Financial Performance Overview

The company reported strong financial results for the quarter ended March 31, 2025. Net income increased to $9.7 million, or $0.63 per diluted share, up from $6.8 million, or $0.50 per diluted share, in the same quarter of the prior year. This was driven by a $13.2 million increase in interest income due to growth in average loans and higher interest rates, as well as a $2.2 million increase in BaaS program income. These positive factors were partially offset by a $6.4 million increase in BaaS loan expense.

Loan and Deposit Growth

Total loans, net of deferred fees, increased 0.9% during the quarter to $3.52 billion. This included a 2.9% increase in CCBX loans to $1.65 billion, partially offset by a 0.9% decrease in community bank loans to $1.87 billion. The company continues to sell CCBX loans to optimize the portfolio and manage credit quality, with $744.6 million in CCBX loans sold during the quarter.

Deposits increased 5.7% to $3.79 billion, supported by growth in both the community bank and CCBX segments. The company’s liquidity position remains strong, with $624.3 million in cash on the balance sheet and $662.4 million in additional borrowing capacity.

Net Interest Income and Margin

Net interest income increased 22.3% to $76.1 million, driven by growth in higher-yielding CCBX loans. The net interest margin expanded to 7.48%, up from 6.92% in the prior year period, due to the increase in loan yields and a decrease in the cost of deposits.

The yield on CCBX loans was 16.88%, compared to 17.74% a year earlier, while the yield on community bank loans increased slightly to 6.53%. The company’s cost of funds declined to 3.11%, down from 3.53% in the prior year quarter.

Provision for Credit Losses

The provision for credit losses decreased to $55.8 million, compared to $83.2 million in the same quarter of 2024. This included a $54.3 million provision for CCBX partner loans, partially offset by a $65,000 provision for community bank loans.

Net charge-offs were $48.2 million, or 5.57% of average loans, down from $57.0 million, or 7.30%, in the prior year period. CCBX partner agreements provide credit enhancements that covered 97.8% of the gross charge-offs on CCBX loans during the quarter.

Noninterest Income and Expense

Noninterest income decreased 26.3% to $63.5 million, primarily due to a $26.2 million decline in BaaS credit enhancements, partially offset by a $2.2 million increase in BaaS program income.

Noninterest expense increased 27.4% to $72.0 million, driven by a $6.4 million increase in BaaS loan expense, a $3.5 million increase in salaries and benefits, and higher legal, professional, and data processing costs related to the company’s growth initiatives.

Segment Performance

The community bank segment reported a 7.3% increase in net interest income to $19.8 million, while noninterest income decreased 14.0% to $1.0 million. Noninterest expense increased 15.5% to $10.4 million.

The CCBX segment saw a 27.3% increase in net interest income to $52.4 million, but a 27.0% decline in noninterest income to $61.9 million. Noninterest expense for CCBX increased 26.4% to $48.6 million.

The treasury and administration segment reported a 49.2% increase in net interest income to $3.9 million, and a 292.8% increase in noninterest income to $542,000. Noninterest expense was $13.0 million, up from $9.1 million in the prior year period.

Asset Quality and Allowance for Credit Losses

Nonperforming assets decreased to $56.4 million, or 1.30% of total assets, down from $62.7 million, or 1.52%, at the end of 2024. This included $36.0 million in CCBX loans more than 90 days past due and still accruing.

The allowance for credit losses increased to $183.2 million, or 5.21% of total loans, up from $177.0 million, or 5.08%, at the end of 2024. The increase was primarily driven by the provision for CCBX partner loans, which totaled $54.3 million for the quarter.

CCBX partner agreements provide credit enhancements that covered 97.8% of the gross charge-offs on CCBX loans during the quarter. The company believes this alignment of interests with CCBX partners ensures they are motivated to maintain the overall health of the portfolio.

Outlook and Strategic Initiatives

The company continues to refine its criteria for CCBX partnerships, focusing on larger, more established partners with experienced management teams, existing customer bases, and strong financial positions. It will also consider promising medium and smaller-sized partners that align with its approach and terms.

As the company becomes more proficient in the BaaS space, it aims to cultivate new relationships that fit its long-term goals. The strategy of adding new partnerships and launching new products with existing partners allows the company to expand its customer base with modest increases in regulatory risk.

Increases in partner activity and transaction counts are positively impacting noninterest income, a trend the company expects to continue as current products grow and new products are introduced. The company also plans to continue selling CCBX loans to optimize the portfolio and manage credit quality.

Overall, the company delivered strong financial results in the first quarter, driven by growth in higher-yielding CCBX loans and BaaS program income. While noninterest expenses increased due to investments in technology and risk management, the company’s asset quality and liquidity position remain solid.

Looking ahead, the company is focused on carefully managing its CCBX portfolio, expanding its partner relationships, and leveraging technology to drive efficiency and reduce future expense growth. With its diversified business model and proactive risk management approach, the company is well-positioned to navigate the evolving economic environment and continue delivering value to its shareholders.