CCB - Coastal Financial Corporation Announces Third Quarter 2025 Results

EVERETT, Wash., Oct. 29, 2025 (GLOBE NEWSWIRE) -- Coastal Financial Corporation (Nasdaq: CCB) (the “Company”, "Coastal", "we", "our", or "us"), the holding company for Coastal Community Bank (the “Bank”), through which it operates a community-focused bank segment ("community bank") with an industry leading banking as a service ("BaaS") segment ("CCBX"), today reported unaudited financial results for the quarter ended September 30, 2025, including net income of $13.6 million, or $0.88 per diluted common share, compared to $11.0 million, or $0.71 per diluted common share, for the three months ended June 30, 2025 and $13.5 million, or $0.97 per diluted common share, for the three months ended September 30, 2024.

Management Discussion of the Third Quarter Results

"During the third quarter of 2025, loans receivable increased by $163.5 million, representing a 4.6% rise, alongside another period of solid deposit growth totaling $59.0 million, or 1.5%,” stated CEO Eric Sprink. "In addition, we saw positive partner progression during the quarter, with one moving to active status and three moving to the implementation stage, while our CCBX program fee income continues its upward trajectory. We remain confident in our ability to manage expenses and maintain credit quality, even in a changing economic and interest rate environment.”

Key Points for Third Quarter and Our Go-Forward Strategy

• CCBX Partner and Product Expansion. As of September 30, 2025 we had two partners in testing, four in implementation/onboarding, and two signed letters of intent (LOI). Our active pipeline positions us for continued growth, with new partnership opportunities and product launches expected throughout 2025 and into 2026. Total BaaS program fee income was $7.6 million, for the three months ended September 30, 2025, an increase of $764,000, or 11.3%, from the three months ended June 30, 2025, excluding $504,000 in nonrecurring revenue recognized during the second quarter 2025 ( a reconciliation of the non-GAAP measures are set forth in the "Non-GAAP Financial Measures" section of this earnings release) . We continue to have contracts with our partners that fully indemnify us against fraud and 98.9% against credit risk on CCBX loan partner balances as of September 30, 2025.
  
  
• Favorable Movement in Noninterest Expense. Total noninterest expense of $70.2 million was down $2.7 million, or 3.7%, as compared to $72.8 million in the quarter ended June 30, 2025, mainly driven by lower legal and professional expenses and salaries and employee benefits. Noninterest expenses improved for the quarter ended September 30, 2025, but we anticipate ongoing expense fluctuations due to new CCBX partners and product launches. Most costs will occur early in new launches, focusing on risk management, before revenue generation begins. As new programs and products gain traction, revenue will help offset these initial expenses.
  
  
• Positive On and Off-Balance Sheet Trends Continue. Average deposits were $3.97 billion, an increase of $40.7 million, or 1.0%, over the quarter ended June 30, 2025, driven primarily by growth in CCBX partner programs. During the third quarter of 2025, we sold $1.62 billion of loans, $1.37 billion of which was new activity on previously sold credit card receivables, compared to $1.30 billion in sold loans, of which $953.9 million was new activity on previously sold credit card receivables during the quarter ended June 30, 2025. We retain a portion of the fee income on sold credit card loans. As of September 30, 2025 there were 396,812 off balance sheet credit cards with fee earning potential, an increase of 82,985 compared to the quarter ended June 30, 2025 and an increase of 315,386 from September 30, 2024.
  
  

Third Quarter 2025 Financial Highlights

The tables below outline some of our key operating metrics.

See footnotes that follow the tables below

⁽¹⁾ Core deposits are defined as all deposits excluding brokered and time deposits.
⁽²⁾ Share and per share amounts are based on total actual or average common shares outstanding, as applicable.
⁽³⁾ We calculate book value per share as total shareholders’ equity at the end of the relevant period divided by the outstanding number of our common shares at the end of each period.
⁽⁴⁾ Tangible book value per share is a non-GAAP financial measure. We calculate tangible book value per share as total shareholders’ equity at the end of the relevant period, less goodwill and other intangible assets, divided by the outstanding number of our common shares at the end of each period. The most directly comparable GAAP financial measure is book value per share. We had no goodwill or other intangible assets as of any of the dates indicated. As a result, tangible book value per share is the same as book value per share as of each of the dates indicated.
⁽⁵⁾ Nonperforming assets and nonperforming loans include loans 90+ days past due and accruing interest.
⁽⁶⁾ Annualized calculations.

Key Performance Ratios

Return on average assets ("ROA") was 1.19% for the quarter ended September 30, 2025 compared to 0.99% and 1.34% for the quarters ended June 30, 2025 and September 30, 2024, respectively.  ROA for the quarter ended September 30, 2025, increased 0.20% and decreased 0.15% compared to June 30, 2025 and September 30, 2024, respectively. Noninterest expenses were lower for the quarter ended September 30, 2025 compared to the quarter ended June 30, 2025 due to lower legal and professional expenses and salaries and employee benefits. Noninterest expenses were higher than the quarter ended September 30, 2024 due primarily to an increase in salaries and employee benefits, data processing and software licenses and legal and professional expenses, all of which are related to the growth of Company and investments in technology and risk management.

Yield on earning assets and yield on loans receivable decreased 0.12% and 0.16%, respectively, for the quarter ended September 30, 2025 compared to the quarter ended June 30, 2025, largely due to the recent 0.25% reduction in the Fed funds interest rate. Average loans receivable as of September 30, 2025 increased $68.7 million compared to June 30, 2025 as net CCBX loans continue to grow, despite selling $1.62 billion in CCBX loans during the quarter ended September 30, 2025.

The quarter over quarter volatility in the efficiency ratio and noninterest income to average asset performance metrics was driven by a higher credit enhancement on CCBX loans which is included within non-interest income due to an increase in CCBX provision expense, which was largely the result of loan growth. These items have a neutral impact to net income although impacted the quarter-to-quarter metrics due to higher reported noninterest income.

The following table shows the Company’s key performance ratios for the periods indicated.

⁽¹⁾ Annualized calculations shown for quarterly periods presented.
⁽²⁾ Includes loans held for sale.

Management Outlook; CEO Eric Sprink

“As we move through the 4th quarter of 2025 and into 2026, we expect to see additional new partner engagements, thanks to the continued strength and quality of our CCBX pipeline. To facilitate our growth in the BaaS space, we remain committed to investing in our technology and risk management infrastructure. These strategic investments are projected to drive future operational efficiencies, boost automation, and lower costs, even as we focus on managing current noninterest expenditures effectively. Credit quality remains central to our strategy, and with a slightly liability sensitive balance sheet we feel well-positioned for future interest rate changes.” said CEO Eric Sprink.

Coastal Financial Corporation Overview

The Company has one main subsidiary, the Bank, which consists of three segments: CCBX, the community bank and treasury & administration.  The CCBX segment includes all of our BaaS activities, the community bank segment includes all community banking activities and the treasury & administration segment includes treasury management, overall administration and all other aspects of the Company.

CCBX Performance Update

Our CCBX segment continues to evolve, and we have 29 relationships, at varying stages, including two partners in testing, four in implementation/onboarding, and two signed LOI as of September 30, 2025.  We continue to refine the criteria for CCBX partnerships, by focusing on larger, established partners with strong management, customer bases, and finances, while also considering promising smaller partners that fit our approach and terms and we will continue to exit relationships where it makes sense for us to do so.

While we explore relationships with new partners we continue to expand our product offerings with existing CCBX partners. As we become more proficient in the BaaS space we aim to cultivate new relationships that align with our long-term goals. We believe that a strategy of adding new partnerships and launching new products with existing partners allows us to expand and grow our customer base with a modest increase in regulatory risk given our operational history with them. Increases in partner activity/transaction counts are positively impacting noninterest income and we expect this trend to continue as current products grow and new products are introduced. We plan to continue selling loans as part of our strategy to balance partner and lending limits, and manage the loan portfolio and credit quality. We retain a portion of the fee income for our role in processing transactions on sold credit card loans, which continues to grow and is expected to provide increased and on-going revenue with no on balance sheet risk or capital requirement.

As we build our deposit base, we will be able to sweep deposits off and on the balance sheet as needed. This deposit sweep capability allows us to better manage liquidity and deposit programs. At September 30, 2025 we swept off $672.3 million in deposits for FDIC insurance and liquidity purposes, and generated $311,000 in noninterest income during the quarter ended September 30, 2025. As we look ahead, six existing partner programs are being expanded to include new products such as lines of credit, deposit programs and credit cards. Robinhood's deposit program is in testing and is expected to ramp up in the fourth quarter of 2025. The expansion of these and other partner initiatives is expected to drive higher partner revenue in upcoming periods.

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

CCBX loans increased $123.9 million, or 7.4%, to $1.80 billion despite selling $1.62 billion in loans during the three months ended September 30, 2025, $1.37 billion of which was new activity on previously sold credit card loans. In accordance with the program agreement for one partner, we are responsible for losses on 5% of that portfolio. At September 30, 2025 the portion of that portfolio for which we are responsible represented $20.7 million in loans.

The following table details the CCBX loan portfolio:

⁽¹⁾ CCBX yield does not include the impact of BaaS loan expense.  BaaS loan expense represents the amount paid or payable to partners for credit enhancements and originating & servicing CCBX loans. See reconciliation of the non-GAAP measures at the end of this earnings release for the impact of BaaS loan expense on CCBX loan yield.
⁽²⁾ Loan yield is annualized for the three months ended for each period presented and includes loans held for sale and nonaccrual loans.

The increase in CCBX loans in the quarter ended September 30, 2025, includes an increase of $139.3 million, or 59.3%, in residential real estate loans, an increase of $10.1 million or 0.8%, in consumer and other loans and a decrease of $22.1 million, or 11.1%, in capital call lines as a result of normal balance fluctuations and business activities. We continue to monitor and manage the CCBX loan portfolio, and sold $1.62 billion in CCBX loans during the quarter ended September 30, 2025 compared to sales of $1.30 billion in the quarter ended June 30, 2025. We continue to reposition ourselves by managing CCBX credit and concentration levels in an effort to optimize our loan portfolio earnings and generate off balance sheet fee income. CCBX loan yield decreased 0.57% for the quarter ended September 30, 2025 compared to the quarter ended June 30, 2025 as a result of the recent decrease in the Fed funds rate and a change in overall mix of loans compared to the quarter ended June 30, 2025.

The following chart shows the growth in credit card accounts that generate fee income. This includes accounts with balances, which are included in our loan totals, and accounts that have been sold and have no corresponding balance in our loan totals, and that generate fee income.

The following chart shows the growth in active CCBX debit cards which are sources of interchange income.

The following table details the CCBX deposit portfolio:

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

CCBX deposits increased $14.8 million, or 0.6%, in the three months ended September 30, 2025 to $2.37 billion as a result of deposit growth and normal balance fluctuations. This excludes the $672.3 million in CCBX deposits that were transferred off balance sheet for increased Federal Deposit Insurance Corporation ("FDIC") insurance coverage and sweep purposes, compared to $478.7 million for the quarter ended June 30, 2025. Amounts in excess of FDIC insurance coverage are transferred, using a third-party facilitator/vendor sweep product, to participating financial institutions. These swept deposits generated fee income of $311,000 for the quarter ended September 30, 2025.

Community Bank Performance Update

In the quarter ended September 30, 2025, the community bank saw net loans increase $39.6 million, or 2.1%, to $1.90 billion, as a result of loan growth and normal balance fluctuations.

The following table details the Community Bank loan portfolio:

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

The increase in community bank loans consisted of an increase of $23.9 million in construction, land and land development loans, $20.9 million in commercial and industrial loans, and $2.0 million in consumer and other loans, partially offset by a decrease $10.5 million in commercial real estate loans during the quarter ended September 30, 2025.

The following table details the community bank deposit portfolio:

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

Community bank deposits increased $44.2 million, or 2.8%, during the three months ended September 30, 2025 to $1.60 billion. The community bank segment includes noninterest bearing deposits of $499.7 million, or 31.3%, of total community bank deposits, resulting in a cost of deposits of 1.77%, which was unchanged from the quarter ended June 30, 2025.

Net Interest Income and Margin Discussion

Net interest income was $77.9 million for the quarter ended September 30, 2025, an increase of $1.2 million, or 1.5%, from $76.7 million for the quarter ended June 30, 2025, and an increase of $5.6 million, or 7.8%, from $72.3 million for the quarter ended September 30, 2024. Net interest income compared to June 30, 2025, was higher due to an increase in average loans receivable. The increase in net interest income compared to September 30, 2024 was largely related to growth in loans receivable and a reduction in cost of funds as a result of lower interest rates.

Net interest margin was 7.00% for the three months ended September 30, 2025, compared to 7.06% for the three months ended June 30, 2025, due primarily to a decrease in loan yield resulting from recent decrease in the Fed funds rate. Net interest margin, net of BaaS loan expense, ( a reconciliation of the non-GAAP measures are set forth in the Non-GAAP Financial Measures section of this earnings release) was 4.05% for the three months ended September 30, 2025, compared to 4.07% for the three months ended June 30, 2025. Net interest margin was 7.42% for the three months ended September 30, 2024. The decrease in net interest margin for the three months ended September 30, 2025 compared to the three months ended September 30, 2024 was primarily due to a decrease in loan yield, largely as a result of a change in loan mix, partially offset by lower cost of funds.

Interest and fees on loans receivable increased $1.5 million, or 1.5%, to $100.4 million for the three months ended September 30, 2025, compared to $98.9 million for the three months ended June 30, 2025, as a result of loan growth. Interest and fees on loans receivable increased $691,000, or 0.7%, compared to $99.7 million for the three months ended September 30, 2024, due to an increase in outstanding balances. Net interest margin, net of BaaS loan expense ( a reconciliation of the non-GAAP measures are set forth in the Non-GAAP Financial Measures section of this earnings release) decreased 0.02% for the three months ended September 30, 2025, compared to the three months ended June 30, 2025 and decreased 0.01% compared the three months ended September 30, 2024.

The following tables illustrate how net interest margin and loan yield is affected by BaaS loan expense:

⁽¹⁾ Annualized calculations shown for periods presented.
⁽²⁾ A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.

Average investment securities decreased $1.2 million to $45.1 million compared to the three months ended June 30, 2025 and decreased $3.9 million compared to the three months ended September 30, 2024 as a result of principal paydowns.

Cost of funds was 3.07% for the quarter ended September 30, 2025, a decrease of six basis points from the quarter ended June 30, 2025 and a decrease of 55 basis points from the quarter ended September 30, 2024. Cost of deposits for the quarter ended September 30, 2025 was 3.04%, compared to 3.10% for the quarter ended June 30, 2025, and 3.59% for the quarter ended September 30, 2024. The decreased cost of funds and deposits compared to September 30, 2024 were largely due to the reductions in the Fed funds rate during the fourth quarter of 2024.

The following table summarizes the average yield on loans receivable and cost of deposits:

⁽¹⁾ CCBX yield on loans does not include the impact of BaaS loan expense.  BaaS loan expense represents the amount paid or payable to partners for credit and fraud enhancements and originating & servicing CCBX loans. To determine Net BaaS loan income earned from CCBX loan relationships, the Company takes BaaS loan interest income and deducts BaaS loan expense to arrive at Net BaaS loan income which can be compared to interest income on the Company’s community bank loans. See reconciliation of the non-GAAP measures at the end of this earnings release for the impact of BaaS loan expense on CCBX loan yield.
⁽²⁾ Annualized calculations for periods presented.

The following table illustrates how BaaS loan interest income is affected by BaaS loan expense resulting in net BaaS loan income and the associated yield:

⁽¹⁾ A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.
⁽²⁾ Annualized calculations shown for the periods presented.
⁽³⁾ Includes loans held for sale.

Noninterest Income Discussion

Noninterest income was $66.8 million for the three months ended September 30, 2025, an increase of $24.1 million from $42.7 million for the three months ended June 30, 2025, and a decrease of $12.0 million from $78.8 million for the three months ended September 30, 2024.  The increase in noninterest income for the quarter ended September 30, 2025 as compared to the quarter ended June 30, 2025 was primarily due to an increase of $23.7 million in total BaaS income.  The $23.7 million increase in total BaaS income included a $24.1 million increase in BaaS credit enhancements related to the increase in provision for credit losses based upon an analysis of the CCBX loan portfolio combined with an increase of $260,000 in BaaS program income, partially offset by a $677,000 decrease in BaaS fraud enhancements. The $260,000 increase in BaaS program income is largely due to an increase in reimbursement of expenses (see “Appendix B” for more information on the accounting for BaaS allowance for credit losses and credit and fraud enhancements).

The $12.0 million decrease in noninterest income over the quarter ended September 30, 2024 was primarily due to a $14.7 million decrease in BaaS credit and fraud enhancements due to improvement in the performance of the CCBX loan portfolio, partially offset by an increase of $2.4 million in BaaS program income.

Noninterest Expense Discussion

Total noninterest expense decreased $2.7 million to $70.2 million for the three months ended September 30, 2025, compared to $72.8 million for the three months ended June 30, 2025, and increased $5.7 million from $64.4 million for the three months ended September 30, 2024. The $2.7 million decrease in noninterest expense for the quarter ended September 30, 2025, as compared to the quarter ended June 30, 2025, was primarily due to a $2.0 million decrease in legal and professional fees, $1.3 million decrease in salaries and employee benefits, a $677,000 decrease in BaaS fraud expense, partially offset by a $573,000 increase in data processing and software licenses, a $357,000 increase in BaaS loan expense, a $116,000 increase in other expenses, and a $37,000 increase in occupancy expense. The decrease in legal and professional fees is the result of lower legal and consulting fees in the quarter ended September 30, 2025, however we anticipate ongoing expense variability that is impacted by new CCBX partners and product launches. The decrease in salaries and employee benefits is primarily due to the forfeiture of equity awards. The increase in data processing and software licenses were part of our continued investments in growth, technology and risk management. BaaS loan expense represents the amount paid or payable to partners for credit enhancements, fraud enhancements, and originating & servicing CCBX loans. BaaS fraud expense represents non-credit fraud losses on partner’s customer loan and deposit accounts. A portion of this expense is realized during the quarter in which the loss occurs, and a portion is estimated based on historical or other information from our partners.

The increase in noninterest expenses for the quarter ended September 30, 2025 compared to the quarter ended September 30, 2024 was largely due to a $3.1 million increase in salary and employee benefits, a $1.5 million increase in data processing and software licenses due to enhancements and investments in technology, and a $680,000 increase in legal and professional expenses, all of which are related to the growth of Company and investments in technology and risk management. Also contributing to the increase was a $205,000 increase in marketing, $158,000 increase in other expense, $142,000 increase in BaaS loan expense and a $43,000 increase in BaaS fraud expense.

Certain noninterest expenses are reimbursed by our CCBX partners. In accordance with GAAP we recognize all expenses in noninterest expense and the reimbursement of expenses from our CCBX partner in noninterest income. The following table reflects the portion of noninterest expenses that are reimbursed by partners to assist in the understanding of how the increases in noninterest expense are related to expenses incurred and reimbursed by CCBX partners:

⁽¹⁾ A reconciliation of the non-GAAP measures are set forth at the end of this earnings release.

Provision for Income Taxes

The provision for income taxes was $4.3 million for the three months ended September 30, 2025, $3.4 million for the three months ended June 30, 2025 and $2.9 million for the third quarter of 2024.  The income tax provision was higher for the three months ended September 30, 2025 compared to the quarter ended June 30, 2025 as a result of the higher net income and adjusted for the deductibility of certain equity awards, and was higher compared to the quarter ended September 30, 2024, as a result of the higher net income and an increase in state income tax rates, partially offset by the deductibility of certain equity awards.

The Company is subject to various state taxes that are assessed as CCBX activities and employees expand into other states, which has increased the overall tax rate used in calculating the provision for income taxes in the current and future periods. The Company uses a federal statutory tax rate of 21.0% as a basis for calculating provision for federal income taxes and 4.24% for calculating the provision for state income taxes. The state rate increased in the quarter ended June 30, 2025 primarily as a result of a change in California's tax laws.

Financial Condition Overview

Total assets increased $72.5 million, or 1.6%, to $4.55 billion at September 30, 2025 compared to $4.48 billion at June 30, 2025.  The increase is primarily comprised of a $163.5 million increase in loans receivable, partially offset by a $77.5 million decrease in cash and interest bearing deposits with other banks, and a $17.6 million decrease in loans held for sale. Total loans receivable increased to $3.70 billion at September 30, 2025, from $3.54 billion at June 30, 2025.

As of September 30, 2025, in addition to the $642.3 million in cash on hand the Company had the capacity to borrow up to a total of $657.1 million from the Federal Reserve Bank discount window and Federal Home Loan Bank, plus an additional $50.0 million from a correspondent bank. There were no borrowings outstanding on these lines as of September 30, 2025.

The Company, on a stand alone basis, had a cash balance of $43.9 million as of September 30, 2025, a portion of which is retained for general operating purposes, including debt repayment, for funding $1.2 million in commitments to bank technology investment funds, with the remaining cash available to be contributed to the Bank as capital.

Uninsured deposits were $617.9 million as of September 30, 2025, compared to $579.9 million as of June 30, 2025.

Total shareholders’ equity as of September 30, 2025 increased $13.6 million since June 30, 2025.  The increase in shareholders’ equity was primarily comprised of $13.6 million in net earnings combined with a decrease of $24,000 in common stock outstanding as a result of the return of shares to the Company to cover taxes on equity awards vested during the three months ended September 30, 2025.

The Company and the Bank remained well capitalized at September 30, 2025, as summarized in the following table.

⁽¹⁾ Presents the minimum capital ratios for an insured depository institution, such as the Bank, to be considered well capitalized under the Prompt Corrective Action framework. The minimum requirements for the Company to be considered well capitalized under Regulation Y include to maintain, on a consolidated basis, a total risk-based capital ratio of 10.0 percent or greater and a tier 1 risk-based capital ratio of 6.0 percent or greater.

Asset Quality

The allowance for credit losses was $173.8 million and 4.69% of loans receivable at September 30, 2025 compared to $164.8 million and 4.65% at June 30, 2025 and $171.7 million and 5.03% at September 30, 2024. The allowance for credit loss allocated to the CCBX portfolio was $155.5 million and 8.62% of CCBX loans receivable at September 30, 2025, with $18.4 million of allowance for credit loss allocated to the community bank or 0.97% of total community bank loans receivable.

The following table details the allocation of the allowance for credit loss as of the period indicated:

Net charge-offs totaled $49.2 million for the quarter ended September 30, 2025, compared to $49.3 million for the quarter ended June 30, 2025 and $48.8 million for the quarter ended September 30, 2024. Net charge-offs as a percent of average loans decreased to 5.37% for the quarter ended September 30, 2025 compared to 5.54% for the quarter ended June 30, 2025, and 5.60% for the quarter ended September 30, 2024. CCBX partner agreements provide for a credit enhancement that covers the net-charge-offs on CCBX loans and negative deposit accounts by indemnifying or reimbursing incurred losses, except in accordance with the program agreement for one partner where the Company was responsible for credit losses on approximately 5% of a $297.4 million loan portfolio. At September 30, 2025, our portion of this portfolio represented $20.7 million in loans. Net charge-offs for this $20.7 million in loans were $1.0 million for the three months ended September 30, 2025, $1.3 million for the three months ended June 30, 2025 and $1.1 million for the three months ended September 30, 2024.

The following table details net charge-offs for the community bank and CCBX for the period indicated:

⁽¹⁾ Annualized calculations shown for periods presented.

During the quarter ended September 30, 2025, a $58.8 million provision for credit losses was recorded for CCBX partner loans, compared to $31.0 million for the quarter ended June 30, 2025. The increase in the provision was largely due to growth in loans receivable and mix of loans, bringing the CCBX allowance for credit losses to $155.5 million at September 30, 2025 compared to $145.9 million at June 30, 2025. As we continue to originate higher quality loans, these become a greater proportion of the CCBX portfolio, resulting in an improvement in expected losses and a reduced allowance for credit losses to loans receivable ratio. In general, CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses. Agreements with our CCBX partners provide for a credit enhancement which indemnifies the Bank and through partner reimbursements for incurred 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 is 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 relieved when credit enhancement recoveries are received from the CCBX partner. If our partner is unable to fulfill their contracted obligations then the Bank could be exposed to additional credit losses. Management regularly evaluates and manages this counterparty risk with our CCBX partners.

The factors used in management’s analysis for community bank credit losses indicated that a provision recapture of $583,000 was needed for the quarter ended September 30, 2025 compared to a provision recapture of $47,000 and a provision recapture of $519,000 for the quarters ended June 30, 2025 and September 30, 2024, respectively. The provision recapture in the current period was due to updated prepayment speeds, offset by a slight increase in economic uncertainty, and loan mix of the community bank loan portfolio.

The following table details the provision expense/(recapture) for the community bank and CCBX for the period indicated:

A provision recapture for unfunded commitments of $1.7 million was recorded for the quarter ended September 30, 2025 as a result of a change in the loan mix of available balance. No provision for accrued interest receivable was recorded for the quarter ended September 30, 2025 on CCBX loans.

At September 30, 2025, our nonperforming assets were $59.8 million, or 1.31%, of total assets, compared to $60.9 million, or 1.36%, of total assets, at June 30, 2025, and $66.4 million, or 1.63%, of total assets, at September 30, 2024. These ratios are impacted by nonperforming CCBX loans that are covered by CCBX partner credit enhancements. As of September 30, 2025, $53.8 million of the $55.6 million in nonperforming CCBX loans were covered by CCBX partner credit enhancements described above. Additionally, certain CCBX partners employ collection practices that place specific loans on nonaccrual status to enhance collectability. As of September 30, 2025, $18.9 million of these loans are less than 90 days past due.

Nonperforming assets decreased $1.1 million during the quarter ended September 30, 2025, compared to the quarter ended June 30, 2025. Community bank nonperforming loans increased $343,000 from June 30, 2025 to $4.2 million as of September 30, 2025, and CCBX nonperforming loans decreased $1.4 million to $55.6 million from June 30, 2025. The decrease in CCBX nonperforming loans is due to a decrease of $1.7 million in nonaccrual loans from June 30, 2025 to $22.7 million, partially offset by a $290,000 increase in CCBX loans that are past due 90 days or more and still accruing interest. As a result of the type of loans (primarily consumer loans) originated through our CCBX partners we would typically anticipate that balances 90 days past due or more and still accruing will generally increase as those loan portfolios grow, however, the ratio of CCBX loans 90+ days past due and still accruing to total CCBX loans receivable decreased 0.12%, or 6.0%, compared to June 30, 2025, which we believe is a positive performance indicator for the CCBX portfolio. 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 are reported as substandard, 90 days or more days past due and still accruing. There were no repossessed assets or other real estate owned at September 30, 2025. Our nonperforming loans to loans receivable ratio was 1.61% at September 30, 2025, compared to 1.72% at June 30, 2025, and 1.94% at September 30, 2024.

For the quarter ended September 30, 2025, there were $1,000 in community bank net recoveries and $49.2 million in CCBX net charge-offs. These CCBX loans have a higher level of expected losses than our community bank loans, which is reflected in the factors for the allowance for credit losses.

The following table details the Company’s nonperforming assets for the periods indicated.

The following tables detail the CCBX and community bank nonperforming assets which are included in the total nonperforming assets table above.