing $ — $ — $ — $ — $ — $ — $ 483,755 $ 47 $ 483,802 Nonperforming — — — — — — 44,752 — 44,752 Total consumer and other loans - Credit cards $ — $ — $ — $ — $ — $ — $ 528,507 $ 47 $ 528,554 Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ 130,825 $ — $ 130,825 159 Table of Contents Term Loans Amortized Cost Basis by Origination Year CCBX 2024 2023 2022 2021 2020 Prior Revolving Loans Amortized Cost Basis Revolving Loans Converted To Term Total (dollars in thousands) As of December 31, 2024 Consumer and other loans - Other consumer and other loans Payment performance Performing $ 430,398 $ 153,522 $ 44,967 $ 1,902 $ 47 $ 192 $ 19,796 $ — $ 650,824 Nonperforming 1,727 7,324 4,042 732 — 15 116 — 13,956 Total consumer and other loans - Other consumer and other loans $ 432,125 $ 160,846 $ 49,009 $ 2,634 $ 47 $ 207 $ 19,912 $ — $ 664,780 Current period gross charge-offs $ 13,759 $ 34,352 $ 14,702 $ 3,580 $ 24 $ 282 $ 10,710 $ — $ 77,409 Total CCBX loans receivable Payment performance Performing $ 431,447 $ 176,496 $ 48,919 $ 1,907 $ 59 $ 192 $ 873,076 $ 9,367 $ 1,541,463 Nonperforming 1,727 8,180 4,183 732 — 15 47,719 — 62,556 Total CCBX loans $ 433,174 $ 184,676 $ 53,102 $ 2,639 $ 59 $ 207 $ 920,795 $ 9,367 $ 1,604,019 Current period gross charge-offs $ 14,262 $ 46,197 $ 16,658 $ 3,582 $ 29 $ 282 $ 147,527 $ — $ 228,537 160 Table of Contents 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 (1) (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 charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial and industrial loans - All other commercial and industrial loans Payment performance Performing $ 42,266 $ 6,833 $ 9 $ 11 $ — $ — $ 3,090 $ — $ 52,209 Nonperforming 1,333 277 — — — — 476 — 2,086 Total commercial and industrial loans - All other commercial and industrial loans $ 43,599 $ 7,110 $ 9 $ 11 $ — $ — $ 3,566 $ — $ 54,295 Current period gross charge-offs $ 3,848 $ 2,502 $ 15 $ 16 $ — $ — $ 224 $ — $ 6,605 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 charge-offs $ — $ — $ — $ — $ — $ — $ 4,641 $ — $ 4,641 Consumer and other loans - Credit cards 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 charge-offs $ — $ — $ — $ — $ — $ — $ 61,358 $ — $ 61,358 161 Table of Contents 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 (1) (dollars in thousands) As of December 31, 2023 Consumer and other loans - Other consumer and other loans Payment performance Performing $ 212,694 $ 49,711 $ 6,715 $ 95 $ 408 $ 309 $ 27,609 $ — $ 297,541 Nonperforming 4,229 3,074 475 — 7 10 691 — 8,486 Total consumer and other loans - Other consumer and other loans $ 216,923 $ 52,785 $ 7,190 $ 95 $ 415 $ 319 $ 28,300 $ — $ 306,027 Current period gross charge-offs $ 17,815 $ 43,115 $ 11,574 $ 84 $ 346 $ 217 $ 6,178 $ — $ 79,329 Total CCBX loans receivable Payment performance Performing $ 254,960 $ 56,544 $ 6,724 $ 106 $ 408 $ 309 $ 799,677 $ 26,438 $ 1,145,166 Nonperforming $ 5,562 $ 3,351 $ 475 $ — $ 7 $ 10 $ 35,937 $ 1,180 $ 46,522 Total CCBX loans $ 260,522 $ 59,895 $ 7,199 $ 106 $ 415 $ 319 $ 835,614 $ 27,618 $ 1,191,688 Current period gross charge-offs $ 21,663 $ 45,617 $ 11,589 $ 100 $ 346 $ 217 $ 72,401 $ — $ 151,933 (1) See Note 23, Restatement of Prior Period Financial Statements. Allowance for Credit Losses ("ACL") 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 5 % of a $ 324.6 million loan portfolio that are without credit enhancement reimbursements. At December 31, 2024, 5 % of this portfolio represented $ 20.6 million in loans. The partner is responsible for reimbursing credit losses on approximately 95 % of this portfolio and for fraud losses on 100 % of this portfolio. The Company earns 100 % of the interest income on the aforementioned $ 20.6 million of loans. 162 Table of Contents 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 years ended December 31, 2024 and December 31, 2023. Commercial and Industrial Construction, Land, and Land Development Residential Real Estate Commercial Real Estate Consumer and Other Unallocated Total (dollars in thousands) Twelve Months Ended December 31, 2024 ACL Balance, December 31, 2023 $ 8,894 $ 6,386 $ 13,049 $ 7,441 $ 81,611 $ — $ 117,381 Provision for credit losses or (recapture) 16,605 ( 2,947 ) 4,199 1,279 256,527 — 275,663 25,499 3,439 17,248 8,720 338,138 — 393,044 Loans charged-off ( 15,556 ) — ( 5,006 ) ( 264 ) ( 208,265 ) — ( 229,091 ) Recoveries of loans previously charged-off 1,108 — 8 — 11,925 — 13,041 Net charge-offs ( 14,448 ) — ( 4,998 ) ( 264 ) ( 196,340 ) — ( 216,050 ) ACL balance, December 31, 2024 $ 11,051 $ 3,439 $ 12,250 $ 8,456 $ 141,798 $ — $ 176,994 Twelve Months Ended December 31, 2023 (1) ALLL Balance, December 31, 2022 $ 4,831 $ 7,425 $ 4,142 $ 5,470 $ 50,996 $ 1,165 $ 74,029 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 Loans charged-off ( 6,651 ) — ( 4,641 ) — ( 140,705 ) — ( 151,997 ) Recoveries of loans previously charged-off 22 — 4 — 7,428 — 7,454 Net charge-offs ( 6,629 ) — ( 4,637 ) — ( 133,277 ) — ( 144,543 ) ACL Balance, December 31, 2023 $ 8,894 $ 6,386 $ 13,049 $ 7,441 $ 81,611 $ — $ 117,381 (1) See Note 23, Restatement of Prior Period Financial Statements. There was an unfunded commitments provision of $ 1.9 million for the twelve months ended December 31, 2024 and an unfunded commitments recapture of $ 51,000 for the twelve months ended December 31, 2023. 163 Table of Contents 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: Business Assets Total ACL (dollars in thousands) December 31, 2024 Commercial and industrial loans $ 100 $ 100 $ — Total $ 100 $ 100 $ — Real Estate 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 $ — Note 5 – Premises and Equipment The investment in premises and equipment consisted of the following at December 31: 2024 2023 (dollars in thousands) Land $ 3,599 $ 3,599 Buildings 11,798 11,780 Leasehold Improvements 5,038 5,038 Furniture 2,297 2,308 Equipment 5,723 5,587 Software 15,663 5,806 Projects in process — 120 44,118 34,238 Less accumulated depreciation and amortization ( 16,687 ) ( 12,148 ) Premises and equipment, net $ 27,431 $ 22,090 Depreciation and amortization on land, buildings, leasehold improvements, furniture and equipment is charged to occupancy expense and totaled $ 1.5 million, $ 1.6 million and $ 1.5 million for the years ended December 31, 2024, 2023 and 2022, respectively. Amortization on software is charged to data processing and software licenses and totaled $ 3.0 million, $ 754,000 and $ 329,000 for the years ended December 31, 2024, 2023 and 2022, respectively. Note 6 – Leases The Company has committed to rent premises and equipment used in business operations under non-cancelable operating and finance leases and determines if an arrangement meets the definition of a lease upon inception. Operating and finance lease right-of-use (“ROU”) assets represent a right to use an underlying asset for the contractual lease term. Lease liabilities represent an obligation to make lease payments arising from the lease. A lease ROU asset and lease liability will be recognized for any new leases at the commencement 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 and finance lease liabilities at the inception of the lease. The weighted average discount rate as of December 31, 2024 was 164 Table of Contents 4.0 %. for operating leases and 4.75 % for finance leases and is based off the discount rate and term at the time the lease is originated or renewed. The Company’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Company’s lease agreements do not contain any residual value guarantees. Operating leases with original terms of 12 months or less are not included in ROU assets and operating lease liabilities recorded in our consolidated balance sheets. 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, 2024, lease expiration dates ranged from less than one month to 21.2 years, with additional renewal options on certain leases typically ranging from zero to 10 years. At December 31, 2024, the dollar weighted average remaining lease term for the Company’s operating leases was 8.4 years. The weighted average remaining lease term for the Company's finance lease was 1.8 years. Rental expense for operating leases is recognized on a straight-line basis over the lease term and amounted to $ 1.2 million for the years ended December 31, 2024 and 2023 and $ 1.4 million for the year ended December 31, 2022. Variable lease components, such as inflation adjustments, are expensed as incurred and not included in ROU assets and operating lease liabilities. Amortization expense for finance leases is recognized on a straight-line basis over the lease term and amounted to $ 43,000 for the twelve months ended December 31, 2024. Interest on finance leases was $ 5,000 for the twelve months ended December 31, 2024. This is a new lease for 2024, so there was no amortization or interest expense for the twelve months ended December 31, 2023 and 2022. The following sets forth, as of December 31, 2024, the minimum annual lease payments under the terms of these leases, inclusive of renewal options that the Company is reasonably certain to renew: Operating Finance (dollars in thousands) December 31, 2024 2025 $ 977 $ 36 2026 977 27 2027 913 — 2028 692 — 2029 459 — 2030 and thereafter 2,304 — Total lease payments 6,322 63 Less: amounts representing interest 984 3 Present value of lease liabilities $ 5,338 $ 60 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. Lease and sublease income was $ 204,000 , $ 205,000 and $ 157,000 for 2024, 2023 and 2022, respectively. 165 Table of Contents The following table presents the components of total lease expense and operating cash flows for the year ended December 31, 2024: For the Year Ended (dollars in thousands) December 31, 2024 December 31, 2023 December 31, 2022 Lease expense: Operating lease expense (1) 1,020 $ 1,074 1,281 Variable lease expense 362 236 193 Finance lease cost Right-of-use amortization (2) $ 43 $ — $ — Interest expense (3) 5 — — Total lease expense $ 1,430 $ 1,310 $ 1,474 Cash paid: Cash paid from operating leases $ 1,396 $ 1,334 $ 1,473 Cash paid from finance leases $ 47 $ — $ — (1) Included in net occupancy expense and in the Consolidated Statements of Income. (2) Included in other expense in the Consolidated Statements of Income. (3) Included in interest on borrowed funds Consolidated Statements of Income. Note 7 - Deposits The composition of consolidated deposits consisted of the following at the periods indicated: (dollars in thousands) December 31, 2024 December 31, 2023 (dollars in thousands) Demand, noninterest bearing $ 527,524 $ 625,202 Interest bearing demand and money market 2,529,084 2,640,240 Savings 66,826 76,562 Other deposits 444,351 1 Time deposits less than $250,000 11,252 13,917 Time deposits $250,000 and over 6,295 4,441 Total deposits $ 3,585,332 $ 3,360,363 The following table presents the maturity distribution of time deposits as of December 31, 2024: (dollars in thousands) Twelve months $ 13,960 One to two years 2,319 Two to three years 293 Three to four years 696 Four to five years 279 Thereafter — $ 17,547 Included in total deposits is $ 414.0 million in IntraFi network reciprocal interest bearing demand and money market sweep accounts as of December 31, 2024, compared to $ 340.1 million as of December 31, 2023, which provides our customers with fully insured deposits through a sweep and exchange of deposits with other financial institutions. 166 Table of Contents Note 8 – Federal Home Loan Bank Advances and Other Borrowings At December 31, 2024 and December 31, 2023 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 and certain mortgage backed securities with a carrying value of $ 303.0 million and $ 321.5 million at December 31, 2024 and 2023, respectively. The Company has available borrowing capacity of an additional $ 173.3 million from FHLB at December 31, 2024, subject to certain collateral requirements and with interest at then stated rate. The following table provides details on FHLB advance borrowings for the periods indicated: Year Ended December 31, (Dollars in thousands) 2024 2023 Maximum amount outstanding at any month-end during period: $ — $ — Average outstanding balance during period: $ 2,443 $ 1 Weighted average interest rate during period: 5.66 % 5.60 % Balance outstanding at end of period: $ — $ — Weighted average interest rate at end of period: — % — % 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 2025. There were no borrowings on this line at December 31, 2024 or 2023. The Company has established a Borrower-in-Custody (“BIC”) arrangement with the FRB, which is secured by eligible loans, with interest payable at the then-stated rate. At December 31, 2024, the Company had pledged commercial real estate loans totaling $ 654.8 million, which provided available borrowing capacity of $ 468.7 million. At December 31, 2023, the Company had pledged commercial real estate loans totaling $ 685.7 million, which provided available borrowing capacity of $ 435.5 million. There were no borrowings outstanding on this line of credit at December 31, 2024 or 2023. Note 9 – Subordinated Debt At December 31, 2024 and 2023, the Company’s subordinated debt was as follows: Aggregate Principal Amount December 31, 2024 Aggregate Principal Amount December 31, 2023 (dollars in thousands) Total liability, at par $ 45,000 $ 45,000 Less: unamortized debt issuance costs ( 707 ) ( 856 ) Total liability, at carrying value $ 44,293 $ 44,144 On August 18, 2021, the Company entered into a $ 25.0 million subordinated note purchase agreement. The note matures on September 1, 2031 , is fixed for five years at 3.375 %, and thereafter is variable at a floating rate, calculated quarterly, based on the 3-month SOFR + 2.76 %. On November 1, 2022, the Company entered into a $ 20.0 million subordinated note purchase agreement. 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 $ 2.4 million was recognized during 2024 and 2023 and $ 1.2 million was recognized during 2022, and accrued interest payable on these notes totaled $ 515,000 at December 31, 2024 and 2023. 167 Table of Contents Note 10 – Junior Subordinated Debentures At December 31, 2024 and 2023, the Company’s junior subordinated debentures were as follows: Coastal (WA) Statutory Trust I Aggregate Principal Amount December 31, 2024 Aggregate Principal Amount December 31, 2023 (dollars in thousands) Total liability, at par $ 3,609 $ 3,609 Less: unamortized debt issuance costs ( 18 ) ( 19 ) Total liability, at carrying value $ 3,591 $ 3,590 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. Prior to June 30, 2023, the debentures bore interest at a rate per annum equal to the 3-month LIBOR plus 2.10 %. Beginning with rate adjustments subsequent to June 30, 2023, the rate is based off three-month CME Term SOFR plus a spread adjustment of 0.26 % and margin of 2.10 %. The effective rate as of December 31, 2024 and December 31, 2023 was 6.72 % and 7.75 %, respectively. Interest is payable quarterly. Interest expense of $ 279,000 , $ 271,000 and $ 143,000 was recognized during 2024, 2023 and 2022, respectively, and accrued interest payable on these securities totaled $ 11,000 and $ 13,000 at December 31, 2024 and 2023, respectively. There are no principal payments due on these debentures in the next five years. The Trust is not consolidated with the Company. Accordingly, the Company reports the subordinated debentures held by the Trust as liabilities. The Company owns all of the common securities of the trust. 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. Note 11 – Income Taxes The components of the income tax for the Company consisted of the following at December 31: 2024 2023 2022 (dollars in thousands) Current tax expense (benefit) $ 11,960 $ ( 1,325 ) $ 21,014 Deferred tax expense (benefit) 138 13,879 ( 11,018 ) Total tax expense $ 12,098 $ 12,554 $ 9,996 At December 31, 2024 the current net income tax receivable was $ 7.1 million and at December 31, 2023 the net income tax receivable was $ 9.1 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. 168 Table of Contents 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: 2024 2023 2022 (dollars in thousands) Amount Rate Amount Rate Amount Rate Federal income tax at statutory rate $ 12,037 21.0 % $ 11,998 21.0 % $ 10,630 21.0 % State income taxes 1,284 2.2 1,275 2.2 523 1.0 Excess executive compensation 167 0.3 145 0.3 128 0.3 Effect of tax-exempt interest income ( 71 ) ( 0.1 ) ( 77 ) ( 0.1 ) ( 84 ) ( 0.2 ) Bank owned life insurance earnings ( 102 ) ( 0.2 ) ( 39 ) ( 0.1 ) ( 76 ) ( 0.2 ) Stock-based compensation ( 993 ) ( 1.7 ) ( 728 ) ( 1.3 ) ( 987 ) ( 1.9 ) Other ( 224 ) ( 0.4 ) ( 20 ) — ( 138 ) ( 0.3 ) $ 12,098 21.1 % $ 12,554 22.0 % $ 9,996 19.7 % The Company did not record or accrue any interest and penalties related to income taxes for the years ended December 31, 2024, 2023 or 2022. The Company and Bank have entered into a tax allocation agreement, which provides that income taxes shall be allocated between the parties on a monthly basis. 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. The net deferred tax asset consists of the following temporary differences and carryforward items at December 31: 2024 2023 (1) (dollars in thousands) Deferred tax assets: Allowance for credit losses $ 40,734 $ 27,244 Lease liability 1,245 1,431 Stock based compensation 1,220 983 Accrued expenses 582 755 Deferred compensation 76 112 Net unrealized loss on available-for-sale securities — 69 Other 1,630 544 Total deferred tax assets 45,487 31,138 Deferred tax liabilities: Credit enhancement recovery ( 40,101 ) ( 25,030 ) Right of use asset ( 1,203 ) ( 1,386 ) Depreciation and amortization ( 365 ) ( 693 ) Other ( 218 ) ( 223 ) Total deferred tax liabilities ( 41,887 ) ( 27,332 ) Net deferred tax asset $ 3,600 $ 3,806 (1) see Note 23, Restatement of Prior Period Financial Statements The determination of the amount of deferred income tax assets which are more likely than not to be realized is primarily dependent on projections of future earnings, which are subject to uncertainty and estimates that may change given economic conditions and other factors. The realization of deferred income tax assets is regularly assessed and a valuation allowance is recorded if it is “more likely than not” that all or a portion of the deferred tax asset will not be realized. “More likely than not” is defined as greater than a 50% chance. All available evidence, both positive and negative is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed. Based upon its 169 Table of Contents 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, 2024 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, 2024, the Company had no federal net operating loss carryforwards or tax credit carryforwards. The Company files federal and various state income tax returns. Federal tax returns for the 2021 tax year and later are open for examination. The total amount of unrecognized tax benefits, including interest and penalties, at December 31, 2024 was not material. The amount of tax benefits that would impact the effective rate, if recognized, is not expected to be material. The Company does not anticipate any significant changes with respect to unrecognized tax benefits within the next 12 months. Note 12 – Related Party Transactions During 2024 and 2023 the Company had transactions made in the ordinary course of business with certain of its executive officers and directors. 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. A summary of loan transactions follows: 2024 2023 (dollars in thousands) Beginning Balance January 1 $ 13,043 $ 13,427 Additions 1 — Payments ( 403 ) ( 384 ) Ending Balance December 31 $ 12,641 $ 13,043 The Company held deposits of $ 3.9 million and $ 4.0 million from directors, principal shareholders and executive officers at December 31, 2024 and 2023, respectively. 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. 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 years ended December 31, 2024, 2023 and 2022, total payments to Adams and Duncan, Inc. P.S. for legal services were $ 971,000 , $ 1.0 million and $ 864,000 respectively. The Company leased one facility from a related party in 2023. 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 In the normal course of business, there are various outstanding commitments and contingent liabilities, such as commitments to extend credit and standby letters of credit, which are not reflected in the consolidated financial statements. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making such commitments as it does for instruments that are included in the consolidated balance sheets. 170 Table of Contents At December 31, 2024 and 2023, the Company had a reserve for unfunded commitments of $ 2.5 million and $ 582,000 , 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) 2024 2023 Commitments to extend credit: Commercial and industrial loans $ 94,589 $ 86,134 Commercial and industrial loans - capital call lines 550,948 608,837 Construction – commercial real estate loans 36,873 92,709 Construction – residential real estate loans 10,929 20,825 Residential real estate loans 499,516 465,887 Commercial real estate loans 34,222 54,289 Credit cards $ 717,198 $ 1,014,959 Consumer and other loans 18,553 779 Total commitments to extend credit $ 1,962,828 $ 2,344,419 Standby letters of credit $ 1,042 $ 1,096 Equity investment commitment $ 480 $ 653 Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commercial and industrial loan commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if considered necessary by us, upon extension of credit, is based on management’s credit evaluation of the customer. The type of collateral held varies but may include accounts receivable, inventory, property and equipment, and income- producing commercial properties. As of December 31, 2024, $ 1.30 billion of the $ 1.96 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 2024 or 2023 under these commitments. Commitments to extend credit on CCBX loans are included in the table above and are summarized below: (dollars in thousands) 2024 2023 Commitments to extend credit: Commercial and industrial loans $ 19,104 $ 9,144 Commercial and industrial loans - capital call lines 550,948 608,837 Residential real estate loans 453,369 418,761 Credit cards, consumer and other loans 733,005 1,015,156 Total commitments to extend credit $ 1,756,426 $ 2,051,898 171 Table of Contents As of December 31, 2024, $ 1.30 billion in CCBX commitments to extend credit are unconditionally cancelable, compared to $ 1.63 billion at December 31, 2023. These unconditionally cancelable commitments are attributed to activity in CCBX loans. Commitments that are unconditionally cancelable allow us to manage loan growth, credit concentrations and liquidity. We also limit CCBX partners to a maximum aggregate customer loan balance originated and held on our balance sheet, as shown in the table below. (dollars in thousands) Type of Lending Maximum Portfolio Size Commercial and industrial loans: Capital call lines Business - Venture Capital $ 350,000 All other commercial & industrial loans Business - Small Business 480,069 Real estate loans: Home equity lines of credit Home Equity - Secured Credit Cards 375,000 Consumer and other loans: Credit cards Credit Cards - Primarily Consumer 820,000 Installment loans Consumer 1,774,533 Other consumer and other loans Consumer - Secured Credit Builder & Unsecured consumer 5,398 3,805,000 The Company also has agreements with certain key officers that provide for potential payments upon retirement, disability, termination, change in control and death. The Company is subject to claims and lawsuits which arise primarily in the ordinary course of business. It is the opinion of management that the disposition or ultimate resolution of such claims and lawsuits will not have a material adverse effect on the financial position of the Company. Note 14 – Concentration Risk Most of the community bank’s business activity is with customers who are concentrated in the state of Washington. Investments in municipal securities involve governmental entities within the state. Generally, amounts placed or invested in bank accounts are insured by the FDIC up to $ 250,000 per depositor for each account ownership category at a bank. Uninsured deposits in bank accounts held by the Company and Bank at December 31, 2024 and 2023, totaled $ 10.1 million and $ 6.3 million, respectively. Deposits obtained through our CCBX segment are a significant source of liquidity for us. Partner program agreements govern the relationship and are valid for a given period of time. Prior to exiting, the partner would need to provide us adequate notice as stipulated in the agreement that they were not going to renew the program agreement and intend to move the deposits. The movement to an alternate BaaS provider is cumbersome and would be over a period of time, which would allow us the opportunity to put alternate liquidity in place. As of December 31, 2024, we have two partners with deposits that are in excess of 10% of total deposits and represent 44% of total deposits. Loans to the same borrower are generally limited, by state banking regulations, to 20 % of the Bank’s capital and surplus. The Company manages asset quality and controls credit risk through diversification of the loan portfolio and the application of policies designed to promote sound underwriting and loan monitoring practices. The Company regularly utilizes real estate as collateral to reduce the risk of credit loss in the loan portfolio. As of December 31, 2024 and 2023, the Company has a concentration of credit in commercial real estate. Commercial real estate loans are typically secured by the Bank’s first lien position on the subject property. Standby letters of credit were granted primarily to commercial borrowers. Note 15 - Stock-Based Compensation Stock Options and Restricted Stock The 2018 Coastal Financial Corporation Omnibus Plan (“2018 Plan”) authorizes the Company to grant awards, including but not limited to, stock options, restricted stock units, and restricted stock awards, to eligible employees, directors or individuals that provide service to the Company, up to an aggregate of 500,000 shares of common stock. On May 24, 2021, the Company’s shareholders approved the First Amendment to the 2018 Plan, which increased the 172 Table of Contents authorized plan shares by 600,000 . The 2018 Plan replaced both the 2006 Plan and the Directors’ Stock Bonus Plan. Existing awards will vest under the terms granted and no further awards will be granted under these prior plans. Shares available to be granted under the 2018 plan were 196,447 at December 31, 2024. Stock Option Awards The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. Expected volatilities are based on historical volatility of the Company’s stock and other factors. The Company uses the vesting term and contractual life to determine the expected life. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation expense related to unvested stock option awards is reversed at date of forfeiture. There were no new options granted in the year ended December 31, 2024. A summary of stock option activity under the Company’s Plan during the year ended December 31, 2024: Options Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (dollars in thousands, except per share amounts) Outstanding at December 31, 2023 354,969 $ 9.11 3.3 $ 12,531 Granted — $ — Exercised ( 167,455 ) $ 8.33 Expired ( 20 ) $ 14.91 Forfeited ( 1,140 ) $ 9.67 Outstanding at December 31, 2024 186,354 $ 9.80 2.8 $ 13,996 Vested or expected to vest at December 31, 2024 186,354 $ 9.80 2.8 $ 13,996 Exercisable at December 31, 2024 68,905 $ 9.66 2.6 $ 5,185 The total intrinsic value (which is the amount by which the stock price exceeds the exercise price) of options exercised during the year ended December 31, 2024 was $ 6.7 million. The intrinsic value of options exercised during the year ended December 31, 2023 was $ 2.7 million. As of December 31, 2024, there was $ 523,000 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. Total unrecognized compensation costs is adjusted for unvested forfeitures. The Company expects to recognize that cost over a weighted-average period of approximately 2.8 years. Compensation expense recorded related to stock options was $ 274,000 , $ 319,000 and $ 331,000 for the years ended December 31, 2024, 2023 and 2022, respectively. Restricted Stock Units During the year ended December 31, 2024, the Company granted 163,901 restricted stock units under the 2018 Plan to employees, which vest ratably over various terms ranging from 3 years to 5 years. Additionally, the Company granted to an employee 60,000 performance-based restricted stock units ("PSUs") under the 2018 Plan that are eligible to vest on the first day of each month beginning on October 1, 2024 until April 30, 2028, subject to continuous employment with the Company and the achievement of certain stock price conditions, and 15,000 PSUs that are eligible to vest on April 30, 2028, subject to continuous employment with the Company and the achievement of specified performance goals. 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. Vesting requirements include time-based, performance-based, or market-based conditions. Recipients of restricted stock units do not pay any cash consideration to the Company for the units and the holders of the restricted units do not have voting rights. 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 a Monte Carlo simulation model. Compensation expense is recognized over the vesting period that the awards are based. Restricted stock units are nonparticipating securities. 173 Table of Contents As of December 31, 2024, there was $ 15.2 million of total unrecognized compensation cost related to nonvested restricted stock units. The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately 4.0 years. Compensation expense recorded related to restricted stock units was $ 3.9 million, $ 2.9 million and $ 1.9 million for the years ended December 31, 2024, 2023 and 2022, respectively. A summary of the Company’s nonvested restricted stock units at December 31, 2024 and changes during the year is presented below: Nonvested shares - RSUs Number of Shares Weighted- Average Grant Date Fair Value (dollars in thousands, except per share amounts) Nonvested shares at December 31, 2023 409,271 $ 31.22 Granted 238,901 $ 44.06 Forfeited or expired ( 17,982 ) $ 36.98 Vested ( 66,806 ) $ 33.61 Nonvested shares at December 31, 2024 563,384 $ 36.20 Restricted Stock Awards Employees There were no restricted stock awards granted to employees in the year ended December 31, 2024. 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. As of December 31, 2024, there was $ 28,000 of total unrecognized compensation cost related to nonvested restricted stock awards. The Company expects to recognize that cost over the remaining weighted-average vesting period of approximately 3.1 years. Compensation expense recorded related to restricted stock awards was $ 9,000 for the years ended December 31, 2024, 2023 and 2022. Director’s Stock Bonus Under the 2018 Plan, eligible directors are granted stock with a total market value of approximately $ 60,000 , and the Board Chair is granted stock with a total market value of approximately $ 90,000 . 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 $ 15,000 , non-financial risk and compensation committee chairs receive additional stock with a market value of approximately $ 12,500 , and the asset liability & investment, credit, technology, and nominating & governance chairs receive additional stock with a market value of approximately $ 10,000 . 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. As of December 31, 2024, there was $ 298,000 of total unrecognized compensation expense related to director restricted stock awards which the Company expects to recognize over the remaining average vesting period of approximately five months . Director compensation expense recorded related to the 2018 Plan totaled $ 625,000 , $ 432,000 and $ 295,000 for the for the years ended December 31, 2024, 2023 and 2022, respectively. 174 Table of Contents A summary of the Company’s nonvested shares at December 31, 2024 and changes during the year is presented below: Nonvested shares - RSAs Number of Shares Weighted- Average Grant Date Fair Value (dollars in thousands, except per share amounts) Nonvested shares at December 31, 2023 16,038 $ 32.41 Granted 16,698 $ 43.66 Forfeited — $ — Vested ( 14,038 ) $ 34.49 Nonvested shares at December 31, 2024 18,698 $ 40.90 Note 16 – Employee Benefit Plans 401(k) plan - The Company has a combined 401(k) and profit-sharing plan covering substantially all employees. Contributions to the 401(k) plan may consist of matching contributions for employees. Match eligibility coincides with the first of the month following hire date in accordance with the 401(k) plan. Matching contributions are usually equal to a percentage of employee compensation. The Company determines and sets 401(k) contributions each year. Company matching contributions will be approved by the board of directors annually on a discretionary basis. In 2024, 2023 and 2022, the Company provided matching contributions totaling $ 1.8 million, $ 1.6 million, and $ 1.3 million, respectively. Deferred compensation plan - The Company established a deferred compensation plan in 2003 for certain management personnel. Two former employees were covered by this plan and the plan is now distributing benefits to these retired individuals. The plan was designed to help supplement retirement benefits for participants. The benefits may be funded by bank-owned life insurance policies. The life insurance policies had a cash surrender value of $ 13.4 million and $ 12.9 million at December 31, 2024 and 2023, respectively. Liabilities to employees, which are being accrued over the life of the participant’s Plan, were $ 332,000 and $ 479,000 at December 31, 2024 and 2023, respectively. Compensation expense related to this Plan was $ 29,000 , $ 39,000 and $ 48,000 for the years ended December 31, 2024, 2023 and 2022, respectively. Payments of accrued benefits totaling $ 175,000 were made during 2024, 2023 and 2022. Note 17 - Regulatory Matters Banks and bank holding companies are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory (and possibly additional discretionary) actions by regulators that, if undertaken, could have a direct material effect on the financial statements of the Bank and the Company. 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’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 ceased preparing and filing 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. 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). 175 Table of Contents According to regulatory guidelines, only the amount of deferred tax assets that can be realized within the next 12 months based on projected taxable income is allowed in the computation. There were no disallowed deferred tax assets at December 31, 2024 and 2023. Under the capital adequacy guidelines on the regulatory framework for prompt corrective action (as set forth in the table on the next page), the Bank met the criteria to be considered well capitalized as of December 31, 2024 and 2023. Such determination has been made based on the Bank’s total risk-based capital ratio, Tier 1 risk-based capital ratio, common equity Tier 1 risk-based capital ratio, and leverage ratio. There have been no conditions or events since December 31, 2024, that management believes would change the Bank’s category. Under capital adequacy regulations, the Company and the Bank must maintain a capital conservation buffer of common equity Tier 1 capital of more than 2.5 % above the minimum risk-based capital ratios to avoid restrictions on the payment of capital distributions and discretionary bonus payments. 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, 2024. 176 Table of Contents The Company and Bank’s actual and required capital amo unts and ratios are as follows: Actual Minimum Required for Capital Adequacy Purposes (1) Required to be Well Capitalized Under the Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio (dollars in thousands) December 31, 2024 Leverage Capital (to average assets) Consolidated $ 442,193 10.78 % $ 164,052 4.00 % N/A N/A Bank Only 436,116 10.64 % 163,919 4.00 % 204,899 5.00 % Common Equity Tier 1 risk-based capital ratio (to risk-weighted assets) Consolidated 438,693 12.04 % 163,952 4.50 % N/A N/A Bank Only 436,116 11.99 % 163,717 4.50 % 236,480 6.50 % Tier 1 Capital (to risk-weighted assets) Consolidated 442,193 12.14 % 218,602 6.00 % N/A N/A Bank Only 436,116 11.99 % 218,289 6.00 % 291,052 8.00 % Total Capital (to risk-weighted assets) Consolidated 534,390 14.67 % 291,470 8.00 % N/A N/A Bank Only 483,247 13.28 % 291,052 8.00 % 363,816 10.00 % December 31, 2023 Leverage Capital (to average assets) Consolidated $ 298,920 8.10 % $ 147,616 4.00 % N/A N/A Bank Only 333,848 9.06 % 147,469 4.00 % 184,336 5.00 % Common Equity Tier 1 risk-based capital ratio (to risk-weighted assets) Consolidated 295,450 9.10 % 146,137 4.50 % N/A N/A Bank Only 333,848 10.30 % 145,875 4.50 % 210,708 6.50 % Tier 1 Capital (to risk-weighted assets) Consolidated 298,920 9.20 % 194,849 6.00 % N/A N/A Bank Only 333,848 10.30 % 194,500 6.00 % 259,334 8.00 % Total Capital (to risk-weighted assets) Consolidated 385,464 11.87 % 259,799 8.00 % N/A N/A Bank Only 375,320 11.58 % 259,334 8.00 % 324,167 10.00 % (1) Presents the minimum capital adequacy requirements that apply to the Bank (excluding the capital conservation buffer) and the Company. The capital conservation buffer is an additional 2.5% of the amount necessary to meet the minimum risk-based capital requirements for total, tier 1, and common equity tier 1 risk-based capital. Prior to September 30, 2022, the Company operated under the Small Bank Holding Company Policy Statement and therefore was not subject to Basel III capital adequacy requirements. 177 Table of Contents Note 18 - Fair Value Measurements The following tables present estimated fair values of the Company’s financial instruments as of the period indicated, whether or not recognized or recorded in the consolidated balance sheets at the period indicated: December 31, 2024 Fair Value Measurements Using Carrying Value Estimated Fair Value Level 1 Level 2 Level 3 (dollars in thousands) Financial assets Cash and due from banks $ 36,533 $ 36,533 $ 36,533 $ — $ — Interest earning deposits with other banks 415,980 415,980 415,980 — — Investment securities 47,321 46,740 — 46,740 — Other investments 10,800 10,800 — 8,181 2,619 Loans held for sale 20,600 20,600 — 20,600 Loans receivable 3,486,565 3,460,131 — — 3,460,131 Accrued interest receivable 21,104 21,104 — 21,104 — Financial liabilities Deposits $ 3,585,332 $ 3,584,967 $ — $ 3,584,967 $ — Subordinated debt 44,293 45,505 — 45,505 — Junior subordinated debentures 3,591 3,508 — 3,508 — Accrued interest payable 962 962 — 962 — December 31, 2023 (1) Fair Value Measurements Using Carrying Value Estimated Fair Value Level 1 Level 2 Level 3 (dollars in thousands) Financial assets Cash and due from banks $ 31,345 $ 31,345 $ 31,345 $ — $ — Interest earning deposits with other banks 451,783 451,783 451,783 — — Investment securities 150,364 150,545 99,461 51,084 — Other investments 10,227 10,227 — 7,605 2,622 Loans receivable, net 3,021,542 2,936,917 — — 2,936,917 Accrued interest receivable 23,458 23,458 — 23,458 — Financial liabilities Deposits $ 3,360,363 $ 3,359,867 $ — $ 3,359,867 $ — Subordinated debt 44,144 43,908 — 43,908 — Junior subordinated debentures 3,590 3,491 — 3,491 — Accrued interest payable 892 892 — 892 — (1) See Note 23, Restatement of Prior Period Financial Statements. The Company measures and discloses certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (that is, not a forced liquidation or distressed sale). GAAP establishes a consistent framework for measuring fair value and disclosure requirements about fair value measurements. Among other things, the accounting standard requires the reporting entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect market data obtained from independent sources, while 178 Table of Contents unobservable inputs reflect the Company’s estimates for market assumptions. These two types of inputs create the following fair value hierarchy: • Level 1 – Quoted prices in active markets for identical instruments. An active market is a market in which transactions occur with sufficient frequency and volume to provide pricing information on an ongoing basis. A quoted price in an active market provides the most reliable evidence of fair value and shall be used to measure fair value whenever available. • Level 2 – Observable inputs other than Level 1 including quoted prices in active markets for similar instruments, quoted prices in less active markets for identical or similar instruments, or other observable inputs that can be corroborated by observable market data. • Level 3 – Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs from non-binding single dealer quotes not corroborated by observable market data. The estimated fair value amounts of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, considerable judgment is required to interpret data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize at a future date. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. In addition, reasonable comparability between financial institutions may not be likely due to the wide range of permitted valuation techniques and numerous estimates that must be made given the absence of active secondary markets for certain financial instruments. This lack of uniform valuation methodologies also introduces a greater degree of subjectivity to these estimated fair values. Items measured at fair value on a recurring basis – The following fair value hierarchy table presents information about the Company’s assets that are measured at fair value on a recurring basis at the dates indicated: Level 1 Level 2 Level 3 Total Fair Value (dollars in thousands) December 31, 2024 Available-for-sale U.S. Agency collateralized mortgage obligations $ — $ 35 $ — $ 35 $ — $ 35 $ — $ 35 December 31, 2023 Available-for-sale U.S. Treasury securities $ 99,461 $ — $ — $ 99,461 U.S. Agency collateralized mortgage obligations — 43 — 43 $ 99,461 $ 43 $ — $ 99,504 The following methods were used to estimate the fair value of the class of financial instruments above: Investment securities - The fair value of securities is based on quoted market prices, pricing models, quoted prices of similar securities, independent pricing sources, and discounted cash flows. Limitations: The fair value estimates presented herein are based on pertinent information available to management as of December 31, 2024 and 2023. 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. 179 Table of Contents 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: Level 1 Level 2 Level 3 Total Fair Value (dollars in thousands) December 31, 2024 Collateral dependent loans $ — $ — $ 100 $ 100 Equity securities — — 2,619 2,619 Total $ — $ — $ 2,719 $ 2,719 December 31, 2023 Collateral dependent loans $ — $ — $ 7,315 $ 7,315 Equity securities — — 2,622 2,622 Total $ — $ — $ 9,937 $ 9,937 The amounts disclosed above represent the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair value as of the dates reported on. 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. The allowance for individually evaluated loans is calculated using either the collateral value method, which considers the likely source of repayment as the value of the collateral less estimated costs to sell, or the net present value method, which considers the contractual principal and interest terms and estimated cash flows available from the borrower to satisfy the debt. 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 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 . Assets measured at fair value using significant unobservable inputs (Level 3) The following table presents the carrying value of equity securities without readily determinable fair values, as of December 31, 2024, 2023 and 2022, with adjustments recorded during the periods presented for those securities with observable price changes, if applicable. These equity securities are included in other investments on the balance sheet. • The Company had a $ 2.2 million equity interest in a specialized bank technology company as of December 31, 2024 and December 31, 2023 . • The Company had a $ 350,000 equity interest in a technology company as of the years ended December 31, 2024 and December 31, 2023. • The Company had a $ 47,000 and $ 50,000 equity interest in a technology company as of the years ended December 31, 2024, and December 31, 2023, respectively. 180 Table of Contents For the Year Ended December 31, (dollars in thousands) 2024 2023 2022 Carrying value, beginning of period $ 2,622 $ 2,572 $ 2,322 Purchases — 50 350 Observable price change ( 3 ) — ( 100 ) Carrying value, end of period $ 2,619 $ 2,622 $ 2,572 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 date indicated: Valuation Technique Unobservable Inputs December 31, 2024 Weighted Average Rate December 31, 2023 Weighted Average Rate Collateral dependent loans Collateral valuations Discount to appraised value 8.0 % 8.0 % Note 19 – Revenue from Contracts with Customers All of the Company’s revenue from contracts with customers in the scope of Topic 606 is recognized within noninterest income. The following table presents the Company’s noninterest income by revenue stream for the years ended December 31: 2024 2023 (3) 2022 (dollars in thousands) Service charges and fees Interchange income $ 2,002 $ 2,176 $ 2,055 Merchant service fees 487 498 508 Overdraft fees 198 213 310 Other 1,051 967 931 Loan referral fees 168 683 810 BaaS program income (1) 20,075 13,240 11,193 Other income (2) 692 323 603 Total noninterest income subject to Topic 606 24,673 18,100 16,410 BaaS enhancements / guarantees (1) 282,673 184,929 105,945 Gain (loss) on equity investment 27 279 ( 153 ) Gain on sale of loans, net — 253 — Loan servicing fees 142 171 223 Earnings on life insurance 486 185 361 Lease and sublease income 204 205 157 Total noninterest income not subject to Topic 606 283,532 186,022 106,533 Total noninterest income $ 308,205 $ 204,122 $ 122,943 (1) See description below for detailed components of BaaS fees and related Topic 606 applicability. (2) Includes the following immaterial income streams that are within the scope of Topic 606: wire transfer fees, annuity fees, mortgage broker fees and brokerage fees. (3) See Note 23, Restatement of Prior Period Financial Statements. 181 Table of Contents A description of the Company’s revenue streams accounted for under Topic 606 is as follows: Service Charges on Accounts: The Company earns fees from deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed. This point in time is when the Company fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Interchange Income: The Company earns interchange fees from debit card holder transactions conducted through various payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transactions’ value and are recognized daily, concurrently with the transaction processing services provided by the cardholder. Interchange income is included in Service Charges on Deposit Accounts in the consolidated statements of income. Merchant Service Fees: The Company earns a percentage of fees from cardholder transactions conducted through a third-party payment network provider. The Company is obligated to provide sales, customer support, marketing, deployment and installation of equipment, and savings analysis to merchant service customers. An exclusivity agreement is in place between the Company and the third-party payment network provider. Fees are recognized on a monthly basis, as earned. Merchant service fees are included in Services Charges on Deposit Accounts in the consolidated statements of income. Loan Referral Fees: The Company earns loan referral fees when the Company originates a variable rate loan and the borrower enters into an interest rate swap agreement with a third party to fix the interest rate for an extended period, usually 20 or 25 years. The Company recognizes the loan referral fee for arranging the interest rate swap. BaaS Fees: 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. Earned program fees and reimbursement of expenses are recorded gross and recognized on a monthly basis, as earned. Credit enhancements for fraud and credit losses are not within the scope of Topic 606. The following tables presents the BaaS fees that are within and not within the scope of Topic 606: Year Ended December 31, 2024 compared to 2023 2023 compared to 2022 (dollars in thousands) 2024 2023 (1) 2022 Increase (Decrease) Increase (Decrease) Program income - within the scope of Topic 606 Servicing and other BaaS fees $ 4,743 $ 3,855 $ 4,408 $ 888 $ ( 553 ) Transaction 5,910 4,011 3,211 1,899 800 Interchange 6,933 4,252 2,583 2,681 1,669 Reimbursement of expenses 2,489 1,122 991 1,367 131 Total BaaS program income 20,075 13,240 11,193 6,835 2,047 Guarantees - not within the scope of Topic 606: BaaS credit enhancement 272,839 177,764 76,374 95,075 101,390 BaaS fraud enhancement 9,834 7,165 29,571 2,669 ( 22,406 ) Total BaaS enhancements / indemnifications 282,673 184,929 105,945 97,744 78,984 Total BaaS fees $ 302,748 $ 198,169 $ 117,138 $ 104,579 $ 81,031 (1) See Note 23, Restatement of Prior Period Financial Statements. 182 Table of Contents Note 20 - Earnings Per Common Share The following is a computation of basic and diluted earnings per common share at the periods indicated: Year Ended (dollars in thousands, except per share data) December 31, 2024 December 31, 2023 December 31, 2022 Net Income $ 45,219 $ 44,579 $ 40,625 Basic weighted average number common shares outstanding 13,508,047 13,261,664 12,949,266 Dilutive effect of equity-based awards 368,859 378,518 565,686 Diluted weighted average number common shares outstanding 13,876,906 13,640,182 13,514,952 Basic earnings per share $ 3.35 $ 3.36 $ 3.14 Diluted earnings per share $ 3.26 $ 3.27 $ 3.01 Antidilutive stock options and restricted stock outstanding 132,164 130,837 147,423 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. 183 Table of Contents Note 21 – Segment Reporting As defined in ASC 280, Segment Reporting, an operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision makers (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial information is available. We evaluate performance based on an internal performance measurement accounting system, which provides line of business results. This system uses various techniques to assign balance sheet and income statement amounts to the business segments, including allocations of income and expense. A primary objective of this measurement system and related internal financial reporting practices are to produce consistent results that reflect the underlying financial impact of the segments on the Company and to provide a basis of support for strategic decision making. 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 three segments: the community bank, CCBX, and treasury & administration. The Executive Leadership Team, which includes the CEO, Presidents, CFO and other key executive members, which the Company has designated as the CODMs, evaluates the financial performance of the Company’s segments by evaluating interest income and expense, noninterest income and significant expenses. The community bank segment includes all community banking activities. A primary focus of the community bank is on providing a wide range of banking products and services to consumers and small to medium sized businesses in the broader Puget Sound region in the state of Washington and through the Internet and our mobile banking application. We currently operate 14 full-service banking locations, 12 of which are located in Snohomish County, where we are the largest community bank by deposit market share, and two of which are located in neighboring counties ( one in King County and one in Island County). The CCBX segment provides BaaS that allows our broker-dealer and digital financial service partners to offer their customers banking services. The CCBX segment has 24 relationships, at varying stages, including three signed letters of intent as of December 31, 2024. The treasury & administration segment includes investments, debt and other reporting items that are not specific to the community bank or CCBX segments. The management accounting policies and processes utilized in compiling segment financial information are highly subjective and, unlike financial accounting, are not based on authoritative guidance similar to GAAP. As a result, reported segments and the financial information of the reported segments are not necessarily comparable with similar information reported by other financial institutions. Additionally, because of the interrelationships of the various segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. Changes in management structure or allocation methodologies and procedures may result in future changes to previously reported segment financial data. Furthermore, changes in management structure or allocation methodologies and procedures may result in changes in reported segment financial data. The Company continues to evaluate its methodology on allocating items to the Company’s various segments to support strategic business decisions by the Company’s executive leadership. Income and expenses that are specific to a segment are directly posted to each segment. Additionally, certain indirect expenses are allocated to each segment utilizing various metrics, such as number of employees, utilization of space, and allocations based on loan and deposit balances. We have implemented a transfer pricing process that credits or charges the community bank and CCBX segments with intrabank interest income or expense for the difference in average loans and average deposits, with the treasury & administration segment as the offset for those entries. 184 Table of Contents 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. December 31, 2024 December 31, 2023 (1) Community Bank CCBX Treasury & Administration Consolidated Community Bank CCBX Treasury & Administration Consolidated Assets (dollars in thousands) Cash and Due from Banks $ 4,510 $ 10,894 $ 437,109 $ 452,513 $ 4,702 $ 9,601 $ 468,825 $ 483,128 Intrabank assets — 411,768 ( 411,768 ) — — 653,178 ( 653,178 ) — Securities — — 47,321 47,321 — — 150,364 150,364 Loans held for sale — 20,600 — 20,600 — — — — Total loans receivable 1,882,988 1,603,577 — 3,486,565 1,830,154 1,191,388 — 3,021,542 Allowance for credit losses ( 18,924 ) ( 158,070 ) — ( 176,994 ) ( 21,595 ) ( 95,786 ) — ( 117,381 ) All other assets 28,273 211,038 51,892 291,203 30,169 138,543 43,640 212,352 Total assets $ 1,896,847 $ 2,099,807 $ 124,554 $ 4,121,208 $ 1,843,430 $ 1,896,924 $ 9,651 $ 3,750,005 Liabilities Total deposits $ 1,521,244 $ 2,064,088 $ — $ 3,585,332 1,497,601 1,862,762 — 3,360,363 Total borrowings — — 47,884 47,884 — — 47,734 47,734 Intrabank liabilities 367,540 — ( 367,540 ) — 338,614 — ( 338,614 ) — All other liabilities 8,062 35,720 5,506 49,288 7,215 34,162 5,553 46,930 Total liabilities $ 1,896,846 $ 2,099,808 $ ( 314,150 ) $ 3,682,504 $ 1,843,430 $ 1,896,924 $ ( 285,327 ) $ 3,455,027 (1) See Note 23, Restatement of Prior Period Financial Statements. 185 Table of Contents Year Ended December 31, 2024 Year Ended December 31, 2023 (1) Community Bank CCBX Treasury & Administration Consolidated Community Bank CCBX Treasury & Administration Consolidated (dollars in thousands) INTEREST INCOME AND EXPENSE Interest income $ 123,735 $ 248,286 $ 24,756 $ 396,777 $ 106,983 $ 197,306 $ 18,930 $ 323,219 Interest income (expense) intrabank transfer ( 21,265 ) 30,221 ( 8,956 ) — ( 10,404 ) 19,071 ( 8,667 ) — Interest expense 26,897 94,035 2,817 123,749 17,354 71,646 2,644 91,644 Net interest income 75,573 184,472 12,983 273,028 79,225 144,731 7,619 231,575 Provision/(Recapture) for credit losses - loans ( 2,130 ) 277,793 — 275,663 1,322 182,721 — 184,043 Provision for unfunded commitments 757 1,187 — 1,944 ( 211 ) 160 — ( 51 ) Net interest income/(expense) after provision for credit losses - loans and unfunded commitments 76,946 ( 94,508 ) 12,983 ( 4,579 ) 78,114 ( 38,150 ) 7,619 47,583 NONINTEREST INCOME Service charges and fees 3,691 47 — 3,738 3,810 44 — 3,854 Other income 751 76 892 1,719 1,165 433 501 2,099 BaaS program income — 20,075 — 20,075 — 13,240 — 13,240 BaaS indemnification income — 282,673 — 282,673 — 184,929 — 184,929 Noninterest income (1) 4,442 302,871 892 308,205 4,975 198,646 501 204,122 NONINTEREST EXPENSE Salaries and employee benefits 24,432 28,909 16,743 70,084 24,104 25,159 17,198 66,461 Occupancy 3,401 333 202 3,936 3,741 321 110 4,172 Data processing and software licenses 4,759 4,029 6,525 15,313 4,595 2,321 2,433 9,349 Legal and professional expenses 99 8,904 6,503 15,506 1,580 9,645 3,578 14,803 Other expense 3,845 4,727 4,528 13,100 3,954 3,759 5,161 12,874 BaaS loan expense — 118,536 — 118,536 — 79,748 — 79,748 BaaS fraud expense — 9,834 — 9,834 — 7,165 — 7,165 Total noninterest expense 36,536 175,272 34,501 246,309 37,974 128,118 28,480 194,572 Net income before income taxes 44,852 33,091 ( 20,626 ) 57,317 45,115 32,378 ( 20,360 ) 57,133 Income taxes 8,870 7,999 ( 4,771 ) 12,098 9,913 7,116 ( 4,475 ) 12,554 Net Income $ 35,982 $ 25,092 $ ( 15,855 ) $ 45,219 35,202 25,262 ( 15,885 ) 44,579 (1) See Note 23, Restatement of Prior Period Financial Statements. 186 Table of Contents Year Ended December 31, 2022 Community Bank CCBX Treasury & Administration Consolidated (dollars in thousands) INTEREST INCOME AND EXPENSE Interest income $ 80,544 $ 102,808 $ 8,818 $ 192,170 Interest income (expense) intrabank transfer $ 796 $ 4,106 $ ( 4,902 ) — Interest expense 2,896 16,108 $ 1,391 20,395 Net interest income 78,444 90,806 $ 2,525 171,775 Provision/(Recapture) for credit losses - loans 719 78,345 $ — 79,064 Net interest income/(expense) after provision for credit losses - loans and unfunded commitments 77,725 12,461 2,525 92,711 NONINTEREST INCOME Service charges and fees 3,757 47 $ — 3,804 Other income 1,411 356 $ 234 2,001 BaaS program income — 11,193 $ — 11,193 BaaS indemnification income — 105,945 $ — 105,945 Noninterest income (1) 5,168 117,541 $ 234 122,943 NONINTEREST EXPENSE Salaries and employee benefits 20,476 18,007 $ 13,745 52,228 Occupancy 3,843 257 $ 119 4,219 Data processing and software licenses 3,285 1,806 $ 1,725 6,816 Legal and professional expenses 213 3,163 $ 3,384 6,760 Other expense 5,202 1,285 $ 5,658 12,145 BaaS loan expense — 53,294 $ — 53,294 BaaS fraud expense — 29,571 $ — 29,571 Total noninterest expense 33,019 107,383 $ 24,631 165,033 Net income before income taxes 49,874 22,619 ( 21,872 ) 50,621 Income taxes 10,068 4,248 ( 4,320 ) 9,996 Net Income 39,806 18,371 ( 17,552 ) 40,625 187 Table of Contents Note 22 – Parent Company Only Condensed Financial Information Condensed financial information of Coastal Financial Corporation follows: December 31, 2024 December 31, 2023 (dollars in thousands) ASSETS Cash $ 47,739 $ 5,479 Investment in trust equities 109 109 Investment in subsidiaries 436,451 333,690 Other investments 3,529 3,430 Other assets ( 252 ) 532 TOTAL ASSETS $ 487,576 $ 343,240 LIABILITIES AND SHAREHOLDERS' EQUITY Junior subordinated debentures, net of issuances costs $ 3,591 $ 3,590 Subordinated debt, net of debt issuance costs 44,293 44,144 Interest and dividends payable 526 528 Other liabilities 462 — Shareholders' equity 438,704 294,978 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 487,576 $ 343,240 Year ended December 31, 2024 2023 2022 (dollars in thousands) INTEREST INCOME Interest earned loans receivable $ — $ — $ ( 14 ) Interest bearing other investments 8 8 4 Total interest income 8 8 ( 10 ) INTEREST EXPENSE Interest on borrowed funds 2,673 2,644 1,322 Total interest expense 2,673 2,644 1,322 Net interest expense ( 2,665 ) ( 2,636 ) ( 1,332 ) PROVISION FOR CREDIT LOSSES — — 350 Net interest expense after provision for credit losses ( 2,665 ) ( 2,636 ) ( 1,682 ) NONINTEREST INCOME Unrealized gain (loss) on equity investment 27 279 ( 153 ) Other income 9 30 23 Total noninterest income 36 309 ( 130 ) NONINTEREST EXPENSE Other expenses 1,088 914 711 Total noninterest expense 1,088 914 711 Loss before income taxes and undistributed net income of subsidiary ( 3,717 ) ( 3,241 ) ( 2,523 ) Equity in undistributed income of consolidated subsidiaries 48,076 47,148 42,674 Income tax (benefit) expense ( 860 ) ( 672 ) ( 474 ) NET INCOME $ 45,219 $ 44,579 $ 40,625 188 Table of Contents Year ended December 31, 2024 2023 2022 (dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 45,219 $ 44,579 $ 40,625 Adjustments to reconcile net income to net cash used by operating activities: Equity in undistributed income of consolidated subsidiaries ( 48,076 ) ( 47,148 ) ( 42,674 ) Stock-based compensation 625 432 295 Unrealized loss (gain) on equity investment ( 27 ) ( 279 ) 153 Decrease (increase) in other assets 784 ( 683 ) 274 Increase in other liabilities 611 124 106 Net cash used by operating activities ( 864 ) ( 2,975 ) ( 1,221 ) CASH FLOWS FROM INVESTING ACTIVITIES: Investments in subsidiaries ( 50,000 ) ( 14,945 ) ( 20,925 ) Investments in loans receivable — — 350 Investments in other, net ( 72 ) ( 123 ) ( 699 ) Net cash used by investing activities ( 50,072 ) ( 15,068 ) ( 21,274 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 1,395 618 1,468 Proceeds from public offering, net 91,801 — — Proceeds from subordinated debt — — 19,625 Net cash provided by financing activities 93,196 618 21,093 NET CHANGE IN CASH 42,260 ( 17,425 ) ( 1,402 ) Cash, beginning of year 5,479 22,904 24,306 Cash, end of year $ 47,739 $ 5,479 $ 22,904 189 Table of Contents Note 23 – Restatement of Prior Period Financial Statements Restatement Background The Company has restated herein the impacted line items to the Consolidated Balance Sheet, Consolidated Income Statement, and Consolidated Statement of Cash flows as of and for the year ended December 31, 2023. In addition, the Company has restated the impacted line items to its unaudited quarterly Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Income and Cash Flows for the first three quarters of and each of the years ended December 31, 2024 and December 31, 2023. Description of Misstatements • BaaS partner loans Certain interest income and BaaS loan expense amounts were misstated due to differences between BaaS lending partner accounting policies and the Company’s accounting policies. The Company made an adjustment to decrease interest and fees on loans with a corresponding decrease to BaaS loan expense as well as the related Balance Sheet accounts impacted. • Presentation of BaaS partner interchange fees on point of sale transaction Reimbursement of expenses for interchange fees associated with certain BaaS partners had not been appropriately accounted for under Topic 606, where the Company acts as an agent. The Company should have been recording these transactions on a net basis in Non-Interest Expense but reported the transaction gross in both Non-Interest Income and Non-Interest Expense. As a result, the Company made an adjustment to reduce reimbursement of expenses included in Non-Interest Income with a corresponding decrease to point of sale expense in Non-Interest Expense. Neither of these misstatements had any impact on consolidated pre-tax or net income. Other Immaterial Adjustments The restatement of the historical consolidated financial statements also includes the correction of its Consolidated Statement of Income for the year ended December 31, 2022 related to BaaS partner interchange fees. The Company determined this correction did not, either individually or in the aggregate, result in a material misstatement of its previously issued consolidated financial statements for the year ended December 31, 2022. Description of Restatement Tables The following tables present the amounts previously reported and a reconciliation of the restatement amounts reported on the restated Consolidated Balance Sheets, the restated Consolidated Statements of Income and the restated Consolidated Statements of Cash Flows for the periods presented. Further information regarding the misstatements and related restatements are summarized in the tables below. 190 Table of Contents Corrected Consolidated Balance Sheets As of December 31, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated Loans receivable $ 3,026,092 $ ( 4,550 ) $ 3,021,542 Allowance for credit losses ( 116,958 ) ( 423 ) ( 117,381 ) Total loans receivable, net 2,909,134 ( 4,973 ) 2,904,161 CCBX credit enhancement asset 107,921 4,973 112,894 Accrued interest receivable 26,819 ( 3,361 ) 23,458 Total assets 3,753,366 ( 3,361 ) 3,750,005 CCBX payable 33,651 ( 3,361 ) 30,290 Total liabilities 3,458,388 ( 3,361 ) 3,455,027 Total liabilities and shareholders' equity 3,753,366 ( 3,361 ) 3,750,005 Retained earnings 165,311 — 165,311 Corrected Consolidated Statements of Income Year Ended December 31, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated Interest and fees on loans $ 311,441 $ ( 7,152 ) $ 304,289 Total interest income 330,371 ( 7,152 ) 323,219 Net interest income 238,727 ( 7,152 ) 231,575 Net interest income/(expense) after provision for credit losses 54,735 ( 7,152 ) 47,583 Reimbursement of expenses 4,175 ( 3,053 ) 1,122 BaaS program income 16,293 ( 3,053 ) 13,240 Total noninterest income 207,175 ( 3,053 ) 204,122 Point of sale expense 3,534 ( 3,053 ) 481 Noninterest expense, excluding BaaS loan and BaaS fraud expense 110,712 ( 3,053 ) 107,659 BaaS loan expense 86,900 ( 7,152 ) 79,748 BaaS loan and fraud expense 94,065 ( 7,152 ) 86,913 Total noninterest expense 204,777 ( 10,205 ) 194,572 Net income 44,579 — 44,579 Corrected Consolidated Statement of Cash Flows Year Ended December 31, 2023 (dollars in thousands) As Previously Reported Adjustment As Restated Net change in CCBX credit enhancement asset $ ( 50,079 ) $ ( 4,973 ) $ ( 55,052 ) Net change in CCBX payable 13,232 ( 3,361 ) 9,871 Net change in other assets and liabilities ( 15,919 ) 3,361 ( 12,558 ) Net cash provided by operating activities 196,513 ( 4,973 ) 191,540 Increase in loans receivable, net ( 1,052,283 ) 4,973 ( 1,047,310 ) Net cash used by investing activities ( 598,985 ) 4,973 ( 594,012 ) 191 Table of Contents Corrected Consolidated Balance Sheets As of As of September 30, 2024 June 30, 2024 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Loans receivable $ 3,418,832 $ ( 4,938 ) $ 3,413,894 $ 3,326,460 $ ( 4,647 ) $ 3,321,813 Allowance for credit losses ( 170,263 ) ( 1,411 ) ( 171,674 ) ( 147,914 ) ( 964 ) ( 148,878 ) Total loans receivable, net 3,248,569 ( 6,349 ) 3,242,220 3,178,546 ( 5,611 ) 3,172,935 CCBX credit enhancement asset 167,251 6,349 173,600 143,485 5,611 149,096 Accrued interest receivable 23,664 ( 1,349 ) 22,315 23,617 ( 1,997 ) 21,620 Total assets 4,065,821 ( 1,349 ) 4,064,472 3,961,546 ( 1,997 ) 3,959,549 CCBX payable 39,188 ( 1,349 ) 37,839 34,536 ( 1,997 ) 32,539 Total liabilities 3,733,891 ( 1,349 ) 3,732,542 3,644,853 ( 1,997 ) 3,642,856 Total liabilities and shareholders' equity 4,065,821 ( 1,349 ) 4,064,472 3,961,546 ( 1,997 ) 3,959,549 Retained earnings 197,162 — 197,162 183,706 — 183,706 Corrected Consolidated Balance Sheets As of As of March 31, 2024 September 30, 2023 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Loans receivable $ 3,199,554 $ ( 4,453 ) $ 3,195,101 $ 2,967,035 $ ( 3,289 ) $ 2,963,746 Allowance for credit losses ( 139,258 ) ( 683 ) ( 139,941 ) ( 101,085 ) ( 110 ) ( 101,195 ) Total loans receivable, net 3,060,296 ( 5,136 ) 3,055,160 2,865,950 ( 3,399 ) 2,862,551 CCBX credit enhancement asset 137,276 5,136 142,412 91,867 3,399 95,266 Accrued interest receivable 24,681 ( 2,196 ) 22,485 23,428 ( 1,443 ) 21,985 Total assets 3,865,258 ( 2,196 ) 3,863,062 3,678,265 ( 1,443 ) 3,676,822 CCBX payable 33,095 ( 2,196 ) 30,899 38,229 ( 1,443 ) 36,786 Total liabilities 3,561,549 ( 2,196 ) 3,559,353 3,393,815 ( 1,443 ) 3,392,372 Total liabilities and shareholders' equity 3,865,258 ( 2,196 ) 3,863,062 3,678,265 ( 1,443 ) 3,676,822 Retained earnings 172,110 — 172,110 156,299 — 156,299 Corrected Consolidated Balance Sheets As of As of June 30, 2023 March 31, 2023 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Loans receivable $ 3,007,553 $ ( 1,950 ) $ 3,005,603 $ 2,837,204 $ ( 770 ) $ 2,836,434 Allowance for credit losses ( 110,762 ) ( 51 ) ( 110,813 ) ( 89,123 ) — ( 89,123 ) Total loans receivable, net 2,896,791 ( 2,001 ) 2,894,790 2,748,081 ( 770 ) 2,747,311 CCBX credit enhancement asset 96,928 2,001 98,929 76,395 770 77,165 Accrued interest receivable 21,581 ( 783 ) 20,798 19,321 ( 319 ) 19,002 Total assets 3,535,283 ( 783 ) 3,534,500 3,451,033 ( 319 ) 3,450,714 CCBX payable 27,714 ( 783 ) 26,931 30,794 ( 319 ) 30,475 Total liabilities 3,262,621 ( 783 ) 3,261,838 3,192,270 ( 319 ) 3,191,951 Total liabilities and shareholders' equity 3,535,283 ( 783 ) 3,534,500 3,451,033 ( 319 ) 3,450,714 Retained earnings 146,029 — 146,029 133,123 — 133,123 192 Table of Contents Corrected Consolidated Statements of Income Three Months Ended Nine Months Ended September 30, 2024 September 30, 2024 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Interest and fees on loans $ 99,590 $ 86 $ 99,676 $ 275,155 $ 1,291 $ 276,446 Total interest income 105,079 86 105,165 293,038 1,291 294,329 Net interest income 72,187 86 72,273 199,360 1,291 200,651 Net interest income/(expense) after provision for credit losses 1,930 86 2,016 ( 16,380 ) 1,291 ( 15,089 ) Reimbursement of expenses 1,843 ( 1,278 ) 565 4,514 ( 2,837 ) 1,677 BaaS program income 6,436 ( 1,278 ) 5,158 17,357 ( 2,837 ) 14,520 Total noninterest income 80,068 ( 1,278 ) 78,790 236,941 ( 2,837 ) 234,104 Point of sale expense 1,351 ( 1,278 ) 73 3,072 ( 2,837 ) 235 Noninterest expense, excluding BaaS loan and BaaS fraud expense 30,920 ( 1,278 ) 29,642 89,127 ( 2,837 ) 86,290 BaaS loan expense 32,612 86 32,698 86,525 1,291 87,816 BaaS loan and fraud expense 34,696 86 34,782 91,316 1,291 92,607 Total noninterest expense 65,616 ( 1,192 ) 64,424 180,443 ( 1,546 ) 178,897 Net income 13,456 — 13,456 31,852 — 31,852 Corrected Consolidated Statements of Income Three Months Ended Six Months Ended June 30, 2024 June 30, 2024 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Interest and fees on loans $ 90,944 $ ( 65 ) $ 90,879 $ 175,565 $ 1,205 $ 176,770 Total interest income 97,487 ( 65 ) 97,422 187,959 1,205 189,164 Net interest income 66,237 ( 65 ) 66,172 127,173 1,205 128,378 Net interest income/(expense) after provision for credit losses 3,912 ( 65 ) 3,847 ( 18,310 ) 1,205 ( 17,105 ) Reimbursement of expenses 1,637 ( 780 ) 857 2,670 ( 1,559 ) 1,111 BaaS program income 6,096 ( 780 ) 5,316 10,921 ( 1,559 ) 9,362 Total noninterest income 69,918 ( 780 ) 69,138 156,873 ( 1,559 ) 155,314 Point of sale expense 852 ( 780 ) 72 1,721 ( 1,559 ) 162 Noninterest expense, excluding BaaS loan and BaaS fraud expense 27,949 ( 780 ) 27,169 58,207 ( 1,559 ) 56,648 BaaS loan expense 29,076 ( 65 ) 29,011 53,913 1,205 55,118 BaaS loan and fraud expense 30,860 ( 65 ) 30,795 56,620 1,205 57,825 Total noninterest expense 58,809 ( 845 ) 57,964 114,827 ( 354 ) 114,473 Net income 11,596 — 11,596 18,396 — 18,396 193 Table of Contents Corrected Consolidated Statements of Income Three Months Ended March 31, 2024 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated Interest and fees on loans $ 84,621 $ 1,270 $ 85,891 Total interest income 90,472 1,270 91,742 Net interest income 60,936 1,270 62,206 Net interest income/(expense) after provision for credit losses ( 22,222 ) 1,270 ( 20,952 ) Reimbursement of expenses 1,033 ( 779 ) 254 BaaS program income 4,825 ( 779 ) 4,046 Total noninterest income 86,955 ( 779 ) 86,176 Point of sale expense 869 ( 779 ) 90 Noninterest expense, excluding BaaS loan and BaaS fraud expense 30,258 ( 779 ) 29,479 BaaS loan expense 24,837 1,270 26,107 BaaS loan and fraud expense 25,760 1,270 27,030 Total noninterest expense 56,018 491 56,509 Net income 6,800 — 6,800 Corrected Consolidated Statements of Income Three Months Ended Nine Months Ended September 30, 2023 September 30, 2023 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Interest and fees on loans $ 83,652 $ ( 1,704 ) $ 81,948 $ 230,282 $ ( 3,968 ) $ 226,314 Total interest income 88,331 ( 1,704 ) 86,627 242,128 ( 3,968 ) 238,160 Net interest income 62,229 ( 1,704 ) 60,525 179,070 ( 3,968 ) 175,102 Net interest income/(expense) after provision for credit losses 34,976 ( 1,704 ) 33,272 55,867 ( 3,968 ) 51,899 Reimbursement of expenses 1,152 ( 888 ) 264 3,099 ( 2,244 ) 855 BaaS program income 4,401 ( 888 ) 3,513 11,924 ( 2,244 ) 9,680 Total noninterest income 34,579 ( 888 ) 33,691 142,481 ( 2,244 ) 140,237 Point of sale expense 1,068 ( 888 ) 180 2,635 ( 2,244 ) 391 Noninterest expense, excluding BaaS loan and BaaS fraud expense 30,648 ( 888 ) 29,760 84,098 ( 2,244 ) 81,854 BaaS loan expense 23,003 ( 1,704 ) 21,299 62,590 ( 3,968 ) 58,622 BaaS loan and fraud expense 25,853 ( 1,704 ) 24,149 68,976 ( 3,968 ) 65,008 Total noninterest expense 56,501 ( 2,592 ) 53,909 153,074 ( 6,212 ) 146,862 Net income 10,270 — 10,270 35,567 — 35,567 194 Table of Contents Corrected Consolidated Statements of Income Three Months Ended Six Months Ended June 30, 2023 June 30, 2023 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Interest and fees on loans $ 80,199 $ ( 1,375 ) $ 78,824 $ 146,630 $ ( 2,264 ) $ 144,366 Total interest income 83,686 ( 1,375 ) 82,311 153,797 ( 2,264 ) 151,533 Net interest income 62,350 ( 1,375 ) 60,975 116,841 ( 2,264 ) 114,577 Net interest income/(expense) after provision for credit losses 10,097 ( 1,375 ) 8,722 20,891 ( 2,264 ) 18,627 Reimbursement of expenses 1,026 ( 703 ) 323 1,947 ( 1,356 ) 591 BaaS program income 3,948 ( 703 ) 3,245 7,523 ( 1,356 ) 6,167 Total noninterest income 58,595 ( 703 ) 57,892 107,902 ( 1,356 ) 106,546 Point of sale expense 814 ( 703 ) 111 1,567 ( 1,356 ) 211 Noninterest expense, excluding BaaS loan and BaaS fraud expense 28,340 ( 703 ) 27,637 53,450 ( 1,356 ) 52,094 BaaS loan expense 22,033 ( 1,375 ) 20,658 39,587 ( 2,264 ) 37,323 BaaS loan and fraud expense 23,570 ( 1,375 ) 22,195 43,123 ( 2,264 ) 40,859 Total noninterest expense 51,910 ( 2,078 ) 49,832 96,573 ( 3,620 ) 92,953 Net income 12,906 — 12,906 25,297 — 25,297 Corrected Consolidated Statements of Income Three Months Ended March 31, 2023 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated Interest and fees on loans $ 66,431 $ ( 889 ) $ 65,542 Total interest income 70,111 ( 889 ) 69,222 Net interest income 54,491 ( 889 ) 53,602 Net interest income/(expense) after provision for credit losses 10,794 ( 889 ) 9,905 Reimbursement of expenses 921 ( 653 ) 268 BaaS program income 3,575 ( 653 ) 2,922 Total noninterest income 49,307 ( 653 ) 48,654 Point of sale expense 753 ( 653 ) 100 Noninterest expense, excluding BaaS loan and BaaS fraud expense 25,110 ( 653 ) 24,457 BaaS loan expense 17,554 ( 889 ) 16,665 BaaS loan and fraud expense 19,553 ( 889 ) 18,664 Total noninterest expense 44,663 ( 1,542 ) 43,121 Net income 12,391 — 12,391 195 Table of Contents Corrected Consolidated Statement of Cash Flows Nine Months Ended Six Months Ended September 30, 2024 June 30, 2024 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net change in CCBX credit enhancement asset $ ( 59,330 ) $ ( 6,349 ) $ ( 65,679 ) $ ( 35,564 ) $ ( 5,611 ) $ ( 41,175 ) Net change in CCBX payable 5,537 ( 1,349 ) 4,188 885 ( 1,997 ) ( 1,112 ) Net change in other assets and liabilities 4,248 1,349 5,597 2,194 1,997 4,191 Net cash provided by operating activities 197,813 ( 6,349 ) 191,464 134,451 ( 5,611 ) 128,840 Increase in loans receivable, net ( 1,218,640 ) 6,349 ( 1,212,291 ) ( 645,787 ) 5,611 ( 640,176 ) Net cash used by investing activities ( 465,112 ) 6,349 ( 458,763 ) 313,976 5,611 319,587 Corrected Consolidated Statement of Cash Flows Three Months Ended Nine Months Ended March 31, 2024 September 30, 2023 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net change in CCBX credit enhancement asset $ ( 29,355 ) $ ( 5,136 ) $ ( 34,491 ) $ ( 34,025 ) $ ( 3,399 ) $ ( 37,424 ) Net change in CCBX payable ( 556 ) ( 2,196 ) ( 2,752 ) 17,810 ( 1,443 ) 16,367 Net change in other assets and liabilities ( 312 ) 2,196 1,884 ( 13,299 ) 1,443 ( 11,856 ) Net cash provided by operating activities 61,900 ( 5,136 ) 56,764 146,236 ( 3,399 ) 142,837 Increase in loans receivable, net ( 311,264 ) 5,136 ( 306,128 ) ( 823,221 ) 3,399 ( 819,822 ) Net cash used by investing activities ( 132,801 ) 5,136 ( 127,665 ) ( 486,209 ) 3,399 ( 482,810 ) Corrected Consolidated Statement of Cash Flows Six Months Ended Three Months Ended June 30, 2023 March 31, 2023 (dollars in thousands; unaudited) As Previously Reported Adjustment As Restated As Previously Reported Adjustment As Restated Net change in CCBX credit enhancement asset $ ( 39,086 ) $ ( 2,001 ) $ ( 41,087 ) $ ( 18,553 ) $ ( 770 ) $ ( 19,323 ) Net change in CCBX payable 7,295 ( 783 ) 6,512 10,375 ( 319 ) 10,056 Net change in other assets and liabilities 5,562 783 6,345 3,177 319 3,496 Net cash provided by operating activities 81,115 ( 2,001 ) 79,114 46,631 ( 770 ) 45,861 Increase in loans receivable, net ( 585,510 ) 2,001 ( 583,509 ) ( 295,583 ) 770 ( 294,813 ) Net cash used by investing activities ( 493,834 ) 2,001 ( 491,833 ) ( 273,123 ) 770 ( 272,353 ) 196 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.